Reply to the below post with a minimum of 300 words using at least two scholarly articles.
Your replies must do the following:
a. Answer the question posed by the classmate.
b. Respond to the practical example in the classmate’s post with a practical example that
differs from the one in the classmate’s post.
c. Reference at least 1 scholarly source in addition to the course textbook.
Note about Responses: Seek to understand your classmates’ posts (including the marketing
management theory, the facts presented in their posts, their points of view, and their real-world
examples). Aim to communicate your own understanding of relevant facts, your values, and your
perspective of the topic.
Product Strategy of Netflix
Concept:
Product strategy is the extensive plan for how an organization will define their product, and how they will reach success in delivering their product. The organization must first take into consideration how they will define the product. A product can be defined as anything that will deliver value to satisfy a customer’s wants or needs, while also including a physical aspect such as merchandise, services, places, the list goes on. The organization must understand that their customers are not just buying a product, they are also buying a product experience (Marshall & Johnston, 2019). Since the customer is not solely buying the product, but also is buying the product experience, the organization must make sure their product has value and essential benefit. The essential benefit meets the needs of the customer.
Furthermore, in a product strategy it is also important to make sure your product is differentiated in the market. You do not want your product to be the same as everyone else’s, instead you want your product to be unique and have higher performance quality and reliability than others in the market. Differentiating your product in the market helps create value among your product through its unique features and higher performance capabilities. In addition, pricing is another important element in the product strategy, as this will determine if your product is providing the upmost value at a price the customer is willing to pay. Product line pricing and price points are also important in terms of pricing in the product strategy, as these elements allow for different prices among the different products in the product line.
Application/Example:
Netflix designed their product strategy to provide customers with the best product experience. Netflix was able to execute their product strategy by first defining their product as unique, in the way of its offerings and quality. Netflix offers a large product mix which includes well-known movies, TV shows, and documentaries and also their own in-house made, exclusive content. Netflix strives to provide their customers with the best product experience possible, as after all you are not just buying the product, you are also buying a product experience (Marshall & Johnston, 2019). This is why Netflix devotes immense time and money into creating their own content, while also researching what their customers like most, and how they can better any aspects that customers find unappealing. Netflix conducted several focus groups, surveys, and one-on-ones, in which they found that customers enjoyed bingeing a series but did not like watching the opening credits. After Netflix became aware of this preference, they created a skip button, which would allow users to skip the opening credits. Netflix then tested this new feature with a large group of members, in which it was found to be a success. Netflix’s Vice President of product explained this new feature as, “They loved it, and even more importantly as a subscription service, it encouraged people to keep subscribing” (Ives, 2020, para. 26). Through Netflix’s research, they were able to find what customers would like to see improved and implemented a solution for their customers. The development of the skip button provided the best solution for skipping opening credits, which increased the customers product experience, even to the point where this solution encouraged customers to keep subscribing.
In addition, Netflix has developed another way to increase their product experience, which is through offering three tiers of subscription plans. Each subscription plan allows full access to every title Netflix offers. However, beside price, their subscription plans only differ in simultaneous streaming capabilities and viewing quality. The first subscription option is the basic plan, costing $9.99 monthly, which is displayed in standard definition quality and can only be streamed on one screen at a time. Next is the standard plan, costing $15.99 monthly, which is displayed in high definition quality and can be streamed on two screens at once. Finally, the most expensive plan, the premium plan. The premium plan costs $19.99 monthly but is viewed on high definition and 4K ultra high defining quality, while also being able to simultaneously stream on four screens at once. Netflix offers many subscription options, ultimately coming down to preference on quality and simultaneous streaming capabilities. With over 222 million subscribers across 190 countries, it is safe to say Netflix has defined their product experience to which customers are willing to pay for the value received. Through Netflix offering three price points across their subscription offerings, this allows Netflix to engage in the “good, better, best” product line strategy, which ultimately attracts multiple target markets.
References:
Ives, Nat. (2020, February 21). You’re Not Just Binge-Watching Netflix. You’re Having an ‘Experience’. Wall Street Journal.
https://www.wsj.com/articles/youre-not-just-binge-watching-netflix-youre-having-an-experience-11582297230 (Links to an external site.)
Johnson, Dave. (2022, January 19). How Much is Netflix? A Breakdown of the Monthly Prices
for Every Subscription Plan. Business Insider.
https://www.businessinsider.com/netflix-price (Links to an external site.)
Marshall G. W., & Johnston, M. W. (2019). Marketing Management. McGraw-Hill Education.
Question for Classmates:
Think of your favorite organization/company, any organization or company. How would you explain their product strategy?
i
Marketing
Management
Third Edition
Greg W. Marshall
ROLLINS COLLEGE
Mark W. Johnston
ROLLINS COLLEGE
2
ii
MARKETING MANAGEMENT, THIRD EDITION
Published by McGraw-Hill Education, 2 Penn Plaza, New York, NY 10121. Copyright © 2019 by
McGraw-Hill Education. All rights reserved. Printed in the United States of America. Previous editions ©
2015 and 2010. No part of this publication may be reproduced or distributed in any form or by any means,
or stored in a database or retrieval system, without the prior written consent of McGraw-Hill Education,
including, but not limited to, in any network or other electronic storage or transmission, or broadcast for
distance learning.
Some ancillaries, including electronic and print components, may not be available to customers outside the
United States.
This book is printed on acid-free paper.
1 2 3 4 5 6 7 8 9 LWI 21 20 19 18
ISBN 978-1-259-63715-5
MHID 1-259-63715-8
Executive Portfolio Manager: Meredith Fossel
Lead Product Developer: Kelly Delso
Product Developers: Alyssa Lincoln and Lynn Huddon
Content Project Managers: Melissa M Leick, Danielle Clement, Karen Jozefowicz
Senior Marketing Manager: Nicole N. Young
Buyer: Sandy Ludovissy
Design: David Hash
Content Licensing Specialist: Ann Marie Jannette
Cover Image: ©kudla/Shutterstock.com
Compositor: MPS Limited
Printer: LSC Communications
All credits appearing on page or at the end of the book are considered to be an extension of the copyright
page.
Library of Congress Cataloging-in-Publication Data
3
Marshall, Greg W., author. | Johnston, Mark W., author.
Marketing management/Greg W. Marshall, Rollins College, Mark W.
Johnston, Rollins College.
Third edition. | New York, NY : McGraw-Hill Education, [2019]
LCCN 2017048393 | ISBN 9781259637155 (alk. paper)
LCSH: Marketing—Management.
LCC HF5415.13 .M3699 2019 | DDC 658.8—dc23 LC record
available at https://lccn.loc.gov/2017048393
The Internet addresses listed in the text were accurate at the time of publication. The inclusion of a website
does not indicate an endorsement by the authors or McGraw-Hill Education, and McGraw-Hill Education
does not guarantee the accuracy of the information presented at these sites.
mheducation.com/highered
4
https://lccn.loc.gov/2017048393
http://mheducation.com/highered
iii
To Patti and Justin.
-Greg
To Susan, my love, and Grace, my joy, thank you
-Mark
5
iv
ABOUT THE
AUTHORS
Greg W. Marshall
Greg W. Marshall is the Charles Harwood Professor of Marketing and Strategy
in the Roy E. Crummer Graduate School of Business at Rollins College in
Winter Park, Florida, and is also the academic director of the Executive DBA
program there. For three years he served as vice president for strategic
marketing for Rollins. He earned his Ph.D. from Oklahoma State University and
holds a BSBA and an MBA from the University of Tulsa. Before joining Rollins,
Greg was on the faculty at the University of South Florida, Texas Christian
University, and Oklahoma State University. He currently also holds an
appointment as professor of marketing and strategy at Aston Business School
in Birmingham, United Kingdom.
Prior to returning to school for his doctorate, Greg worked in the consumer
packaged goods and retailing industries with companies such as Warner-
Lambert, Mennen, and Target. He also has considerable experience as a
consultant and trainer for a variety of organizations and has been heavily
involved in teaching marketing management at multiple universities to both
MBA and advanced undergraduate students.
6
Greg is editor-in-chief of the European Journal of Marketing and is former
editor of the Journal of Marketing Theory and Practice and the Journal of
Personal Selling & Sales Management. His published research focuses on the
areas of decision making by marketing managers, intraorganizational
relationships, and sales force performance. He is a member of the board of
directors of the American Marketing Association and is past president of the
AMA Academic Council. He is a distinguished fellow and past president of the
Academy of Marketing Science and is a distinguished fellow, past president,
and member of the board of governors of the Society for Marketing Advances.
Greg also serves as a fellow and member of the academic advisory council of
the Direct Selling Education Foundation.
Mark W. Johnston
Mark W. Johnston is the Alan and Sandra Gerry Professor of Marketing and
Ethics in the Roy E. Crummer Graduate School of Business at Rollins College
in Winter Park, Florida. He earned his Ph.D. from Texas A&M University and
holds a BBA and an MB from Western Illinois University. Before joining Rollins,
Mark was on the faculty at Louisiana State University. Prior to his academic
career, he worked in industry as a sales representative for a leading distributor
of photographic equipment. His research has been published in a number of
professional journals including the Journal of Marketing Research, Journal of
Applied Psychology, Journal of Business Ethics, Journal of Marketing
Education, Journal of Personal Selling & Sales Management, and many others.
Mark has been retained as a consultant for firms in a number of industries
including personal health care, chemical, transportation, hospitality, and
telecommunications. He has consulted on a wide range of issues involving
strategic business development, sales force structure and performance,
international market opportunities, and ethical decision making. Mark also works
with MBA students on consulting projects around the world for companies such
as Tupperware, Disney, and Johnson & Johnson. He has conducted seminars
globally on a range of topics including the strategic role of selling in the
organization, developing an ethical framework for decision making, improving
business unit performance, and structuring an effective international marketing
department.
For more than two decades Mark has taught marketing management,
working with thousands of students. His hands-on, real-world approach has
7
earned him a number of teaching awards.
8
v
PREFACE
INTRODUCTION
No doubt about it, marketing is really changing. Marketing today is:
Very strategic—customer-centricity is now a core organizational
value.
Practiced virtually, digitally, and socially to a greater degree than
ever before imagined.
Enabled and informed by analytics and new technologies.
Accountable to top management through diligent attention to metrics
and measurement.
Oriented toward service as driver of product.
“Owned” by everybody in the firm to one degree or another.
Given the dramatic changes in the field of marketing, it is a sure bet
that the job of leading and managing marketing’s contributions to the
organization and its customers, clients, partners, and society at large has
changed at a similar level. Yet the typical marketing management book on
the market today does not effectively capture and communicate to students
how marketing management is really practiced in the 21st-century world
of business. We hear it from colleagues all the time—the complaint that
the book they are using in their marketing management course “reads like
marketing was practiced a decade ago,” or that it “doesn’t say what I
believe the students need to hear,” or that it “doesn’t match what my
working students actually do on the job,” or that it “reads like an
encyclopedia of marketing,” or that it “has too much about everything and
not enough focus on anything.” These remarks come from instructors who
teach the MBA basic marketing course and those who teach advanced or
capstone undergraduate marketing management courses; each of these
9
courses is appropriate for a marketing management book. Clearly many
instructors are looking for a marketing management book that is:
Written for today’s students in an interesting and lively, yet
professional, style.
Up-to-date in all relevant aspects of how marketing is done today.
A step up from the norm in terms of support materials for the
instructor and students.
Marshall/Johnston’s Marketing Management 3e continues its very
successful tradition of taking great effort to represent marketing
management the way it is actually practiced in successful organizations
today. In our view, leading and managing the aspects of marketing in order
to improve individual, unit, and organizational performance—marketing
management—is a core business activity. Its relevance is not limited just
to marketing departments or marketing majors. The ability to do great
marketing management is relevant to, and an important knowledge and
skill for, everyone in a firm and all business majors.
The table of contents for the third edition of the book reflects the
major trends in the managerial practice of marketing, and the pedagogy is
crafted around learning and teaching preferences in today’s classroom.
Above all, it is written in a style that is appealing for both students and
instructors so that students will actually enjoy reading the material and
instructors will be proud to teach from it and confident that they will feel
good about presenting its up-to-date, professional approach to their
classes.
The book contains 14 chapters, which we find is perfect for most
course timetables. It has a fully developed array of application activities
both in end-of-chapter materials and for student engagement on McGraw-
Hill Connect. For instructors who craft their course around a marketing
plan project, the book is ideal as these exercises clearly build on creating
the elements of a marketing plan.
vi
STRUCTURE OF THE THIRD EDITION
10
Marshall/Johnston’s Marketing Management 3e has five major parts,
reflective of the logical sequence of building blocks for the course.
Part One: Discover Marketing Management. In this part, students
gain an understanding of the dynamics of the field. Significant
attention is paid to framing the importance of studying marketing to
future success as a manager. In particular, doing marketing in a
global, ethical, and sustainable way is highlighted. To kick off the
marketing planning theme early in the course, Part One includes
comprehensive coverage of strategy and planning along with an
example marketing plan.
Part Two: Use Information to Drive Marketing Decisions. It has
often been said that information is the fuel that fires the engine of
marketing management decision making. With this in mind, Part
Two focuses on effective management of information to better
understand customers, both in the consumer and business
marketplaces. Market research elements, Customer Relationship
Management (CRM), Big Data, marketing analytics, and marketing
dashboards receive thorough coverage. Effective segmentation, target
marketing, and positioning are at the core of successful marketing,
and this part provides a modern managerial treatment of these critical
topics along with other relevant competencies and capabilities of
successful marketers.
Part Three: Develop the Value Offering—The Product
Experience. This part presents a clear and comprehensive drill-down
into today’s world of product strategy, branding, and new product
development. Reflective of the rise of the concept of service-
dominant logic in marketing and the notion that service is a key
driver of product success, we devote a separate chapter to making
important links between service and the overall value offering.
Part Four: Price and Deliver the Value Offering. Part Four begins
with a fresh, managerially relevant treatment of pricing decision
making, followed by an integrative approach to the multitude of
modes at a marketing manager’s disposal today by which an offering
can be made available to customers through channels and points of
customer interface.
11
Part Five: Communicate the Value Offering. With the rise of
digital and social media marketing and the concurrent dramatic shifts
in how marketing managers and their customers communicate, this
part has been extensively revised for Marshall/Johnston’s Marketing
Management 3e. A key to successful marketing management today is
the capability of marketing managers to create and execute the mix of
digital, social media, and legacy promotional approaches most
desired and preferred by customers.
KEY FEATURES
Management Decision Cases
At the end of each chapter is a case drawn from the business headlines.
Students are engaged by the currency of the problem and asked to develop
solutions using chapter material. The cases are just the right size for
today’s classroom use—not too short, but not too long!
Marketing Plan Exercises
Each chapter connects that chapter’s key content to a semester-long
marketing plan project activity. Marshall/Johnston’s Marketing
Management 3e is the only marketing management book to effectively
thread a marketing planning focus throughout the textbook itself. Whether
or not a semester marketing plan project is used by the instructor, the
marketing
vii
plan exercise feature does a great job of tying together important planning
concepts for students in a methodical, stepwise manner.
Glossary of Terms
A complete glossary of key terms and definitions is provided at the end of
the book. The glossary serves as an important reference as well as a handy
study aid for students preparing for exams.
Other Features in Each Chapter
Learning Objectives: These set the stage at the beginning of the
12
chapter for what students will achieve by reading and studying the
chapter. Each objective reappears in the margin at the relevant point
in the chapter so students can track their progress.
Summary: At the end of each chapter, a summary reminds students of
the highlighted topics.
Key Terms: Terms are bolded throughout the chapter and connected
with definitions in the Glossary.
Application Questions: These engaging questions at the end of each
chapter are designed to direct students’ thinking about the topics to
the next level of application. Throughout the book all of these
questions have been specially designed to simulate managerial
decision making.
NEW AND UPDATED CONTENT IN THE THIRD EDITION
Throughout this book, we’ve provided hundreds of new examples from a
wide variety of practicing marketers and firms. Each chapter contains a
brand-new Management Decision Case, and there are new and updated
Application Questions at the end of each chapter. In addition, hundreds of
new or replacement references have been added to the chapter end notes.
Here are some highlights of specific changes, by chapter:
Chapter 1: Marketing in Today’s Business Milieu
Emphasis on the impact of the current “official” definition of
marketing.
New content around the major challenges facing marketing today.
Coverage of the American Marketing Association’s 7 Big Problems
in Marketing.
Chapter 2: Marketing Foundations: Global, Ethical, Sustainable
Updated discussion and examples of global marketing trends.
Focus on the importance of ethical decision making in marketing and
the marketing mix.
In-depth coverage of sustainability and the “triple bottom line” in
13
marketing.
Chapter 3: Elements of Marketing Strategy, Planning, and
Competition
Impact of marketing planning at the strategic business unit (SBU)
level.
Updated the JetBlue threaded marketing planning example.
Updated the chapter appendix, which is an abbreviated example
marketing plan.
Chapter 4: Market Research Essentials
Updated coverage of new research methodologies with examples.
Updated treatment of the marketing research industry.
New content on data collection technologies.
viii
Chapter 5: CRM, Big Data, and Marketing Analytics
Updated discussion of the modern perils of potential customer
information abuse and data security.
Major new section on sources and types of Big Data.
Major new section on marketing analytics as supported by Big Data.
Chapter 6: Understand Consumer and Business Markets
Revised commentary on new trends in consumer and business
markets.
New and updated examples.
Updated discussion of the consumer decision-making process.
Chapter 7: Segmentation, Target Marketing, and Positioning
Updated census information for geographic segmentation.
Extra emphasis on the millennial customer.
14
Basics of CRM content moved from this chapter to earlier position in
Chapter 5.
Chapter 8: Product Strategy and New Product Development
New and updated content on product classifications.
Revised and updated content to reflect changes in product strategy
and new product development.
Updated discussion on the product life cycle.
Chapter 9: Build the Brand
Updated content about the most valuable brands today.
Revised and updated content on brand definitions and concepts.
Updated content around contemporary package designs.
Chapter 10: Service as the Core Offering
New content on the service dominant logic.
New content around the use of technologies to improve the customer
service experience.
Revised content to reflect changes in services strategy.
Chapter 11: Manage Pricing Decisions
Revised table on price lining.
Discussion of innovative pricing strategies.
Discussion of pricing’s role within the marketing strategy decision
process.
Chapter 12: Manage Marketing Channels, Logistics, and Supply
Chain
Emphasis on the phenomenal growth of e-retailing.
Attention to omnichannel retailing as firms deploy a number of
channels in a customer’s shopping experience.
Enhanced treatment of customer communities.
15
Chapter 13: Promotion Essentials: Digital and Social Media
Marketing
New major section with full coverage of the role of digital marketing
in communicating value.
Clear delineation of types and approaches to digital marketing,
including best practice tips and cautions for their use.
New major section on managing social media marketing and
engaging customers directly in the dialogue about a firm and its
offerings.
Chapter 14: Promotion Essentials: Legacy Approaches
Thoroughly revised discussion of legacy advertising tools to reflect
changes in promotional strategy.
Updated content on leading advertisers and the promotion industry.
Updated and new content on crisis management.
ix
ACKNOWLEDGMENTS
The task of writing a textbook requires the talents of many dedicated
people. First and foremost, we want to thank the McGraw-Hill team for
sharing the vision of this project with us from the very beginning.
Particularly given the dynamic nature of marketing management both as a
professional field and as a course of study, it was critically important that
throughout the development process the entire team remain steadfast in
believing in the vision of the project.
In particular, we want to recognize and thank the following individuals
at McGraw-Hill who played a significant part in the successful
development of Marketing Management 3e. Meredith Fossell, Executive
Portfolio Manager, has been a visionary and strategic editorial leader
throughout the project and we owe her a debt of gratitude for putting the
project onto a great track. Lynn Huddon and Alyssa Lincoln, Product
Developers, were instrumental in working with us daily to achieve this end
result. Melissa Leick and Danielle Clement, Project Managers, were
16
invaluable in keeping all elements of our product moving through
production. And Nicole Young, Senior Marketing Manager, deserves high
kudos for her excellence in communicating the value of our new edition to
the marketplace. All of these great professionals made our job much more
enjoyable. We have been McGraw-Hill authors for over 15 years and
consider their team to be family.
Phillip Wiseman at the C. T. Bauer College of Business at the
University of Houston provided able guidance and superior content in
helping build the substantive revisions of Chapters 5 and 13. Phillip also
led the process of developing new and updated interactive Connect
exercises. His contributions to the third edition are exemplary. George
Allen at the Howard Dayton School of Business at Asbury University and
Andrew Thoeni at the Coggin College of Business at the University of
North Florida did a masterful job in creating the new set of Management
Decision Cases that add so much value to this new edition. Likewise, Jill
Solomon at the University of South Florida developed the accompanying
PowerPoints—she is truly an outstanding instructor of marketing
management herself and that talent comes through in the materials she has
created. In addition, we want to recognize the contributions of several
members of the Rollins College Crummer Graduate School of Business
team. Each of the following folks contributed to the plethora of great
current business examples featured in this edition: Brandon Duncan,
Richard Ross, Amy Crawford Weschler, and Courtney Wood. Courtney,
along with Hannah Coyman from Crummer, also worked with Phillip
Wiseman on the Connect interactives. We deeply appreciate the
exceptional contributions of each of these individuals!
And finally, we want to offer a very special and heartfelt note of
appreciation to our families, colleagues, and friends. Their encouragement
and good humor throughout this process were integral to the end result.
Greg W. Marshall, ROLLINS COLLEGE
Mark W. Johnston, ROLLINS COLLEGE
x
17
REVIEWERS
Many colleagues have participated in the developmental process of
Marshall/Johnston’s Marketing Management from the first edition through
this new third edition, via focus groups, chapter reviews, and other means.
Our thanks go to each of the following people for their guidance and
suggestions throughout this process:
Kalthom Abdullah, INTERNATIONAL ISLAMIC UNIVERSITY OF MALAYSIA
Denise Ammirato, WESTFIELD STATE COLLEGE
David Amponsah, TROY UNIVERSITY MONTGOMERY
Craig Andrews, MARQUETTE UNIVERSITY
David Andrus, KANSAS STATE UNIVERSITY
Maria Aria, CAMDEN COUNTY COLLEGE
Paul Arsenault, WEST CHESTER UNIVERSITY OF PENNSYLVANIA
Semih Arslanoglu, BOSTON UNIVERSITY
Chad Autry, UNIVERSITY OF TENNESSEE–KNOXVILLE
Parimal Baghat, INDIANA UNIVERSITY OF PENNSYLVANIA
William Baker, SAN DIEGO STATE UNIVERSITY
Roger Baran, DEPAUL UNIVERSITY
Danny Bellenger, GEORGIA STATE UNIVERSITY
John Bellenoit, WESTFIELD STATE COLLEGE
Parimal Bhagat, INDIANA UNIVERSITY OF PENNSYLVANIA
Subodh Bhat, SAN FRANCISCO STATE UNIVERSITY
Carol Bienstock, RADFORD UNIVERSITY
18
Diedre Bird, PROVIDENCE COLLEGE
George W. Boulware, LIPSCOMB UNIVERSITY
Douglas Boyd, JAMES MADISON UNIVERSITY
Samuel Bradley, ALVERNIA UNIVERSITY
Eileen Bridges, KENT STATE UNIVERSITY
Steve Brokaw, UNIVERSITY OF WISCONSIN–LACROSSE
Susan Brudvig, INDIANA UNIVERSITY EAST
Laura Buckner, MIDDLE TENNESSEE STATE UNIVERSITY
Tim Calkins, NORTHWESTERN UNIVERSITY
Barb Casey, DOWLING COLLEGE
Paul Clark, COASTAL CAROLINA UNIVERSITY
Bob Cline, UNIVERSITY OF IOWA
Cathy Cole, UNIVERSITY OF IOWA
Mark Collins, UNIVERSITY OF TENNESSEE–KNOXVILLE
David Conrad, AUGSBURG COLLEGE
Bob Cutler, CLEVELAND STATE UNIVERSITY
Geoffrey Da Silva, TEMASEK POLYTECHNIC
Lorie Darche, SOUTHWEST FLORIDA COLLEGE
Mahmoud Darrat, AUBURN MONTGOMERY UNIVERSITY
Patricia Daugherty, MICHIGAN STATE UNIVERSITY
Denver D’Rozario, HOWARD UNIVERSITY
F. Robert Dwyer, UNIVERSITY OF CINCINNATI
19
Jacqueline K. Eastman, GEORGIA SOUTHERN UNIVERSITY
Michael Edwards, UNIVERSITY OF ST. THOMAS
Adel El-Ansary, UNIVERSITY OF NORTH FLORIDA
Maurice Elliard, ALBANY STATE UNIVERSITY
Alexander Ellinger, UNIVERSITY OF ALABAMA–TUSCALOOSA
Ken Fairweather, LETOURNEAU UNIVERSITY
Bagher Fardanesh, JOHNS HOPKINS UNIVERSITY
Richard L. Flight, EASTERN ILLINOIS UNIVERSITY
Andrew Forman, HOFSTRA UNIVERSITY
Fred Fusting, LOYOLA COLLEGE OF MARYLAND
Jule B. Gassenheimer, ROLLINS COLLEGE
Mahesh Gopinath, OLD DOMINION UNIVERSITY
Shiv Gupta, UNIVERSITY OF FINDLAY
Liz Hafer, UNIVERSITY OF COLORADO–BOULDER
Angela Hausman, UNIVERSITY OF NORTH CAROLINA AT PEMBROKE
xi
Jeffrey Heilbrunn, COLUMBIA COLLEGE OF MISSOURI
Chuck Hermans, MISSOURI STATE UNIVERSITY
Asep Hermawan, UNIVERSITAS TRISAKTI
Marjorie Carlson Hurst, MALONE UNIVERSITY
Mahmood Hussain, SAN FRANCISCO STATE UNIVERSITY
Donna Rue Jenkins, WARREN NATIONAL UNIVERSITY
20
Johny Johansson, GEORGETOWN UNIVERSITY
Amit Joshi, UNIVERSITY OF CENTRAL FLORIDA
Fred Katz, JOHNS HOPKINS UNIVERSITY
Craig Kelley, CALIFORNIA STATE UNIVERSITY–SACRAMENTO
Anthony J. Khuri, BALDWIN WALLACE UNIVERSITY
Vishnu Kirpalani, CONCORDIA UNIVERSITY, MONTREAL, CANADA
Elias Konwufine, KEISER UNIVERSITY
Robert Kopp, BABSON COLLEGE
Kate Lawrence, CAMPBELL UNIVERSITY
Sangwon Lee, BALL STATE UNIVERSITY
Michael Levens, WALSH COLLEGE
Jason Little, FRANKLIN PIERCE UNIVERSITY
Cesar Maloles, CALIFORNIA STATE UNIVERSITY–EAST BAY
Avinash Malshe, UNIVERSITY OF ST. THOMAS
Susan Mantel, INDIANA UNIVERSITY–PURDUE UNIVERSITY–
INDIANAPOLIS
Norton Marks, CALIFORNIA STATE UNIVERSITY–SAN BERNARDINO
Thomas Maronick, TOWSON UNIVERSITY
H. Lee Mathews, OHIO STATE UNIVERSITY
Melvin Mattson, RADFORD UNIVERSITY
Denny McCorkle, UNIVERSITY OF NORTHERN COLORADO
Timothy McMahon, CREIGHTON UNIVERSITY
21
Michael Menasco, CALIFORNIA STATE UNIVERSITY–SAN BERNADINO
Morgan Miles, UNIVERSITY OF TASMANIA
Chad Milewicz, UNIVERSITY OF CENTRAL FLORIDA
Chip E. Miller, DRAKE UNIVERSITY
Herb Miller, UNIVERSITY OF TEXAS
Mark Mitchell, COASTAL CAROLINA UNIVERSITY
Thomas Noordewier, UNIVERSITY OF VERMONT
Nicholas Nugent, SOUTHERN NEW HAMPSHIRE UNIVERSITY
Carl Obermiller, SEATTLE UNIVERSITY
Azizah Omar, UNIVERSITI SAINS MALAYSIA
Barnett Parker, PFEIFFER UNIVERSITY
Vanessa Patrick, UNIVERSITY OF GEORGIA
Dennis Pitta, UNIVERSITY OF BALTIMORE
Jeffrey S. Podoshen, FRANKLIN AND MARSHALL COLLEGE
Abe Qastin, LAKELAND UNIVERSITY
Salim Qureshi, BLOOMSBURG UNIVERSITY
Lori Radulovich, BALDWIN WALLACE UNIVERSITY
Pushkala Raman, TEXAS WOMAN’S UNIVERSITY
K. Ramakrishna Rao, MULTIMEDIA UNIVERSITY
Molly Rapert, UNIVERSITY OF ARKANSAS–FAYETTEVILLE
Richard Rexeisen, UNIVERSITY OF ST. THOMAS
Subom Rhee, SANTA CLARA UNIVERSITY
22
Robert Richey, UNIVERSITY OF ALABAMA–TUSCALOOSA
Torsten Ringberg, UNIVERSITY OF WISCONSIN–MILWAUKEE
Ann Root, FLORIDA ATLANTIC UNIVERSITY–BOCA RATON
Al Rosenbloom, DOMINICAN UNIVERSITY
Jason Ryan, CALIFORNIA STATE UNIVERSITY, SAN BERNARDINO
David Rylander, TEXAS WOMAN’S UNIVERSITY
Mahmod Sabri Haron, UNIVERSITI SAINS MALAYSIA
Dennis Sandler, PACE UNIVERSITY
Matt Sarkees, PENNSYLVANIA STATE UNIVERSITY
Linda Saytes, UNIVERSITY OF SAN FRANCISCO
Victoria Seitz, CALIFORNIA STATE UNIVERSITY, SAN BERNARDINO
xii
Shahid Sheikh, AMERICAN INTERCONTINENTAL UNIVERSITY
Kathy A. Skledar, LAKE ERIE COLLEGE
Susan Sieloff, NORTHEASTERN UNIVERSITY
Karen Smith, COLUMBIA SOUTHERN UNIVERSITY
Sharon Smith, DEPAUL UNIVERSITY
Jill Solomon, UNIVERSITY OF SOUTH FLORIDA
Ashish Sood, EMORY UNIVERSITY
Robert Spekman, UNIVERSITY OF VIRGINIA, DARDEN SCHOOL
James Spiers, ARIZONA STATE UNIVERSITY
Thomas Steenburgh, UNIVERSITY OF VIRGINIA, DARDEN SCHOOL
23
Geoffrey Stewart, UNIVERSITY OF LOUISIANA–LAFAYETTE
Derik Steyn, CAMERON UNIVERSITY
John Stovall, GEORGIA SOUTHWESTERN STATE UNIVERSITY
Ziad Swaidan, UNIVERSITY OF HOUSTON AT VICTORIA
Michael Swenson, BRIGHAM YOUNG UNIVERSITY
Victoria Szerko, DOMINICAN COLLEGE
Leona Tam, OLD DOMINION UNIVERSITY
John L. Teopaco, EMERSON COLLEGE
Niwet Thamma, RAMKHAMHEANG UNIVERSITY
Meg Thams, REGIS UNIVERSITY
Rungting Tu, PEKING UNIVERSITY
Bronislaw Verhage, GEORGIA STATE UNIVERSITY
Jolivette Wallace, BELHAVEN UNIVERSITY
Guangping Wang, PENNSYLVANIA STATE UNIVERSITY
Cathy Waters, BOSTON COLLEGE
Art Weinstein, NOVA SOUTHEASTERN UNIVERSITY
Darin White, UNION UNIVERSITY–JACKSON
Ken Williamson, JAMES MADISON UNIVERSITY
Dale Wilson, MICHIGAN STATE UNIVERSITY
Walter Wochos, CARDINAL STRITCH UNIVERSITY
John Wesley Yoest, Jr, THE CATHOLIC UNIVERSITY OF AMERICA
Khanchitpol Yousapronpaiboon, KHONKHEN UNIVERSITY
24
Zach Zacharia, LEHIGH UNIVERSITY
Jason Qiyu Zhang, LOYOLA UNIVERSITY MARYLAND
Yong Zhang, HOFSTRA UNIVERSITY
Shaoming Zou, UNIVERSITY OF MISSOURI–COLUMBIA
25
xiv
26
xv
27
28
xvi
BRIEF TABLE OF
CONTENTS
Preface
Part One
Discover Marketing Management
CHAPTER 1
Marketing in Today’s Business Milieu
CHAPTER 2
Marketing Foundations: Global, Ethical, Sustainable
CHAPTER 3
Elements of Marketing Strategy, Planning, and Competition
Part Two
Use Information to Drive Marketing Decisions
CHAPTER 4
Market Research Essentials
29
CHAPTER 5
CRM, Big Data, and Marketing Analytics
CHAPTER 6
Understand Consumer and Business Markets
CHAPTER 7
Segmentation, Target Marketing, and Positioning
Part Three
Develop the Value Offering—The Product Experience
CHAPTER 8
Product Strategy and New Product Development
CHAPTER 9
Build the Brand
CHAPTER 10
Service as the Core Offering
Part Four
Price and Deliver the Value Offering
CHAPTER 11
Manage Pricing Decisions
CHAPTER 12
30
Manage Marketing Channels, Logistics, and Supply Chain
Part Five
Communicate the Value Offering
CHAPTER 13
Promotion Essentials: Digital and Social Media Marketing
CHAPTER 14
Promotion Essentials: Legacy Approaches
Glossary
Indexes (Name and Subject)
31
xvii
DETAILED
CONTENTS
Preface
Part One
Discover Marketing Management
CHAPTER 1
Marketing in Today’s Business Milieu
WELCOME TO MARKETING MANAGEMENT
MARKETING MISCONCEPTIONS
Behind the Misconceptions
Beyond the Misconceptions and Toward the Reality of Modern Marketing
DEFINING MARKETING
Value and Exchange Are Core Marketing Concepts
A New Agenda for Marketing
MARKETING’S ROOTS AND EVOLUTION
Pre-Industrial Revolution
Focus on Production and Products
Focus on Selling
Advent of the Marketing Concept
Post-Marketing Concept Approaches
32
CHANGE DRIVERS IMPACTING THE FUTURE OF MARKETING
Shift to Product Glut and Customer Shortage
Shift in Information Power from Marketer to Customer
Shift in Generational Values and Preferences
Shift to Distinguishing Marketing (Big M) from marketing (little m)
Shift to Justifying the Relevance and Payback of the Marketing Investment
YOUR MARKETING MANAGEMENT JOURNEY BEGINS
SUMMARY
KEY TERMS
APPLICATION QUESTIONS
MANAGEMENT DECISION CASE
From Clydesdales to Talking Frogs: Budweiser’s Strategic Adaptability Keeps
It a Winner
NOTES
CHAPTER 2
Marketing Foundations: Global, Ethical, Sustainable
MARKETING IS NOT LIMITED BY BORDERS
THE GLOBAL EXPERIENCE LEARNING CURVE
Companies with No Foreign Marketing
Companies with Foreign Marketing
International Marketing
Global Marketing
Essential Information
Emerging Markets
Multinational Regional Market Zones
SELECT THE GLOBAL MARKET
Identify Selection Criteria
Company Review
DEVELOP GLOBAL MARKET STRATEGIES
Market Entry Strategies
33
Organizational Structure
Product
Consumers
Market Channels
Marketing Communications
Pricing
ETHICS: AT THE CORE OF SUCCESSFUL MARKETING MANAGEMENT
Ethics and the Value Proposition
Ethics and the Elements of the Marketing Mix
Code of Marketing (Business) Ethics
SUSTAINABILITY: NOT JUST THE RIGHT THING TO DO BUT A GOOD
MARKETING STRATEGY
Triple Bottom Line: The Link between Doing Well and Doing Good
SUMMARY
KEY TERMS
APPLICATION QUESTIONS
MANAGEMENT DECISION CASE
Selling to the Bottom of the Pyramid: Marketing Unilever Products in Rural
Villages Around the World
NOTES
CHAPTER 3
Elements of Marketing Strategy, Planning, and Competition
VALUE IS AT THE CORE OF MARKETING
The Value Chain
Planning for the Value Offering
MARKETING PLANNING IS BOTH STRATEGIC AND TACTICAL
xviii
ELEMENTS OF MARKETING PLANNING
Connecting the Marketing Plan to the Firm’s Business Plan
Organizational Mission, Vision, Goals, and Objectives
34
Organizational Strategies
Situation Analysis
Additional Aspects of Marketing Planning
TIPS FOR SUCCESSFUL MARKETING PLANNING
VISIT THE APPENDIX FOR A MARKETING PLAN EXAMPLE
SUMMARY
KEY TERMS
APPLICATION QUESTIONS
MANAGEMENT DECISION CASE
Marketing Planning Helps Dunkin’ Donuts Score Big in Coffee Customer
Loyalty
MARKETING PLAN EXERCISES
NOTES
APPENDIX
CloudCab Small Jet Taxi Service
Abbreviated Example Marketing Plan
Part Two
Use Information to Drive Marketing Decisions
CHAPTER 4
Market Research Essentials
MAKING GOOD MARKETING DECISIONS—THE NEED TO KNOW
MARKET INFORMATION SYSTEM
The Nature of a Market Information System
Internal Sources—Collecting Information Inside the Company
External Sources—Collecting Information Outside the Company
MARKET RESEARCH SYSTEMS
35
The Importance of Market Research to Managers
The Market Research Process
Market Research Technology
Market Research Challenges in Global Markets
SUMMARY
KEY TERMS
APPLICATION QUESTIONS
MANAGEMENT DECISION CASE
BMW’s Road to Higher Customer Satisfaction: Just Tell Me What You Think!
MARKETING PLAN EXERCISE
NOTES
CHAPTER 5
CRM, Big Data, and Marketing Analytics
OBJECTIVES AND CAPABILITIES OF CRM
THE CRM PROCESS CYCLE
Knowledge Discovery
Marketing Planning
Customer Interaction
Analysis and Refinement
MORE ON CUSTOMER TOUCHPOINTS
CRM, Touchpoints, and Customer Trust
CRM Facilitates a Customer-Centric Culture
BIG DATA AND MARKETING DECISION MAKING
Categories of Big Data: Structured and Unstructured
Big Data Sources and Implications
MARKETING ANALYTICS
Marketing Analytic Approaches
Capabilities of Marketing Analytics Supported by Big Data
THE MARKETING DASHBOARD
Goals and Elements of a Marketing Dashboard
36
Potential Pitfalls in Marketing Dashboards
RETURN ON MARKETING INVESTMENT (ROMI)
Cautions about Overreliance on ROMI
Proceed with Caution
SUMMARY
KEY TERMS
APPLICATION QUESTIONS
MANAGEMENT DECISION CASE
Outline India: Enabling the Jump from Data to Decisions
MARKETING PLAN EXERCISES
NOTES
CHAPTER 6
Understand Consumer and Business Markets
THE POWER OF THE CONSUMER
INTERNAL FORCES AFFECT CONSUMER CHOICES
Personal Characteristics
Psychological Attributes
EXTERNAL FACTORS SHAPE CONSUMER CHOICES
Cultural Factors
Situational Factors
Social Factors
THE LEVEL OF INVOLVEMENT INFLUENCES THE PROCESS
Decision Making with High Involvement
Decision Making with Limited Involvement
xix
THE CONSUMER DECISION-MAKING PROCESS
Problem Recognition
Search for Information
Evaluation of Alternatives
Product Choice Decision
37
Post-Purchase Assessment
ORGANIZATIONAL BUYING: MARKETING TO A BUSINESS
DIFFERENCES BETWEEN BUSINESS AND CONSUMER MARKETS
Relationship with Customers
Number and Size of Customers
Geographic Concentration
Complexity of the Buying Process
Complexity of the Supply Chain
Demand for Products and Services Is Different in a Business Market
BUYING SITUATIONS
Straight Rebuy
Modified Rebuy
New Purchase
BUYING CENTERS
Members of the Buying Center
Pursuing the Buying Center
THE PLAYERS IN BUSINESS-TO-BUSINESS MARKETS
The North American Industrial Classification System (NAICS)
Manufacturers
Resellers
Government
Institutions
THE BUSINESS MARKET PURCHASE DECISION PROCESS
Problem Recognition
Define the Need and Product Specifications
Search for Suppliers
Seek Sales Proposals in Response to RFP
Make the Purchase Decision
Post-Purchase Evaluation of Product and Supplier
THE ROLE OF TECHNOLOGY IN BUSINESS MARKETS
E-Procurement
38
SUMMARY
KEY TERMS
APPLICATION QUESTIONS
MANAGEMENT DECISION CASE
Taking the Nike Experience Direct to Consumers
MARKETING PLAN EXERCISE
NOTES
CHAPTER 7
Segmentation, Target Marketing, and Positioning
FULFILLING CONSUMER NEEDS AND WANTS
WHAT IS SEGMENTATION?
Effective Segmentation
SEGMENTING CONSUMER MARKETS
Geographic Segmentation
Demographic Segmentation
Psychographic Segmentation
Behavioral Segmentation
Firms Use Multiple Segmentation Approaches Simultaneously
Segmenting Business Markets
TARGET MARKETING
Analyze Market Segments
Develop Profiles of Each Potential Target Market
Select a Target Marketing Approach
POSITIONING
Perceptual Maps
Sources of Differentiation
Positioning Errors
SUMMARY
KEY TERMS
APPLICATION QUESTIONS
39
MANAGEMENT DECISION CASE
Crafty Credit Card Competitor “Chases” Amex for Share of Millennials’
Wallets
MARKETING PLAN EXERCISES
NOTES
Part Three
Develop the Value Offering– The Product Experience
CHAPTER 8
Product Strategy and New Product Development
PRODUCT: THE HEART OF MARKETING
Product Characteristics
Product Classifications
Product Discrimination: Create a Point of Differentiation
Product Plan: Moving from One Product to Many Products
Product Decisions Affect Other Marketing Mix Elements
THE LIFE OF THE PRODUCT: BUILDING THE PRODUCT EXPERIENCE
Product Life Cycle Sales Revenue and Profitability
Product Life Cycle Timeline
Product Life Cycle Caveats
NEW PRODUCTS—CREATING LONG-TERM SUCCESS
“New” Defined
Reasons for New Product Success or Failure
NEW PRODUCT DEVELOPMENT PROCESS
Identify Product Opportunities
Define the Product Opportunity
Develop the Product Opportunity
CONSUMER ADOPTION AND DIFFUSION PROCESS
40
Consumer Product Adoption Process
The Diffusion of Innovations
SUMMARY
KEY TERMS
APPLICATION QUESTIONS
MANAGEMENT DECISION CASE
Reaching Millennials through New Product Innovation at Campbell’s Soup
MARKETING PLAN EXERCISE
NOTES
CHAPTER 9
Build the Brand
BRAND: THE FUNDAMENTAL CHARACTER OF A PRODUCT
Brands Play Many Roles
The Boundaries of Branding
BRAND EQUITY—OWNING A BRAND
Defining Brand Equity
Benefits of Brand Equity
BRANDING DECISIONS
Stand-Alone or Family Branding
National or Store Branding
Licensing
Co-Branding
PACKAGING AND LABELING: ESSENTIAL BRAND ELEMENTS
Package Objectives
Effective Packaging
Labeling
WARRANTIES AND SERVICE AGREEMENTS: BUILDING CUSTOMER
CONFIDENCE
Warranties Help Define the Brand
SUMMARY
41
KEY TERMS
APPLICATION QUESTIONS
MANAGEMENT DECISION CASE
Virgin Group Brand Extensions: Lots of Hits and a Few Misses
MARKETING PLAN EXERCISE
NOTES
CHAPTER 10
Service as the Core Offering
WHY SERVICE IS IMPORTANT
Service as a Differentiator
SERVICE IS THE DOMINANT LOGIC OF MARKETING
CHARACTERISTICS OF SERVICES
Intangibility
Inseparability
Variability
Perishability
THE SERVICE-PROFIT CHAIN
Internal Service Quality
Satisfied, Productive, and Loyal Employees
Greater Service Value for External Customers
Customer Satisfaction and Loyalty
Revenue and Profit Growth
SERVICE ATTRIBUTES
Search Attributes
Experience Attributes
Credence Attributes
Importance of Understanding Service Attributes
SERVICE QUALITY
Gap Analysis
SERVQUAL: A Multiple-Item Scale to Measure Service Quality
42
The SERVQUAL Instrument
SERVICE BLUEPRINTS
SUMMARY
KEY TERMS
APPLICATION QUESTIONS
MANAGEMENT DECISION CASE
Amazon Dash: More Than Just a Dash of Service
MARKETING PLAN EXERCISE
NOTES
Part Four
Price and Deliver the Value Offering
CHAPTER 11
Manage Pricing Decisions
PRICE IS A CORE COMPONENT OF VALUE
ESTABLISH PRICING OBJECTIVES AND RELATED STRATEGIES
Penetration Pricing
Price Skimming
Profit Maximization and Target ROI
Competitor-Based Pricing
Value Pricing
SELECT PRICING TACTICS
Product Line Pricing
Captive Pricing
Price Bundling
Reference Pricing
Prestige Pricing
Odd/Even Pricing
43
One-Price Strategy and Variable Pricing
Everyday Low Pricing (EDLP) and High/Low Pricing
Auction Pricing
SET THE EXACT PRICE
Cost-Plus Pricing/Markup on Cost
Markup on Sales Price
Average-Cost Pricing
Target Return Pricing
DETERMINE CHANNEL DISCOUNTS AND ALLOWANCES
Cash Discounts
Trade Discounts
Quantity Discounts
Seasonal Discounts
Promotional Allowances
Geographic Aspects of Pricing
EXECUTE PRICE CHANGES
UNDERSTAND LEGAL CONSIDERATIONS IN PRICING
Price-Fixing
Price Discrimination
Deceptive Pricing
Predatory Pricing
Fair Trade and Minimum Markup Laws
SUMMARY
KEY TERMS
APPLICATION QUESTIONS
MANAGEMENT DECISION CASE: Surge Pricing: But Is It a Surge of
Customer Value?
MARKETING PLAN EXERCISE
NOTES
CHAPTER 12
44
Manage Marketing Channels, Logistics, and Supply Chain
THE VALUE CHAIN AND VALUE NETWRKS
CHANNELS AND INTERMEDIARIES
FUNCTIONS OF CHANNEL INTERMEDIARIES
Physical Distribution Functions
Transaction and Communication Functions
Facilitating Functions
DISINTERMEDIATION AND E-CHANNELS
VERTICAL MARKETING SYSTEMS
Corporate Systems
Contractual Systems
Administered Systems
CHANNEL BEHAVIOR: CONFLICT AND POWER
SELECTING CHANNEL APPROACHES
Distribution Intensity
Channel Control and Adaptability
Prioritization of Channel Functions—Push versus Pull Strategy
LOGISTICS ASPECTS OF SUPPLY CHAIN MANAGEMENT
Order Processing
Warehousing and Materials Handling
Inventory Management
Transportation
LEGAL ISSUES IN SUPPLY CHAIN MANAGEMENT
Exclusive Dealing
Exclusive Territories
Tying Contracts
RETAILING AND ELECTRONIC COMMERCE
Business-to-Consumer Electronic Commerce
B2B E-commerce
SUMMARY
45
KEY TERMS
APPLICATION QUESTIONS
MANAGEMENT DECISION CASE
Restoration Hardware—Using the Brick-and-Mortar Store as a “3D Catalog”
MARKETING PLAN EXERCISE
NOTES
Part Five
Communicate the Value Offering
CHAPTER 13
Promotion Essentials: Digital and Social Media Marketing
ESSENTIALS OF PROMOTION
The Marketing Manager’s Role in Promotional Strategy
Push and Pull Strategies
Internal Marketing
HIERARCHY OF EFFECTS (AIDA) MODEL
Attention
Interest
Desire
Action
THE ROLE OF DIGITAL MARKETING IN COMMUNICATING VALUE
Digital Advertising
E-Mail
Organizational Website
Search Engine Optimization (SEO)
Mobile Marketing
MANAGING SOCIAL MEDIA MARKETING: NOW THE CUSTOMER IS
INVOLVED IN THE DIALOGUE
46
Types of Social Media
Assessing the Value of Social Media Marketing
SUMMARY
KEY TERMS
APPLICATION QUESTIONS
MANAGEMENT DECISION CASE
How Oreo Uses Social Media to Market Milk’s Favorite Cookie
MARKETING PLAN EXERCISE
NOTES
CHAPTER 14
Promotion Essentials: Legacy Approaches
ADVERTISING
Types of Advertising
Advertising Execution and Media Types
The Role of the Creative Agency
SALES PROMOTION
Sales Promotion to Consumers
Sales Promotion to Channel Members
PUBLIC RELATIONS (PR)
Gaining Product Publicity and Buzz
Securing Event Sponsorships
Crisis Management
PERSONAL SELLING—THE MOST PERSONAL FORM OF
COMMUNICATION
Activities in Personal Selling
Sales in B2C versus B2B Markets
Classifying Sales Positions
The Personal Selling Process
Organizing the Sales Force
Managing the Sales Force
47
SUMMARY
KEY TERMS
APPLICATION QUESTIONS
MANAGEMENT DECISION CASE
Intel Uses Storytelling to “Let the Inside Out”
MARKETING PLAN EXERCISE
NOTES
Glossary
Indexes (Name and Subject)
48
1
PART ONE
Discover Marketing
Management
CHAPTER 1
Marketing in Today’s Business Milieu
CHAPTER 2
Marketing Foundations: Global, Ethical, Sustainable
CHAPTER 3
Elements of Marketing Strategy, Planning, and Competition
49
2
CHAPTER 1
Marketing in
Today’s Business
Milieu
LEARNING OBJECTIVES
LO 1-1 Identify typical misconceptions about marketing, why
they persist, and the resulting challenges for
marketing management.
LO 1-2 Define what marketing and marketing management
really are and how they contribute to a firm’s
success.
50
LO 1-3 Appreciate how marketing has evolved from its early
roots to be practiced as it is today.
LO 1-4 Recognize the impact of key change drivers on the
future of marketing.
3
WELCOME TO MARKETING MANAGEMENT
Welcome to the world of marketing management! Now is a great time to
be studying about marketing. In fact, marketing as a field of study has
much to offer everyone, regardless of whether or not the word “marketing”
appears in their job title. Whether your interest and training are in
engineering, accounting, finance, information technology, or fields outside
business, marketing is relevant to you. You can be confident that, when
finished with this course about marketing management, you will emerge
with a set of knowledge and skills that will not only enhance your personal
effectiveness as a leader and manager regardless of your area of
responsibility or job title, but will also positively impact the performance
of your work group and firm. Mastering great marketing is useful for
anyone!
Despite the strong case for the value of learning about marketing,
marketing is often misunderstood for a variety of reasons. So before we go
any further, let’s start by clearing the air. Before you learn about great
marketing and how to successfully manage it, it is important to address
some misconceptions and stereotypes about marketing. Getting these out
in the open will give you the opportunity to challenge your own
perceptions of the field. After this section, attention will quickly turn from
marketing misconceptions to marketing realities in today’s business
milieu.
MARKETING MISCONCEPTIONS
51
LO 1-1
Identify typical misconceptions about marketing, why they persist, and
the resulting challenges for marketing management.
When you think of marketing, what sorts of ideas and images initially
come to mind? Close your eyes and think about the essence of the word.
What images flow in? The images will vary depending on your age, your
professional background, and whether you have worked in some aspect of
the marketing field. Here is a short list of perceptions commonly conjured
up about marketing:
Catchy and entertaining advertisements—or perhaps the opposite,
incessant and boring advertisements.
Pushy salespeople trying to persuade someone to buy it right now.
Incessant spam in your e-mail inbox and unwelcome solicitations on
your smartphone.
Obtrusive tracking and recording of your every click and browsing
activity online.
Famous brands and their celebrity spokespeople, such as Nike’s
athlete endorsers.
Product claims that turn out to be overstated or just plain false,
causing doubt about the trustworthiness of a company.
Marketing departments “own” an organization’s marketing initiative.
Exhibit 1.1 expands on the common stereotypes and misconceptions
about marketing.
Behind the Misconceptions
Several important factors have contributed to the development of these
misconceptions, including marketing’s inherent visibility and its tendency
toward buzzwords and “spin.”
Marketing Is Highly Visible by Nature Unlike most other key
areas of business, marketing as a field is highly public and readily visible
outside the confines of the internal business operation. Think of it this
52
way: Most aspects of financial management, accounting, information
technology, production, operations management, and human resource
management take place behind the curtain of an organization, out of the
general public’s sight. But marketing is very different. A good portion of
marketing is very public. Marketing is seen through the web page that
stimulates interest in seeking more product information, the (hopefully)
good service received from the salesperson representing a firm’s products,
the enjoyment and interest generated from a clever advertisement on Super
Bowl Sunday, or the well-stocked shelves at the neighborhood Target
store.
Of all the business fields, marketing is almost certainly the most
visible to people outside the organization. While other fields also have
negative stereotypical images (think accountants with green eyeshades or
IT computer geeks), you’d be hard pressed to identify another business
4
EXHIBIT 1.1 Marketing Misconceptions: What
Marketing Is Not
MISCONCEPTION NO. 1: Marketing is all about advertising.
THE REALITY: Advertising is just one way that marketing is
communicated to potential customers. Advertising is highly visible to
the general public, so many people naturally think of advertising when
they think of marketing. A famous axiom: Good advertising makes a
bad product fail faster.
MISCONCEPTION NO. 2: Marketing is all about selling.
THE REALITY: The general public also experiences a lot of selling.
Much of this day-to-day selling is in retail store environments. Selling,
or more correctly “personal selling,” is simply another method of
marketing communication. Marketers have to decide on a mix of
marketing communication approaches that (in addition to advertising
and personal selling) might also include public relations/publicity,
sales promotion, and direct marketing. Later chapters discuss how
53
and when each might be most effective in communicating the
message.
MISCONCEPTION NO. 3: Marketing is all fluff and no
substance.
THE REALITY: Yes, some aspects of marketing are inherently fun and
glitzy. Hiring Kevin Durant as a celebrity spokesperson had to be a
real thrill for everybody at Nike, not to mention the pleasure and fun it
gave Nike fans. But marketing also has aspects that involve
sophisticated research, detailed analysis, careful decision making, and
thoughtful development of strategies and plans. For many
organizations, marketing represents a major investment and firms are
naturally reluctant to invest major resources without a reasonable level
of assurance of a satisfactory payback.
MISCONCEPTION NO. 4: Marketing is inherently unethical
and harmful to society.
THE REALITY: Marketing is no more inherently unethical than other
business areas. The extreme corporate financial misdeeds that led to
the Great Recession of the late 2000s show that to be true. However,
when some element of marketing proves to be unethical (or even
illegal), it tends to be visible to the general public. Untrue advertising
claims, arm-twisting sales tactics, and nonenvironmentally friendly
product packaging are a few very visible examples of marketing not
behaving at its best.
MISCONCEPTION NO. 5: Only marketers market.
THE REALITY: Everybody does marketing. Everybody has a stake in
the success of marketing. Regardless of your position in a firm or job
title, learning how to do great marketing is a key professional asset.
People with strong marketing skills achieve greater success—both on
the job and off. If you’ve never thought of yourself in the context of
being a “personal brand” that needs to be effectively communicated,
just consider how useful such an approach could be in job seeking or
positioning yourself for a promotion.
MISCONCEPTION NO. 6: Marketing is just another cost
center in a firm.
54
THE REALITY: The mind-set that marketing is a cost, rather than an
investment, is deadly in a firm because costs are inherently to be
reduced or avoided. When management doesn’t view marketing as
earning its keep—that is, marketing being able to pay back its
investment over the long term—it becomes very easy for firms to
suboptimize their success in the long run by avoiding investment in
brand and product development in favor of cutting costs. This is the
classic argument that successful firms must simultaneously monitor
costs to ensure short-term financial performance while also investing
in marketing to ensure long-term competitive strength.
field about which nearly everyone has formed a deeply held set of images
and opinions or about which nearly everybody thinks they know enough to
confidently offer advice! Think about how many times casual conversation
in a social setting turns to something marketing related. Have you ever had
similar social exchanges about the ins and outs of financial management or
the complexities of computerized production systems? Of course not, but it
seems almost anybody is comfortable talking (and tweeting!) about
elements of marketing—from the week’s advertised specials at the
supermarket to this year’s fashion for kids heading back to school to the
service received at a favorite vacation hotel—marketing is a topic
everyone can discuss!
In fact, companies are increasingly utilizing corporate social media
presence to generate conversation itself as a marketing tool. For example,
fast-food restaurant chain Wendy’s gained over 1.5 million followers on
Twitter as a result of its saucy social media strategy. 1 The company’s
Twitter account gained fame by surprising customers with its bold,
humorous responses to customer tweets about the company and its
competitors. Wendy’s Twitter profile describes its strategy
5
this way: “We like our tweets the same way we like to make hamburgers:
better than anyone expects from a fast food joint.” 2 With some Twitter
users even requesting for Wendy’s to “roast” them on Twitter, the online
conversations often strayed from explicit product advertising. Yet the
social media buzz itself brought attention to the company and served as an
55
invaluable advertising tool.
Why is the notion that marketing is visible and accessible to nearly
everyone so important to students of marketing management? The truth is,
despite the fact that much of marketing is easily observable to just about
anyone, marketing as a professional field worthy of serious study doesn’t
always get the respect it deserves, maybe in part because of its
overexposure. The business functions of financial management,
operations, IT, and the rest seem to be viewed by many MBA and
undergraduate students (and also, unfortunately, by managers in many
firms) as the more “serious” parts of an enterprise—topics that are
perceived as more concrete, more scientific, and more analytical than
marketing, thus implying they are topics worthy of more substantial
investment in time, money, and other resources. 3 In the past, marketing
has had few useful metrics or measures to gauge the performance impact
of a firm’s marketing investment, while other areas of the firm have
historically been much more driven by measurement of results. The old
adage “if it can’t be measured, it can’t be managed” has plagued marketing
for years. This is changing, and today measurement of marketing’s
performance and contribution is a focal point in many firms. 4 In fact, as
you progress through this book you will notice a very strong emphasis on
marketing analytics, marketing metrics, and the preeminence of digital and
social media marketing as both a source and a beneficiary of customer
data.
Marketing Is More Than Buzzwords Given the inherently
transparent nature of marketing and the prior lack of ways to effectively
measure its impact on a firm’s success, it should be no surprise that some
managers consider marketing to be little more than a necessary evil—a
cost they reluctantly have to incur. 5 They’re not sure how marketing
works, or even if marketing really does work, but for competitive reasons
—or maybe just because it’s always been done—they continue to invest
large sums of money in its many facets including market research, brand
development, advertising, salespeople, public relations, and so forth. With
so much ambiguity historically surrounding the management and control
of marketing, too often the field has been plagued by a coterie of
consultants and authors looking to make a quick buck by selling their latest
56
and greatest ideas complete with their own catchy buzzwords for the
program.
Anyone who doubts the pervasiveness of quick-fix approaches to
marketing should visit a bookstore or online bookseller. Go to the business
section and look at the marketing titles. Among the buzzwords right in the
book titles are such gems as guerrilla marketing, permission marketing,
holistic marketing, marketing warfare, marketing rainmaking, buzz
marketing, integrated marketing … the list goes on and on. Although these
approaches may prove useful under certain circumstances, these quick-fix
strategies contribute to the circus-like perception of marketing, which
ultimately undermines the field’s reputation as a respectable business
function.
Beyond the Misconceptions and Toward the
Reality of Modern Marketing
Of course, buzzwords are just window dressing, and most popular press
prescription approaches to marketing don’t do much to improve the long-
term performance of an organization. Effective marketing management
isn’t about buzzwords or quick fixes. Nor is the essence of marketing
really about the kinds of stereotypical viewpoints identified earlier in this
section. In today’s business milieu, marketing is a central function and set
of processes essential to any enterprise. 6 Moreover, leading and managing
the facets of marketing to improve individual, unit, and organizational
performance—marketing management—is a core business activity,
worthy of any student’s study and mastery.
The chapters that follow lay the groundwork for developing the
knowledge and skills around marketing that will allow you to build a more
successful career as a leader and manager, regardless of your department,
area of specialization, level in the organization, or job title. Is marketing
relevant to you? You bet it is, because everyone in an organization does
marketing in some way and must share ownership of its success or failure.
Learning about marketing management is not just about reading a
book or taking a course, although dedication to these activities is a great
starting point. Instead, great
6
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marketing is a lifelong journey that requires dedication to continuous
learning and improvement of your knowledge and skills as a leader and
manager. It is in this spirit that we enthusiastically invite you to begin your
journey into the field of marketing management!
DEFINING MARKETING
LO 1-2
Define what marketing and marketing management really are and how
they contribute to a firm’s success.
Over 60 years ago, the late management guru Peter Drucker, often referred
to as the father of modern management, set the stage for defining
contemporary marketing and conceiving of its potential power. Consider
this quote from Drucker, circa 1954 (emphasis added):
If we want to know what a business is we have to start with its purpose.
There is only one valid definition of business purpose: to create a
customer. It is the customer who determines what a business is. For it is
the customer, and he alone, who through being willing to pay for a good or
service, converts economic resources into wealth, things into goods. What
the business thinks it produces is not of first importance—especially not to
the future of the business and its success. What the customer thinks he is
buying, what he considers “value” is decisive. … Because it is the
[purpose of a business] to create a customer, [the] business enterprise
has two—and only two—business functions: marketing and innovation.7
Consider the power of these ideas: a business built around the
customer with resources and processes aligned to maximize customer
value. Within this context, Drucker is not talking just about “marketing
departments,” but rather marketing in much broader terms. More on that
distinction later. For now, consider this subsequent quote from Drucker
circa 1973:
Marketing is so basic that it cannot be considered a separate function (i.e.,
a separate skill or work) within the business … it is, first, a central
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dimension of the entire business. It is the whole business … seen from the
customer’s point of view. Concern and responsibility for marketing must,
therefore, permeate all areas of the enterprise.8
Clearly, Peter Drucker was a man whose business philosophy was way
ahead of his time. Now fast forward to this decade. The American
Marketing Association periodically reviews and updates its official
definition of marketing. As of this book’s publication, their definition is as
follows:
Marketing is the activity, set of institutions, and processes for creating,
communicating, delivering, and exchanging offerings that have value for
customers, clients, partners, and society at large.
Toyota’s popular Scion line exemplifies the growing focus on stakeholders
interested in green-friendly products.
Source: Toyota Motor Sales, U.S.A., Inc.
This definition is quite good because it
Focuses on the more strategic aspects of marketing, which positions
marketing as a core contributor to overall firm success.
Recognizes marketing as an activity, set of institutions, and processes
—that is, marketing is not just a “department” in an organization.
Shifts the areas of central focus of marketing to value—creating,
59
communicating, delivering, and exchanging offerings of value to
various stakeholders.
Just who are the relevant stakeholders of marketing? Marketing’s
stakeholders include any person or entity inside or outside a firm with
whom marketing interacts, impacts, and is impacted by. For example,
internal stakeholders—those inside a firm—include other organizational
units that marketing interacts with in the course of business. Strong,
productive relationships between marketing and finance, accounting,
production, quality control, engineering, human resources,
7
and many other areas in a firm are necessary in order for a firm to do
business successfully. 9 The range of external stakeholders—those outside
a firm—is even broader and includes customers, vendors, governmental
bodies, labor unions, and many others. One important challenge in
marketing management is deciding how to prioritize these internal and
external stakeholders in terms of their relevance and importance to the
firm. 10 Most firms place the customer first, but a key question is: how do
you decide which of the others deserve the most attention?
At the broadest conceptual level, members of society at large can be
viewed as stakeholders for marketing, a concept called societal marketing.
As one example, the concept of environmentally friendly marketing, or
green marketing, has been a growing trend in socially responsible
companies. Today the movement has evolved into a part of the
philosophical and strategic core of many firms under the label
sustainability, which refers to business practices that meet humanity’s
needs without harming future generations. 11 Sustainability practices have
helped socially responsible organizations incorporate doing well by doing
good into their overarching business models so that both the success of the
firm and the success of society at large are sustained over the long term.
For example, Unilever brands implemented the “Unilever Sustainable
Living Plan” as an integral part of the company’s business model. This
plan seeks to: (1) “Help more than a billion people to improve their health
and wellbeing,” (2) “Halve the environmental footprint of … products,”
and (3) “Source 100% of [the company’s] agricultural raw materials
sustainably and enhance the livelihoods of people across [the company’s]
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value chain.” 12 The company launched its “Brighter Future” marketing
campaign to highlight how Unilever brands are creating a positive social
impact and ensuring a brighter future through its commitment to
sustainable living. 13
“Purpose marketing,” or “prosocial marketing,” is growing as a
marketing strategy. This growing popularity can be attributed to the
increasing number of consumers who say that what a company stands for
influences their purchasing decisions. Toms shoe company is renowned for
its social entrepreneurism and socially conscious purpose marketing.
Toms’ “One for One” mission assures customers that with every purchase,
“Toms will help a person in need.” 14 An estimated 3.5 million people
participated in Toms’ annual One Day Without Shoes initiative in 2016
alone. 15 Purpose marketing with sincerity has the potential to appeal to
consumers on an emotional level and further drive customer loyalty. This
trend moves marketing beyond push brand messaging and instead engages
consumers in a much more meaningful way. 16
Value and Exchange Are Core Marketing Concepts
Throughout the various topics encompassed within this book, the idea of
value as a core concept in marketing will be a central theme. From a
customer’s perspective, we define value as a ratio of the bundle of benefits
a customer receives from an offering compared to the costs incurred by the
customer in acquiring that bundle of benefits. 17 Another central tenet of
marketing is the concept of exchange, in which a person gives up
something of value to them for something else they desire to have. 18
Usually an exchange is facilitated by money, but not always. Sometimes
people trade or barter nonmonetary resources such as time, skill, expertise,
intellectual capital, and other things of value for something else they want.
For any exchange to take place, the following five conditions must be
present:
1. There must be at least two parties.
2. Each party has something that might be of value to the other party.
3. Each party is capable of communication and delivery.
4. Each party is free to accept or reject the exchange offer.
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5. Each party believes it is appropriate or desirable to deal with the
other party.
Just because these conditions exist does not guarantee that an
exchange will take place. The parties must come to an agreement that
results in both being better off, hence the phrase in the AMA definition of
marketing “… exchanging offerings that have value … (emphasis added).”
Value implies that both parties win from the exchange.
8
A New Agenda for Marketing
We firmly believe that today is the best time ever to be engaged as a leader
and manager in marketing. Recently, the American Marketing Association
(AMA) announced their Intellectual Agenda 1.0, which seeks to serve as a
“big tent” source of guidance and inspiration that includes both theoretical
and applied knowledge, which will ultimately provide actionable insights,
frameworks, tools, and resources for marketers around the world. Part and
parcel to this Intellectual Agenda is the identification of AMA’s 7 Big
Problems in Marketing in order to provide context for the critical
challenges all marketing managers face. These 7 Big Problems provide
common ground for ongoing conversation and ideation about the
marketing field. In summary form, they are:
1. Effectively targeting high-value sources of growth.
2. The role of marketing in the firm and the C-suite.
3. The digital transformation of the modern corporation.
4. Generating and using insight to shape marketing practice.
5. Dealing with an omni-channel world.
6. Competing in dynamic, global markets.
7. Balancing incremental and radical innovation. 19
Importantly, the AMA is deeply committed to the idea that the role of
marketing in enhancing the greater good of society and the planet through
economic, environmental, and social sustainability transcends these 7 Big
Problems. That is, for each of the problems, the only viable and acceptable
62
solutions must take into account the big picture of the greater good. You
will read more about the societal impact of marketing in Chapter 2.
The AMA definition of marketing highlights marketing’s central role
in creating (or developing), communicating, delivering, and exchanging
offerings that have value. But marketing’s central focus hasn’t always
been on value and customer relationships, and the truth is that even today
some firms lag in these areas. The next section offers perspectives on
marketing’s roots and evolution, and explains why some firms today are
frozen in past approaches to marketing.
MARKETING’S ROOTS AND EVOLUTION
LO 1-3
Appreciate how marketing has evolved from its early roots to be
practiced as it is today.
In the spirit of the old adage that he who ignores history is doomed to
repeat its mistakes, here’s a short marketing history lesson. Exhibit 1.2
illustrates the flow of marketing’s evolution as a field. It is important to
note that there are still firms that are “stuck in the past” in the way they
approach marketing. That is, not all organizations have “fully evolved”!
But hopefully the majority of firms seek to approach marketing from a
21st-century perspective as we present throughout this book.
EXHIBIT 1.2 Marketing Yesterday and Today
63
Pre-Industrial Revolution
Before Henry Ford and his contemporaries created assembly lines and
mass production, marketing was done very much on a one-to-one basis
between firms and customers, although the word marketing wasn’t really
used. Consider what happened when a person needed a new pair of shoes,
pre-Industrial Revolution. One would likely go visit the village cobbler,
who would take precise measurements and then send the customer away
with instructions to return in a week or so to pick up the new shoes.
Materials, styles, and colors would be limited, but customers likely would
get a great fit since the cobbler created a customized pair of shoes for each
person. And if they didn’t fit just right, the cobbler would adjust the shoes
to a customer’s liking—right on the spot.
9
Focus on Production and Products
The Industrial Revolution changed nearly everything in business by
shifting the focus from meeting demand one item at a time to mass
production via assembly line. Maximizing production capacity utilization
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became a predominant concern. For the early part of the 20th century, the
focus was on this production orientation of improving products and
production efficiency without much regard for what was going on in the
marketplace. In fact, consumers snapped up this new pipeline of
reasonably priced goods, even if the products didn’t give much choice in
style or function. Having a Ford Model T was great, but as Henry Ford
himself said, “People can have the Model T in any color—so long that it’s
black.” 20
A production orientation assumes that customers will beat a path to
your door just because you have a great product that functions nicely;
build a better mousetrap and they will come. You will learn throughout
your study of marketing management that great products alone do not
ensure success. Unfortunately, firms that are stuck in a production
orientation mentality likely will have great difficulty competing
successfully for customers.
Focus on Selling
Around the end of World War I, production capacity utilization began to
decline for several reasons. First, capacity had been increased greatly for
the war. Second, a number of firms that had dominated their respective
industries before the war now found themselves with stiff competition for
sales because many new competitors had flooded into the marketplace.
And third, financial markets were becoming more sophisticated and were
placing more pressure on firms to continually increase sales volume and
profits.
These factors resulted in the rise of many of the great sales
organizations of today. A sales orientation suggests that, to increase sales
and consequently production capacity utilization, professional salespeople
need to “push” product into the hands of customers, both businesses and
end users. For years, the most vivid image of a salesperson in the public
eye was that of the peddler, the classic outside salesperson pushing product
on customers with a smile, a promise, and a handshake. Gradually,
customers of all kinds grew wary of high-pressure selling, sparking laws at
all levels to protect consumers from unscrupulous salespeople. For many
customers, the image of marketing became permanently frozen as that of
65
the pushy salesperson. And just as with the production orientation, to this
day some firms still practice mainly a sales-oriented approach to their
business.
This vintage GE ad from the late 1950s is a great example of how ads in that
era were more “informative” and less “sexy” than much of today’s advertising.
©The Advertising Archives/Alamy Stock Photo
Advent of the Marketing Concept
After World War II, business began to change in many long-lasting ways.
Business historians point to a number of reasons for this shift, including:
Pent-up demand for consumer goods and services after the war.
Euphoric focus on family and a desperate need to regain a normalcy
of day-to-day life after years of war (which produced the baby
boomer generation).
66
Opening up of production capacity dominated for years by war
production.
Advent of readily available mainframe computing capability, and
especially the associated statistical analytic techniques that allowed
for more sophisticated market research.
10
In the 1950s, these forces, combined with growing frustration with
high-pressure selling, sparked a shift in the focus of American business.
The resulting business philosophy has been labeled the marketing concept,
which is an organization-wide customer orientation with the objective of
achieving long-run profits. 21 General Electric’s 1952 Annual Report is
often cited as the first time the marketing concept was articulated in
writing by a major corporation. Clearly delighted to herald its new-age
management philosophy, GE wrote the following to stockholders in that
report (in this historical period, the assumption was that business
professionals would be male):
[The marketing concept] … introduces the marketing man at the beginning
rather than at the end of the production cycle and integrates marketing
into each phase of the business. Thus, marketing, through its studies and
research, will establish for the engineer, the design and manufacturing
man, what the customer wants in a given product, what price he is willing
to pay, and where and when it will be wanted. Marketing will have
authority in product planning, production scheduling, and inventory
control, as well as in sales distribution and servicing of the product.22
The articulation of the marketing concept was a major breakthrough in
business, and in the 1960s and ’70s it spread like wildfire throughout
companies of all kinds. Soon firms everywhere were adopting the practice
of letting the market decide what products to offer. Such an approach
required substantial investment in ongoing market and consumer research
and also necessitated an organization-wide commitment to marketing
planning. As a result, the idea of the marketing plan became codified in
most organizations’ business processes. We’ll come back to the idea of
marketing planning in Chapter 3.
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The Marketing Mix The articulation of the marketing concept and its
quick adoption across a gamut of industries quickly led to a major focus on
teaching marketing courses in colleges and universities. In the mid-1960s,
a convenient way of teaching the key components was developed with the
advent of the marketing mix, or 4Ps of marketing, originally for product,
price, place, and promotion. 23 The idea was that these fundamental
elements comprise the marketer’s “tool kit” to be applied in carrying out
the job. It is referred to as a “mix” because, by developing unique
combinations of these elements, marketers set their product or brand apart
from the competition. Also, an important rubric in marketing is the
following: making a change in any one of the marketing mix elements
tends to result in a domino effect on the others.
Today, the basic concept of the marketing mix still persists, but with
considerably greater sophistication than in the 1960s. The product is now
regarded broadly in the context of an overall offering, which could include
a bundle of goods, services, ideas (for example, intellectual property), and
other components, often represented by strong overarching branding.
Many marketers today are more focused on solutions than products—the
characterization of an offering as a solution is nice because of the
implication that a solution has been developed in conjunction with
specific, well-understood customer wants and needs. 24 Price today is
largely regarded in relationship to the concept of value. Place has
undergone tremendous change. Rather than just connoting the process of
getting goods from Point A to Point B, firms now understand that
sophisticated, integrated supply chain approaches are a crucial component
of business success. 25 And finally, to grasp the magnitude of changes in
promotion since the 1960s one need only consider the proliferation of
high-tech media options available to marketers today, from the Internet to
cell phones and beyond.
Over the years some authors have proposed various additions to the
original marketing mix—that is, adding “more Ps.” Especially outside the
setting of marketing physical goods, as in the context of marketing
services or ideas, the case is frequently made for the need to add more
elements to the marketer’s tool kit. 26 This issue has been hotly debated for
years. Pete Markey, brand communications and marketing director at
Aviva, argues that the 4Ps are still relevant today because they remind
68
businesses that marketing is not the responsibility of just one department;
it is the responsibility of the entire business to understand customers’
wants and needs, and to extract value from them. The 4Ps capture the
essence of marketing in a simplified, repeatable process that needs to be
communicated to the new generation of marketers. 27
11
You will find as you progress in your reading of this book that later on
we follow the basic topical flow of developing, pricing, delivering, and
communicating offerings that have value. Put in terms of the 4Ps of the
marketing mix, Part Three of the book focuses on developing the value
offering through product strategy and new product development, building
the brand, and attention to service (the product “P”). Part Four focuses on
pricing and delivering the value offering (the “price and place Ps”).
Finally, Part Five provides a comprehensive look at how firms
communicate the value offering to customers (the “promotion P”). Thus,
the core elements of the original 4Ps of marketing are there but presented
within the context of the terminology and work processes used by today’s
marketing managers.
Post-Marketing Concept Approaches
Close perusal of the definition of the marketing concept reveals several
issues that still resonate widely in today’s business milieu. The decisions
to place the customer at the core of the enterprise (often referred to as a
customer-centric approach to business), focus on investment in customers
over the long term, and focus on marketing as an organization-wide issue
(that is, not just relegated to a “marketing department”) are all relevant and
important topics in business classes and boardrooms today, and each will
be discussed further in later chapters. 28 Amazon is one of the leading
companies pursuing a customer-centric approach to business, and its CEO,
Jeff Bezos, has integrated this technique into Amazon culture, often
leaving a seat open at his conference tables to remind everyone in the
room that the most important person in any conversation is “the
Customer.” 29
Referring again to Exhibit 1.2, the four evolutionary steps beyond the
original marketing concept warrant further discussion now: differentiation
69
orientation, market orientation, relationship orientation, and one-to-one
marketing.
Differentiation Orientation More sophisticated research and
analytical approaches have made it possible to do increasingly precise
refinement of market segmentation, target marketing, and positioning of
products to serve very specific customer groups, processes you will learn
more about in Chapter 7. The idea is to create and communicate
differentiation, or what clearly distinguishes your products from those of
competitors in the minds of customers. 30 The ability for marketers to
tailor and deliver different product messages to different groups also has
been greatly enhanced by the proliferation of multiple types of media that
can be used with great precision to communicate to very specifically
defined customer groups. For example, during its “Share a Coke”
campaign, Coca-Cola put 250 of the most popular names among teens and
millennials on 20-ounce bottles, and created a website geared toward
share-worthy content. Coca-Cola targeted the millennial generation by
delivering personalization, trend, and social interaction in a Coke bottle,
and increased sales by 2 percent after the campaign launched. 31
Market Orientation A great deal of research has been devoted to
learning how a firm can successfully put the marketing concept into
practice. Think of market orientation as the implementation of the
marketing concept. The notion of market orientation, one component of
which is customer orientation—placing the customer at the core of all
aspects of the enterprise—takes the guiding business philosophy of the
marketing concept and works to more usefully define just how to
implement it within a firm. 32 The focal point of Southwest Airlines is its
customer experience, which manifests itself through the personality of its
brand, the heart on the underbelly of its planes, its ticker symbol (LUV),
and the employees who are hired for their attitude and trained for skill. The
Southwest heart is a promise to customers and a reminder to employees
that Southwest cares. 33
Relationship Orientation Marketing managers today recognize the
power of securing, building, and maintaining long-term relationships with
profitable customers. 34
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12
The original marketing concept clearly recognized the need for an
orientation toward the longer term in marketing—that is, not just making
the next quarter’s financial projections but rather cultivating customers for
the long haul. The move toward a relationship orientation by firms has
been driven by the realization that it is far more efficient and effective to
invest in keeping and cultivating profitable current customers instead of
constantly having to invest in gaining new customers that come with
unknown return on investment. 35 Certainly most firms simultaneously
focus on both current and new customers, but no company wants to be in a
position of losing great customers and having to scramble to replace the
associated lost revenue.
A relationship orientation draws its power from the firm’s capability to
effectively collect and use ongoing, real-time information on customers in
marketing management decision making. Implementation of a relationship
orientation is discussed in Chapter 5 in the context of customer
relationship management (CRM). Much of CRM is designed to facilitate
higher levels of customer satisfaction and loyalty, as well as to provide a
means for identifying the most profitable customers—those worthy of the
most marketing investment. 36 Dollar Shave Club has mounted a serious
competitive threat to Gillette and other traditional razor and blade
providers by using its in-house CRM system, customer support platform,
and data analytics to gain deep customer insights. As a result, it delivers an
outstanding customer experience to its over 1.5 million subscribers and
aims to engage in a true relationship with each of them. 37
One-to-One Marketing Remember the earlier example of the pre-
Industrial Revolution cobbler who would customize a pair of shoes for
each customer? In many ways marketing’s evolution has come full circle
back to a focus on creating capabilities for such customization. In a series
of classic books and articles, Don Peppers and Martha Rogers popularized
the term one-to-one marketing, which advocates that firms should direct
energy and resources into establishing a learning relationship with each
customer and then connect that knowledge with the firm’s production and
service capabilities to fulfill that customer’s needs in as custom a manner
as possible. 38
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Some firms come close to one-to-one marketing by employing mass
customization, in which they combine flexible manufacturing with flexible
marketing to greatly enhance customer choices. 39 Retailers have even
entered into mass customization. The luxury brand Burberry allows
customers to build their own trench coats. They are able to select from
silhouettes of varying length, leather or fabric type, and several colors.
Options also include sleeve length, lining, collar, buttons, and belts.
Buyers are able to customize their perfect coat with the click of a few
buttons. 40
So far in this chapter we have explored common misconceptions about
marketing and then moved well past the stereotypes to begin to gain a
solid foundation for understanding what marketing management really is
about today. Given the increasingly rapid pace of changes in today’s
business environment, it’s highly likely that marketing’s role will evolve
even more rapidly than in the past. Now let’s turn our attention to the
future to identify important change drivers that are sure to impact
marketing over the next decade and beyond.
CHANGE DRIVERS IMPACTING THE
FUTURE OF MARKETING
LO 1-4
Recognize the impact of key change drivers on the future of marketing.
A great way to systematically explore the future of marketing is by
considering several well-documented broad trends that are clearly
impacting the future of the field. These trends are well under way, but their
ultimate impact on marketing and on business in general is not yet fully
known. Five key areas of shift, or change drivers, are
Shift to product glut and customer shortage.
Shift in information power from marketer to customer.
Shift in generational values and preferences.
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13
Shift to distinguishing Marketing (“Big M”) from marketing (“little
m”).
Shift to demanding return on marketing investment.
The highly customizable brand Burberry has extended its product line to
children.
Source: Burberry
Shift to Product Glut and Customer Shortage
Fred Wiersema, in his book The New Market Leaders, builds a powerful
case that the balance of power is shifting between marketers and their
customers in both business-to-consumer (B2C/end user) markets and
business-to-business (B2B) markets. He identifies “six new market
realities” in support of this trend: Competitors proliferate, all secrets are
73
open secrets, innovation is universal, information overwhelms and
depreciates, easy growth makes hard times, and customers have less time
than ever. 41
Blockbuster’s demise did not happen because of technology or Netflix,
but rather because it failed to focus on its customers. Blockbuster might
have been salvaged if it had understood that it was in the business of retail
customer service, restructured its strategy to consultative selling, and
branded itself as “the movie expert” utilizing any platform necessary.
Instead, Blockbuster continued to think of itself as a convenience chain for
a product that (unfortunately) in reality was no longer convenient in the
digital age, and eventually it shut down operations. 42
Wiersema’s central point is that not only is a customer orientation
desirable, but also in today’s market it is a necessity for survival. Coming
to grips with the impact of Wiersema’s six market realities greatly
heightens the role of marketing in the firm as the nexus of an
organization’s customer-focused strategies.
Shift in Information Power from Marketer to
Customer
Nowadays, customers of all kinds have nearly limitless access to
information about companies, products, competitors, other customers, and
even detailed elements of marketing plans and strategies. This is analogous
to Wiersema’s “All Secrets Are Open Secrets,” but here we’re talking
about the customer’s perspective. For decades, marketers held a degree of
information power over their customers because firms had access to
detailed and sophisticated information about their products and services
that customers couldn’t get without the help of somebody in the firm
(usually a salesperson). Now, customers are empowered to access
boundless information about all kinds of products and services on the
Internet. 43
For competitive reasons, firms have no choice but to be more open
about their businesses and products. Even if they wanted to, firms can’t
stop chat rooms, independent websites, web logs or blogs, and other
customer-generated modes of communication from filling web page after
web page with information, disinformation, and opinions about a
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company’s products, services, and even company dirty laundry. Consider
Walmart, one of the world’s most successful companies. In recent years
Walmart from time to time has been caught off guard by the number and
range of uncontrollable information sources about it and its activities (such
as employee wage and benefit practices). Another example of this shift in
information power is the physician/patient relationship. Between open
direct-to-consumer advertising by pharmaceutical companies and
innumerable websites devoted to every medical malady, more and more
patients arrive at the doctor’s office self-diagnosed and ready to self-
prescribe! 44
14
GEICO has made major inroads with the younger generation of insurance
purchasers by introducing clever themes and efficient rate quotes via the web.
Source: GEICO
The trend toward more information in the hands of the customer is not
going to diminish. Marketing approaches must be altered to reflect and
respond to this important change.
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Shift in Generational Values and Preferences
Aspects of generational marketing will be discussed in more detail in
Chapter 7. For now, the inexorable shift in values and preferences from
generation to generation deserves mention as one of the key trends
affecting the future of marketing. One clear impact is on the firm’s
message and the method by which that message is communicated. For
example, GenY consumers tend to be much more receptive to electronic
commerce as a primary mode of receiving marketing communication and
ultimately purchasing than are prior generations. 45 Did you know that
through the iTunes Store or Google Play you can secure the Girl Scout
Cookie Finder app, which provides users with GPS coordinates for the
nearest cookie sales location? For many, gone are the days of strictly
relying on face-to-face selling. 46 This preference has clear implications
for how marketing carries out its management of customer relationships
across generations and also calls into question how much value younger
customers derive from the different approaches to relationships. That is, do
members of the younger generation appreciate, or even need, the kinds of
close personal relationships companies like State Farm provide through
their agents, or are they perfectly happy to interact with firms like GEICO,
primarily through electronic sales and distribution channels?
Generational shifts also impact marketing in terms of human
resources. Consider how generational differences in attitudes toward work
life versus family life, expectations about job satisfaction and rewards, and
preferred modes of learning and working (e.g., electronic versus face-to-
face) affect the ability of firms to hire people into various marketing-
related positions. For example, firms often wish to differentiate themselves
by offering great service to their customers. Yet nearly all organizations
are severely challenged today in hiring and keeping high-quality customer
service personnel because of a severe shortage of capable, qualified
customer care personnel. 47
Generational changes are nothing new. In the context of both
customers and organization members, understanding the generational
differences and how to work to appeal to different generations’ values and
preferences is a critical part of marketing management. Today, the
importance of this issue is accentuated and accelerated in marketing due to
76
propensities among generational groups to differentially use technology
and the impact of generational differences on workplace design and
management practice.
We’d be remiss not to highlight the generation that is the apple of
many a marketer’s eye today—millennials. The millennial generation
represents roughly 25 percent of the population and $200 billion in annual
buying power. Millennials favor authenticity over content, are brand loyal
(especially if those brands are active on social media), are highly
connected through technology, and wish to be part of a company’s product
development process. 48 Chipotle’s “build-your-own” business model
provided a customer experience that was interactive, and its web series
“Farmed and Dangerous” provided social media interaction, resulting in a
young customer base that largely remained loyal during Chipotle’s food-
safety crisis in 2015. 49
By 2025, millennials are expected to represent 75 percent of workers.
They want their share of responsibility while at work, but they also value
work-life balance and time away from work, and seek to join companies
that are tuned in to ethical business practices
15
and social responsibility. Millennials represent the best-educated
generation in history. 50 The software firm Workday caters to the
millennial mind through its “Generation Workday” program, inviting
junior staffers to senior leader meetings, offering mentoring opportunities,
and rotating employees through different divisions to gain new skills,
experiences, and networks. 51 You’ll learn more about generational
marketing in Chapter 7.
Shift to Distinguishing Marketing (Big M) from
marketing (little m)
Earlier it was established that the marketing concept is intended to be an
overarching business philosophy in which firms place the customer at the
core of the enterprise. Also, you have learned through reading some of the
stereotypical impressions of what marketing is (and is not) and that
marketing—at least the image of marketing—can be fairly fragmented and
often quite tactical in nature. How can marketing as a discipline that is
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both strategic and tactical be reconciled?
Begin by thinking of marketing as occurring on two dimensions within
an organization. These dimensions exist in tandem, and even intersect on
occasion, but harbor fundamental differences in goals and properties. For
convenience, we can distinguish these dimensions by capitalizing the word
for one (“Marketing”—“Big M”) and leaving the word in lowercase for
the other (“marketing”—“little m”). Exhibit 1.3 portrays this relationship.
Let’s investigate these concepts further.
EXHIBIT 1.3 Strategic and Tactical Marketing
Marketing (Big M) Marketing (Big M) serves as a core driver of
business strategy. That is, an understanding of markets, competitors, and
other external forces, coupled with attention to internal capabilities, allows
a firm to successfully develop strategies for the future. This approach is
often referred to as strategic marketing, which means a long-term, firm-
level commitment to investing in marketing—supported at the highest
organizational level—for the purpose of enhancing organizational
performance.
Going back to the AMA definition, marketing’s focus as “… the
78
activity, set of institutions, and processes for creating, communicating,
delivering, and exchanging offerings that have value for customers, clients,
partners, and society at large” contains substantial elements of Marketing
(Big M): The core concepts of customer value, exchange, customer
relationships, and benefit to the organization and its stakeholders are all
very strategic in nature and help form the core business philosophy of a
firm. Earlier we saw that the marketing concept includes a strong
Marketing (Big M) thrust: “… an organization-wide customer orientation
with the objective of achieving long-run profits.” Certainly the core
marketing concept characteristics of an organization-wide customer
orientation and long-run profits are very strategic. Both the AMA
definition of marketing and the long-standing marketing concept provide
evidence of the centrality of Marketing (Big M) to the firm as a core
business philosophy.
The concept of Marketing (Big M) necessitates several important
actions on the part of the organization to maximize marketing’s impact.
Consider these action elements required for successful Marketing (Big M):
Make sure everyone in an organization, regardless of their position or
title, understands the concept of customer orientation, which places
the customer at the core of all aspects of the enterprise. It doesn’t
matter whether or not the organization member directly interfaces
with customers outside the firm. The point is that everybody has
customers within the organization, and through the process of
effectively serving those internal customers, the firm can better serve
its external customers. In this way, everyone in the firm has a stake in
the success of Marketing (Big M).
16
Align all internal organizational processes and systems around the
customer. Don’t let the IT system, telecommunications system,
billing system, or any other internal process or system become an
impediment to a customer orientation. If the people inside a firm
understand the power of a customer-centric business approach, but
the internal systems don’t support it, Marketing (Big M) won’t be
successful.
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Find somebody at the top of the firm to consistently champion this
Marketing (Big M) business philosophy. The CEO is the most
appropriate person for this role, perhaps manifest through the CMO
(chief marketing officer). Like anything else of importance in a
business organization, Marketing (Big M) takes resources, patience,
and time to acculturate and implement, and it won’t happen unless
someone at the top is consistently supportive, with both resources
and leadership.
Forget the concept that the marketing department is where Marketing
(Big M) takes place. Marketing (Big M) is not about what one
department does or does not do. Marketing (Big M) is the basis on
which an organization approaches its whole enterprise—remember
Peter Drucker’s words: “[Marketing] is the whole business … seen
from the customer’s point of view. Concern and responsibility for
marketing must, therefore, permeate all areas of the enterprise.”
Drucker was right!
Create market-driving, not just market-driven, strategies. It is
imperative to study the market and competition as part of the
marketing planning process. Firms today must break out of linear
thinking when developing new products and markets. Certainly
research on markets and customers can uncover unmet needs and
offer guidance on designing products to fulfill those needs. But the
process contributes little toward market creation—approaches that
drive the market toward fulfilling a whole new set of needs that
customers did not realize was possible or feasible before. Classic
examples of market creation include Microsoft’s revolution of the
information field, Disney’s creation of the modern theme park
industry, and Apple’s innovations in integrated communications with
the iPhone and iPad. These were all market-driving strategies that
created really new markets.
marketing (little m) In contrast, marketing (little m) serves the firm
and its stakeholders at a functional or operational level; hence, marketing
(little m) is often thought of as tactical marketing. In fact, marketing
(little m) almost always takes place at the functional or operational level of
a firm. Specific programs and tactics aimed at customers and other
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stakeholder groups tend to emanate from marketing (little m). 52 But
marketing (little m) always needs to be couched within the philosophy,
culture, and strategies of the firm’s Marketing (Big M). In this way,
Marketing (Big M) and marketing (little m) should be quite naturally
connected within a firm, as the latter tends to represent the day-to-day
operationalization and implementation of the former. Everything from
brand image, to the message salespeople and advertisements deliver, to
customer service, to packaging and product features, to the chosen
distribution channel—in fact, all elements of the marketing mix and
beyond—exemplify marketing (little m).
Understanding these two dimensions of marketing helps clarify much
of the confusion surrounding the field today. It certainly helps explain
much of the confusion surrounding what marketing management is
supposed to be, and how and why the field tends to have a bit of an
identity crisis both inside firms and with the public at large. Occasionally
throughout this book, the Marketing (Big M), marketing (little m) notion
will be brought up to add explanatory power to important points. But for
the most part, we’ll just use one version of the word, assuming we all
understand it contains both levels.
Shift to Justifying the Relevance and Payback of
the Marketing Investment
The final change driver affecting the future of marketing is a topic on the
minds of many CEOs and CMOs today. The issue is how management can
effectively measure and assess the level of success a firm’s investment in
various aspects of marketing has had. Appropriate and effective marketing
metrics must be designed to identify, track, evaluate, and provide key
benchmarks for improvement just as various financial metrics guide the
financial
17
management of the firm. 53 Why the intense focus on metrics? Here are
several important reasons:
Marketing is a fuzzy field. Marketing has often historically viewed
itself as working within gray area comfort zones of a business. That
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is, if what marketing contributed was mostly creative in nature, how
can the impact of such activities be measured effectively? For the
marketer, this can be a somewhat attractive position to be in, and
historically many marketers probably took advantage of the idea that
their activities were above measurement. Those days are over.
If it can’t be measured, it can’t be managed. As with all aspects of
business, effective management of the various aspects of marketing
requires quantification of objectives and results. The marketing plan
is one of the most important elements of a business plan. Effective
planning requires metrics.
Is marketing an expense or an investment? Practicing marketers tend
to pitch marketing internally as an investment in the future success of
the organization. As an investment, it is not unreasonable that
expected returns be identified and measured. 54 Leading consulting
firm McKinsey & Company uses its Marketing Navigator to translate
complex marketing return on investment (MROI) data into simplified
visualizations to help its clients make better marketing investment
decisions. McKinsey believes that better MROI begins with better
objectives, and communicating marketing as an investment, not a
cost. 55 We’ll take a close look at marketing analytics and metrics in
Chapter 5.
CEOs and stockholders expect marketing accountability. Marketers
need to create tools for ongoing, meaningful measurement of
marketing productivity. More and more, CMOs are being held
accountable for marketing performance in the same manner as are
CFOs and leaders of other functional aspects of the business. 56
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This AT&T-sponsored display in a local YMCA calls out the dark side of
smartphone communication—texting while driving. Technology has increased
the channels of marketing communications, but at the same time created
important new responsibilities for marketers to promote proper use.
©Imeh Akpanudosen/Getty Images
This section has identified and examined several key change drivers
that are sure to impact the future of marketing. Clearly, many other trends
in the macro-level environment of business also affect marketing,
including the obvious examples of globalization, ethnic diversification,
and the growth and proliferation of technology, such as a precipitous shift
to digital and social media approaches to marketing communication. All of
these issues, and more, will be thematic throughout your reading of the
chapters ahead.
YOUR MARKETING MANAGEMENT
JOURNEY BEGINS
Some students take the marketing management course because they “have
to” take it in order to fulfill a degree requirement, not necessarily because
they see inherent value in marketing for their career as a leader and
manager. It is our hope that if you initially fell into this category, you can
now see that gaining the knowledge and skills required for marketing
management will increase your worth as an asset to any firm, regardless of
your position or job title.
83
As you progress through this course, keep in mind that marketing
management is not so much a position or a job title as it is a process and a
way of approaching decision making about important business
opportunities and challenges. Our presumption throughout this book is that
you are seeking knowledge and skills that will enable you to use marketing
to its fullest potential to positively impact organizational performance. Be
assured from the outset that a high level of personal and career value can
be derived by investing time and energy now in mastering the leadership
and management of marketing.
18
SUMMARY
Marketing as an activity, set of institutions, and processes adds value
to a firm and its internal and external stakeholders in many ways. For a
marketing manager to be successful, he or she must approach the job
with a strong understanding of what it takes to do great marketing
today, which, because of a variety of change drivers, is very different
from doing marketing in the past. Leading and managing the facets of
marketing in order to improve individual, unit, and organizational
performance—marketing management—is a core business activity in
today’s business milieu, worthy of study and mastery by any student of
business regardless of job title or professional or educational
background.
KEY TERMS
marketing management 5
marketing’s stakeholders 6
societal marketing 7
sustainability 7
value 7
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exchange 7
production orientation 9
sales orientation 9
marketing concept 10
marketing mix (4Ps of marketing) 10
customer-centric 11
differentiation 11
market orientation 11
customer orientation 11
relationship orientation 12
one-to-one marketing 12
mass customization 12
Marketing (Big M) 15
strategic marketing 15
market creation 16
marketing (little m) 16
tactical marketing 16
marketing metrics 16
APPLICATION QUESTIONS
More application questions are available online.
1. Consider the various marketing misconceptions introduced in this
chapter.
a. Pick any two of the misconceptions and develop a specific
example of each from your own experience with firms and brands.
b. How will it be beneficial for a new marketing manager to
understand the misconceptions that exist about marketing?
85
c. Can you come up with some other marketing misconceptions of
your own—ones that are not addressed in the chapter?
2. In the chapter we make a strong case for the relevance of Peter
Drucker’s key themes today, even though much of his writing was
done decades ago. Do you agree that his message was ahead of its
time and is still relevant? Why or why not? Assume you are the
CEO of a firm that wants to practice a market orientation. How will
Drucker’s advice help you to accomplish this goal?
3. Put yourself in the role of a marketing manager. From this
perspective, do you agree with the concepts of societal marketing
and sustainability? Why or why not? How does a focus on
sustainability affect the marketing manager’s role and activities?
Identify two organizations that you believe do a great job of paying
attention to sustainability and present the evidence that leads you to
this conclusion.
4. Review the section on change drivers and select any two within the
set that you want to focus on. Pick an organization of your choice
and answer the following questions:
a. In what ways does each of the change drivers impact the firm’s
ability to successfully do marketing?
b. How is the firm responding to the change drivers in the way it
approaches its business? What should it be doing that it is not
doing at present?
c. What role do you believe the marketing manager has in
proactively preparing for these and future change drivers?
19
5. In the chapter you learned that harmonious performance of
Marketing (big M) and marketing (little m) within a firm can lead to
greater levels of success. Why is this true? What does it mean that
these two need to be “harmonious”? What would be some likely
negative consequences if they were out of sync?
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MANAGEMENT DECISION CASE
From Clydesdales to Talking Frogs:
Budweiser’s Strategic Adaptability Keeps It
a Winner
In the rapidly changing world of today’s marketing manager, for a
brand to survive and thrive over the long run, its marketing strategy
must stay ahead of the curve. It must continually evolve—
responding to the changing needs and preferences of customers
and taking advantage of the many new tools for connecting with its
target markets. Over the course of its 150 years, 57 the Budweiser
brand has not only survived but thrived, thanks to strong marketing
management focused on providing value and effectively
communicating that value to its customers.
In 1864, Adolphus Busch partnered with his father-in-law,
Eberhard Anheuser, to begin brewing beer in St. Louis. Anheuser
was a marketing pioneer in those early years, using a strong mix of
the most cutting-edge promotional tools of the day: print and
outdoor advertising, point-of-sale material in saloons, an inventory
of giveaway items, and a large cadre of traveling salesmen (yes,
they were all men back then). 58 Fast forward to 1908: anticipating
Prohibition, Busch used newspaper ads to remind readers (and
regulators) that the beer industry employed 750,000 people who
touch 4 million women and children family members, and that
400,000 more people were employed on farms that produced
crops needed to make beer. In a patriotic theme to be revisited in
future years, Busch and Anheuser proclaimed to everyone that
beer industry employees “love their homes,” and “are good, honest
citizens, temperate, patriotic, and true.” 59
Despite their best efforts to thwart it, Prohibition arrived in
1920, and the minds behind Budweiser responded with a major
modification to the product component of the marketing mix: the
introduction of nonalcoholic beer and soft drinks. 60 When
87
Prohibition ended in 1933, the knee-jerk marketing approach of
most beer brands was to simply announce they were back in
business with ads in the key newspapers of the day (The New
York Times, for example). Budweiser took a bit bolder marketing
approach. In an early example of event marketing, Budweiser
celebrated the return of legal booze with six Clydesdale horses
pulling a red, white, and gold beer wagon up New York’s Fifth
Avenue to the Empire State Building. 61 These majestic horses
were a very early “brand character,” and of course they would go
on to appear many times in Budweiser promotions in the coming
years.
After the Great Depression, Budweiser made a major product
packaging innovation—beer in cans—that dramatically boosted
product sales. The 1940s brought the now-famous slogan, or
tagline, the “King of Beers,” which is still in use today. In the 1980s,
faced with more health-conscious consumers, Budweiser
responded with one of its biggest product innovations: Bud Light.
Although Budweiser grew to be the number 1 American beer brand
in 1988, by 2001 the Bud Light brand line extension overtook its
big brother for first place in U.S. beer sales. Also in the 1980s,
Budweiser took the bold marketing strategy step of focusing almost
exclusively on sports-watching males. So it was only natural that
Budweiser would decide to dominate the premier sporting event—
the Super Bowl, of course. While requiring a huge promotional
expenditure, the annual event gave them instant access to a
massive audience of these targeted sports-watching males, and it
was also a great platform for some very memorable and creative
advertising (search for “Budweiser Frogs commercial” or
“Budweiser Whassup commercial” to see a couple of famous
classics). 62 Budweiser was indeed the King of Beers—and the
King of Marketers!
But alas, market preferences shifted in the 1990s toward wine
and cocktails, causing a marked decline in beer sales and
heightening the role of marketing management even more for
Budweiser. Ultimately, the emerging microbrewery craze set
20
88
in; in 2008, Anheuser-Busch was sold to the Belgian company
InBev (the new corporate name is AB Inbev). 63 Although no longer
an “American-owned” beer, Budweiser continues to push its strong
association with Americana through cutting-edge Super Bowl
commercials and the return of the beloved Clydesdales.
Budweiser’s 2017 Super Bowl ad reached even further back into
its American history, telling the story of Adolphus Busch’s
immigration to the United States. 64
Budweiser continues to innovate with products focused on
females and millennials. In 2012, it launched a blend of beer and
cocktail called Lime-A-Rita, with additional flavors recently
released. 65 In 2014, 200,000 millennials were invited to vie for
1,000 spots at Whatever, USA, a Budweiser-led event in Crested
Butte, Colorado, where guests partied with celebrities, made many
new friends, and, of course, drank Bud Light. The strategy was
executed largely through digital and social media. 66
Over all these years, Budweiser’s longevity and continued
success is a testament to the power of strong, adaptive marketing
management—always staying fresh in the market, relevant to new
groups of customers, and effective in using the day’s most
effective promotional tools to communicate the brand’s value and
differentiation.
Questions for Consideration
1. Over the course of its history, Budweiser’s marketing responded
to major regulatory and cultural changes, such as Prohibition
and the changing role of women in society. What other changes
are either happening now or are on the horizon to which today’s
marketing managers at Budweiser should respond? What
should that response be?
2. In this account of Budweiser’s history there is evidence of both
“Big M” marketing and “little m” marketing. Which of these two
types of marketing do you think is Budweiser’s greater strength?
Support your answer with examples to demonstrate your
89
understanding of these concepts.
3. The most recent threat to Budweiser’s dominance is the
microbrewery craze, which has created (or resulted from) a set
of more discriminating beer drinkers, not so different from wine
aficionados. One approach Budweiser has taken in their
commercials is to make fun of these enthusiasts. Do you believe
this is an effective strategy? Why or why not? What alternative
communication or product innovation strategies (if any) should
be considered to reach this segment?
NOTES
1. @Wendy’s. Twitter, 2017, https://twitter.com/Wendys?
ref_src=twsrc%5Egoogle%7Ctwcamp%5Eserp%7Ctwgr%5Eauthor
2. Source: Jayson DeMers. “What Your Business Should Know
before Imitating Wendy’s Twitter Feed.” Forbes, January 17,
2017,
https://www.forbes.com/sites/jaysondemers/2017/01/17/is-
wendys-winning-or-losing-with-its-twitter-roasting-
streak/#2129cb6a1944.
3. Pola B. Gupta, Paula M. Saunders, and Jeremy Smith,
“Traditional Master of Business Administration (MBA) versus the
MBA with Specialization: A Disconnection between What
Business Schools Offer and What Employers Seek,” Journal of
Education for Business 82, no. 8 (2007), pp. 307–12.
4. David W. Stewart, “How Marketing Contributes to the Bottom
Line,” Journal of Advertising Research 48, no. 1 (2008), p. 94.
5. Malcolm A. McNiven, “Plan for More Productive Advertising,”
Harvard Business Review 58, no. 2 (1980), p. 130.
6. Mitchell J. Lovett and Jason B. MacDonald, “How Does
Financial Performance Affect Marketing? Studying the
Marketing-Finance Relationship from a Dynamic Perspective,”
Journal of the Academy of Marketing Science 33, no. 4 (2005),
90
https://twitter.com/Wendys?ref_src=twsrc%5Egoogle%7Ctwcamp%5Eserp%7Ctwgr%5Eauthor
https://www.forbes.com/sites/jaysondemers/2017/01/17/is-wendys-winning-or-losing-with-its-twitter-roasting-streak/#2129cb6a1944
pp. 476–85; and Ramesh K. S. Rao and Neeraj Bharadwaj,
“Marketing Initiatives, Expected Cash Flows, and Shareholders’
Wealth,” Journal of Marketing 72, no. 1 (2008), pp. 16–26.
7. Source: Peter F. Drucker, The Practice of Management. New
York, NY: HarperCollins Publishers, pp. 37–38, 1954.
8. Source: Peter F. Drucker, Management: Tasks, Responsibilities,
Practices (New York: Harper and Row, 1973), p. 63.
9. Shaun Powell, “The Management and Consumption of
Organisational Creativity,” Journal of Consumer Marketing 25,
no. 3 (2008), pp. 158–66.
10. Rosa Chun and Gary Davies, “The Influence of Corporate
Character on Customers and Employees: Exploring Similarities
and Differences,” Journal of the Academy of Marketing Science
34, no. 2 (2006), pp. 138–47.
11. John Grant, “Green Marketing,” Strategic Direction 24, no. 6
(2008), pp. 25–27.
12. Source: “About Unilever,” Unilever, n.d.,
https://www.unilever.com/about/who-we-are/about-Unilever/.
13. Leonie Roderick, “Unilever Puts Brands Front and Centre in
Renewed Sustainability Push,” Marketing Week, September 1,
2016, https://www.marketingweek.com/2016/09/01/unilever-
puts-brands-front-and-centre-in-renewed-sustainability-push/.
14. Toms, n.d., http://www.toms.com/.
15. Charlotte Rogers, “How Toms Engaged 3.5 Million People in
One Day,” Marketing Week, June 29, 2016,
https://www.marketingweek.com/2016/06/29/how-footwear-
brand-toms-engaged-3-5-million-people-in-one-day-using-tribe-
power/.
16. Stuart Elliot, “Selling Products by Selling Shared Values,” New
York Times,
www.nytimes.com/2013/02/14/business/media/panera-to-
advertise-its-socialconsciousness-advertising.html?
pagewanted=all&_r=0.
21
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https://www.unilever.com/about/who-we-are/about-Unilever/
https://www.marketingweek.com/2016/09/01/unilever-puts-brands-front-and-centre-in-renewed-sustainability-push/
http://www.toms.com/
https://www.marketingweek.com/2016/06/29/how-footwear-brand-toms-engaged-3-5-million-people-in-one-day-using-tribe-power/
http://www.nytimes.com/2013/02/14/business/media/panera-to-advertise-its-socialconsciousness-advertising.html?pagewanted=all&_r=0
17. Michael J. Barone, Kenneth C. Manning, and Paul W. Miniard,
“Consumer Response to Retailers’ Use of Partially Comparative
Pricing,” Journal of Marketing 68, no. 3 (2004), pp. 37–47; and
Dhruv Grewal and Joan Lindsey-Mullikin, “The Moderating Role
of the Price Frame on the Effects of Price Range and the
Number of Competitors on Consumers’ Search Intentions,”
Journal of the Academy of Marketing Science 34, no. 1 (2006),
pp. 55–63.
18. Jyh-shen Chiou and Cornelia Droge, “Service Quality, Trust,
Specific Asset Investment, and Expertise: Direct and Indirect
Effects in a Satisfaction-Loyalty Framework,” Journal of the
Academy of Marketing Science 34, no. 4 (2006), pp. 613–28.
19. Source: Jaworski, Bernie, Rob Malcolm, and Neil Morgan. “7 Big
Problems in the Marketing Industry,” Marketing News, 2016.
20. Source: “Henry Ford Quotes,” UBR Inc.,
www.people.ubr.com/historical-figures/by-first-name/h/henry-
ford/henry-ford-quotes.aspx.
21. Louis E. Boone and David L. Kurtz, Contemporary Marketing
(Hinsdale, IL: Dryden Press, 1974), p. 14.
22. Source: General Electric Company, 1952 Annual Report (New
York: General Electric Company, 1952), p. 21.
23. Neil H. Borden, “The Concept of the Marketing Mix,” Journal of
Advertising Research 4 (June 1964), pp. 2–7; and E. Jerome
McCarthy, Basic Marketing: A Managerial Approach
(Homewood, IL: Irwin, 1960).
24. Bernard Cova and Robert Salle, “Marketing Solutions in
Accordance with the S-D Logic: Co-creating Value with
Customer Network Actors,” Industrial Marketing Management
37, no. 3 (2008), pp. 270–77.
25. Evangelia D. Fassoula, “Transforming the Supply Chain,”
Journal of Manufacturing Technology Management 17, no. 6
(2006), pp. 848–60.
26. Jonathan Bacon, “The Big Debate: Are the ‘4Ps of Marketing’
Still Relevant?” Marketing Week, February 9, 2017,
https://www.marketingweek.com/2017/02/09/big-debate-4ps-
92
http://www.people.ubr.com/historical-figures/by-first-name/h/henry-ford/henry-ford-quotes.aspx
https://www.marketingweek.com/2017/02/09/big-debate-4ps-marketing-still-relevant/
marketing-still-relevant/.
27. Mary Jo Bitner and Bernard H. Booms, “Marketing Strategies
and Organizational Structures for Service Firms,” in Marketing of
Services, J. Donnelly and W. George, eds. (Chicago: American
Marketing Association, 1981), pp. 47–51.
28. V. Kumar and J. Andrew Petersen, “Using a Customer-Level
Marketing Strategy to Enhance Firm Performance: A Review of
Theoretical and Empirical Evidence,” Journal of the Academy of
Marketing Science 33, no. 4 (2005), pp. 504–20; and Stephen L.
Vargo and Robert F. Lusch, “Evolving to a New Dominant Logic
for Marketing,” Journal of Marketing 68, no. 1 (2004), pp. 1–17.
29. Liad Stein, “4 Examples of Successful Businesses Following a
Customer-Centric Model,” Nanorep, June 28, 2016,
https://www.nanorep.com/4-examples-of-customer-centric-
models.
30. Sundar Bharadwaj, Terry Clark, and Songpol Kulviwat,
“Marketing, Market Growth, and Endogenous Growth Theory:
An Inquiry into the Causes of Market Growth,” Journal of the
Academy of Marketing Science 33, no. 3 (2005), pp. 347–60.
31. Mindy Weinstein, “A Trillion-Dollar Demographic: 10 Brands
That Got Millennial Marketing Right,” Search Engine Journal,
July 23, 2015, https://www.searchenginejournal.com/trillion-
dollar-demographic-10-brands-got-millennial-marketing-
right/135969/.
32. Vargo and Lusch, “Evolving to a New Dominant Logic for
Marketing.”
33. Stan Phelps, “Southwest Airlines Understands the Heart of
Marketing Is Experience,” Forbes, September 14, 2014,
https://www.forbes.com/sites/stanphelps/2014/09/14/southwest-
airlines-understands-the-heart-of-marketing-is-
experience/#1677aefa2bda.
34. Mark W. Johnston and Greg W. Marshall, Relationship Selling,
2nd ed. (New York: McGraw-Hill/Irwin, 2008), p. 5.
35. George S. Day, “Managing Market Relationships,” Journal of the
Academy of Marketing Science 28, no. 1 (2000), pp. 24–31.
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https://www.nanorep.com/4-examples-of-customer-centric-models
https://www.searchenginejournal.com/trillion-dollar-demographic-10-brands-got-millennial-marketing-right/135969/
https://www.forbes.com/sites/stanphelps/2014/09/14/southwest-airlines-understands-the-heart-of-marketing-is-experience/#1677aefa2bda
36. Simon J. Bell, Seigyoung Auh, and Karen Smalley, “Customer
Relationship Dynamics: Service Quality and Customer Loyalty in
the Context of Varying Levels of Customer Expertise and
Switching Costs,” Journal of the Academy of Marketing Science
33, no. 2 (2005), pp. 169–84; and Girish Ramani and V. Kumar,
“Interaction Orientation and Firm Performance,” Journal of
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37. Joseph Pigato, “How 9 Successful Companies Keep Their
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38. Don Peppers and Martha Rogers, The One-to-One Manager:
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39. Jagdish N. Sheth, Rajendra S. Sisodia, and Arun Sharma, “The
Antecedents and Consequences of Customer-Centric
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no. 1 (2000), pp. 55–67.
40. Cotton Timberlake, “Retailers Cater to Customization Craze,”
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41. Fred Wiersema, The New Market Leaders: Who’s Winning and
How in the Battle for Customers (New York: Free Press, 2001),
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42. Jonathan Salem Baskin, “The Internet Didn’t Kill Blockbuster,
the Company Did It to Itself,” Forbes, November 8, 2013,
https://www.forbes.com/sites/jonathansalembaskin/2013/11/08/the-
internet-didnt-kill-blockbuster-the-company-did-it-to-
itself/#7a5c2cf6488d.
43. Efhymios Constantinides and Stefan J. Fountain, “Web 2.0:
Conceptual Foundations and Marketing Issues,” Journal of
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231–45.
44. Anonymous, “Search and Seizure,” Marketing Health Services
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45. Barton Goldenberg, “Conquering Your 2 Biggest CRM
Challenges,” Sales & Marketing Management 159, no. 3 (2007),
p. 35.
46. Natalia Angulo, “Girl Scout Cookie Finder App Helps You Find
Your Thin Mints,” Fox News, February 7, 2013,
www.foxnews.com/tech/2013/02/07/girl-scout-cookie-finder-app-
helps-buyers-find-their-thin-mints/.
47. Ruth Maria Stock and Wayne D. Hoyer, “An Attitude-Behavior
Model of Salespeople’s Customer Orientation,” Journal of the
Academy of Marketing Science 33, no. 4 (2005), pp. 536–53.
48. Dan Schawbel, “10 New Findings about the Millennial
Consumer,” Forbes, January 20, 2015,
https://www.forbes.com/sites/danschawbel/2015/01/20/10-new-
findings-about-the-millennial-consumer/2/#6f5b812c1474.
49. Mindy Weinstein, “A Trillion-Dollar Demographic: 10 Brands
That Got Millennial Marketing Right,” Search Engine Journal,
July 23, 2015, https://www.searchenginejournal.com/trillion-
dollar-demographic-10-brands-got-millennial-marketing-
right/135969/; “NPD Group: Millennials Not abandoning
Chipotle,” Fast Casual, February 18, 2016,
https://www.fastcasual.com/news/npd-group-millennials-not-
abandoning-chipotle/.
50. Micah Solomon, “You’ve Got Millennial Employees All Wrong;
Here Are the Four Things You Need to Know Now,” Forbes,
January 26, 2016,
https://www.forbes.com/sites/micahsolomon/2016/01/26/everything-
youve-heard-about-millennial-employees-is-baloney-heres-the-
truth-and-how-to-use-it/#7b693dfe4904.
22
51. Katherine Reynolds Lewis, “Everything You Need to Know
about Your Millennial Co-Workers,” Fortune, June 23, 2015,
http://fortune.com/2015/06/23/know-your-millennial-co-workers/.
52. Marco Vriens, “Strategic Research Design,” Marketing Research
15, no. 4 (2003), p. 20.
53. Lovett and MacDonald, “How Does Financial Performance
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https://www.forbes.com/sites/danschawbel/2015/01/20/10-new-findings-about-the-millennial-consumer/2/#6f5b812c1474
https://www.searchenginejournal.com/trillion-dollar-demographic-10-brands-got-millennial-marketing-right/135969/
https://www.fastcasual.com/news/npd-group-millennials-not-abandoning-chipotle/
https://www.forbes.com/sites/micahsolomon/2016/01/26/everything-youve-heard-about-millennial-employees-is-baloney-heres-the-truth-and-how-to-use-it/#7b693dfe4904
http://fortune.com/2015/06/23/know-your-millennial-co-workers/
Affect Marketing?”; and Steven H. Seggie, “Assessing Marketing
Strategy Performance,” Journal of the Academy of Marketing
Science 34, no. 2 (2006), pp. 267–69.
54. Thomas S. Gruca and Lopo L. Rego, “Customer Satisfaction,
Cash Flow, and Shareholder Value,” Journal of Marketing 69,
no. 3 (2005), pp. 115–30.
55. “Marketing Return on Investment,” McKinsey & Company, 2017,
http://www.mckinsey.com/business-functions/marketing-and-
sales/how-we-help-clients/marketing-return-on-investment.
56. Frederick E. Webster, Jr., Alan J. Malter, and Shankar
Ganesan, “Can Marketing Regain Its Seat at the Table?”
Marketing Science Institute Working Paper Series, Report No.
03-113 (2004).
57. Fastco Studios, “Whassup?! 150 Years of Budweiser History,
from Clydesdales to Talking Frogs, in 2 Minutes,” Fast
Company, web video, October 2, 2014,
www.fastcompany.com/3036422/whassup-150-years-of-
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58. “Anheuser-Busch,” Advertising Age, September 15, 2003,
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59. Jay R. Brooks, “Beer in Ads #623: Budweiser’s 6000 Men,”
Brookston Beer Bulletin, June 4, 2012,
http://brookstonbeerbulletin.com/beer-in-ads-623-budweisers-
6000-men/.
60. Fastco Studios, “Whassup?!”
61. Anheuser-Busch, “Horse-Story in the Making: The Budweiser
Clydesdales,” Anheuser-Busch, November 21, 2016,
http://www.anheuser-busch.com/about/clydesdale.html.
62. Fastco Studios, “Whassup?!”
63. Fastco Studios, “Whassup?!”
64. Will Burns, “Budweiser Tells Its Own Immigration Story in Super
Bowl Ad,” Forbes, January 31, 2017,
https://www.forbes.com/sites/willburns/2017/01/31/budweiser-
96
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http://adage.com/article/adage-encyclopedia/anheuser-busch/98319/
http://www.anheuser-busch.com/about/clydesdale.html
https://www.forbes.com/sites/willburns/2017/01/31/budweiser-tells-its-own-immigration-story-in-super-bowl-ad/#446cab0e2907
tells-its-own-immigration-story-in-super-bowl-
ad/#446cab0e2907.
65. John Kell, “AB InBev Is Marketing Bud Light Lime-A-Rita
Exclusively to Women,” Fortune, March 13, 2017,
http://fortune.com/2017/03/13/ab-inbev-lime-a-rita-women/.
66. Kristina Monllos, “Inside Whatever, USA: Bud Light’s Party
Town as ‘Content Factory,’” Adweek, June 2, 2015,
www.adweek.com/brand-marketing/inside-whatever-usa-bud-
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October 7, 2014,
www.forbes.com/sites/jefffromm/2014/10/07/the-secret-to-bud-
lights-millennial-marketing-success/#5f0854ee7054.
97
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http://www.adweek.com/brand-marketing/inside-whatever-usa-bud-lights-party-town-content-factory-165114/
http://www.forbes.com/sites/jefffromm/2014/10/07/the-secret-to-bud-lights-millennial-marketing-success/#5f0854ee7054
24
CHAPTER 2
Marketing
Foundations:
Global, Ethical,
Sustainable
LEARNING OBJECTIVES
LO 2-1 Identify the various levels in the Global Marketing
Experience Curve.
LO 2-2 Learn the essential information components for
assessing a global market opportunity.
98
LO 2-3 Define the key regional market zones and their
marketing challenges.
LO 2-4 Describe the strategies for entering new global
markets.
LO 2-5 Recognize key factors in creating a global product
strategy.
LO 2-6 Learn the importance of ethics in marketing strategy,
the value proposition, and the elements of the
marketing mix.
LO 2-7 Recognize the significance of sustainability as part of
marketing strategy and the use of the triple bottom
line as a metric for evaluating corporate performance.
25
How do the three topics of this chapter—global, ethical, sustainable—fit
together? You may have asked that question when you read the title.
However, these topics represent the foundation of marketing and build on
the ideas and concepts discussed in Chapter 1. Though they may seem
unrelated, they are linked together because companies realize that success
in the marketing place today is defined, in part, by a company’s ability to
consider global opportunities, clearly define its values, and develop a value
proposition and marketing strategy that considers factors beyond profit
(sustainability). In this chapter, we explore each of these topics, linking
them back to the concepts in Chapter 1 and introducing information that
you will use throughout the rest of the book.
MARKETING IS NOT LIMITED BY BORDERS
From large multinationals to small start-up companies, business is no
longer confined to a company’s local market. Worldwide distribution
networks, sophisticated communication tools, greater product
standardization, and the Internet have opened world markets. Large
99
companies such as Nestlé, P&G, Amazon, and General Electric leverage
their considerable assets to build global companies that do business
anywhere in the world (see Exhibit 2.1). At the same time, with relatively
minimal investment, small companies access international markets with
only a website and an international shipping company. 1
While the opportunities have never been greater, the risks have also
never been higher. Global marketing mistakes are expensive. The
international competitive landscape includes sophisticated global
companies as well as successful local organizations. The operating
environment varies dramatically around the world, creating real challenges
for companies moving into new markets. Global customers demand
different products, which means that successful products in a company’s
local market frequently have to be adapted to new markets. 2 All these
factors establish global marketing as one of the most demanding but
rewarding areas in marketing.
THE GLOBAL EXPERIENCE LEARNING
CURVE
LO 2-1
Identify the various levels in the Global Marketing Experience Curve.
An understanding of marketing beyond home markets develops over time
as a company gets more international business experience. This process is
referred to as the global experience learning curve. In some cases this
happens quickly. General Motors moved into Canada in 1918, only two
years after being incorporated, and eBay opened in the United Kingdom
during its first year of operation. However, other companies take much
longer to push into global markets. Walmart opened its first international
store in Mexico City in 1991, nearly 30 years after Sam Walton opened the
first store in Bentonville, Arkansas. Exhibit 2.2 lists the global expansion
histories of a number of companies.
100
EXHIBIT 2.1 World’s Largest International
Companies in 2016
Company Revenue ($ Millions)
Walmart $484,130
State Grid 329,601
China National Petroleum 299,271
Sinopec Group 294,344
Royal Dutch Shell 272,156
ExxonMobil 246,204
Volkswagen 236,600
Toyota Motor 236,592
Apple 233,715
BP 225,982
Source: “Fortune Global 500,” Time Inc., July 3, 2016.
26
As a global airline, Emirates wants to promote international togetherness with
the hope of more people traveling and, not surprisingly, choosing Emirates.
101
Source: The Emirates Group
The global experience learning curve moves a company through four
distinct stages: no foreign marketing, foreign marketing, international
marketing, and global marketing. The process is not always linear;
companies may, for example, move directly from no foreign marketing to
international marketing without necessarily engaging in foreign marketing.
In addition, the amount of time spent in any stage can vary; some
companies remain in a stage for many years.
Companies with No Foreign Marketing
Many companies with no direct foreign marketing still do business with
international customers through intermediaries or limited direct contact. In
these cases, however, there is no formal international channel relationship
or global marketing strategy targeted at international customers. Of course,
any company with a website is now a global company as someone can
visit the site from anywhere in the world, but companies with no foreign
marketing consider any sales to an international customer as incidental.
The typical company with no foreign marketing is usually small, with
a limited range of products. Increasingly though, small companies move
into international markets much faster than even a decade ago. This is due,
in part, to domestic distributor relationships, local customers with global
operations, and effective websites, which have all created international
opportunities for many small companies with limited resources.
Companies with Foreign Marketing
Companies often develop a more formal international strategy by
following their existing customers into foreign markets. Domestic
customers with global operations may demand more service or place
additional orders that require the company to work with their foreign
EXHIBIT 2.2 Examples of Global Companies and
Their Expansion into Global Markets
102
Years to
Expansion
U.S.
Company
First Expansion
29 Walmart
(est.
1962)
1991: Walmart opens two units in
Mexico City.
20 Hewlett-
Packard
(est.
1939)
1959: HP sets up a European
marketing organization in Geneva,
Switzerland, and a manufacturing
plant in Germany.
26 Tyson
Foods
(est.
1963)
1989: Tyson establishes a
partnership with a Mexican poultry
company to create an
international partnership.
25 Caterpillar
(est.
1925)
1950: Caterpillar Tractor Co. Ltd.
in Great Britain is founded.
19 Home
Depot
(est.
1979)
1998: Home Depot enters the
Puerto Rican market, followed by
entry into Argentina.
18 Gap (est.
1969)
1987: The first Gap store outside
the United States opens in
London on George Street.
12 Goodyear
(est.
1898)
1910: Goodyear’s Canadian plant
opens.
10 FedEx
(est.
1971)
1981: International delivery begins
with service to Canada.
1 PepsiCo
(est.
1965)
1966: Pepsi enters Japan and
Eastern Europe.
27
103
subsidiaries. This stage of the global experience learning curve is called
foreign marketing and involves developing local distribution and service
representation in a foreign market in one of two ways. One method is to
identify local intermediaries in appropriate international markets and
create a formal relationship. The second
approach is for the company to establish its own direct sales force in major
markets, thereby expanding the company’s direct market reach.
In either scenario, key activities (product planning and development,
manufacturing) are still done in the company’s home market, but products
are modified to fit international requirements. Global markets are
important enough for management to build international sales forecasts,
and manufacturing allocates time specifically to international production.
At this point, international markets are no longer an afterthought, but
rather an integral, albeit small, part of the company’s growth model. 3
EXHIBIT 2.3 Large U.S. Companies with over 50%
of Revenue from International
Markets
Company Percent of Sales from International
Markets
Qualcomm 98%
Intel 82
McDonald’s 68
Dow Chemical 66
General Motors 63
Apple 62
Nike 55
Johnson &
Johnson
53
General Electric 53
104
International Marketing
When a firm makes the commitment to manufacture products outside its
domestic market, it is engaged in international marketing. While
companies can be heavily involved in international markets with extensive
selling organizations and distribution networks, the decision to
manufacture outside its home market marks a significant shift toward an
integrated international market strategy. Global markets become an
essential component of the company’s growth strategy, and resources are
allocated to expand the business into those markets. The company
incorporates an international division or business unit that has
responsibility for growing the business in targeted foreign markets.
International marketing aligns the company’s assets and resources with
global markets, but, in the vast majority of companies, management still
takes a “domestic first” approach to the business. As a result, the corporate
structure still divides international and domestic markets.
Global Marketing
A global marketing company realizes that all world markets (including the
company’s own domestic market) are, in reality, a single market with
many different segments. This frequently happens when a company
generates more than half its revenue in international markets. Exhibit 2.3
highlights companies considered traditional American companies but that
generate more than half their revenue outside the United States.
The most significant difference between international and global
marketing organizations is management philosophy and corporate
planning. Global marketers treat the world as a single, unified market with
many different segments that may or may not fall along countries’ political
boundaries. International marketers, on the other hand, define markets
along traditional political boundaries and, most often, assign unique status
to their domestic market.
The first step in moving into global markets is to evaluate the market
opportunities. Since a company’s management team is usually less familiar
with foreign markets, research helps fill in the blanks, providing critical
information for decision makers.
105
Essential Information
LO 2-2
Learn the essential information components for assessing a global
marketing opportunity.
Global market research focuses on five basic types of information.
Economic An accurate understanding of the current economic
environment, such as gross domestic product (GDP) growth, inflation,
strength of the currency, and business
28
cycle trends, is essential. Also, depending on the company’s target markets
(consumer or business), additional economic data on consumer spending
per capita (consumer products) or industrial purchasing trends (business
products) are also needed to facilitate decision making. Exhibit 2.4
identifies the five largest economies in the world based on GDP, which is
the total market value of all final goods and services produced in a country
in a given year and one of the most widely used measures of economic
growth.
EXHIBIT 2.4 Top 5 Economies Based on GDP
Top 5
Economies
GDP (purchasing power parity) (US$
trillion)
China $21.27
European Union $19.18
United States $18.56
India $ 8.72
Japan $ 4.93
106
Source: 2016 CIA World Fact Book
Culture, Societal Trends Understanding a global market’s culture
and social trends is fundamental for consumer products and helpful for
business- to-business marketers. Cultural values, symbols and rituals, and
cultural differences affect people’s perception of products while B2B
companies must learn local cultural practices to recruit employees and
establish good business relationships. 4
Business Environment Knowledge of the business environment is
essential for companies moving into foreign markets where they will
invest significant resources. Ethical standards, management styles, degree
of formality, and gender or other biases are all critical factors that
management needs to know before entering a new market. Failure to
understand the business environment can lead to misunderstanding and
lost relationships as the company enters a new market. (See Exhibit 2.5 for
examples.)
Political and Legal Local political changes can create significant
uncertainties for a business. As witnessed in Bolivia and other countries,
new governments sometimes alter the relationship of government to
industry by exerting greater control and even nationalizing some
industries.
Learning the legal landscape is fundamental before committing
resources in a foreign market. Developing countries frequently limit the
flow of money out of the country, making it harder for a foreign company
to transfer money back home. Labor laws also vary widely around the
world. Germany and France, for example, make it difficult to terminate
someone once that person has
EXHIBIT 2.5 Business Customs in Five Selected
Countries
When Remember. . .
107
you are
doing
business
in. . .
The
Czech
Republic
Relationship building is important. Start with
small talk and get to know the individual you are
working with.
France You should address the French as Monsieur or
Madame followed by his or her last name. Use
first names only after you are encouraged to do
so.
Japan Exchanging business cards is a brief ceremony.
Use both hands to accept the card and look over
each side before you slip it into your jacket
pocket or briefcase.
Germany Punctuality is extremely important. Be on time or
you may seem disrespectful.
Colombia Colombians stand closer to each other than do
Americans. Do not step back if you feel they are
too close; you may seem rude.
Source: Kwintessential.co.uk
29
been hired, while Great Britain’s termination policies are more consistent
with those of the United States.
Specific Market Conditions Before entering a foreign market, a
company has some understanding of the specific market conditions for its
own products as a result of its existing business knowledge. However, it is
unlikely a company has in-depth knowledge about market trends,
competitors, and unique market characteristics. Unfortunately, many
companies that follow customers into a particular market believe it is
unnecessary to know a lot about local market conditions. This lack of
understanding can limit growth opportunities. The more a company knows
about the local market environment, the better it will be able to leverage its
108
http://Kwintessential.co.uk
investment in that market.
EXHIBIT 2.6 Fastest-Growing World Economies
Country 2017 GDP Real Growth Rate (%)
Libya 13.73
Yemen 12.62
Côte d’Ivoire 7.98
Myanmar 7.70
India 7.61
Source: IMF, World Economic Outlook, October 2016.
Emerging Markets
World economic growth for much of the 20th century was fueled by the
developed economies of Western Europe, the United States, and Japan.
Over the past 25 years, however, while developed economies continue to
grow, the most significant economic growth is found in emerging markets.
Indeed, 75 percent of world economic growth over the next 20 years is
projected to come from a new group of powerful economies, most notably
China and India. These economic growth engines create market
opportunities for companies, which, in turn, means marketers need to
understand the unique challenges and opportunities of emerging markets. 5
Exhibit 2.6 highlights the fastest-growing economies in the world. Notice
that, with the exception of India, the fastest-growing economies are small
and their significant percentage growth is due in large part to the fact that
the country’s economy is starting from a much smaller economic base.
Libya, for example, grew nearly 14 percent in 2017, but that does not
mean it represents a good market opportunity.
The nature of emerging markets means traditional marketing methods
will not be effective. For example, if the majority of a country lacks a
109
television or radio and cannot read, traditional advertising campaigns will
not work, or if a country lacks a distribution network, it will not be
possible to deliver products to customers.
The challenge for marketers, particularly consumer products
companies, is that demand for their products may be strong, but there is
insufficient income to purchase the product and inadequate infrastructure
to support sophisticated market programs. Soon after the Velvet
Revolution in the Czech Republic, Estee Lauder opened a store in Prague
targeted at Czech women living in the capital. 6 At first the company
experienced problems because products that sold well in Western Europe
and the United States simply were not being purchased. The company
came to realize the products were sized and priced according to Western
European standards and too expensive for the local Czech businesswoman.
The solution was to sell sample sizes (which are often offered as premiums
in promotional packages sold in the United States) for a fraction of the
large product sizes. Czech women wanted to purchase Estee Lauder
cosmetics, but at a size and price consistent with the local market.
Multinational Regional Market Zones
LO 2-3
Define the key regional market zones and their marketing challenges.
The single most significant global economic trend over the past 15 years is
the emergence of regional market zones around the world. Regional
market zones consist of a group of countries that create formal
relationships for mutual economic benefit through lower tariffs and
reduced trade barriers. In some cases, such as the European Union, their
influence extends beyond economic concerns to political and social issues.
Many countries believe membership in an economic alliance will be
essential for access to markets in the future. As the world divides itself into
a handful of powerful economic alliances, countries feel
30
110
EXHIBIT 2.7 Top Four Regional Market Zones
Source: ©Alliance Images/Alamy Stock Photo
pressure to align with a regional market zone. Exhibit 2.7 identifies four of
the largest regional market zones.
Regional market zones generally form as a result of four forces. The
first and most fundamental factor is economic. Many small and medium-
sized countries believe growth in their own country will be enhanced by
forming alliances with other countries. By enlarging the trading area and
creating a market zone, each country benefits economically and the market
zone has more power in the global marketplace. Second, research suggests
geographic proximity to other alliance partners is advantageous in the
development of a market zone. Transportation and communication
networks are more likely to connect countries close to one another, making
it easier to facilitate market zone activities. Other issues such as
immigration also tend to be handled more effectively when the distance
between partners is minimized. The third factor is political. Closely related
to increased economic power is increased political clout, particularly as
smaller countries form broad political alliances. A prerequisite for
effective political alliances among countries is general agreement on
government policies. Countries with widely disparate political structures
111
find it difficult to accommodate those differences in a political alliance.
Cultural similarities, such as having a shared language, among alliance
partners also facilitate market zones as shared cultural experiences
encourage greater cooperation and minimize possible conflicts from
cultural disparities.
Europe The European Union is the most successful regional market
zone and it is also one of the oldest. Founded more than 50 years ago by
six countries (Belgium, France, Italy, Luxembourg, the Netherlands, and
West Germany) with the Treaty of Rome, the EU now includes 28
countries spanning all of Europe. In addition, five countries are seeking
membership in the European Union: Iceland, Macedonia, Montenegro,
Serbia, and Turkey. The process of becoming a member of the EU takes
many years, and applicants must meet a wide range of economic, social,
and legal criteria. One of the most difficult challenges for many member
states is meeting targeted government spending and total debt limits.
France and Germany (the two largest members of the EU) have both failed
to meet government spending limits in recent years, and the debt limits of
countries like Italy and Greece exceed the EU guidelines. With few
consequences for missing EU targets, many governments focus more on
local country priorities than EU directives. This has been a factor in the
ongoing challenges for the euro as countries like Greece experience
significant budget problems. Other countries (Italy, Spain, Portugal) are
also having significant problems meeting their financial obgliations. 7
31
The EU is one of the most dominant economic entities in the world,
with economic output approximately equal to that of the United States, but
it is not without challenges. Its currency, the euro, has been considered one
of the strongest in the world. However, recent challenges to the economic
stability of several EU members (such as Greece) have caused significant
fluctuations in its value. At the same time, some countries (notably Great
Britain) have voted to leave the EU, creating a great deal of uncertainty
about its future. Despite the challenges it faces, the EU maintains a great
deal of power over member states, with the ability to enact laws, impose
taxes, and exert tremendous social influence in the lives of citizens. For
example, the EU has adopted strong socially responsible policies for
112
companies doing business in member countries.
The WTO is the leading global organization to settle trade disputes between
countries.
©Martin Good/Shutterstock
Americas The most significant market zone in the Americas is the
alliance of the United States, Canada, and Mexico, which is commonly
referred to by the treaty that created the alliance, NAFTA (North American
Free Trade Agreement). NAFTA created the single largest economic
alliance and has eliminated tariffs between the member countries for more
than 19 years. Exhibit 2.8 lists NAFTA’s main provisions. Many
industries, such as automaking, have manufacturing plants in Mexico to
supply the U.S. market. Retailers have also benefited; Gigante, a large
Mexican supermarket chain, operates in the United States while Walmart,
a U.S. company, has over 800 stores in Mexico. 8
NAFTA is not the only market zone in the Americas. MERCOSUR, the
most powerful market zone in South America, was inaugurated in 1995
and includes Argentina, Bolivia, Brazil, Chile, Paraguay, and Uruguay.
With over 200 million people and a combined GDP of more than $1
trillion, it is currently the third-largest free trade area in the world. 9 One of
the drawbacks has been a limited transnational transportation network,
which restricts the movement of goods between member countries.
113
However, MERCOSUR has overcome this
EXHIBIT 2.8 Key Provisions of NAFTA
NAFTA aims to:
Eliminate barriers to trade in, and facilitate the cross-border
movement of, goods and services between the territories of the
Parties.
Promote conditions of fair competition in the free trade area.
Increase substantially investment opportunities in the territories of
the Parties.
Provide adequate and effective protection and enforcement of
intellectual property rights in each Party’s territory.
Create effective procedures for the implementation and application
of this Agreement, for its joint administration and for the resolution
of disputes; and
Establish a framework for further trilateral, regional, and multilateral
cooperation to expand and enhance the benefits of this Agreement.
Source: Article 101: Establishment of the Free Trade Area, NAFTA.
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problem by successfully leveraging the combined economic power of the
individual member countries and creating additional economic benefits for
its members.
Asia The most important Asian market zone is ASEAN, which was
founded in 1967 and comprises 10 countries in the Pacific Rim (Brunei
Darussalam, Indonesia, Malaysia, Philippines, Cambodia, Laos, Myanmar,
Singapore, Thailand, and Vietnam). After the 1997–1998 Asian financial
crisis, the group added China, Japan, and South Korea. While the
relationships with these “plus 3” countries are less developed than among
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the full member countries, the combined economic activity of all
participants makes ASEAN a powerful global economic force. 10 The GDP
of the 10 full members is over $600 billion, and if the “plus 3” countries
are included, the combined total is over $20 trillion. ASEAN is currently
leading talks to create an Asian free-trade area that would encompass “30
percent of the world’s total export volume.” The Regional Comprehensive
Economic Partnership would be second only to the WTO in size.
SELECT THE GLOBAL MARKET
Conducting a thorough assessment of potential global market opportunities
is an essential first step in entering the global market. Once the analysis is
completed, it is time to select specific countries for future investment.
Deciding which countries to enter is difficult because the risk of failure is
very high. Targeting the wrong country can lead to very high costs and
unprofitable long-term investments. Walmart pulled out of the German
market at an estimated cost of $400 million. On the other hand, moving
too slowly into a market can hamper growth and limit profit potential in
the future. eBay’s decision to move slowly into China cost the company a
dominant position in the market.
Identify Selection Criteria
Market selection criteria incorporate the nature of the competitive
environment, including both local and global competitors, as well as target
market size and future growth rates. Marketing managers need to know
which markets will be the easiest and which will be the most difficult to
enter. In addition, the size and future growth potential of international
markets are critical in making the long-term commitment to manufacture
in an international market. On the other hand, financial criteria focus on
the cost of market entry and profitability estimates over given time
periods. Decision makers are particularly interested in knowing the size of
the investment and the length of time it will take before the company can
expect to be profitable in a new market. 11
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EXHIBIT 2.9 Key Company Characteristics in
Global Market Expansion
Company Review
As a marketing manager you will need to evaluate global market
opportunities against key company characteristics to look for markets that
maximize the company’s strengths while minimizing weaknesses. Moving
into new foreign markets brings greater risk to the company. As a result,
decision makers must consider whether their company philosophy,
personnel skill sets (principally in critical areas such as marketing and
logistics), organizational structure, management expertise, and financial
resources support the move into new countries (see Exhibit 2.9).
Comparing the
33
analysis of market opportunities with company characteristics drives the
final selection as management looks for the best fit between each country’s
mix of opportunities/threats and the company’s strengths/weaknesses.
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DEVELOP GLOBAL MARKET STRATEGIES
After selecting a country, you must develop a comprehensive marketing
strategy. International expansion requires a reassessment of existing
marketing strategies. Companies often mistakenly believe they can adapt
existing market strategies to new international markets. Unfortunately,
successful market tactics in the company’s home market often fail to
translate well into foreign markets. As a result, it is necessary to construct
a marketing plan specifically designed for entering global markets.
Market Entry Strategies
LO 2-4
Describe the strategies for entering new global markets.
The first decision is how to enter the market. An entry strategy is the
framework for entering a new global market, so choosing the right strategy
is critical. This decision affects all other marketing decisions. In addition,
deciding on a market entry strategy has long-term implications because
once the strategy is selected it is difficult and expensive to change.
Entry into new global markets follows one of four basic strategies:
exporting, contractual agreements, strategic alliances, and ownership.
Within these basic strategies are various options. Generally, companies
enter new markets by exporting because it offers minimal investment and
lower risk. At the same time, potential return on investment and
profitability are lower and the company has very little control over the
process. As a company strengthens its international involvement there is
the potential for greater financial returns and control over the process;
however, risk and company investments increase.
Exporting Exporting is the most common method for entering foreign
markets and accounts for 10 percent of all global economic activity.
Primary advantages include the ability to penetrate foreign markets with
minimal investment and very little risk. Frequently, companies lack a
coherent exporting strategy and take an opportunistic approach that simply
fills orders without regard to any specific analysis or targeting.
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Most people consider exporting an initial entry strategy and not a long-
term approach to global marketing. However, some very large companies
find exporting a viable strategy despite a global market presence. Boeing
and Airbus, the two manufacturers of large jet airliners, both follow an
exporting strategy, manufacturing the jets in their home markets (Boeing
in the United States, Airbus in Europe) and then using a direct sales force
to market their planes around the world. 12
Internet. Without question, the Internet has expanded the global reach of
every company with a website. Critical to the success of the Internet
market entry strategy is easy payment and credit terms offered by global
credit companies such as MasterCard, Visa, and American Express. Credit
cards and other financial payment systems have greatly simplified
transactions, making it easier for the customer to purchase and more secure
for the company to sell products anywhere in the world. Another key is the
ability to deliver products anywhere in the world on time and in good
working order using global delivery companies such as UPS, FedEx, and
DHL. This greatly enhances customer and company confidence in a
successful transaction.
Internet retailers such as Amazon.com have moved aggressively into
global markets. Amazon has opened sites for Germany, the United
Kingdom, Canada, Japan, France, China, Italy, Spain, and Austria. In the
United Kingdom and Germany, Amazon’s sites are among the most visited
commercial sites. The Internet has also expanded the international market
reach of all retailers. For example, H&M uses an aggressive online
strategy to drive business around the world. 13
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Exporter and Distributor. The next of level of exporting involves having
country representation, which can take several forms. Exporters are
international market specialists that help companies by acting as the export
marketing department. They generally do not have much contact with the
company, but exporters provide a valuable service with their knowledge of
policies and procedures for shipping to foreign markets. For small
companies with little or no international experience, exporters expedite the
process of getting the product to a foreign customer.
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http://amazon.com
Distributors represent the company and often many others in foreign
markets. These organizations become the face of the company in that
country, servicing customers, selling products, and receiving payments. In
many cases, they take title to the goods and then resell them. The primary
advantages are that distributors know their own local markets and offer a
company physical representation in a global market, saving the company
from committing major resources to hire and staff its own operations. The
disadvantages are lack of control since distributors do not work directly for
the company and lower profitability resulting from the distributor’s
markup.
Direct Sales Force. Staffing a direct sales force in foreign markets is a
significant step for a company moving into global markets. It is expensive
to staff and maintain a local sales team in a foreign market; however,
companies will often make the commitment because of the level of control
and expertise offered by company-trained salespeople. For some
industries, creating a direct sales force is required because customers will
demand that company salespeople be in the country. This is often the case
in the technology and high-end industrial product industries.
Contractual Agreements Contractual agreements allow a
company to expand participation in a market by creating enduring,
nonequity relationships with another company, often a local company in
that market. Most often these agreements transmit something of value such
as technology, a trademark, a patent, or a unique manufacturing process in
return for financial compensation in the form of a licensing fee or
percentage of sales.
Licensing. Companies choose licensing when local partnerships are
required by law, legal restrictions prohibit direct importing of the product,
or the company’s limited financial resources limit more active foreign
participation. Companies seeking to establish greater presence in a market
without committing significant resources can choose to license their key
asset (patent, trademark) to another company, effectively giving that
company the right to use that asset in that market. Small and medium-sized
companies with a specific product competence that lack the willingness or
expertise to invest heavily in foreign operations can identify a license
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partner in a particular foreign market to manufacture products or provide
critical services such as local distribution. In addition, larger companies
use this approach to help in exporting and even manufacturing products
where more extensive investments are not justified. Pharmaceutical
companies are global manufacturers but also license their products in a
number of foreign markets. For example, Hammock Pharmaceuticals and
MilanPharm/TriLogic Pharma signed an agreement giving Hammock the
global rights to an innovative new women’s health technology that
transforms a liquid into a gel at body temperature, opening new treatment
opportunities for women around the world. 14 In these situations, there is
limited direct risk to the company, though selecting the wrong licensing
partner can be a major problem. On the other hand, licensing does not
offer high profit potential and can limit long-term opportunities if a
company awards an extended licensing contract.
Franchising. This market entry method has been growing over the last
decade; it enables companies to gain access to a foreign market with local
ownership. The franchisor, usually a company seeking to enter a foreign
market, agrees to supply a bundle of products, systems, services, and
management expertise to the franchisee in return for local market
knowledge, financial consideration (franchisee fee, percentage of sales,
required purchasing of certain products from franchisor), and local
management experience. Franchisors exert a great deal of control with
extensive franchise agreements that dictate how the franchisee will operate
the business. 15 In this way, the franchisor is able to maintain some level of
quality control at the point of customer contact.
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Franchising, as a global market entry strategy, really took off in the 1990s
and has been the first point of entry for many retailers looking to expand
international operations. McDonald’s, Burger King, KFC, and others have
created large franchising networks around the world. Nearly two-thirds of
McDonald’s restaurants are outside the United States. Combining low
capital investments, rapid expansion opportunities, and local market
expertise, franchising offers many advantages as a market entry strategy.
However, there are also challenges. Worldwide, consumer tastes vary
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significantly and franchisors need sufficient resources to create products
that will meet demands of global customers while maintaining quality
control.
Strategic Alliances As a market entry strategy, strategic alliances
have grown in importance over the past 20 years in an effort to spread risk
to other partners. In some industries, strategic alliances now dominate the
competitive landscape. Nowhere is this more noticeable than the airline
industry. oneworld Alliance (American Airlines, British Airways, Qantas,
Cathay Pacific), Sky Team (Air France, KLM, Delta, Korean Air,
AeroMexico), and Star (United, Lufthansa) have created a worldwide
network of airline partnerships that include code-sharing, frequent flyer
mileage partnerships, and some logistical support. All these alliances are
designed to make each airline stronger at its weakest point. Building a
global airline is extremely expensive and it is much more cost-effective for
Delta to partner with Air France to reach cities inside Europe than it is to
build its own network. In reality, it would not even be possible with local
legal restrictions favoring local airlines. 16 As a result, creating strategic
alliances is a necessity, and airlines create broad global partnerships to
extend their reach (see Exhibit 2.10).
International Joint Venture. A specific type of strategic alliance called
joint venture enables many companies to enter a market that would
otherwise be closed because of
EXHIBIT 2.10 Airline Strategic Alliances
ADRIA Airways, Aegean Airlines, Air
Canada, Air China, Air India, Air New
Zealand, ANA, Asiana Airlines,
Austrian, Avianca, Brussels Airlines,
Copa Airlines, Croatia Airlines,
EgyptAir, Ethiopian Airlines, EVA Air,
LOT Polish Airlines, Lufthansa, SAS,
Shenzhe Airlines, Singapore Airlines,
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South African Airlines, SWISS, TAP
Portugal, Thai, Turkish Airlines, United
Airlines
Aeroflot, Aerolineas Argentinas,
AeroMexico, AirEuropa, Air France,
Alitalia, China Airlines, China Eastern,
China Southern, Czech Airlines, Delta,
Garuda Indonesia, Kenya Airways,
KLM Royal Dutch Airlines, Korean Air,
Middle East Airlines, Saudia, TAROM
Romanian Air Transport, Vietnam
Airlines, Xiamen Airlines
Airberlin, American Airlines, British
Airways, Cathay Pacific, Finnair,
Iberia, Japan Airlines, LATAM Airlines,
Qatar Airways, Malaysia Airlines,
Qantas, SriLankan Airlines, Royal
Jordanian, S7 Airlines
36
legal restrictions or cultural barriers. 17 Additionally, like all strategic
alliances, it reduces risk by spreading risk to other partners. Joint ventures
are a partnership of two or more participating companies and differ from
other strategic alliances in that (1) management duties are shared and a
management structure is defined; (2) other corporations or legal entities,
not individuals, formed the venture; and (3) every partner holds an equity
position. Since both partners have equity in the joint venture and share in
management duties, it is essential to choose the right partner. To avoid
problems, each partner must define what it brings to the joint venture in
terms of reputation, resources, and management expertise. Additional
critical topics include management structure, cost sharing, and control.
Direct Foreign Investment The market entry strategy with the
greatest long-term implications is direct foreign investment. Risks go up
substantially when a company moves manufacturing into a foreign market.
Although this is the riskiest market entry strategy, future market potential
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can position it for long-term growth. A company must consider a number
of factors including:
Timing—unknown political or social events, competitor activity.
Legal issues—growing complexity of international contracts, asset
protection.
Transaction costs—production and other costs stated in various
currencies.
Technology transfer—key technologies are more easily copied in
foreign markets.
Product differentiation—differentiating a product without increasing
cost.
Marketing communication barriers—local market practices vary a
great deal.
The size of the investment and the risk to the company mean a
company should consider a wide range of costs and potential problems as
well as the market opportunity. Issues like loss of product technologies can
be overlooked as the company considers the opportunity to expand into
new markets. 18 All too often companies have committed significant
resources before they realize that a critical issue has substantially raised
the investment and risk.
Organizational Structure
Once marketing managers decide on a specific market entry strategy, they
must create an efficient and effective global market organizational
structure. This challenge requires constant monitoring and adaptation. No
one ideal structure exists. A recent study of 43 multinational U.S.
companies reported they planned to make a total of 137 organizational
changes to their international operations over the next five years. This
suggests that the best organizational structure is, at best, a moving target
that evolves over time.
Before a company decides on its organizational structure, it must make
two critical decisions. The first involves decision-making authority. As
companies grow, lines of authority become longer and more complicated,
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so clearly defined protocols regarding which decisions are made at each
level of the organization are important. A decision normally made by
senior management becomes more difficult when executives are eight time
zones away. 19
The degree of centralization is a second critical decision since it
affects resource allocation and personnel. Three primary organizational
patterns employed by organizations around the world are centralized,
decentralized, and regionalized. The primary advantages of a more
centralized structure include greater control and, as a result, more
consistency across the organization. It is also more efficient in creating
centers of expertise that bring together knowledgeable people to address
key organizational issues (for example, R&D, legal, and IT). Decentralized
organizations, on the other hand, offer a hands-on management approach
that facilitates rapid response to changing market conditions. The regional
organization seeks to combine advantages of both approaches by
centralizing key functions while pushing decision making closer to the
global market. 30
Once decision-making authority has been established and degree of
centralization defined, companies usually adopt one of three organizational
structures in building their
37
international operations. First, global product lines work well for
companies with a broad, diverse range of products. This model is based on
the global functionality and appeal of the products and enables companies
to target similar products to customers around the world. A product line
structure can also be divided by customer, providing an even closer link
between product usage and customer need. The disadvantage is that some
organizational functions such as the direct sales force may be duplicated in
markets where the company believes there is significant market
opportunity. Siemens, the large German conglomerate, maintains
specialized direct sales forces by product and customer. This approach
works for Siemens because its diversified product portfolio includes
everything from large power generators to sophisticated medical
equipment. A second structure, geographic regions, divides international
markets by geography, building autonomous regional organizations that
perform business functions in their geographic area. This model works
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particularly well when local government relationships are critical to the
success of international operations as it affords company management a
closer connection to local customers. Large construction and engineering
companies such as Halliburton maintain operations geographically with
specific operations in each area that are suited to the environments in
which they operate. The matrix structure is the third form and is a hybrid
of the first two. Not surprisingly, most companies today use some form of
matrix structure that encourages regional autonomy while building product
competence in key areas around the world.
Product
LO 2-5
Recognize key factors in creating a global product strategy.
Global market expansion is based on the belief that people or other
businesses outside the company’s home market will purchase its products.
Acceptance of that belief depends largely on what products the company
will sell in those new markets. Does it, for example, simply take its
existing product with no modifications? Does it create a new product
developed specifically for foreign markets, or something in between? The
answers to these questions are fundamental to global market expansion.
Some products are more easily accepted than others in new markets
around the world. Several consumer electronics products such as digital
music players and digital cameras are essentially the same product around
the world. But many products, like food, do not travel well across borders.
Those products usually need to be adapted to fit local tastes. A company
may select from three basic product options: 21
Direct product extension: Introduce a product produced in the
company’s home market into an international market with no product
changes. Advantages include no additional R&D or manufacturing
costs. Disadvantages are that the product may not fit local needs or
tastes.
Product adaptation: Alter an existing product to fit local needs and
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legal requirements. Adaptation can range from regional levels all the
way down to city-level differences.
Product invention: Create a new product specifically for an
international market. Sometimes old products discontinued in one
market can be reintroduced in a new market, a process known as
backward invention. Cell phone manufacturers have adopted this
strategy, taking phones that have been replaced in European or Asian
markets and introducing them in Latin America. Another strategy is
forward invention, or creating new products to meet demand in a
specific country or region.
Consumers
Moving into global consumer markets creates significant challenges
because companies with little international experience find it difficult to
assess, develop, and market products targeted at consumers with widely
different needs, preferences, and product usage demands. Even
experienced global marketers sometimes fail to identify specific consumer
trends in foreign markets. Four specific product issues face international
consumer marketers—quality, fitting the product to the culture, brand
strategy, and country of origin.
38
Coke, despite displaying a different name, displays the same fun feeling in this
ad as it does in their U.S. advertising.
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Source: The Coca-Cola Company
Quality The perception of quality varies drastically around the world,
which makes it hard for a company developing or adapting a product for a
global market. What works in one market may fail in another, as cell
phone manufacturers have learned. In Europe, Japan, and the United Sates,
cell phones must have a roaming capability to be successful, but Chinese
consumers do not consider it an important feature.
Global consumers are knowledgeable about product quality and have a
clear understanding of what they are willing to pay for at a given quality
level. Research suggests the relationship of price and quality, or the value
proposition that we focus on in this book, remains a key factor in
consumer decision making. The test for many organizations is providing
quality when they lack control over the delivery of key quality dimensions
such as service. As we discussed earlier, in many situations companies do
not provide key elements of the product experience, which is one reason
good international partners are so important.
Fitting the Product to the Culture Cultural differences exert
tremendous influence on consumer product choices and are critical in
international markets. Brand names as well as product colors and features
are heavily influenced by the culture in local foreign markets.
Language differences have created unique and occasionally humorous
examples of marketing mistakes. When Coca-Cola introduced Diet Coke
in Japan, initial sales were disappointing until the company realized that
Japanese women do not like the concept of dieting and the Japanese
culture relates dieting to sickness (not a desired connection with a
product). The company changed the name to Coke Light, which has been
much more effective around the world. Companies also have to adapt their
products to fit local markets. Manufacturers of kitchen products have
found the Japanese market difficult to penetrate. Mr. Coffee and Philips
Electronics NV found their coffeemakers did not sell well in Japan
because Asian kitchens in general are much smaller than Western kitchens.
The larger coffeemakers sold in the United States did not fit on Japanese
kitchen counters.
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Brand Strategy As we will explore in Chapter 9, companies often
seek to create a unified branding strategy around the world. In some cases
this is effective. Coca-Cola, Caterpillar, Apple, Kellogg, BMW, and others
have created powerful global brands. As companies acquire local brands,
one of the first decisions is whether to fold a local brand into a global
brand. Companies have to consider local conditions, but, when possible,
companies are harmonizing brands to build brand awareness and extend
marketing communication dollars.
Local brands, on the other hand, offer companies distinct awareness
and built-in market loyalty. Nestlé, for example, follows a local branding
strategy for individual products (the company carries more than 7,000
brands) but also promotes the Nestlé corporate brand globally. It believes
that local branding helps differentiate its products.
Country of Origin Increasingly, customers apply what is known as
the country-of-origin effect in their purchase decisions. The country-of-
origin effect is the influence of the country of manufacture, assembly, or
design on a customer’s positive or negative perception of a product. 22
“Made in Japan,” “Made in Italy,” “Made in the United States”—each has
meaning to customers and infers that a product has certain qualities based
on its country of origin. Such perceptions can change over time.
Immediately after World War II, products made in Japan were considered
of poor quality and inexpensive, which may seem hard to believe in light
of the preeminent view of Japanese quality in the 21st century. Budweiser
is a product with a very strong country-of-origin effect. Consumers around
the world identify the product as American. After the purchase of
Anheuser-Busch by InBev, based in Belgium, InBev announced that
maintaining the strong American identity of Budweiser was a focus of the
company.
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Companies use ethnocentric messages to differentiate their products
from foreign brands. Ford and Chrysler have both used their American
heritage in advertising to foster a “buy American” feeling among
consumers. Interestingly, Japanese automobiles manufactured in the
United States frequently carry a higher percentage of U.S. parts than cars
assembled in Mexico for American automobile manufacturers. 23 Research
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reports the following regarding country of origin:
People in developed countries prefer products manufactured in their
own country.
Manufacturers from countries viewed favorably in the world tend to
highlight their country of origin more than those from less developed
countries.
Countries have developed certain areas of influence in which the
country of origin makes a difference, such as Japan and Germany for
cars, the United States for technology, and France for wine and
luxury goods.
Market Channels
One of the thorniest issues facing global marketers is getting their product
to the customer. 24 American and European companies, in particular, are
used to sophisticated channels of distribution that seamlessly move
products from manufacturing sites to the customer at relatively low cost.
Well-coordinated transportation and logistics systems lower distribution
costs and increase customer choices at the point of sale.
Many companies have to rethink their distribution strategy when they
enter global markets and find inadequate transportation networks, poorly
organized or not easily accessible distribution systems, as well as an
almost unlimited number of fundamentally different channel structures.
Companies are frequently unprepared for the complexity of penetrating a
foreign distribution system. The stakes are high because channel decisions
are, at least in the short run, difficult and expensive to adjust. Companies
able to develop successful channel strategies gain a competitive advantage
in that market and effectively limit the options of other competitors.
Channel Structures Unless the product is manufactured in the
country where it is sold, all products pass through a global channel of
distribution (see Exhibit 2.11). The product must
EXHIBIT 2.11 International Channel Structure
129
Source: Cateora, Philip R. , John Graham, and Mary C. Gilly, International Marketing
New York, NY: McGraw-Hill Education, 2016.
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move from the country of manufacture through an international channel
between countries to the local international market distribution channel.
Obviously the manufacturer is most familiar with the distribution network
in its home country. However, goods going to international markets use
different intermediaries such as trading companies or international agents
that require modifications to existing channels. Coordinating the
movement of products between countries usually means hiring specialists
familiar with legal issues as well as the most effective and efficient means
of transportation. Companies have a number of transportation choices and,
in addition to cost, should consider risk and length of time in transit. The
producer faces the greatest challenge in the last stage, getting the product
into the local channel and ultimately to the customer. International
shipping specialists can help identify local distribution partners, but the
company is more likely to look for channel alliances that fit overall
business objectives and not simply distribution channels.
Channel Factors In selecting a channel partner, companies should
consider six strategic objectives known as the Six Cs of channel strategy:
Cost, capital, control, coverage, character, and continuity offer a checklist
for evaluating channel options.
Cost Estimating channel costs includes (1) the initial investment in
creating the channel and (2) the cost of maintaining the channel. As
companies expand into new markets, many search for ways to increase the
efficiency of local distribution systems by eliminating unnecessary
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middlemen, thereby shortening the channel to the customer. 25
Capital An inadequate global market distribution system is expensive in
terms of both adding cost to the product and creating long-term damage to
the brand and the company’s reputation. If a channel network is already in
place, the investment is low; however, if the company needs to develop or
greatly improve an existing system, the cost can be very high.
Control The more control the company wants in the channel, the more
expensive it is to maintain. As a result, companies generally look for a
balance between channel control and cost. The complexity of global
supply chains coupled with lack of local market knowledge make the task
of creating a distribution system so expensive that all but the most
accomplished global marketers rely on local distribution networks in
foreign markets.
Coverage Local distribution networks around the world may lack full
exposure to a given market. Even in the United States, for example,
complete coverage of a consumer market necessitates multiple distribution
channels. As a result, it is necessary to evaluate which distribution network
best reaches the target customers, which may not necessarily be the
network with the widest distribution. Targeting upper- and middle-class
consumers in China requires extensive distribution in cities along the coast
(Beijing, Shanghai, and Guangzhou) but minimal distribution in the rest of
the country.
Character The long-term nature of channel decisions makes character an
issue in selecting the best channel partner. 26 The capabilities, reputation,
and skills of the local channel partner should match the company’s
characteristics. A service-oriented company should look for local channel
partners with a reputation for excellent service and high customer
satisfaction.
Continuity Changing a distribution system creates anxiety among
customers and gives competitors an opportunity to take advantage of
inevitable inefficiencies and disruption of service. Identifying channel
partners with a long-standing presence in the market provides some
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security; however, the best local partners are also the most difficult to
establish a relationship with as they frequently already have established
involvement with competitors.
Marketing Communications
Another factor to consider is global marketing communications, which
place additional demands on an organization’s communication strategy.
The core elements of communicating
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to a customer in a home market (language, images, color, cultural
contextual cues) can be vastly different in foreign markets. 27 In addition,
media are different and companies that rely on one form of media in their
home market will have to adapt to other media.
Advertising Global market advertising follows one of four basic
approaches that vary by degree of adaptation. The first strategy creates
global marketing themes, adjusting only the color and language to local
market conditions. The basic ad template remains unchanged throughout
the world. A second strategy, global marketing with local content, keeps
the same global marketing theme as the home market but adapts it with
local content. Local content is incorporated in a standardized template to
encourage a local look and feel to the ad. This includes images as well as
written copy, but the ad still relates to the same global marketing message.
A third approach is a basket of global advertising themes. Here related but
distinct ads built around several marketing messages are generated, often
by the company’s lead advertising agency, and local marketers select the
ads that best fit their specific market situation. Finally, some companies
allow local market ad generation. Marketers have the authorization to
create local ads that do not necessarily coordinate with global marketing
messages. However, this strategy still requires coordination at higher
levels in the company to ensure consistent quality. It takes considerable
resources to market products globally, and the leading global advertisers
all spend well in excess of $2 billion advertising globally every year.
Personal Selling The salesperson–customer relationship is
dramatically different around the world. In the United States, the
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relationship is very business-focused and less personal. In Latin America
and Asia, the relationship is much more personal. Actual business
negotiations often do not begin until a personal relationship has been
established. Companies need sensitivity in selecting, hiring, and training
their global sales force to accommodate local business cultures.
Sales Promotion A relatively small part of U.S. marketing
communication budgets is allocated to sales promotion; however, this can
be a significant component of marketing communication strategy in global
markets. The need to stimulate consumer trial and purchase can be greater.
Both PepsiCo and Coca-Cola sponsor traveling carnivals to outlying
villages in Latin America with the purpose of encouraging product trial. 28
Public Relations The expansion of global communications has
greatly increased the importance of international public relations.
Companies realize that dealing with crises must be done quickly and
effectively as global news organizations move instantly on stories around
the world. Getting the company’s perspective on a story requires
coordination by the company and public relations consultants before
release to the public. Public relations can also enhance other elements of a
marketing communications strategy. 29 When companies introduce new
products, they frequently schedule them to coincide with press conferences
and news cycles in other countries.
Pricing
There are three main pricing strategies. No single pricing strategy
accommodates every local foreign market, so most companies follow a
combination of cost-based and market-conditions-based pricing in setting a
final price to market. 30
One World Price The company assigns one price for its products in
every global market. In theory, this approach enables a company to
standardize other elements in the marketing mix and simplifies financial
forecasting. In reality, this strategy is not followed very often. While price
is constant, the cost to produce, distribute, and market the product varies
dramatically, creating wide fluctuations in profit margins. Furthermore,
133
local conditions such as competitive pressures, economic circumstances,
and other local market factors can have a significant effect on the final
product price.
42
Local Market Conditions Price The company assigns a price
based on local market conditions with minimal consideration for the actual
cost of putting the product into the market. Responding to the market is
certainly vital in assigning the final price, but local conditions may not
reflect the reality of bringing the product to market for an international
company. Local competitors do not incur the transportation costs, potential
tariffs, and other related expenses of bringing a product to a foreign
market. As a result, companies must be particularly sensitive to local
market pricing when setting their price. Strong local or even global
competitors that dictate local market prices should be considered in
assessing the attractiveness of a global market opportunity. One solution is
to identify valued-added product features that allow a higher final price to
the customer.
Cost-Based Price This strategy considers cost plus markup to arrive
at a final price. While the focus on costs precludes charging an
unprofitable price, it does not consider actual market conditions. If costs
are high as a result of tariffs or transportation, the final price may be too
high for the market.
Price Escalation A considerable quandary for companies in global
marketing is that the costs of doing business globally are often higher than
in their home market. Many people are surprised that products sold in their
home country frequently cost twice as much in foreign markets. Four
primary forces drive higher costs and create price escalation.
Product export costs: Differences in the product configuration,
packaging, and documentation raise the cost of many products for
international markets. A key internal cost issue is transfer pricing, or
the cost companies charge internally to move products between
subsidiaries or divisions. If companies charge too high a price
internally, it can make the final product price uncompetitive because
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the local subsidiary must add a markup to arrive at a final price.
Tariffs, import fees, taxes: Governments all around the world
impose tariffs, fees, and taxes on imported products to protect
industries in their home market and increase their revenue.
Exchange rate fluctuations: For many years, the U.S. dollar was the
standard for all international contracts, which tended to minimize
currency fluctuations as everything was priced in dollars. Now,
currencies float and products are priced using a market basket of
currencies. Since currencies can easily float 15 to 20 percent against
each other, the assigning of currency values in international contracts
is critical. Increasingly, companies want contracts written in their
home currency to protect their risk of loss due to currency
fluctuations. 31
Middlemen and transportation costs: Creating a channel for global
markets extends the number of channel members and increases costs.
Each channel partner requires compensation, which raises the final
price to the customer. Moreover, transportation costs increase as the
distance to a local market increases.
Global Pricing Issues In addition to price escalation, there are two
other global pricing issues. The first, dumping, refers to the practice of
charging less than actual costs or less than the product price in the
company’s home markets. 32 The World Trade Organization and most
national governments have outlawed this practice and, if dumping is
proven, a government can impose a tax on those products. Dumping is
generally not a problem when global markets are strong; however, the
willingness to price export goods based on marginal costs rather than full
costs increases when markets weaken. The second major issue is the gray
market, which involves the unauthorized diversion of branded products
into global markets. Gray market distributors (who are often authorized
distributors) divert products from low-price to high-price markets.
Companies should carefully watch unusual order patterns among their
distributors because that can signal a gray market problem. 33
43
135
ETHICS: AT THE CORE OF SUCCESSFUL
MARKETING MANAGEMENT
LO 2-6
Learn the importance of ethics in marketing strategy, the value
proposition, and the elements of the marketing mix.
Ethics is an essential element of a successful marketing strategy and, more
broadly, a company’s overall business strategy. Indeed, many companies
know—and research supports—the substantial benefits of ethical
leadership, culture, and policies. Unfortunately, it is difficult to go a week
without the news reporting some ethical lapse in business. Often the issue
may seem like a poorly conceived strategy or implementation, but a more
careful review frequently reveals a failure of ethical decision making. For
example, take the ongoing challenges Volkswagen faces as it deals with
the crisis created by deceptive practices in the reporting of emissions by
their diesel-powered cars around the world. To date, the company has
incurred costs in the billions of dollars and experienced significant loss of
trust in its brand and cars. While the investigation into the installation of
deceptive software that masked true diesel engine emissions revealed a
number of poor decisions, it is clear the culture of the company supported,
or least did not discourage, individuals from making decisions that
ultimately had serious negative effects on the company.
Ethics in marketing plays a fundamental role in developing and
maintaining strong customer relationships in both business and consumer
markets. 34 The marketplace rewards companies that exhibit ethical
behavior with greater loyalty, resulting in increased financial
performance. 35 In addition, ethical companies accrue benefits such as
greater employee loyalty, resulting in lower turnover and recruiting costs.
Ethics plays a role in every aspect of marketing, from the value
proposition through all the critical elements in the marketing mix, and
even in marketing strategy and implementation. Realizing the importance
of ethics in marketing and business, companies create policies and “codes
of ethics” to help direct ethical decisions in the organization. We will look
at all of these topics in the next sections.
136
Some argue that companies only need to meet legal obligations in their
marketing activities. However, successful marketers today understand that
the law is only the “baseline” of expected behavior and generally lags
behind societal norms and opinion. In some respects, this is good, as
opinions can change quickly and companies need stability in strategic
planning and implementation. However, following the law does not mean
the company is doing all it can do or even should do in its marketing
efforts. On the other hand, marketing ethics encompasses a societal and
professional standard of right and fair practices that are expected of
marketing managers in their oversight of strategy formulation,
implementation, and control. 36
Ethics and the Value Proposition
Value is a core concept in marketing, as we discussed in Chapter 1. You
will recall that value is the net benefits (or costs) associated with a product
or service. The buyer considers all the benefits, then subtracts all the costs,
and arrives at a value for the product. One of the key considerations is the
buyer’s trust or belief that the company will keep its promises with regard
to the product experience, warranty, service, and a host of other
interactions. When the customer does trust the company, that is a major
benefit, but when trust does not exist, it is a significant cost. In either case,
the buyer’s evaluation of the company’s ethics plays an essential role in
the defining value to the customer, and the research is clear—buyers
(businesses or consumers) consider a company’s ethics in evaluating the
value proposition and ultimately the decision to purchase. 37
Wells Fargo has been one of most successful banks in the United
States over the last decade, but a scandal involving the creation of fake
accounts to drive sales at the bank altered the company’s value proposition
to its customers (large and small), and caused major harm to the
company’s long-term relationship with many customers. The immediate
impact of the scandal was to drive away existing customers and potential
new business. 38 The challenge for Wells Fargo, or any company, is that
once trust with a customer is broken it is very difficult to get it back. In an
industry like banking, trust and ethics are a fundamental part of the value
proposition.
137
44
As a company’s ethics play an increasingly important role in defining
the value proposition, it is important to remember that trust is developed
slowly but lost quickly. Johnson & Johnson’s line of baby products has
built a strong connection with customers over a long period of time.
However, when its baby powder containing talc was linked with ovarian
cancer, there were a number of lawsuits. Johnson & Johnson maintains
that its baby powder is safe, but has settled a number of the suits and
increased its marketing communications budget to offset the negative
publicity. In addition, internal company documents suggest the company
knew there may be some risk. This highlights the pressure companies face
when ethical decisions and business decisions are not aligned. 39 Johnson
& Johnson baby powder remains on the market and commands a market-
leading position, but the long-term effects to the product’s brand image
have not been determined.
Ethics and the Elements of the Marketing Mix
Ethics impacts all the elements of the marketing mix. In addition, ethical
decisions in marketing can also have legal and financial consequences,
such as Volkswagen’s decision to use deceptive software in its diesel cars.
It is not surprising then that companies spend time and resources
considering the ethical and legal implications of their marketing decisions.
Let’s consider some of the ethical implications for each marketing mix
element, as seen in Exhibit 2.12.
Product There are a number of ethical issues related to product
strategy. It begins with what markets should be targeted. For example,
certain markets—such as children and the elderly—are considered
vulnerable, and special consideration is given to products targeted at those
markets. Food manufacturers need to be concerned about the quality and
amounts of ingredients, as well as other decisions that directly impact the
quality of the product. At the same time, there is a concern that some
products may target some groups while excluding others. For many years,
some clothing companies did not manufacture their clothes in plus sizes
despite the fact that plus-size clothing represents 20 percent of the market.
There are also a number of ethical issues surrounding the collection
138
and use of market research data critical in developing product strategy.
Companies today are collecting a great deal of data on their customers, and
there is a question as to how the data will be used as well as concerns
about the security and privacy of the data.
EXHIBIT 2.12 Examples of Ethical Decisions in
the Marketing Mix
Product
Use marketing research
data that ensures
privacy and
confidentiality.
Define market segments
that do not discriminate
against any particular
segment.
Develop products that
are safe and select
materials that are not
harmful to users.
Manufacture products
using materials that are
safe for users, in
conditions that are safe
for employees.
Clearly define and honor
warranties and service
agreements.
Price
Disclose the full price to
customers before
purchase.
Do not engage in
Distribution
Unfair pressure should
not be put on channel
members.
Channel members
should not use
manipulative sales
techniques on other
channel members.
Data privacy
confidentiality should
occur throughout the
channel.
No channel members
should exert undue
pressure on customers
to purchase products
that are unnecessary or
not needed.
Marketing Communications
No deception or
misrepresentation
should occur in any
marketing
communications to any
stakeholders
139
unethical pricing
practices such as price
discrimination, price
fixing, or predatory
pricing.
Fully disclose any other
bundled pricing before
customer’s purchase.
(customers, investors,
employees).
High-pressure or
manipulative sales
techniques should not
be used by salespeople
or messaged in
advertising.
45
One of the primary ethical product issues is the quality and safety of
materials used in the product. Companies seek to keep costs down, which
puts pressure on decision makers to use product components that are
unsafe or fail to meet quality standards. Even before making decisions
about the materials in the manufacturing process, companies must consider
the safety of the product in the product development phase. For example,
because children are considered a vulnerable market, special care is given
to the design of toys to minimize sharp objects or parts that can be easily
broken and swallowed.
Price Ethical questions are an integral part of pricing strategy and
implementation. For example, it is unethical (and illegal) for companies to
use certain pricing strategies, such as predatory pricing (selling below cost
to push a competitor out of the market) or price fixing (collusion between
companies to set prices at a mutually beneficial high level) to gain
competitive advantage in the marketplace. (Both of these terms are
explained in more detail in Chapter 11.)
Another issue is the “actual” price of a product. For example,
sometimes companies charge a low price but then add on fees and other
charges to substantially raise the actual price to the customer. Consider the
purchase of airline tickets; while the fare may be low, many airlines charge
you to check your luggage or book a certain type of seat. Some airlines,
such as Spirit Airlines, even charge the customer to print a boarding pass
or take carry-on luggage on board the plane.
140
Distribution Among the ethical challenges in distribution is the ability
of key channel members to exert undue influence on the channel. This can
manifest itself in the demand for special terms or deals with other channel
members. In some cases, powerful channel members will ask for “gifts,”
usually money, to help secure contracts or to carry a certain product.
At the same time, the sourcing of products can lead to ethical
dilemmas. For example, companies that manufacture products globally are
often faced with the decision of whether to use suppliers that employ child
labor. By Western society standards, child labor is not ethical, but in other
parts of the world child labor is accepted as part of the culture.
Promotion No area in marketing presents more ethical challenges than
promotion. A persuasive, effective marketing message is an important
element in any successful marketing strategy. However, marketing
managers must be careful to avoid deceptive or false claims. This is true
for all marketing communications, including advertising, personal selling,
and digital messaging (such as e-mail).
In sales, there is the additional ethical issue of manipulating or
coercing customers to purchase products or accept unfavorable terms.
There is always the question of bribery when salespeople offer incentives
for the customer to purchase a product. While this is considered unethical
in much of the world, it is also illegal in many countries to use bribery in
order to gain additional customer sales.
Code of Marketing (Business) Ethics
Everyone lives by their own “code of ethics” that guides their choices and
behavior. Most individuals never formally write it down, but simply make
decisions using their internal code. Companies face a unique challenge
because employees must work together within the culture to ethically
accomplish organizational goals and objectives. As a result, the vast
majority of companies today create a code of ethics that defines the
company’s values. Often, a second document called a code of conduct
seeks to operationalize the company’s value by defining appropriate
behaviors and decisions. The American Marketing Association, the
premier organization of marketing professionals in the world, has a code of
ethics which defines the norms and values for marketers. 40 The code
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speaks to six primary ethical values: honesty, responsibility, fairness,
respect, transparency, and citizenship.
Many companies embrace similar ethical values in their corporate
codes of ethics. At the same time, companies increasingly see a need to
supplement their corporate codes of ethics with a discussion of specific
ethical marketing practices. The goal is to provide clarity for marketing
managers as they make critical marketing decisions that frequently involve
an ethical component. The focus on ethics in marketing speaks to the
essential role of marketing in the organization and the impact of ethical
(and unethical) decisions on organizational performance.
46
SUSTAINABILITY: NOT JUST THE RIGHT
THING TO DO BUT A GOOD MARKETING
STRATEGY
LO 2-7
Recognize the significance of sustainability as part of marketing strategy
and the use of the triple bottom line as a metric for evaluating corporate
performance.
Is “doing the right thing” a good marketing strategy? Yes; as presented in
Chapter 1, the concept of sustainability includes all business practices that
seek to balance business success and societal success over the long term.
Unfortunately, while there is agreement on general principles, there is also
a lot of ambiguity about the scope of sustainability. It is often summed up
as “doing well by doing good,” but other terms such as “green” or
“corporate responsibility” are considered part of being sustainable.
The concept of sustainability goes back many years. For example, a
number of U.S. environmental laws grew out of the need to better manage
resources such as water, air, and even farmland as a result of the Great
Depression in the 1930s. This awareness was built on the realization that
utilizing resources efficiently and effectively was good for society but also
beneficial to business. The “green” movement was founded on the
142
environmental concerns and resource utilization issues that have come to
be known as sustainability.
Today, however, the definition of sustainability has been expanded to
include issues like an educated workforce, greater connection to and
support of local communities, as well as clear linkage between policies and
good marketing (business) strategy. The result has been a redefining of the
term sustainability to include this broader scope. Put simply, sustainability
can be summarized as “people, planet, profit,” or what has come to be
known as the “triple bottom line.”
Triple Bottom Line: The Link between Doing Well
and Doing Good
In Chapter 1 we identified the various groups, called marketing
stakeholders, that interact with or are impacted by marketing, and they are
key to understanding the triple bottom line. These stakeholders are shown
again in Exhibit 2.13. Originally presented by John Elkington in his book
Cannibals with Forks: The Triple Bottom Line of 21st Century Business,
the triple bottom line brings accountability to the various interests of
marketing (business) stakeholders. The traditional approach, financial
accounting, was useful for shareholders, but what about customers,
suppliers, government agencies, and many others? The triple bottom line
(TBL) is a metric for evaluating not only the financial results of the
company but the broader social equity, economic, and environmental
considerations as well. 41 Consider the impact of the TBL in marketing
management using the people, planet, and profit approach outlined
graphically in Exhibit 2.14.
EXHIBIT 2.13 Stakeholders in Marketing
143
Many, if not most, organizations still focus exclusively on profit as the
sole metric of success. However, companies are increasingly realizing that
success needs to include other metrics, like people. This type of change
begins with management acknowledging that there are success objectives
beyond profit, then creating metrics, strategies, and tactical plans to
implement that change. From there, training and education is needed to
raise employee awareness that, over time, leads to a change in culture. As
marketing employees
47
EXHIBIT 2.14 Triple Bottom Line
144
(sales, customer service, and others) are often the customer’s point of
contact with the company, this becomes an important first step. Ultimately,
companies today now actively look for ways to “give back” to the
community. Disney, for example, allows employees time off to work with
community organizations of their choice. In addition, the company will
match donations from employees to community organizations.
A second TBL metric is the planet, and marketers are very involved in
decisions that impact the planet. From sustainable sourcing of materials to
efficient, environmentally sensitive supply chains, marketers are
evaluating critical processes to maximize the environmental impact while
meeting corporate objectives related to cost and product quality. Over
time, companies like Starbucks have been successful in developing
“ethically sourced” coffee that is socially responsible and environmentally
safe. The company was instrumental in creating the C.A.F.E. (Coffee and
Farmer Equity) practices, which set forth guidelines around four key areas:
quality, economic accountability and transparency, social responsibility,
and economic leadership. Companies are accepting greater responsibility
not only for their own manufacturing but for their suppliers’ business
practices as well. In some cases, such as Nike, this was the result of public
145
pressure to reduce unhealthy employee work conditions at their suppliers.
Nike and others are now proactively evaluating their suppliers to maintain
the same environmental standards and working conditions as they
themselves do.
Finally, profit remains an important metric in a sustainable company.
While considering the impact of marketing decisions on people and the
planet, marketing managers must still meet financial objectives for the
company to be successful. For example, consider the impact of a
company’s sustainability decisions on customer product choice decisions.
Some target markets, such as millennials, consider sustainability an
important factor in their decision making. This means companies have to
adapt their products, distribution, marketing communications, and pricing
to incorporate sustainability into their overall marketing strategy. The
challenge is not limited to B2C markets, but is increasingly prevalent in
B2B markets as well. IBM, for example, invests heavily in a variety of
sustainable activities and has won awards for its focus on the environment
and sustainable development. Customers, employees, and other
stakeholders—not to mention shareholders—expect companies to be able
to balance profit goals and objectives with people and planet objectives.
48
SUMMARY
Global marketing is now synonymous with marketing. Technology and
sophisticated distribution systems make it easy for a company
anywhere in the world to become an international marketer. However,
companies generally go through a global experience learning curve as
their international business expands. As companies consider new
international markets they must first assess the marketing opportunity
and consider the impact moving into the new market will have on their
entire marketing strategy, from product development through
distribution, pricing, and marketing communications.
Ethics is one of the foundational elements in marketing; it impacts
the development and implementation of the marketing strategy as well
as all elements of the marketing mix and even the value proposition.
146
Companies understand that being an ethical company means
developing a culture that encourages ethical decisions and behavior. A
primary tool in developing an ethical company is a code of ethics that
defines the company’s values and sets out codes of conduct.
One of the keys to successful marketing is sustainability, which is
often understood to mean “doing well by doing good.” However, it can
be difficult to evaluate the impact of doing good on a company’s overall
performance. As a result, the triple bottom line metric—focused on
people, planet, and profit—was developed to enable companies to
evaluate financial performance and other considerations.
KEY TERMS
developed economies 29
emerging markets 29
regional market zones 29
European Union 30
NAFTA (North American Free Trade Agreement) 31
MERCOSUR 31
ASEAN 32
exporting 33
exporters 34
distributors 34
contractual agreements 34
licensing 34
franchising 35
strategic alliances 35
joint ventures 36
direct foreign investment 36
decision-making authority 36
degree of centralization 36
147
global product lines 37
geographic regions 37
matrix structure 37
country-of-origin effect 38
global marketing themes 41
global marketing with local content 41
basket of global advertising themes 41
local market ad generation 41
transfer pricing 42
dumping 42
gray market 42
marketing ethics 43
triple bottom line (TBL) 46
APPLICATION QUESTIONS
More application questions are available online.
1. You are the marketing manager for a small company located in the
United States that manufactures specialized parts for high-end ink-
jet printers. The company’s largest customer (Hewlett-Packard) has
asked your company to supply parts to 10 of its distribution and
repair sites around the world. The company has never sold products
outside the United States, so this represents a significant step for
the company. What stage in the global experience learning curve is
the company likely entering and why? Identify the activities the
company should undertake at this stage.
2. You are the market research director for a consumer product
company. You have been asked to evaluate China as a potential
market for your company’s products and begin a search of
secondary data. What types of information would you consider in
148
assessing China? How would you find information on these issues?
49
3. You are the marketing manager for Oxymoron detergent and have
been instructed to introduce this product into Argentina. What six
factors would you need to consider in determining the proper
channel of distribution for the introduction of Oxymoron detergent?
4. The marketing manager for McDonald’s has been asked to develop
a code of marketing ethics for the company. Develop a marketing
code of ethics for McDonald’s, keeping in mind that the the
company has stores all over the world.
5. The CEO of Timberland has called and asked you to develop a
triple bottom line report for the company. What might be included in
a TBL report for Timberland?
MANAGEMENT DECISION CASE
SELLING TO THE BOTTOM OF THE
PYRAMID: MARKETING UNILEVER
PRODUCTS IN RURAL VILLAGES AROUND
THE WORLD
When assessing the viability of a country or region for global
expansion, one of the first factors marketers examine is the ability
of consumers to afford the product being offered. With that criterion
in mind, would you consider marketing your product to people
making only $1,500 a year? What if there were 4 billion of those
potential customers? 42
This is the challenge and opportunity that marketers face when
expanding into bottom of the pyramid markets (BOPM).
Successfully (and profitably) marketing to this group requires a
focus on two key priorities: changing consumers’ behavior and
changing the way products are made and delivered. The first can
require innovative forms of education. The second may mean a
149
change in features, quality, or portion size to bring costs and prices
to an affordable level. These often remote areas create special
challenges in the distribution and promotional parts of the
marketing mix as well. 43
Unilever, known in the United States for its Dove soap and
shampoos, took on this challenge when it decided to sell its Wheel
brand of detergent in India. The company had a head start in that it
already had well-established distribution and retail channels
serving the middle and poorer classes. Also, detergent was
already a known product class, so they did not have to educate the
population on the purpose of the product. However, to get the word
out about Wheel, they used an unusual sales force: an army of
approximately 70,000 shakti women (and later, their husbands) to
sell their product in 165,000 rural villages. Shakti—which means
“strength” or “power” in Hindi—gave Unilever the power of a large,
informal sales staff that reached into rural areas across India. 44
With intimate knowledge of the geography and communication
styles, as well as having existing relationships with people in the
villages, the women in this group could quickly become effective
brand ambassadors for Unilever’s new product.
The product also had to be packaged in a small and affordable
size. Unilever pioneered the use of “sachets”—single-use
packages that met the price target and conformed to the shopping
habits of Indian consumers, who often shop daily for necessities.
Sales of these packets reached a quantity of 27 billion per year. 45
Since that success in India, Unilever has expanded these
concepts into rural areas in other countries. In Pakistan, women
are trained as beauticians, learning how to apply makeup and
shampoo hair, as well as how to sell Unilever products. In
Thailand, Unilever’s Platinum store initiative supports rural retailers
by helping with layout and promotions. A 10-cent deodorant packet
innovation in the Philippines led to a market penetration rate of 60
percent for their Rexona product. 46
Unilever’s BOPM innovations have also included novel
approaches in communicating with customers. Many rural
customers in India have cell phone service, but they limit their
150
costs by using the “missed call” strategy. Mobile users dial a
number, then hang up—avoiding a charge, but letting someone
know you want to reach them. Unilever exploited this practice in a
promotion for its Active Wheel detergent. Consumers were asked
to call a special number programmed to cut off after two rings,
costing the caller nothing. They then automatically received a call
back from Unilever with a comic message from
50
a Bollywood star—and an ad for Wheel. The result? Sixteen million
calls and triple the sales for Wheel detergent in the region. 47
While these ventures led to Unilever becoming the world’s fifth-
largest consumer goods manufacturer, it also allowed them to “do
well by doing good.” Their education programs have helped reduce
child mortality by teaching more than 300 million consumers to use
soap. The agricultural practices of 600,000 farmers in the Unilever
supply chains have been strengthened through the company’s
“Sustainable Living Plan,” a program that helped put Unilever in
the number one spot in GlobalScan’s survey of companies most
respected for their sustainability efforts. 48
Unilever’s success has not gone unnoticed, particularly by rival
Procter & Gamble. 49 As global companies like these and others
continue to stretch the boundaries of customer viability, they will
also have to continue to innovate in the production of affordable
products, in their distribution methods, and in finding creative ways
to reach consumers in remote parts of the world with their
promotional messages.
Questions for Consideration
1. Is Unilever providing value to their Indian customers? In what
ways? Consider the four types of utility when forming your
answer.
2. Considering the competition Unilever is receiving from Procter &
Gamble and other companies, in what creative ways could
Unilever change their Wheel detergent product offering to
151
differentiate it from competitors’ offerings?
3. What principles should be used to determine if a product is a
good fit for a BOPM market? Are there products that should not
be offered to BOPM consumers? Should this issue be decided
by marketers, governments, or consumers?
4. Is it ethical for marketers to try to make money off people who
are living at a subsistence level? Should companies only market
their products to people in certain income classes? What factors
should a marketer take into consideration when trying to answer
these questions?
NOTES
1. Peter Gabrielsson, Mika Gabrielsson, John Darling, and Reijo
Luostarinen, “Globalizing Internationals: Product Strategies of
ICT Manufacturers,” International Marketing Review 23, no. 6
(2006), pp. 650–67.
2. M. Theodosiou, and L. C. Leonidou, “International Marketing
Policy: An Integrative Assessment of the Empirical Research,”
International Business Review 12, no. 2 (2003), pp. 141–71.
3. Katrijn Gielens and Marnik G. Dekimpe, “The Entry Strategy of
Retail Firms into Transition Economies,” Journal of Marketing
71, no. 2 (2007), pp. 196–210; and Jasmine E. M. Williams,
“Export Marketing Information-Gathering and Processing in
Small and Medium-Sized Companies,” Marketing Intelligence
and Planning 24, no. 5 (2006), pp. 477–92.
4. Kristian Moller and Senja Svahn, “Crossing East-West
Boundaries: Knowledge Sharing in Intercultural Business
Networks,” Industrial Marketing Management 33, no. 3 (2004),
pp. 219–28.
5. “Growth Still Quite Strong: Inflation Remains the Key Concerns
for Emergers, with Many Countries Still Tightening Policies,”
Emerging Marketing Weekly, April 14, 2008, pp. 1–13; and Luiz
152
F. Mesquita and Sergio G. Lazzarini, “Horizontal and Vertical
Relationships in Developing Economies: Implications for SME’s
Access to Global Markets,” Academy of Management Journal
51, no. 2 (2008), pp. 359–71.
6. Jennifer Hoyt, “Innovations in Beauty,” The Prague Post, April 7,
2005, www.praguepost.cz/archivescontent/40872-innovations-
in-br-br-beauty.html.
7. Cristina del Campo, Carlos M. F. Monteiro, and Joao Oliveira
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51
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CHAPTER 3
Elements of
Marketing Strategy,
Planning, and
Competition
LEARNING OBJECTIVES
LO 3-1 Examine the concept of value and the elements and
role of the value chain.
LO 3-2 Understand the conditions required for successful
marketing planning, that marketing planning is
159
focused on the value proposition, and that marketing
planning is a dynamic process.
LO 3-3 Identify various types of organizational strategies.
LO 3-4 Conduct a situation analysis.
LO 3-5 Use the framework provided for marketing planning,
along with the content in future chapters, to build a
marketing plan.
55
VALUE IS AT THE CORE OF MARKETING
LO 3-1
Examine the concept of value and the elements and role of the value
chain.
In Chapter 1, the concept of value was introduced as a core element of
marketing. Value was defined from a customer’s perspective as a ratio of
the bundle of benefits a customer receives from an offering compared to
the costs incurred by the customer in acquiring that bundle of benefits.
From the late management guru Peter Drucker’s early writings in the
1950s through to today’s American Marketing Association official
definition of marketing, it is clear that marketing plays a central role in
creating, communicating, delivering, and exchanging offerings that have
value.
Let’s examine the idea of value a bit more carefully now. One can
think of value as a ratio of benefits to costs, as viewed from the eyes of the
beholder (the customer). That is, customers incur a variety of costs in
doing business with any firm, be those costs financial, time, opportunity
costs, or otherwise. For the investment of these costs, the customer has a
right to expect a certain bundle of benefits in return. A benefit is some type
160
of utility that a company and its products (and services) provide its
customers. Utility is the want-satisfying power of a good or service. 1 Four
major kinds of utility exist: form, time, place, and ownership. Form utility
is created when the firm converts raw materials into finished products that
are desired by the market. The other three utilities—time, place, and
ownership—are created by marketing. They are created when products are
available to customers at a convenient location when they want to
purchase them, and facilities of exchange are available that allow for
transfer of the product ownership from seller to buyer. Chapter 1
mentioned that facilitating exchange between buyers and sellers is another
core element of marketing.
Since value is a ratio of benefits to costs, a firm can impact the
customer’s perceptions of value by altering the benefits, the costs, or both.
Assume that a person is faced with the decision of buying one of two
automobiles. One should expect that a purchase decision will be greatly
influenced by the ratio of costs (not just monetary) versus benefits for each
model. That is, it is not just pure price that drives the decision. It is price
compared with all the various benefits (or utilities) that Car 1 brings versus
Car 2. 2 These benefits could relate to availability, style, prestige, features
—all sorts of factors beyond mere price. In the U.S. News Best Car for the
Money 2017 Awards, Toyota and its luxury brand, Lexus, won the most
awards, including “Best Hybrid Car” (Toyota Prius) and “Best Luxury
Compact SUV” (Lexus NX). This, despite charging higher prices than the
competition! It seems their vehicles deliver consistently high quality and
thus represent an excellent value. In particular, the Toyota Prius has
outstanding fuel economy estimates and excellent cargo room, and the
Lexus NX has an upscale, modern interior and plenty of passenger space. 3
Recall that marketing is charged not just with creating offerings that
have value, but also with communicating, delivering, and exchanging those
offerings. When a firm communicates the value proposition of its products
to customers, the value message may include the whole bundle of benefits
the company promises to deliver, not just the benefits of the product
itself. 4 For example, when South Korean–based Samsung first brought its
brand to the United States, it communicated a message centered primarily
on functionality at a moderate price—a strategy designed to provide an
advantage over pricier Japanese brands. But over time, Samsung’s value
161
proposition has expanded to include innovativeness, style, and
dependability—the latter of which was helped significantly by high ratings
of many of the company’s products by sources such as Consumer
Reports. 5 Software firm Intuit states its unique value proposition as
“simplifying the business of life.” Widely known for TurboTax, Mint, and
QuickBooks, Intuit creates business and financial management solutions
aimed at small businesses, consumers, and accounting professionals. The
firm recently realized growth of 41 percent for QuickBooks online
subscribers and 17 percent for payroll customer growth in Intuit’s small
business segment alone, providing clear evidence that their value
proposition resonates. 6
For years, firms have been preoccupied with measuring customer
satisfaction, which at its most fundamental level means how much the
customer likes the product. However, for firms interested in building long-
term customer relationships, having satisfied customers is not enough to
ensure the relationship is going to last. A firm’s value proposition must be
strong enough to move customers past mere satisfaction and into a
commitment to a
56
162
Korean firms such as these have gained global market share by associating
their brands with a strong value proposition for consumers.
(LG) ©Grisha Bruev/Shutterstock; (Samsung) ©360b/Shutterstock; (Kia) ©Toni
Genes/Shutterstock, (Hyundai) ©josefkubes/Shutterstock
company and its products and brands for the long run. Such a
commitment reflects a high level of customer loyalty, which increases
customer retention and reduces customer switching. 7 In Hewlett-
Packard’s hypercompetitive space, keeping high customer satisfaction and
loyalty along with low levels of customer switching is critical. To improve
these factors along with customer retention, HP has increased its number
of U.S.-based call center agents, invested in IVR software, and leveraged
remote diagnostic tools to provide superior and expedited customer
support. It also has customer support available on its website, Twitter,
Facebook, and an app that is preinstalled on every HP laptop. 8
Customer loyalty almost always is directly related to the various
sources of value the customer is presently deriving from the relationship
with the company and its brands. Except in situations of monopoly (which
creates forced loyalty), loyal customers by definition tend to also
163
experience a high level of satisfaction. 9 However, not all satisfied
customers are loyal. If a competitor comes along with a better value
proposition, or if a value proposition begins to slip or is not effectively
communicated, customers who are currently satisfied become good
candidates for switching to another company’s products. 10
The Value Chain
A highly useful approach to bringing together and understanding the
concepts of customer value, satisfaction, and loyalty is the value chain.
Created by Michael Porter in his classic book Competitive Advantage, the
value chain serves as a means for firms to identify ways to create,
communicate, and deliver more customer value within a firm. 11 Exhibit
3.1 portrays Porter’s value chain concept.
57
EXHIBIT 3.1 Porter’s Value Chain
Source: Porter, Michael E., Competitive Advantage: Creating and Sustaining
Superior Performance, New York, NY: Free Press, 1985.
Basically, the value chain concept holds that every organization
164
represents a synthesis of activities involved in designing, producing,
marketing, delivering, and supporting its products. The value chain
identifies nine relevant strategic activities the organization can engage in
that create/impact both sides of the value equation: benefits and costs.
Porter’s nine value-creating activities include five primary activities and
four support activities. 12
The five primary activities in the value chain are:
1. Inbound logistics—how the firm goes about sourcing raw materials
for production.
2. Operations—how the firm converts the raw materials into final
products.
3. Outbound logistics—how the firm transports and distributes the final
products to the marketplace.
4. Marketing and sales—how the firm communicates the value
proposition to the marketplace.
5. Service—how the firm supports customers during and after the sale.
The four support activities in the value chain are:
1. Firm infrastructure—how the firm is set up for doing business; are
the internal processes aligned and efficient?
2. Human resource management—how the firm ensures it has the right
people in place, trains them, and keeps them.
3. Technology development—how the firm embraces technology usage
for the benefit of customers.
4. Procurement—how the firm deals with vendors and quality issues.
The value chain concept is highly useful in understanding the major
activities through which a firm creates, communicates, and delivers value
for its customers. CEOs in recent years have been concentrating on
aligning the various elements of the value chain, meaning that all facets of
the company are working together to ensure that no snags will negatively
impact the firm’s value proposition. 13 From a customer’s perspective,
when the supplier’s value chain is working well, all the customer tends to
see are the results of a well-aligned value chain: quality products, good
165
salespeople, on-time delivery, prompt service after the sale, and so on.
However, it takes only one weak link in the value chain and the whole
process of cultivating satisfied and loyal customers can be circumvented.
58
The U.S. Army does sophisticated marketing that leads to its ability to
effectively appeal to recruits.
Source: US Army
Consider, for example, what happens if a glitch in the value chain of
one of Walmart’s vendors delays delivery of products at the peak selling
season, resulting in stock-outs in Walmart stores. If this happens
repeatedly, it can damage the overall relationship Walmart enjoys with its
customers as well as the relationship between Walmart and that supplier.
To minimize the potential for this happening, Walmart, as well as a
growing list of other firms, requires all vendors to link with its IT system
so that the whole process of order fulfillment and inventory management is
166
as seamless as possible. 14
One final element depicted at the end of the value chain is margin,
which refers to profit made by the firm. Intelligent investment in the
primary and support activities within the value chain should positively
enhance profit margin through more efficient and effective firm
performance. 15
Planning for the Value Offering
The remainder of this chapter presents the approach that marketing
managers use to plan for creating, communicating, and delivering the
value offering. This is often referred to as marketing planning—the
ongoing process of developing and implementing market-driven strategies
for an organization—and the resulting document that records the
marketing planning process in a useful framework is the marketing plan. 16
MARKETING PLANNING IS BOTH
STRATEGIC AND TACTICAL
LO 3-2
Understand the conditions required for successful marketing planning,
that marketing planning is focused on the value proposition, and that
marketing planning is a dynamic process.
Recall that one key trend identified in Chapter 1 was the practice of
marketing on two dimensions or levels within an organization. Although
these dimensions exist in tandem and even intersect on occasion, each
holds fundamental differences in goals and properties. At the strategic
level, Marketing (Big M) serves as a core driver of business strategy. That
is, an understanding of markets, competitors, and other external forces,
coupled with attention to internal capabilities, allows a firm to successfully
develop strategies for the future. At the functional or operational level,
marketing (little m) represents the specific programs and tactics aimed at
customers and other stakeholder groups and includes everything from
167
brand image, to the message salespeople and advertisements deliver, to
customer service, to packaging and product features—in fact, all elements
of operationalizing the marketing mix and beyond. 17 As an example of a
marketing program and tactics (marketing, little m) as an outcome of a
marketing strategy (Marketing, Big M), Nike launched its now legendary
“Just Do It” campaign in the late 1980s at a pivotal moment in company
history. Realizing it needed to widen its access point to include all sorts of
potential athletes beyond just the elite few, Nike needed one clean and
clear phrase that captured the attention of the masses and could be easily
reproduced through most any communication channels. The “Just Do It”
campaign instantly resonated with people’s feelings toward exercise and
the drive needed to push beyond one’s limits, and the phrase is ubiquitous
worldwide today well beyond just Nike. 18
Although these two levels of marketing are distinctly different in scope
and activities, the common link is in the process of marketing planning.
Marketing managers must be able to grasp both the big picture of strategy
formulation and the details of tactical implementation. In fact, many a
marketing plan has failed because either the formulation of the strategies
was flawed or their implementation was poorly executed.
59
A well-written marketing plan must fully address both Marketing (Big M)
and marketing (little m) elements. Ultimately, the following must be in
place for effective marketing planning to occur:
Everyone in an organization, regardless of his or her position or title,
must understand and support the concept of customer orientation,
which, as you learned in Chapter 1, places the customer at the core of
all aspects of the enterprise. Firms that promote and practice a high
level of customer focus are often referred to as customer-centric
organizations. 19 Rite Aid is a customer-centric company. The
company is the third- largest pharmacy in the United States and is
expanding its “NowClinic Online Care” services in stores. This
program allows customers to go online and chat or have a video
consultation with a doctor or nurse about an illness or injury and then
retain a record of the consultation so they are able to share it with
their primary care physician. The price for a 10-minute consultation
168
with a doctor varies depending on factors such as employer discounts
or insurance co-pays, but even at full price is very reasonable. And
after the consult, doctors can order prescriptions or refer patients to a
specialist for more extensive care. Understanding and analyzing
consumer trends and motivations led Rite Aid to pursue this strategy.
Gone are the days when the customer has to wait to see a doctor.
With the trend for technology also increasing, this concept addresses
the desire for convenience as well. 20
To operationalize a customer-centric approach, all internal
organizational processes and systems must be aligned around the
customer. A firm’s internal structure and systems cannot be allowed
to become an impediment to a customer orientation. 21 Anyone who
has ever placed a phone call for service and been driven through a
maze of phone transfers with a string of people (or machines) unable
to help knows how poor structure and systems can impact customer
satisfaction and loyalty!
The CEO and others at the top of the organization must consistently
set the tone for market-driven strategic planning through the
customer-centric business philosophy. As with a firm’s internal
structure and systems, its culture must be supportive of such an
approach in order for a marketing plan to be successful. Upper
management must also support the process through consistent
investment of resources necessary to make it work. Marketing
planning is not a “sometimes” process; rather, it should be a driving
force in the firm day in and day out. 22 Tableau’s CEO, Adam
Selipsky, is optimistic about Tableau’s continued growth—that is, so
long as going forward the company always makes decisions with the
customer at top of mind. Selipsky plans to focus Tableau more on
developing capabilities for larger companies, while also maintaining
good service for its current customer base in data analytics. For
Tableau, improving their stake in enterprise customers is a key to
future success. 23
At this point in the learning process about marketing management, you
may begin to feel concerned that you are getting a lot of structure for
marketing planning but not enough specific content to fill in the elements
169
of the marketing plan template. That reaction is quite natural, as by design
the depth of content for most of the various sections of a marketing plan is
covered later in the book. Your next task is to familiarize yourself with the
overall process and framework for marketing planning so that as the
content pieces unfold chapter by chapter, it will be very clear how those
pieces fit together into a complete marketing plan. Beginning with this
one, each chapter ends with a “Marketing Plan Exercise.” These are
designed to help you make the connections between the content in each
chapter and the requirements of your marketing plan template.
ELEMENTS OF MARKETING PLANNING
To get you started, we’ll first walk through the process and content
involved in marketing planning. A condensed framework for this process
is presented in Exhibit 3.2. Then at the end of this chapter you’ll find an
abbreviated marketing plan example for the fictitious company CloudCab
Small Jet Taxi Service. You’ll want to look at that appendix for an
example of what the key elements of a marketing plan look like in
practice.
60
EXHIBIT 3.2 Condensed Framework for Marketing
Planning
Ensure the marketing plan is connected to the firm’s business plan
including organizational-level mission, vision, goals, objectives, and
strategies.
Conduct a situation analysis.
Macro-level external environment
Competitive environment
Internal environment
Perform any needed market research.
170
Establish marketing goals and objectives.
Develop marketing strategies.
Product-market combinations
Market segmentation, target marketing, positioning
Marketing mix strategies:
Product/branding strategies
Service strategies
Pricing strategies
Supply chain strategies
Promotional strategies
Develop implementation plans.
Programs/action plans for each strategy including timetable,
assignment of responsibilities, and resources required
Forecasts and budgets
Metrics for marketing control
Provide for contingency planning.
Connecting the Marketing Plan to the Firm’s
Business Plan
How does a marketing plan fit into a firm’s overall business planning
process? As we have learned, marketing is somewhat unique among the
functional areas of business in that it has the properties of being both a
core business philosophy (Marketing, Big M) and a functional/operational
part of the business (marketing, little m). As such, all business-level
strategy must be market-driven in order to be successful. Hence, the term
market-driven strategic planning is often used to describe the process at
the corporate or strategic business unit (SBU) level of marshaling the
various resource and functional areas of the firm toward a central purpose
around the customer. 24 A strategic business unit (SBU) is a relatively
autonomous division or organizational unit of a large company that
operates independently but within the corporate umbrella, exercising
control over most of the factors affecting its long-term performance.
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A great example of how these levels of planning fit together is General
Electric. GE contains numerous SBUs that compete in very different
markets, from lighting to jet engines to financial services. GE’s CEO
oversees a corporate-level strategic plan to serve as an umbrella plan for
the overall direction of the corporation, but the real action in marketing
planning at GE is at the individual SBU level. Each GE business has its
own SBU-level strategic plan, and part of GE’s historical leadership
culture has been to turn SBU management loose to run their own
businesses under their own plans, so long as they meet their performance
requirements and contribute satisfactorily to the overall corporate plan.
Before going deeper into our study of planning, it’s important to
emphasize at the outset that great planning and strategy often are game-
changing for organizations. For a number of years McDonald’s was the
unchallenged leader in
For McDonald’s and many other firms, marketing planning and strategy, while
analytical in nature, often yield very funny marketing communications.
Source: McDonald’s
172
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quick-serve restaurants. But over the years its strength in the market waned
as new and innovative competitors captured the business from a new
generation of consumers. But when Steve Easterbrook took over as
president and CEO in 2015, things immediately began to change, thanks
largely to an aggressive turnaround plan that included many innovative
new strategies for growth. Fast-forward to today: business is booming, as
is investor confidence that McDonald’s is back on course strategically for
the future. 25
Portfolio Analysis Portfolio analysis, which views SBUs and
sometimes even product lines as a series of investments from which it
expects maximization of returns, is one tool that can contribute to strategic
planning in a multi-business corporation. Two of the most popular
approaches are the Boston Consulting Group (BCG) Growth-Share Matrix
and the GE Business Screen. These are portrayed in Exhibits 3.3 and 3.4.
EXHIBIT 3.3 Boston Consulting Group Growth-
Share Matrix
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Source: Henderson, Bruce, Henderson on Corporate Strategy, New York, NY: Wiley,
1979.
EXHIBIT 3.4 GE Business Screen
Business Position (high, medium, and low): Assess the firm’s
ability to compete. Factors include organization, growth, market share
by segment, customer loyalty, margins, distribution, technology skills,
patents, marketing, and flexibility, among others.
Market Attractiveness (high, medium, and low): For the market,
assess size, growth, customer satisfaction levels, competition
(quantity, types, effectiveness, commitment), price levels, profitability,
technology, governmental regulations, sensitivity to economic trends,
among others. 26
Source: “GE Business Screen,” Business Resource Software Online, www.brs-
inc.com/pwxcharts.asp?32, accessed April 22, 2017.
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The concept of the BCG approach to portfolio analysis is to position
each SBU within a firm on the two-dimensional matrix shown in Exhibit
3.3. The competitive market-share dimension is the ratio of share to that of
the largest competitor. The growth dimension is intended as a strong
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http://www.brs-inc.com/pwxcharts.asp?32
indicator of overall market attractiveness. Within the BCG matrix you find
four cells, each representing strategy recommendations:
Stars (high share, high growth): important to building the future of
the business and deserving any needed investment.
Cash Cows (high share, low growth): key sources of internal cash
generation for the firm.
Dogs (low share, low growth): potential high cash users and prime
candidates for liquidation.
Problem Children, or Question Marks (low share, high growth): high
cash needs that, if properly nurtured, can convert into stars. 27
For purposes of strategy development, the BCG matrix approach is
seductively simple and has contributed to decision making about internal
cash generation and usage across SBUs. It has also morphed in application
downward to often be applied to product lines and product groups, which
is nominally possible so long as costs and returns can be properly isolated
for investment decisions. But because of its simplicity, BCG ignores other
important factors that should go into this decision making and also ignores
the viability of generating cash externally.
The GE Business Screen, shown in Exhibit 3.4, is a more realistic and
complex portfolio model. It also evaluates the business on two dimensions
—market attractiveness and business position, which refers to its ability to
compete. The investment decision is again suggested by the position on a
matrix. A business that is favorable on both dimensions should usually be
a candidate to grow. When both market attractiveness and business
position evaluations are unfavorable, the harvest (maximizing the
remaining profits with minimal or no further investment in the SBU) or
divest (selling off or closing down the SBU) options should be raised.
Cisco’s Flip was introduced in 2006 and discontinued in 2011. A pocket-
sized camera that could record up to an hour of video could no longer
compete with phone-based video cameras that eliminated the need for a
separate video-recording device. Thus, the product had clearly played out
and had been harvested to the degree possible. Cisco’s statement explained
that reallocating resources was going to allow the firm to focus on other
key company priorities. 28 When the matrix position is neither
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unambiguously positive nor negative, the investment decision will require
more analysis.
For now, it is important to note that portfolio analysis does not offer a
panacea for corporate strategy formulation. Wise firms are thoughtful in its
application and recognize that it is but one approach to strategy decision
making. 29
Functional Level Plans A firm’s SBU plans all incorporate
functional-level plans from operations, marketing, finance, and the other
operational areas. Just as the individual SBU CEOs are held accountable to
GE’s corporate CEO for their unit’s performance within the context of
GE’s plan, the chief marketing officer, chief financial officer, and other
operational-level executive of each SBU are held accountable to their own
business unit CEO for the performance of their portion of the SBU plan. 30
While GE’s system certainly may be larger in scope and complexity than
many business planning situations, the logic is the same regardless of the
type or size of an organization. Hence, the marketing plan is nested within
the context of an overall corporate and/or business-level strategic plan.
Before each of the sections of the marketing plan is identified and
described, you are referred to JetBlue Airways as an example of a firm that
has become noted for successful marketing planning. Why JetBlue as an
example? Clearly, JetBlue’s not perfect, and in the turbulent airline
industry it’s really tough to do great marketing planning. During his tenure
as chairman and CEO, JetBlue founder David Neeleman was quite
transparent about his strategies and plans for the company, not only
discussing them openly with the business press but also placing a
substantial amount of organizational information on the company website.
This approach has continued in the post-Neeleman era of the firm. And
when JetBlue has made missteps, the company has been forthright in
recognizing and addressing
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the errors. As each of the elements of the marketing planning process is
described below, JetBlue will be used as a thematic example of each piece
in practice.
Organizational Mission, Vision, Goals, and
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Objectives
Marketing planning does not occur in a vacuum; it must connect with the
firm’s overall mission and vision. A mission statement articulates an
organization’s purpose, or reason for existence. A well-conceived mission
statement defines the fundamental, unique purpose that sets a company
apart from other firms of its type and identifies the scope of a company’s
operations, products, and markets. 31 IKEA, a furniture company, defines
its mission as making everyday life better for its customers. IKEA buys in
bulk and has a very efficient supply chain so that it can offer very
attractive prices. Strategically, though, instead of defining its mission as
providing affordable furniture, IKEA, chooses instead to define a unique
purpose beyond low price that is experiential and relatable to its loyal
fans. 32
Most mission statements also include a discussion of what the
company would like to become in the future—its strategic vision.
According to iconic GE former chairman and CEO Jack Welch, “Good
business leaders create a vision, articulate the vision, passionately own the
vision, and relentlessly drive it to completion.” 33 The vision of what the
firm is capable of in the future and where it wants to go, as championed by
its top leadership, sets the tone for everything that follows in the planning
process. Goals, general statements of what the firm wishes to accomplish
in support of the mission and vision, eventually become refined into
specific, measurable, and (hopefully) attainable objectives for the firm. 34
Objectives at the corporate and SBU level provide the benchmarks by
which organizational performance is assessed. Unfortunately, despite a
formal mission, vision, goals, and objectives, it is all too easy for senior
management and even the board of directors to become distracted and
stray off course. Such action can create major problems both inside and
outside the company.
JetBlue Airways took to the air February 11, 2000, flying from John F.
Kennedy International Airport in New York to Fort Lauderdale in Florida.
Today, the upstart airline is rapidly becoming a major player, serving more
than 50 cities (including several Caribbean locations) with nearly 100
aircraft, and it has ambitious plans for continued growth. The company’s
vision is to offer great service with low fares—and make a profit—even
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when other air carriers are struggling to survive. Several important goals
back up this vision:
Start and remain well-capitalized.
Fly new planes.
Hire the best people.
Focus on service.
Practice responsible financial management.
To date, JetBlue has mostly stayed true to this course. While most of
the major carriers continuously bleed red ink, JetBlue, though not perfect
in bringing in every quarter’s sales and profit goals, appears to be much
more stable financially than the majority of other airlines. Much of the
airline’s success can be attributed to great market-driven strategic
planning.
In terms of specific and measurable objectives, Neeleman established
high performance expectations for financial results, operational processes,
and customer satisfaction and loyalty. As mentioned earlier, JetBlue’s
website is very transparent in laying out company leaders’ plans for the
firm—Neeleman was always quite confident that the company had created
a unique value offering that few (if any) competitors could readily
duplicate. During one winter some years ago, JetBlue suffered a highly
publicized operational meltdown at its JFK airport home base due to a
massive snow and ice storm, and Neeleman was right there on the website
and in the public media. In addition to offering an apology, he also
provided full refunds, free replacement tickets, and travel vouchers to
stranded passengers and established the first passengers’ bill of rights in
the industry.
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In developing a marketing plan, the marketing manager must proceed
with a strong understanding of and commitment to the firm’s mission,
vision, goals, and objectives. JetBlue’s well-conceived and executed
marketing plan is an integral element in its success.
Organizational Strategies
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LO 3-3
Identify various types of organizational strategies.
At the firm level, a strategy is a comprehensive plan stating how the
organization will achieve its mission and objectives. Put another way,
strategy is like a road map to get the organization where it wants to go,
based on good information gathered in advance. The choice of which
direction a firm should go ultimately boils down to a decision by a firm
and its managers. Strategy has two key phases: formulation (or
development) and execution. And it occurs at multiple levels in the firm:
corporate level, SBU (or business) level, and functional level (marketing,
finance, operations, etc.). As we have discussed, the strategies developed
and executed at each of these levels must be aligned and directed toward
the overall organizational mission and goals.
A firm’s generic strategy is its overall directional strategy at the
business level. 35 Fundamentally, all firms must decide whether they wish
to (or are able to) grow, and if not, how they can survive through stability
or retrenchment. Exhibit 3.5 provides options for generic strategies for
each of these three directions. Kroger is the largest supermarket chain and
third-largest retailer overall in the nation. This distinction was reached by
executing an aggressive growth strategy through multiple acquisitions
during a time frame in which many of its competitors primarily pursued a
different growth strategy—opening their own new stores. A defining
acquisition for Kroger was its takeover of Fred Meyer, at the time the fifth-
largest supermarket chain. That deal paved the way for Kroger’s recent
successes by allowing it to achieve huge economies of scale. At peak after
that acquisition, revenues have nearly doubled and the stock price
tripled. 36
The choice of generic strategy is usually driven by resource
capabilities of the firm, as well as the competitive landscape. In the
growth-oriented business culture in the United States, stockholders and
financial analysts are constantly interested in knowing a firm’s next
growth strategy and can become quickly disenchanted, even with firms
that are growing but at a slower than predicted rate. Yet, sometimes for
reasons related to the competitive landscape or resource constraints, the
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best generic strategy for a firm may not actually be growth but stability or
retrenchment instead. Interestingly, the pressure to constantly achieve
accelerated growth is much less intense in many business cultures outside
the United States.
Michael Porter identifies three primary categories of competitive
strategy: low cost, differentiation, and focus (or niche). Exhibit 3.6
describes each of these, and
EXHIBIT 3.5 Generic Business Strategies
Growth
Organizations that do business in dynamic competitive
environments generally experience pressure to grow in order to
survive. Growth may be in the form of sales, market share, assets,
profits, or some combination of these and other factors. Categories
of growth strategies include:
Concentration—via vertical or horizontal integration.
Diversification—via concentric or conglomerate means.
Stability
The strategy to continue current activities with little significant
change in direction may be appropriate for a successful
organization operating in a reasonably predictable environment. It
can be useful in the short term but potentially dangerous in the long
term, especially if the competitive landscape changes.
Retrenchment
An organization in a weak competitive position in some or all of its
product lines, resulting in poor performance and pressure on
management to quickly improve, may pursue retrenchment.
Essentially, retrenchment involves pulling assets out of
underperforming parts of the business and reinvesting in aspects of
the business with greater future performance potential.
180
Source: J. David Hunger and Thomas H. Wheelen, Essentials of Strategic
Management, 5th ed. (Upper Saddle River, NJ: Prentice Hall, 2011).
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EXHIBIT 3.6 Competitive Strategy Options
Cost Leadership
The organization strives to have the lowest costs in its industry and
produces goods or services for a broad customer base. Note the
emphasis on costs, not prices.
Differentiation
The organization competes on the basis of providing unique goods
or services with features that customers value, that they perceive as
different, and for which they are willing to pay a premium.
Focus (or Niche)
The organization pursues either a cost or differentiation advantage,
but in a limited (narrow) customer group. A focus strategy
concentrates on serving a specific market niche.
Source: Porter, Michael E., Competitive Advantage: Creating and Sustaining
Superior Performance, New York, NY: Free Press, 1985.
EXHIBIT 3.7 Competitive Strategy Matrix
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Source: Porter, Michael E., Competitive Advantage: Creating and Sustaining
Superior Performance, New York, NY: Free Press, 1985.
Exhibit 3.7 illustrates them further within a matrix format. Porter’s
overarching premise is that firms must first identify their core
competencies, or the activities the firm can do exceedingly well. When
these core competencies are superior to those of competitors, they are
called distinctive competencies. Firms should invest in distinctive
competencies, as they offer opportunity for sustainable competitive
advantage in the marketplace, especially if the competencies cannot be
easily duplicated or usurped by competitors. Sources of differential
advantage will be developed further in Chapter 7.
As illustrated in Exhibit 3.8, Miles and Snow propose several
categories of firms within any given industry based on strategic type.
Firms of a particular strategic type have a common strategic orientation
and a similar combination of structure, culture, and processes consistent
with that strategy. Four strategic types are prospectors, analyzers,
defenders, and reactors—depending on a firm’s approach to the
competitive marketplace.
JetBlue has historically followed an internal growth strategy. As some
of its rivals continue to falter, it will be interesting to see how aggressive
JetBlue might become in terms of growth through concentration via
acquisitions. Like its much larger competitor Southwest Airlines, JetBlue
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executes a low-cost strategy in the competitive marketplace. Because it has
no unions, hedges on fuel prices, and standardizes the types of planes
flown, JetBlue enjoys numerous cost advantages over the competition.
However, JetBlue differs from Southwest in that its strategy (in the context
of Exhibit 3.8) is more of a cost focus, while Southwest’s is
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EXHIBIT 3.8 Miles and Snow’s Strategy Types
Prospector: Firm exhibits continual innovation by finding and
exploiting new product and market opportunities.
Analyzer: Firm relies heavily on analysis and imitation of the
successes of other organizations, especially prospectors.
Defender: Firm searches for market stability and production of only
a limited product line directed at a narrow market segment, focusing
on protecting established turf.
Reactor: Firm lacks any coherent strategic plan or apparent means
of effectively competing; reactors do well to merely survive in the
competitive marketplace.
Source: Miles, Raymond E. and Charles C. Snow, Organizational Strategy,
Structure, and Process, New York, NY: McGraw-Hill Education, 1978.
cost leadership. The difference is that Southwest—especially with its
acquisition of AirTran Airways—has defined the scope of its competitive
marketplace much more broadly than has JetBlue, although JetBlue is
getting bigger all the time. Southwest carries more passengers
domestically than any other U.S.-based carrier! But don’t think that these
two lower-cost strategy airlines don’t also offer differentiation. For
example, JetBlue very successfully relies on in-flight entertainment and
comfortable seats, while Southwest hangs its hat on its fun atmosphere.
The point is, it’s very possible for cost leadership firms to also execute
differentiation as a competitive strategy.
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In terms of strategic type, JetBlue can be labeled a prospector. When a
firm introduces a new offering to a market that the market hasn’t
experienced before, this defines (or redefines) the scope of the competitive
marketplace and is called first-mover advantage. JetBlue gained first-
mover advantage by providing television, movies, and games in every seat
along with comfy leather accoutrements and plenty of legroom—all at
bargain prices! Exhibit 3.8 provides typical characteristics of firms that fall
into each of the strategy types.
To summarize, for purposes of marketing planning, it is necessary to
be mindful of the organizational strategies in play when developing
marketing strategies. One could reasonably argue that a fine line exists
between organization-level strategies and marketing strategies, and, in
many firms, the market-driven strategies developed within the context of
the marketing plan ultimately rise to the organizational level. 37
Fortunately, the distinction is moot so long as the strategies developed and
implemented are fully supportive of the organization’s mission, vision, and
goals.
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One way JetBlue differentiates itself is by providing more legroom in the main
cabin.
Source: JetBlue Airways
Situation Analysis
LO 3-4
Conduct a situation analysis.
The marketing manager must perform a complete situation analysis of the
environment within which the marketing plan is being developed. The
situation includes elements of the macro-level external environment within
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which the firm operates, its industry or competitive environment, and its
internal environment. 38 Think of external environmental factors as those a
firm must be mindful of and plan for, yet has little or no direct ability to
impact or change. On the other hand, internal environmental factors
include the firm’s structure and systems, culture, leadership, and various
resources, all of which are under the firm’s control. Ironically, when
undertaking a situation analysis, managers often have more difficulty
assessing the internal environmental components than the external,
perhaps because it is much more difficult to self-assess and potentially
criticize that for which the managers are responsible. 39
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Macro-Level External Environmental Factors Major
categories for analysis within the external environment include:
Political, legal, and ethical. All firms operate within certain rules,
laws, and norms of operating behavior. For example, JetBlue has
myriad regulations administered by the Federal Aviation
Administration, the National Transportation Safety Board, and the
Transportation Security Administration. In the airline industry, the
regulatory environment is a particularly strong external influence on
firms’ marketing planning.
Sociocultural/demographic. Trends among consumers and in society
as a whole impact marketing planning greatly. Many such trends are
demographic in nature, including changing generational preferences
and the rising buying power of minority groups domestically and
consumers in developing nations in the global marketplace. 40
Speaking of generational preferences, JetBlue jumped on the video
game trend among children and teens by providing in-seat games,
much to the delight of parents who no longer have to entertain the
kids for the duration of the flight.
Demographic factors influence a company’s marketing strategy.
Sonic Drive-In uses social media to advertise, sell, and even inspire
the designs of its food in order to attract younger customers. Toward
this end, Sonic launched its Square Shakes Instagram marketing
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campaign at the popular Coachella Valley Music and Arts Festival in
California. Shakes were hawked as “The world’s first shakes
designed for Instagram.” 41 Merging food art and social technology
trends, the campaign portrayed Sonic’s new milkshakes with square
cups, straws, and cherries against quirky backgrounds as eye-
catching Instagram posts. In an interview, former Sonic President and
CMO Todd Smith explained that the company wanted to be “the first
brand, and especially the first food brand, to have a product that was
designed for Instagram, offer it exclusively for sale on Instagram,
and then deliver that product within minutes of your order on
Instagram.” 42 This initiative was part of a broader strategy by Sonic
to ramp up digital and social media marketing, in support of the
brand and its more than 3,500 drive-ins nationwide, and attract and
appeal to the next generation of Sonic customers.
Technological. Constantly emerging and evolving technologies
impact business in many ways. The goal is to try to understand the
future impact of technological change so a firm’s products will
continue to be fresh and viable. As JetBlue has grown, it has put into
service more and more of the new downsized “regional jets,” planes
that carry about 100 passengers and allow for entry into smaller,
underserved markets. The airline is banking on these attractive,
comfortable new aircraft to provide a market edge over the
competition.
Economic. The economy plays a role in all marketing planning. Part
of a marketing plan is a forecast and accompanying budget, and
forecasts are impacted by the degree to which predicted economic
conditions actually materialize. 43 Fuel prices are a major economic
cost element for any airline. JetBlue was a pioneer in hedging against
rising fuel prices—that is, making speculative long-term purchase
commitments betting on fuel prices going up.
Natural. The natural environment also frequently affects marketing
planning. 44 JetBlue’s highly publicized winter weather fiasco at JFK
airport some years ago prompted immediate changes in the way the
company communicates with its customers. And on a broader scope,
the concept of environmentally friendly marketing, or green
marketing, has been a growing trend in socially responsible
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companies. Sustainability, which refers to business practices that
meet humanity’s needs without harming future generations, has
evolved into a part of the philosophical and strategic core of many
firms.
Panera Bread and other competitors in the fast casual restaurant category have
benefited from macro-level and competitive environmental factors including
consumer preferences changing toward healthier items and the reluctance of
many millennials to frequent traditional “fast food” places such as McDonald’s
and KFC.
Source: Panera Bread
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Competitive Environmental Factors The competitive
environment is a particularly complex aspect of the external environment.
Let’s identify several factors, or forces, that comprise a basis for assessing
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the level and strength of competition within an industry. The forces are
portrayed in Exhibit 3.9 and summarized below:
Threat of new entrants. How strong are entry barriers based on
capital requirements or other factors? A cornerstone of JetBlue’s
initial market entry success was the fact that it was exceptionally
well-capitalized. Not many new airlines are.
Rivalry among existing firms. How much direct competition is there?
How much indirect competition? How strong are the firms in both
categories? JetBlue’s industry contains a number of firms that are
much larger, but based on JetBlue’s unique value proposition, few of
them can deliver the same customer experience at reasonable prices
that JetBlue can.
Threat of substitute products. Substitutes appear to be different but
actually can satisfy much or all of the same customer need as another
product. Will teleconferencing PC-to-PC reach a point in the near
future such that business travel is seriously threatened, thus
impacting JetBlue and other airlines?
Bargaining power of buyers. To what degree can customers affect
prices or product offerings? So far, JetBlue has not been in much
head-to-head competition with Southwest, Spirit, Allegiant, Frontier,
or other low-fare carriers in its primary markets. Should this change,
passengers will have more power to demand even lower fares and/or
additional services from JetBlue.
EXHIBIT 3.9 Forces Driving Industry Competition
189
Source: Porter, Michael E., Competitive Advantage: Creating and Sustaining
Superior Performance, New York, NY: Free Press, 1985.
69
Bargaining power of suppliers. Suppliers impact the competitive
nature of an industry through their ability to raise prices or affect the
quality of inbound goods and services. Jet fuel literally fires the
airline industry’s economic engine. Also, few manufacturers of
commercial aircraft still exist. Both of these factors point to a
competitive environment with strong supplier power.
One other competitive force not directly addressed by Porter is the
relative power of other stakeholders. This force is becoming more and
more relevant in assessing industry competitiveness. The level of activity
by unions, trade associations, local communities, citizens’ groups, and all
sorts of other special-interest groups can strongly impact industry
attractiveness. 45 Founder David Neeleman established JetBlue as a non-
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union shop with the goal of keeping it that way by hiring the very best
people and treating those people right. The union environment in the
airline industry adds multiple complexities to the ability to stay
competitive. 46
Internal Environmental Factors Major categories for analysis in
the internal environment include:
Firm structure and systems. To what degree does the present
organizational structure facilitate or impede successful market-driven
strategic planning? Are the firm’s internal systems set up and
properly aligned to effectively serve customers? David Neeleman
had his organizational chart right on the company website and talked
openly about being a lean and mean operation. It’s hard to find much
evidence that JetBlue’s structure and systems offer impediments to
its marketing planning.
Firm culture. As discussed previously, successful marketing
planning requires a culture that includes customer orientation as a
core value. If a firm’s culture does not value and support a customer
orientation and customer-centric approach to the overall business,
marketing planning will likely disappoint. 47 Although every airline
has its detractors, overall, JetBlue scores high points for its
communication with customers as well as the generally positive tone
of social media chatter. This provides evidence that customer
orientation is a core value at the company.
Firm leadership. Of course, the CEO must believe in and
continuously support (financially and otherwise) the structure,
systems, and culture necessary for market-driven strategic
planning. 48 JetBlue’s employee-friendly—and customer-friendly—
approach epitomizes such leadership and commitment.
Firm resources. Finally, internal analysis involves taking an honest
look at all aspects of a firm’s functional/operational-level resources
and capabilities and how they play into the ability to develop and
execute market-driven strategies. 49 Key resources for study are:
Marketing capabilities.
Financial capabilities.
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R&D and technological capabilities.
Operations and production capabilities.
Human capabilities.
Information system capabilities.
JetBlue historically has performed better than almost all the competition
on all these resource dimensions.
Summarize the Situation Analysis into a SWOT Upon
completion of the situation analysis, a convenient way to summarize key
findings is into a matrix of strengths, weaknesses, opportunities, and
threats—a SWOT analysis. Exhibit 3.10 provides a template for a SWOT
analysis. Internal analysis reveals strengths and weaknesses, while external
analysis points to potential opportunities and threats. Based on the
situation analysis and SWOT, it is now possible to begin making decisions
about the remainder of the marketing plan.
Besides helping a marketing manager organize the results of a
situation analysis, the SWOT analysis template is also useful in beginning
to brainstorm marketing strategies that might be appropriate depending on
which of four possible combination scenarios predominate
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EXHIBIT 3.10 SWOT Analysis Template
192
Source: Weihrich, H. “The TOWS Matrix –A Tool For Situational Analysis,” Long
Range Planning 15, no. 2, 1982, p. 60.
in a firm’s situation: internal strengths/external opportunities, internal
strengths/external threats, internal weaknesses/external opportunities, or
internal weaknesses/external threats. During the situation analysis it is
essential to begin to critically and realistically examine the degree to
which a firm’s external and internal environments will impact its ability to
develop a marketing strategy. The more honest and accurate the portrayal
provided by the SWOT analysis, the more useful the remainder of the
marketing planning process will be.
Additional Aspects of Marketing Planning
Additional elements of marketing planning are identified below. As they
derive their content primarily from future chapter topics, reference is made
where relevant to the chapters from which the content can be derived.
Perform Any Needed Market Research Part Two of the book
focuses on using information to drive marketing decisions. In those
chapters, you will learn about collecting and analyzing market
information; gain insights on CRM, Big Data, and marketing analytics and
dashboards; and discover how to best understand consumer and business
193
markets—all focused on making better decisions as a marketing manager.
JetBlue has an effective CRM system that is supported through its
TrueBlue loyalty program and other means. The firm also engages in
ongoing market and consumer research to pinpoint trends and
opportunities to better enhance the customer experience.
The Mall of America in Minneapolis, Minnesota, is the largest mall in
the United States. Managing and measuring customer satisfaction can be a
challenging process, given that the mall welcomes 40 million shoppers
annually. Despite the widespread news of failing shopping malls, this one
continues to pack ’em in. A good part of its continued success is
attributable to customer data collection and analysis. Mall administration
sensed that some additional analytical power was needed and found a
revolutionary product called Kipsu. This sophisticated CRM system allows
the users to text a specified phone number and anonymously report about
their experiences. The Mall of America began using the product in the
early 2010s. To give an example of the impact, custodians at the mall now
have an informal competition to determine which bathrooms receive the
fewest complaints! Mall management staff members receive real-time
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metrics and updates from both the customers and the employees. Joseph
Reuter, cofounder of Kipsu, said, “We are revolutionizing the service
cultures of our clients. By scientifically dissecting the nuances of
communication in service environments, we provide discipline over data
and accountability.” The success of the Mall of America is proving his
statement is correct. 50
Establish Marketing Goals and Objectives What is expected
to be accomplished by the marketing plan? Based on what is learned from
the situation analysis, competitor analysis, and market research, goals and
objectives can now be developed related to what the marketing manager
intends to accomplish with the marketing plan. JetBlue’s marketing goals
focus on enhancing the safety, comfort, and fun of customers’ travel
experience, building high satisfaction and loyalty among JetBlue users,
and attracting new users to the brand.
Develop Marketing Strategies As we mentioned earlier,
marketing strategies provide the road map for creating, communicating,
194
and delivering value to customers. An overarching decision that must be
made is which combinations of products and markets to invest in. A
product-market combination may fall into one of four primary categories,
as illustrated by Exhibit 3.11, Igor Ansoff’s Product-Market Matrix.
Market penetration strategies involve investing in existing customers
to gain additional usage of existing products.
Product development strategies recognize the opportunity to invest
in new products that will increase usage from the current customer
base.
Market development strategies allow for expansion of the firm’s
product line into heretofore untapped markets, often internationally.
Diversification strategies seize on opportunities to serve new markets
with new products.
JetBlue began business with a primary focus on product development.
The clean new planes, comfy leather seats, full spectrum entertainment
console, and friendly staff were all welcomed by fliers as a long overdue
change from other airlines’ cattle-call mentality. However, more recently
the company has focused on taking its winning formula into a number of
new geographic markets. This market development strategy dramatically
increased the number of cities on JetBlue’s
EXHIBIT 3.11 Product-Market Combinations
195
Source: H. Igor Ansoff, The New Corporate Strategy, New York, NY: John Wiley &
Sons, 1988.
72
route system and especially increased opportunities for customers from
underserved smaller cities using smaller regional jets. JetBlue has also
added numerous international destinations into the travel mix such as
Bermuda and Havana, Cuba (JetBlue’s 100th destination).
Create an Implementation Plan Including Forecast,
Budget, and Appropriate Marketing Metrics As pointed out
earlier, strategy development is only part of marketing planning. The other
part is strategy implementation, including measuring results. The process
of measuring marketing results and adjusting the marketing plan as needed
is called marketing control.
In a marketing plan, every strategy must include an implementation
element. Sometimes these are called action plans or programs. Each must
discuss timing, assign persons responsible for various aspects of
implementation, and assign resources necessary to make the strategy
happen. 51 Forecasts and their accompanying budgets must be provided.
Then, appropriate metrics must be identified to assess along the way to
what degree the plan is on track and the strategies are contributing to
196
achievement of the stated marketing objectives. Chapter 5 provides more
information on marketing dashboards and metrics for marketing control.
On the JetBlue website, the Investor Relations and Press Room
sections provide compelling evidence that the company is highly oriented
toward measurement of marketing results. And although the airline
industry as a whole has suffered in recent years due to increased costs,
JetBlue has generally received better reviews than most other airlines from
Wall Street analysts in part because of the clarity of JetBlue’s goals,
metrics, and controls.
Develop Contingency Plans A final step marketing managers
should take is to develop contingency plans that can be implemented
should something happen that negates the viability of the marketing
plan. 52 As you’ve learned, in marketing planning, flexibility and
adaptability by managers are critical because unexpected events and
drastic changes in various aspects of the external environment are the
norm rather than the exception. To address this eventuality, a firm should
incorporate contingency plans into the process.
Contingency plans are often described in terms of a separate plan for a
worst-case, best-case, and expected-case performance against the forecast.
That is, the implementation of the marketing strategies would be different
depending on how performance against the forecast actually materializes.
If better, the firm could quickly shift to a best-case implementation
scenario. If worse, then the shift would be to a worst-case scenario. Having
these contingency plans in place avoids scrambling to decide how to adjust
marketing strategies when performance against a forecast is higher or
lower than expected.
When developing contingency plans, the firm should be realistic about
the possibilities and creative in developing options for minimizing any
disruption to the firm’s operations should it become necessary to
implement them. Some firms use contingency planning to reduce the
chances they would make a public relations blunder when confronted with
an unexpected challenge that generates negative publicity in the media
such as product tampering or failure, ethical or legal misconduct of an
officer, or some other aspect of their operation that garners bad press. 53
For JetBlue, as with all airlines, the ultimate external resource
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contingency is jet fuel. Over the past decade fuel prices have swung from
very high to very low, and other than hedging (investing to reduce the risk
of adverse price movements of an asset), there’s not much JetBlue can do
to combat these swings short of buying a refinery (which Delta, in fact,
actually did!). As such, JetBlue no doubt has in place contingency plans
for different future jet fuel price levels. Having those plans codified helps
ensure that a dramatic swing in the price is met with an actionable strategy
change immediately.
Lego has executed a highly successful strategy by expanding into Legoland
theme parks with locations in California, Florida, Denmark, Germany, Malaysia,
and the UK.
©Jason Knott/Alamy Stock Photo
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TIPS FOR SUCCESSFUL MARKETING
PLANNING
LO 3-5
Use the framework provided for marketing planning, along with the
content in future chapters, to build a marketing plan.
Developing a marketing plan is an essential process for firm success. In
198
addition to its direct impact on a firm’s ability to compete, ongoing
marketing planning also has the strong internal organizational benefit of
providing a rallying point for developing creative ideas and for gaining
input from important stakeholders throughout the various areas within an
organization. 54 Who should be involved in marketing planning? The
answer is: anyone from any unit at any level whose contribution and
participation in the process will enhance the likelihood of a successful
outcome. Marketing planning provides a unique opportunity for
organization members to contribute to the success of a firm in a very
concrete and visible way.
Here are a few final tips for having a successful marketing planning
experience.
1. Stay flexible. Don’t forget that marketing plans are not set in stone.
Markets and customers change, competitors do unexpected things,
and the external environment has a nasty habit of creating
unexpected surprises. Great marketing managers understand when to
adjust a plan. Nimble organizations tend to be much more successful
in their marketing strategies.
In his provocative book, The Rise and Fall of Strategic Planning,
strategy expert Henry Mintzberg builds the case that organizations
sometimes spend so much time focused on planning for the long
term that they miss the opportunities presented by the next customer
who walks through the door. 55 Mintzberg’s concern is valid and
points to the need to view planning as an ongoing, organic process in
which managers exhibit flexibility and adaptability to changing
market conditions. Marketing plans are not written in stone—that is,
after a plan is prepared, myriad changes in the firm’s external and
internal environments may create a need for marketing managers to
quickly alter their strategies in the marketplace. 56 The more nimble
a company is in changing course to address new conditions as they
arise, the more successful its marketing strategies will be.
2. Utilize input, but don’t become paralyzed by information and
analysis. Great marketing managers value research and analytics, but
also know when to move forward with action.
3. Don’t underestimate the implementation part of the plan. This is
199
such a common mistake it is nearly synonymous with poor
marketing planning. The quality of the action plans and metrics often
make or break the success of the plan. Put another way, a good plan
on paper is useless without effective implementation.
4. Stay strategic, but also stay on top of the tactical. Remember that
marketing has these two levels of interrelated issues, and both the
strategic and tactical elements have to be right for the plan to be
successful.
5. Give yourself and your people room to fail and try again. Marketing
planning is by no means a predictable science. It is more realistic to
think of it as both science and art, and creativity and risk-taking are
to be rewarded. All great marketing managers have experienced both
success and failures in marketing planning. As in baseball, it’s not
one or two times at bat but rather the long-term batting average that
separates the great from the average performer.
VISIT THE APPENDIX FOR A MARKETING
PLAN EXAMPLE
Often the best way to learn is through example, so in the appendix to this
chapter we have provided an abbreviated example marketing plan for the
fictitious company CloudCab Small Jet Taxi Service. Take this
opportunity early in the course to familiarize yourself with the flow and
content, albeit abbreviated, of a typical marketing plan.
In addition, at the end of each chapter starting with this one you will
find a Marketing Plan Exercise that is designed to highlight aspects of the
chapter as they pertain to a manager’s ability to build an effective
marketing plan. Use these activities to build your own knowledge and skill
in the marketing planning process.
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SUMMARY
200
Marketing planning is an ongoing process of developing and
implementing market-driven strategies for an organization. Great
marketing planning is essential for success in the marketplace. Once
established, marketing plans are not set in stone. Instead, marketing
managers must be flexible enough to constantly assess changes in the
external and internal environments and adjust strategies and tactics
accordingly. The chapter introduces a framework for marketing
planning. The essential elements of that framework are covered in the
chapters throughout the remaining three parts of the book.
KEY TERMS
benefit 55
utility 55
value proposition 55
customer satisfaction 55
customer loyalty 56
customer retention 56
customer switching 56
value chain 56
value-creating activities 57
marketing planning 58
marketing plan 58
market-driven strategic planning 60
strategic business unit (SBU) 60
corporate-level strategic plan 60
SBU-level strategic plan 60
portfolio analysis 61
Boston Consulting Group (BCG) Growth-Share Matrix 61
GE Business Screen 61
functional-level plans 62
201
mission statement 63
strategic vision 63
goals 63
objectives 63
strategy 64
generic strategy 64
competitive strategy 64
core competencies 65
distinctive competencies 65
sustainable competitive advantage 65
strategic type 65
first-mover advantage 65
situation analysis 66
SWOT analysis 69
market penetration strategies 71
product development strategies 71
market development strategies 71
diversification strategies 71
marketing control 72
APPLICATION QUESTIONS
More application questions are available online.
1. What is a value proposition? For each of these brands, articulate
your perception of their key value proposition:
a. Disney theme parks
b. Target
c. Instagram
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d. Chick-fil-A
e. Netflix
2. Consider the concept of the value chain. Identify a firm that you
believe does an especially good job of investing in elements in the
value chain to gain higher profit margins versus its competition.
Which two or three elements in the value chain does that firm
handle especially well? For each of those elements, what does it do
that is better than its competition?
3. Why is it so important for marketing managers, when engaged in
marketing planning, to successfully deal with both Marketing (Big M)
and marketing (little m) elements? What would be the likely negative
outcome if a marketing plan paid a lot of attention to strategies and
little attention to tactics? What would be the likely negative outcome
of the reverse?
75
4. Select any industry of interest to you and identify several competing
firms. Using Miles and Snow’s strategy types, identify the following:
(1) a firm that you believe is a prospector; (2) a firm that you believe
is an analyzer; (3) a firm that you believe is a defender; and (4) a
firm that you believe is a reactor. What characteristics of each led
you to conclude they belong in their respective strategy type?
5. Historically, the theme park industry in Orlando is heavily affected
by a large number of macro-level external environmental factors.
From each of the five major categories of macro-level external
factors, identify a specific example of how some element within that
category might impact a theme park’s marketing planning for the
next couple of years. Be sure to explain why you believe each of
your examples will be important for marketing managers to consider
as they develop their marketing plans.
MANAGEMENT DECISION CASE
Marketing Planning Helps Dunkin’ Donuts
203
Score Big in Coffee Customer Loyalty
A key goal for a marketing manager is to make sure that the
company’s brand stays relevant. Successfully realizing this goal
requires a marketing planning process that is both thorough and
grounded in best practices, and also flexible enough to allow the
firm to react to (and hopefully stay ahead of) changing customer
preferences and shifts in values. Over its 67 years in business,
Dunkin’ Donuts has shown that it can stick to its core mission while
also regularly updating its marketing strategy, and thus remain
relevant within the highly competitive “out-of-home coffee”
category. 57
In 1950, Dunkin’ Donuts was a single restaurant in Quincy,
Massachusetts, with a simple mission: serve high-quality donuts
and coffee at affordable prices with fast and friendly service.
Today, with over 12,000 restaurants in 45 countries, the chain’s
mission is still basically the same, but many aspects of its
marketing strategy have changed to keep the brand fresh and
relevant against fierce competition. 58
In the first five decades of its history, Dunkin’ was mostly about
the donuts. In the early 2000s, it decided to shift the focus more to
the drink into which the donut was about to be dunked—the coffee.
It squarely took on market leader Starbucks by offering a less
expensive (yet really tasty) alternative, one that was faster and
more user-friendly—the “average Joe’s average joe.” In 2006,
Dunkin’ got even more serious about coffee with its famous and
highly successful “America Runs on Dunkin’” campaign. Today,
although it certainly still sells plenty of donuts, Dunkin’ sells an
incredible 1.9 billion cups of coffee per year—that’s 60 cups per
second! 59
In recent years, a major focus of Dunkin’ Donuts’ marketing
planning has been its digital strategy, especially by enabling
engagement with customers through social media. Examples
include the “create Dunkin’s next donut” contest a few years back,
and the more recent integrated #mydunkin campaign on Twitter. In
the latter, fans were encouraged to share their experiences via
204
Facebook and Twitter with how Dunkin’ keeps them running, with
the most enthusiastic fans appearing in Dunkin’ TV ads. Using
these tools has helped the company hear the stories of its
customers, retell the stories, and interact with these loyal fans on a
regular basis. 60
Although Dunkin’ scores lower than Starbucks in the number of
social media interactions, experts importantly give Dunkin higher
marks in terms of the quality of those interactions. According to
Dunkin’s ad agency executives, “More than ever, Dunkin’ is a
brand that listens to its guests, through multiple channels, at all
levels of the organization. Dunkin’ puts its fans at the center of its
social media strategy—they’re an active and passionate tribe that’s
fueled by interactions with the brand.” And Dunkin’ also manages
to take a jab at the competition now and then. Recently, its top
Facebook post was a photo of a Dunkin’ T-shirt emblazoned with
the message “Friends don’t let friends drink Starbucks.” 61
Marketing (Big M) and marketing (little m) combine strategic
and programmatic/tactical approaches to provide a comprehensive
focus on a company’s most important stakeholder: the customer
and his or her experience with the brand. Witness Dunkin’s highly
successful loyalty
76
program, DD Perks Rewards, which is a key competitive
differentiator for the company. With over 5 million members, this
program is one of the fastest-growing loyalty programs in the quick
service restaurant (QSR) industry. As a member of DD perks,
customers earn points for every dollar spent and receive a free
drink when they accrue 200 points. On becoming a DD Perks
Rewards member, the customer receives a personalized
welcoming e-mail message explaining the benefits of the program.
Additional e-mails are also sent, and customers receive special
offers on their device through Dunkin’s mobile app (which has
been downloaded over 16 million times since its launch). The app
is also the platform for Dunkin’s On-the-Go-Ordering, with which
customers can place their order in advance and pick it up on
arrival. 62
205
The superior customer experience that Dunkin’ Donuts
provides has earned them industry accolades. No doubt to the
ultimate chagrin of Starbucks, in the Brand Keys Customer Loyalty
Engagement Index ® , Dunkin’ Donuts has been number 1 in coffee
customer loyalty for the past 11 years in the out-of-home coffee
category and the number 1 brand for packaged coffee category for
the last five years. This index recognizes brands that surpass
competitors in delighting customers and meeting their expectations
for taste, quality, and service, as well as brand value. 63
Because of superior marketing planning and marketing strategy
execution, Dunkin’ Donuts has successfully made the shift in focus
from donuts to coffee, but it does operate in the shadow of
Starbucks, which has 36 percent of the U.S. market to Dunkin’s 24
percent. And make no mistake about it, Starbucks is also very
committed to digital and social media marketing and also has a
loyalty program and a mobile app. 64 As each company engages
with its customers, Dunkin’s marketing managers will have to stay
at the top of their game and continue to deploy a strong market
planning process, monitor and adapt to customer trends, and
respond with strategies designed to keep the Dunkin’ Donuts
brand relevant and strategically differentiated against the
competition.
Questions for Consideration:
1. Dunkin’ Donuts made a strategic decision to make its business
about the coffee, not just the donuts. What are the risks when a
company that is so closely identified with one product (it’s in
their name!) decides to change its focus to a different product?
What marketing strategies can help reduce the risks and
increase the probability of success?
2. What are the key differences between the marketing strategy of
Dunkin’ Donuts and its chief competitor, Starbucks? What else
could the company do from a marketing manager’s standpoint to
successfully compete with and clearly differentiate Dunkin’ from
206
Starbucks?
3. Loyalty programs like DD Perks can get customers engaged
with the brand and incentivize them to stay loyal. But loyalty
programs alone are relatively easy for competitors to match and
top, and thus they often aren’t sufficient to retain customers and
thwart switching. In addition to reward programs, what other
factors drive loyalty to a brand, and which of these do you
presently see in play at Dunkin’ Donuts? Is there more that
Dunkin’ could do to increase customer loyalty?
MARKETING PLAN EXERCISES
ACTIVITY 1: Elements of a Marketing Plan
In the chapter, you learned that marketing planning drives the activities
of the marketing manager and you were provided a framework for
marketing planning. Before you move further through this course, it is
important to be sure that you understand the flow and content of a
typical marketing plan.
1. Read the annotated marketing plan example presented in the
appendix to this chapter.
2. Make notes about any questions you may have about the example
plan, and be prepared to bring those questions to class for
clarification.
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ACTIVITY 2: Situation Analysis
In the chapter you also learned about the key situation analysis areas
of external macro-level environmental factors, competitive forces, and
internal environmental factors that marketing managers must consider
in marketing planning. You also saw how this information can be
conveniently summarized and portrayed in a SWOT analysis.
1. Using the chapter discussion on situation analysis along with Exhibit
207
3.10 as a guide, develop a short list of internal strengths and
weaknesses and external opportunities and threats. Focus on issues
that you believe will be most important to your marketing planning
over the next year or so.
2. Exhibit 3.10 suggests that you consider the four different scenario
combinations of the SWOT to begin to brainstorm possible
strategies. Based on what you know at present, develop one idea for
a marketing strategy that might be appropriate for each of the four
situational scenario combinations represented in the exhibit—that is,
one strategy that uses internal strengths to take advantage of
external opportunities you have identified; one strategy that uses
internal strengths to avoid external threats you have identified; one
strategy that takes advantage of opportunities by overcoming internal
weaknesses you have identified; and one strategy that minimizes
internal weaknesses and avoids external threats.
NOTES
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trucks/toyota/prius; and Cody Trotter, “2017 Lexus NX Review,”
U.S. News & World Report, March 3, 2017,
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208
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14. Thomas L. Friedman, The World Is Flat: A Brief History of the
Twenty-First Century (New York: Farrar, Straus and Giroux,
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15. Wayne McPhee and David Wheeler, “Making the Case for the
Added-Value Chain,” Strategy and Leadership 34, no. 4 (2006),
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16. Roland T. Rust, Katherine N. Lemon, and Valarie A. Zeithaml,
“Return on Marketing: Using Customer Equity to Focus
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17. Richard W. Mosley, “Customer Experience, Organisational
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history; and Lindsay Kolowich, “12 of the Best Marketing and
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78
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21. Karen Norman Kennedy, Jerry R. Goolsby, and Eric J. Arnold,
210
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22. Rust, Lemon, and Zeithaml, “Return on Marketing.”
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211
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and Free Beverage Signup Promo,” Tech Times, April 19, 2016,
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215
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APPENDIX
Cloudcab Small Jet
Taxi Service
Abbreviated Example
Marketing Plan
NOTE TO READER
This is an abbreviated version of a marketing plan for a fictitious firm,
CloudCab Small Jet Taxi Service. This appendix is designed to walk you
through the main steps of marketing planning. The idea is to provide you
with an example early in the course so you will have a better
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understanding throughout the chapters of how the pieces of a marketing
plan come together. Chapter 3 is devoted to the topic of marketing
planning, providing a marketing plan framework and explaining the parts.
That framework is used to develop this abbreviated example. Note that in
practice most marketing plans contain more depth of detail than is
provided here. Also, remember that each chapter ends with a Marketing
Plan Exercise designed to guide you in applying the concepts from that
chapter to a marketing plan.
SITUATION ANALYSIS
CloudCab seeks to provide solutions for the time-conscious traveler using
quick, luxurious jet transportation. The small company was founded by
former pilot Travis Camp and is now poised to be a first-mover into the
California/Nevada/Arizona market. CloudCab will provide an alternative
to frustrating waits at the airport and long car rides at a fair price for its
customers.
CloudCab will use small, underutilized airports and a new class of
Very Light Jet (VLJ) to quickly and comfortably transport customers from
one city to another. Its customers will come primarily from businesses
needing quick, on-demand transportation. Initially, CloudCab will not face
much direct competition, so its biggest challenge will be to convince
customers of its benefits over more traditional products.
Macro-Level External Environment
Political and Legal
Like all companies using the skies, CloudCab is subject to the rules set
forth by the Federal Aviation Administration and other regulatory bodies.
Fortunately, smaller jets have many of the same air privileges as their
larger counterparts. This ensures access to needed airspace and air traffic
control services.
The political and legal environment has the potential to become an
even more positive factor for CloudCab as business expands. CloudCab
uses smaller, underutilized airports,
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thereby drawing traffic away from congested major hubs and increasing
the efficiency of the entire system. If CloudCab is successful, this may
actually induce lawmakers to provide incentives for companies like
CloudCab.
Furthermore, larger airports are already facing capacity strain. If
CloudCab ties up the governmental resources needed by larger planes
carrying more passengers, there may be pressure to limit the use of small
jets at large airports.
Sociocultural
The macro-trend of consumers leading time-poor lives continues as both
individuals and companies strive to be more efficient in their day-to-day
operations. Coupled with an increase in waiting times at major airports due
to heightened security procedures, this has led today’s consumers to be
even more conscious of the time spent in transit. Many are willing to spend
extra money on faster, more convenient travel options.
Technological
Until recently, small jet service on a large scale was prohibitively
expensive. The limited number of people willing to pay for such service
could not compensate for the high cost of the jet itself. Due to changes in
technology and the advent of the VLJ, this has begun to change. Several
companies have been able to produce VLJs for the relatively low price
range of $1 million to $3 million each. Using these efficient three-to-six-
passenger jets, a taxi-like air service is now economically feasible.
Economic
The overall state of the economy will have a large impact on CloudCab’s
success, since business travel declines precipitously during economic
downturns. Since some industries inherently require more travel than
others (e.g., consulting, sales) and thus have a larger impact on demand for
CloudCab services, CloudCab should particularly watch the health of these
industries as predictors of demand for its own services.
CloudCab is also heavily dependent on the availability and price of oil.
Higher oil prices will erode CloudCab’s margins, while shortages may
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effectively stall the business. The risk involved in relying on a potentially
price-volatile resource must be effectively managed to ensure success.
Competitive Environment
Threat of New Entrants
If CloudCab is successful it may entice others to enter the market.
CloudCab’s business is very capital intensive, though not as much so as a
traditional airline due to smaller, lower-cost jets and a limited operating
area. Still, the capital needs are sufficient to deter entry by many.
The biggest hurdle facing new entrants is the lead time necessary to
procure the VLJs. This requires planning years in advance of actual
operation due to backlogs in manufacturing and high demand. Thus, if a
company is not in the business now, it would likely be at least a few years
until it was able to enter. In the meantime, CloudCab would have some
warning that a new competitor was coming.
Rivalry among Existing Firms
Fortunately, CloudCab will be one of the first to market, so initially there
will not be many direct competitors. For a while, companies currently
pursuing similar strategies should have ample market share to coexist
peacefully, especially since most are geographically concentrated.
However, it is just a matter of time before a few establish themselves as
the dominant brands and expand nationally, increasing the rivalry and
pushing some weaker players out of business.
CloudCab will face some indirect competition from the start from
other private jet options. These include partial ownership plans and pay-
by-the-hour membership cards. Until now, these have been the solutions of
choice for speedy, luxurious travel.
Threat of Substitute Products
CloudCab’s greatest threat will likely come from substitute products.
Consumers have a variety of options when it comes to transportation. For
regional travel, they can choose to fly on a traditional airline, drive their
car, or in some cases take a bus or train. These options do not provide
nearly the same level of comfort and speed as air taxis, but they do
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accomplish the task of getting a person from Point A to Point B at a
significantly lower cost. Also, for business travelers, technology solutions
such as videoconferencing make physical travel to some types of meetings
nonessential. If national security travel limitations develop or an economic
downturn forces firms to cut business travel, these substitutes will
predominate.
Bargaining Power of Buyers
CloudCab primarily competes in the business-to-business (B2B) market
space, and it will be catering to only a few customers per flight on a
limited number of flights. This means that any one customer’s decision to
use CloudCab has a large proportional impact, especially during
CloudCab’s early years. CloudCab will have to treat each customer well
because it cannot afford to lose any. Still, a single traveler will not be able
to demand, or bargain for, changes from CloudCab because the cost of
making those changes will likely be larger than the revenue collected from
that one buyer. On the other hand, a major corporate client—supplying
many passengers over time—would wield considerable power.
Bargaining Power of Suppliers
CloudCab uses a single manufacturer for its jets; thus the level of
dependency is high. If the jets are not ready in time or do not meet
specifications, CloudCab could be put out of business. If CloudCab’s
manufacturer is not able to fulfill its contract, CloudCab might have to
wait years to have an order filled with another supplier. Consequently,
CloudCab’s supplier is in a strong position to bargain for better terms.
At present, the supplier has relatively few buyers, one of them being
CloudCab. So as a buyer, CloudCab also has some bargaining power. This
makes the two interdependent and reduces the incentive for the supplier to
treat CloudCab unfairly.
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Internal Environment
Firm Structure
CloudCab, being relatively new, is far smaller than most businesses in the
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airline industry. Having few employees makes communication easy and
response to change quick to occur. Realizing that the company’s success
depends heavily on customer adoption of the new offering, CloudCab
executives’ actions are driven primarily by the needs of the market.
CloudCab is led by founder and CEO Travis Camp. Robert Fray, chief
operating officer and close friend of Camp, has been crucial in developing
cost-saving measures to ensure CloudCab’s prices are as competitive as
can be. Other officers include Thomas Puck, chief financial officer;
Elizabeth Vars, chief marketing officer; and Jeffery Brown, chief
technology officer. All have airline industry experience, and Camp and
Fray are former commercial pilots. The firm is in the entrepreneurial stage
of its corporate development.
CloudCab is privately held and funded primarily through the
investments of Travis Camp and Robert Fray, who combined have a
controlling interest in the company. The rest of the funding has been
obtained mostly from venture capital firms seeking returns based on a five-
year time horizon.
Firm Culture
CloudCab is built on seizing opportunities to better serve the customer. It
epitomizes a “lean and mean” culture. New ideas for improvements in
efficiency and service quality are encouraged in this customer-centric
culture. CloudCab has formalized reward systems for outstanding
performance and attitude to promote high morale and productivity among
its employees.
Firm Resources
Marketing capabilities: CloudCab has a strong, close-knit marketing team
with a combination of experienced hands and recent college graduates.
Several employees have ties with local media in major cities that can be
used upon product launch.
Financial capabilities: CloudCab is well-financed through equity
investments. It has purchased outright the 15 VLJs it plans to use in its
operations. Current cash reserves should easily cover initial marketing and
ongoing operating expenses, though investors have pledged further funds
if needed.
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R&D and technological capabilities: Lacking R&D capabilities in-
house, CloudCab has chosen to purchase all aircraft and related systems
from qualified vendors and outsource needed maintenance on those
aircraft and systems. CloudCab values keeping its systems current and
ensuring the firm is in a position to take advantage of any oncoming
industry breakthroughs in jet technology.
Operations capabilities: CloudCab currently has the capacity to serve
four city locations in California and Nevada (see the Market Research
section of this document). Following success in these markets, CloudCab
will be able to expand using its fully scalable communications and
logistics tracking systems.
Human capabilities: CloudCab’s employees are capable and
committed. Many employees have received stock and stock options as part
of their compensation, tying the interests of company and employee
together. CloudCab is presently staffed with 45 people and has plans to
employ a total of 80 people when fully operational. Many functions such
as maintenance, security, and janitorial work will be outsourced.
Information systems capabilities: CEO Camp is a strong believer in
customer relationship management (CRM). Every time a customer flies, he
or she will be given the option to fill out a comment card, the contents of
which will be entered into CloudCab’s central database. Employees of
CloudCab with customer contact will also be able to make notes on
customer observations. Both of these data sources will be coded
categorically and used to assist in customer development and planning.
Popular flight times and routes will also be tracked to better assist in
modification of product offerings.
SWOT SUMMARY/ANALYSIS
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MARKET RESEARCH
To determine which locations to serve, CloudCab first gathered secondary
data on air traffic patterns, popular destinations among private jet owners,
and travel frequency for business and leisure. This allowed CloudCab to
see where similar services were already being used for comparison.
CloudCab then gathered primary data on travelers’ aspirations for
where they would like to see CloudCab operate and what features they
would want the service to have. This was done through a combination of
focus groups and surveys. Focus groups were comprised of travel
purchasers within businesses, business travelers themselves, and upper-
income leisure travelers. Surveys were distributed via e-mail with a goal of
gaining responses from both business and leisure travelers.
All of the data were analyzed to form a complete picture of what travel
patterns are like now, what they may be in the future, and what factors
(translated into customer benefits) would create demand for CloudCab
services. CloudCab used the data to select its first four cities for operation:
San Francisco, Los Angeles, Reno, and Las Vegas.
Research also revealed the following findings:
In general, there seems to be a greater demand for sky taxis from
business than from leisure travelers.
Leisure travelers plan further ahead and have less need of on-demand
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service.
Both leisure and business travelers want luxurious accommodations.
Business travelers have more need of one-way flights than do leisure
travelers.
Time is the biggest priority for business travelers, while comfort is
the biggest for leisure travelers.
Some businesses, such as consulting and sales, have a greater need
for on-demand travel than others.
There is a “sweet spot” in income level among leisure travelers
where they are wealthy enough to afford CloudCab services but not
wealthy enough to own their own jet.
MARKETING GOALS AND OBJECTIVES
Goal
The goal of CloudCab is to be the preferred provider of on-demand short
flight service.
Objectives
Aiming for a May 1 launch, within its first partial year of operation
CloudCab will:
1. Sell 5,500 flight itineraries.
2. Attain a rating of “highly satisfied” customer satisfaction scored by
90 percent of customers.
3. Achieve repeat purchase by 50 percent of customers.
MARKETING STRATEGIES
Product-Market Combinations
CloudCab will use a product development strategy to introduce its new on-
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demand jet service into the California/Nevada/Arizona market. Based on
CloudCab’s market research, the product will first be made available in
San Francisco, Los Angeles, Reno, and Las Vegas. If the product is
successful there, then CloudCab will gradually add more service locations.
Once a firm foothold in the region is established, CloudCab will expand
into new markets in other regions.
Initially, CloudCab will depart only from the four selected cities.
However, customers will be able to use the service to fly round-trip to any
airport they choose within the region of operation. For one-way flights,
CloudCab will provide service only between selected cities, making the
plane instantly available at that location for the next flight.
Market Segmentation, Target Marketing,
Positioning
Segmentation
The market for on-demand small jet service can be easily divided between
business travelers and leisure travelers. Leisure travelers can be further
divided based on income levels, and business travelers can be further
divided based on industry and other variables such as firm size. Of all
possible segments, CloudCab has identified three that have especially high
potential to be CloudCab customers:
Leisure travelers with annual incomes between $300,000 and $1
million.
Business travelers making B2B sales calls.
Business travelers on assignment for mid- to large-size consulting
firms.
Target Marketing
CloudCab evaluated each of these segments to determine its focus for
initial investment. The first segment, leisure travelers, has the means to
afford CloudCab’s service and could be a highly profitable market if
effectively reached. However, its preference for round trips over one-way
and its tendency to book travel arrangements in advance does not fit well
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with CloudCab’s on-demand service. Leisure travelers are also far less
concentrated and thus harder to reach with marketing communications.
The second segment, business travelers in sales, would be easier to
reach and would need CloudCab’s one-way flights between select cities.
Sales calls are a combination of previously scheduled appointments and
client requests, making the demand for on-demand service in this group
mixed. Sales professionals are often under pressure to keep traveling costs
down, though, making the profitability of serving this segment
questionable.
The third segment, business travelers in consulting, shares sales
professionals’ need for one-way flights and
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on-demand service. Yet compared to sales professionals, there is less
pressure to keep travel costs down since time and level of service to the
client take precedence, and travel and other expenses are often billable to
the client. Additionally, these travelers are largely concentrated in fewer
firms, making it easier for marketing communications to reach this
segment. Also, there is a substantial submarket of independent consultants
from which to draw. For these reasons, CloudCab has decided to
concentrate on the business consulting traveler segment as its primary
target market. CloudCab will make its services available to other segments
if they desire to use CloudCab, but CloudCab will not make any
concentrated efforts to invest marketing dollars toward them in the
beginning. Thus, high-income leisure travelers and sales professionals may
be viewed as secondary target markets at present. No tertiary target
markets have been identified as of yet.
Positioning
On one end of the travel spectrum, there exists the low-price, low-benefits
group. This includes such offerings as traditional airfare and car
transportation. Both involve a great deal of hassle, wasted time, and
discomfort. The one advantage of this group is that it is affordable to the
masses.
On the opposite end of the spectrum, there exists the high-price, high-
benefits group. This group consists of private sole jet ownership, partial jet
ownership similar to a time-share, and, on the lower side, pay-by-the-hour
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jet service. These options afford their customers a high degree of luxury
and many time-saving features, but at a price well outside the range of
most travelers, business or leisure.
In the middle of these two groups of travel options is a wide chasm.
Until now, no company has been able to strike a happy medium between
the two. Utilizing new technology and a unique business model, CloudCab
seeks to position itself in this void with a focus on the B2B consulting
market. Using its on-demand small-jet service, customers flying from
select cities will be able to access many of the same benefits private jet
owners enjoy, but without the exorbitant cost associated with it.
CloudCab’s service will be faster and more enjoyable than traditional
airline flights or ground transportation, yet cost far less than private jet
ownership. This appears to be a strong positioning with high upside
potential for messaging to the primary target market.
Marketing Mix Strategies
Product/Branding Strategies
CloudCab’s product benefits center on convenience, dependable service,
and a quality image. CloudCab will primarily focus on service to small
“executive airports” near the four start-up cities, with the exception of Las
Vegas, for which travelers will have direct access to McCharren (the main
Las Vegas airport) due to its proximity to the “strip.”
To use CloudCab, customers will have two options. They will be able
to either call a qualified customer service representative to book their
flight or go online and enter their flight and payment information
themselves.
Branding of CloudCab will evoke in customers the imagery of being
quickly and comfortably transported “by a cloud” from one location to
another. This will be communicated through the product name CloudCab
as well as its logo, an airplane seat lightly resting in a fast-moving cloud.
Service Strategies
Customer service representatives and airport attendants will be noticeably
a cut above the ordinary—polite and professional at all times, both on the
phone and in person. Because of the firm’s CRM capabilities to provide
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personalized service to its most valued customers, CloudCab employees
will be able to easily enter information into an internal database under
individual customer profiles. This will allow CloudCab to consistently
meet the expectations of its customers without the customer having to
express preferences every time CloudCab is used.
Pricing Strategies
The pricing decision for CloudCab is made more difficult due to the
newness of its product offering and lack (so far) of strong competitors in
its markets. In the early stages, penetration pricing can be effective to gain
customer trial, expose customers to the excellent service quality, and build
customer loyalty for the brand. Such an approach can also serve to keep
planes in full service, making the most of a small fleet.
However, the penetration pricing strategy has to be tempered by
attention to CloudCab’s financial objectives for revenue, margins, and
ROI. Chances are that, once a loyal customer base is developed, some
incremental price increases can be taken without major disruption in the
customer base.
CloudCab can communicate its positioning through price. Being first
to market, CloudCab has the opportunity to set the value of its product in
the mind of the customer. In setting a price, CloudCab must be careful to
realistically assess the actual time savings and comfort customers can
expect to receive, and what those benefits are worth to them. In this way,
the price will work together with CloudCab’s promotional strategies to
effectively position the product and communicate value.
Supply Chain Strategies
CloudCab has purchased the needed operational systems to properly track
its planes and ensure they are always where they need to be. Customer
service representatives will use these systems to give customers
information on flight availability and schedule new flights. CloudCab’s
outsource firms and supply chain partners will also have access to the
system to ensure needed materials arrive where and when they are needed
for everything from pillows to jet fuel.
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Promotional Strategies
CloudCab will first use promotion to create awareness of CloudCab and
build interest in the benefits of its service. All efforts will be focused on
conveying a clear and consistent message. CloudCab’s unique selling
proposition will be that it is akin to a taxi service in the air, much quicker
and more comfortable than other travel modes.
To convey this message, CloudCab will use targeted advertising, direct
marketing, personal selling, and buzz marketing. Advertising will be
limited to publications with high readership among the target market.
Various forms of digital and social media marketing—will be used to
provide sales promotion incentives to customers to try CloudCab’s service.
Personal selling efforts will be made at consulting firms to attempt to gain
contracts to make CloudCab one of the firm’s transportation methods of
choice. Finally, to generate buzz through public relations (PR), CloudCab
will pitch stories to the media about its official launch date and first flight
as a revolutionary way to travel.
Although these strategies should get CloudCab off the ground, over
the long run the company will rely heavily on buzz generated by positive
customer experiences to grow the business. The more people CloudCab
effectively serves, the more potential brand ambassadors there will be.
This should translate into an exponential sales growth for CloudCab.
IMPLEMENTATION
CloudCab possesses the needed resources for a successful launch early
next year. The action plan below details the promotional initiatives
CloudCab will undertake to increase market share and reach its goal of
5,500 flights in its first partial year of operation.
Marketing Action Plan for Initial Launch
Action Date Duration Cost Responsibility
Targeted
print ads
December 1 4 months $265,000 CMO Vars
CloudCab February 1 3 months $170,000 CMO Vars
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direct
marketing
to
identified
targets
Personal
sales calls
on key
target
firms
March 1 2 months $210,000 CEO Camp
and others
First
CloudCab
flight
May 1 COO Fray
Media
coverage
of first
CloudCab
flight
May 1 1 week $ 3,000 CMO Vars
Monthly Sales Forecast to End of First Year
First-Year Budget
Using its forecasted sales volume, CloudCab can begin to establish a
budget for its first partial year of operation. For now, CloudCab will use an
estimated price of $1,200 per flight.
Revenue 5,287 × $1,200 $ 6,600,000
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Fuel Costs 2,600,000
Promotional Activities 648,000
Salaries 1,200,000
Outsourced Systems 700,000
Operating Income 1,452,000
VLJ purchases 9,500,000
Net Income $(8,048,000)
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Marketing Control and Metrics
CloudCab must continually evaluate its marketing efforts to ensure its
performance is on track against stated objectives for its first partial year of
operation. The following metrics are associated with each objective.
Objective 1: Sell 5,500 Flight Itineraries
CloudCab will track sales to monitor if monthly targets are being met. If
they are not, the market will have to be surveyed to determine awareness
levels, and direct-mail response rates and personal selling closing ratios
will be examined. In doing this, problem areas should be identified and
resolved. If the problem cannot be addressed via CloudCab’s current
promotional mix, other elements may be added to the mix to find better
ways of reaching the target audience.
Objective 2: Attain a Rating of “Highly Satisfied”
Customer Satisfaction Scored by 90 Percent of
Customers
Progress will be monitored by ongoing customer satisfaction
measurement.
Objective 3: Achieve Repeat Purchase by 50 Percent of
Customers
The CRM system will be utilized to track frequency of usage by
customers.
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CONTINGENCY PLANNING
CloudCab’s product requires significant capital investment to bring to
market and cannot be easily modified. Consequently, if CloudCab’s target
market does not respond to the product as planned, it would likely be
easier to change the market to fit the product than to change the product to
fit the market. If consultants do not find sufficient value in CloudCab and
purchase at the anticipated level, then investment will be made against the
secondary target market of salespeople.
In addition, CloudCab needs to closely track usage by leisure travelers.
If it happens that, despite CloudCab’s intentions, a larger than anticipated
number of customers are leisure travelers or represent some business
segment besides consulting, then CloudCab would consider refocusing its
marketing efforts on both of these targets. It will have a contingency
promotional plan in place that anticipates this eventuality.
232
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PART TWO
Use Information to
Drive Marketing
Decisions
CHAPTER 4
Market Research Essentials
CHAPTER 5
CRM, Big Data, and Marketing Analytics
CHAPTER 6
Understand Consumer and Business Markets
233
CHAPTER 7
Segmentation, Target Marketing, and Positioning
234
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CHAPTER 4
Market Research
Essentials
LEARNING OBJECTIVES
LO 4-1 Describe the difference between market information
systems and market research systems.
LO 4-2 Identify how critical internal (inside the firm)
information is collected and used in making
marketing decisions.
LO 4-3 Explain essential external (outside the firm)
information collection methods.
LO 4-4 Recognize the value of market research and its role
in marketing.
235
LO 4-5 Define the market research process.
LO 4-6 Illustrate current research technologies and how they
are used in market research.
89
MAKING GOOD MARKETING DECISIONS—
THE NEED TO KNOW
Information is power speaks to the importance of good information in
decision making. Companies realize the right information at the right time
and in the right format (a critical but often neglected part of the process) is
essential for decision makers. Marketers are usually the ones entrusted
with scanning the environment for changes that might affect the
organization. They are able to analyze a great deal of data quickly to better
understand consumer trends and behavior. Companies are creating a new
position, chief data officer, to manage the information and make more
informed decisions linking corporate strategy with customer-driven
information. As a result, creating procedures that collect, analyze, and
access relevant information is a critical part of marketing management. 1
A significant problem for most managers today is not having too little
information but having too much. They frequently see interesting
information that has no relevance to the immediate problem. As a result,
companies need information systems that can collect and analyze huge
amounts of information and then keep it for the right time and
circumstance. Pulte Homes is one of the largest home builders in the
United States. The company conducts research to learn how people move
around in a home (the design flow), what features consumers want (for
example, large master bedrooms and bathrooms), and what extras they
want (upgraded countertops and wood trim). Also, Pulte studies
demographic changes. For example, a large segment of the population,
baby boomers (ages 53–71), is moving toward retirement; this has led the
company to design and build smaller homes with more special features.
236
Also, volatility in the real estate market has led the federal government to
adopt changes in real estate financing, and many states have followed suit
with additional legislation. Finally, Pulte also needs to study changes in
federal and state laws that affect home construction. These changes affect
the homes people buy and, as a result, Pulte needs to be knowledgeable in
all these areas. 2
In addition to storing large amounts of data, marketing managers need
a system to design and execute research that generates precise information.
Consider the Apple iPhone. Before introducing a new model, Apple
conducts tests with actual users to be sure the product fits their needs and
performs as promised. The company also studies a wide range of other
issues including competitors such as Samsung and long-term technology
trends to identify key technologies for the iPhone now and in the future.
Marketing managers need this information to make critical decisions as the
iPhone is improved and the marketing plan put together. The success of
the iPhone led competitors to incorporate similar features in their phones.
These examples highlight the two fundamental types of market
information decision makers need today. The first is data related to broad
areas of interest such as demographic and economic trends, or the
customer order fulfillment process inside the company. These data are
used in strategic planning to help forecast potential new opportunities for
company investment or to deal with possible problems before they become
major issues for the company. 3 The second type of information needed
addresses a specific question, for example, what is the best kitchen design
for a retired baby boomer couple? Or what features would a young urban
professional want in an iPhone? Questions like these require unique
research designed to answer specific questions. 4 This chapter will
examine both types of information needs. We’ll start by discussing the
market information system, which is designed to bring together many
different kinds information useful to the marketing decision maker. Then
we’ll look at market research, which is the process marketers use to
conduct research on specific market questions.
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Apple seeks to improve each iteration of the iPhone based on user experiences.
©Leszek Kobusinski/Shutterstock
MARKET INFORMATION SYSTEM
The Nature of a Market Information System
LO 4-1
Describe the difference between market information systems and market
research systems.
As noted earlier, marketing decision makers need limited amounts of the
right data at any given time. Put simply, managers need what they need
when they need it. When there is too much information, managers tend to
either spend an excessive amount of time analyzing or get overwhelmed
and ignore all the data. If they have too little information, managers
90
are more likely to make poor decisions because they don’t have all the
facts. In either case, incorrect decisions are often the result. Exhibit 4.1
summarizes the various ways market research is used in making marketing
238
decisions. As you can tell from Exhibit 4.1, market research takes many
forms both inside and outside an organization.
EXHIBIT 4.1 Market Research Is Critical to
Marketing Decisions
STAGES OR PROCESSES
WITHIN MARKETING
PLANNING
APPROPRIATE MARKET
RESEARCH
Situation Analysis
Identification of
competitive strengths and
weaknesses
Identification of trends
(opportunities and threats)
Competitive barrier
analysis
Analysis of sources of
competitive
advantage
Trend analysis
Positioning analysis
Identification of public
and key issues
concerns
Measure of market
share
Selection of a Target Market
Analysis of the market
Selection of a target
market
Identification of
segmentation bases
Market segmentation
study
Needs assessment
Determination of
purchase criteria
Buyer behavior
analysis
Market demand
estimation
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Plan of the Marketing Mix
Product
Product design
assessment
Competitive product
analysis
Competitive
packaging
assessment
Packaging trends
assessment
Definition of brand
image descriptors
Identification of brand
name/symbol
New product ideation
(concept
development)
Package development
or redesign
Price Measure of price
elasticity
Industry pricing
patterns
Price-value
perception analysis
Analysis of the effects
of various price
incentives
Distribution Merchandising display
assessment
Inventory
management
assessment
Location analysis (site
analysis)
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Market exposure
assessment
Promotion Message assessment
Content analysis
Copy testing
Media assessment
Media buy
assessment
Marketing Control
Marketing audit
Promotion
effectiveness study
Assessment of
effectiveness of
marketing mix
Source: Cooper, Donald R. and Pamela S. Schindler, Business Research Methods,
12th ed. New York, NY: McGraw-Hill Education, 2014.
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A market information system (MIS) is not a software package but a
continuing process of identifying, collecting, analyzing, accumulating, and
dispensing critical information to marketing decision makers. The MIS is
really an “information bank” where data relevant to the company’s
marketing efforts are collected and stored until such time as management
needs to “withdraw” them. Generally, this information is not specific to a
particular problem or question; rather, it is important information that the
marketing decision maker will need at the appropriate time. 5 A company
needs to consider three factors in creating an MIS.
First, what information should the system collect? In evaluating
internal and external information sources, companies need to consider not
only what information is important but also the source of the data. Think
about all the ways a company gets competitor data—salespeople and
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customers in the field, competitor materials and websites, business-related
websites such as Hoover’s, and many others. Because there are so many
sources of information, decisions must be made about what information
will be collected and where it will come from.
Second, what are the information needs of each decision maker?
Not all managers need the same information. The CEO probably doesn’t
want or need daily sales figures across individual product lines, but the
local sales manager does. A good MIS is flexible enough for managers to
customize the information they receive and, in some cases, the format they
receive it in.
Third, how does the system maintain the privacy and
confidentiality of sensitive information? Company databases hold a
great deal of confidential data on customers, suppliers, and employees. By
limiting access to the data to those with a need to know, companies protect
relationships and build trust. As more data is collected and the ability to
analyze it becomes more accurate, the need for a market information
system becomes more critical. Although we will discuss Big Data in
Chapter 5, it is important to note that companies like Google and Amazon
are analyzing vast amounts of data collected through a variety of sources
to prescribe (looking at what you have done and offering alternatives) and
predict (making predictions of future behavior based on past behavior)
customer behavior. It is no surprise, then, that companies are investing in
building and enhancing their market information systems.
Internal Sources—Collecting Information Inside
the Company
LO 4-2
Identify how critical internal (inside the firm) information is collected and
used in making marketing decisions.
At the heart of marketing is the relationship among the company, its
products, and its customers. Critical to that relationship is a clear
understanding of what is, and is not, working in the customer interface.
Think about the senior manager at Microsoft who is concerned about
242
rising dissatisfaction with customer support among its Office suite users.
While there could be a number of reasons for this increase, the manager
will first want to look at internal customer service metrics that include call
wait times, ability of customer service representatives to handle the
problems efficiently and effectively, number of customers who call back to
address a problem, and a host of other metrics. In addition, web traffic
monitoring by companies like Google Web Analytics can show customer
service managers what areas of the website are creating problems for
customers (for example, lack of clarity or direction, inconsistency with
other customer messaging, not helpful to the customer), which can
improve customer service. These are all internal sources of data. By
looking at such critical internal metrics collected as part of the market
information system, management is able to do two things. First, in our
example, management might see that an increase in call wait times has led
to higher customer dissatisfaction. Here information is used to identify the
problem. A second and more effective use of market information systems
is to proactively address issues before they become problems. 6 For
example, management can set a benchmark stating that call wait times will
not exceed two minutes. In this way, management can deal with a problem
before it becomes a significant concern for the company. Of course, the
investment in time and money needed to create and monitor such a system
is significant.
A market information system can be as complicated as the company
wants or can afford. It is expensive to collect and analyze data, and most
companies don’t maximize their existing information. Often, simply
checking secondary sources such as legitimate websites will
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EXHIBIT 4.2 Internal Information Sources
243
provide sufficient information for the marketing manager to make a
decision in a particular situation. More formal information systems,
however, provide a great deal more information that can help guide
strategic decisions (changes in demographics can lead to new market
opportunities) or address critical tactical issues (shorten call wait times for
customer service). 7 Exhibit 4.2 identifies five common internal sources of
data collected as a regular part of doing business. Unfortunately, managers
are often not aware of all the information in their own company.
From the Customer’s Order to Order Fulfillment Tracking a
customer’s initial inquiry through to order placement, delivery, payment,
and follow-up after the purchase offers insight about the customer as well
as insight about how well the company is working. CRM systems use
customer data collected through market information systems to help drive
customer-centric strategies, as discussed in Chapter 5. More specifically,
the data collected and analyzed in a CRM system enable companies to:
Identify the frequency and size of customer orders. By charting
the frequency, size, and specific items included in an order, it’s
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possible to assess customer satisfaction.
Determine the actual cost of a customer order. Tools such as
activity-based cost accounting can allocate time and overhead costs
to specific customers. By combining that with information from each
customer order, it is possible to get accurate cost and profitability
measures of individual customers.
Rank customers based on established criteria like profitability.
Not all customers are equal, and the customer mix changes over time.
Companies need to understand how each customer rates on a defined
set of criteria to better allocate current resources and develop
strategies for future growth. Starbucks’ reward system actually
adjusts based on profitability and usage. Frequent users, for example,
have to earn more stars (buy more products) for rewards than newer,
less frequent customers.
Calculate the efficiency of the company’s production and
distribution system. Tracking customer orders makes it possible to
assess many of the company’s critical functions.
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Heard on the Street—Sales Information System One of the
best internal information sources is the sales force. Salespeople are on the
front lines of the company-customer interface and have unique access to
the customer. As a result, they are an excellent information source not only
about the customer but also about market trends and even the
competition. 8 This is particularly true in a business-to-business
environment where salespeople are often the primary method for
communicating with customers. Salespeople are usually the first to hear
about changes with the customer, such as new personnel or the need for
new products. What’s more, as they interact with customers, salespeople
frequently learn a great deal about competitors’ tactics and plans.
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Salesforce.com has been successfully providing online CRM applications that
allow salespeople to access customer data easily. Moreover, its customizable
applications encourage salespeople to input customer data into the company
sales information system.
Source: Salesforce.com, inc.
Regrettably, companies time and again fail to maximize this
information source. While salespeople may share what they learn with
local management or other salespeople, companies have traditionally not
had formal systems of collecting and analyzing data from the sales force. 9
This is changing, however, as management creates formal sales
information systems to collect, analyze, store, and distribute information
from the field to appropriate decision makers in the company. 10 A sales
information system includes:
Formal systems for collecting data (getting the data). Many
salespeople write call reports summarizing each sales call. Much of
the information on a call report is relevant in a sales information
system. This includes products discussed with the customer,
customer concerns, and changes in personnel.
Interpretation of data (analysis). This may be done at the local
level by sales managers who add additional insight to the “raw” data
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from the salesperson. In more sophisticated sales information
systems, people at regional or national offices will analyze data from
many salespeople looking for broad trends.
Distribution of data (getting the analysis to decision makers and
back into the field). A sales information system needs to distribute
the information to management as part of a larger market information
system. At the same time, it is important to get the information back
out to the sales force. When trends, problems or solutions to
problems, and opportunities are identified, salespeople benefit from
learning quickly so they can respond in the field. Much of this
information has a time value. If salespeople do not get the analysis in
a timely manner, much of the benefit will be lost. For example,
suppose a company learns from several salespeople that a major
competitor is contacting customers about a new product. Getting this
information to the entire sales force quickly will enable them to
develop responses for their own customers.
External Sources—Collecting Information Outside
the Company
LO 4-3
Explain essential external (outside the firm) informa ?tion collection
methods.
Staying connected to the business environment is no longer optional.
Success is based, in part, on both the quality and quantity of information
available to management. As a result, most companies engage in
collecting, analyzing, and storing data from the macro environment on a
continuous basis; this is known as marketing intelligence. The ability to do
this well is a competitive advantage; successful companies accurately
analyze and interpret environmental information, then develop strategies to
take advantage of opportunities and deal with threats before they become
problems (see Exhibit 4.3).
94
247
EXHIBIT 4.3 External Forces Affect Marketing
Decisions
Demographics Populations change over time, and companies must
be aware of those changes. Not tracking and responding to demographic
changes is a management failure because the data are easy to obtain and
major changes occur slowly. Surprisingly, many companies do not do a
good job of either learning about demographic trends or responding to
them.
Demographics can be defined as the statistical characteristics of
human populations, such as age or income, used to identify markets. They
provide a statistical description of a group of people and are extremely
useful in marketing, for two reasons. First, demographics help define a
market. How old is a typical customer? How educated? What is the typical
customer’s income? These are all demographic characteristics that help
describe a market. For example, a typical Mercedes-Benz automobile
248
owner in the United States is a male, successful, and over 50 years old. By
analyzing demographics, a company can define not only the “typical”
customer but also its market at large. Second, studying demographics helps
identify new opportunities. As baby boomers age, they will need, among
other things, retirement communities. This represents an opportunity for
companies to build unique retirement properties specifically for baby
boomers.
Companies that deal directly with consumers develop customer
profiles based on demographic information and compare their profiles
against those of competitors. For example, the typical Mercedes-Benz
owner tends to be older than a BMW owner. Companies even create
pictures of their “average” customer, highlighting key demographic data
(age, gender, and ethnicity).
Populations of Interest Marketers are not interested in all groups, only
populations of interest. The difficult part for many marketers is separating
relevant demographic data from irrelevant. For example, does cell phone
maker Samsung need to know that world population growth is faster in
less developed countries (among less developed countries the population is
growing at 2 percent per year while developed countries are growing at
less than 1 percent)? Your first response might be no as Samsung is likely
interested in more developed countries with established cellular networks
and people who can afford the technology.
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However, while less developed countries do not need the more expensive
Samsung Galaxy phones, they could use older, less expensive technology
to encourage economic development and build a communication network.
Targeting less developed countries may offer Samsung an opportunity to
establish a market presence in these countries even as they develop
economically.
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As the Hispanic population grows, advertisers continue to seek endorsements
from Hispanic celebrities like Sofia Vergara.
Source: Procter & Gamble
Ethnic Groups Many countries are becoming more ethnically diverse as
individuals increase their mobility. While some countries, such as the
United Arab Emirates in the Middle East, have populations composed of a
single ethnic group, others like the United States are much more ethnically
diverse. Nearly three-quarters of the U.S. population is white, but trends
project that whites will be less than 50 percent of the population in less
than 30 years. Hispanics have shown the greatest increase among ethnic
groups in the United States over the past 10 years. They are currently the
second-largest minority group and are expected to continue growing as a
percentage of the U.S. population.
The European Union has made it possible for individuals to move
freely around member countries. While many of the member countries are
still dominated by local ethnic groups, the European continent is becoming
more ethnically diverse. For the most part, this leads to greater
250
opportunities; however, some countries such as France find it difficult to
assimilate certain groups into their culture. The market challenge then
becomes developing effective marketing strategies across different
ethnicities living in the same area.
Geographic Changes People are moving not only in the United States but
around the world. As we just noted, the opening of borders in the
European Union has increased the mobility of those living in the EU. A
decades-old trend—people moving from the countryside to the city—
continues around the globe and some cities, such as Mexico City, São
Paulo, and others, find it difficult to cope with the influx of people that
stretches their ability to provide social services (see Exhibit 4.4).
The changes present opportunities but also challenges. The growth of
Asian cultures means many companies must adjust their marketing
strategies to fit the unique needs of Asian consumers. Appliance
companies such as Whirlpool have redesigned their products to fit in
smaller Asian kitchens. Coincidentally, downsizing products is a strategy
consistent with the migration of people to urban centers. Mr. Coffee,
Braun, and others have created coffeemakers designed for single
households in the smaller living environments often found in large cities.
Economic Conditions Companies are keenly interested in the
ability of their customers to purchase products and services. It is not
surprising then that a good understanding of current and future economic
trends is important in an effective market information system. There are
two principal types of economic knowledge. The study of individual
economic activity (firm, household, or prices) is known as
microeconomics. At the other end of the spectrum, macroeconomics
refers to the study of economic activity in terms of broad measures of
output (gross national product or GNP) and input as well as the interaction
among various sectors of an entire economy. Both are important for
marketing managers. Microeconomics helps marketing managers
understand how individuals set priorities and make buying decisions.
Macroeconomics, on the other hand, gives a “big picture” perspective for
an economy and can be helpful at looking for broad economic trends.
Indicators such as the GNP measure the health of an economy and are
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helpful in spotting trends. For example, if the GNP goes up, it is generally
viewed as a sign the economy is doing well. As an economy slows, the
GNP will slow.
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EXHIBIT 4.4 Selected Cities’ Population with
Projected Growth Rates
Urban Area Population
(millions)
Rank
1990 2025 2050 1990 2025 2050
Tokyo, Japan 32.5 6.40 32.62 1 1 7
Delhi, India 8.3 22.2 35.19 4 4
Mexico City,
Mexico
15.3 21.01 24.33 3 6 10
New York–
Newark
16.1 20.63 24.77 2 7 9
Shanghai,
China
13.3 19.41 22.32 9 15
São Paulo,
Brazil
14.8 21.43 22.83 4 5 14
Mumbai
(Bombay),
India
12.4 26.39 42.40 5 2 1
Beijing,
China
10.8 14.55 15.97 16 23
Dhaka,
Bangladesh
6.7 22.50 36.16 3 2
Kolkata
(Calcutta),
India
10.9 20.56 33.04 7 8 5
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Source: Daniel Hoornweg and Kevin Pope, “Population Projections of the 101
Largest Cities in the 21st Century,” Global Cities Institute Working Paper No. 4,
January 2014.
Technology Transformations Few areas in business have been
more affected by technology than marketing. Technology has been one of
the major catalysts for change in the marketplace. Faster, smaller, and
easier-to-use computers and powerful software facilitate sophisticated
analyses right on the desks of front-line managers from anywhere in the
world. Complex supply chain and manufacturing processes coupled with
Internet connectivity allow customers real-time access to the entire
manufacturing process. Consider the online order process for HP. A
consumer places the order online, gets a final price and expected delivery
date, then follows it from the assembly plant literally to their front door
with a tracking number from the shipping company.
Marketing managers need to know the role of technology in their
business today and also, perhaps even more importantly, its role in the
future. Successfully assimilating technology into a business takes time and
money. Almost every organization has had at least one negative
experience with technology. Hershey Foods, for example, tried to bring a
new CRM system online at the busiest selling season of the year for candy,
Halloween, only to find problems implementing the system. The company
estimated it was unable to fill $100 million worth of candy orders as a
result of issues related to integrating the new software. At the same time,
companies know they must remain open to new technologies that can
significantly impact their business. For example, YouTube, Netflix, and
others have changed the way people watch videos, creating opportunities
for companies to reach new markets with creative messaging. 11
Natural World Everyone lives on planet Earth, and business operates
within the constraints of available natural resources. Two key issues drive
marketers’ need to know about the natural world. First, individuals,
governments, and business all recognize the need to manage the available
resources well. It took the world roughly 150 years to use 1 trillion barrels
of oil; however, it is predicted the world will use the next trillion barrels
by 2030 and, while there may be a lot of oil left, it will be harder to get and
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more expensive. Governments and businesses are concerned about the
effect of increasing energy costs on economic growth. Other resources
such as water are also becoming increasingly scarce in parts of the world.
In the western United States, for example, growth in communities such as
Phoenix is considered in the context of water access, which limits future
development as water becomes scarcer.
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A second concern regarding the natural world is pollution. In some
parts of the world, pollution takes a significant toll on the quality of life
and economic growth in a community. In Mexico City, driving is limited
for everyone to certain days during the week as congestion and smog
create huge clouds of pollution that hang over the city. In China,
government statistics show that of the lakes and rivers monitored for
pollution levels, nearly 20 percent contained water considered unusable
even for agricultural irrigation, causing losses in the billions of dollars. 12
These concerns influence marketers as they make decisions about how and
where products are manufactured. For example, energy companies such as
Chevron are investing billions to identify and develop more
environmentally safe energy.
Political/Legal Environment Political judgments and, more
broadly, the legal environment significantly affect company decisions and
sometimes an entire industry. In 2003, the National Do Not Call Registry
was created to minimize intrusive telemarketing calls. By registering,
individuals protect themselves from telemarketing calls. Telemarketing
companies are subject to significant fines if they call someone listed on the
register. Millions of people signed up, and many companies were forced to
reconfigure their marketing communications strategy. 13
Local, state, and federal legislatures pass more business-related
legislation than ever before. In addition, government agencies are more
active in monitoring business activity. During the 1990s the Securities and
Exchange Commission actively pursued several antitrust actions, the
largest against Microsoft for illegal monopoly activity. As a result,
Microsoft made changes to Windows 8 that opened it up to outside
software vendors. More recently, the Dodd–Frank Wall Street Reform and
Consumer Protection Act, passed in 2010, required banks and other
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financial institutions to dramatically change many aspects of their
businesses including lending practices.
Competition One of the most important external environmental
factors to consider is the competition. Companies want to know as much
as possible about competitors’ products and strategies. In highly
competitive markets, companies are constantly adjusting their strategies to
the competition. Airlines, for example, track competitors’ pricing and
adjust their pricing almost immediately to changes in the marketplace.
When one airline offers a sale in a specific market, competitors will soon
follow with sales in the same market. Identifying, analyzing, and
effectively dealing with competitors is the focus in Chapter 2.
MARKET RESEARCH SYSTEMS
Marketing managers are confronted with an unlimited number of
problems, opportunities, and issues that require specific answers.
Sometimes the information needed is not available from other sources or
even from the company’s own market information system. To get specific
answers to important management questions, market research is necessary.
The Importance of Market Research to Managers
LO 4-4
Recognize the value of market research and its role in marketing.
Consider the following:
You are a marketing manager for Harley-Davidson Motorcycles, and
90 percent of your bikes are sold to men. You believe women are a
great potential target market but have had little success selling
Harleys to them. What do you do?
You are the director of advertising for McDonald’s, and the company
is getting ready to roll out a new advertising campaign designed to
increase sales of a new sandwich. However, senior management
255
wants to know if it will work. What do you do?
The answers to situations like these lie in market research. Market research
is the methodical identification, collection, analysis, and distribution of
data related to discovering and then
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EXHIBIT 4.5 Top Five Market Research
Companies in the World
Organization Headquarters Total
Revenue
The Nielsen
Company
New York $6.288 Billion
Kantar London/Fairfield, CT $3.785 Billion
IMS Health Danbury, CT $2.641 billion
Ipson SA Paris, France $2.219 billion
GfK SE Nuremberg,
Germany
$1.932 billion
Source: American Marketing Association, 2016 AMA Gold Global Report, p. 36.
solving marketing problems or opportunities and enhancing good decision
making. Several things come out of this definition. Good market research:
Follows a well-defined set of activities and does not happen by
accident. Rather, it comes as a result of the methodical identification,
collection, analysis, and distribution of data.
Enhances the validity of the information. Anyone can “Google” a
topic and come up with a lot of information. However, following the
market research process enhances the confidence that the research
will discover and then solve marketing problems and opportunities.
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Is impartial and objective. It does not prejudge the information or
develop answers to fit an already decided outcome; rather, it
enhances good decision making.
Market research is also big business. In 2017 nearly $40 billion was
spent on market research worldwide, with the United States ($18 billion)
conducting the most research. 14 Some of these departments, such as
McDonald’s internal research group, are larger than many research
companies and spend hundreds of millions of dollars a year conducting
market research for their own organizations. Exhibit 4.5 lists the top
market research companies in the world.
The Market Research Process
LO 4-5
Define the market research process.
At the heart of the market research process is a search for understanding.
Sometimes management seeks answers to a particular problem. In other
situations, an opportunity needs to be evaluated before committing
resources. By following the market research process, marketing managers
can have greater confidence in the information they are receiving and,
hopefully, make better informed decisions. As shown in Exhibit 4.6, the
process consists of six steps.
Define the Research Problem One of the biggest challenges
facing a market researcher is accurately defining the problem. What
exactly is the issue/opportunity/problem? Often managers are not clear
about the problem and need help defining it. It is not uncommon for a
market research professional to get a call that starts something like this: “I
have a problem. Sales have been falling for six months and I am losing
business to my competitors.” The researcher knows that the real problem is
not the company’s declining sales; falling sales are the result, a symptom,
of the real issue. Market research can be a useful tool helping senior
managers identify and deal with the real issue. 15
Given that management often does not have a clear understanding of
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the problem, defining the research problem involves two distinct steps.
First, management, working with researchers and marketing decision
makers, defines the management research deliverable. Exactly what does
management want to do with this research? Keep in mind that decision
makers are looking for information to help them make better, more
informed decisions. For
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example, if you are the director of advertising for McDonald’s, you want
to increase sales of a new sandwich, and a new advertising campaign can
help accomplish that goal. However, before you decide to spend a lot of
money on the campaign, you want to know if it is going to be successful.
Once the management research deliverable has been identified, the
next step is to define the research problem. Exactly what information is
needed to help management in this situation? In our example, that means
assessing the target market’s response to the new advertising campaign.
In the McDonald’s example, the research problem is fairly
straightforward. However, there are often multiple research problems, and
researchers will have to prioritize which problems to study first. Consider
the example of Harley-Davidson motorcycles and targeting more female
riders. Management may want to know: (1) How many women would be
in the market for a motorcycle and, more specifically, how many women
would be in the market for a large bike like a Harley? (2) What kind of
motorcycle would they want to buy? (3) If Harley- Davidson were to
create a new bike, how would loyal, dedicated Harley- Davidson owners
react to it? You can begin to see why it is necessary for management and
researchers to prioritize the problems and identify which research issues to
address first. 16
Establish the Research Design Following problem definition,
companies must establish a research design, or a plan of action for
attacking the research problem. Research designs consist of five activities,
each of which is designed to address a specific question about the research
process, as shown in Exhibit 4.7. It is critical that researchers develop and
execute a research design so that decision makers can have confidence in
the research findings. Effective market research is dependent on creating a
research design and then executing it. 17 Conversely, and this is a problem
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for decision makers, bad market research cannot yield good information.
When this happens, it severely limits management’s confidence in the
results.
While multiple designs often could work in any research situation, it is
important to specify one design and follow it throughout the research.
Decisions made at the research design stage affect the rest of the project,
and it is not appropriate to start over once a project has begun. Let’s
examine each of these activities.
EXHIBIT 4.6 The Market Research Process
259
Type of Research: What Kind of Research Needs to Be Done? Not all
market research involves complex, costly studies. People do market
research all the time and don’t think of it that way. For example, a
salesperson who visits a website to learn more about a customer before a
sales call is engaged in market research. The key is to fit the research to
the unique requirements of the situation.
There are three basic types of research: exploratory, descriptive, and
causal. While the complexity and methodology change for each type of
research, it is not necessarily true that causal research is better than
exploratory. Let’s look at each research type more closely.
EXHIBIT 4.7 Research Design Activities
Activity Question to Be Answered
Type of research What kind of research needs to be
done?
Nature of data What kind of data do we need?
Nature of data
collection
How should we collect the data?
Information content What do we need to know?
Sampling plan Who should be included in the
research?
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As the name implies, exploratory research is really about discovery.
Reasons for conducting exploratory research include:
Clarifying the research problem.
Developing hypotheses for testing in descriptive or causal research.
Gaining additional insight to help in survey development or to
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identify other research variables for study.
Answering the research question.
Many times conducting exploratory research will provide sufficient
information to answer the research question. Even if more sophisticated
research is needed, exploratory research is usually the first step.
Descriptive research seeks to describe or explain some phenomenon.
Often this involves something going on in the marketplace and can include
issues such as:
Identifying the characteristics of our target market.
Assessing competitors’ actions in the marketplace.
Determining how customers use our product.
Discovering differences across demographic characteristics (age,
education, income) with respect to the use of our product or that of
our competitors.
Descriptive research uses many different methods including secondary
data, surveys, and observation. Some of these methods are also used in
exploratory research. The difference is how you use the information.
Descriptive research uses a different, more restrictive and rigorous
methodology than exploratory research.
Descriptive research identifies associations between variables; for
example, the customers for Harley-Davidson motorcycles tend to be
middle-aged, successful men. Causal research tries to discover the cause
and effect between variables.
In our Harley-Davidson example, does an increase in Harley-Davidson
advertising directed toward men lead to increased sales of Harley-
Davidson motorcycles? This can be particularly useful in making
important marketing decisions. Consider a critical decision faced by all
marketing managers: What effect will a price increase have on sales?
Causal research can determine the change in the number of sales for
different price levels. The types of research vary a great deal, so the
question becomes: What kind of research is appropriate in a given
circumstance? The following factors help make that determination.
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Benefit versus cost: Before making any other decisions about the
type of marketing research to use, it is essential to assess the benefits
versus the costs. Put simply, if the benefits of doing the research do
not exceed the cost, don’t do the research.
Time until decision: Decision makers sometimes have very little
time between realizing a need for additional information and making
the decision. When time is very short (a matter of days), it is simply
not possible to conduct in-depth market research. The Internet can cut
the time needed for a study from months to weeks, but when time is
short researchers may have to rely on more exploratory research and
the use of secondary data.
Nature of the decision: The more strategic the decision, the more
important the information and the greater the need for primary data.
Conversely, if the decision is primarily tactical (for example,
decisions about where to place advertising), secondary data, like
reviewing a medium’s demographics and rate card, will likely be
sufficient to make the decision.
Availability of data: Companies already have a lot of data as a result
of CRM and other internal information systems. Consequently, it may
not always be necessary to collect primary data when existing or
secondary data will provide the necessary answers to the research
problems.
Nature of Data: What Kind of Data Do We Need? Once the type of
research has been determined, the next step is to evaluate what kind of data
is needed for the research. The nature of the data will determine how the
data are collected and is driven by the kind of research the company is
undertaking. 18 The basic question is, does the research require primary
data—data
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collected specifically for this research question—or will secondary data—
data collected for some other purpose than the problem currently being
considered—be sufficient? Even if primary data are collected, almost all
research involves some secondary data collection, which we will talk
262
about in the next section.
Primary data are collected using one of two approaches: qualitative
and quantitative. Qualitative research is less structured and can employ
methods such as surveys and interviews to collect the data; qualitative
research employs small samples and is not meant to be used for statistical
analyses. Quantitative research is used to develop a more measured
understanding using statistical analysis to assess and quantify the
results. 19 Now let’s look at the nature of data collection.
Nature of Data Collection: How Should the Data Be Collected? No one
technique is better than another, but it is important to use the right
technique based on an assessment of the research problem and research
type. Let’s evaluate the various approaches to collecting primary data.
Exploratory research techniques include focus groups and in-depth
interviews.
Without question, the most widely used qualitative research technique
is focus groups. Perhaps for this reason, it is also one of the most
misused. 20 A focus group is a meeting (either in person or increasingly
online) of 6 to 10 people that is moderated by a professional who carefully
moves the conversation through a defined agenda in an unstructured, open
format. Generally, the participants are selected on the basis of some
criteria. Companies like Walmart and Unilever make use of web panels
that allow companies to collect relevant information quickly and cost-
effectively. 21 For example, they may be current customers or possess
certain demographic characteristics (age, income, education), but they will
all have at least one shared attribute.
The value of focus groups lies in the richness of the discussion. A
good moderator can draw out a lot of information from the participants.
For example, the marketing manager for Harley-Davidson might use focus
groups to learn how women relate to motorcycles. The trade-off is a
deeper understanding of each participant versus a more superficial
knowledge of additional people. Herein lies the mistake many people
make with focus groups. They assume that the results of a focus group are
generalizable to a population of interest. This is not the case. Focus groups
are not a representative sample, and care should be taken to interpret the
results properly. However, focus groups do provide insights on an issue
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that are useful to researchers as they develop quantitative research
techniques. Focus group data provide a good starting point from which
researchers can develop specific questions used in survey instruments. 22
Another common qualitative technique is the in-depth interview. An
in-depth interview is an unstructured (or loosely structured) interview with
an individual who has been chosen based on some characteristic of
interest, often a demographic attribute. This technique differs from focus
groups in that the interview is done one on one rather than in a small
group. The same advantages and disadvantages are present here as with
focus groups, so researchers most often use this technique to help
formulate other types of research (surveys, observational research).
Descriptive research techniques include surveys, behavioral data, and
observational data. Of the quantitative research techniques used to collect
primary data, surveys, in their various forms, are the most prevalent. While
they can be used informally in exploratory research, their most common
purpose is in descriptive research. Surveys are structured questionnaires
given to a sample group of individuals representing the population of
interest and are intended to solicit specific responses to explicit
questions. 23
There are a number of survey methods. Historically, mail and
telephone surveys were the most common. Today, electronic surveys have
become widely adopted for their speed, ease of use, and relatively low
cost. E-surveys can easily be done over the Internet using services such as
SurveyMonkey. 24
Behavioral data include information about when, what, and how often
customers purchase products and services as well as other customer
“touches” (for example, when they contact the organization with a
complaint or question). When companies match this kind of information
with demographic and psychographic information, they can see differences
in purchase patterns. Behavior is usually more reliable than surveys
because it is based on what the respondents actually do rather than what
they say they are going to do.
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264
Harley-Davidson does market research to learn more about developing
products that appeal to women.
©Ramzi Haidar/AFP/Getty Images
It is possible to get a lot of insight about people by simply watching
what they do in various situations. Observational data are the behavioral
patterns among the population of interest. One of the most common uses
of this type of research is in retailing. Retailers watch how people move
through a store, noting what aisles they go down and where they spend
their time. In recent years a more intrusive approach to observational data
has been used to actually examine people in a personal setting (for
example, their homes). In this approach, the observer enters into the world
of the individual rather than standing back and simply watching activities.
Researchers see people in a very personal environment to better
understand how people use and interact with products.
A variation of observational data is mechanical observation.
Mechanical observation uses a device to chronicle activity. Some forms of
mechanical observation are benign and not intrusive on the individual.
Turnstiles, for example, record people coming into or going out of an area.
Traffic counters record the number of cars on a given street for a set time
period.
There are, however, mechanical devices that are more invasive.
Mechanical devices can be very useful for researchers but are often used
sparingly because of the cost and also the bias associated with the
respondent’s awareness of the device. Eye cameras can track the
movement of an eye as the individual watches an ad. From this researchers
can determine what the person sees first, what he is focusing on in the ad,
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and how his eyes move around the ad. Another device, the galvanometer,
is attached to the skin and measures subtle changes in skin temperature.
Researchers can then determine if the respondent found the ad interesting.
With the advent of sophisticated home assistants, it is possible to track
people right in their homes. Alexa, from Amazon, is a home assistant that
helps users carry out various functions around the home. At the same time,
it collects all the information generated around each interaction and sends
it to Amazon.
Information Content: What Do We Need to Know? A critical part of
research design involves determining exactly what information is needed
and how to frame the questions to get that information. From the questions
used in focus groups to long questionnaires, it is important to consider the
structure and wording as well as the response choices. Most often this
issue comes up in designing questionnaires. As the most commonly used
primary research technique, the survey questionnaire allows a lot of
variability in its design and structure. Some surveys, such as comment
cards, are short and ask only a few questions. Others, such as new car
satisfaction surveys, can be much longer and ask dozens of questions. No
matter what the situation, careful attention must be paid to the design,
structure, and format of each question. For years marketers have been
interested in building and measuring customer loyalty.
Today, researchers must also consider the method of survey delivery.
For example, mail surveys differ significantly from telephone surveys
because respondents interact with the questions differently. Electronic
surveys present a different challenge, although their structure is more
easily adapted from a mail questionnaire.
Researchers must consider which of the many types of question
formats is most appropriate for the situation. One of the most basic
decisions is whether to use open-ended or closed-ended questions. Open-
ended questions encourage respondents to be expressive and offer the
opportunity to provide more detailed, qualitative responses. As a result,
these kinds of questions are often used in exploratory research. Closed-
ended questions, on the other hand, are more precise and provide specific
responses. As a result, they allow for more quantitative analysis and are
most often used in descriptive research. Frequently, questionnaires will
266
contain a mix of open-ended and closed-ended questions to get both
qualitative and quantitative information in a single survey.
Sampling Plan: Who Should Be Included in the Research? Once the
other elements of the research design have been developed, it is time to
consider who will be selected for the research. The most basic decision is
whether to conduct a census or to sample a group of individuals from the
population. A census is a comprehensive record of each individual in the
population of interest, while a sample is a subgroup of the population
selected for
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participation in the research. A census may seem like the better approach
because everyone in the population is included in the study. Unfortunately,
most of the time the number and diversity of the population are so large
that it is simply not physically or financially possible to communicate with
everyone. As a result, sampling is by far the preferred method of selecting
people for market research. 25
There are two basic approaches to sampling: probability and
nonprobability sampling. It is important to keep in mind that one is not
necessarily better than the other; rather, the key to making the right choice
is to match the sampling approach with the research. Budgetary constraints
will also likely influence the decision. Probability sampling uses a specific
set of procedures to identify individuals from the population to be included
in the research. From here, a specific protocol is identified to select a
number of individuals for the research. As an example, suppose Bank of
America is interested in finding out more about a group of its customers
holding a certain kind of credit card. Let’s assume there are 10 million
customers holding this particular card. The bank wants to randomly choose
5,000 individuals for the survey. That means that everyone has a
5,000/10,000,000 ? .0005 chance of being selected. Next, Bank of America
will create an algorithm to randomly identify 5,000 individuals from the
list of 10 million. The algorithm ensures that, while everyone has a .0005
chance of being selected, only 5,000 will be sampled from the entire
group.
A second approach is called nonprobability sampling and, as the name
implies, the probability of everyone in the population being included in the
267
sample is not identified. The chance of selection may be zero or not
known. This type of sampling is often done when time and/or financial
constraints limit the opportunity to conduct probability sampling. The most
significant problem with nonprobability sampling is that it significantly
limits the ability to perform statistical analyses and generalize conclusions
beyond the sample itself.
Search Secondary Sources Secondary data are almost always
part of market research. Searching a wide variety of sources and compiling
additional information provide greater insight to the research problem and
supplement the primary data collected for a specific study. We have
already discussed the availability of information inside the company, so
let’s turn our attention to external sources of secondary data.
Government Sources Federal, state, and local governments are an
important resource in collecting information on a variety of topics. For
example, the U.S. Census Bureau publishes a library full of reports on
business and consumer demographic trends. In 2012, the Census Bureau
released the most recent Economic Census providing an in-depth analysis
of business activity in the United States. Often, data are available by zip
code, which can be useful for marketers in targeting specific groups of
people. Updated Census Bureau data is set for release in 2019. States also
publish additional data on economic activity. Finally, local governments
publish records such as business licenses as well as general economic
activity in that area. Governments provide a great deal of information on a
variety of activities. From here marketers can identify areas, even down to
specific streets, and get detailed demographic information, which is very
useful in a number of ways including targeted marketing communications
campaigns.
Market Research Organizations A number of market research
organizations publish data helpful to marketers. One resource many people
are familiar with is Nielsen Media Research’s TV ratings. The ratings are
the basis for establishing national, cable, and local advertising rates.
Another service well known to automobile enthusiasts is the J.D. Power
automobile quality and customer satisfaction rankings. While automobile
manufacturers pay a fee for more detailed information, the public has
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access to the overall rankings.
Other organizations publish data that can be useful to marketers in
particular industries. For example, MMGY Global publishes several
reports on both the leisure and business travel markets every year. These
reports profile travel patterns and market segments in the travel industry.
They are very useful for any business connected to the travel industry such
as airlines, hotels, and cruise lines.
There are also information data services such as Information
Resources, InfoScan, and Nielsen’s ScanTrack that track scanner data
from thousands of retailers. These organizations match sales data with
demographic records to give a detailed picture of how well a product
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is doing in a particular area or within a certain target market. This
information is useful for consumer products companies that want to assess
the success of specific marketing activities (for example, how well an
advertising campaign is working with a target market).
The Internet It is now possible to access a huge amount of information
using search engines to identify hundreds, even thousands, of information
sources. Care should be taken, however, to evaluate the validity of the data
and the reliability of the source. Generally two kinds of data sources can
be found on the Internet. The first is market research organizations (such
as the ones we just discussed) willing to share or sell market data. A
second source is “general knowledge” sites such as business publications,
academic research sites, or other independent sources that have data
applicable to the research problem. 26
Advantages and Disadvantages of Secondary Data Sources As we
discussed earlier, secondary data are almost always the first place to go in
conducting a market research project. Even if primary data are collected, it
is a good idea to see what has been done already that may be applicable
now. Secondary data come with two primary advantages. First, it’s a fast
way to get information. Just a few minutes on a search engine can yield a
lot of information. Of course, it takes much longer than that to look
through it all. A second and related advantage is cost. Secondary data are
relatively less expensive. Even if a company chooses to subscribe to
269
organizations such as J.D. Power and Associates, thereby getting access to
more detailed data, it is still more cost-effective than conducting a primary
research study.
Of course, there are very distinct disadvantages. First and most
important, secondary data will, almost by definition, not fit the research
problem exactly. As a result, a specific answer to the research problem will
not be possible using secondary data alone. Second, secondary data are not
current. Sometimes the information may be only a few weeks or months
old, or it may be dated to the point where it is no longer useful for the
current project. Third, without a clear understanding of the methodology
used to collect and interpret the secondary data, one should be a little
skeptical about its validity. 27
Collect the Data Now it is time to find and engage the respondent to
collect the data. Data collection involves access and distribution of the
survey to the respondent, then recording the respondent’s responses and
making the data available for analysis. A company can choose to collect
the data using its own resources or hire a market research firm to
administer the data collection. The choice often depends on the company’s
internal expertise in market research as well as the resources required to
complete the job.
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Photodex ProShow Gold is one of many software packages designed to
enhance presentations. The presentation of a research report often includes
sophisticated software designed to clearly present research findings and
recommendations.
Source: Photodex Corporation
This stage in the market research process presents several unique
challenges. First, data collection is often the most costly element in the
market research process. Second, the greatest potential for error exists as
data are collected. 28 For example, respondents may not respond to certain
questions or may fill out the survey incorrectly. Finally, the people
collecting the survey may be biased or make mistakes.
Technology, in the form of online surveys, can help to mitigate some
of the issues with data collection. For example, electronic survey methods
are often more cost-effective than other survey methodologies. In addition,
there is less chance of transcription error as no one has to input the data
into a computer. Unfortunately, not everyone has access to a computer. As
a result, certain target markets may be underrepresented if a survey
requires completion of an online survey. Additionally, people may still
input inaccurate responses. 29 We will talk about online research tools in
271
the next section.
Analyze the Data Once the data are collected, coded, and verified,
the next step is to analyze the information. The appropriate analysis is
performed based on the research
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questions developed at the beginning of the research. A common mistake
is using unsuitable analyses that are not supported by the data.
Analysis of the data will lead to findings that address the research
questions. These findings are, in a sense, the “product” of the research. In
most cases, researchers will also interpret the findings for decision makers.
Report the Findings The best research projects are only as good as
the final report and presentation. If the research is done well but the report
is poorly written and presented, managers will not benefit from the
research. Exhibit 4.8 provides a basic framework for a research report.
Note that, for managers, the key section of the report is the Executive
Summary as it presents a summation of the analysis and essential findings.
Keep in mind that managers are not really interested in the number of
secondary data sources, the questionnaire design, or the sampling plan;
rather, they want to see the findings.
EXHIBIT 4.8 Outline of a Research Report
Short Report Long Report
Report Modules Memo
or
Letter
Short
Technical
Management Technical
Prefatory
Information
1 1
Letter of
transmittal
√ √
Title page √ √
272
Authorization
statement
√ √
Executive
summary
√ √
Table of contents √
Introduction 1 2 2
Problem statement √ √ √
Research
objectives
√ √ √
Background √ √ √
Methodology √ √
(briefly) (briefly)
Sampling design
Research design
Data collection
Data analysis
Limitations √ √
Findings 3 4
Conclusions 2 4 3
Summary and
conclusions
√ √ √
Recommendations √ √ √
Appendices 5 5
Bibliography
Source: Cooper, Donald R. and Pamela S. Schindler, Business Research Methods,
12th ed. New York, NY: McGraw-Hill Education, 2014.
Market Research Technology
LO 4-6
Illustrate current research technologies and how they are used in market
research.
273
Market research has benefited from better, more cost-effective technology.
The use of powerful software tools and online technologies brings research
to any level in the organization. Sales managers can survey customers,
analyze the results, and make decisions
106
without costly, time-consuming external studies. Sophisticated software
incorporating CRM and marketing decision support systems can do in-
depth analyses that offer unique insights about customers or market trends
not possible just a few years ago. In most respects, making market research
tools available throughout the company has been a big success.
Unfortunately, as the access to market research technology has increased,
so has the misapplication of the technology. Without implementing the
market research process presented earlier, no amount of technology can
create worthwhile results.
Online Research Tools Online research tools fall into three
categories: databases, focus groups, and sampling. Each of these three
categories offers unique opportunities to expand the reach and usefulness
of market research. Let’s examine each more closely.
Online (Cloud) Databases An online database is data stored on a server
that is accessed remotely over the Internet or some other
telecommunications network. Many, if not most, companies now have
databases available to employees, suppliers, even customers. Information
on orders, shipments, pricing, and other relevant information is available
to salespeople and customer service personnel who need to access it. 30
Independent online databases available from government and other
sources are extremely useful tools in market research. Organizations such
as the National Archives and Records Administration offer a wide range of
databases with topic-specific data, all of which can be accessed for free.
Fee-based services, while expensive, offer access to a wide range of
information. Lexis/Nexis, for example, enables market researchers to
access thousands of business and trade publications and market studies.
Another company, IBISWorld, allows members to access hundreds of
industry overviews and analyses that have been conducted through
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research. These services make it possible to review market research
reports, industry and company analyses, even market share information. 31
Online Focus Groups The virtual focus group is becoming a viable
alternative to the traditional focus group format (6 to 10 people in a room).
Offering distinct advantages in terms of convenience and cost-efficiency,
online focus groups provide data quickly and in a format that is usually
easier to read and analyze. Traditional focus groups require someone to
transcribe the spoken words into a transcript. With online focus groups,
everything is already recorded by computer. With the increased use of
mobile devices, it is even easier to conduct online focus groups and collect
data even as the customer is experiencing the product or service. 32
The primary disadvantage of online focus groups is that participants
are limited to those with access to a computer or workstation. In addition,
as people often participate remotely, it is not possible to verify who is
actually responding to the questions. Measures can be employed to verify
participation (for example, passwords), but the reality is that, in most
cases, you must rely on the individual to be honest. One final problem is
the lack of control over the environment. Traditional focus groups create
an environment where participants are required to focus on the questions.
Online focus groups enable participants to be at home, work, or even a
remote location with wireless access. As a result, participants can become
distracted and environmental factors can affect their concentration and
responses.
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SAS offers powerful analysis tools to help managers more clearly understand
market data.
Source: SAS Institute Inc.
Online Sampling If someone has access to a computer with an Internet
connection, that person can complete a questionnaire. Online sampling has
become increasingly popular as a data collection methodology. As with
online focus groups, the primary advantages are convenience and cost-
efficiency. Respondents are free to complete the survey when it is best for
them, and sending a survey online is essentially free. Online survey
companies such as QuestionPro offer a complete service from survey
design and a variety of delivery methods (traditional e-mail, popup
surveys, company newsletter integration, and others) to data analysis and
presentation of findings.
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Statistical Software One of the real benefits of market research
technology today is the ability to put powerful statistical software in the
hands of front-line managers. With the proper training and data, it is now
possible for managers to conduct analyses that were not possible even five
years ago. Two software packages dominate desktop statistical analysis—
IBM SPSS and SAS. IBM SPSS offers a range of marketing analytical
tools. Its statistical software combines an easy-to-use interface with
powerful statistical tools in a format that managers at all levels can use.
The other widely used package is called SAS, and it offers many of the
same features. One of the real advantages of these packages is their ability
to take the findings of the data analysis and create tables and reports. 33
Interestingly, while dedicated statistical packages offer powerful
analytical tools and outstanding reporting capabilities, probably the most
widely used tool for analyzing business data is one almost everyone
already has on his or her computer—Excel spreadsheets. Part of the
Microsoft Office suite of products, Excel offers the ability to analyze data
using formulas created by the user or statistical functions already
embedded in the software. While not a dedicated statistical package, it is
certainly a useful tool in basic data analysis.
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Market Research Challenges in Global Markets
The primary difference between domestic and international research is that
international market data are more difficult to get and understand than
domestic data. In most Western European countries and the United States,
it is much easier to access quality data than in the rest of the world. Let’s
examine some of the challenges market researchers face in finding,
collecting, and then analyzing market data in foreign markets.
Secondary Data Exhibit 4.9 identifies the ten most expensive
countries for marketing research. Note that while the United States and, to
a lesser extent, Japan and the European Union are data-rich market
environments, they are also among the most expensive countries in which
to conduct marketing research. Unfortunately, that level of information is
not found anywhere else in world. In certain areas, such as Central Europe,
this is because they have only recently moved to open market economies.
In other parts of the world, such as China and India, the culture does not
encourage the free flow of information. This makes it difficult for any
organization, even governments, to collect good information. Let’s
consider three major challenges researchers face as they collect data
around the world.
EXHIBIT 4.9 The Ten Most Expensive Countries
for Research
Country Global Index Scale
United States of America 241
Switzerland 239
Canada 229
Japan 222
United Kingdom 187
Sweden 168
Germany 165
277
Denmark 162
France 161
The Netherlands 156
Source: “US the Most Expensive Country for Market Research,” Marketing Charts,
October 17, 2014.
108
Data Accessibility In the United States, businesspeople are accustomed to
easily accessing information that simply does not exist in much of the
world. The U.S. Census Bureau provides detailed information across a
wide range of business sectors, including retailing and distribution, as well
as specific data on many different economic and personal criteria such as
income per capita, population by county, and zip code (broken down by
gender, age, ethnic mix, and many other characteristics). From government
sources (U.S. Census Bureau, Department of Commerce, EU Business
Development Center), nongovernment business organizations (U.S.
Chamber of Commerce, OECD), and private research organizations, a
great deal of information is available to managers. The quantity and
quality of data found in the United States are not available in most of the
world.
Data Dependability A second major issue is the reliability of the data. Can
the information be considered accurate? Regrettably, in many cases it
cannot. Govrnment agencies, particularly in developing countries, will
distort data to present a more favorable analysis. The data are often
reported incorrectly because people do not want the government to know
the true figures, usually because of higher tax concerns. In other cases,
governments want to present optimistic results that support government
policies, so they alter the data to reflect government accomplishments.
Data Comparability Comparing secondary data from foreign markets risks
three other problems. First, developing countries often lack historical data,
making it much harder to assess long-term economic or business trends.
Second, the available data are outdated so they are ineffective for making
278
decisions in the current economic environment. Finally, terms used in
reporting information are not consistent. Standardized business
terminology used in industrialized countries has not been adopted by many
developing regions, making it difficult for researchers to interpret data.
Primary Data Essential information about economic and general
business trends can be gathered from secondary sources, but to get specific
market data such as customer preferences, primary data are necessary.
Collecting primary data presents many challenges for marketers that are
almost always compounded in global markets. Some of the specific
problems of international primary data collection include the following
issues.
Unwillingness to Respond Cultural, gender, and individual differences
create wide disparities in the willingness to provide personal information.
The United States has an open information culture and people are much
more willing to respond, but this openness is not shared around the world.
In addition, government agencies such as the Securities and Exchange
Commission require publicly traded companies to provide accurate
business information including valid financial results. Nongovernment
agencies such as trade associations report studies widely used in business.
The National Realtors Association, for example, publishes quarterly data
on the housing industry that is considered an accurate assessment of the
real estate market in the United States.
As we discussed earlier, many people don’t respond because they are
concerned about government interference or additional taxes. However,
concerns about privacy and how personal data are used generate a broad
distrust of surveys among consumers and businesses. It is not difficult to
understand these concerns. In countries formerly under the control of the
Soviet Union (Czech Republic, Poland, Hungary, and others), for example,
people were concerned that personal information provided to authorities
could be used against them. After the fall of the Soviet Union, the
historical problems created by decades of living in a closed society made it
very difficult for companies such as A.C. Nielsen to collect valid
consumer opinions and business data.
Unreliable Sampling Procedures Related to the quality of data noted
279
earlier is the problem of unreliable or inadequate demographic information
to conduct primary research. In many countries, there is no way to locate
or identify who lives where or even how many people live in a given
location, something businesspeople in the United States take for granted.
In the United States, sophisticated global positioning system (GPS)
devices can direct people to specific locations based on maps and other
data stored on a hard drive. Consider the
109
problem, then, if you are in a medium or small South American or Asian
city where maps do not exist and street names are not even posted. The
lack of reliable census information coupled with an inadequate
infrastructure leaves market researchers in many countries with no
accurate sampling frame from which to draw respondents.
Inaccurate Language Translation and Insufficient Comprehension
Getting people in global markets to actually complete a survey presents
three challenges. First, simply translating surveys can be a challenge. For
example, Chinese is written with characters known as hànzi, with each
character representing a syllable of spoken Chinese with its own meaning.
To read fluently in Chinese requires knowledge of more than 3,000
symbols. Second, word usage changes dramatically around the world. In
the United States and Western Europe, “family” generally refers to the
immediate family unit, including a father, mother, and their children, while
in many Latin and Asian cultures “family” almost always includes the
extended family, including all aunts, uncles, cousins, and grandparents.
When a survey asks about family members, then, the responses could vary
dramatically.
A final problem is insufficient language comprehension. In many parts
of the world illiteracy rates are high, which rules out most survey
methodologies. In addition, some countries use multiple languages,
making translation costly and increasing the likelihood of mistranslation.
India, for example, recognizes 14 official languages, with many additional
nonofficial languages. Imagine writing a survey that would translate well
into over a dozen languages.
110
280
SUMMARY
Marketers know that accurate, relevant, and timely information is an
essential element in marketing management. There are two sources of
information: that which comes from outside the company and that
which can be found internally. Being aware of environmental forces
such as demographic profiles and changes, economic conditions,
emerging technologies, changes in the natural world, and the political
and legal environment enables marketers to create more effective
short- and long-term marketing strategies.
Critical to assessing marketing information is a thorough
understanding of the market research process. The process involves
six specific steps: define the problem, establish the research design,
search secondary sources, collect the data, analyze the data, and
present the research findings. Researchers must follow the market
research process to ensure the data are valid and useful for decision
makers.
KEY TERMS
market information system (MIS) 91
marketing intelligence 93
demographics 94
microeconomics 95
macroeconomics 95
market research 97
management research ?deliverable 98
research problem 99
exploratory research 100
descriptive research 100
causal research 100
281
primary data 100
secondary data 101
qualitative research 101
quantitative research 101
focus group 101
in-depth interview 101
surveys 101
behavioral data 101
observational data 102
mechanical observation 102
open-ended questions 102
closed-ended questions 102
census 102
sample 102
probability sampling 103
nonprobability sampling 103
data collection 104
online database 106
APPLICATION QUESTIONS
More application questions are available online.
1. Imagine you are the vice president of sales for a large security
company and you have been asked to put together a sales
information system that collects, analyzes, interprets, and
distributes information from the sales force. How would you do it?
What information would you ask salespeople to collect?
2. As a market manager at Lenovo, what key information from outside
282
the company would be important to help in the design of a new
laptop for small and medium-sized businesses?
3. The marketing manager for Disney Cruise Line wants to know what
demographic trends will affect the cruise line business over the next
five years. What kind of research is needed to address this
question? Conduct some secondary research and try to identify two
or three important demographic trends that might affect the cruise
line business.
4. The market research director for John Deere has just received a call
from the marketing manager in the company’s lawn tractor division.
The manager wants to know how the new advertising campaign is
being received by current customers. Design a research study for
this research. Be sure to include a problem definition and research
design.
5. The alumni director at your institution wants to know how to serve
the alumni better. Design a survey of no more than 10 questions
that the alumni director can use to ask alumni about their interest in
getting more involved with their school.
111
MANAGEMENT DECISION CASE
BMW’S ROAD TO HIGHER CUSTOMER
SATISFACTION: JUST TELL ME WHAT YOU
THINK!
Customer satisfaction and loyalty are critical elements in any
successful marketing strategy, but they are essential when the
product is purchased only once every few years. It was, therefore,
of great concern to luxury automakers like Acura, Audi, and BMW
when in 2014 their customer satisfaction scores all dropped below
the average for the entire automobile industry. 34 For years these
companies had been gathering and using external primary data
283
from their own surveys, and also relying on secondary data from
sources like the American Consumer Satisfaction Index, yet
satisfaction was falling. Assuming the luxury automakers were
listening and responding to the data they received from existing
research, it appeared the old modes of research were missing key
insights. Management had a new research deliverable—learn how
we can improve customer satisfaction—and a new research
question—what specific product attributes or service components
are not satisfying our customers?
In situations like this, you don’t know what you don’t know.
Were less-expensive competitors adding features that satisfied
customers at a lower price? Were service amenities like free
loaner cars not valued by the customers? What were the features
or service components that were failing, missing, or just not
valued? Finding a method to ask questions that exposed areas of
dissatisfaction (or missed opportunities to satisfy), and ask these
questions in a way that was representative of the target customers,
became the market research problem. One of these companies—
BMW—learned how to listen and greatly improved its customer
satisfaction scores. It now ranks above the industry average for
customer satisfaction and higher in satisfaction than its luxury
automobile competitors. 35 BMW’s focus on understanding its
customers has helped it reach the top of its market, but its path
was only possible with an understanding of important trade-offs
different types of marketing research require.
Through a worldwide dealer network, BMW makes 10 promises
to its customers and then measures how well the company (and
dealers) keep those promises. Walk into (or visit on the web)
nearly any BWM dealership, from Idaho Falls, Idaho, to Hastings,
New Zealand, and you will see a display of the 10 promises of
service quality. 36 What you don’t see is how difficult it is to
measure and make sense of hundreds, thousands, or, at a country
level, hundreds of thousands of opinions about customers’
satisfaction with activities such as response timeliness, explaining
the bill, or offering a test drive.
In an effort to gather better satisfaction information, BMW UK
284
set about to solve two problems at once. Like most companies, it
had a difficult time getting customers to respond to its surveys. 37
And, with 10 promises to measure, the surveys were fairly long
and time-consuming to complete. This led to a falloff in customer
response rates. The second problem was making sense of the
incoming survey data. To make surveys easier for respondents
and for later analysis, market researchers use closed-ended
quantitative questions, typically with a one-to-five- or one-to-seven-
point scale of very unsatisfied to very satisfied. Customers who
responded answered by bubbling in the appropriate number on
their survey. But, without context as to why they were very satisfied
(or not), it was difficult for BMW to know exactly what to keep doing
and what to fix. More context meant more questions, and more
questions meant fewer responses.
To address this problem and get deeper context, market
researchers often seek to gather deeper, qualitative information
through in-depth interviews, which are often one on one and quite
expensive to administer, or by inviting a small number of
customers (usually around a dozen) to a focus group, where a
professional moderator asks open-ended qualitative questions,
digging out nuances of why customers are expressing a given level
of satisfaction. One downside of both in-depth interviews and focus
groups is that they are not a statistically valid representation of the
population of interest (for example, a target segment such as
Lexus buyers). BMW recognized that focus groups enable the
company to gain deeper context and actionable insights through
qualitative data but do not allow for generalizing the findings to a
large group, so they only provide guidance on what should be
focused on in a broader, statistically valid study.
BMW faced what is, for all market researchers, a series of
trade-offs between different research methods. Qualitative
methods, such as focus groups, brought deeper insights, but at the
cost of being able to apply the findings to a more general customer
target. Other methods, such as quantitative surveys, brought
speed, generalizability, and a higher level of numerical precision
and statistical validity, but lacked an ability to delve deeper and
285
understand the heart of what customers value. And, in both cases,
the more information BMW sought, the fewer customers
responded. Realizing a need for richer and more representative
information, BMW set out to find a way to analyze representative
112
samples of large amounts of open-ended qualitative customer
responses.
Questions for Consideration
1. Assuming BMW wants to learn more about what customers
value in a luxury driving experience, and then make decisions
based on that research, what kind(s) of market research would
you recommend that might improve BMW’s understanding?
2. BMW is facing the classic quality–quantity–cost trade-off; when
it seeks higher-quality information (represented by more
questions), fewer responses are received or research costs are
higher. Since BMW’s executives all have 25 to 30 years of
experience in the automotive market, what would be the
advantages and disadvantages of trusting their own experience
versus spending more on market research?
3. When problems develop, like what BMW is experiencing in its
research data gathering, a new, often technological solution is
developed to address the issue. What might be some innovative
ways to approach gaining both statistical significance (through
higher response rate) and deeper context (through open-ended
qualitative data)?
MARKETING PLAN EXERCISES
ACTIVITY 3: Identify Critical Information
This exercise asks you to identify the critical information needed to
create the marketing plan. In that regard it is important to evaluate
286
existing information (internal and secondary data) as well as new
information gathered through primary research. This assignment
includes:
1. Catalog internal sources of information available to you inside the
organization and what information you will receive from each source.
2. Identify secondary data sources and the specific information you
need from each source.
a. List sources.
b. Date.
c. Assess the relevance of the data to the project.
3. List primary data needs to create the marketing plan. Then develop
the specific instruments (focus group questions, surveys) that you
will use later in the marketing plan.
NOTES
1. David Barton, “Data Analytics Top Trends in 2017,” Innovation
Enterprise, March 2017,
https://channels.theinnovationenterprise.com/articles/data-
analytics-top-trends-in-2017.
2. Dana Varinsky, “An American Cultural Revolution Is Killing
Cookie-Cutter Homes,” Business Insider, March 9, 2017,
http://www.businessinsider.com/the-dream-of-owning-a-cookie-
cutter-home-is-dying-heres-where-people-are-moving-instead-
2017-2.
3. Roger Bennett, “Sources and Use of Marketing Information by
Marketing Managers,” Journal of Documentation 63, no. 5
(2007), p. 702; and Hean Tat Keh, Thi Mai Nguyen, and Hwei
Ping Ng, “The Effects of Entrepreneurial Orientation and
Marketing Information on the Performance of SME’s,” Journal of
Business Venturing 22, no. 4 (2007), pp. 592–611.
287
https://channels.theinnovationenterprise.com/articles/data-analytics-top-trends-in-2017.
http://www.businessinsider.com/the-dream-of-owning-a-cookie-cutter-home-is-dying-heres-where-people-are-moving-instead-2017-2
4. Paul Ingenbleek, “Value-Informed Pricing in Its Organizational
Context: Literature Review, Conceptual Framework, and
Directions for Future Research,” Journal of Product and Brand
Management 16, no. 7 (2007), pp. 441–58.
5. Gerrit H. Van Bruggen, Ale Smidts, and Berend Wierenga, “The
Powerful Triangle of Marketing Data, Managerial Judgment, and
Marketing Management Support Systems,” European Journal of
Marketing 35, no. 7 (2001), pp. 796–816.
6. Shreyas Tanna, “Research Delivers Insight into the Global
Predictive Analytics market to 2021,” WhaTech, March 17, 2017,
https://www.whatech.com/market-research/it/275294-research-
delivers-insight-into-the-global-predictive-analytics-market-
forecast-to-2021.
113
7. João F. Proença, Teresa M. Fernandez, and P. K. Kannan, “The
Relationship in Marketing: Contribution of a Historical
Perspective,” Journal of Macromarketing 28, no. 1 (2008), pp.
90–106.
8. Sandra S. Liu and Lucette B. Comer, “Salespeople as
Information Gatherers: Associated Success Factors,” Industrial
Marketing Management 36, no. 5 (2007), pp. 565–79.
9. Joel Le Bon and Dwight Merunka, “The Impact of Individual and
Managerial Factors on Salespeople’s Contribution to Marketing
Intelligence Activities,” International Journal of Research in
Marketing 23, no. 4 (2006), pp. 395–412.
10. Jean Michel Moutot and Ganael Bascoul, “Effects of Sales
Force Automation Use on Sales Force Activities and Customer
Relationship Management Process,” Journal of Personal Selling
and Sales Management 28, no. 2 (2008), pp. 167–82.
11. K. Michel, “OTT: The Future of Content Delivery.” Broadcasting
& Cable 146, no. 40 (2016), p. 49.
12. Brad Plumer, “Will China Ever Get Its Pollution Problem under
Control?” Washington Post, March 11, 2013,
www.washingtonpost.com/blogs/wonkblog/wp/2013/03/11/will-
china-ever-get-its-pollution-problem-under-control/; “Plan to
288
https://www.whatech.com/market-research/it/275294-research-delivers-insight-into-the-global-predictive-analytics-market-forecast-to-2021
http://www.washingtonpost.com/blogs/wonkblog/wp/2013/03/11/will-china-ever-get-its-pollution-problem-under-control/
Reduce Air Pollution Chokes Mexico City,” Phys Org, February
2, 2017, https://phys.org/news/2017-02-air-pollution-mexico-
city.html.
13. Connie R. Bateman and JoAnn Schmidt, “Do Not Call Lists: A
Cause for Telemarketing Extinction or Evolution,” Academy of
Marketing Studies Journal 11, no. 1 (2007), pp. 83–107; and
Herbert Jack Rotfeld, “Misplace Marketing: Do-Not-Call as the
U.S. Govern-ment’s Improvement to Telemarketing Efficiency,”
Journal of Consumer Marketing 21, no. 4/5 (2004), pp. 242–59.
14. “2017 U.S. Industry and Market Outlook (Marketing Research
and Public Opinion Polling),” Barnes Reports, October 2016.
15. Alan Tapp, “A Call to Arms for Applied Marketing Academics,”
Marketing Intelligence and Planning 22, no. 5 (2004), pp. 579–
96.
16. Dianne Altman Weaver, “The Right Questions,” Marketing
Research 18, no. 1 (2006), pp. 17–18.
17. Janice Denegri-Knott, Detiev Zwick, and Jonathan E.
Schroeder, “Mapping Consumer Power: An Integrative
Framework for Marketing and Consumer Research,” European
Journal of Marketing 40, no. 9/10 (2006), pp. 950–71.
18. Gordon A. Wyner, “Redefining Data,” Marketing Research 16,
no. 4 (2004), pp. 6–7.
19. Naomi R. Henderson, “Twelve Steps to Better Research,”
Marketing Research 17, no. 2 (2005), pp. 36–37.
20. David Stokes and Richard Bergin, “Methodology or
’Methodolatry’? An Evaluation of Focus Groups and Depth
Interviews?” Qualitative Market Research 9, no. 1 (2006), pp.
26–38.
21. B. J. Allen, U. M. Dholakia, and S. Basuroy, “The Economic
Benefits to Retailers from Customer Participation in Proprietary
Web Panels,” Journal of Retailing 92, no. 2 (2016), pp. 147–61.
http://dx.doi.org.ezproxy.rollins.edu:2048/10.1016/j.jretai.2015.12.003
22. Jennifer Comiteau, “Why the Traditional Focus Group Is Dying,”
Adweek, October 31, 2005, pp. 24–27.
289
https://phys.org/news/2017-02-air-pollution-mexico-city.html
http://dx.doi.org.ezproxy.rollins.edu:2048/10.1016/j.jretai.2015.12.003
23. Gordon Wyner, “Survey Errors,” Marketing Research 19, no. 1
(2007), pp. 6–7.
24. Catherine A. Roter, Robert A. Rogers, George C. Hozier Jr.,
Kenneth G. Baker, and Gerald Albaum, “Management of
Marketing Research Projects: Does Delivery Method Matter
Anymore in Survey Research,” Journal of Marketing Theory and
Practice 15, no. 2 (2007), pp. 127–45; and Sharon Loane, Jim
Bell, and Rob McNaughton, “Employing Information
Communication Technologies to Enhance Qualitative
International Marketing Enquiry,” International Marketing Review
23, no. 4 (2006), pp. 438–53.
25. Edward Blair and George M. Zinkhan, “Nonresponse and
Generalizability in Academic Research,” Academy of Marketing
Science Journal 34, no. 1 (2006), pp. 4–8.
26. Peter Keliner, “Can Online Polls Produce Accurate Findings??”
International Journal of Market Research 46 (2004), pp. 3–15;
and Olivier Furrer and D. Sudharshan, “Internet Marketing
Research: Opportunities and Problems,” Qualitative Market
Research 4, no. 3 (2001), pp. 123–30.
27. N. L. Reynolds, A. C. Simintiras, and A. Diamantopoulos,
“Theoretical Justification of Sampling Choices in International
Marketing Research: Key Issues and Guidelines for
Researchers,” Journal of International Business Studies 34, no.
1 (2003), pp. 80–90.
28. Bill Blyth, “Mixed Mode: The Only ’Fitness’ Regime??”
International Journal of Marketing Research 50, no. 2 (2008),
pp. 241–56.
29. Nick Sparrow, “Quality Issues in Online Research,” Journal of
Advertising Research 47, no. 2 (2007), pp. 179–91; and
Elisabeth Deutskens, Ad de Jong, Ko de Ruyter, and Martin
Wetzels, “Comparing the Generalizability of Online and Mail
Surveys in Cross National Service Quality Research,” Marketing
Letters 17, no. 2 (2006), pp. 119–32.
30. Kai Wehmeyer, “Aligning IT and Marketing—The Impact of
Database Marketing and CRM,” Journal of Database Marketing
290
& Customer Strategy Management 12, no. 3 (2005), pp. 243–57;
Joshua Weinberger, “Database Marketers Mine for Perfect
Customer Segmentation,” Customer Relationship Management
8, no. 10 (2004), p. 19; and Hoda McClymont and Graham
Jocumsen, “How to Implement Marketing Strategies Using
Database Approaches, “Journal of Database Marketing &
Customer Strategy Management 11, no. 2 (2003), pp. 135–49.
31. R. Dale Wilson, “Developing New Business Strategies in B2B
Markets by Combining CRM Concepts and Online Databases,”
Competitiveness Review 16, no. 1 (2006), pp. 38–44.
32. K. Brosnan, B. Griin, and S. Dolnicar, “PC, Phone or Tablet?”
International Journal of Market Research 59, no. 1 (2017), 35–
55. doi:10.2501/IJMR-2016-049.
33. Steve Ranger, “How Firms Use Business Intelligence,”
BusinessWeek, May 24, 2007,
www.businessweek.com/globalbiz/content/may2007/gb20070524_006085.htm?
chan=search; and Colin Beasty, “Minimizing Customer
Guesswork,” Customer Relationship Management 10, no. 6
(2006), p. 45.
34. Aimee Picchi, “Some Surprises in Customers’ Car Rankings,”
CBS News, August 26, 2014,
http://www.cbsnews.com/news/some-surprises-in-customers-
car-rankings/.
35. “Benchmarks by Company: BMW,” American Customer
Satisfaction Index, 2016, http://www.theacsi.org/customer-
satisfaction-benchmarks/benchmarks-by-company.
36. “Customer Promise | BMW of Idaho Falls,” 2017,
http://www.bmwofidahofalls.com/customer-promise.htm; and
“BMW Customer Promise- Hawkes Bay BMW,” 2017,
http://www.hawkesbaybmw.co.nz/com/en/insights/aboutus/customer_promise.html
37. “Shorter BMW Customer Surveys Increase Response Rates by
10%,” Feedback Ferret, 2016,
http://www.feedbackferret.com/wp-
content/uploads/sites/2/2016/02/Feedback-Ferret-Automotive-
Case-Studies-USA .
291
http://www.businessweek.com/globalbiz/content/may2007/gb20070524_006085.htm?chan=search
http://www.cbsnews.com/news/some-surprises-in-customers-car-rankings/
http://www.theacsi.org/customer-satisfaction-benchmarks/benchmarks-by-company
http://www.bmwofidahofalls.com/customer-promise.htm
http://www.hawkesbaybmw.co.nz/com/en/insights/aboutus/customer_promise.html
http://www.feedbackferret.com/wp-content/uploads/sites/2/2016/02/Feedback-Ferret-Automotive-Case-Studies-USA
114
CHAPTER 5
CRM, Big Data, and
Marketing Analytics
LEARNING OBJECTIVES
LO 5-1 Define CRM and articulate its objectives and
capabilities.
LO 5-2 Describe the CRM process cycle.
LO 5-3 Understand the concept of customer touchpoints and
why touchpoints are critical in CRM.
LO 5-4 Identify and appreciate the types of data used in
marketing management decision making.
LO 5-5 Recognize key approaches to marketing analytics.
292
LO 5-6 Understand the concept of a marketing dashboard
and how it improves marketing planning for a firm.
LO 5-7 Explain return on marketing investment (ROMI),
including cautions about its use.
115
OBJECTIVES AND CAPABILITIES OF CRM
LO 5-1
Define CRM and articulate its objectives and capabilities.
We’ve mentioned CRM briefly in earlier chapters of this book. But what
exactly is CRM? Customer relationship management (CRM) is a
comprehensive business model for increasing revenues and profits by
focusing on customers. Significantly, this definition does not speak to who
should “own CRM” within the organization. In the mid-1990s, the
introductory days of CRM systems, CEOs tended to relegate the operation
of a firm’s CRM system to the information technology group. After all,
CRM is technology-based, isn’t it? But legendary horror stories abound
about CEOs who purchased multimillion-dollar CRM installations purely
on the recommendation of the IT department, without any significant
consultation with those in the firm who would be the system’s primary
users, such as salespeople, marketing managers, and customer service
representatives. In the end, through the school of hard knocks, firms
learned that no one group should have “ownership” of the CRM system.
Positioning CRM as a comprehensive business model provides the impetus
for top management to properly support it over the long run and for
various internal stakeholder groups to have the opportunity to both use it
and impact how it is used. 1
Fortunately, with many of the initial CRM adoption misfires relegated
to the past, most companies are now adopting CRM as a mission-critical
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business strategy. It is considered mission-critical largely because of
competitive pressures in the marketplace; nobody can afford to be the lone
wolf that does not have a handle on the customer side of an enterprise in a
competitive space.
To optimize CRM’s potential for contribution to the bottom line,
companies are redesigning internal structures, as well as internal and
external business processes and systems, to make it easier for customers to
do business with them. Although marketing does not “own” CRM, because
of CRM’s focus on aligning the organization’s internal and external
processes and systems to be more customer-centric, marketing managers
are a core contributor to the success of CRM by virtue of their expertise on
customers and relationships. 2 And in particular, as Chapter 14 will discuss
in detail, the sales force in CRM-driven organizations has taken center
stage in executing a firm’s customer management strategies, complete with
new titles befitting the new sales roles such as “client manager,”
“relationship manager,” and “business solution consultant.”
Ultimately, CRM has three major objectives:
1. Customer acquisition—acquisition of the right customers based on
known or learned characteristics that will drive growth and increase
margins.
2. Customer retention—retention of satisfied and loyal profitable
customers and channels, and thus growing the business profitably
over the long run.
3. Customer profitability—increased individual customer margins,
while offering the right products at the right time. 3
Accomplishing these objectives requires a clear focus on the product
and service attributes that represent value to the customer and that create
customer satisfaction and loyalty. Customer satisfaction means the level
of liking an individual harbors for an offering—that is, to what level is the
offering meeting or exceeding the customer’s expectations? Customer
loyalty means the degree to which an individual will resist switching, or
defecting, from one offering to another. Loyalty is usually based on high
satisfaction coupled with a high level of perceived value derived from the
offering and a strong relationship with the provider and its brand(s).
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Customer satisfaction and loyalty are two extremely popular metrics used
by marketing managers to gauge the health of their business and brands. 4
Salesforce offers state-of-the-art CRM capabilities that are cloud-based and
operate well on multiple devices.
Source: Salesforce.com Inc.
All of this implies strong integration of CRM into the overall
marketing planning process of a firm. Perusal of the elements of marketing
planning presented in Chapter 3 reveals numerous
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points at which information derived from a CRM system can assist in the
strategy development and execution process. Key parts of a marketing plan
that rely on CRM-generated information include the situation analysis,
market research, strategy development, implementation, and measurement
phases of marketing planning. In fact, many of the metrics that marketing
managers use to assess their success are derived directly from the firm’s
CRM system. 5
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One of the most important metrics in CRM is that of the customer
lifetime value (CLV). Fredrick Reichheld in his books on customer loyalty
has demonstrated time and again that investment in CRM yields more
successful long-term relationships with customers, and that these
relationships pay handsomely in terms of cost savings, revenue growth,
profits, referrals, and other important business success factors. It is
possible to actually calculate an estimate of the projected financial returns
from a customer, or return on customer investment (ROCI), over the long
run. This analysis provides a very useful strategic tool for deciding which
customers deserve what levels of investment of various resources (money,
people, time, information, etc.). Many of the most useful marketing
metrics derive their power and functionality from CRM.
Proliferation of ROCI analysis has raised the prospects of firing a
customer who exhibits a low predicted lifetime value, and instead
investing resources in other more profitable customers. Of course, such
action assumes other more attractive customers exist. 6
THE CRM PROCESS CYCLE
LO 5-2
Describe the CRM process cycle.
The process cycle for CRM may be divided into the following four
elements: (1) knowledge discovery, (2) marketing planning, (3) customer
interaction, and (4) analysis and refinement. Elements of the process cycle
are portrayed in Exhibit 5.1 and discussed below.
Knowledge Discovery
Knowledge discovery is the process of analyzing the customer information
acquired through various customer touchpoints. At their essence, customer
touchpoints are where the selling firm touches the customer in some way,
thus allowing for information about him or her to be collected. These
might include point-of-sale systems, call-center files, Internet accesses,
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records from direct selling or customer service encounters, or any other
customer contact experiences. Touchpoints occur at the intersection of a
business event that takes place via a channel using some media, such as
online inquiry from a prospect, telephone follow-up with a purchaser on a
service issue, face-to-face encounter with a salesperson, and so on. 7
EXHIBIT 5.1 Process Cycle for CRM
Source: Swift, Ronald S. Accelerating Customer Relationships: Using CRM and
Relationship Technologies. Upper Saddle River, NJ: Prentice Hall, 2001.
A data warehouse environment is the optimal approach to handling all
the customer data generated through the touchpoints and transforming
those data into useful information for marketing management decision
making and marketing planning. A data warehouse affords the opportunity
to combine large amounts of information and then use data mining
techniques to learn more about current and potential customers. 8
Data mining is a sophisticated analytical approach to using the massive
amounts of data accumulated through the CRM system to develop
segments and micro-segments of customers for purposes of either market
research or development of market segmentation and target marketing
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strategies. The knowledge discovery phase of the CRM process cycle
becomes the focal point for many direct marketers. Direct marketing
involves utilizing the data generated through this phase to develop “hit
lists” of customer prospects, who are then contacted
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individually by various means of marketing communication. This activity
is often referred to as database marketing. 9 Clearly, this knowledge
discovery phase has much to do with the market research and the
management of market information that you learned about in Chapter 3.
Marketing Planning
The next phase in the CRM process cycle is marketing planning, which
represents a key use of the output from the knowledge discovery phase.
That is, the information enables the capability to develop marketing and
customer strategies and programs. CRM input into the marketing planning
process is particularly useful in developing elements of the marketing mix
strategies, including employing the marketing communication mix in
integrated ways to customize approaches to different customer groups
(issues of marketing communication will be discussed in Part Five of the
book). 10
Customer Interaction
The customer interaction phase represents the actual implementation of the
customer strategies and programs. This includes the personal selling effort,
as well as all other customer- directed interactions. These must be aimed at
all the customer touchpoints, or channels of customer contact, both in
person and electronically. 11
Analysis and Refinement
Finally, the analysis and refinement phase of the CRM process is where
organizational learning occurs based on customer response to the
implemented strategies and programs. Think of it as market research in the
form of a continuous dialogue with customers, facilitated by effective use
of CRM tools. With such an ongoing commitment and capability related to
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customer research, continuous adjustments made to the firm’s overall
customer initiatives should result in more efficient investment of resources
and increasing ROCI. 12
MORE ON CUSTOMER TOUCHPOINTS
LO 5-3
Understand the concept of customer touchpoints and why touchpoints
are critical in CRM.
You have read that CRM initiatives depend heavily on interactions with
customers, suppliers, or prospects via one or more touchpoints—such as a
call center, salesperson, distributor, store, branch office, website, or e-mail.
CRM entails both acquiring knowledge about customers and (where
feasible) deploying information to customers at the touchpoint. Some
touchpoints are interactive and allow for such two-way information
exchange. That is, they involve direct interface between a customer and a
firm’s customer contact person in the form of a salesperson, telemarketer,
customer service representative, interactive website, and so on. Other
touchpoints are noninteractive; that is, the customer may simply provide
information on a static website’s data entry form or by mail, without the
capability of simultaneous direct interface with a company representative.
To maximize a firm’s ability to successfully use touchpoints, an ongoing
concerted effort must be undertaken to (1) identify all potential
touchpoints, (2) develop specific objectives for what kind of information
can be collected at each touchpoint, (3) determine how that information
will be collected and ultimately integrated into the firm’s overall customer
database, and (4) develop policies on how the information will be accessed
and used.
CRM, Touchpoints, and Customer Trust
The aspect of CRM involving customer information collected through
touchpoints raises substantial ethical and legal issues for the firm regarding
privacy, particularly in the consumer marketplace. Clearly, a key
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component of a strong customer relationship with a firm is a high level of
trust. 13 Customers must be absolutely certain that the information a firm
collects and stores about them will not be used for unintended purposes.
Often referred to as the “dark side of CRM,” this issue has become so
prominent in some
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industries that firms are beginning to publicly promote guarantees of
nonabuse of stored customer information as a means of attracting
customers. 14 It is a feature that resonates well with customers and likely
provides a strong point of differentiation over competitors.
In many industries, firms having access to sensitive customer
information, such as social security numbers, necessitates more heavy
regulation of information usage (financial services is a good example). In
such cases, firms may be required to communicate the different ways that
customers’ personal information may be used and which of those potential
uses a customer can opt out of. In addition, marketing managers must
consider regulatory requirements, which may impose constraints such as
what information can be conveyed to the firm within a given marketing
campaign or at any touchpoint.
Potential abuse of information provided by customers is one source of
concern, but not the only one that a customer may have when relinquishing
his or her personal information at a given touchpoint. The increasing
prevalence of malicious activity online intended to gain access to private
information for personal benefit, generally for financial gain, is something
that all organizations must be sensitive to. As mentioned before, trust is an
important component of an organization’s relationship with its customers.
For any firm that collects large amounts of data through CRM, customers’
perceptions of the organization’s ability to securely handle and protect
information can substantially influence that trust. For an online retailer,
trust, and the resulting customer commitment to the firm, requires
establishing a perception of security in the ability of the retailer’s website
to guarantee absolute security of the sensitive personal information. This is
accomplished through such components as the use of advanced transaction
processing technology, and a track record free of data breaches. 15
Although the administration of information security is not generally
viewed as a part of the marketing manager’s job per se, one can play a
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pivotal role in enabling the firm’s information security capabilities to
deliver additional customer value. Marketing managers who understand
how their organizations protect customer information can help develop
more effective strategies for proactively communicating the most relevant
elements of the organization’s information security strategy to customers
in a manner that engenders trust and greater commitment to the firm and
its brand. Marketing also gets involved reactively in the aftermath of an
information security breach by helping determine ways to mitigate the
negative impact of the incident on consumer perceptions of the
organization and to lead the way toward regaining customer trust.
Retailing giant Target’s marketing managers had to determine how
best to rebuild trust after a massive data breach that resulted in the loss of
the personal information of about 40 million customers. This also meant
quickly altering already planned marketing communication, including
postponing a major campaign focused on Target’s corporate citizenship. 16
CRM Facilitates a Customer-Centric Culture
As you know, a firm that is customer-centric places the customer at the
core of the enterprise including everything that happens, both inside and
outside the firm. Customers are the lifeblood of any business—without
them a firm has no sales, no profits, and ultimately no business. As such,
marketing managers must approach their role with the attitude that
customers are worth investing considerable resources in so long as an
acceptable return on that investment can be anticipated.
At the strategic marketing level, a customer-centric culture includes,
but is not limited to, the following major components:
1. Adopting a relationship or partnership business model overall, with
mutually shared rewards and risk management.
2. Redefining the selling role within the firm to focus on customer
business consultation and solutions.
3. Increasing formalization of customer analysis processes.
4. Taking a proactive leadership role in educating customers about
value chain opportunities available by developing a business
relationship.
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5. Focusing on continuous improvement principles stressing customer
satisfaction and loyalty. 17
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The effort a firm makes toward cultivating a customer-centric culture
requires a high degree of formalization within the firm. Formalization
means that structure, processes and tools, and managerial knowledge and
commitment are formally established in support of the culture. With these
elements in place, strategies and programs can be successfully developed
and executed toward the goals related to customers, accompanied by a
high degree of confidence they will yield the desired results. Today, the
most prevalent formalization mechanism of a customer-centric culture is
CRM.
As mentioned in Chapter 1, firms that are customer-centric have a high
level of customer orientation. Organizations practicing a customer
orientation place the customer at the core of all aspects of the enterprise
and:
1. Instill an organization-wide focus on understanding the requirements
of customers.
2. Generate an understanding of the customer marketplace and
disseminate that knowledge to everyone in the firm.
3. Align system capabilities internally so that the organization responds
effectively to customers with innovative, competitively
differentiated, satisfaction-generating products and services. 18
How do the concepts of customer-centricity and customer orientation
connect to the actions required by individual members of a firm? One way
to think about how an organization member might exhibit a customer
orientation is through a customer mind-set, which is a person’s belief that
understanding and satisfying customers, whether internal or external to the
organization, is central to the proper execution of his or her job. 19 It is
through organization members’ customer mind-set that a customer
orientation “comes alive” within a firm. Exhibit 5.2 provides example
descriptors of customer mind-set in the context of both customers outside
the firm as well as people inside the firm with whom one must interact to
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get the job done (internal customers). Concepts of internal customers and
internal marketing are developed further in Chapter 10 on service as the
core offering.
In the end, the software part of CRM will work, and can probably do
far more for any firm than expected. CRM’s real strengths, as well as its
fragilities, rest with how the organization chooses to use CRM as a means
of enabling a customer-centric culture and operationalizing a customer
orientation as an ongoing driver of the enterprise. CRM across all
EXHIBIT 5.2 Do You Have a Customer Mind-Set?
External Customer
Mind-Set
Internal Customer Mind-Set
I believe that . . . I believe that . . .
I must understand
the needs of my
company’s
customers.
Employees who receive my work
are my customers.
It is critical to
provide value to
my company’s
customers.
Meeting the needs of employees
who receive my work is critical to
doing a good job.
I am primarily
interested in
satisfying my
company’s
customers.
It is important to receive feedback
from employees who receive my
work.
I must understand I focus on the requirements of the
303
who buys my
company’s
products/services.
person who receives my work.
I can perform my
job better if I
understand the
needs of my
company’s
customers.
Understanding my
company’s
customers will
help me do my
job better.
Score yourself from 1 to 6 on each
item such that 1 = strongly disagree
and 6 = strongly agree. Total up your
score; a higher total score equates to
more of a customer mind-set.
Source: Kennedy, Karen Norman, Felicia G. Lassk, and Jerry R. Goolsby, “Customer
Mind-Set of Employees Throughout the Organization,” Journal of the Academy of
Marketing Science, vol. 30, 2002, pp. 159–171.
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dimensions—as a business strategy, set of processes, and analytic tools—
has amazing potential to facilitate great marketing planning and
management.
BIG DATA AND MARKETING DECISION
MAKING
LO 5-4
Identify and appreciate the types of data used in marketing management
decision making.
Advances in information technology have changed the ways that
304
customers and organizations function. Laptops, smartphones, and other
smart devices have changed how individuals perform work, access and
organize information, and communicate with each other. In addition, these
tools have enabled the collection of vast amounts of data, with significant
implications for comprehending how various phenomena can be better
understood and acted on. Before we consider the topics of data and
analytics from a marketing management perspective, here’s a general
example. In New York’s bustling midtown, close to 300 sensors, cameras,
and EZ-Pass readers have been deployed to enable the city’s Traffic
Management Center both to adjust traffic light patterns in real time and to
enhance traffic signal plans within a 270-block region, to better account
for traffic flow. The initial results of this program indicate a greater than
10 percent decrease in travel times. 20 In short, the union of large
quantities of data and advanced capabilities to analyze patterns in those
data resulted in solutions that benefit large segments of the population.
Big Data refers to the ever-increasing quantity and complexity of data
that is continuously being produced by various technological sources. Four
characteristics generally characterize Big Data; taken together, these
characteristics are commonly referred to as the four “Vs” of Big Data:
volume, velocity, variety, and veracity. 21 Volume relates to the amount of
data produced, which is generally measured in bytes, given the digital
media in which data is most commonly stored. Velocity relates to the
frequency at which data is generated over time and the speed at which it
can and should be analyzed and used. Variety relates to the different types
of data, including text, video, images, and audio, to name a few types. And
veracity relates to the reliability and validity of the data. 22
For marketing managers, the rise of Big Data has provided significant
opportunities to better understand several important elements of customer
behavior. These include the varying experiences that make up the process
through which customers choose to purchase a product or service, the
different touchpoints that customers have with an organization through
their use of a product or service, and the ways in which customers interact
with and experience different products and services. In fact, some
managers often include a fifth “V” when considering the different
characteristics of the Big Data their firms possess—value. Without a clear
idea of the value that can be obtained from Big Data, there is a limited
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justification for the expense of its collection and storage.
Categories of Big Data: Structured and
Unstructured
Exhibit 5.3 provides a summary of key issues in structured versus
unstructured data. Structured data refers to data that is generated in such a
way that a logical organization is imposed on it during its generation, thus
enabling it to be more readily analyzable for knowledge creation.
Structured data can easily be placed into specific categories and stored
within information systems for future analysis. Structured data is typically
either numeric or text that is substantially limited to a certain set of input
values (female/male, for example). This is the type of data that is generally
found in relational databases or spreadsheets such as Microsoft Excel or
Google Sheets; it is generally organized into tables with columns that
make it clear what types of information will be included in each of the
entries within a given column.
To help make the idea of structured data seem less abstract, consider
the process of creating an account on a retailer’s website so you can
conveniently purchase items online. You often must fill out a webform that
requests information such as your name, gender, date of birth, e-mail,
mailing address, and other standard inputs. Because of the method by
which this data is collected—separate boxes in a webform—it qualifies as
structured data that can
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EXHIBIT 5.3 Structured versus Unstructured Data
Structured Data
Unstructured
Data
Generally stored in Generally
306
Storage relational databases or
other information
system structures that
contain a well-defined
row and column
structure.
stored in files
with a limited
degree of
organization
imposed within
the files (e.g.,
data entries
may be logged
and organized
chronologically).
Characteristics
Generally easier and
less costly to store and
analyze because of its
readily available
structural
characteristics (e.g.,
each record may be
restricted to a single
data type such as
numeric, date, time,
alphabetic).
Generally
harder and
more costly to
analyze
because of its
lack of readily
available
structural
characteristics.
Examples Data input into
specific fields within
a webform (e.g.,
Age, Gender,
Birthday)
Data created through
specific transactions
(e.g., purchasing a
clothing item online).
Text and
images within
e-mail
messages.
Text, images,
audio, and
video within
social media
posts.
Text, images,
audio, and
video within
blog posts.
populate a relational database or spreadsheet. Each row within the table
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would contain a different person who signed up for an account. This
structure enables many different analyses and other types of actions to be
more easily conducted (for example, determining the average age of the
company’s male customers who shop online). While structured data is
generally easier for marketing managers to work with, it has limitations in
terms of the types of insights it can provide, and in reality only represents
a small percentage of the data that is available for use. By some past
estimates, it is believed that structured data only accounts for 10 to 20
percent of all data available to organizations. 23
Unstructured data refers to data that is generated in such a way that it
does not possess a specific organizational structure that renders it readily
analyzable for knowledge creation. Unstructured data may not be
immediately actionable in the way that structured data is, but it has
become the most common form of data available to organizations, and is a
potentially rich source of deep insights on customer behavior and
customer/provider relationships. Unstructured data can include posts that
people make on social media, e-mails sent to customer service
representatives (CSRs), call logs from salespeople and CSRs, information
that salespeople and CSRs input into CRM systems to describe interactions
with current and potential customers, videos that people make discussing
their experiences with products, images (including memes) that people use
to express their feelings about brands or experiences as customers, as well
as many other types of input.
For the marketing manager, a key challenge with unstructured data in
the past has been determining how to extract meaning from the data so that
it can be used in subsequent analyses. From an application standpoint, the
question basically becomes determining how to create structured data from
unstructured data that is not lesser in value than the information contained
within its initial unstructured form. 24 To help provide a more general
understanding of the objective of this process, it is worth considering some
examples of the information contained in an electronic message from a
customer that has potential value to a marketing manager. For example, if
a product is mentioned in the customer’s message, then capturing the
specific product’s name in a structured form should provide some valuable
context for future analytically oriented applications. In addition, if there
appears to be a specific way that the customer feels about the product, then
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it would most likely be useful to capture that feeling in a structured form
for future study.
In the context of Big Data, the extraction of structured data from
unstructured data is primarily accomplished using automated technologies.
Given the amount of data available to organizations, it would not be
economically feasible for people to manually sift through the data being
generated to perform this function. Fortunately, advances in technology
have provided for increasingly efficient and sophisticated means of
extracting structure from unstructured data in order to provide useful
fodder for running a variety of marketing analytics.
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At this point it is worth noting that although we have used the
convention of structured and unstructured data to classify data, in reality
not all data fits neatly into these two classifications. Semi-structured data
fits between structured and unstructured data in the sense that it contains
some elements of structure that make it easier for machines to understand
its organization, but still contains parts that do not possess an appropriate
level of structure to make them readily analyzable by automated means for
knowledge creation. Semi-structured data does not readily adhere to a
strict set of standards. 25 A typical example from the web would be
Extensible Markup Language (XML) files. XML files contain tags
(markings within an XML file that provide a degree of organization to the
data and offer some semantic meaning), but additional effort is required to
create structured data from these files so that the output can be stored in a
manner that enables a wider range of analyses to be applied.
Big Data Sources and Implications
Big Data comes from a wide range of sources. The most valuable sources
for marketers are those that capture data on both potential and current
customers to yield actionable insights. Six key sources that serve this
purpose are business systems, social media platforms, Internet- connected
devices, mobile apps, commercial entities, and government entities. Each
is described and discussed below.
Data from Business Systems The information systems that
companies use for different internally and externally facing business
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functions provide valuable information for better understanding how to
maximize the value of customers. CRM systems often act as central hubs
of customer-related data and many contain capabilities that enable them to
easily integrate with other applications utilized by an organization. The
advantage of centralizing information in one place through integration of
multiple applications is that it facilitates a more holistic view of the firm’s
current and potential customers and allows for analyses of differing levels
of sophistication to be conducted using the related data.
The collection of transaction data from customers through point-of-
sales (POS) systems in retail locations, as well as online transaction
processing systems, can be tied to other rich information about a customer
and used to determine that customer’s relative value. It can also provide
insight into what kinds of products, services, and promotional offerings
would most appeal to that customer. Kroger uses the massive amount of
transaction and personal data it has collected through its POS system and
loyalty card program to develop direct mail campaigns customized for
each individual customer, yielding coupon return rates more than 18 times
higher than the industry average, significantly impacting financial
performance. 26
Web-related activity is a major source of data generation that will
continue to grow in importance as more people rely on the Internet and
various technologies that enable Internet access to search for information,
communicate with others, and transact business. Every action that a
customer takes on a website creates data that through analysis has the
potential to provide valuable insights for marketing managers. This data
can be collected in a web log, which records specific actions that a user
takes on a website in reverse chronological order (that is, displayed from
newest to oldest). One particular element of interest captured within a web
log is clickstream data, which includes the specific sequence of mouse
clicks that the user made while visiting one or more websites. Data
originating from web logs is of value for multiple reasons, including
gaining insights on improving the way a website functions, as well as the
effect that different marketing actions have on firm outcomes.
The use of clickstream data at an early stage in a customer’s
exploration of an e-commerce website can provide insight into the state of
his or her intentions (which may in fact change during a single browsing
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session on the site). One implication of this type of knowledge is that it is
possible to increase the likelihood that a customer will make a purchase
during a browsing session by dynamically altering aspects of the site based
on that customer’s predicted intentions at a given stage during the
browse. 27 For instance, for a customer who appears to be in a state where
he or she is interested in making a purchase decision, a website can be
modified to provide greater attention to pricing information and remove
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promotional elements around the periphery of the page that might distract
from that customer’s focus on making the purchase decision at hand.
Since customers now use several different technologies to access the
Internet, it is important to be able to delineate between web log data, such
as what’s generated by individuals who are using a smartphone versus a
laptop. Differences in web-related behavior that may be observed between
these two devices may offer valuable insight to marketing managers intent
on delivering better online experiences across multiple devices.
Data from Social Media Platforms An increasingly valuable
source of data comes from the vast number of social media sites that
customers use to communicate with each other and various organizations.
Data generated through social media platforms is very diverse in nature,
related to the different means of communication that are emphasized or
enabled by different social networking sites. As an example, consider that
Facebook lets users post messages in text form, react to posts with
different emotional responses (visually captured as emojis), share images,
and post a video (or record it live). In addition to the data generated by
communicating using a platform such as Facebook, large amounts of data
are generated as users set up and further augment their profiles on the site.
All this data, which is a mix of structured and unstructured data, offers
marketing managers unique opportunities to provide targeted marketing
communications to different customers as well as gain greater insight into
the thoughts, feelings, opinions, and interests of those customers.
The way that users communicate with each other on social media
platforms, and who they communicate with, offers chances to better
understand relationships between specific individuals and groups and
differences in influence that certain individuals and groups wield on
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others. For a marketing manager developing a campaign for a specific
product, identifying individuals on social media with high levels of
influence who have an interest in a product and involving them in the
marketing campaign can yield substantial benefits through the positive
word of mouth those influencers are able to create. 28
Data from Internet-Connected Devices As more smart devices
enter the market and more products gain the capability to become network-
connected, an increasing source of structured and unstructured data is
being generated and transmitted to organizations via these devices. Many
include sensors that enable the collection of large amounts of unstructured
data. Data generated from the use of these products has the potential to
provide greater understanding of how customers use products and services,
such as informing the design of future features and helping identify
opportunities to communicate information about features that a customer is
not utilizing to their fullest potential benefit.
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USAA, a pioneer in the use of CRM, collects a great deal of data on its
members and utilizes that data to enhance the customer experience. USAA is
consistently rated the top insurance company in the U.S. on member
satisfaction.
Source: USAA
The value of communicating information on underutilized features
may be most apparent in the case of products or services with a wide range
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of features, such as an automobile or a financial services provider. Because
of the complexity of certain products, a customer may over time focus on
using a certain set of features within a product and forget about the
existence of other features. Being able to identify these patterns could
provide an opportunity for the development of marketing communications
to let customers know later in their consumption experiences of a product
about one or more of the features that they may not be using, but that may
be of value to them based on the analyzed data. For more complex
features, the marketing communications provided could include an
educational component to help
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the customer understand how to utilize the promoted feature (for example,
different investment options). This type of just-in-time training may be
particularly effective for customers who prefer to learn incrementally.
Data from Mobile Apps Data generated from a customer’s use of
different mobile applications (apps) can provide insight into how different
customers use mobile apps, and what elements within a mobile app are the
most effective from a general standpoint. Mobile apps used to assist
customers in finding in-store deals, such as Cartwheel from Target,
provide opportunities for retailers to maximize the value of in-store
shopping experiences; understand a customer’s response to different price
levels for different products, categories, and brands; and gain better
insights on how shopping behavior that blends online and offline
experiences might differ from traditional offline shopping behavior. In the
case of mobile games, it can generally be determined which elements of
the game appeal specifically to different segments of customers. One
implication of this knowledge is identifying cross-promotional
opportunities. For instance, if it is determined that one customer seems to
enjoy that a game awards badges for accomplishments (as evidenced by a
choice to share accomplishments with friends online), then that customer
may be provided in-game advertisements for other games that have a
badge-awarding feature at the point where it is expected the customer will
soon stop playing the first game.
Data from Commercial Entities Several organizations collect
Big Data on customers in order to sell it to other organizations as their
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primary business model. Some organizations, such as retailers and credit
card processors, engage in this practice to generate additional revenue.
Since these organizations already have the data available as a by-product
of their primary business functions, it makes good business sense for them
to find additional ways to extract value from it. Retailers that collect
transaction data on customers and record data on pricing and store
environmental factors can provide this data in aggregate to organizations
interested in purchasing it. 29 The data does not enable purchasers to
discern one customer’s purchases from another, but it can provide
significant insight into factors influencing customer behavior within
different product categories and related to specific brands.
The U.S. Bureau of Labor Statistics is a governmental agency, but it clearly
views itself as a valued provider of data to a wide range of stakeholders and
customers.
Source: U.S. Department of Labor
Data from Government Agencies Finally, data collected by
governments can also be a valuable source of information for
organizations interested in understanding demographic characteristics
within different parts of a population and identifying specific patterns or
trends on a large scale. In the U.S. government, at the state and federal
level, there has been an increase in efforts to make the data that
government agencies collect available and easily accessible to the public.
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A great example is the U.S. Bureau of Labor Statistics, a unit within the
Department of Labor, which has greatly enhanced its website to provide
more of a commercial flair and easier access. In many cases the transfer of
government data to the public realm has been formalized through the
development of open data policies. 30 Consider how access to census data
related to the demographics within a region can help organizations identify
attractive geographic areas where there is a higher concentration of
individuals who fit an organization’s demographic profile of an ideal
customer, based on factors such as age, gender, and income. Census data
can also provide insight into the attractiveness of a region related to the
level of competition in that industry, based on the inclusion of data on the
number of businesses within an industry that operate within a region as
well as data on how that number has changed over time. 31
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MARKETING ANALYTICS
LO 5-5
Recognize key approaches to marketing analytics.
For marketing managers, a crucial component of extracting value from Big
Data is the effective use of marketing analytics. Marketing analytics
include a set of methods facilitated by technology that utilize individual-
level and market-level data to identify and communicate meaningful
patterns within the data for the purpose of improving marketing-related
decisions. 32 Marketing analytics is not technically a new concept, but with
the explosion of data available to marketing managers, organizations have
become increasingly interested in finding new ways to extract maximum
value from the data that they continue to accumulate. To help gain a
greater appreciation of just how “big” Big Data can be, consider these
factoids about Google and Facebook—massive generators of such data.
Users of Google input more than 4 million search queries per minute, and
the organization processes more than 20 million petabytes (1 petabyte is
equivalent to 1 million gigabytes) of data per day. Users of Facebook
produce about 2.5 million pieces of content each minute. 33 Truly
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incredible scales of data!
So given the escalating volume, availability, and accessibility of Big
Data, the central question for marketing managers is how to use the data to
gain customer insights and for marketing planning. Answering this
question requires knowledge about marketing analytic approaches, and
marketing analytics are significantly changing the whole field of
marketing management based on the increased capability and speed of
gaining valuable customer insights.
Marketing Analytic Approaches
Marketing analytic approaches can be thought of by considering the level
of analytic complexity and the value that is created from employing each
within the specific research project. Generally, greater levels of
complexity come with a higher cost in the form of the level of expertise
and effort required on the part of the marketing analyst, an individual
familiar with different forms of market and customer data and who is
trained to conduct different market analyses, as well as the computational
costs associated with those analyses. But more complex analytical
approaches also tend to yield higher-value customer insights. In the
sections that follow, we introduce you to four key types of marketing
analytics: descriptive analytics, diagnostic analytics, predictive analytics,
and prescriptive analytics. Each has its place in taking Big Data and
providing valuable insights for marketing management decision making.
These are illustrated in Exhibit 5.4 according to increasing complexity.
Descriptive Analytics An approach using descriptive analytics
utilizes data to provide summary insights. Data in raw form is transformed
into measures that provide insight into the past and hopefully a basis for
further explorations of the data. 34 Customers who are members of a
company’s loyalty program, such as that of the online shoe and clothing
shop Zappos, constitute a rich data source for use in descriptive analytics.
Measurements produced from descriptive analysis can include sums (such
as total number of new customers acquired per month by an online
insurance company), averages (such as the average dollar amount of
purchases made by a customer who is a member of a clothing company’s
loyalty program), or measures of changes in variables of interest (such as
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percent increase or decrease in number of e-mail subscribers to a
company’s blog for a given month compared to the same month in the
prior year). Information produced from descriptive analyses is often
presented in a visual format to assist in its interpretation by a broader
audience. For instance, histograms, scatter plots, or pie charts may make it
easier to see patterns in the information produced via descriptive analysis.
Customer loyalty programs such as “Zappos Rewards” provide data that
enables descriptive analytics.
Source: Zappos.com Inc.
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EXHIBIT 5.4 Marketing Analytics Approaches
317
The use of descriptive analytics is generally an appropriate first step to
consider before employing more complex (and costly) analyses. The
resulting information can provide some initial evidence that an event has
occurred that has implications for marketing management decision
making. For instance, a significant increase in sales observed for a product
for a month that historically sees much lower sales, as captured through a
descriptive analysis, might prompt a marketing manager to request more
complex analyses to understand what caused the observed spike in sales if
the cause is not readily known. If the identified cause is one that can be
reproduced or enabled by the organization, then the marketing manager
can exploit this knowledge in the future to the benefit of the firm.
Diagnostic Analytics An approach using diagnostic analytics
utilizes data to explore the relationships between different marketing-
relevant factors that influence the organization’s performance either
directly or indirectly. There is significant value in understanding how
marketing-relevant factors (for example, advertising frequency,
advertisement placement, or product pricing) that can be influenced or
controlled by the marketing managers can influence important firm
outcomes such as product sales or customer satisfaction scores. Diagnostic
analytics provide insights into the relationships of different factors with the
implication being that an understanding of their relationships can have
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value for future marketing decisions. Statistical methods such as linear
regression, which in this context provide a quantifiable relationship
between a marketing outcome and specific marketing-relevant factors
believed to influence that outcome, can provide evidence of any
relationships that exist, as well as evidence of the relative magnitudes of
those identified relationships.
As an example, consider a marketing manager for a television network
who is interested in exploring the impact that conversations in online
forums have on the television ratings of new shows. The marketing
manager believes that the number of conversations and the spread of the
conversations across different online forums are important determinants of
the success of a new show. He or she collects data on the number of
conversations within a set of online forums (representing different
communities of television viewers), the spread of conversations across
those online forums that occur during each week, and the weekly ratings of
new shows during the period of analysis. Using diagnostic analytics, the
marketing manager then looks at the relationship between the number of
conversations and the spread of the conversations for a new show in a
given week and the ratings of the show in the following week, and
discovers that the spread of conversations is far more impactful on future
ratings of the show than the sheer number of conversations. This finding
might motivate the marketing manager to invest greater resources into
encouraging a smaller but more diverse set of viewers to engage in
discussions online to increase the spread of conversations across online
forums, as opposed to engaging with a group of similar customers who
might engage in conversations within a more limited set of online forums
that subsequently limits the diffusion of engagement.
Predictive Analytics An approach using predictive analytics
utilizes data to make predictions about future marketing outcomes of
interest. Predictive analytics can be divided into those that use historical
measurements of the outcome of interest to determine a pattern that can be
extrapolated in the future, and those that make predictions based on the
examination of relationships between a set of factors and an outcome of
interest that the factors are believed to influence. For the latter, there is a
close relationship between
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predictive analytics and diagnostic analytics. Specifically, the relationships
identified using diagnostic analytics can be used to predict how, as
different marketing-relevant factors are expected to change over time, their
influence on a marketing outcome leads to changes in that outcome over
time. 35
Consider as an example a car dealership that has identified through
diagnostic analytics that a customer’s exposure to different elements of the
dealership’s marketing mix (the marketing-relevant factors in this case) is
associated with different probabilities of the customer actually coming into
the dealership for a test drive (which most of us know really amps up the
likelihood that a car is going to be purchased). Elements of the marketing
mix in this example could include exposure to advertising (for the model
of interest), viewing specific pages on the dealership’s website (especially
the product page for the model of interest), and an online chat with a
customer service representative through that website. As the customer is
exposed to each of these elements, his or her probability of making a
purchase would be expected to increase incrementally, and this can be
captured through predictive analytics. Now consider that another element
that has a significant impact on the probability of a customer coming into
the dealership is the offering of free floor mats with any purchased model,
but this offer only has a significant impact if a customer’s probability of
coming into the dealership is above 50 percent at the point that the offer is
made; otherwise the offer has a negligible effect. Using predictive
analytics, the point at which the floor mat offer should be made can be
determined by calculating the customer’s current probability of coming
into the dealership and providing the offer only after the threshold of 50
percent is met. Pretty sophisticated, isn’t it?
The value of predictive analytics stems from its ability to help provide
greater clarity into the impact that changes that are expected to occur in
different marketing-relevant factors may have on related marketing
outcomes. Importantly, a predictive approach can be applied on a wide
continuum anywhere between the macro level for the prediction of market
level outcomes, such as the effect on market share that will be observed
based on expected spending allocations for the marketing mix, and the
micro level for predicting customer-level responses, such as the probability
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that a customer will make a purchase and the effect that an expected level
of exposure to one or more specific elements of the marketing mix will
have on that probability (as illustrated in the example above). American
Express looks at specific indicators within its data that have been
identified as key to predicting loyalty, and through predictive analytics
zeros in on accounts that are likely to churn within a short time period.
This enables the marketing team to reach out to these at-risk customers
proactively and mitigate churn, resulting in a noticeable impact on the
organization’s bottom line. 36
Prescriptive Analytics An approach using prescriptive analytics
involves determining the optimal level of marketing-relevant factors for a
specific context by considering how adjusting their levels in varying ways
will impact different marketing outcomes. 37 For instance, prescriptive
analytics can be used to look at how adjusting the level of spending on
different marketing communication channels (such as print ads, television
commercials, online video ads, online banner ads, and social media ads)
will impact one or more marketing outcomes related to marketing
communications spending (key outcomes might be total sales of products
or services, or changes in market share). Prescriptive analytics is the most
advanced of the marketing analytics approaches (and the most costly),
because it draws on the results and insights derived from the other three
approaches to provide a framework for making specific (and in many cases
quantifiable) marketing management decisions. In another sense,
prescriptive analytics allows marketing managers to engage in questions of
“what if we do this, or what if we do that” to assess the relative value of
those decisions. The “what if” questions generally would be derived from
the observation of results stemming from the use of the other analytic
approaches. The ability to look at multiple possible scenarios using this
approach enables marketing managers to more carefully consider how to
most effectively allocate resources and prepare for potential risks that may
arise in the future related to actions by competitors and other external
factors that could have an impact on different critical marketing outcomes.
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321
EXHIBIT 5.5 Examples of Types of Marketing
Analytics and Related Applications
Types of
Marketing
Analytics
Description
Examples of
Relevant Data
Examples of
Specific
Applications
Web
Analytics
Analysis of
data
produced
through the
different
actions taken
by
consumers
while using
the Internet.
Referral
source (such
as search
engine,
website,
email)
Website page
views
Data on the
referral source
that lead a
customer to a
website can be
analyzed to see
which sources
bring in the most
traffic andwhich
sources bring in
the highest value
traffic (in the case
of anonline
retailer, those
sources that yield
the visitors who
spendthe most on
average).
Social
Media
Analytics
Analysis of
data
produced
through the
usage of
social media
platforms by
consumers.
Likes for
posts
Shares of
posts
Data on the
pattern of shares
that an
organization’s
posts
havereceived can
be analyzed to
understand what
factors
andcharacteristics
related to a post
(such as topic,
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tone,
timing,audience
targeted) have the
greatest impact
on a given post’
spropensity to be
shared.
CRM
Analytics
Analysis of
data
collected
within CRM
systems.
Customer
demographics
Dates of
interactions
with sales and
service
employees
Customer
demographic data
and data on
customer
interactions with
sales and
customer service
employees can be
used to identify
those
demographic
characteristics of
a given customer
that suggest a
higher level of
service and thus
more expense
investment is
required to
maintain the
customer
relationship.
Retail
Analytics
(In-store)
Analysis of
datacollected
via the in-
store retail
environment
as well as
data
produced as
a result of in-
store
consumer
Products sold
In-store
marketing mix
Data collected on
the products sold
by a retailer in-
store combined
with data from the
retailer’s
customer loyalty
program (which
among other
things enables
individual
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purchases. transactions to be
associated with a
specific customer)
can be used to
develop
customized
promotions that
can increase the
share of a
customer’s wallet
an organization is
able to capture.
Capabilities of Marketing Analytics Supported by
Big Data
Marketing analytics that leverage Big Data provide significant capabilities
for organizations in the form of deep customer insights that can be
achieved. Advances in technology have made it easier than ever to deliver
dynamic and personalized experiences to customers at lower costs, and to
adjust investments in the marketing mix as deemed appropriate. Many
believe that today is the best time ever to be a marketing manager due to
the capabilities available for better decision making and strategy
execution. Exhibit 5.5 provides a variety of examples of types of
marketing analytics and related marketing management applications.
Below, we consider two specific capabilities that result from Big Data and
applied marketing analytics in more detail: marketing mix enhancement
and increased personalization of products, services, and customer
experiences.
324
Major theme parks such as Universal Orlando use data from patrons to gain
rich insight into which aspects of the customer experience add or detract from
customer satisfaction and repeat purchase.
©Kamira/Shutterstock
Marketing Mix Enhancement Optimizing the marketing mix (the
4Ps) is largely dependent on the ability to understand the different effects
that the mix elements (and different levels of those elements) have on
different marketing outcomes. Big Data has enhanced this capability by
providing customer-level data in quantities that were not available in the
past from sources that provide insights into specific aspects of a
customer’s experience with a product or service that heretofore were not
easily measured. For example, the experience of a customer attending a
theme park is easier to gather data on today than it has been in the past,
thanks to the widespread use of social media. Messages that customers
post on one or more social media platforms while at a theme park serve as
a valuable source of information about their experiences, as well as what
may be working well and not so well within the park. The practical
challenge associated with this example is that such insights might be
contained within unstructured data. Advances in marketing analytics have
made it more feasible to maximize the value of unstructured data using
methods such as sentiment analysis, a type of analytic method that
identifies the general attitude (for example, positive, negative, or
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neutral) contained within a message through an analysis of its content.
Thus, the identified attitude is the structured data extracted from the
325
unstructured data that can be used in subsequent analyses. Capturing the
attitude within a given message as well as any references to a specific part
of the theme park or ride within the park that are contained within the
related message (as structured data) can provide richer insight into how
particular aspects of a customer’s experience within the park are adding to
or detracting from overall customer satisfaction and likelihood to be a
repeat customer. The more data that can be collected related to a
customer’s exposure to the various elements of the marketing mix, the
more possible it is to determine the different effects of those elements
(individually and in combinations) on specific important organizational
outcomes.
A key consideration that arises when assessing the impact of the
marketing mix is attribution, which can be thought of as determining how
to give appropriate credit to different elements of the marketing mix
through the measurement of their effects. In the digital context, it is
generally straightforward to tie exposure to marketing mix elements online
to a desired outcome (for example, clicking the purchase button). With this
data alone it might be possible to estimate, in a quantifiable sense, the
impact that different online elements of the marketing mix have on the
desired outcome, but with some caveats. Consider the case where a
marketing manager believes that there are elements of the marketing mix
that the customer is exposed to offline that have a substantial effect on the
decision to make a purchase online. For example, note that it has been
demonstrated for some products that exposure to television advertisements
influences the number of brand-specific keyword searches conducted
online by customers. 38 Presumably, some proportion of these keyword
searches would lead to online purchases. Without accounting for this
influence of the television advertisements, a marketing manager’s efforts
at improving the value of their search engine results and search engine
advertising could be given too much credit for the resulting outcome
(clicking the purchase button). An important takeaway is that as long as
the organization has access to the required data on marketing mix
elements, marketing analytics should be able to help disentangle the
various effects that both individual elements of the marketing mix and
specific combinations of those elements have on marketing outcomes.
Increased Personalization?The ability to effectively provide more
326
personalized products, services, and customer experiences (for
convenience we’ll refer to this trio as “offerings”) to customers is
dependent on understanding the characteristics of different customers and
what types of offerings customers value the most. One of the most
prominent applications of personalization using marketing analytics is the
recommendation systems that many electronic retailers and digital content
providers employ. Recommendation systems can be divided into content
filtering, collaborative filtering, and hybrid methods. 39 Content filtering is
an analytic method that identifies which products or services to
recommend based on a determination of how similar a product or service
seems to be to those that the customer has demonstrated a preference for in
the past, or is currently considering. Such an approach is dependent on
products or services being assigned different characteristics stored as data
that can be used to quantitatively determine the degree of similarity
between any two products or services in a way that enables relative
comparisons between different pairs. Collaborative filtering predicts a
customer’s preferences for products or services based on the observed
preferences of customers who are perceived to be similar. Determining
which customers are similar is generally based on the analysis of data
related to each customer’s behaviors and preferences on the related
website. Netflix uses its data and marketing analytics capabilities to
develop personalized home page video recommendations for its users.
Through advanced analytics, including machine learning techniques, the
organization can determine which videos to recommend and how to group
them to enable users to understand what they have in common and
potentially why they are being recommended. This approach allows
Netflix to determine how to best maximize the limited space on the home
page (and the attention span of users). Providing users with relevant
content recommendations in an efficient manner is key to keeping users
happy and engaged. 40
Personalization can be achieved at three possible levels of granularity,
as illustrated in Exhibit 5.6: mass personalization, where everyone receives
the same offering; segment-level
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personalization, in which groups of customers with similar preferences are
identified and an offering is developed for each segment; and individual-
327
level personalization, in which each customer receives an offering
customized to his or her specific tastes. It is often sensible to set the level
of granularity of personalization for an element of the offering based on a
consideration of the costs and benefits. 41 Consider, as an example, how an
automobile company might manufacture specific cars for different
segments of a market, but customize its sales efforts and product pricing
for individual customers via an empowered salesforce. Data at the
customer level makes personalization at each level of granularity feasible.
EXHIBIT 5.6 Levels of Granularity of
Personalization Achievable with
Marketing Analytics
THE MARKETING DASHBOARD
LO 5-6
Understand the concept of a marketing dashboard and how it improves
marketing planning for a firm.
Consider how the dashboard of a car, airplane, or even a video game
328
provides you with a lot of crucial information in real time and in a
convenient format. So it should be with a marketing dashboard, which is a
comprehensive system providing managers with up-to-the-minute
information necessary to run their operation including data on actual sales
versus forecast, progress on marketing plan objectives, distribution
channel effectiveness, sales force productivity, brand equity evolution, and
whatever metrics and information are uniquely relevant to the role of the
marketing manager in a particular organization. 42 Clearly, a dashboard
metaphor for this process of capturing, shaping, and improving marketing
effectiveness and efficiency is a good one. 43
How does a marketing dashboard manifest itself? It could appear in
your inbox weekly or monthly in the form of a color printout, be beamed
through cyberspace as an e-mail update, or be accessible on a password-
protected website on your company intranet. Its physical form and layout
should be developed within your organization by managers for managers.
Search the Internet for “Marketing Dashboards” and you will be amazed at
how many consulting firms come up, each working hard to convince you
that its proprietary approach to a marketing dashboard is the right one for
you. To successfully compete in today’s market, firms must focus on
marketing planning so that managers and executives have the core
information about progress toward relevant goals and metrics at their
fingertips at all times. This is what a dashboard approach delivers.
A marketing dashboard approach to enhance marketing planning
delivers several key benefits summarized below.
Aligns marketing objectives, financial objectives, and firm strategy
based on the selected dashboard metrics.
Enhances alignment within the marketing function and also clarifies
marketing’s relationships with other organizational functions. Cross-
functional alignment contributes greatly to a shared spirit for
organizational success.
Portrays data in a user-friendly manner. Creates a direct,
understandable link between marketing initiatives and financial
results.
Fosters a learning organization that values fact-based, logical
decision making about allocation of marketing resources to achieve
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desired organizational results.
Creates organizational transparency about marketing’s goals,
operations, and performance, increasing marketing’s credibility and
trust by organizational leadership and other areas of the firm. 44
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Goals and Elements of a Marketing Dashboard
An effective dashboard is organic, not static. The dashboard must adapt
and change with the organization as objectives are clarified and redefined,
as causal relationships are established between metrics and results, and as
confidence in predictive measures grows. About the only thing you know
for certain about your first version of a marketing dashboard is that it will
likely look very different in a year or two.
Two primary goals of any dashboard are diagnostic insight and
predictive foresight—with a special emphasis on the latter. Some
dashboard metrics are diagnostic, looking at what has happened and trying
to discern why. Probably the most important metrics you’ll come to rely
on, however, are predictive, using the diagnostic experience to better
forecast results under various assumptions about circumstances and
resource allocations. 45
A great marketing dashboard is comprised of the following key
elements:
Company goals translated into a set of marketing objectives.
Measurement of financial impact of marketing programs.
Tracking of how marketing assets such as the brand and customer
relationships are progressing.
Execution of skills and competencies of the marketing team.
Execution of other business processes necessary to deliver customer
value.
Continuous refinement of tools to increase access to and usability of
customer insights.
Insight on not only what is happening in the market but also why it is
happening.
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A diagnostic for prediction, forecasting, and of course remediation.
Ultimately, enhanced return on marketing investment (ROMI). 46
Potential Pitfalls in Marketing Dashboards
Although taking a dashboard approach to marketing metrics goes a long
way toward enabling successful marketing planning, several potential
pitfalls exist in its execution, including the following:
Overreliance on “inside-out” measurement. Having too many
internal measures puts the focus on what you already know instead of
on the unpredictably dynamic external marketplace. A focus on
monitoring external factors likely to cause significant changes to the
marketing plan is what makes a dashboard especially valuable.
Too many tactical metrics; not enough strategic insight. Because of
the focus over the past decade on holding marketing accountable for
financial results, tactical, or “intermediary,” metrics have
proliferated. Numerous books and articles provide list after list of
calculations and ratios to assess all sorts of marketing programmatic
results (brand awareness, customer trial, lead conversion, etc.).
Although these are valuable and having the right set of intermediary
metrics on the dashboard is important, it is critical that they do not
overshadow measures of strategic importance to the firm.
Forgetting to market the dashboard internally. One measure of the
success of a marketing dashboard is the level at which it is embraced
and used by managers and executives throughout the firm. As we’ve
emphasized consistently, marketing is not just a department, but
rather a part of the strategic and cultural fabric of the enterprise. As
such, it is important to market the dashboard internally to key
stakeholders, not just to marketers. You want the percentage of
senior executives who both believe in and understand what the
dashboard is presenting to be very high. Obviously, the CEO should
be a target for internal marketing, but just as important is your CFO.
The greater the affinity a CFO has for marketing, and especially for
marketing as a contributor to the firm’s long-term success, the
better. 47
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133
RETURN ON MARKETING INVESTMENT
(ROMI)
LO 5-7
Explain return on marketing investment (ROMI), including cautions
about its use.
CEOs today expect to know exactly what impact an investment in
marketing has on a firm’s success, especially financially. Hence, it has
become critical to consider return on marketing investment (ROMI). *
Throughout this book we have focused on marketing as an investment, not
as an expense, because a goal-driven investment approach to marketing
maximizes the opportunity for a firm’s offerings to reach their full
potential in the marketplace. The alternative viewpoint—approaching
marketing as an expense tied to a percentage of historical or forecasted
sales—both limits market opportunities and thwarts the ability to
meaningfully plan for and measure marketing results. 48
Similar to other investment decisions, investment decisions in
marketing must consider four basic elements:
Level of investment.
Returns.
Risks.
Hurdle rates.
As with any investment, the projected results (returns minus costs)
must exceed a certain investment hurdle rate for a given level of risk (both
defined by the firm). Hence, ROMI represents either the revenue or the
margin generated by a marketing program divided by the cost of that
program at a given risk level. The ROMI hurdle rate is defined as the
minimum acceptable, expected return on a program at a given level of risk.
Consider an example of a relatively low-risk marketing program with costs
332
of $1 million and new revenue generated of $5 million. This program has a
ROMI of 5.0. If the company has a marketing budget of $5 million and
needs to generate $20 million in revenue, then the ROMI hurdle rate for
any low-risk marketing program is 4.0. This means that any marketing
program must generate at a minimum $4.00 in revenue for every $1.00 in
marketing expenditure. The example ROMI of 5.0 above surpasses the
ROMI hurdle rate and is therefore an acceptable marketing program. 49
Companies have to set their own hurdle rates based on differing levels
of potential risk across marketing programs. Risk also tends to vary quite a
bit by industry and by whether the marketing plan involves a start-up or an
established product line. At its core, ROMI is a tool to help yield more out
of marketing. This tool and the way of thinking promoted by the use of the
tool within an organization will help marketing managers better
conceptualize and execute marketing plans and programs. It puts them in a
much better position to connect their planning, measurement, and results to
the firm’s goals and expectations and, when successful, provides gravitas
for the CMO to go back to the CEO for more investment money for
marketing.
Cautions about Overreliance on ROMI
Given the above, it’s no wonder that ROMI is the metric du jour for many
firms’ marketing bottom line. Several offshoots of ROMI have been
developed that apply the same principles to customers (ROCI), brands
(ROBI), and promotion (ROPI). 50 Overall, the trend in boardrooms and
executive suites of expecting more quantification of marketing’s
contributions has been a positive one. But remember that within the
marketing dashboard concept, what organizations should be reviewing is
an array of relevant metrics, selected for inclusion on the dashboard
because together they paint a picture of firm performance. Managers
should always temper the interpretation of ROMI results with review of
other appropriate metrics.
In addition, it is important to remember that ROMI was originally
designed for comparing capital projects, where investments are made once
and the returns flow in during the periods that follow. In marketing, capital
projects are analogous to discrete marketing
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134
programs or campaigns that have well-defined goals and clear points of
beginning and end. However, in practice, ROMI is often applied in
situations that have no clear beginning or end. Here are six other
commonly expressed objections about an overreliance on ROMI:
1. While a firm may “talk the talk” of marketing as an investment, not
an expense, typically marketing expenditures are not treated as an
investment in a company’s accounting system.
2. ROMI requires the profit to be divided by expenditure, yet all other
bottom-line performance measures consider profit or cash flow after
deducting expenditures.
3. The truth is, ROMI is maximized during the period when profits are
still growing. Pursuit of ROMI during flat periods can be viewed as
“causing” underperformance and suboptimal levels of activity; thus
firms tend to reduce marketing reinvestment at that time in an
attempt to maximize profits and cash flow. The result is a self-
fulfilling prophecy of downward performance.
4. Calculating ROMI requires knowing what would have happened if
the incremental expenditure hadn’t occurred. Few marketers have
those figures or can conjure up something meaningful to replace
them.
5. ROMI has become a fashionable surrogate for “marketing
productivity” in executive suites and boardrooms, yet there is
mounting evidence that firms interpret the appropriate calculation of
ROMI quite differently. When executives discuss ROMI with
different metrics in mind, confusion results and the value of the
metric degrades.
6. ROMI by nature ignores the effect of the marketing assets of the
firm (for example, its brands) and tends to lead managers toward a
more short-term decision perspective. That is, it typically considers
only short-term incremental profits and expenditures without looking
at longer-term effects or any change in brand equity. 51
Proceed with Caution
334
The expectation is that ROMI and other metrics of marketing performance
will continue to proliferate, as firms home in on attempting to better
quantify marketing’s contribution to various dimensions of organizational
success. Marketing managers should embrace the opportunity to quantify
their contributions, and by taking a more holistic dashboard approach to
goal-driven measurement, the potential downsides to focusing on one or a
few metrics are largely mitigated.
In the end, marketing management is both a science and an art. The
scientific side craves quantification and relishes the ability to provide
numeric evidence of success to superiors in a firm and to stockholders. But
the artistic side understands that sometimes the difference between an
average new-product introduction and a world-class one rests largely on
creativity, insight, and the good fortune to have a great idea that is hitting
the market at just the right time.
H. J. Heinz Company takes ROSI (return on social investment) seriously with
their “plant bottle” that is fully recyclable and up to 30 percent made from plants
335
—at no additional cost to ketchup lovers!
Source: The Kraft Heinz Company
An interesting question, given the current focus in business toward
sustainability and socially responsible business practices, is how would
metrics related to such aspects (say, for example, ROSI, or return on social
investment) operate in tandem with other more traditional performance
measures? Firms such as the venerable H. J. Heinz Company have drawn a
line in the sand that establishes a balance between traditional performance
metrics such as ROMI and broadly beneficial metrics such as ROSI.
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SUMMARY
Customer relationship management (CRM) is a comprehensive
business model for increasing revenues and profits by focusing on
customers. CRM works effectively by focusing on acquisition and
retention of profitable customers, thus enhancing customer satisfaction
and loyalty. Successful CRM runs on information acquired through
various customer touchpoints such as a salesperson, customer care
representative, or website. Importantly, CRM facilitates a customer-
centric culture, and it is critical that all organization members exhibit a
customer mind-set as they approach their jobs.
Big Data can be characterized by the four “Vs”: volume, variety,
velocity, and veracity (and for many managers, a fifth “V,” value).
Valuable customer- related data is generated through a wide range of
sources, both internal and external to the organization, with a wide
range of potential uses for marketing managers. Big Data can be
generated from a variety of sources in the more readily analyzed form
of structured data as well as the less readily analyzed form of
unstructured data (and in some cases in a semi-structured form falling
in between).
Marketing analytics play a critical role in extracting value from Big
Data. Four key types of marketing analytics in order of increasing
336
complexity are descriptive analytics, diagnostic analytics, predictive
analytics, and prescriptive analytics. Generally, more complex
approaches come with a higher cost. For marketing managers,
effective use of marketing analytics yields important customer insights
as well as marketing performance indicators. Marketing dashboards
offer a comprehensive approach to providing marketing managers
relevant, timely, and accurate information in a convenient format for
use in decision making. Metrics play an important role for marketers in
assessing the relative performance of various marketing investments.
One particular metric, return on marketing investment (ROMI), frames
marketing’s contribution in financial terms, thus conveying both the
potential and realized value of a given marketing effort to a broader
organizational audience and promoting greater accountability.
KEY TERMS
customer relationship management (CRM) 115
customer satisfaction 115
customer loyalty 115
customer lifetime value (CLV) 116
return on customer investment (ROCI) 116
firing a customer 116
customer touchpoints 116
data warehouse 116
data mining 116
database marketing 117
organizational learning 117
formalization 119
customer mind-set 119
Big Data 120
structured data 120
337
unstructured data 121
semi-structured data 122
marketing analytics 125
marketing analyst 125
descriptive analytics 125
diagnostic analytics 126
predictive analytics 126
prescriptive analytics 127
sentiment analysis 128
attribution 129
content filtering 129
collaborative filtering 129
marketing dashboard 130
return on marketing investment (ROMI) 132
APPLICATION QUESTIONS
More application questions are available online.
1. Consider each of the brands below. Assuming that a strong CRM
system is in place in each brand’s parent firm, what specific actions
can marketing managers take in each case to ensure high
satisfaction and loyalty among the most profitable customers?
a. Aeropostale
b. Wynn Las Vegas
c. Your own college or university
d. Subaru automobiles
e. GE home appliances
2. Consider the CRM process cycle of knowledge discovery, market
338
planning, customer interaction, and analysis and refinement. Pick a
company of interest to you and identify one of its important brands
or product lines (it can be a good or a service). Chart what you
believe the CRM process cycle should be for that firm, paying
particular attention to identifying the relevant customer touchpoints.
Be as specific as you can in describing each of the cycle elements.
3. In the chapter you read about several Big Data sources. For each
Big Data source listed below, identify an organization that you
believe uses (or could use) that data source and then briefly
describe how you believe the organization currently uses (or could
use) data from each source to answer a specific marketing question
or make a marketing-related decision (questions and decisions you
identify can be different for each data source).
a. Business systems
b. Social media platforms
c. Customers’ Internet-connected devices
d. Mobile applications
e. Commercial entities
f. Government agencies
4. Select an organization that employs a highly personalized approach
to selling products or services to its customers online. Ideally, this is
one that you have used in the past so that you are more familiar
with it.
a. What are some different ways that the selected organization
employs personalization in its marketing efforts?
b. What are some specific actions/behaviors that customers engage
in on the organization’s website that enable personalized
marketing efforts you identified above?
c. What are some specific actions/behaviors that an organization
could collect data on that might provide evidence that the
personalization efforts identified above have had a positive effect?
Which type of marketing analytics approach(es) discussed in this
chapter would be best suited for establishing the value of
personalization for the organization?
339
5. Pick a firm that interests you and for which you have some
knowledge of its offerings.
a. How would this firm benefit from a marketing dashboard
approach?
b. What elements would you recommend it put onto its dashboard?
Why do you recommend the ones you do?
c. How could the firm avoid some of the pitfalls potentially
associated with marketing dashboards?
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MANAGEMENT DECISION CASE
Outline India: ENABLING THE JUMP FROM
DATA TO DECISIONS
In more developed countries, having access to market data that is
both high in quality and high in quantity is a given. High ownership
rates of smartphones, tablets, and laptops, along with high rates of
Internet connectivity, make it easy to gather data from people
anywhere in the country. But most of the world is not so
developed! Hence, a key question is how can you apply modern
marketing analytic methods to make informed choices in countries
where it’s a lot harder to gather data? A firm called Outline India is
working hard to successfully answer that question. But before we
can understand why Outline India’s work is so important, let’s
delve into how more developed countries collect data.
In the United States, commercial data vendors of many types
provide demographic, behavioral, and attitudinal data on
consumers. In addition, the governments of the United States and
many European countries fund research that involves data
gathering, intended to aid government agencies and officials in
making better-informed decisions, and with results made available
publicly at little or no cost. A prime example of this type of data
gathering is the U.S. census, which is updated annually through
340
sample-based surveys and statistical extrapolation of trends, and
once every decade door-to-door data gathering from every person
in the United States is completed. The data gathered on U.S.
citizens as part of the census helps establish a factual basis on
which estimates are made and by which policy decisions are
informed. (As an aside, it has been demonstrated empirically that
taking a statistical sample would be more accurate than attempting
a full census, but that’s another story.)
This works well for a country like the United States, which has
many resources at its disposal. But let’s go back to the question
we asked in the first paragraph: How can we apply marketing
analytic methods when a country struggles to collect valuable
data? Consider India. More than 1.3 billion people populate the
country, but only 35 percent have Internet access, and in some
rural areas only 25 to 35 percent have electricity. 52 This makes
data gathering difficult, and the data that does come in tends to be
biased toward urban areas. This is where Outline India comes in.
Started in 2012 and based outside New Delhi, Outline India
trains locals to gather and record key data elements sought by
Outline India’s clients. So far, its grassroots effort has been
successful. Data have been gathered from more than 2,300
villages to help commercial and governmental clients answer
pressing questions about the needs of Indian consumers and
constituents. For example, if your company’s marketing objective is
to identify locales in India that have a need for solar water pumps,
you’d call Outline India. Outline India works in rural areas to
improve data gathering, so firms that support corporate social
responsibility (like H&M, through its Conscious Foundation), start-
ups and commercial businesses, and government agencies can
get the analytical results they need to make informed decisions. 53
Outline India’s founder, Prerna Mukharya, learned how to
extract value from raw data at Boston University, where she
earned her postgraduate degree, and through research done at the
Centre for Policy Research in Delhi. Mukharya says data have
always been a useful and valuable tool for combating poverty,
gender gaps, child labor, and other social issues in India, and one
341
of Outline India’s goals is to help clients apply data through the use
of more advanced analyses. 54 In addition to gathering data,
Outline India performs descriptive and predictive analyses on the
data it gathers, and then communicates the analyzed results
directly to its clients. The data are also often made available to
nonprofit organizations.
Thus far, Outline India has built a team of 250 surveyors, with
an ability to reach 1 million individuals. But while the reach is
impressive for a company that is essentially a start-up, and the
data it has collected so far has proven to be useful, Outline India
still faces challenges. Outline India certainly helps provide a
greater quantity of data, but due to the size of India’s population it
still covers only one-tenth of 1 percent of the country’s population.
Data quality—how accurate and complete the data it gathers are—
is another important issue. To address this, Outline India not only
trains locals on how to gather data but also qualifies them through
testing—individuals must undergo different levels of professional
examination depending on the complexity of the data they will be
handling, and thus are proven to be proficient. 55
Outline India faces further barriers to gathering more and
different types of data, barriers that are pertinent to any marketer
entering a developing country. One of the main communication
channels in rural India is cellular, and although basic cellphone use
is very high in India (upwards of 77 percent), smartphone usage—
which would allow more sophisticated data gathering apps—is
relatively low, at about 12 percent. 56 While basic cell phone usage
creates an effective “last mile” connection to consumers (and
potential data touchpoints), it limits data gatherers to very simple
tools and makes it difficult to communicate large amounts of data,
due to a lack of reliable high-bandwidth connections. Furthermore,
large, unstructured data—such as aerial
137
images showing village infrastructure—requires the most
sophisticated smartphones or laptops to capture and deliver data.
Fortunately, though, these communication challenges may
soon ease up. Boston Consulting Group projects that rural
342
smartphone ownership in India will grow 2.6 times by 2020,
resulting in 315 million rural Indians gaining the ability to
communicate their needs to marketers and companies like Outline
India. 57 In the end, no matter what obstacles it faces, Outline India
strives to provide a large quantity of high-quality field data to help
inform the decisions of policymakers and companies, which will
ultimately continue to positively impact the population of India.
Outline India’s end goal is to use data gathering and data analysis
to improve the lives of many rural Indians.
Questions for Consideration
1. What general and specific types of market data would you need
to perform an analysis of the Indian market? Which of these
data might be less available in a developing country?
2. If you were faced with the problem Outline India faces—trying to
gather not only a large amount of data, but making sure that
data is of high quality—how might you go about helping to
ensure that the data are accurate and complete?
3. What are some non-technological barriers Outline India may
face when trying to gather data in the field?
MARKETING PLAN EXERCISES
ACTIVITY 4: Plan for a CRM System
In this chapter, you learned about the value of CRM in fostering a
customer- centric culture and establishing a relationship-based
enterprise. At this point in the development of your marketing plan, the
following steps are needed:
1. Establish the objectives of your CRM system with regard to customer
acquisition, customer retention, and customer profitability. Pay
particular attention to driving high customer satisfaction and loyalty
343
among profitable customers.
2. Map out the CRM process cycle you will employ in your business.
Identify all the relevant touchpoints you plan to utilize—both
interactive and noninteractive.
3. Prepare a set of guidelines on the ethical handling of customer data,
with a focus on avoiding misuse and theft.
4. Consider the reasons for CRM failure identified in the chapter.
Develop an approach to ensure that each can be avoided in your
firm.
NOTES
1. Ronald S. Swift, Accelerating Customer Relationships: Using
CRM and Relationship Technologies (Upper Saddle River, NJ:
Prentice Hall PTR, 2001).
2. Stephen F. King and Thomas F. Burgess, “Understanding
Success and Failure in Customer Relationship Management,”
Industrial Marketing Management 37, no. 4 (June 2008), pp.
421–31.
3. Stanley A. Brown, ed., Customer Relationship Management: A
Strategic Imperative in the World of E-Business (Toronto: Wiley
Canada, 2000), pp. 8–9.
4. Anders Gustafsson, Michael D. Johnson, and Inger Roos, “The
Effects of Customer Satisfaction, Relationship Commitment
Dimensions, and Triggers on Customer Retention,” Journal of
Marketing 69, no. 4 (October 2005), pp. 210–18.
5. Mohanbir Sawhney and Jeff Zabin, “Managing and Measuring
Relational Equity in the Network Economy,” Journal of the
Academy of Marketing Science 30, no. 4 (Fall 2002), pp. 313–
33.
6. Frederick F. Reichheld, Loyalty Rules! How Leaders Build
Lasting Relationships in the Digital Age (Cambridge, MA:
344
Harvard Business School Press, 2001).
7. Timothy W. Aurand, Linda Gorchels, and Terrence R. Bishop,
“Human Resource Management’s Role in Internal Branding: An
Opportunity for Cross-Functional Brand Messaging Synergy,”
Journal of Product and Brand Management 14, no. 2/3 (2005),
pp. 163–70; and Scott Davis, “Marketers Challenged to
Respond to Changing Nature of Brand Building,” Journal of
Advertising Research 45, no. 2 (June 2005), pp. 198–200.
138
8. Sawhney and Zabin, “Managing and Measuring Relational
Equity.”
9. Werner Reinartz, Jacquelyn S. Thomas, and V. Kumar,
“Balancing Acquisition and Retention Resources to Maximize
Customer Profitability,” Journal of Marketing 69, no. 1 (January
2005), pp. 63–79.
10. Nicole E. Coviello, Roderick J. Brodie, Peter J. Danaher, and
Wesley J. Johnston, “How Firms Relate to Their Markets: An
Empirical Examination of Contemporary Marketing Practices,”
Journal of Marketing 66, no. 3 (July 2002), pp. 33–47.
11. Peter C. Verhoef, “Understanding the Effect of Customer
Relationship Management Efforts on Customer Retention and
Customer Share Development,” Journal of Marketing 67, no. 4
(October 2003), pp. 30–45.
12. Neil A. Morgan, Eugene W. Anderson, and Vikas Mittal,
“Understanding Firm’s Customer Satisfaction Information
Usage,” Journal of Marketing 69, no. 3 (July 2005), pp. 131–51.
13. James E. Richard, Peter C. Thirkell, and Sid L. Huff, “An
Examination of Customer Relationship Management (CRM)
Technology Adoption and Its Impact on Business-to-Business
Customer Relationships,” Total Quality Management & Business
Excellence 18, no. 8 (October 2007), pp. 927–45.
14. Bob Lewis, “The Customer Is Wrong,” InfoWorld 24, no. 2
(January 14, 2002), pp. 40–41.
15. Avinandan Mukherjee and Prithwiraj Nath, “Role of Electronic
Trust in Online Retailing: A Re-Examination of the Commitment-
345
Trust Theory,” European Journal of Marketing 41, no. 9/10, pp.
1173–1202.
16. Natalie Zmuda, “Target’s CMO Navigates Marketing Post-
Security Breach,” Advertising Age, March 10, 2014,
http://adage.com/article/news/target-s-cmo-navigates-marketing-
post-security-breach/292032/.
17. George Day, “Capabilities for Forging Customer Relationships,”
MSI Report #00–118 (Cambridge, MA: Marketing Science
Institute, 2000).
18. Patricia Kilgore, “Personalization Provides a Winning Hand for
Borgata,” Printing News, December 11, 2006, pp. 7–8.
19. Karen Norman Kennedy, Felicia G. Lassk, and Jerry R.
Goolsby, “Customer Mind-Set of Employees throughout the
Organization,” Journal of the Academy of Marketing Science 30
(Spring 2002), pp. 159–71.
20. New York City Mayor’s Office of Tech and Innovation, “INYC
DOT Announces Expansion of Midtown Congestion
Management System, Receives National Transportation Award,”
June 5, 2012,
http://www.nyc.gov/html/dot/html/pr2012/pr12_25.shtml.
21. Michel Wedel and P. K. Kannan, “Marketing Analytics for Data-
Rich Environments,” Journal of Marketing 80, no. 6, pp. 97–121.
22. Amir Gandomi and Murtaza Haider, “Beyond the Hype: Big Data
Concepts, Methods, and Analytics,” International Journal of
Information Management 35, no. 2, pp. 137–44.
23. Jaikumar Vijayan, “Solving the Unstructured Data Challenge,”
June 25, 2015, http://www.cio.com/article/2941015/big-
data/solving-the-unstructured-data-challenge.html; and Darin
Stewart, “Big Content: The Unstructured Side of Big Data,” May
1, 2013, http://blogs.gartner.com/darin-stewart/2013/05/01/big-
content-the-unstructured-side-of-big-data/.
24. Alexandros Labrinidis and H. V. Jagadish, “Challenges and
Opportunities with Big Data,” Proceedings of the VLDB
Endowment 51, no. 12, pp. 2032–33.
25. Gandomi and Haider, “Beyond the Hype.”
346
http://adage.com/article/news/target-s-cmo-navigates-marketing-post-security-breach/292032/
http://www.nyc.gov/html/dot/html/pr2012/pr12_25.shtml
http://www.cio.com/article/2941015/big-data/solving-the-unstructured-data-challenge.html
http://blogs.gartner.com/darin-stewart/2013/05/01/big-content-the-unstructured-side-of-big-data/
26. Lisa Morgan, “Big Data: 6 Real-Life Business Cases,” May 27,
2015, Information Week,
http://www.informationweek.com/software/enterprise-
applications/big-data-6-real-life-business-cases/d/d-id/1320590?
image_number=5.
27. Alan L. Montgomery, Shibo Li, Kannan Srinivasan, and John C.
Liechty, “Modeling Online Browsing and Path Analysis Using
Clickstream Data,” Marketing Science 23, no. 4, pp. 579–95.
28. V. Kumar and Rohan Mirchandani, “Increasing the ROI of Social
Media Marketing,” MIT Sloan Management Review 54, no. 1,
pp. 55–61.
29. “Nielsen Datasets,”
https://research.chicagobooth.edu/nielsen/datasets#simple1.
30. Jason Shueh, “Open Data: What Is It and Why Should You
Care?” March 17, 2014, Government Technology,
http://www.govtech.com/data/Got-Data-Make-it-Open-Data-with-
These-Tips.html.
31. “Jenny,” “3 Ways You Can Use Census Data,” MacKenzie
Corporation, October 23, 2013,
http://www.mackenziecorp.com/3-ways-you-can-use-census-
data-2/.
32. Gary Lilien, “Bridging the Academic-Practitioner Divide in
Marketing Decision Models,” Journal of Marketing 75, no. 4, pp.
211–24.
33. Wedel and Kannan, “Marketing Analytics for Data-Rich
Environments.”
34. Wedel and Kannan, “Marketing Analytics for Data-Rich
Environments.”
35. Joe F. Hair Jr., “Knowledge Creation in Marketing: The Role of
Predictive Analytics,” European Business Review 19, no. 4, pp.
303–15.
36. Nadia Cameron, “How Predictive Analytics Is Tackling Customer
Attrition at American Express,” April 11, 2013,
http://www.cmo.com.au/article/458724/how_predictive_analytics_tackling_customer_attrition_american_express/
347
http://www.informationweek.com/software/enterprise-applications/big-data-6-real-life-business-cases/d/d-id/1320590?image_number=5
https://research.chicagobooth.edu/nielsen/datasets#simple1
http://www.govtech.com/data/Got-Data-Make-it-Open-Data-with-These-Tips.html
http://www.cmo.com.au/article/458724/how_predictive_analytics_tackling_customer_attrition_american_express/
37. Wedel and Kannan, “Marketing Analytics for Data-Rich
Environments.”
38. Mingyu Joo, Kenneth C. Wilbur, Bo Cowgill, and Yi Zhu,
“Television Advertising and Online Search,” Management
Science 60, no. 1, pp. 56–73.
39. Wedel and Kannan, “Marketing Analytics for Data-Rich
Environments.”
40. Chris Alvino and Justin Basilico, “Learning a Personalized
Homepage,” April 9, 2015,
http://techblog.netflix.com/2015/04/learning-personalized-
homepage.html.
41. Wedel and Kannan, “Marketing Analytics for Data-Rich
Environments.”
42. A number of concepts in this section are derived from the
following outstanding book, which is the best single source for
understanding marketing dashboards. It is highly recommended
as a guidebook on the topic for marketing managers: Patrick
LaPointe, Marketing by the Dashboard Light: How to Get More
Insight, Foresight, and Accountability from Your Marketing
Investments (New York: ANA, 2005).
43. Gail J. McGovern, David Court, John A. Quelch, and Blair
Crawford, “Bringing Customers into the Boardroom,” Harvard
Business Review 82, no. 11 (November 2004), pp. 70–80.
44. Patrick LaPointe, Marketing by the Dashboard Light: How to Get
More Insight, Foresight, and Accountability from Your Marketing
Investments (New York: ANA, 2005).
45. Thorsten Wiesel, Bernd Skiera, and Julián Villanueva,
“Customer Equity: An Integral Part of Financial Reporting,”
Journal of Marketing 72, no. 2 (March 2008), pp. 1–14.
46. LaPointe, Marketing by the Dashboard Light.
139
47. Leigh McAlister, Raji Srinivasan, and MinChung Kim,
“Advertising, Research, and Development, and Systematic Risk
of the Firm,” Journal of Marketing 71, no. 1 (January 2007), pp.
35–49.
348
http://techblog.netflix.com/2015/04/learning-personalized-homepage.html
48. Claes Fornell, Sunil Mithas, Forrest V. Morgeson III, and M. S.
Krishnan, “Customer Satisfaction and Stock Prices: High
Returns, Low Risk,” Journal of Marketing 70, no. 1 (January
2006), pp. 3–14; and Roland T. Rust, Katherine Lemon, and
Valarie A. Zeithaml, “Return on Marketing: Using Customer
Equity to Focus Marketing Strategy,” Journal of Marketing 68,
no. 1 (January 2004), pp. 109–27.
49. Behram Hansotia and Brad Rukstales, “Incremental Value
Modeling,” Journal of Interactive Marketing 16, no. 3 (Summer
2002), pp. 35–46.
50. Dominique M. Hanssens, Daniel Thorpe, and Carl Finkbeiner,
“Marketing When Customer Equity Matters,” Harvard Business
Review 86, no. 5 (May 2008), p. 117; and Rick Ferguson, “Word
of Mouth and Viral Marketing: Taking the Temperature of the
Hottest Trends in Marketing,” Journal of Consumer Marketing
25, no. 3 (2008), pp. 179–82.
51. Don E. Schultz, “The New Branding Lingo,” Marketing
Management 12, no. 6 (November/December 2003), pp. 8–9.
52. “Internet Users by Country,” 2016,
http://www.internetlivestats.com/internet-users-by-country/; and
Deepak Patel, “All Villages Electrified, but Darkness Pervades,”
Indian Express, September 14, 2016,
http://indianexpress.com/article/india/india-news-india/electricity-
in-india-villages-problems-still-no-light-poverty-3030107/.
53. “We Are Currently Collaborating with H&M’s for a WASH Project
across Four Indian States,” Outline India, February 1, 2017,
http://www.outlineindia.com/.
54. Suparna Dutt D’Cunha, “This Startup Is Using Data Analytics
and Technology to Solve Social Challenges in India,” Forbes,
April 6, 2017,
https://www.forbes.com/sites/suparnadutt/2017/04/06/this-
startup-is-using-data-analytics-and-technology-to-solve-social-
challenges-in-india/#162503f06c22.
55. D’Cunha, “This Startup Is Using Data Analytics and
Technology.”
349
http://www.internetlivestats.com/internet-users-by-country/
http://indianexpress.com/article/india/india-news-india/electricity-in-india-villages-problems-still-no-light-poverty-3030107/
http://www.outlineindia.com/
https://www.forbes.com/sites/suparnadutt/2017/04/06/this-startup-is-using-data-analytics-and-technology-to-solve-social-challenges-in-india/#162503f06c22
56. Saritha Rai, “India Just Crossed 1 Billion Mobile Subscribers
Milestone and the Excitement’s Just Beginning,” Forbes,
January 6, 2016,
https://www.forbes.com/sites/saritharai/2016/01/06/india-just-
crossed-1-billion-mobile-subscribers-milestone-and-the-
excitements-just-beginning/#726816627db0.
57. Vidhi Choudhary, Sounak Mitra, Harveen Ahluwalia, “Internet
Usage Picks Up in Rural India,” Mint, August 12, 2016,
http://www.livemint.com/Consumer/QgM23BLpCo4ovHxA0jpOGM/Rural-
India-getting-online-faster-BCG-report.html.
*One of the single best sources for understanding ROMI is the following book, which is
highly recommended for marketing managers: Guy R. Powell, Return on Marketing
Investment: Demand More from Your Marketing and Sales Investments, Albuquerque,
NM: RBI Press, 2002. The ideas in this section are drawn from that source.
350
https://www.forbes.com/sites/saritharai/2016/01/06/india-just-crossed-1-billion-mobile-subscribers-milestone-and-the-excitements-just-beginning/#726816627db0
http://www.livemint.com/Consumer/QgM23BLpCo4ovHxA0jpOGM/Rural-India-getting-online-faster-BCG-report.html
140
CHAPTER 6
Understand
Consumer and
Business Markets
LEARNING OBJECTIVES
LO 6-1 Understand the value of knowing the consumer.
LO 6-2 Consider the role of personal and psychological
factors in consumer decision making.
LO 6-3 Appreciate the critical and complex role of cultural,
situational, and social factors in a consumer
purchase decision.
351
LO 6-4 Understand the consumer decision-making process.
LO 6-5 Understand the differences between B2C and B2B
markets.
LO 6-6 Understand the critical role of the buying center and
each participant in the B2B process.
LO 6-7 Learn the B2B purchase decision process and
different buying situations.
LO 6-8 Comprehend the role of technology in business
markets.
141
Understanding the behavior of a target market is essential in developing an
effective marketing strategy. This is true whether the target market is a
group of consumers or another business. In this chapter we will examine
both B2C and B2B behavior, as there are distinct differences between the
two. First, we will consider consumer behavior, which has been an area of
significant interest to marketers for decades. Knowing how consumers
make decisions—and the tools marketers use to influence that process—is
important to companies that sell directly to consumers and to companies
that sell to other businesses. Later, we will discuss how business-to-
business behavior differs from consumer behavior, and review the tools
marketers use to reach other businesses.
352
Teenage couple watching 3D movie.
©Image Source
THE POWER OF THE CONSUMER
LO 6-1
Understand the value of knowing the consumer.
It’s a Friday night and a group of people are considering how to spend the
evening. A consensus forms around watching a movie. The discussion
focuses on two choices: visit the local multiplex theater to see a first-run
showing of the latest hit movie or go to a friend’s house and watch a
classic on the 55-inch LED TV with surround sound. Ultimately, they
decide to watch Justice League at the friend’s house. This interaction is
repeated thousands of times each weekend and represents just one example
of consumer decision making.
Marketers are fundamentally interested in learning about the process
people use to make purchase decisions. In our example, the implications of
the seemingly innocuous decision to watch a movie at home are very
significant. Movie theaters are concerned because attendance has been
falling for a decade while sales of video on demand have been growing at
double-digit rates. Theater owners are investing millions of dollars to get
people to choose a night out at the movies instead of going home. At the
same time, movie studios such as Paramount, Sony, Time Warner, and
Disney are paying attention. Because they want to maximize revenue, they
have shortened the time between theatrical release and DVD sales, in
addition to making first-run movies available via video on demand. 1
Finally, theme parks such as Universal Orlando Resort are interested
because they invest millions to combine successful movies with live-action
shows and rides to extend the movie’s experience.
Delivering value to the customer is the core of marketing, and a
company can only do that with a thorough, accurate, and timely
understanding of the customer. Complex forces influence consumer
choices, and these forces change over time, which adds to the challenges
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marketers face. Exhibit 6.1 displays a model of the consumer decision
process, which is a complex interaction of internal (personal and
psychological characteristics) and external (cultural, situational, and social
stimuli) forces that, joined with a company’s marketing activities and
environmental forces, affect the purchase decision process. This chapter
will identify the internal and external forces affecting the process, then
focus on the consumer decision process itself.
INTERNAL FORCES AFFECT CONSUMER
CHOICES
LO 6-2
Consider the role of personal and psychological factors in consumer
decision making.
Among the most difficult factors to understand are those internal to the
consumer. Often, consumers themselves are not fully aware of the role
these important traits play in their decision making. Compounding the
challenge is the fact that these characteristics vary by individual, change
over time, and affect decisions in complex ways that are difficult to know.
Exhibit 6.2 identifies examples of internal forces.
Personal Characteristics
Personal attributes are frequently used to define an individual. Age,
education, occupation, income, lifestyle, and gender are all ways to
identify and classify someone. The American Heritage Online Dictionary
defines demographics as “[t]he characteristics of human populations and
population segments, especially when used to identify consumer markets.”
It is helpful
142
EXHIBIT 6.1 Model of the Consumer Decision
354
Process
to understand the demographics of a target market for two reasons. First,
knowing the personal characteristics of a target market enables marketers
to evaluate relevant statistics against competitors and the overall
population using broad demographic studies like the U.S. Census Bureau
reports. Comparing demographic data such as age and income to
competitor data enables you to assess how your target markets match up
with those of competitors. Second, personal characteristics like age,
income, and education play a critical role in consumer decision making,
affecting information search, possible product choices, and the product
decision itself. 2 Demographics are also an important tool in market
segmentation, and Chapter 7 will explore how demographics are used to
make decisions about targeting customer groups.
Life Cycle Stage (Age) As individuals age, their lives change
355
dramatically, and as a result, so do their purchase patterns. From childhood
to retirement, purchase behavior is shaped by a person’s stage of life, and
while specific aspects of the marketing mix change from one generation to
the next, children still want to play, families still need homes and
EXHIBIT 6.2 Internal Forces Affecting Consumer
Choices
Personal Characteristics Psychological Attributes
Age Motivation
Education Attitude
Occupation Perception
Income Learning
Lifestyle Personality
Gender
143
everything that goes in them, and seniors still focus on retirement.
Marketers realize that changes in life stage (for example, graduating from
college, getting married, or having a child) transform an individual’s
buying habits and are referred to as the family life cycle. These life changes
mirror the individual’s family environment and include the number, age,
and gender of the people in the immediate family.
Historically, age has been a primary construct for identifying a
person’s life cycle. A new trend is emerging, however, as people move
beyond traditional roles. Young adults are marrying and having kids later
in life, altering the traditional view of 30-somethings as family builders.
Concurrently, American couples are having children far into their 40s,
significantly changing the buying behavior of individuals who might
normally be planning retirement. Let’s consider U.S. population trends by
356
age. For example, one important marketing insight from examining
population trends is that while the population is growing, it is also getting
older. As we have discussed, the aging population leads to market
opportunities for products, such as Dove’s Real Beauty, that have surged
in the past 10 years.
Occupation People are influenced by their work environment. From
the executive suite to the plant floor, people who work together tend to buy
and wear similar clothes, shop at the same stores, and vacation at the same
places. 3 As a result, marketers identify target groups based on an
individual’s position in an organization.
In addition to broad occupational categories (union worker,
management) marketers also target specific occupations. Physicians, for
example, have a host of products, from smartphone apps to vacations,
designed specifically for them. Given the amount of time spent working, it
is not surprising that individuals develop similar interests and purchase
behaviors.
Lifestyle Even though people share the same life cycle stage or
occupation, their lifestyles may be dramatically different. Lifestyle
references an individual’s perspective on life and manifests itself in that
person’s activities, interests, and opinions (AIO). By learning about what
the person likes to do, his or her hobbies, and views about the world,
marketing managers develop a holistic view of the individual. As the name
implies, lifestyle is how people choose to live, and how a person lives
dictates what she or he buys. By choosing particular activities, developing
unique interests, and holding on to specific opinions, an individual
identifies what is really important. Marketers seek to match their products
and services with the consumer’s lifestyle. 4 New technologies enable
marketers not only to know a great deal about their customers but also to
direct targeted marketing messages. However, privacy issues and the
intrusive nature of these technologies can increase ethical concerns.
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Land Rover connects its models to specific target markets with enhanced
features like technology to make drivers aware of road hazards such as
potholes.
Source: Jaguar Land Rover North America, LLC
Just as women’s roles in the workforce have changed over the past
several decades, so has their purchasing behavior. Increased purchasing
power and wealth for women have led to new purchasing roles. Auto
purchases, for example, were historically dominated by men; however,
women now influence 80 percent of vehicle purchases and 40 percent of
SUV sales. The cosmetics industry, while offering some products to men,
focuses primarily on women.
Gender roles are behaviors regarded as proper for men and women in
a particular society. These roles change over time and across cultures. In
general, women have been adding new roles as they move into the
workforce and positions of political power. In the United States, this
means that men and women are more likely to share responsibilities than
to live in a traditional household where the men work and women stay at
home to raise the children.
Differences in women’s roles have created vastly different market
segments. At one end
144
are traditional homemakers who derive satisfaction primarily from
358
maintaining the household and nurturing the family. At the other extreme
is the career woman who is either single or married and who makes a
conscious choice to work and derives personal satisfaction from her
employment. Other segments include trapped housewives (and husbands)
who are married but prefer to work and trapped working women who
would prefer to be at home but must work because of financial necessity or
family pressure.
Marketing managers understand that men and women vary not only in
the products they require but also in the marketing communications they
are receptive to. For example, the websites that men and women visit most
often vary a great deal. Consequently, the messages they see are
different. 5 Men prefer automotive and sports websites while women
choose health and epicurean websites. In addition, the message itself varies
by gender, with men preferring a “self-help” message and women
responding to a “help others” communication. All this suggests that gender
roles are a critical personal characteristic affecting consumer choices. 6
Psychological Attributes
The consumer decision process involves a number of psychological forces
that profoundly affect the consumer choice process. These forces drive the
need, shape the content and format of information stored in memory, and
have an effect on point of view about products and brands.
Motivation At any given time people experience many different needs.
Most are not acted upon; however, when need reaches a particular strength
or intensity, it becomes a motive that drives behavior. People prioritize
needs, making sure that stronger, more urgent needs get met first.
Motivation is the stimulating power that induces and then directs behavior.
It is the force by which powerful unmet needs, or motives, prompt
someone to action. Many theories have been developed over the years to
explain human motivation. Exhibit 6.3 provides a summary of four popular
theories of motivation and how they are used in marketing.
EXHIBIT 6.3 Contemporary Theories of Motivation
359
Theory Key Elements Marketing
Implications
Maslow’s
Hierarchy of
Needs
Theory
Humans
have wants
and needs
that
influence
their
behavior.
People
advance to
the next
level only if
the lower
needs are
met.
1. Physiological
2. Safety
3. Love/Social
4. Self-Esteem
5. Self-
Actualization
Individuals
are not
interested in
luxuries until
they have
had basic
needs (food,
shelter) met.
Herzberg’s
Two-Factor
Theory
Certain
factors in
the
workplace
result in job
satisfaction.
1. Motivators:
challenging
work,
recognition,
and
responsibility
2. Hygiene
factors:
status, job
security,
salary, and
benefits
Satisfying
hygiene
factors does
not create a
loyal
employee or
customer.
For a
company to
really create
satisfied
employees it
is important
to focus on
motivators.
Aldelfer’s
ERG Theory
Expansion
on
Maslow’s
hierarchy,
placing
needs in
three
1. Existence
2. Relatedness
3. Growth
People need
a sense of
belonging
and social
interaction.
Creating a
relationship
360
categories. with the
customers
extends the
customers’
satisfaction
with the
product.
McClelland’s
Achievement
Motivation
Theory
There are
three
categories
of needs
and people
differ in the
degree to
which the
various
needs
influence
their
behavior.
1. Need for
Achievement
2. Need for
Power
3. Need for
Affiliation
Companies
can be
successful
targeting one
of three
basic needs.
145
Attitude From religion to politics, sports to tomorrow’s weather,
people have an attitude about everything. An attitude is defined as a
“learned predisposition to respond to an object or class of objects in a
consistently favorable or unfavorable way.” 7 Several key points come
from this definition. First, attitudes are learned or at least influenced by
new information. This is important for marketers because they seek to
affect a person’s attitude about a product. Second, attitudes are favorable
or unfavorable, positive or negative. In other words, attitudes are seldom,
if ever, neutral. As a result, marketers pay close attention to people’s
attitudes about their products because they play an important role in
shaping a person’s purchase decision.
Initially, a person’s attitudes are formed by their values and beliefs.
There are two categories of values. The first refers to cultural values based
361
on national conscience. Americans, for example, value hard work and
freedom, among other things. In Japan, national values include reciprocity,
loyalty, and obedience. The second category is personal values held by the
individual. Products possessing characteristics consistent with a person’s
value system are viewed more favorably.
While values may be based, in part, on fact, beliefs are a subjective
opinion about something. Since they are subjective (emotional and not
necessarily based on fact) marketers become concerned that a negative
product belief will create a negative attitude about that product, making the
attitude more difficult to overcome. 8 It is also important to note that
beliefs, once formed, are resistant to change. Personal experiences,
marketing communication, and information from trusted sources, such as
family members or friends, all shape a person’s belief system.
Values and beliefs come together to shape attitudes about an object
whether it is Coke, the environment, or your favorite sports team. This
overall predisposition is the result, generally, of an individual’s assessment
of that object on several attributes. For example, an attitude about Coke
could be based on attributes such as health, which could be a positive
belief—Coke’s caffeine gives you energy—or a negative belief—Coke has
a lot of sugar and calories. Coke is presented as a fun, youthful drink and
youth is an American value. 9
Because people’s beliefs/values impact their purchase decisions,
marketing managers try to learn about those beliefs/values. They do that
by having customers check off rating scales that evaluate a product’s
performance on a list of attributes. This is important information because
most attitudes result from an individual’s assessment of an object using a
multiattribute model that evaluates the object on several important
attributes. Learning which attributes are used and how individuals rank
those attributes is particularly helpful to marketers in creating specific
marketing messages as well as the overall value proposition. 10 For
instance, individuals who value the environment and ecology will place a
higher priority on fuel economy and other environmentally friendly
characteristics in the purchase of a car.
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Coke promotes its fun brand image with thoughtful, amusing, and interesting
graphics designs.
Source: The Coca-Cola Company
Perception People are inundated with information. Indeed, there is so
much information that it is not possible to make sense of everything, so
people use a process called perception to help manage the flow of
environmental stimuli. Perception is a system to select, organize, and
interpret information to create a useful, informed picture of the world.
In marketing, perception of a product is even more important than the
reality of that product because, in a very real sense, an individual’s
perception is his or her reality. Perception drives attitudes, beliefs,
motivation, and, eventually, behavior. Since each individual’s perception
is unique, everyone’s perceptual response to a given reality will vary. Two
people will see an ad for a new Samsung OLED flat-panel television, but
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their perception of the ad will be very different. One may see a high-
363
quality television worth the money, while the other sees an overpriced
television that does not warrant a premium price. Their attitudes toward
the ad and the product are affected by their perceptions.
Perception is shaped by three psychological tools: selective awareness,
selective distortion, and selective retention.
Selective Awareness An individual is exposed, on average, to between
2,000 and 3,000 messages daily. People cannot process, let alone retain, all
those messages, so they employ a psychological tool known as selective
awareness to help them focus on what is relevant and eliminate what is
not. The challenge for marketers is breaking through people’s decision
rules, which are designed to reject the vast majority of stimuli they see
every day.
Research provides several insights about these decision rules. First, not
surprisingly, people are more likely to be aware of information that relates
to a current unmet need. Someone looking to change cellular providers
will pay more attention to ads from cellular companies than someone who
is happy with her current service. Second, people are more receptive to
marketing stimuli when they expect them. Customers entering an AT&T
or Verizon Wireless store anticipate seeing mobile telephones and tablet
computers and, as a result, pay more attention to them. Finally, people are
also more likely to become aware of marketing stimuli when they deviate
widely from what are expected. For several years, Allstate Insurance has
run a series of ads called “Mayhem” in which a man in a business suit
points out the problems someone might have without Allstate. In addition
to the creativity behind this approach, one of the reasons the campaign has
done well is because it deviated from normal insurance ads. People didn’t
expect to see “Mayhem” talking about insurance. 11
Selective Distortion Breaking through the customer’s selective awareness
is an important first step. However, even if a stimulus is noticed, there is
no guarantee it will be interpreted accurately. Information can be
misunderstood or made to fit existing beliefs, a process known as selective
distortion.
The issue for marketers is that selective distortion can work for or
against a product. If an individual has a positive belief about a powerful
364
brand or product, information that is ambiguous or neutral will likely be
interpreted positively. Even negative data can be adjusted to align with an
individual’s existing beliefs. For example, despite the negative
implications of the information, a recall of Toyota Prius cars did not slow
sales, in part, because people’s perception of Toyota’s overall quality
offset the negatives associated with a product recall. On the other hand, a
negative belief can lead to negative interpretation. In the 1990s, General
Motors worked hard to improve the quality of its cars. This came after
several decades of being rated below Toyota and Honda in terms of
quality. Despite significant quality improvements validated by independent
researchers like J.D. Power and Associates, people continue to believe GM
car quality is inferior to that of Toyota and Honda. Sometimes a positive
belief can work against a marketer, particularly when the belief leads to an
incorrect interpretation. 12 When P&G ran a campaign called “Irresistible
Superiority,” experts and consumers were confused. No one knew how it
connected to P&G products. So while P&G wanted consumers to think its
products were superior, consumers were simply left wondering what it
meant.
Selective Retention Even if a stimulus is noticed and interpreted correctly,
there is no guarantee it will be remembered. While selective awareness
significantly controls the amount of information available to the
individual’s consciousness, selective retention acts as an additional filter.
Selective retention is the process of placing in one’s memory only those
stimuli that support existing beliefs and attitudes about a product or brand.
This is significant because memory is where people store all past learning
events; in essence it is the “bank” where people keep their knowledge,
attitudes, feelings, and beliefs. 13 There are two types of memory—short
and long term. Short-term memory is
147
what is being recalled at the present time and is sometimes referred to as
working memory, while long-term memory is enduring storage, which can
remain with the individual for years and years. Marketing managers are
particularly interested in understanding an individual’s long-term memory
recall about their brand. Selective retention tends to reinforce existing
attitudes and creates a real challenge for marketers trying to overcome
365
negative beliefs and attitudes since people are less likely to be aware of or
retain information to the contrary. One last point about perception
concerns a controversial issue—the effect of subliminal stimuli on
perception. While people are aware of most stimuli around them, a number
of other stimuli go unnoticed. In most cases, either the stimuli are
presented so fast they are not recognized or they overload the individual
and are “lost” in the person’s consciousness. These stimuli are termed
subliminal, and many critics of advertising suggest the stimuli can affect
consumer behavior. Despite many claims to the contrary, however,
research has uncovered no evidence that a subliminal message, whether
sent deliberately or accidentally, has any effect on product attitudes or
choice behavior.
Given the psychological processes people use to limit their awareness
of marketing stimuli and control retention of any remaining information, it
is easy to see why marketers must deliver a message over and over.
Without repetition, the message is not likely to break through selective
awareness and even less likely to be retained by the individual. 14
Learning How does an individual become a consumer of a particular
product? Most consumer behavior is learned through a person’s life
experiences, personal characteristics, and relationships.
Learning is any change in the content or organization of long-term
memory or behavior. Learning occurs when information is processed and
added to long-term memory. Marketers can therefore affect learning by
providing information using a message, format, and delivery that will
encourage customers to retain the information in memory.
There are two fundamental approaches to learning. The first,
conditioning, involves creating an association between two stimuli. There
are two types of conditioning: classical and operant. Classical conditioning
seeks to have people learn by associating a stimulus (marketing
information, brand experience) and response (attitude, feeling,
behavior). 15 Many companies today use a variety of music genres in their
ads, designed to connect with specific target audiences. Ads for products
targeted at young people use current artists, while older target markets like
baby boomers respond to music from the 1960s and 1970s. This is
conditioned learning, connecting the stimulus—music—with a response—
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a positive association with a particular brand.
The other type of conditioning, operant conditioning, entails rewarding
a desirable behavior, for example, a product trial or purchase, with a
positive outcome that reinforces that behavior. 16 For example, many
different types of food retailers offer product samples in their stores. Frito-
Lay, for instance, offers free in-store samples of Doritos for the express
purpose of getting people to try the product, enjoy the product, and finally
purchase a bag of Doritos. Enjoying the Doritos reinforces the positive
attributes of the product and increases the probability of a purchase. Since
the consumer must choose to try the product for operant conditioning to
occur, Frito-Lay wants to make the trial as easy as possible.
While conditioning requires very little effort on the part of the learner,
cognitive learning is more active and involves mental processes that
acquire information to work through problems and manage life
situations. 17 Someone suffering from the flu and seeking information from
their friends, doctors, or medical websites about the best over-the-counter
remedy for their specific symptoms is engaged in cognitive learning. They
are looking for information to help solve a problem. Marketers must
understand that consumers sometimes engage in this type of activity and
be proactive in providing the information sought by the consumer.
Consider a box of Theraflu caplets; Theraflu Daytime lists six symptoms
right on the front of the box that the product will help relieve. This kind of
information is critical at the point of purchase as an individual considers
which product will help him feel better faster.
148
367
GoPro initially targeted extreme athletes and other people who identified with
excitement and ruggedness.
©Purestock/SuperStock
Personality When people are asked to describe someone, most of us
do not talk about the person’s age or education. Rather, our response
generally reflects the individual’s personality and is based on our
interactions with that person in different situations. Our descriptions
usually include various personality dimensions such as kind, outgoing, or
gentle. Personality is a set of unique personal qualities that produce
distinctive responses across similar situations.
Many theories of personality have been developed, but marketers tend
to focus on personality trait theories because they offer the greatest
insights on consumers. Personality trait theories all have two basic
assumptions: (1) each person has a set of consistent, enduring personal
characteristics, and (2) those characteristics can be measured to identify
differences between individuals. Most believe personality characteristics
are formed at a relatively early age and can be defined in terms of traits
such as extroversion, instability, agreeableness, openness to new
experiences, and conscientiousness. These core traits then lead to outward
characteristics, which are what people notice. For example, an extrovert
would favor the company of others and be comfortable meeting new
people. A conscientious person would exhibit behaviors that are
considered careful, precise, and organized. Knowing the personality
tendencies of a target audience can help marketers develop specific
product features, such as chat options in many applications that allow
people to engage with others who have similar interests.
EXTERNAL FACTORS SHAPE CONSUMER
CHOICES
LO 6-3
Appreciate the critical and complex role of cultural, situational, and
social factors in a consumer purchase decision.
368
While internal factors are fundamental in consumer decision making,
forces external to the consumer also have a direct and profound effect on
the consumer decision process. These factors shape individual wants and
behavior, define the products under consideration, target the selection of
information sources, and shape the purchase decision. Three wide-ranging
external factors that have the most significant impact on consumer choices
are cultural, situational, and social.
Cultural Factors
Culture is a primary driver of consumer behavior because it teaches values
and product preferences and, in turn, affects perceptions and attitudes.
Beginning in childhood and continuing on throughout life, people respond
to the culture in which they live. In recent years, despite the globalization
of communications and the universal nature of the Internet, people have
developed a heightened awareness of their own culture and subculture.
Marketers need to be aware of culture for two reasons. First, learning a
target market’s culture is essential to an effective marketing strategy.
Creating a value proposition that incorporates cultural cues is a
prerequisite to success. Second, failing to understand cultural norms has a
significant negative effect on product acceptance.
Culture Culture assimilates shared artifacts such as values, morals,
beliefs, art, law, and customs into an organized system that enables people
to function as members of society. In school, children learn basic cultural
values through interaction with classmates and formal classroom learning.
At a very early age, young people learn values and concepts about their
culture. Among the values shared by Americans, for example, are
achievement, hard work, and freedom, while Japanese value social
harmony, hierarchy, and devotion.
149
EXHIBIT 6.4 Nonverbal Communication
369
Nonverbal Communication: the means of communicating
through facial expressions, eye behavior, gestures, posture,
and any other body language
Positive nonverbal communication during
a presentation
Eye
contact
Smiling
Steady
breathing
Tone of
voice
Moving
closer to
the person
Negative nonverbal communication during
a presentation
Swaying
Stuttering
Hands in
pockets
Fidgeting
Looking at
watch or
clock
Caution: Nonverbal communication can contradict what is spoken if not used
correctly.
While culture affects people in many ways, three factors are
particularly relevant in consumer behavior: language, values, and
nonverbal communications. Language is an essential cultural building
block and the primary communication tool in society. At the most basic
level it is important to understand the language, making sure that words
are understood correctly. 18 However, language conveys much more about
a society and its values. Scandinavian cultures, for example, place a high
value on spending time together. They have more words to express “being
together” than English does, and their meaning implies a more intimate
370
sharing of thoughts and ideas. These concepts do not translate into the
Anglo-American language and are not easily understood.
Cultural values are principles shared by a society that assert positive
ideals. These principles are often viewed on a continuum. Consider the
value of limited versus extended family. In the United States, the
obligation and commitment to family are often limited to an individual’s
immediate family, including his or her parents, children, and siblings.
Most Latin American cultures, on the other hand, have a more wide-
ranging definition of family that includes extended family members such
as cousins and grandparents and is also more inclusive, with extended
family members living together.
The last cultural factor is nonverbal communication. While a number
of factors fall into this category (refer to Exhibit 6.4 for a more complete
discussion), let’s focus on two: time and personal space. The perception of
time varies across cultures. Americans and Western Europeans place a
high value on time and view it in discrete blocks of hours, days, and
weeks. As a result, they focus on scheduling and getting as much done in a
given period as possible. Latin Americans and Asians, on the other hand,
view time as much more flexible and less discrete. They are not as
concerned with the amount of work that gets done in a given time block.
How does this affect marketing? Salespeople who have been trained in an
American sales environment are often frustrated to find their Asian and
Latin American customers less concerned about specific meeting times
and more concerned about spending time building a personal relationship.
Personal space is another example of nonverbal communication that
varies across cultures. In the United States, for example, most business
conversations occur between three and five feet, which is a greater
distance than in Latin American cultures. Salespeople used to a three- to
five-foot distance can find it a little disconcerting when the space shrinks
to 18 inches to three feet. Not understanding these differences can lead to
confusion and embarrassment and even create a problem in the business
relationship. 19
Subculture As consumer behavior research has discovered more
about the role of culture in consumer choices, it has become evident that
beyond culture, people are
371
150
influenced even more significantly by membership in various subcultures.
A subculture is a group within the culture that shares similar cultural
artifacts created by differences in ethnicity, religion, race, or geography.
While part of the larger culture, subcultures are also different from each
other. The United States is perhaps the best example of a country with a
strong national culture that also has a number of distinct subcultures.
Several subcultures in the United States have become such powerful
forces that companies now develop specific marketing strategies targeted
at those groups. Large companies such as L’Oréal and General Motors
have begun targeting the Hispanic and African-American markets with
specific products, distribution channels, and marketing communications.
For example, L’Oreal, the cosmetics company, has a research center in
New Jersey that focuses exclusively on the African-American market and
has resulted in a number of products in its Soft-Sheen Carson and Mizani
brands. 20
Situational Factors
At various points in the consumer decision process, situational factors play
a significant part. Situational factors are time-sensitive and interact with
both internal and external factors to affect change in the consumer.
Because they are situational, they are difficult, if not impossible, for the
marketer to control. However, it is possible to mitigate their effects with a
good marketing strategy.
Physical Surroundings People are profoundly affected by their
physical surroundings. An individual viewing an ad during an NFL
football game will react differently when watching the game alone or at a
party with friends. Same game, same ad, but a different reaction as a result
of the physical surroundings at the time the marketing message is being
delivered. As we will see in Chapter 12, retailers devote a lot of time and
resources to creating the right physical surrounding to maximize the
customer’s shopping experience. They know people respond differently to
changes in color, lighting, or location of the product within the store;
indeed, almost every element of the customer’s experience is considered
important in the consumer choice process.
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Personal Circumstances An individual’s behavior is always
filtered through his or her immediate personal circumstances. Parents with
crying children shop differently than parents with small kids enjoying the
experience, and parents without the kids along shop differently than
parents with their children present. At the point of consumer choice, many
things can influence the final purchase. If the line at the checkout is too
long, people may eliminate certain discretionary items or forgo the entire
purchase.
While it is not possible for marketers to control personal
circumstances, it is important to understand how personal situations
influence the choice process. Consider cold medicines such as Tylenol
Cold Relief. Johnson & Johnson, maker of Tylenol Cold medicine, knows
that people frequently purchase the product when they are not feeling well.
As a result, the company makes the product readily available using a wide
distribution channel.
Time Time is a critical situational factor that affects individuals
throughout the consumer choice process. An emerging consumer trend in
many industrialized countries is the willingness to trade time for money.
This is evidenced in a study that reported a majority of Americans would
like to have more time for family and are seeking ways to simplify their
lives. 21 For many people, time is a resource to be used, spent, or wasted
and, for these people, the issue is not always the best price but, rather, the
best service. Increasingly, customers are asking if the purchase of this
product will give them more time or be less of a hassle than another
product. Automobile manufacturers and dealers have responded by
creating more “hassle-free” shopping experiences. Instead of going
through a difficult negotiation process to get the lowest price, dealers are
offering low, fixed prices that reduce some of the hassle.
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Social Factors
Humans are social beings. Everyone seeks social interaction and
acceptance on some level. As people move through life, they affect and, in
turn, are affected by various social factors. These factors include groups
like their family, social class, and reference groups, as well as individual
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opinion leaders.
Family The first group any individual belongs to is the family. Families
are the single most important buying group, and they influence the
consumer choice process in two ways. First, the family unit is the most
influential teacher of cultural values. Children are socialized into a
community and its values primarily through the family unit as they interact
with parents, siblings, and extended family members. Second, children
learn consumer behavior from their parents. As adults and later parents,
they model the behavior first learned as a child.
The most basic definition of a family is a group of two or more people
living together and related by birth, marriage, or adoption. Historically, in
the United States and much of the world, the traditional family included a
married couple with children of their own or adopted children. However,
the last 40 years have witnessed changes in the family structure. In the
1970s the traditional family comprised 70 percent of all households. Today
that number has dropped to a little under half of all households (48
percent).
New family structures are now much more prevalent. These emerging
family structures create a number of challenges for marketers. 22 Single-
parent households, for example, often report discretionary time is in short
supply. Grocery stores have seized on this opportunity by creating deli
bars that cater to working fathers and mothers who pick up dinner on their
way home from work.
The household life cycle (HLC) is fundamental to understanding the
role of family in the consumer choice process. The traditional family life
cycle consists of a fairly structured set of activities that begins when single
people get married (20s), start a family (30s), raise kids (40s to 50s), watch
as the kids grow up and leave home (50s to 60s), and finally enter into
retirement (60s and beyond). However, while the basic tenets of the
traditional household life cycle are valid, people are marrying later and
putting off the start of a family. Women are having children later in life for
a variety of reasons (marry later, focus on career). Couples raise kids then
divorce and remarry, creating blended families, or they start new families
of their own.
Each group offers opportunities and challenges for marketing
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managers. From basic needs that motivate individuals to engage in the
process through information search and then on to final purchase decision,
each group thinks and behaves differently. Each group makes completely
different choices based on its stage in the life cycle. 23 For example, two
couples (35 years old, married, professionals)—one with two children, the
other without—have very different lifestyles, values, and purchase
priorities. As a result, marketers are interested in age trends as an indicator
of future life cycle stages. (Exhibit 6.5 shows age trends in the United
States over the next 40 years.)
Individual responsibility in family decision making references the way
individuals inside the family make decisions. There has been a great deal
of research on the roles of various family members in the decision-making
process. Across all the purchases in a household, research suggests, not
surprisingly, that husbands and wives each dominate decision making in
certain categories and jointly participate in others. For example, husbands
tend to dominate insurance purchase decisions while wives are primary
decision makers in grocery shopping. 24 Children, even at an early age,
exert influence and dominate decisions for products such as cereal and
indirectly influence decisions on things like vacations. However,
traditional family responsibilities are changing as family units change.
Single-parent households have shifted traditional purchase decisions. For
example, single fathers must take on the responsibility for selecting their
child’s school.
Social Class In every society, people are aware of their social status;
however, explaining the social class system to someone from outside the
culture is often a challenge. People learn about social class and their social
status at a very early age from their
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EXHIBIT 6.5 Projections of the Population
Selected Age Groups for the United
States
375
Sex
and
Age
2020 2030 2040 2050 2060
BOTH
SEXES
334,503 359,402 380,219 398,328 416,795
Under
18
years
74,128 76,273 78,185 79,888 82,309
Under
5
years
20,568 21,178 21,471 22,147 22,778
5 to
13
years
36,824 38,322 39,087 39,887 41,193
14 to
17
years
16,737 16,773 17,627 17,854 18,338
18 to
64
years
203,934 209,022 219,690 230,444 236,322
18 to
24
years
30,555 30,794 31,815 32,717 33,300
25 to
44
years
89,518 95,795 96,854 99,653 103,010
45 to
64
years
83,861 82,434 91,021 98,074 100,013
65
years
and
over
56,441 74,107 82,344 87,996 98,164
85
years
and
over
6,727 9,132 14,634 18,972 19,724
100 89 138 193 387 604
376
years
and
over
Source: “Projections of the Population by Sex and Selected Age Groups for the
United States: 2015 to 2060,” Table 3. Washington, DC: U.S. Census Bureau,
Population Division, December 2014.
parents, school, friends, and the media. Social class is a ranking of
individuals into harmonized groups based on demographic characteristics
such as age, education, income, and occupation.
Most Western cultures have no formal social class system; however,
there is an informal social ranking. These informal systems exert influence
over an individual’s attitudes and behavior. Two factors drive social status.
Success-driven factors have the greatest effect on social status and include
education, income, and occupation. Innate factors, the second category, do
not result from anything the individual has done but, rather, are
characteristics the individual has inherited from birth. Gender, race, and
parents are the primary innate factors determining social status.
Social class is not the result of a single factor, such as income, but
rather a complex interaction among many characteristics. While some
social class drivers are not in the individual’s control, people do make
choices about their education and occupation. Therefore, it is possible for
people, particularly in societies providing educational opportunities, to
move into new social classes based on their achievements. In addition, the
availability of easy credit, creative pricing, and new financing
arrangements enable and even encourage people to engage in aspirational
purchases. Aspirational purchases are products bought outside the
individual’s social standing. Over 50 percent of the luxury cars sold in the
United States are leased. By offering special financing terms, individuals
with lower income levels now drive a BMW, Mercedes-Benz, or Audi.
This enables people to drive a car they normally could not afford, an
aspirational purchase.
From a marketing perspective, the impact of social status on
consumption behavior is profound, affecting everything from the media
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people choose to view (lower classes watch more TV while upper classes
tend to read more) to the products they buy (lower classes tend to buy
more generics while the upper classes select more branded products).
Opinion Leaders The previous discussion on external factors
focused primarily on group influences such as social and cultural factors;
however, external factors also include personal influences. Consider, for
example, Elon Musk, CEO of Tesla, who has dramatically changed the
automobile industry with his Tesla electric vehicles and is considered a
technology visionary. He speaks out on a number of issues, including new
technologies
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like Augmented Reality. Musk’s interviews are widely disseminated and
discussed not just because he is CEO of Tesla, but because he is
considered an opinion leader. His insights are considered harbingers of the
future.
Opinion leaders fulfill an important role by classifying, explaining,
and then bestowing information, most often to family and friends but
occasionally to a broader audience, as is the case with Elon Musk. People
seek out opinion leaders for a variety of reasons, including unfamiliarity
with a product, reassurance about a product selection before purchasing,
and anxiety resulting from high involvement with the purchase of a
particular product. Anyone whose opinions are valued by the individual
can be an opinion leader. For instance, the friend who enjoys cars could be
an opinion leader about automobiles; the relative with a background in
information technology might be the expert on technology.
While opinion leaders are often defined by product class, such as
Musk’s expertise in technology, another influential group has emerged.
This new group, whose members are called market mavens, has
information about many kinds of products, places to shop, and other facets
of markets, and the members initiate discussions with consumers and
respond to requests from consumers for market information. 25 The key
difference between opinion leaders and market mavens is the focus on
their market knowledge. Market mavens have a broader understanding and
expertise that goes beyond product to include other elements of the
purchase decision such as shopping experience and price.
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In their role as information gatekeepers, opinion leaders and market
mavens exert influence over an individual’s product and brand choice. As
a result, marketers seek to understand the roles of these two groups so they
can identify the members and, in turn, encourage them to try a particular
product. Marketers encourage these individuals using these activities:
Market research. As a primary source of information for interested
individuals, it is critical that opinion leaders and market mavens be
familiar with a product and understand its advertising so they can
convey the information accurately. Many market researchers focus
on the way these individuals interpret messages to ensure the
marketing mix is working correctly.
Product sampling. Testing a product is an essential part of any
gatekeeper’s acceptance. As a result, the leaders are prime targets for
product sampling.
Advertising. Companies use opinion leaders and market mavens to
influence decision makers, whether it is a business leader or an
individual consumer. Tag Heuer (a watch manufacturer) hired
Cristiano Ronaldo, one of the world’s best soccer players, as one of
its ambassadors because he is an opinion leader. The company hopes
that Ronaldo’s qualities—successful, focused, and a winner—
influence individuals looking to buy a watch.
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Tag Heuer hopes that Ronaldo’s success as one of the world’s best and most
visible athletes will carry over to people’s perceptions of the company’s
watches.
Source: Tag Heuer
Reference Groups Everyone identifies with and is influenced by
groups. In most cases, the individual may belong to the group or seek
membership, while in other situations the group is perceived negatively
and the individual works to disassociate himself. A reference group is a
group of individuals whose beliefs, attitudes, and behavior influence
(positively or negatively) the beliefs, attitudes, and behavior of an
individual. 26 Three characteristics are used to categorize reference groups:
association, desirability, and degree of affiliation.
The association with reference groups can be formal or informal.
Students, for example, have a formal relationship with their college or
university and, as a result, respond to and connect with other students at
the school. At the same time, a student has a number of informal
relationships with other groups. Circles of friends and classmates, while
not a formal group, can exert a lot of influence over an individual.
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A key characteristic impacting the degree a group affects the
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individual is the extent to which an individual desires to be associated with
the group. Desirability is the extent and direction of the emotional
connection an individual wishes to have with a particular group.
Individuals can really want to belong to a group or not, and the linkage can
be either positive or negative. Sports teams encourage participation at
many levels. Like many cities, Boston has a number of established sports
teams, including the Red Sox, Patriots, Celtics, and Bruins, each with
thousands of supporters, though the level of support varies widely.
Dedicated fans with the available resources become season-ticket holders,
spending thousands of dollars a year to attend every game of the season.
Many Boston residents are not actively involved with any team or are
ardent fans of one team but show less interest in the others. Some Boston
residents may even support teams from other cities, perhaps the New York
Yankees, and hold negative perceptions of the local team. As a result, the
desirability of belonging to the reference group known as a “Boston sports
fan” is person- and even team-specific.
The degree of affiliation indicates the amount of interpersonal contact
an individual has with the reference group. Primary groups are marked by
frequent contact, while less frequent or limited dealings are known as
secondary groups. Individuals come in frequent contact with co-workers,
close friends, and other groups such as religious, special- interest, or hobby
groups that may be primary or secondary depending on the level of
contact. Over time, the degree of affiliation will likely change; for
example, when someone changes jobs, the primary group of co-workers
will also change.
THE LEVEL OF INVOLVEMENT INFLUENCES
THE PROCESS
One significant outcome of motivation, discussed earlier, is involvement
with the product because it mediates the product choice decision.
Involvement is activated by three elements: the individual’s background
and psychological profile, the aspirational focus, and the environment at
the time of the purchase decision. As we noted, motivation is unique to
each individual and drives purchase decisions. Aspirational focus is
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anything of interest to the buyer and is not limited to the product itself. It is
possible to be involved with a brand, advertising, or activities that occur
with product use.
Many people ride motorcycles, but far fewer ride Harley-Davidson
motorcycles and, among Harley riders, some get tattoos of the Harley-
Davidson logo. Clearly these people are highly involved beyond the
product and associate strongly with the Harley lifestyle. Finally, the
environment changes the level of involvement. Time, for example, can
limit involvement if there is pressure to make a decision quickly but can
enhance involvement if there is sufficient time to fully engage in the
decision process. Involvement influences every step in the choice decision
process, and, as a result, marketers create strategies based on high and low
levels of involvement. For example, high-involvement purchases drive
buyers to more cognitive learning such as the new car buyer who visits car
dealers, checks out automotive websites, and seeks out the advice of
automotive experts for information on cars in an effort to make an
informed purchase decision. On the other hand, conditioning works well
with low-involvement purchases such as the purchase of gasoline where
people frequently purchase from the same station because of various
factors such as price and location. 27
Decision Making with High Involvement
Greater motivation that leads to greater involvement results in a more
active and committed choice decision process. When someone is
concerned with the outcome of the process, they will spend more time
learning about product options and become more emotionally connected to
the process and the decision. Someone stimulated to acquire new
information is engaged in high-involvement learning. For example,
someone interested in purchasing a new high-end digital camera will seek
out product reviews on CNET.com or other online sources to discover
information that will assist in the choice decision. Some, despite a brand
preference, may be willing to experiment with other brands and seek out
additional information looking for a new alternative. A high level of
involvement usually means the entire process takes longer. High-
involvement consumers report high levels of satisfaction in their purchase
382
decision. This
155
is not surprising since these consumers spend more time engaged in the
decision process and, therefore, are more comfortable in their decision.
Decision Making with Limited Involvement
While high-involvement purchases are more significant to the consumer,
the vast majority of purchases involve limited or low involvement. From
the purchase of gasoline to the choice of restaurants, decisions are often
made almost automatically, often out of habit, with little involvement in
the purchase decision. The reality is that consumers tend to focus their
time and energy on high-involvement purchases while making many
purchases with little or no thought at all.
Low-involvement learning happens when people are not prompted to
value new information. This is more prevalent than high-involvement
learning because the vast majority of marketing stimuli occur when there
is little or no interest in the information. People do not watch TV for the
commercials; they watch for the programming, and advertising is just part
of the viewing experience. Likewise, print advertising exists alongside
articles and is often ignored. While people are not actively seeking the
information, they are exposed to advertising and this, in turn, affects their
attitudes about a brand. Research suggests that people shown ads in a low-
involvement setting are more likely to include those brands in the choice
decision process. Low-involvement consumers spend little time comparing
product attributes and frequently identify very few differences across
brands. Because the decision is relatively unimportant, they will often
purchase the product with the best shelf position or lowest price with no
evaluation of salient product characteristics. 28
Marketers consider several strategies in targeting low-involvement
consumers. The objective of these strategies is to raise consumer
involvement with the product. Generally, time is the defining characteristic
for these strategies. Short-term strategies involve using sales promotions
such as coupons, rebates, or discounts to encourage trying the product and
then hoping the consumers will raise their product involvement. Long-term
strategies are more difficult to implement. Marketers seek to focus on the
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product’s value proposition, creating products with additional product
features, better reliability, or more responsive service to increase customer
satisfaction. Additionally, strong marketing communications campaigns
that speak to consumer issues or concerns can raise involvement with the
product. A classic example of this tactic is Michelin’s highly effective and
long-running advertising campaign that links a relatively low-involvement
product, tires, with a significant consumer concern, family safety. Tires are
not typically a high-involvement product; however, when the voiceover on
the commercial says, “Because so much is riding on your tires,” or more
recently “What matters most,” while showing children in the car,
consumer involvement in the product—and more specifically the brand—
increases.
While a low-involvement consumer demonstrates little or no brand
loyalty, he or she is also, by definition, open to brand switching. As a
result, brands can experience significant gains in consumer acceptance
with an effective, comprehensive marketing strategy.
THE CONSUMER DECISION-MAKING
PROCESS
LO 6-4
Understand the consumer decision-making process.
Every day, people make a number of consumer decisions. From breakfast
through the last television show watched before going to bed, people are
choosing products as a result of a decision-making process. Learning about
that process is a vital step for marketers trying to create an effective
marketing strategy.
Years of consumer research have resulted in a five-stage model of
consumer decision making. While not everyone passes through all five
stages for every purchase, all consumers apply the same fundamental
sequence beginning with problem recognition, followed by search for
information, evaluation of alternatives, product choice decision, and
finally post-purchase evaluation. Each time a purchase decision is made,
384
the individual begins to evaluate the product in preparation for the next
decision (see Exhibit 6.6).
156
EXHIBIT 6.6 Consumer Decision-Making Process
However, as noted earlier, someone driving home from work does not
go through an extensive search for information or evaluate a number of
alternatives in purchasing gasoline for the car. In all likelihood, the
consumer buys from a station he or she knows well and shops at regularly.
Nevertheless, this model is helpful because it illustrates what can be called
the “complete decision-making process,” which occurs when people are
fully involved in the purchase.
Problem Recognition
Every purchase decision made by an individual is initiated by a problem or
need that drives the consumer decision-making process. Problems or needs
are the result of differences between a person’s real and preferred states.
People live in the perceived reality of present time or real state. At the
same time, people also have desires that reflect how they would like to feel
or live in the present time, and this is known as a preferred state. When
the two states are in balance, the individual does not require anything and
no purchase occurs. However, where there is a discrepancy in the two
states, a problem is created and the consumer decision-making process
begins.
The discrepancy, or gap, can be created by internal or external drivers.
Internal drivers are basic human needs such as hunger and security.
385
Someone is hungry (real state) and wants to eat (preferred state). This will
lead to a number of choices: eat at home, dine out, or go to the grocery
store. It may even trigger other options such as calling a friend, which
addresses a need for social interaction. External drivers happen as people
interact with the world. Some of these triggers result from a company’s
marketing efforts, but most arise when an individual experiences
something that creates a desire, like seeing a friend driving a new car or
hearing about a good new restaurant.
Despite internal or external stimuli, people do not respond to every gap
between a real and preferred state. Sometimes the disparity is not sufficient
to drive the person to action. A person may want a new car but does not
act on that feeling because he or she lacks the financial resources or simply
cannot justify the purchase. When the conflict between real and preferred
states reaches a certain level, the decision-making process begins.
Marketers need to understand problem recognition for several reasons.
First, it is essential to learn about the problems and needs of the target
market to create value-added products. Second, key elements of an
effective marketing strategy, particularly communication, are predicated
on a good knowledge of problem recognition triggers.
Search for Information
Once a problem is recognized and action is required, people seek
information to facilitate the best decision. The search for information is not
categorical; rather, it operates on a continuum from limited to extensive.
Consider the following examples. A couple notices the low-fuel light
comes on as they are driving home from a party. The driver recalls their
“local” station is on the way home and, without any additional
information, stops at the station and fills up the car. This is an example of
minimal information search. The same couple now finds out they are going
to have a baby and realizes their Mercedes-Benz C-class coupe has to be
replaced with a more practical vehicle. They engage in a thorough
information search reviewing car magazines, soliciting opinions from
friends and family, conducting online research on sites like Edmunds or
KBB, and test-driving a number of new cars and SUVs before making a
final purchase decision. This is an example of extensive information
386
search.
157
Between these two extremes is limited information search, which, as the
name implies, involves some, albeit restricted, search for information.
Suppose the wife from the couple in our previous examples has a cold. The
husband stops at the drugstore to get her some medicine. At the cold
medicine aisle he scans the boxes looking for the one that will provide
“maximum relief” for his wife’s symptoms. He may even ask the
pharmacist for help in selecting the best choice. At this point he is engaged
in a limited search for information. Generally, people do only the amount
of information search they believe is necessary to make the best decision.
Tylenol Cold provides a great deal of information on the package to help
consumers make a decision in the store at the point of purchase.
©Editorial Image, LLC
Information Sources There are two basic sources of information:
internal and external. Internal information sources, as the name implies,
are all information stored in memory and accessed by the individual. This
is always the first place people consider for information. Past experiences,
conversations, research, preexisting beliefs, and attitudes create an
extensive internal database that is tapped by the individual once the
problem is recognized. In our example of the car low on gas, the driver
searched internal information and found past experiences provided
sufficient information to make a decision.
387
Even when additional information is needed, internal information is
used to frame the external search. Price limits and key performance
metrics, criteria often used in the evaluation of alternatives, are frequently
derived from information stored in memory. People gather and process
information even if they are not actively involved in the purchase decision
process. Consequently, an individual’s internal information is changing all
the time. As people gain more experience with a product or brand, and
gather more information, they often rely more on internal information and
conduct a less external information search.
The second fundamental source of information is external. Once
people have determined internal information is not sufficient to make the
purchase decision, they seek information from outside sources. External
information sources include independent groups (sources), personal
associations (friends and family), marketer-created information
(automobile manufacturer website, advertising), and experiences (product
trial and demonstrations).
An organization’s marketing communications represent only one
source, albeit an important one, among several external information source
options. However, company marketing communications can play an
important role in influencing other sources of information such as personal
contacts. For example, when Johnson & Johnson introduces new baby care
products, it spends a lot of money providing product samples and
information to pediatricians and nurses in an effort to support the
company’s direct marketing communications to young mothers. So even
though consumers indicate company-sponsored marketing information is
of limited value in making purchase decisions, the company’s marketing
efforts can play a more significant role when considered in light of their
effect on other external information sources. Exhibit 6.7 is a summary of
external information sources and highlights the diversity of available
information resources.
Defining the Set of Alternatives At some point in the search for
information, often during the internal information search, people begin to
limit the number of alternatives under consideration. From a practical
perspective, it is simply not possible to gather and process information on
many different options. This is known as bounded rationality and defines
388
people’s limited capacity to process information.
People begin with a very large set of possible alternatives known as
the complete set. This set includes a variety of options across different
brands and perhaps even products. Consider a person looking for mobile,
wireless Internet access. The complete set could include different product
options (cell phone, laptop, or tablet computer) and brands (Apple, Dell,
Sony, Samsung, Hewlett-Packard, and Lenovo). Based on the individual’s
158
EXHIBIT 6.7 Sources of External Information
External
Information
Sources
Example Marketing Implications
Independent
groups
Consumer
Reports
Consumer’s
Union
Favorable reviews from
independent sources are an
important source of external
information. Marketers need
a strategy to reach
independent sources with
relevant information.
Personal
associations
Family/friends These associations can be
an important external source
of information in certain
decisions. Marketers seek to
influence reference groups
and opinion leaders through
favorable product reviews
and effective marketing
communications.
Marketer
information
Advertising,
manufacturer
website
Effective marketing
communications reinforce
messages to other external
information sources such as
independent groups.
389
Experiential Product trials Product samples for certain
categories such as food are
easy to provide. Encourage
people to seek out product
trials and demonstrations
when a sample is not
appropriate (electronics,
automobiles).
choice criteria, however, this large set of possible options will be reduced.
Keep in mind that the complete set is not all options available to the buyer;
rather, the set is the options that the buyer is aware of when the search
process begins. The extent of the buyer’s knowledge about the problem
and available options determines the set of possible alternatives in the
complete set.
As consumers move through the search for information, certain
products (laptop computer) may be eliminated in favor of others (tablet
computer) and brands will be evaluated and discarded. The awareness set
reduces the number of options. At a minimum, the number of different
product categories, if considered, will be reduced and some brands
discarded. Interestingly, the awareness set can include choices across
product categories. In our example, it is still possible for a particular brand
of cell phone to remain in the awareness set despite the fact they are
different product categories. From the awareness set, individuals conduct
an additional information search. Based on additional information and
evaluation, a consideration (evoked) set is created, which encompasses the
strongest options. It is from the consideration set that the product decision
is made.
Marketers are vitally interested in learning about the information
search process for two reasons. First, marketers must identify important
external information sources so they can direct their resources to the most
effective external sources. Second, they must learn how consumers choose
products for inclusion in their awareness and consideration sets to create
marketing strategies that increase the probability of being in the
consideration set.
390
Evaluation of Alternatives
Concurrent with the search for information are the analysis and evaluation
of possible product choices. As we discussed previously, consumers move,
sometimes quickly, from many options to a more restricted awareness set
and from there to a final consideration set from which a decision is made.
During this process, the individual is constantly evaluating the alternatives
based on internal and external information.
The consumer choice process is complex and ever changing.
Environmental and personal factors at the moment of decision
dramatically affect the purchase decision. As
159
a result, it is impossible to develop a consumer choice model for every
purchase. However, years of research suggest consumers make product
choices primarily from three perspectives: emotional, attitude based, and
attribute based.
Emotional Choice Not all purchases are made strictly for rational
reasons. Indeed, product choices can be emotional choices, based on
attitudes about a product, or based on attributes of the product depending
on the situation. Frequently, the product choice encompasses a mix of all
three. An individual enjoys yogurt and taking a break to enjoy a snack
(emotional based). That same person considers Chobani Greek Yogurt the
best choice for a healthy yogurt (attitude based). Finally, the individual
considers Chobani Greek Yogurt to be better tasting than other competitors
(attribute based).
While emotions have been considered an important factor in decision
making for many years, it was only recently that marketers began to
develop specific marketing strategies targeting emotion-based decisions.
Product design and execution even focus on creating an emotional
response to the product. From there, marketing communications connect
the product to the target audience using images and words that convey an
emotional connection. Exhibit 6.8 shows an ad that communicates emotion
to the reader.
391
EXHIBIT 6.8 Ketel One Offers an Emotional
Choice
Ketel One is connecting to their customers on an emotional level,
reinforcing the appeal of a beautiful woman saying that “This is Vodka.”
Source: Ketel One
Attitude-Based Choice Early in the evaluation of alternatives,
people regularly use beliefs and values to direct their assessment. As
consumers create the awareness set, they discard or include products and
brands using existing attitudes. Attitude-based choices tend to be more
holistic, using summary impressions rather than specific attributes to
evaluate the options, and affect even important purchases such as a car or
house. It is not uncommon for beliefs to affect the actual product decision.
392
For example, “it is important to buy cars made in America” or the
opposite, “foreign cars are better than American products.” When two
brands are judged to be relatively the same, people frequently look to
existing attitudes to guide their decision. When someone responds to a
question about why he bought a particular product with, “I always buy . .
.” or “this is the only brand I use . . . ,” they are likely making an attitude-
based choice decision.
Attribute-Based Choice By far the most prevalent approach to
product decisions is attribute-based choice based on the premise that
product choices are made by comparing brands across a defined set of
attributes. These evaluative attributes are the product features or benefits
considered relevant to the specific problem addressed in the purchase
decision. Antilock brakes are a product feature that translates into a
consumer benefit—better control in a hazardous situation. Most consumers
could not describe how antilock brakes actually work but are quite aware
of the benefits and would eliminate a car from the choice process if it
failed to have that product feature. Not all evaluative attributes are
tangible. Brand image, prestige, and attitudes about a brand or product can
also be used as evaluative criteria.
Product Choice Decision
The end result of evaluating product alternatives is an intended purchase
option. Until the actual purchase, it is still only an “intended” option
because any number of events or
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interactions can happen to dissuade or alter the final purchase decision.
Four purchase event characteristics affect the actual choice decision:
Physical surroundings—the environment for the purchase. From store
colors to the employees, consumers respond to their physical
environment. For example, while the color red creates awareness and
interest, it also creates feelings of anxiety and negativity. Blue is calmer
and considered the most conducive in creating positive feeling with the
customer. Crowding can have a negative effect on purchase decisions
because, if the store becomes too crowded, people will forgo the
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purchase, perhaps going somewhere else.
Social circumstances—the social interaction at the time of purchase.
Shopping is a social activity and people are influenced by the social
interaction at the time of purchase. Trying on an outfit alone may lead to
the purchase; however, when putting on the outfit while shopping with a
friend, it is unlikely the clothing will be purchased if the friend does not
like it.
Time—the amount of time an individual has to make the purchase. The
product choice decision can be affected by time pressure. The consumer
will be less willing to wait for the best solution and more likely to
purchase an acceptable alternative.
State of mind—individual’s state of mind at time of purchase. An
individual’s mood influences the purchase decision. People in a positive
state of mind are more likely to browse. Negative mood states are less
tolerant and lead to increased impulse and compulsive purchases.
As a result of these purchase event characteristics, the intended purchase
can be altered despite the information search and evaluation process. Some
of these characteristics are at least nominally in the marketer’s control.
Other characteristics, such as an individual’s state of mind, are
uncontrollable and must be dealt with at the moment of purchase by
employees who, it is hoped, have the skills and training needed to handle
difficult situations. 29
The final purchase decision is not a single decision; rather, the
consumer confronts five important decisions:
What: select the product and, more specifically, the brand. Included as
part of the product choice are decisions about product features, service
options, and other characteristics of the product experience.
Where: select the point of purchase. Select the retailer and, increasingly,
the channel—retail store (bricks) or online (clicks)—through which the
product is to be purchased.
How much: choose the specific quantity to be purchased. For example,
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warehouse clubs, such as Sam’s Club and Costco, offer consumer
options on purchase quantity. If you have the ability to store products, it
is possible to save money by purchasing in larger quantities.
When: select the timing of the purchase. The timing of the purchase can
make a difference in the final purchase price. Car dealers traditionally
offer better deals at the end of the month as they try to meet monthly
sales quotas. Through sales and other marketing communications,
marketers encourage consumers to purchase sooner rather than later.
Payment: choose the method of payment. The selection of a payment
method makes a big difference to the consumer and marketer. Marketers
want to make it easy for the consumer to purchase; however, not all
payment methods are equal. Credit cards charge the retailer a fee that, in
turn, is passed back to the consumer. One payment method, the debit
card, is becoming popular, combining the convenience of a credit card
with the fiscal responsibility of using cash. Finally, electronic payment
methods using smart- phones eliminate the need to carry credit cards or
cash.
Consumers make a number of decisions at the point of purchase. Often, the
selection of where the product will be purchased is done in conjunction
with the product evaluation.
Post-Purchase Assessment
Once the purchase is complete, consumers begin to evaluate their decision.
Attitudes change as they experience and interact with the product. These
attitudinal changes include the way
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the consumer looks at competitors as well as the product itself. At the
same time, marketers want to foster and encourage the relationship and, as
we will discuss in Chapter 7, increasingly focus resources to build the
customer relationship. Most of a CRM program is built around the
customer’s experience after the purchase. The four critical characteristics
of post-purchase assessment are dissonance, use/nonuse, disposition, and
satisfaction/dissatisfaction.
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Dissonance High-involvement, large purchases often lead to a level
of doubt or anxiety known as post-purchase dissonance. Most purchases
occur with little or no dissonance. 30 The likelihood of dissonance
increases if one or more of the following purchase decision attributes are
present: (1) a high degree of commitment that is not easily revoked; (2) a
high degree of importance for the customer; (3) alternatives that are rated
equally and a purchase decision that is not clear. Also, the individual’s
own predisposition for anxiety can create additional dissonance. Big-ticket
purchases frequently include several of those characteristics. For example,
buying a house, the single biggest purchase most people will ever make, is
a big commitment that can be complicated when two or three homes are
evaluated as more or less equal by the consumer.
How do consumers reduce dissonance? The single most effective
method is a thorough information search and evaluation of alternatives.
When consumers are confident that due diligence has been done, they have
less anxiety after the purchase. If dissonance remains a problem, additional
information can be sought to reduce anxiety and reinforce the decision.
Marketers can direct marketing communications to reduce dissonance,
particularly with large purchases such as automobiles. As part of a CRM
program, many companies follow up with customers after the purchase to
assess their satisfaction.
Use/Nonuse Consumers buy a product to use. Marketers are acutely
interested in learning how customers use the product for several reasons.
First, it is important the customer knows how to use the product correctly.
Buying a new television can quickly become a negative experience if it is
not set up properly. As a result, marketers want to be sure the customer
understands how the product is to be used and any setup procedures that
may be needed to ensure proper function. Second, a satisfied customer
means a greater likelihood of additional purchases. Buying and riding a
bicycle means the consumer is more likely to buy a helmet, light, bike
rack, and other accessories.
Building customer relationships and making sure the customer
understands the product and how it is to be used reduce the probability of
consumers returning the product. Another potential post-purchase problem
can be that the product is purchased and not used. In these situations,
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marketers seek to stimulate product usage. Campbell Soup Co. found
customers frequently had several cans of soup on their shelf for long
periods of time. The company developed a marketing communications
program to encourage faster consumption of the product. Many packaged
foods include expiration dates encouraging consumers to use the product
quickly and repurchase.
Seventh Generation is one of many companies that use recycled materials in
their packaging.
©Editorial Image, LLC
Disposal Increasingly, marketers are concerned about how products
are disposed of once they are no longer in use. Environmental concerns
consistently rank as a major issue for consumers in many parts of the
world. People living in the United States, for example, produce nearly
2,000 pounds (1 ton) of garbage per person every year. Once a product is
consumed, in most cases, a physical object remains and needs to be
disposed of. New technologies such as laptops and mobile devices are
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particularly difficult to discard because they contain dangerous chemicals.
Environmentally friendly products encourage proper use and disposal.
Companies including Coca-Cola use recycled materials in their
manufacturing and packaging. At the same time, companies are
encouraging consumers to recycle on their own. Dell and other computer
companies have a program that encourages consumers to recycle their old
computers.
Satisfaction/Dissatisfaction Consumers evaluate every aspect of
the product. As previously noted, this includes any dissonance present at
the time of purchase, use or nonuse of the product, the product disposition,
the purchase experience, and
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even the value equation. This results in the consumer’s satisfaction or
dissatisfaction with the product and purchase decision. In addition, various
dimensions of the overall experience will be satisfactory or unsatisfactory.
A customer may love the product but dislike the dealer or retailer.
Most products are evaluated on two dimensions—instrumental
performance and symbolic performance. Instrumental performance relates
to the actual performance features of the product and answers the question:
Did the product do what it is supposed to do? Symbolic performance refers
to the image-building aspects of the product and answers the question: Did
the product make me feel better about myself? A product that performs
poorly on instrumental dimensions will ultimately lead to dissatisfaction.
However, for a consumer to be fully satisfied with the product, it must
perform well both instrumentally and symbolically. A new Kia automobile
may score high on instrumental performance but low on symbolic
performance. Is the customer dissatisfied? No, but it is not certain that
person will purchase another Kia.
There are two primary outcomes of consumer dissatisfaction with a
product: a customer will either change his or her behavior or do nothing.
When a customer has an unfavorable experience at the bank, she may not
leave, but her opinion of the bank diminishes. Over time, this will erode
the consumer’s evaluation of the bank. The second result of consumer
dissatisfaction is a change in behavior. The consumer may simply choose
to stop shopping at that store or purchasing a particular product. Another
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option is to complain to management. Marketers are aware that for every
complaint, there are eight “quiet” but dissatisfied consumers who chose to
walk away. An even greater concern is consumers telling friends about a
bad experience or complaining to government agencies. Finally,
dissatisfied consumers who believe their legal rights have been violated
may take legal action for damages related to the purchase experience.
ORGANIZATIONAL BUYING: MARKETING
TO A BUSINESS
Many people believe marketing is focused primarily on consumers—the
ultimate users of the product. This is due at least in part to the fact that
most people experience marketing as a consumer. The reality, however, is
that large consumer products companies purchase hundreds of billions of
dollars of products and services every year. General Motors, for example,
spends over $60 billion a year on products and services. Everyone knows
Hewlett-Packard (HP) and General Electric (GE) because of the products
they sell to consumers, but these companies derive most of their revenue
from selling to other businesses.
In many cases, companies are selling products that end up as
components in a finished product. GE is a world manufacturing leader in
commercial jet engines that power half of the jets flying today. Also,
companies must purchase products to help them maintain their business.
Lenovo is a global company providing IT solutions to companies
worldwide. Its products are not a component of another product but, rather,
help a business run better. While many companies serve business-to-
consumer markets, all companies operate in a business-to-business market,
as we will see in this chapter. From GE to Walmart, companies must
understand and work with other companies as part of their business
operations.
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Lenovo markets its products to both consumers and businesses.
Source: Lenovo
In this section, we explore B2B markets. The first part of the chapter
defines business- to-business markets and delineates the differences
between B2B markets and consumer markets. Next, we discuss the
business market purchase decision process, which is different from the
process consumers use in making a purchase decision. Finally, the
significant role of technology in business-to-business market relationships
will be presented.
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DIFFERENCES BETWEEN BUSINESS AND
CONSUMER MARKETS
LO 6-5
Understand the differences between B2C and B2B markets.
Business markets and consumer markets are not the same. Six distinct
differences dramatically affect marketing strategy and tactics (see Exhibit
6.9). These differences create unique opportunities and challenges for
marketing managers because success in consumer marketing does not
400
translate directly to business markets and vice versa.
Relationship with Customers
As we will discuss in Chapter 7, many consumer product companies now
focus on building strong relationships with their customers. However, even
when a relationship is cultivated with the customer, it is impersonal and
exists primarily through electronic communication or direct mail.
The opposite is true in business markets. The nature of business
markets requires a more personal relationship between buyer and seller.
Every relationship takes on additional significance as the sales potential of
each customer increases. A strong personal relationship is critical because
business customers demand fast answers and good service and, in general,
want a close relationship with suppliers. 31 As a result, companies selling
in a B2B market invest more resources to foster and maintain personal
contact with their customers than in a consumer market. Consider a
company like HP, which certainly sells their products to consumers but has
a separate, dedicated sales staff focused solely on selling into B2B
markets. In some cases, companies even invest in their suppliers to
strengthen the relationship.
A more personal relationship most often connotes a greater emphasis
on personal selling and, increasingly, technology. Customers want direct
communication with company representatives and prefer someone they
know and trust. The individual most responsible for maintaining a
relationship is the salesperson. Personal selling also offers companies the
most effective method for direct communication with the customer.
Technology has greatly improved the quality and quantity of
communications between buyer and seller.
EXHIBIT 6.9 Differences between Business and
Consumer Markets
B2B Market
(Business)
B2C Market
(Consumer)
401
Relationship
with
customers
Invest more in
maintaining
personal
relationships
Impersonal; exist
through electronic
communication
Number and
size of
customers
Fewer but larger
customers
More customers but
buy in smaller, less
frequent quantities
Geographic
concentration
Suppliers located
strategically by
the buyers
Could be anywhere in
the world
Complexity of
buying
process
Complex process
that can take a
long time (years
in some cases)
and involve more
people
Fewer people, often
just one, directly
involved in the
purchase decision and
the purchase decision
is often based on
personal and
psychological benefits
Complexity of
supply chain
Direct from
supplier to
manufacturer
Complex with products
moving through the
channel to reach the
consumer
Demand for
products
Derived from
consumer
demand,
fluctuates with
changes to
consumer
demand, and
more inelastic
(less price
sensitive)
Consumer perceptions
about their own needs
mitigated by
environmental factors
and marketing stimuli
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However, one-on-one personal communication is still the most important
tool in developing and maintaining a strong customer relationship in
402
business markets.
At the same time, technology plays a critical role in connecting buyer
and seller. Integrating IT systems that enhance sales response times,
provide better customer service, and increase information flow is now an
accepted element in a successful B2B customer relationship. Customers
demand not only a personal relationship with their vendors but also an
efficient one. Most companies now require vendor Internet connectivity to
increase efficiency.
Number and Size of Customers
Business markets are characterized by fewer but larger customers.
Goodyear, for example, may sell one set of tires to a consumer over the
course of three years, but every year the company sells millions of tires to
Ford Motor Company. Add up all the major automobile companies, and
there are fewer than 25 business customers for Goodyear. Not surprisingly,
the company maintains a dedicated sales force just for the automobile
manufacturers.
The large size and small number of customers place a higher value on
each customer. Although consumer products companies value customer
relationships, it is not possible to satisfy every customer every time, nor is
it economically feasible. However, in a business market setting, losing
even one large customer has striking implications for a company. 32
Walmart is Procter & Gamble’s single biggest customer, accounting for 14
percent of company sales (roughly equivalent to $10 billion). At its
Arkansas office, P&G has a 300-member staff dedicated to one customer
—Walmart.
Geographic Concentration
Business markets tend to concentrate in certain locations. 33 Historically,
the automobile industry concentrated in the Midwest, particularly Detroit,
and technology firms dominated Silicon Valley in California. As a result,
their suppliers congregated nearby. A software developer, for example,
that wants to be close to its primary customers should set up an office in
San Jose, California. While the Internet allows people to live anywhere,
the nature of business relationships means companies want to have a
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strong presence near their best customers.
Complexity of the Buying Process
The B2B customer buying process, discussed later in the chapter, is more
complex than the consumer purchase decision process. It takes longer and
involves more people, making the seller’s job more challenging. In
addition, as companies connect with customers, the number of
relationships increases and it is difficult for one individual, the
salesperson, to keep up with the complexity of the relationships. 34
Complexity of the Supply Chain
The movement of goods through a channel to the ultimate consumer
requires a high level of coordination among the participants. A supply
chain is the synchronized movement of goods through the channel. It is far
more integrated than ever before as companies seek to keep production
costs low, provide maximum customer input and flexibility in the design
of products, and create competitive advantage. At the same time, the
supply chain in B2B markets is generally more direct, with suppliers and
manufacturers working closely together to ensure efficient movement of
products and services.
Demand for Products and Services Is Different in
a Business Market
Product demand in business markets is different from consumer demand
on three critical dimensions: derived demand, fluctuating demand, and
inelastic demand. All three offer unique challenges and opportunities for
marketers. For example, two of the three differences (derived
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and fluctuating demand) deal with the relationship between B2B and B2C
demand and suggest B2B marketing managers must first understand their
customer’s markets before they can sell to the customer. The final
dimension (inelastic demand) is an opportunity for a seller but must be
managed carefully to maintain a successful relationship.
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Derived Demand Demand for B2B products originates from the
demand for consumer products, or, put another way, demand for B2B
products is derived demand. If consumers are not buying Ford cars and
trucks, then there is no need for Ford to purchase Goodyear tires.
Therefore, it is important for Goodyear to understand the consumer market
for automobiles for two reasons. First, knowing what consumers are
looking for in a car is critical to designing tires for those cars. Second,
knowing the consumer automobile market is essential to create a value
proposition that speaks to Ford’s need to sell more cars and trucks to
consumers.
In addition to the demand for specific Ford products, such as the Flex
or Mustang, Goodyear scans the environment for anything that might
affect consumer demand. Environmental factors have long-term and short-
term effects on consumer product choices. For example, long-term
economic factors such as dramatic changes in the price of gasoline can
have significant positive or negative effects on the sale of SUVs, and
short-term factors like a hurricane in Florida or the Southeast can limit
distribution and sale of products in those areas for a while. B2B sellers
understand that business customer success frequently means finding ways
to assist them in their consumer markets. This is a challenge for business
marketers because, despite having a great product and providing great
service at a competitive price, they may still not get the business because
consumer demand for their business customer’s product is weak.
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Goodyear appeals to consumers by pointing out that they make tires for snow
rescue vehicles, which demand high-quality snow tires.
Source: The Goodyear Tire & Rubber Company
Fluctuating Demand The relationship between consumer demand
and demand for business products presents a real challenge for business-
to-business marketers. Small changes in consumer demand can lead to
considerable shifts in business product demand and is referred to as the
acceleration effect. This makes forecasting the sale of consumer products
important because making even a small mistake in estimating consumer
demand can lead to significant errors in product production.
EXHIBIT 6.10 Examples of Elastic and Inelastic
Demand
406
Source: Slavin, Stephen. Economics, 10th ed. New York: NY: McGraw-Hill
Education, 2011.
Inelastic Demand Business products experience fairly inelastic
demand, meaning changes in demand are not significantly affected by
changes in price. Apple, for example, will not buy more processors from
Intel if Intel lowers the price, nor will it buy fewer chips if Intel raises the
price until the price increase becomes so high that Apple considers
alternative vendors. Apple designs some of its computers around Intel
processors and changing vendors creates disruption and costs in other
areas of the manufacturing process. Price increases, particularly
incremental changes, are often accepted because manufacturers are
hesitant to disrupt manufacturing processes, which, in turn, creates
inelastic demand in the short run. Exhibit 6.10 has two demand curves, D 1
and D 2 . As price rises from P 1 to P 2, the demand changes. The more
elastic demand curve is the one with the largest shaded area—B. Demand
in business-to-business markets is generally more inelastic than in
consumer markets, which means changes in price have less effect on
demand—the smaller shaded area A. This makes D 2 an example of
inelastic demand.
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BUYING SITUATIONS
407
People involved in making business buying decisions face many choices
as they move through the purchase decision process. Business buying
decisions vary widely based on the
Nature of the purchase (large capital outlay like that needed for a
new manufacturing plant versus simply ordering office supplies).
Number of people involved in the decision (one or many).
Understanding of the product being purchased (new to the firm or a
familiar product purchased many times before).
Time frame for the decision (short time requiring an immediate
purchase decision or a longer lead time).
Some decisions require little or no analysis before the purchase decision.
Others require updating information or changing existing purchase orders
before the purchase decision can be made. Finally, some decisions require
an in-depth analysis of the product. These three scenarios are referred to as
straight rebuys, modified rebuys, and new purchases.
Straight Rebuy
Many products are purchased so often that it is not necessary to evaluate
every purchase decision. Companies use a wide range of products on a
consistent basis (office supplies, raw materials) and simply reorder when
needed. This type of purchase is called a straight rebuy. Increasingly, this
is done automatically via secure Internet connections with approved or
preferred suppliers. Far fewer people are involved with the purchase
decision; often it is handled by one person in the purchasing department.
The goal of business sellers in straight rebuy situations is to become
the preferred supplier. A company given approved status must be diligent
and mindful of competitors seeking to displace it. Companies not on the
approved list are called out suppliers. Their primary task is to obtain a
small order, an opening, then leverage that opportunity to gain additional
business. This is a challenge, however, if the approved supplier is doing a
good job of meeting the customer’s needs. From time to time, many
companies order small quantities from nonapproved suppliers just to keep
the approved supplier from becoming too complacent or to evaluate a
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potential new vendor. 35
Modified Rebuy
A modified rebuy occurs when the customer is familiar with the product
and supplier but is looking for additional information. Most often this need
for change has resulted from one or more of three circumstances. First, the
approved supplier has performed poorly or has not lived up to the
customer’s expectations. Second, new products have come into the market,
triggering a reappraisal of the current purchase protocols. Third, the
customer believes it is time for a change and wants to consider other
suppliers.
All three situations create opportunities for out suppliers to gain new
business. When a purchase contract is opened up for a modified rebuy, it
represents the best opportunity for a new supplier. At the same time,
however, the current approved supplier seeks to maintain the relationship.
The approved supplier almost always has the advantage, particularly if it
has a close relationship with the customer, because it knows the people
involved and usually gets access to critical information first.
New Purchase
The most complex and difficult buying situation is the new purchase. A
new purchase is the purchase of a product or service by a customer for the
first time. The more expensive, higher the risk, and greater the resource
commitment, the more likely the company will engage in a full purchase
decision process (outlined later in the chapter).
This process almost certainly involves a group throughout the entire
decision process, even though the final decision may rest with a single
individual. Because the company’s
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purchasing personnel have had very little experience with the product, they
seek information from a variety of sources. First and foremost, vendor
salespeople are a key source of information about the product’s
capabilities. If they do their job well, they help the customer define its
needs and how best to address them. Another avenue of information for
companies is to hire consultants who, as unbiased experts, can assess and
409
educate customers on their needs and possible solutions. Finally, the
company must scan its own resources, including past purchase records, for
relevant information.
BUYING CENTERS
LO 6-6
Understand the critical role of the buying center and each participant in
the B2B process.
As we discussed, business purchases are seldom made by just one person,
particularly in modified rebuy and new purchase situations. A number of
individuals with a stake in the purchase decision come together to form a
buying center that manages the purchase decision process and ultimately
makes the decision. The individuals included in the buying center may
have direct responsibility over the decision (purchasing department) or
financial control of the company (senior management). In other cases, the
individuals might have a specific expertise helpful to the decision
(engineer, consultant). 36
Buying centers usually are not permanent groups but are convened to
make the decision and then disband. Also, individuals may participate in
more than one buying center at any given time. Purchasing agents are apt
to be members of several buying centers. In addition, while the vast
majority of buying center participants work for the customer, others, such
as outside consultants, are invited into the group because of their expertise.
This happens, for example, in new purchases when a company believes it
lacks sufficient internal knowledge and experience to make an informed
decision. Most buying centers include a minimum of five people; however,
they can be much larger. In larger multinational corporations, buying
centers for companywide purchase decisions, such as a new corporate
CRM system, can include dozens of people from all over the world.
Members of the Buying Center
Every participant in a buying center plays a certain role and some may
410
play multiple roles (see Exhibit 6.11). In addition, an individual’s role may
change. As people move up in an organization, they can move from user to
influencer and finally to a decider. These functions can be defined
formally by the company or informally as a result of an individual’s
expertise or influence. Let’s examine each of the five major roles.
EXHIBIT 6.11 Buying Center Participants
User Users are the actual consumer of the product and play a critical
role. While typically not the decision makers, they do have a lot of input at
various stages of the process. They are the first to recognize the problem
based on a need, and they help define the product specifications. Finally,
they provide critical feedback after the product purchase. As a result, their
responsibility is enhanced in new purchase and modified rebuy situations
when product specifications are being set for the purchase decision.
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Initiators The initiator starts the buying decision process, usually in
one of two ways. In one scenario the initiator is also the user of the
product, as in the secretary who reorders when office supplies run low. A
second scenario occurs when senior executives make decisions that require
new resources (manufacturing sites, product development, and information
technology). In these
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situations the executives act as initiators to the purchase decision process.
American Express communicates to small and medium-sized business owners
by reinforcing the financial benefits of using their card for business expenses.
Source: American Express Company
Influencers Individuals, both inside and outside the organization, with
relevant expertise in a particular area act as influencers, providing
information that is used by the buying center in making the final decision.
Engineers are frequently called on to detail product requirements and
412
specifications. Purchasing agents, based on their experience, are helpful in
evaluating sales proposals. Marketing personnel can provide customer
feedback. In all of these cases, the influencer’s knowledge on a given topic
relevant to the purchase decision can affect the purchase decision.
Gatekeepers Access to information and relevant individuals in the
buying center is controlled by gatekeepers. Purchasing departments act as
gatekeepers by limiting possible vendors to those approved by the
company. Similarly, engineering, quality control, and service department
personnel create product specifications that, in essence, limit the number
of vendors. At the same time, basic access to key people is controlled by
secretaries and administrative assistants. One of the toughest challenges
facing salespeople in a new purchase or modified rebuy situation is getting
access to the right people.
Deciders Ultimately, the purchase decision rests with one or more
individuals, deciders, in the buying center. Often it will be the most senior
member of the team; however, it can also include other individuals (users,
influencers), in which case the decision is reached by consensus. The more
expensive and strategic the purchase, the higher in the organization the
decision must go for final authority. 37 It is not uncommon for the CEO to
sign off on major strategic decisions about technology, new manufacturing
plants, and other key decisions that affect fundamental business processes.
Costly capital equipment purchases often include the chief financial officer
(CFO), who will most likely be a key decider. CFOs will employ a wide
range of financial tools, including discounted cash flow analysis of the
proposed investment, as they determine the most appropriate purchase
decision.
Pursuing the Buying Center
Buying centers present marketers with three distinct challenges, as
presented in Exhibit 6.12. First, who is part of the buying center? Simply
identifying the members of a buying center can be difficult and is made
more challenging by gatekeepers whose role, in part, is to act as a buffer
between buying center members and outside vendor representatives. The
job of identifying membership in the buying center is made even more
413
complex
EXHIBIT 6.12 Marketing Challenges in Buying
Centers
169
as participants come and go over time. Second, who are the most
significant influencers in the buying center? This is critical in both
preparing a sales presentation and following up. Targeting influencers is
important in persuading the buying center to purchase the salesperson’s
product. Finally, what are the decision criteria for evaluating the various
product options? A very real concern for salespeople is making sure their
products perform well on critical evaluation criteria; however, without a
good understanding of evaluation criteria, it is not possible to assess the
probability of the product’s success.
THE PLAYERS IN BUSINESS-TO-BUSINESS
MARKETS
B2B markets are not homogenous. The complexity of business markets
rivals that of consumer markets, with more than 20 million small
businesses in the United States alone. The number grows dramatically
when you include large corporations, nonprofit institutions, and
government entities. The diversity of businesses coupled with the unique
characteristics of business-to-business markets means companies selling in
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B2B markets need to know their markets very well. Let’s explore each of
the major categories of business markets to better understand their
similarities and differences.
The North American Industrial Classification
System (NAICS)
Historically, the basic tool for defining and segmenting business markets
was a classification system known as the Standard Industrial Classification
(SIC) codes developed by the U.S. government in the 1930s. The SIC
system organized businesses into 10 groups that further broke down
business categories based on their output (what they produced or their
primary business activity). For many years, it was the foundation for
business segmentation in the United States.
The SIC codes were updated in the 1990s and are now called the North
American Industrial Classification System (NAICS). The system has been
expanded to include businesses in Mexico and Canada. NAICS defines 20
major business sectors based on a six-digit hierarchical code. The first five
digits are standardized across Mexico, Canada, and the United States,
while the sixth digit enables countries to adjust the code to fit the country’s
own unique economic structure. 38
The NAICS is not perfect; companies are classified on the basis of
their primary output, which means that large companies with multiple
businesses across different sectors are not accurately represented as they
receive only one NAICS code. However, the system does offer a great
starting point for researching a particular business market. It is possible to
purchase detailed information on each of the codes in the system. This
information includes data on companies listed in each code, number of
employees, sales revenue, their location, and contact information. Exhibit
6.13 provides an example.
Manufacturers
One of the largest groups of business customers is manufacturers, which
consume two types of products. First, components used in the
manufacturing process are called original equipment manufacturer (OEM)
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purchases. Companies selling OEM products work to convince the OEM
customer their products offer the best value (price and quality) to the
OEM’s customers. Intel’s reputation for overall value among consumers
has enabled the company to build a strong business with OEM computer
manufacturers such as Lenovo to the point that Lenovo and others promote
“Intel Inside.”
OEM customers purchase in large quantities to support their own
product demand. Two important outcomes result from this purchase
power. First, OEM customers seek the very “best” prices from sellers. Best
does not always mean lowest; other factors play an important role. 39 The
assurance of product quality, ability to meet demand, just-in-time product
delivery schedules, and other factors frequently figure into the final
selection of product
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EXHIBIT 6.13 NAICS Example
Source: North American Industry Classification System (NAICS).
416
and vendor. The second result of large purchase quantities is the ability to
dictate specific product specifications. OEM customers often compel
suppliers to modify existing products and even develop new products.
Sellers work closely with the OEM engineers and technicians to develop
products that will fit the need of the OEM customer. The benefit is a high
volume of product sales and the opportunity to develop a long-term
strategic relationship. 40
A second category of products purchased by manufacturers is called
end user purchases and represent the equipment, supplies, and services
needed to keep the business operational. There are two major types of end
user purchases: capital equipment and materials, repairs, and operational
(MRO) supplies and services. Capital equipment purchases involve
significant investments and include major technology decisions
(mainframe computers, ERP and CRM software packages) or critical
equipment needed in the manufacturing process (large drill presses, robotic
assembly systems). Since these purchases are considered a long-term
investment, customers evaluate not only the purchase price but also other
factors such as cost of ownership, reliability, and ease of upgrading. The
cost and long-term commitment of these purchases mean senior
management is often involved in the final decision. Frequently a buying
center will evaluate options and make a recommendation to senior
management.
MRO supplies, on the other hand, are products used in everyday
business operations and are typically not considered a significant expense.
Purchasing agents or individuals close to the purchase decision, such as an
office manager, are responsible for MRO purchases. Many of these
purchases are straight rebuys; the individuals involved do not want to
spend a lot of time making the purchase. Vendors in these industries are
well aware that once they have a customer, the business is assured until the
company does not perform up to customer expectations. Put another way,
the business is theirs to lose.
Resellers
Companies that buy products and then resell them to other businesses or
consumers are called resellers. Home Depot, for example, buys home
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products and then resells
171
them to consumers, building contractors, and other professionals in the
construction industry. Chapter 12 provides an in-depth discussion of
consumer resellers, but it is important to note that resellers have unique
needs when it comes to purchase decisions. Just as manufacturers need end
user products, resellers also need equipment and supplies to run their
businesses. Retailers need technology such as computers and checkout
counters to keep track of sales and inventory. Distributors need stocking
and inventory management systems to maintain their distribution centers
and also have the same MRO needs.
Government
The single largest buyer of goods and services in the world is the U.S.
government. Combined with state and local governments, the value of
purchases is over $2 trillion. Local, state, and particularly federal
government entities have unique and frequently challenging purchase
practices. Detailed product specifications must be followed precisely, and
the purchase process is often long. The purchase decision by the
Department of Defense on the USS Gerald R. Ford aircraft carrier took
many years and involved hundreds of thousands of product
specifications. 41 While the government is theoretically open to all
vendors, the reality is that experience with the government purchase
process is usually a prerequisite to success.
Federal and state governments make a number of resources available
to potential vendors; it is possible to obtain guidelines from the federal
government. Furthermore, some private companies exist to offer assistance
in learning about the process. The National Association of State
Purchasing Officials publishes information on selling products and
services to each of the 50 states. In addition, small-business organizations,
such as the Small Business Administration, provide information on federal
government contracts and contact personnel at government agencies.
Institutions
Institutions, such as nonprofits, hospitals, and other nongovernmental
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organizations (NGOs), represent a large and important market that has
some unique characteristics. First, profitability does not play as significant
a role in many of these organizations; rather, the delivery of service to the
targeted constituency is the primary objective. Profit, or surplus as it is
often called in the nonprofit community, is important but is not the
fundamental driver in decision making. For example, Adventist Health
System, which owns and operates health care facilities in more than a
dozen states, is a large nonprofit health care provider that considers a
range of priorities in making important strategic decisions. 42 A second
unique characteristic is a limited number of resources. Even the largest
NGOs, including the Red Cross, do not have access to the capital and
resources of most large for-profit organizations.
THE BUSINESS MARKET PURCHASE
DECISION PROCESS
LO 6-7
Learn the B2B purchase decision process and different buying
situations.
In some respects business market purchase decisions follow the same basic
process as consumer decisions. As presented in Exhibit 6.14, a problem is
recognized, information is collected and evaluated, a decision is made, and
the product experience is then evaluated for future decisions. However,
there are also significant differences between business market purchase
decisions and consumer purchase decisions. These differences make the
process more complex and require the involvement of more people. One
key difference is that, while consumer decisions often include an
emotional component, business goals and performance specifications drive
organizations toward a more rational decision process.
As we discussed, the process is not used for every purchase decision.
In straight rebuy situations, the problem is recognized and the order is
made. Defining product
172
419
EXHIBIT 6.14 Model of Business Market Purchase
Decision Process
specifications, searching for suppliers, and other steps in the process were
probably done at one time, but, once a supplier is selected, the purchase
decision process becomes more or less automatic. A selected or approved
list of suppliers shortens the decision process dramatically. Buyers go to
the targeted vendor or choose from a list of suppliers and make the
purchase. This process is consistent across organizations. Modified rebuys,
on the other hand, are much more organization and situation specific. In
some situations, the process may be more like a straight rebuy with some
changes to product specifications or contract terms. In other situations, it
may resemble a new purchase with an evaluation of new suppliers and
proposals. New purchases will include all the steps in the process. As a
rule, a new purchase takes longer because going through each of the steps
takes time. In some cases, the process may take years, as in the building of
a new oil refinery or automobile assembly plant.
Problem Recognition
The business market purchase decision process is triggered when someone
inside or outside the company identifies a need. In many cases, the need is
a problem that requires a solution. The paper supply is running low and the
office manager reorders more. A company’s manufacturing facilities are at
full capacity and it must consider options to increase production. In other
situations, the need may be an opportunity that requires a new purchase.
New technology can increase order efficiency or a new design of a critical
component can improve the effectiveness of a company’s own products,
giving it an edge with consumers. As companies struggle to deal with
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higher energy prices, new alternative solutions, sometimes using older
technologies, are being adopted for use in interesting ways.
Employees frequently activate the purchase process as part of their
job. The office manager is responsible for keeping the office stocked with
enough supplies. The vice president of strategic planning is tasked with
planning for future manufacturing needs. However, salespeople from
either the buying or selling company’s sales force or channel partners also
initiate the purchase process by helping identify a need or presenting an
opportunity to increase efficiency or effectiveness. This is most likely to
happen when the salesperson has established a trusted relationship with the
company. Trade shows are also a source of new ideas; attendees often go
to see what is new in the marketplace. Traditional marketing
communications such as advertising and direct mail are less effective in
business markets but are important in supporting the more personal
communication efforts of salespeople.
Define the Need and Product Specifications
Once a problem has been identified, the next step is to clearly define the
need. Individuals from across the organization clarify the problem and
develop solutions. Not all problems lead to a new purchase. A vice
president of information technology may notice an increase in call waiting
times, but the issue could be a lack of training or a shortage of employees.
The solution might include a new, expanded phone and call management
system, but it will be up to management, working with other employees, to
determine what is needed.
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As part of describing the need, product specifications should be
defined so that everyone inside and outside of the company knows exactly
what is needed to solve the problem. This serves two important purposes.
First, individuals inside the organization can plan for the future.
Purchasing agents identify possible vendors while managers estimate costs
and build budgets based on the specifications. Users plan how to assimilate
the new purchase into existing work processes. The buying center will use
the product specifications to help evaluate vendor proposals. Putting
product specifications into a document for distribution is known as a
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request for proposal (RFP). The second purpose of outlining product
specifications is to guide potential suppliers. Product specifications as
contained in the RFP become the starting point from which vendors put
together their product solution. In the best-case scenario, there is a good fit
between what the customer is asking for and the supplier’s existing
products. 43 Much more often, however, there are some specifications in
which the potential products compare favorably and others where
competitors excel. Exhibit 6.15 identifies the key sections of a request for
proposal. RFPs generally require a great deal of information, and it takes a
significant amount of time for a company to prepare a successful sales
proposal.
The challenge for salespeople is to get involved in the purchase
decision process as early as possible. If the salesperson, for example, has a
strategic relationship with the customer, it may be possible to help define
the product specifications. This is a real advantage because the vendor’s
salespeople can work to create specifications that present their products in
the most favorable way. Product specifications are often written in such a
way as to limit the number of vendors. Companies realize that not
knowing the product specifications puts them at a disadvantage over other
vendors. It is still possible to win the order, but the job becomes more
difficult.
EXHIBIT 6.15 Sections of a Request for Proposal
1. Statement of Purpose: Describe the extent of products and
services your organization is looking for, as well as the overall
objectives of the contract.
2. Background Information: Present a brief overview of your
organization and its operations, using statistics, customer
demographics, and psychographics. State your strengths and
weaknesses honestly. Don’t forget to include comprehensive
information on the people who will handle future
correspondence.
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3. Scope of Work: Enumerate the specific duties to be performed
by the provider and the expected outcomes. Include a detailed
listing of responsibilities, particularly when subcontractors are
involved.
4. Outcome and Performance Standards: Specify the outcome
targets, minimal performance standards expected from the
contractor, and methods for monitoring performance and
process for implementing corrective actions.
5. Deliverables: Provide a list of all products, reports, and plans
that will be delivered to your organization and propose a
delivery schedule.
6. Term of Contract: Specify length, start and end dates of the
contract, and the options for renewal.
7. Payments, Incentives, and Penalties: List all the terms of
payment for adequate performance. Highlight the basis for
incentives for superior performance and penalties for
inadequate performance or lack of compliance.
8. Contractual Terms and Conditions: Attach standard
contracting forms, certifications, and assurances. You may
include requirements specific to this particular contract.
9. Requirements for Proposal Preparation: A consistent
structure in terms of content, information, and document types
simplifies things for the people evaluating the proposals.
Therefore, you should request a particular structure for the
proposal and provide an exhaustive list of documents you want
to receive.
10. Evaluation and Award Process: Lay down the procedures and
criteria used for evaluating proposals and for making the final
contract award.
11. Process Schedule: Clearly and concisely present the time line
for the steps leading to the final decision, such as the dates for
submitting the letter of intent, sending questions, attending the
preproposal conference, submitting the proposal.
12. Contacts: Include a complete list of people to contact for
information on the RFP, or with any other questions.
Incorporate their name, title, responsibilities, and the various
ways of contacting them into this list.
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Source: Technology Evaluation Centers, “Writing an RFP,” 2017.
174
Search for Suppliers
Once the company’s needs have been identified and product specifications
have been outlined, business customers can identify potential suppliers.
Two methods are commonly used to determine the list of vendors. First,
companies create a list of preferred or approved suppliers and go to that
list whenever a new purchase is being considered. The list can result from
the company’s cumulative experience. In this situation it is important to
keep the list current with respect to existing vendors and also any new
vendors.
A second, more complex, method is to search for and identify potential
suppliers. The Internet has become a valuable tool for companies in
identifying potential suppliers. General search engines and even dedicated
supplier search websites, such as Thomas Global Register, are easy to use
and enable customers to identify specific potential vendors. Of course,
companies still need to perform due diligence by checking vendor
customer references, and in critical purchases it is advisable to research the
vendor’s financial stability and management capabilities.
Seek Sales Proposals in Response to RFP
Companies frequently solicit proposals from a number of vendors for two
reasons. First, even if there is a preferred vendor, getting more information
about available options from other suppliers is a good idea. If it is an open
vendor search, then the proposal becomes a valuable source of information
as well as the primary evaluation tool. Second, getting additional proposals
helps in negotiating with the preferred vendor. When a vendor is aware
that other proposals are under consideration, that vendor works harder to
meet the expectations of the customer.
This step is usually characterized by limited vendor contact. Again,
many companies are asked to submit proposals from which a smaller set of
potential vendors will be selected. As a result, the sales proposal plays a
critical role in marketing to businesses. Most of the time it is the first and
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best chance to impress the customer. In general, proposals accomplish two
objectives. First, the proposal clearly specifies how the company’s
products will meet the product specifications detailed in the RFP. Second,
the proposal makes the case for selecting the company by presenting any
additional information such as unique product features, service programs,
or competitive pricing to help persuade the customer.
EXHIBIT 6.16 Critical Choice in the Purchase
Decision
Make the Purchase Decision
Once the proposals are submitted, the next step is the purchase decision.
Given the time and analysis companies put into the decision process, one
might think the decision is straightforward. The reality, however, is more
complex, as detailed in Exhibit 6.16. Often the final decision involves
trade-offs between equally important evaluation criteria and equally
425
qualified vendors.
Product Selection The first purchase decision is the product choice.
In many cases the product decision is based on a single criterion, for
example, product cost (the office manager purchasing printer paper at the
lowest price). Single-criterion decisions usually fall into a straight rebuy or
very limited modified rebuy situation and do not require a buying center to
assist in the new purchase decision. Much of the time, however, no one
product fits all the product specifications exactly. As a result, the
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final decision assesses the product against the product evaluation criteria
and determines the optimal solution. 44 Consider a company purchasing a
new office copier. The first response might be, “pick the best copier,” but
what is the definition of “best”? One person might define best as most
copies per minute, another as lowest cost per copy, and a third may
consider the lowest maintenance costs to be the best. As a result, it is
important to define the evaluation criteria and then follow a consistent and
fair methodology in evaluating the sales proposals. Three primary criteria
are used to evaluate the product choice.
Financial Criteria Financial criteria are a set of analyses and metrics
grouped together to assess the cost of ownership. The actual purchase price
is just one consideration in determining the real cost of a purchase.
Maintenance and operating costs, repair charges, and supplies are all costs
associated with ownership that can vary across product choices. These
costs are then evaluated against the stated life of the product. This is
important as some products with a higher initial price actually cost less
over time because of the product’s longer life. Financial analysis also
evaluates the time it takes to break even on the investment. A company
considering new equipment designed to lower manufacturing costs will
want to know how long it will take to recoup the investment given the
projected savings.
Business-to-business marketers understand that presenting a strong
financial case for their products is an essential part of selling the product.
As a result, many of these financial analyses are performed by the supplier
and included in the sales proposal. Buyers then compare, and verify, the
426
analyses across vendors.
Value Criteria Value is the relationship between price and quality and it is
a significant facet of the purchase decision. B2B buyers are aware that the
lowest-cost product may not be the right product, especially in critical
OEM equipment where failure can mean customer dissatisfaction or in
strategic purchases such as a new IT system where failure can cause
serious business disruption. On the other hand, it is costly to overengineer
a product and purchase more than is needed for the situation. A computer
network that must work 100 percent of the time is much more costly when
considering the backup systems and redundant hardware and software
needed to maintain it than a system with 95 percent run time. It is up to the
buying center to determine the specifications needed to do the job. 45
Buyers do not always need the highest-quality product, which is why
most businesses carry multiple lines with different quality and price levels.
Offering customers a choice increases the likelihood of success and
minimizes the opportunity for competitors to target gaps in a company’s
overall product line. 46
Service Criteria Buyers are concerned with the service requirements of a
product because servicing equipment costs a company in two ways. First,
there is the direct cost of service, including labor and supplies. Second,
there is the indirect cost of downtime when a system is out of service,
which means the equipment is not being used for its intended purpose. 47
Southwest flies only Boeing 737s in part because maintenance crews need
to know only one plane, which makes it easier to maintain and service the
737.
Products are designed, in part, to minimize service costs. There are
trade-offs, however, as companies seek the best compromise between
product performance and lower service costs. Knowing the buyer’s
specific priorities with regard to performance, service, and other critical
criteria is essential to designing and building the product that best fits the
product specifications.
Supplier Choice Businesses buy not just a product; they also make a
supplier choice. Often, multiple sellers will be offering the same product
or very similar product configurations. As a result, supplier qualifications
427
become part of the purchase decision. Decision makers know a purchase
decision can turn out badly if the wrong vendor is selected, even if the
product choice is correct. 48
The most fundamental criterion in vendor selection is reliability, which
is the vendor’s ability to meet contractual obligations including delivery
times and service schedules. Strategic business-to-business relationships
are based, in part, on a high level of trust between organizations. In those
situations, the supplier’s reliability becomes an
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essential factor in the final selection. Furthermore, a judgment is often
made about the seller’s willingness to go above and beyond what is
specified in the contract. All things being equal, the seller with the best
reliability and intangibles, like a willingness to do a little more than
required, usually gets the order. 49
John Deere is a long-standing supplier in the construction industry.
Source: Deere & Company
Personal and Organizational Factors Several additional
factors affect product and supplier choices. Suppliers often find it difficult
to understand the role these factors play in the final decision, but their
influence can be profound. The first, personal factors, refers to the needs,
desires, and objectives of those involved in the purchase decision.
428
Everyone in the buying center comes with his or her own needs and goals.
Someone might see this as an opportunity for promotion, another believes
he will receive a raise if he can be successful, and a third may want to
impress management. It is not possible to separate the individual agendas
people bring to the buying center from the purchase decision. In addition,
individuals in the buying center come to the group with their own
perspective of the decision. Engineers, for example, tend to focus on
product performance and specifications. Accountants often concentrate on
the cost and other financial considerations. Purchasing agents give
attention to vendor quality and ease of ordering. One reason buying centers
are effective is their ability to bring individuals with different perspectives
together to evaluate possible product options.
Another influence on the product and supplier choice is organizational
factors. The primary organizational factor is risk tolerance. Individuals and
companies all have a certain tolerance for risk. Their product decisions
will be influenced by their aversion to or acceptance of risk. 50 Consider
the IT manager looking to purchase a new network for his company. Two
suppliers have submitted proposals that meet the product specification.
One is a local vendor with an excellent reputation. This vendor has quoted
a lower price and guaranteed better service. The other is Cisco Systems,
the world leader in network equipment and software. The manager for the
company with a low risk tolerance will probably choose Cisco Systems. It
represents the “safe” choice. His superiors would never question
purchasing from the market leader. If the same individual works for a risk-
tolerant organization, the decision might be to go with the vendor offering
better price and service. The cost of a mistake is high. If the network goes
down and the company suffers a business disruption because the supplier
has performed poorly, questions about the supplier selection arise. Risk
tolerance does play a role as the buying center moves closer to a final
decision.
EXHIBIT 6.17 Post-Purchase Evaluation Criteria
429
Post-Purchase Evaluation of Product and Supplier
Once the purchase decision is made, buyers begin the process of
evaluation (see Exhibit 6.17). Initially, they assess product performance
and the seller’s response to any problems or issues. A key
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for business marketers is to make sure the customer understands the proper
operation and maintenance of the product. At the same time, buyers
consider the level of support provided by the seller and expect follow-up
after the sale to be sure there are no problems. Dealing with complaints,
resolving customer problems, and making sure the company is meeting
customer expectations are critical to ensuring customer satisfaction.
The evaluation process is designed, in part, to help customers make
better purchase decisions in the future. Being the current seller is a distinct
advantage because, if the customer evaluates the purchase decision
positively, there is no need to change the decision next time. In essence,
the evaluation process, if handled properly, can be the best sales tool for
the seller when it comes time for the next purchase decision.
Naturally, the opposite is also true. If the product performs poorly or
the seller does not meet customer expectations, competitors can use those
mistakes to trigger a modified rebuy or even a new purchase decision
process that increases their probability of success. Losing a customer is
disappointing; however, it also represents an opportunity. By using well-
developed service recovery strategies, companies can reacquire customers
(Chapter 10 discusses service recovery strategies).
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THE ROLE OF TECHNOLOGY IN BUSINESS
MARKETS
LO 6-8
Comprehend the role of technology in business markets.
Technology has transformed the business purchase decision process. From
the Internet to portable handheld optical scanning devices, technology has
made the purchase decision process more efficient and effective.
Technology has also pushed the purchase decision process closer to the
product user because front-line managers can now make purchases
directly. 51
Sophisticated programs manage inventories and automatically
replenish supplies. By linking directly with electronic data interchange
(EDI), customer computers communicate directly with supplier computers
to reorder as needed. Late deliveries, defective products, and other issues
related to supplier performance can be identified and dealt with before
they become a major problem. Collaboration between business buyers and
sellers has increased significantly as a result of technology linkages. 52
E-Procurement
B2B transactions have been growing at a phenomenal rate with online
B2B commerce worldwide in excess of $1 trillion, a much larger amount
than that generated by B2C online sales. The process of business
purchasing online is referred to as e-procurement. 53 Let’s examine the
various e-procurement methods:
Industry purchasing sites: Industries have formed websites to
streamline and standardize the e-procurement process. Steel, chemicals,
paper, and automobile manufacturers have created integrated websites to
assist their own purchasing departments in online purchasing and
supplier selection.
Business function sites: Certain business functions have websites to
431
standardize purchasing. For example, individual utilities used to
negotiate by phone to buy and sell electricity with each other; however,
today the purchase of electricity by utility companies is done over a
website dedicated to energy management.
Extranet to major suppliers: Many companies have set up direct links
to approved suppliers to make the purchase easier and move it closer to
front-line decision makers. 54 Office Depot, for example, has a number
of direct relationships using EDI with thousands of companies.
Company buying sites: Many large companies have created their own
websites to assist vendors. RFPs and other relevant supplier information
as well as some contact information are accessible for review.
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SUMMARY
A thorough knowledge and understanding of customers is an essential
element in developing an effective value proposition. For business-to-
consumer companies this means learning about how and why
consumers buy products and services. This chapter talks about the
consumer buying decision process. We discuss the two complex,
critical forces (internal and external) that shape the consumer decision-
making process. We offer an in-depth analysis of the process a
consumer uses in making a purchase decision. The distinction is made
between high- and low-involvement decisions, which dramatically
affects the degree to which the consumer engages in the entire buying
decision process.
Several significant characteristics differentiate business and
consumer markets, including the concentration and number of
customers found in business markets. Different types of selling
situations lead to very different types of customer decision processes.
Business customers interact with their suppliers in very different
situations, from a straight rebuy to new purchases. The buying center is
432
a team of individuals, from inside and outside the organization, which
engages in the purchase decision process and either makes or
recommends to the decision maker the final product selection. The
purchase decision process includes six steps, from problem
identification through purchase decision and post-purchase evaluation
of the product and supplier. Technology plays a major role in business-
to-business marketing. The growth of online purchasing, also known as
e-procurement, has transformed B2B alliances and made the process
faster and more accurate.
KEY TERMS
demographics 141
family life cycle 143
lifestyle 143
gender roles 143
motivation 144
attitude 145
multiattribute model 145
perception 145
selective awareness 146
selective distortion 146
selective retention 146
memory 146
short-term memory 146
long-term memory 147
learning 147
conditioning 147
cognitive learning 147
personality 148
culture 148
433
language 149
cultural values 149
nonverbal communication 149
subculture 150
family 151
household life cycle (HLC) 151
social class 152
aspirational purchases 152
opinion leaders 153
market mavens 153
reference group 153
desirability 154
degree of affiliation 154
primary groups 154
secondary groups 154
involvement 154
high-involvement learning 154
low-involvement learning 155
real state 156
preferred state 156
minimal information search 156
extensive information search 156
limited information search 157
internal information sources 157
external information sources 157
complete set 157
awareness set 158
consideration (evoked) set 158
emotional choice 159
attitude-based choices 159
434
attribute-based choice 159
post-purchase dissonance 161
instrumental performance 162
symbolic performance 162
B2B (business-to-business) markets 162
supply chain 164
product demand 164
derived demand 165
acceleration effect 165
inelastic demand 165
buying decisions 166
straight rebuy 166
out suppliers 166
modified rebuy 166
new purchase 166
buying center 167
Users 167
initiator 167
influencers 168
gatekeepers 168
deciders 168
179
North American Industrial Classification System (NAICS) 169
original equipment manufacturer (OEM) 169
end user purchases 170
capital equipment 170
materials, repairs, operational (MRO) 170
resellers 170
government 171
institutions 171
435
request for proposal (RFP) 173
product choice 174
supplier choice 175
reliability 175
personal factors 176
organizational factors 176
electronic data interchange (EDI) 177
e-procurement 177
APPLICATION QUESTIONS
More application questions are available online.
1. As we have discussed, understanding the consumers in a target
market is critical to creating an effective value proposition. Assume
you are the vice president of marketing for Regal Cinemas. What do
you think is the demographic profile (including the age, income, and
life cycle stage) of your largest target market? As part of a mini-
market research project, visit a movie theater on a weekend and
track the people entering. How old are they? Are they families or
people meeting friends?
2. You are the marketing manager for the Bowflex Revolution Home
Gym. You believe the product appeals to both men and women. As
you develop the marketing strategy, what differences might you
consider in the product based on whether a man or woman is
buying? What about the marketing communications (message,
choice of media)?
3. You are the marketing manager for Lenovo laptop computers.
Identify and briefly discuss the differences between the consumer
market for laptops and the business market. Then give an example
of each difference using college students as the consumer market
436
and defense-related companies as the business market.
4. You work for Siemens Power Generation Systems and are
responsible for the sale of large, expensive ($2 million to $5 million)
turbine generators to power utility companies. You have been
contacted by the Ever-Sure Utility Corporation in Any Town, USA.
Identify the buying center you are likely to find inside the company
and how you would market the generators to the buying center
group.
MANAGEMENT DECISION CASE
Taking the Nike Experience Direct to
Consumers
Let’s say you’re upping your game and want to exercise more.
Maybe that means walking in the mornings, playing a pickup game
after work, or running a marathon. Whatever your goal is, you need
some new shoes, and Nike is your favored brand. If you’re like the
majority of consumers, you head to a retail store to purchase a
pair. Until recently, this was your only choice. Just a short while
ago, if you tried to connect to Nike directly you’d find yourself
squarely in a system focused on B2B (business-to-business)
marketing channels. While Nike is no stranger to B2C (business-
to-consumer) marketing—it opened its first NikeTown retail store in
1990—these stores were as much museums as retail outlets, and
more about brand promotion than retail sales.
In 2014, with more than 700 Nike-contracted factories moving
shoes and apparel through 57 distribution centers to 140,000 retail
stores, Nike garnered 82 percent of its revenue through B2B
channels and just 18 percent from B2C. 55 But this is changing
fast. Competitors such as Under Armour already get 30 percent of
their sales direct from consumers. 56 Acknowledging trends in both
B2C and B2B behaviors and needs, Nike announced that by 2020
it will grow its B2C e-commerce business seven-fold, from $1
billion to $7 billion. Total B2C business, including company-owned
437
retail, will rise to $16 billion, or 32 percent of its total global
revenue, almost doubling in just six years. 57 As discussed in this
chapter, demographic trends plus changes in consumers’
motivations and behaviors are guiding Nike to expand its target
markets and channels. For example, broad consumer trends
suggest e-commerce B2C sales will continue to grow, from $1.9
trillion in 2016 (8.7 percent of total
180
worldwide retail sales) to $4 trillion by 2020. 58 More specifically,
consumers’ desire to have healthier lifestyles suggests an increase
in Nike’s overall business. But the continued rise in the number of
working women, who have less time to shop, suggests more
spending power in the women’s sector and a greater need for
access to online purchasing. In addition, demographic trends show
younger cohorts, who are very comfortable with online shopping,
are now the largest consumer segment. Nike, intent on serving
customers in ways that meet their needs, has addressed these
trends by increasing its attention to its women’s line of training
footwear and apparel, and expanding its e-commerce presence.
But trends in B2B also suggest that Nike should target more of
its business with direct-to-consumer models. Threatening the
traditional B2B distribution model in the eyeglass, razor, and shoe
industries, companies like Warby Parker, the Dollar Shave Club,
and TOMS Shoes are selling products directly to the consumer
instead of through wholesale distribution channels. 59 This has
placed traditional manufacturers, those who make the product but
rely on a distribution channel to reach consumers, on the
defensive.
Prior to the Internet, it was difficult to purchase directly from a
manufacturer. B2B firms didn’t have the operational systems to
take and fill small orders from individual consumers. But the
Internet makes one-to-one communication easier, and readily
available e-commerce tools make fulfilling orders much simpler.
With these tools, small manufacturers can compete with the large.
Today, even the smallest of manufacturers can pitch their product
directly to consumers. Before a product is made, companies can
438
pitch their value though sites like Kickstarter—an online crowd-
sourced funding site—sourcing their “investor-customers” directly
and then continuing to sell B2C instead of starting with distribution
channels.
Consumers often like the direct model too. Disappointments
encountered in retail shopping, where limited inventory may mean
the right size, color, or quantity is out of stock, are almost never a
problem when shopping directly with the manufacturer, where
inventory is largest and the ability to make more quickly is right at
hand. Likewise, consumers are often pleased when they get to
interact directly with a brand by providing input into product design
or sharing feedback on their experience with the product.
Manufacturers are also perceived as being the truest experts on
the product, and a better place to get advice or help. 60 Such
interactions can lead to improved brand loyalty.
Manufacturers are recognizing this disruption in the
marketplace, so much so that Unilever, one of the world’s largest
consumer goods conglomerates, recently paid $1 billion for the
Dollar Shave Club. And the reason? Not the excellent e-commerce
site operated by Dollar Shave Club, but the firm’s ability to build a
relationship directly with consumers. 61 For manufacturers, the
opportunity to own the relationship with the customer, and to be
able to define their own brand without intermediaries, is an
attractive reason to go direct. And for Nike, one of the world’s top
20 most valuable brands, owning the relationship as trends move
toward B2C will be important. 62
Questions for Consideration
1. This chapter highlights how marketing efforts are different for
B2B and B2C firms. As Nike and other manufacturers continue
to expand into B2C channels, what are some differences in B2C
and B2B behavior that might affect Nike’s approach to these
channels?
2. What are some hurdles Nike may face as it expands its B2C
439
business? Consider this question both internally, with new skills
Nike needs to amass, and externally, with challenges it may
face from its B2B channel partners.
3. What would be some negative consequences to consumers if all
manufacturers sold only B2C and eliminated wholesaler
distributors who supply retail stores?
MARKETING PLAN EXERCISES
ACTIVITY 5: Define Consumer Markets
For those marketing products to consumers (or through a channel that
sells directly to consumers), understanding the purchase decision
process of the target market is an essential element of the marketing
plan. This exercise includes the following activities:
181
1. Develop a demographic profile of the customer to include
a. Age
b. Income
c. Occupation
d. Education
e. Lifestyle (activities, interests, opinions)
2. Describe the motivation of the target consumer. Why is the
consumer buying the product?
3. What external forces will influence the target consumer as he or she
considers the purchase? For example, will the consumer’s culture or
subculture affect the purchase decision? How?
4. Describe the consumer’s typical consumer purchase decision
process. What is the likely process a consumer will go through in
making the decision to purchase the product?
ACTIVITY 6: Determine Business Market Relationships
This exercise has four primary activities:
440
1. Conduct an analysis of your key market opportunities to assess the
fundamental nature of these markets. This analysis should include a
description of:
2. What are the key companies in this market? How much business do
you do with the industry leaders? What share of their total business
do you have?
3. Where are these companies located?
4. Identify the probable company structure and business center
participants you would encounter in selling to your key B2B
customer.
5. Put together a probable buying decision process for key B2B
customers and discuss your internal process in selling to these
customers.
6. Develop a list of second-tier customers in key B2B markets that
represent future potential customers.
NOTES
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184
CHAPTER 7
Segmentation,
Target Marketing,
and Positioning
LEARNING OBJECTIVES
LO 7-1 Explain the criteria for effective segmentation.
LO 7-2 Identify the various approaches to market
segmentation.
LO 7-3 Describe the steps in target marketing.
LO 7-4 Define positioning and link it to the use of the
marketing mix.
450
LO 7-5 Use and interpret perceptual maps.
LO 7-6 Identify sources of differentiation.
LO 7-7 Avoid potential positioning errors.
185
FULFILLING CONSUMER NEEDS AND
WANTS
The triad of activities illustrated in Exhibit 7.1—market segmentation,
target marketing, and positioning—get at the heart of marketing’s ability
to successfully create, communicate, and deliver value to customers and
thus successfully fulfill their needs and wants. This capability is enabled
by CRM, which was introduced as a concept in Chapter 1 and developed
extensively in Chapter 5. What distinguishes much of marketing today
from that of the past is that today’s marketing managers can more
precisely home in on specific customers and customer groups and offer
products or services that have a clear and compelling value proposition for
those specific customers. 1
EXHIBIT 7.1 Market Segmentation, Target
Marketing, and Positioning
451
Accomplishing this first requires the use of market segmentation to
divide a market into meaningful smaller markets or submarkets based on
common characteristics. Once a segmentation approach is developed,
marketing managers engage in target marketing, which involves
evaluating the segments and deciding which shows the most promise for
development. In most ways, selecting target markets (also called market
targets) is truly an investment decision. That is, a company must decide
where to best invest its limited resources in developing markets for future
growth. Everything else being equal, it should invest in the target markets
that promise the best overall return on that investment over the long run. 2
Finally, the way the firm ultimately connects its value proposition to a
target market is through its positioning. Positioning relies on the
communication of one or more sources of value to customers in such a
way that the customer can easily make the connection between his or her
needs and wants and what the product has to offer. Execution of this
approach is referred to as a firm’s positioning strategy. Positioning
strategies are executed through the development of unique combinations of
the marketing mix variables, introduced in Chapter 1 as the 4Ps: product
(or more broadly—the offering), price, place (distribution/supply chain),
452
and promotion. 3
The process of effective market segmentation, target marketing, and
positioning is one of the most complex and strategically important aspects
of marketing management. It bridges the overall process of creating,
communicating, and delivering value to customers in that if the
segmentation is flawed, target selection is incorrect, or positioning is
unclear, there is no value because the customer doesn’t connect with the
product. Having a product whose value proposition is a well-kept secret is
not a good thing in marketing—marketing managers want the right
customers to clearly recognize their products’ value-adding capabilities. 4
Let’s first take a closer look at segmentation. Then we will go on to
gain an understanding of target marketing. Finally, we will introduce
positioning as a lead-in to the chapters that follow, which focus on
developing, pricing, and delivering the value offering. These three
concepts are equally relevant in both the consumer and business
marketplaces. The criteria used for developing segments are somewhat
different between the two markets, but the general concepts and
importance of the process are similar.
WHAT IS SEGMENTATION?
LO 7-1
Explain the criteria for effective segmentation.
From a marketing manager’s perspective, one way to think about markets
is on a continuum that ranges from undifferentiated, where everybody
essentially needs and wants the same thing, to singular, where each person
has unique needs and wants. The territory between these two extremes is
where segmentation approaches come into play.
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Segmentation seeks to find one or more factors about members of a
heterogeneous market that allow for dividing the market into smaller, more
homogeneous subgroups for the purposes of developing different
marketing strategies to best meet the segments’ distinct needs and wants. 5
The operative word is different, as in differentiation, which means
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communicating and delivering value in different ways to different
customer groups. 6 It is important to note that the basic logic and principles
behind segmentation are sound, regardless of the basis on which a market
is segmented:
Not all customers are alike.
Subgroups of customers can be identified on some basis of similarity.
The subgroups will be smaller and more homogeneous than the
overall market.
Needs and wants of a subgroup are more efficiently and effectively
addressed than would be possible within the heterogeneous full
market.
Effective Segmentation
Before developing and executing a segmentation approach, the marketing
manager must be assured that several criteria for successful segmentation
are met, as listed in Exhibit 7.2. The manager must satisfactorily answer
these questions:
1. Is the segment of sufficient size to warrant investing in a unique
value-creating strategy for that segment as a target market?
Ultimately, there is no point doing market segmentation unless a
positive return on investment is expected. Size of a segment doesn’t
necessarily mean number of customers—when Bombardier markets
its small Learjets, it knows the number of potential buyers is limited.
Yet segmentation is still a valid approach because of differences in
needs and wants among customers and the financial size of the
transaction.
2. Is the segment readily identifiable and can it be measured? Effective
segmentation relies on the marketing manager’s ability to isolate
members of a submarket to create a unique appeal. Segmentation
most often requires data, and if secondary data on the markets of
interest aren’t available or if primary data can’t be easily collected, it
may not be possible to do segmentation.
3. Is the segment clearly differentiated on one or more important
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dimensions when communicating the value of the product? For
segmentation to work properly, it must allow for the creation and
execution of different marketing strategies to the different
submarkets identified. Segments should be expected to respond
differently to different marketing strategies and programs.
Otherwise, there is no reason to differentiate.
4. Can the segment be reached (in terms of both communication and
physical product) in order to deliver the value of the product, and
subsequently can it be effectively and efficiently managed? Barriers
to reaching a segment might include language, physical distance, or,
as in the case of some developing markets, transportation,
technology, and infrastructure challenges. Firms have to be able to
sustain their management of a target segment over time—if this
activity becomes problematic, it can be a drain on resources and
result in poor ROI.
Old Spice is a venerable brand in the men’s toiletries market. In fact, it’s so
strong with the male segment that it’s doubtful a product could be branded Old
Spice and be successful with women.
Source: Procter & Gamble
EXHIBIT 7.2 Criteria for Effective Segmentation
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1. Segment is of sufficient size to warrant investing in a
unique value-creating strategy for that segment as a
target market.
2. Segment is readily identifiable and can be measured.
3. Segment is clearly differentiated on one or more
important dimensions when communicating the value of
the product.
4. Segment can be reached (in terms of both
communication and physical product) to deliver the value
of the product, and subsequently can be effectively and
efficiently managed.
When considering segmentation, it is important to remember that an
essential part of Marketing (Big M)—strategic marketing—is not just
identifying existing segments but also creating new ones through product
development strategies. The sensational initial introduction of Apple’s
iPhone stimulated needs
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and wants on the part of consumers in uncharted areas in terms of a single
product’s capabilities to fulfill, thus creating a new market by opening up
new avenues of value-enhancing apps. 7
SEGMENTING CONSUMER MARKETS
LO 7-2
Identify the various approaches to market segmentation.
In the consumer marketplace, the categories of variables used by
marketing managers to develop segments can be conveniently grouped
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into four broad categories as illustrated by Exhibit 7.3: geographic,
demographic, psychographic, and behavioral. Let’s consider each of these
segmentation approaches in turn.
Geographic Segmentation
One of the most straightforward approaches to segmentation is when
evidence exists that consumers respond differently to marketing strategies
and programs based on where they live. Thus, geographic segmentation
divides consumer groups based on physical location. The key question is,
do consumption patterns vary among the geographic submarkets
identified? If so, firms can make tailored adjustments in their products to
satisfy those regional differences in needs and wants. 8
Within the United States, some of the more popular approaches to
geographic segmentation include:
By region—Northeast, Southeast, Midwest, and West, for example.
By density of population—urban, suburban, exurban, and rural, for
example.
By size and growth of population—Exhibit 7.4 shows the top 20
standard metropolitan statistical areas (SMSAs) in the United States.
By climate—colder Northern states versus warmer Southern states.
EXHIBIT 7.3 Consumer Market Segmentation
Approaches
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EXHIBIT 7.4 Top 20 U.S. SMSAs
Rank SMSA Pop.
Millions
Rank SMSA Pop.
Millions
1 New York 20.2 11 San
Francisco
4.7
2 Los Angeles 13.3 12 Phoenix 4.7
3 Chicago 9.5 13 Riverside,
CA
4.5
4 Dallas 7.2 14 Detroit 4.3
5 Houston 6.8 15 Seattle 3.8
6 Washington,
D.C.
6.1 16 Minneapolis 3.6
7 Philadelphia 6.1 17 San Diego 3.3
8 Miami 6.1 18 Tampa 3.0
9 Atlanta 5.8 19 Denver 2.8
10 Boston 4.8 20 St. Louis 2.8
Source: U.S. Census Bureau, population estimates. Largest city in each SMSA is
listed.
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Again, the key questions are whether segmenting by one or more of
these geographic qualities means satisfying the criteria for effective
segmentation and whether it will ultimately facilitate better
communication and delivery of value to the submarkets than could be
accomplished within the aggregate market. Target, for example, segments
its target market by geographic climate. Starting in early September,
Target begins marketing winter coats in its Minneapolis-area stores, an
activity that won’t begin until much later in Houston, where customers are
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still expecting several more months of 80 to 90 degrees. The chain’s South
Florida stores might never even stock traditional cold-weather apparel
except in small quantities for travelers. Target wisely recognizes different
customer needs across different climates and builds its marketing plans
accordingly.
Geographic segmentation is useful but, in most instances, is an
insufficient segmentation criterion in and of itself. Because people in the
United States are extremely mobile and because the demand for many
products is not determined by where a person lives, additional types of
segmentation are needed to successfully target customers.
Demographic Segmentation
Another straightforward approach to segmentation is via demographic
variables. In Chapter 6, you learned that demographics are the statistical
characteristics of human populations such as age or income that are used to
identify markets. Demographic segmentation divides consumer groups
based on a variety of readily measurable descriptive factors about the
group. Many different demographic variables are available for
measurement including age, generational group, gender, family, race and
ethnicity, income, occupation, education, social class, and geodemographic
group. Demographic segmentation is one of the most popular segmentation
approaches because customer needs and wants tend to vary with some
degree of regularity based on demographic differences and because of the
relative ease of measurement of the variables. 9 Let’s look at the major
demographic variables more closely (see Exhibit 7.5).
Age Age segmentation presumes some regularity of consumer needs and
wants by chronological age. 10 It is important to make the distinction
between chronological age, actual age in years, and psychological or
attitudinal age, which reflects how people see themselves.
McDonald’s employs age segmentation to execute different marketing
strategies to attract young children for a Happy Meal and older consumers
for an early morning Egg McMuffin and coffee with friends. But
marketers must take care to understand that age alone often is not
sufficient for successful segmentation. Older consumers exhibit great
differences from person to person on such things as income, mobility, and
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work status. In fact, marketing managers in companies ranging from travel
to insurance to health care have come to realize that lumping older
consumers into one group is not an effective segmentation approach
because of the vast differences in other important variables.
EXHIBIT 7.5 Demographic Segmentation
Variables
Generational Group One approach to age segmentation that helps
get at the heart of differences in needs and wants is generational
segmentation. Much research has been done on understanding differences
in groups of people by generation. What defines a generational group and
how does one know when a new generational group is emerging?
Sociologists look for defining events such as wars, major economic
upheaval, or sociocultural revolution as triggers for generational change.
As with other segmentation approaches, the notion that different
positioning strategies can be developed and executed for different
generational groups assumes some degree of homogeneity among the
generational cohort. 11 The most recent generational groups, from oldest to
youngest, along with their birth years
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EXHIBIT 7.6 Generational Groups and
Representative Values
GI (16 million born 1901–
1924)
Financial security and
conservative spending
(shaped by hard times
and the economic
depression of the
1930s)
No such thing as
problems—only
challenges and
opportunities
Civic minded
Duty to family,
community, and country
Unified and team
oriented
Silent (35 million born
1925–1945)
Strength in human
relation skills
Respectful of others’
opinions
Trusting conformists
Health, stability, and
wisdom
Civic life and extended
families
Generation X (57 million
born 1965–1977)
Lack of trust in society
Cynical and media-
savvy
Entrepreneurial
Accept diversity
Environmentally
conscious
Work to live, not live to
work
Generation Y or millennial
(60 million born 1978–1994)
Pragmatic
Optimistic
Team players
Savvy consumers
Edgy
Focused on urban style
More idealistic than Gen
X
Technology comes
naturally
Generation Z (42 + million
born after 1994)
Multicultural
Highly tech-savvy
Educated
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Baby boomer (78 million
born 1946–1964)
Forever young
Individualistic
Conspicuous
consumption—great
acquirers of goods and
services
Idealistic: value- and
cause-driven despite
indulgences and
hedonism
The end justifies the
means
Grown up in affluence
Big spending power
are the GI Generation (1901–1924), Silent Generation (1925–1945), baby
boomers (1946–1964), Generation X (1965–1977), Generation Y or
millennials (1978–1994), and Generation Z (after 1994). It is important to
recognize that Generation Z is a “work in progress” and as such it is way
too soon to know what that next group after the millennials might
ultimately be like, although there is much speculation. Also, a caveat is
necessary at this point because there is no universal agreement on birth
year ranges, especially for the more recent generations. We’ve presented a
commonly used version here, but others may vary by a few years. Exhibit
7.6 describes each of these generational cohorts through Generation Z,
including some of the core representative values of each.
The generational group that for years has been the apple of the
marketing manager’s eye is the baby boomers. This is because there are so
many of them and because they personify conspicuous consumption—
acquiring products for the pure enjoyment of the purchase. An interesting
aspect of boomers is that, unlike prior generations, many of them don’t
seem to have any plans to retire. The reason may be financial, personal
preference, or both. Much of the research on baby boomers indicates that
—at least in their minds—they don’t age. 12 Recall that a marketer must be
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cognizant of the difference between chronological age and attitudinal age.
It is anticipated that this forever-young generation will enter the segment
we would traditionally label as “older consumer” without an old outlook
on life and the future. This has profound implications for marketers in that
it turns on end the stereotypical approaches to what products are marketed
to them and how they are marketed. 13 Many boomers will become more
active, spend more money, and want to experience more new things after
retirement than they ever did while they were employed—that is, if you
can get them to retire. Many smart marketers who happen to be of
Generation X or Y would do well to rethink the potential impact of
successful strategies aimed at these ageless boomers.
Generation X is often thought of as a transitional generation. Its
members are comfortable with much of the new-age technology but,
unlike Gen Y, they didn’t grow up with it, they had to learn it. Gen X is
pegged as being a very entrepreneurial group, partly
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because many advancement opportunities in traditional firms have been
thwarted by the overabundance of boomers who occupy those positions. It
has been estimated that Gen X entrepreneurs are responsible for more than
70 percent of the new business start-ups in the United States. Gen X is not
as consumption-crazed as the boomers, preferring more of a work-family
life balance. For the marketing manager, this knowledge about the Gen X
segment offers the opportunity to develop appeals to their independent
spirit and practical nature.
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Unilever’s Axe product line appeals heavily to millennial guys.
Source: Unilever
Gen X is often referred to as the “baby bust” because it represents a
natural cyclical downturn in birthrate. Because Gen X is such a small
segment of the consumer market, many marketers have their eye squarely
on Gen Y—the millennials—as the next great consumer frontier.
Millennials are now the largest single generational segment in the
population, and they don’t balk at using any and every sort of
communication media available to enhance their lives, including making
purchases. Millennials are made-to-order consumers for marketers who are
equipped to engage them on their own turf—especially through digital
marketing and social media. Chapter 13 provides many ideas about how
best to engage millennials (and others) through these types of media. 14
Millennials are a digitally adept generation, but Generation Z—the
post-millennials—are the first generation to be born into the world of
smartphones, social media, and cloud computing technology. Consider the
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effects of Twitter character limits, the vertical scroll/automatic refresh
formats of social media apps, and other digital designs on younger
generations’ attention spans. Millennial Branding, an advertising
consultancy firm in New York City, advises companies to communicate to
millennials and Gen Z in “five words and a big picture.” The success of
this brief, visually captivating strategy is evidenced in the popularity of
Facebook ads. Facebook allows businesses to design the ad format, select
ad placement, and specify a target audience. Facebook ads limit words and
employ videos and photos to engage younger audiences, focusing on
storytelling rather than overt advertising. 15
Gender Target Corporation claims that about 80 percent of the dollar
sales in its stores are made to women. Many firms note that men account
for the majority of online purchases. Such knowledge provides evidence of
the power of gender segmentation, which recognizes differences in needs
and wants of men versus women. Certainly, a wide variety of products are
clearly marketed for the primary consumption of either men or women, but
not both—think Rogaine, cigars, and athletic supporters versus pregnancy
tests, lipstick, and bras, for example. In such cases, marketers can
concentrate on linking the product’s value-adding properties to its
corresponding gender segment. What about cases in which a product
appeals to both men and women, but on the basis of satisfying different—
maybe subtly different—needs and wants? 16
Take, for example, razors. Gillette learned some years ago that,
generally, women don’t like to use a man’s razor, which they had to do for
decades because no thought was given to differences in gender usage
preference. Research revealed that most women viewed men’s razors as
too bulky, with too many bells and whistles, and not feminine in color or
design. Suddenly, Gillette found an underserved new submarket for
segmenting its razor line: the female shaver! The result was a completely
new brand and product line called Gillette Venus, and today the brand
comes in numerous product forms including Venus Original, Venus
Bikini, Simply Venus, Venus Swirl, Venus Comfortglide, and Venus
Embrace. And if you want carefree reordering of replacement blades, you
can sign up for automatic delivery through P&G, Amazon, or elsewhere! 17
Recent research has shown that millennials generally still align with
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traditional gender differences in buyer behavior—for example, women are
more attracted to health and beauty supplies while men tend to prefer
technology and electronics. 18 Lush Ltd. is a UK-based body/beauty
cosmetics brand that has capitalized on female consumer preferences to
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artfully market its fresh handmade cosmetics. The company focuses on
natural elements, touting its vegetarian, non-animal-tested products and
highlighting its “charity pot” product offerings, in which 100 percent of
pot proceeds are donated to grassroots organizations. 19 Lush initiatives are
communicated to shoppers as personal stories that unfold through
masterful photography and poetic, blog-style articles. The result is high
appeal to the millennial woman’s interest in health, appreciation of beauty
and art, and desire to join social causes.
Family and Household In years past, the concepts of family and
household were fairly easy for marketers to define—a married man and
woman, likely with children, and sometimes with other relatives such as a
grandparent who had moved back in. Now, family and household
segmentation can be more complex. Marketing managers are cognizant of
all kinds of different family arrangements including singles, unmarried
cohabitating couples, gay and lesbian couples, parents with 30-something
offspring who boomeranged back home, very large extended families
living in one household, and so forth. Many of these changes in the
concept of family have evolved based on changing economic realities,
social norms, and cultural/subcultural mores. These changes have created
many new opportunities for marketers. Following the U.S. Supreme Court
ruling that legalized same-sex marriage in 2015, Campbell’s soup
launched its “Real, Real Life” marketing campaign. It highlighted real
American families, with one commercial featuring a same-sex couple
feeding their son Star Wars Campbell’s soup. The commercial signaled a
shift in mainstream marketing’s portrayal of U.S. families, stirring
controversy and eliciting both praise and outcry. 20
Marketers who want to use family and household in segmentation need
to understand the overall picture. One way to portray this variable is
through the family life cycle, which represents a series of life stages
defined by age, marital status, number of children, and other factors. 21
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When Amana introduced the microwave oven in the 1960s, it started out
as a product that was marketed to the busy homemaker as a way to
supplement her (yes, it was marketed exclusively to women) food
preparation and make her day at home more efficient. Now, most new
microwaves are sold to singles, both men and women, who, in many
instances, don’t use or even own a traditional oven.
Several diverse ethnic groups comprise a major growth market segment for
Cover Girl and other makeup manufacturers as they work hard to satisfy the
beauty care needs of these consumers.
Source: Procter & Gamble
Race and Ethnicity Race and ethnicity segmentation has become of
prime importance in the United States as the number of natural-born
citizens of ethnic minorities grows and the number of immigrants has
increased. 22 In recent years, most firms have jumped on the bandwagon of
segmenting by race and ethnicity, partly because many of these
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submarkets are growing quite rapidly in terms of both size and buying
power and partly because they have historically been ignored by
mainstream marketers. 23 African Americans account for slightly more
than 12 percent of the U.S. population, a figure that has not been growing.
In years past, very few products were marketed specifically to the African-
American segment other than by firms specializing only in that segment.
Hair and beauty product pioneer Johnson Products, founded in 1954, was
an early believer in the power of developing products such as Ultra Sheen,
Afro Sheen, Classy Curl, and others that brought the company consistent
double-digit sales increases throughout the 1970s and 1980s. Ultimately,
the product line became so attractive that it was acquired by mainstream
beauty care manufacturer L’Oréal and eventually by Wella Corporation,
another broad-line marketer of beauty care products. Today, almost all
major cosmetic and beauty aid firms, from Avon to P&G, market products
specifically designed to appeal to this vital market segment.
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In contrast to the stable numbers in the African-American segment, the
Hispanic/Latino and Asian-American segments are both growing at a rapid
rate, with the Hispanic and Latino segment overtaking African Americans
as a percentage of the U.S. population (almost 17 percent). An obvious
challenge with the Hispanic/Latino segment, at least from the perspective
of recent immigrants, has been the language barrier. 24 In the past,
marketers’ use of the Spanish language and symbolism in communicating
with customers has mostly been through tacky attempts at humor. Go to
YouTube and take a look at the 1990s ads featuring Taco Bell’s “Yo
quiero Taco Bell”–uttering Chihuahua dog or the 1970s Frito-Lay ads
featuring the Frito Bandito, for example. But today, marketers are taking
Spanish-speaking Americans very seriously. 25 Compared to other groups,
these segments are younger, are more oriented toward developing long-
term relationships with people and brands, have more people per family
and household, and have experienced a tantalizingly strong increase in
disposable income.
Income Income segmentation is based on a very quantifiable
demographic variable, and it is usually analyzed in incremental ranges.
Until the Great Recession that began in the late 2000s, the average income
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of U.S. families had been rising steadily, but at a declining rate of increase
compared to prior decades. However, during the Great Recession, average
household income dropped significantly and it is difficult to predict when
and at what magnitude it may begin to rise. 26
Marketers use income as a segmenting approach very frequently.
Examples on the lower-income side include deep-discount retailers and
dollar menus at fast-food restaurants. Examples at the higher end include
luxury automobiles, gourmet restaurants, and exotic travel experiences.
Interestingly though, there is not necessarily a direct correlation between
income and price preferences. Southwest Airlines, for example, is a low-
priced carrier yet maintains a certain cachet with many high-income
customers largely because of its fun style and spirit. 27
Using income alone as a segmentation approach has some problems.
First, many people either purposely misstate or refuse to reveal their
income on questionnaires and in interviews used in collecting data for
identifying segments. Second, with the readily available credit that is
pervasive in the U.S. consumer marketplace, actual income may not
necessarily drive one’s ability to purchase products that in prior days were
reserved for those with more income. 28 Cars costing tens of thousands of
dollars can be had by nearly anyone nowadays by extending payments out
six or more years. Even the old standby of income segmentation, home
ownership, has fallen victim to wild mortgage schemes during many years
of low initial interest, no-interest, and 40- and 50-year terms to entice
buyers to go ahead and sign their financial lives away (which we now
know had the unintended consequence of facilitating a meltdown of the
mortgage banking industry).
The health of a country’s economy influences its citizens’ spending
habits and overall buyer behavior. Looking internationally, Japanese
millennials’ spending reflects a sense of frugality that stems from being
raised in a long-stagnant economy. One consumer research report found
that over 60 percent of Japanese high school students, college students,
and adults in their early 20s would prefer to be perceived as frugal rather
than generous. Such cautious spending behaviors have impacted the
popularity of high-end luxury brands among Japanese millennials, but
luxury brands such as LVMH have continued to flourish in Japan due to
tourism and sales largely generated by Chinese visitors. 29
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Occupation Occupational segmentation recognizes that there may be
a number of consistent needs and wants demonstrated by consumers based
on what type of job they have. The U.S. Census Bureau lists numerous
standardized categories of occupations including Professional/Managerial,
Technical, Government, Trades, Agricultural, Educator, Student, and
Unemployed. 30 In the United States, the workplace and our peer group of
fellow workers is one of the strongest reference groups, and reference
groups can be very powerful influencers on consumer behavior. All sorts
of product lines are directly affected by occupation, including the clothing,
equipment, and other personal support materials needed to fit in with the
occupational peer group. Sometimes the employer influences purchase
choice by offering tuition reimbursement, health care preferred provider
networks, or discounts on products and services for employees. As a
segmentation variable, occupation is very closely related to income,
although the two are not perfectly correlated. 31 That is, many traditionally
blue-collar jobs may pay higher wages than white-collar positions
depending in part on
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the strength of the union within the firm and industry. Obviously,
occupation is also related to education in that the latter usually enables the
former.
Education In U.S. society, research consistently shows that education
is one of the strongest predictors of success in terms of type of occupation,
upward mobility, and long-term income potential. Everything else being
equal, educational segmentation might lead a firm to offer its products
based on some anticipated future payoff from the consumer. Take credit
cards, for example. Why are credit card providers so eager to market
themselves to college-bound high school seniors? Because they know that,
even with low beginning credit limits, gaining usage early increases the
chances of loyalty to the card over the long run—after the student finishes
college, gains professional employment, and starts making a bigger salary.
Unfortunately, educational segmentation works the other direction as well,
which is a potential dark side of segmentation in general. Unscrupulous
marketers have been accused of using educational segmentation (often
combined with a language barrier) to intentionally take advantage of
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uneducated consumers in a host of ways including pushing unhealthy or
untested products, encouraging bad financial investments, and promoting
various illegal sales approaches such as taking the money for household or
automobile repairs up front and employing illegal pyramid schemes. 32
Social Class Social class segmentation involves grouping consumers
by a standardized set of social strata around the familiar lower class,
middle class, and upper class, and each of these contains several substrata.
Exhibit 7.7 shows a traditional approach to segmentation by social class in
the United States.
The composition of social classes takes into account several important
demographic variables, including income, occupation, and education. 33
However, nowadays many mitigating factors might affect one’s inclusion
in one or the other of the class strata. Readily available credit has flattened
the classes and made many luxury products affordable to a broad spectrum
of consumers who in the past would not have been able to purchase them.
And who doesn’t know someone who is quite wealthy that also shops at
Target for staple goods? Although the very upper and very lower strata are
still potentially useful for segmentation, it has become increasingly
difficult to segment among the groups within the big middle stratum.
Because of this, most marketing managers today prefer either to defer to
other demographic variables for segmentation or, more likely, to look at
psychographics and behavioral segmentation approaches that capture
much of what used to be evidenced by social class. 34
Geodemographics A hybrid form of segmentation that considers
both geographic and demographic factors is called geodemographic
segmentation. Typically, marketers turn to firms that specialize in
collecting such data on an ongoing basis to purchase data relevant to their
geographic area of focus. 35 Let’s say, for example, that you are interested
in coming into the Orlando metropolitan area with a new upscale type of
convenience store and gas station to compete for customers, especially
females, who don’t like the ambience at a typical convenience store. In
fact, recently cutting-edge convenience and gas retailer WaWa did just
that. Your research shows that it will be important to place your stores in
neighborhoods trafficked by consumers who are more likely to be attracted
to your upscale merchandise and more pleasant surroundings. Where do
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you turn for data on segments that might be a good match for your
product?
EXHIBIT 7.7 Traditional Social Class Strata in the
United States
One source is Claritas, which continually updates a large database
called PRIZM that is zip-code driven. PRIZM profiles every zip code in
the United States by both demographic and lifestyle (psychographic)
variables. Over time, PRIZM has discovered 68 “neighborhood
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EXHIBIT 7.8 Sample PRIZM Clusters
Winner’s Circle (Wealthy Middle Age, Mostly with Kids)
Among the wealthy suburban lifestyles, Winner’s Circle is the
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youngest, a collection of mostly 35- to 54-year-old couples
with large families in new-money subdivisions. Surrounding
their homes are the signs of upscale living: recreational
parks, golf courses, and upscale malls. With a median
income over $100,000, Winner’s Circle residents are big
spenders who like to travel, ski, go out to eat, shop at
clothing boutiques, and take in a show.
Money and Brains (Upscale Older, Mostly without Kids)
The residents of Money and Brains seem to have it all: high
incomes, advanced degrees, and sophisticated tastes to
match their credentials. Many of these city dwellers are
married couples with few children who live in fashionable
homes on small, manicured lots with expensive cars in the
driveway.
Executive Suites (Upscale Middle Age, Mostly with Kids)
The residents of Executive Suites tend to be prosperous and
active professionals who own multiple computers, large-
screen TV sets, and are above average in their use of
technology. Executive Suites also enjoy cultural activities,
from reading books to attending theater and watching
independent movies.
Source: www.claritas.com.
types” into which all zip codes fall. You can go to Claritas and look under
“MyBestSegments” to plug in your own zip code if you like. “Segment
Details” provides the geodemographic descriptions for each segment.
Exhibit 7.8 describes several PRIZM clusters that might be potential
customers for your new upscale convenience and gas store.
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Individuals who engage in paraskiing and other extreme sports are a lucrative
psychographic market segment for many products targeted to their sport.
Source: GoPro, Inc.
Judging from the description of the product, these PRIZM clusters
seem to be likely segments of interest: Winner’s Circle, Money and
Brains, and Executive Suites. Certainly, other clusters not shown in
Exhibit 7.8 might also fit your profile of assumed consumer needs and
wants. The next step would be to seek zip codes whose location involves
traffic patterns that will feed these consumer clusters into your
convenience stores. These locations might involve being either close to
housing additions or on key routes that members of these clusters take
between home and work.
Psychographic Segmentation
Another approach to segmenting consumer markets is through
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psychographic segmentation, which relies on consumer variables such as
personality and AIOs (activities, interests, and opinions) to segment a
market. Psychographic segmentation is sometimes also referred to as
segmentation by lifestyle or values. Psychographic segmentation builds on
a purely demographic approach in that it helps flesh out the profile of the
consumer as a human being and not just a location or demographic
descriptor. 36 Psychographic segmentation brings individual differences
into the profile along with the more readily measurable descriptive
variables we have discussed so far.
Lifestyle brands are especially popular among younger consumers who
are often attracted to belonging and community. GoPro is an adventurous,
outdoors lifestyle brand whose mission is to help “people capture and
share their lives’ most meaningful experiences with others.” To encourage
video/photo
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sharing, the company launched “GoPro Awards” in 2015, awarding up to
$5 million in prizes to customers who produced and shared the best GoPro
videos and photos. 37
An important challenge of using psychographic segmentation involves
the reliability and validity of its measurement. Unlike geographic and
demographic measures, which are relatively objective in nature,
psychographic measures attempt to “get into the head” of the consumer.
One way to better assure that such measures are reliable and valid is
through the use of standardized questionnaires that reflect the experiences
of a large number of users over an extended period. One popular
psychographic instrument is VALS™ owned and operated by Strategic
Business Insights (SBI). Want to know your own VALS™ type? Just go to
the Strategic Business Insights website, click on “VALS™ Survey,” and
complete a questionnaire.
EXHIBIT 7.9 VALS™ Framework
475
©2017 by Strategic Business Insights. All rights reserved.
www.strategicbusinessinsights.com/vals.
VALS™ segments U.S. adults age 18 and older into eight consumer
groups on the basis of a standardized questionnaire and proprietary
algorithm. Exhibit 7.9 portrays the basic VALS™ framework. According
to SBI, “Each of us is an individual. Yet each of us also has personality
traits, attitudes, or needs that are similar to those of other people. VALS™
measures the underlying psychological motivations and resources that
groups of consumers share that explain and predict each group’s most
likely choices as consumers.” VALS™ has shown consistently strong
evidence of reliability and validity. 38
Assume that you take the survey and discover you are an Achiever.
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http://www.strategicbusinessinsights.com/vals
Lots of hard-driving MBA students and undergraduate business majors are
Achievers. According to the VALS TM website, members of this group
typically may be expected to:
Have a “me first, my family first” attitude.
Believe money is the source of authority.
Be committed to family and job.
Be fully scheduled.
Be goal oriented.
Be hardworking.
Be moderate.
Act as anchors of the status quo.
Be peer conscious.
Be private.
Be professional.
Value technology that provides a productivity boost.
A marketing manager might appeal to Achiever consumers through
products that reflect success. It is important to note that although
Achievers want to appear successful, they do not want to stand out from
the crowd. Brands that connect well with this type currently incllude Nike,
Honda, iPhone, Samsung, and Old Navy.
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Behavioral Segmentation
Behavioral segmentation divides customers into groups according to
similarities in benefits sought or product usage patterns.
Benefits Sought Why do people buy? That is, what are the crucial
value-adding properties of an offering? For many people, a Walmart
Supercenter offers the ultimate in one-stop shopping. The idea of going to
one store and getting everything from groceries to CDs to kitty litter has a
lot of appeal, if the critical benefit sought is broad selection, low prices,
and infrequent, extended trips to the store. On the other hand, in recent
477
years Walgreens drugstores have been cropping up on corner after corner
on high-traffic streets. Walgreens has been extremely successful in
appealing to a shopper seeking a different set of benefits, namely less time
in the store and a lower level of hassle. The chain caters to consumers for
whom the convenience of having a store that is close to home or en route
to work trumps other potential benefits such as selection and price. 39
For many marketing managers, segmentation by benefits sought is the
best place to start the process of market segmentation. You might begin by
identifying groups interested in the specific bundle of benefits afforded by
your offering and then move toward utilizing the other segmentation
variables to further hone the profile of the core group that is attracted to
your product’s benefits.
Usage Patterns Segmentation by usage patterns includes usage
occasions, usage rate, and user status. An occasion means specifically
when the product is used. Why do you buy greeting cards? What causes
you to take your significant other out for that special dinner? What makes
you break down and rent that tux or buy that formal? Each of these
purchases is driven by an occasion, and marketers are very savvy at
playing to consumers’ desires to use occasions as a reason to buy. 40
Listerine in an example of usage-based segmentation. Back when
Listerine was marketed as just a mouthwash, it tended to be used
sporadically or in the morning as part of the day’s hygiene routine. But
now that the product also addresses such oral concerns as gingivitis and
gum disease, the usage rate is way up, with many people developing a
regular, twice-a-day regimen. This greatly enhanced the usage rate for the
product. 41 Marketers often segment based on whether a consumer is a
light, medium, or heavy user. Many firms subscribe to the concept of the
80/20 rule—that 80 percent of the business is done by 20 percent of the
users.
Degree of customer loyalty is another important focus for
segmentation. As you’ve learned, CRM is a powerful tool for marketing
managers in identifying, tracking, and communicating with especially
loyal patrons so they can implement strategies to keep those patrons loyal
and reduce temptation to switch. In practice, loyalty programs for airlines
and hotels, as well as frequent shopper cards for supermarkets and other
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retailers, all play on the notion of keeping the segment of heaviest users
satisfied and using the product and of building a relationship between the
customer and the brand and company. 42
Finally, segmenting users into groups such as former users, current
users, potential users, first-time users, and regular users can be very
advantageous. Often, firms will come up with extra incentives for former
users to retry a product or for potential users to make that initial purchase.
It is critical to influence the segment of first-time users to take the plunge
and purchase. CRM programs enable marketing managers to customize the
value offering, thus maximizing the appeal to each of these user status
segments.
Firms Use Multiple Segmentation Approaches
Simultaneously
We have seen that geographic, demographic, psychographic, and
behavioral approaches to segmenting consumer markets all have strong
potential. In practice, these approaches are not applied one at a time. Firms
develop a profile of a segment that might include aspects of any or all of
the segmentation approaches we have discussed. Exhibit 7.10 provides
visual examples of a range of segmentation approaches, including
combinations of several types of segmentation.
197
EXHIBIT 7.10 Examples of Segmentation
Approaches
479
Developing the right segmentation strategy is one of the most
important aspects of the marketing manager’s role. Expertise in market
segmentation is highly valued by companies across many industries
because of the complexity of the process and the potential for effective
segmentation to have a major impact on a firm’s success in the
marketplace. 43
Segmenting Business Markets
Chapter 6 provided an extensive treatment of the many important
characteristics of business markets. The variables relevant to segmentation
of business markets share some overlap with those in consumer markets,
but it is worth highlighting several unique segmentation approaches here
as well. Exhibit 7.11 summarizes several key approaches to business
market segmentation.
EXHIBIT 7.11 Key Business Market Segmentation
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Variables
Demographic
Industry
Company size
Location
Operating Variables
Technology
User status
Customer capabilities
Purchasing Approaches
Purchasing function organization
Power structure
Nature of existing relationship
General purchasing policies
Purchasing criteria
Situational Factors
Urgency
Specific application
Size of the order
Personal Characteristics
Buyer-seller similarity
Attitudes toward risk
Loyalty
Source: This listing is derived from an influential early book on business markets—
Source: Bonoma, Thomas V., and Shapiro, B. P. Segmenting the Industrial Market
Lexington, MA: Lexington Books, 1983. The concepts are still fully valid today.
198
Raymond James provides financial services to a variety of market
481
segments including individuals, corporations, and municipalities. The
services are tailored to accomplish the different financial goals of each
segment. For example, in the business segment corporations facing
financial distress can hire the Restructuring Investment Banking team at
Raymond James to receive a full range of restructuring solutions,
including exchange offers, prepackaged bankruptcies, and out-of-court
restructurings. 44
In some ways, business market segmentation is more straightforward
than that of consumer markets. This is partly because there is often a more
defined universe of potential customers. 45 For example, using one variable
from each set in Exhibit 7.11, a firm might create a profile segment for
focus that includes one industry, current nonusers, price-focused, large
quantity, and strong loyalty. In any given industry in the business-to-
business market, this segmentation profile would probably narrow the
segment to include just a few firms. This would allow for a focused
approach to communicating and delivering value to this profile of firms.
Of course, as with consumer markets, segments must meet the criteria for
effective segmentation, and if the profile above appears too narrow, one or
more of the variables can be removed.
TARGET MARKETING
LO 7-3
Describe the steps in target marketing.
Target marketing is the process of evaluating market segments and
deciding which among them shows the most promise for development.
The decision to invest in developing a segment into a target market
represents an important turning point in the marketing planning process
because, from this point forward, the direction of a firm’s marketing
strategies and related programs are set. 46 The three steps in target
marketing are:
1. Analyze market segments.
2. Develop profiles of each potential target market.
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3. Select a target marketing approach.
Analyze Market Segments
A number of strategic factors come into play when analyzing whether a
segment is a good candidate for investment as a target market. Many
different factors should be considered in the analysis. The goal is to
determine the relative attractiveness of the various segments using an ROI
(return on investment) approach. Everything else being equal, it is prudent
to assign a high level of attractiveness to segments that provide the
quickest, highest-level, and longest-sustaining anticipated ROI. 47
Several factors should be considered when analyzing segment
attractiveness. The following are among the most important: segment size
and growth potential, competitive forces related to the segment, and
overall strategic fit of the segment to the company’s goals and value-
adding capabilities.
Segment Size and Growth Potential Reckitt Benckiser is a
British consumer goods company known for brands such as Dettol (the
best-selling antiseptic in the world), Veet (the best-selling depilatory brand
globally), and smaller brands such as Clearasil, Lysol, and Vanish. Its
biggest brands, however, are less well known in the United States, so to
move into U.S. markets, where it was not well represented, the company
acquired Mucinex, Delsym, and eventually Cepacol, which positioned it
squarely in the cough-and-cold market. With rising numbers of cases of
the flu and a growing market for quick remedies, particularly with people
more interested in dosing themselves (thanks in part to WebMD and other
sites that allow sufferers to self-diagnose), the market was an attractive
one, with a lot of growth potential and strong tie-ins to many of Reckitt
Benckiser’s other brands, particularly cleaners and disinfectants. 48
Competitive Forces Related to the Segment In Chapter 3 we
identified Michael Porter’s competitive forces that firms must be cognizant
of when considering
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investment in new target markets. For Reckitt Benckiser’s cough-and-cold
business, several of these forces predominate. First, rivalry among existing
483
firms is fierce. Reckitt Benckiser entered a market dominated by Johnson
& Johnson, but with fierce competition from brands like P&G as well.
Second, a strong threat of substitute products is present in the form of a
variety of cough-and-cold remedies, from homeopathic treatments to
prescription medication to less conventional treatments like nasal irrigation
(through neti pots and other sinus washes). New entrants are less of a
threat, as patents and R&D make the barriers to entry high, and suppliers
are not highly concentrated.
Strategic Fit of the Segment Strategic fit means there is a good
match of a target market to the firm’s internal structure, culture, goals, and
resource capabilities. In the case of the Reckitt Benckiser acquisition of
Mucinex and Delsym, the advantages and strategic fit were clear. The
company already possessed similar international brands, and so it had
experience with sourcing, production, and marketing. The brands also fit
in well with the existing cleaning and disinfectant lines owned by Reckitt
Benckiser, such as Lysol, since purchases of disinfectants often go hand-
in-hand with purchases of cough or cold medication. The nature of the
acquired brands was a great strategic fit for much of what Reckitt
Benckiser already does in the market.
Develop Profiles of Each Potential Target Market
Once the market segments have been analyzed, marketing managers need
to develop profiles of each segment under consideration for investment as
a target market. Especially within the context of marketing planning,
specifying the attributes of each segment and describing the characteristics
of a “typical” consumer within that segment—from a geographic,
demographic, psychographic, and behavioral perspective—are invaluable
to gaining a better understanding of the degree to which each segment
meets the criteria set out by a firm for segment attractiveness and target
market ROI. Subsequently, a decision can now be made on prioritizing the
segments for investment to develop them as target markets. 49
Usually, this analysis results in segments that fall within four basic
levels of priority for development:
1. Primary target markets—those segments that clearly have the best
484
chance of meeting ROI goals and the other attractiveness factors.
2. Secondary target markets—those segments that have reasonable
potential but for one reason or another are not best suited for
development immediately.
3. Tertiary target markets—those segments that may develop emerging
attractiveness for investment in the future but that do not appear
attractive at present.
4. Target markets to abandon for future development.
Select a Target Marketing Approach
The final step in target marketing is to select the approach. Exhibit 7.12
portrays a continuum of approaches to target marketing from very broad to
very narrow. Four basic options in target marketing strategy are
undifferentiated, differentiated, concentrated (also called focus or niche),
and customized (or one-to-one).
EXHIBIT 7.12 Continuum of Target Marketing
Approaches
Very Broad Very
Narrow
Undifferentiated
target
marketing
Differentiated
target
marketing
Concentrated
target
marketing
Customized
target
marketing
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ChristianMingle, a Christian online dating site, has been extremely
successful by targeting a very specific—and growing—market. Meeting
online is second only to introductions by mutual friends as the way couples
connect, with over 25 percent of U.S. couples first connecting through
485
online dating sites. ChristianMingle is owned by Spark Networks, a small
player against mainstream competitors like Match.com, eHarmony, and
OkCupid, but has avoided direct competition by focusing on more niche
markets. With well over 8 million users, ChristianMingle is the largest of
Spark Networks’ 28 sites, but the company also owns JDate (a Jewish
dating site) and much smaller networks such as Silver Singles, Deaf
Singles Connection, and LDS (Latter-Day Saints) Singles. Although still
relatively small, Spark Networks has experienced remarkable success so
far and expects continued growth. 50
In recent years, UPS has done a great job of target marketing small businesses
to offer a wide range of logistics and supply chain expertise.
Source: United Parcel Service of America, Inc.
Undifferentiated Target Marketing The broadest possible
approach is undifferentiated target marketing—which is essentially a one-
market strategy, sometimes referred to as an unsegmented mass market.
486
Firms whose market approach is grounded in Porter’s competitive strategy
of low cost may use a relatively undifferentiated target marketing strategy
based primarily on the resulting price advantage. 51 Southwest Airlines and
Walmart are two firms that have built their businesses on their inherent
internal cost advantages, passing along a price advantage to the mass
market. But most firms don’t have the kind of cost efficiencies it takes to
operate such a target marketing approach and instead have to rely on
developing sources of differentiation other than price.
Differentiated Target Marketing A differentiated target
marketing approach, often referred to as simply differentiation, as you read
earlier in this chapter, means developing different value offerings for
different targeted segments. Possible sources of differentiation are many
and include innovation/R&D, product quality, service leadership,
employees, convenience, brand image, technology, corporate social
responsibility, and many others. A significant challenge with
differentiation as a core market strategy is that competitors are constantly
coming to market with new differentiators that trump the efficacy of the
current ones. Overnight a new technological innovation or other strategic
shift by a competitor can doom a firm’s current source of differentiation to
the junk heap. 52
FedEx famously differentiates based on speed of delivery and
dependability of overall service to appeal to a target market willing to pay
a price premium for these attributes. When UPS moved full force into the
overnight package segment, its differentiating message was about full
integration of services for the user through a smorgasbord of services
including ground, overnight, and integrated supply chain solutions even
for small to medium-size businesses. About the same time, FedEx entered
UPS’s lucrative over-the-road transport space with FedEx Ground.
Initially, because of UPS’s domination, FedEx had a difficult time
differentiating itself in a meaningful way and only recently has FedEx
Ground begun to gain widespread usage at a level that would even come
close to affecting UPS’s domination of that market.
Concentrated Target Marketing A concentrated target
marketing approach, which Michael Porter refers to as a focus strategy and
487
is also popularly called a niche strategy, involves targeting a large portion
of a small market. Many start-up firms enter a marketplace as focus
players. Because they are not saddled with keeping up with competitive
demands in the broader market, firms using concentrated target marketing
can
201
realize cost and operational efficiencies and better margins than many first
positioned as differentiators. 53 The danger of being a focus player is that
sometimes these firms get too successful and are no longer able to fly
under the radar of the differentiators, especially if the niche they occupy is
a growing niche within the larger market.
Blackbaud competes in the software market against such powerhouses
as MYOB and Quickbooks, but despite this it has managed to sustain
annual revenue growth greater than 15 percent for the last 10 years. The
secret to its success is its laser-focused concentrated target marketing to
nonprofit organizations. Blackbaud tailors all its products and services to
meet multiple needs specific to running a nonprofit organization and
powering social good. 54
Customized (One-to-One) Marketing With the proliferation of
CRM, firms are able to develop more customized approaches to target
marketing. In Chapter 1 we said that customized (one-to-one) marketing
advocates that firms should direct energy and resources into establishing a
learning relationship with each customer and then connect that knowledge
with the firm’s production and service capabilities to fulfill that customer’s
needs in as custom a manner as possible. 55 The related approach of mass
customization allows flexible manufacturing, augmented by highly
efficient ordering and supply chain systems, to drive the capability for a
consumer to essentially build a product from the ground up. Today, many
online clothing retailers offer a high degree of customization in ordering.
Consumers enjoy “building their own outfit” by completing a form that
includes all the necessary body dimensions along with style and color
choices, and within a few days a custom garment arrives via FedEx or
UPS!
Netflix takes pride in its algorithm’s ability to predict and recommend
content based on the individual tastes of Netflix users, the epitome of
488
customized marketing. However, for some time, if multiple users shared a
Netflix account, the algorithm struggled to find a pattern in the content
interests of the account users. Netflix rectified this problem by creating a
profile feature that allows users to create multiple profiles under one
Netflix account. This enables Netflix to continue to recommend content
for individual users. 56
POSITIONING
LO 7-4
Define positioning and link it to the use of the marketing mix.
Once market segments have been defined and analyzed and target markets
have been selected for development, the firm must turn its attention to
creating, communicating, delivering, and exchanging offerings that have
value to the target markets—that is, positioning the product so that
customers understand its ability to fulfill their needs and wants. The
marketing mix of product, supply chain, price, and promotion is at the
heart of positioning, and positioning strategies for a target market are
executed through the development of unique combinations of these
marketing mix variables. 57 Effective positioning is so important that the
remaining chapters in this book are devoted to the various marketing mix
elements.
Positioning doesn’t occur in a vacuum; firms must position their
offerings against competitors’ offerings. Although McDonald’s might like
to think that their customers come because they’re “lovin’ it,” the truth is
that consumers of fast food can be fickle and they are constantly
bombarded with the output of positioning strategies not just by direct
hamburger competitors to McDonald’s (such as Burger King and
Wendy’s) but also by many other types of quick-service restaurant
cuisines.
In practice, much of the market research and marketing analytics
described in Chapters 4 and 5 is designed to facilitate successful
positioning. Many positioning studies start with focus groups that allow
participants to talk about aspects of their experiences with a product. From
489
the focus groups, a set of attributes is developed for further analysis.
Attributes of a product represent salient issues that consumers consider
when evaluating the product. For quick-service restaurants like
McDonald’s, the set of relevant attributes includes items such as
cleanliness of the restaurant, speed of service, breadth of menu offerings,
healthy food options, prices, employee courtesy, and numerous others.
202
Founded in 1922, State Farm for years was known as a reliable, albeit
rather quiet, brand. While not necessarily a bad reputation, it didn’t help
the company connect with its target market. Furthermore, until recently the
insurance giant still relied nearly totally on an agent model, while other
companies like GEICO and Progressive aggressively pushed self-service
options. State Farm knew it had to act, and act fast, to create a more
modern positioning. To that end, the company retired the “Auto-Fire-Life”
ovals from its logo since it now offers a much broader range of services,
and began an ad campaign centered around Aaron Rodgers’ “Discount
Double Check” along with other clever ads like the now-famous “Jake
from State Farm” and “Internet and the French Model” commercials.
Interactive media campaigns have also helped boost customer interaction,
with the result that State Farm, at over 90 years old, is more agile and
more connected to its core customer base than ever. 58
Typically, after a series of focus groups to develop or confirm the
relevant attributes, the positioning research moves to a survey
methodology in which respondents rate the importance of each attribute, as
well as the degree to which each of several competitors’ products exhibit
the attributes of interest. 59 For example, McDonald’s might survey
consumers about how important cleanliness of the restaurant, speed of
service, breadth of menu offerings, healthy food options, prices, and
employee courtesy are, and then ask them to provide their perceptions of
how well McDonald’s, Burger King, and Wendy’s stack up in actually
delivering these desired attributes.
The results of such a survey can be analyzed through a gap analysis
that shows not only gaps by attribute in importance versus delivery, but
also gaps among the competitors in delivery. Perhaps the analysis would
reveal that McDonald’s excels at healthy food options and cleanliness of
the restaurant, but Burger King excels at breadth of menu offerings and
490
prices. If that’s the case, each firm has to decide if it is comfortable
continuing to invest in these elements of positioning or if investment in
other elements is warranted. Recently, edgier Burger King has deliberately
invested in positioning itself as the “non-healthy menu” choice, blatantly
featuring in ads its bigger and much more decadent food items in terms of
fat and calorie content than either McDonald’s or Wendy’s advertises
(although each certainly offers a fair share of unhealthy items). 60
Perceptual Maps
LO 7-5
Use and interpret perceptual maps.
The data generated from the above analysis can be used to develop a
useful visual tool for positioning called a perceptual map, which displays
paired attributes in order to compare consumer perceptions of each
competitor’s delivery against those attributes. 61 Today, this is usually
accomplished by computer statistical software applications that plot each
competitor’s relative positioning on the attributes.
Exhibit 7.13 provides three different examples of paired attributes on a
perceptual map. The first map shows a generic pairing of price and quality
and identifies several quadrants of feasible positions based on price-quality
pairings that result in positive perceived value by the customer. The logic
is compelling as to why the other two quadrants are not feasible
positioning. In the upper-left quadrant, marketing an inferior offering at a
high price is the antithesis of good marketing management. It may seem
that in the short run an opportunity exists to make a quick buck, but the
approach runs counter to everything we’ve learned so far about value and
building customer relationships as the core of successful marketing over
the long run. The bottom-right quadrant’s positioning of high quality at a
low price seems attractive, but only firms that can legitimately sustain
Porter’s notion of low-cost strategy can reasonably consider such
positioning. And even for those players, the idea of nurturing cost and
efficiency savings in operations is not that you will take the entire savings
to price; rather, Porter advocates that a low-cost strategy should afford the
491
opportunity to take much of the savings to improved margins and
increased reinvestment in product development, only reflecting perhaps a
small price differential. Chapter 11 reveals the inherent dangers in
positioning primarily based on low price.
Audi, Volkswagen’s luxury brand, delivers high-quality automobiles
that rank at the top in nearly every vehicle category. Audis are stylish,
powerful, and reliable, outshining the
203
competition and allowing the company to successfully execute a premium
pricing approach. For example, in recent years the Audi R8 featured an
MSRP about $7,000 above the comparable Acura NSX. 62
The other two perceptual maps in Exhibit 7.13 show where existing
competitors are in the market based on the attributes reported. Such
perceptual maps can be very useful in helping visualize where to make
strategic changes to either move your product closer to the main market
(clusters of competition) or further differentiate your product away from
the competitive cluster and into more unique market space. In this way,
perceptual maps aid in repositioning a product, which involves
understanding the marketing mix approach necessary to change present
consumer perceptions of the product. McDonald’s has recently been
engaged in a repositioning strategy into more healthy food options to
appeal to an important target market of health-conscious consumers.
In actual practice, pairing just two attributes for consideration in
making positioning decisions is overly simplistic. Data such as we
described above are actually analyzed through a technique called
multidimensional scaling that allows for interpretation of multiple attribute
perceptions at the same time.
EXHIBIT 7.13 Examples of Perceptual Maps Used
in Positioning Decisions
492
Sources of Differentiation
LO 7-6
493
Identify sources of differentiation.
Effective differentiation is absolutely central to successful positioning
strategies. Michael Porter, in his classic book Competitive Advantage,
explains differentiation as follows:
When employing a differentiation strategy, the organization competes on
the basis of providing unique goods or services with features that
customers value, perceive as different, and for which they are willing to
pay a premium.63
Marketing managers can seek to create differentiation for their
offerings in a variety of ways. The following are some of the most often
used sources of differentiation.
Innovative leadership: constantly developing the “next new thing.”
Example: Apple.
Product leadership: performance, features, durability, reliability,
style, and so on. Example: BMW.
Image leadership: symbols, atmosphere, and creative media.
Example: Harley-Davidson.
Price leadership: Efficiencies in cost of labor, materials, supply
chain, or other operational elements enabling the price leader to
charge less. Example: Walmart.
Convenience leadership: making the product or service significantly
easier to obtain. Example: Amazon.com.
204
Service leadership: having an unusual and notable commitment to
providing service to customers. Example: Ritz-Carlton.
Personnel leadership: hiring employees who are competent, reliable,
courteous, credible, responsive, and able to communicate clearly.
Examples: Chick-fil-A, Southwest Airlines.
It is important to note that firms and brands often rely on multiple
sources of differentiation simultaneously. For example, Chick-fil-A likely
494
stakes a claim to differentiation by service, product leadership, and
convenience in addition to the aspect of personnel leadership noted above.
A key differentiator for Chick-fil-A is personnel leadership. Their hiring and
training practices are among the best in the quick-service restaurant industry,
and the result is excellence in service leadership—another key differentiator for
them.
©Rob Wilson/Shutterstock
Positioning Errors
LO 7-7
Avoid potential positioning errors.
Sometimes, positioning strategies don’t work out as planned. The
following positioning errors can undermine a firm’s overall marketing
strategy: 64
Underpositioning: when consumers have only a vague idea about the
company and its products, and do not perceive any real
differentiation. Until recently, both Audi and Volkswagen suffered
from underpositioning as many consumers struggled to identify
495
salient points of differentiation between those brands and their
competitors. However, both brands have beefed up their marketing
communication to better clarify exactly what each stands for in the
marketplace.
Overpositioning: when consumers have too narrow an understanding
of the company, product, or brand. Dell became so entrenched as a
brand of PCs that it has been a bit of a struggle to extend the brand
into other lucrative product lines. In contrast, Apple and Samsung
certainly are not overpositioned, having broadened the scope of their
brands and products substantially during the same time frame.
Confused positioning: when frequent changes and contradictory
messages confuse consumers regarding the positioning of the brand.
McDonald’s has found itself the victim of confused positioning as it
has worked to appeal to new segments of customers. It had tried (and
failed) at so many diverse new product launches in the restaurants
that many customers lost track of what the core of the brand was.
Since then, under new top leadership, McDonald’s has embraced its
core differentiators of consistency of products and dependability of
service, while growing new products at a much more conservative
rate.
Doubtful positioning: when the claims made for the product or brand
are not regarded as credible by consumers. Sadly, firms that engage
in unethical business practices often do not realize the magnitude of
damage being done to their brand. Also, you will learn in the
chapters on products and branding that trial is only the initial goal of
marketing communication. After initial trial, firms need to ensure
that the offering consistently meets or exceeds customer expectations
so that repurchase—and loyalty—will occur, which is a process of
customer expectations management. When FedEx promises 8 a.m.
next-day delivery, it has to be sure its systems can actually produce
such a level of performance all the time. In the aftermath of the 2008
financial crisis, insurance company American International Group
(AIG) received a bailout from the U.S. Treasury because it was
among the financial institutions deemed “too big to fail.” Receiving
this bailout seriously jeopardized AIG’s credibility and positioning.
AIG has long since paid off its $182 billion bailout, and in 2016 it
496
received the “Double I” award from the Insurance Industry
Charitable Foundation, recognizing AIG’s corporate and
philanthropic leadership. 65
205
SUMMARY
Effective segmentation, target marketing, and positioning are central to
marketing management because these decisions set the direction for
the execution of the marketing plan. First, potential appropriate
segmentation approaches must be identified. Second, the segments
must be evaluated and decisions made about which to invest in for the
most favorable ROI—these become your target markets. Finally,
sources of differentiation must be identified that will result in customers
perceiving fulfillment of needs and wants based on the value
proposition of the offering.
KEY TERMS
market segmentation 185
target marketing 185
positioning 185
positioning strategy 185
differentiation 186
geographic segmentation 187
demographic segmentation 188
family life cycle 191
psychographic segmentation 194
VALS TM 195
behavioral segmentation 196
497
primary target markets 199
secondary target markets 199
tertiary target markets 199
undifferentiated target marketing 200
concentrated target marketing 201
customized (one-to-one) marketing 201
perceptual map 202
repositioning 203
APPLICATION QUESTIONS
More application questions are available online.
1. Go to the Claritas website, click on MyBestSegments, and find the
Zip Code Look-Up. There you will find a demo that allows you to
type in a zip code of your choice and find out what PRIZM clusters
predominate in that geographic area.
a. What do the findings tell you about the overall composition of
potential customers within that zip code?
b. Based on the array of clusters represented, what kinds of start-up
businesses might flourish within the geographic area? Why do
you believe those businesses in particular would be successful?
2. Go to the Strategic Business Insights (SBI) website and click
through to the section on VALS TM . Find the VALS TM survey and
complete the questionnaire.
a. Are the results surprising? Why or why not? Do you see yourself
as part of the identified VALS TM segment?
b. If you are comfortable doing so, share your results with a few
other people in the class and ask if they mind sharing their results
with you. What is the consensus among the group about whether
the survey actually captured a relevant profile about yourself and
498
your classmates?
c. How might each of these brands benefit from the use of VALS TM
as a psychographic segmentation tool?
i. Chipotle
ii. Walt Disney World Theme Park
iii. Target Stores
iv. Samsung
v. Porsche
206
3. Assume for a moment that you are in marketing for Staples (the
office supply company) and that the clients you are responsible for
are business users (not end-user consumers). What five business
market segmentation variables do you think will be most useful to
consider as you move toward homing in on the Staples business
target markets with the best ROI? Justify your choice of each.
4. Consider each of the brands below. Review the list of potential
sources of differential competitive advantage (differentiation)
highlighted in the chapter. For each: (a) indicate which one
differentiation source you believe is most important to them
currently and (b) indicate which other differentiation sources you
believe might hold promise for development for them in the near
future and why.
a. Norwegian Cruise Line
b. Sears Craftsman Tools
c. Avon
d. Lowe’s Home Improvement Stores
e. The Salvation Army
5. McDonald’s is interested in your opinion of how it would stack up on
a perceptual map against Burger King, Wendy’s, Taco Bell, and
Chick-fil-A on the attributes of convenience and product quality.
Create the map by putting convenience as the vertical axis (high at
the top and low at the bottom) and product quality as the horizontal
axis (low on the left and high on the right). Then indicate your
499
perceptions of the five brands on these attributes by placing a dot
for each in the spot that indicates your view (see Exhibit 7.13 for
examples).
a. What does the result reveal about McDonald’s current positioning
on these attributes, based strictly from your perception?
b. If possible, compare notes with others in your class. Do you find
consistency?
c. In general, what opportunities for repositioning do you see for any
of the brands to take advantage of current perceptions revealed
on the perceptual map? What would they have to do to
accomplish this repositioning?
MANAGEMENT DECISION CASE
Crafty Credit Card Competitor “Chases”
Amex for Share of Millennials’ Wallets
American Express (Amex for short) is one of the most venerable
brands in all of financial services. Unfortunately, Amex and its
stockholders recently saw profits in the credit card business fall by
nearly 20 percent, with an accompanying revenue plunge of $2
billion! 66 How is it that a successful firm like Amex can hit such a
rough patch? One key reason is changing customer demographic
trends, Amex’s aging and somewhat pompous brand image (which
makes it appear out of touch with younger up-and-coming market
segments), and a wily competitor in the form of Chase Bank (more
on Chase later).
Amex, founded in 1850 as an express mail service, didn’t offer
its first charge card—which was technically not a credit card, since
the balance had to be paid off each month—until 1958. Over its
history, the firm created the once popular “Traveler’s Cheques”
business (1891–1990s), founded and spun off an investment bank
to Lehman Brothers (1981–1994), and formed a joint venture with
Warner Communications that led to the creation of television
500
channels MTV and Nickelodeon (1979–1984). Today, Amex has
over 100 million cardholders worldwide, some of whom see
enough value in their cards to pay a $7,500 initial fee and a
207
$2,500 annual fee to obtain the rarefied Centurion card (a.k.a. their
“black card”). 67
To call Amex a venerable brand would be a gross
understatement, as it ranks as one of the top 25 brands in the
world and has been valued by Interbrand at $18 billion. 68 Amex’s
branding power provides a lot of cachet with customers—
especially those from Generation X and older—and it has
significant pricing power with merchants worldwide. However,
Amex recently has been steadily losing customers and key
merchants, including dropped exclusive deals with Costco and
JetBlue—losses that cost Amex massive amounts of revenue.
Warren Buffett, whose holding company Berkshire Hathaway owns
more than 10 percent of Amex, has said that the “brand is under
attack.” But why under attack now, in particular? The brand most
responsible for the recent vulnerability at Amex is Chase. Chase
has boldly taken advantage of an opportunity by segmenting,
targeting, and positioning in Amex’s market to craft and present a
new image to the highly desirable and hard-to-reach millennials.
To explain Chase’s approach, we must first understand that
Amex has traditionally positioned itself as a premier offering,
providing a posh credit card for the elite, successful, and (typically)
older professional. But Chase decided to take a different approach.
Following demographic trends, Chase saw that market growth
potential was much greater for millennials (Generation Y) than any
other generational segment. According to the U.S. Census Bureau,
millennials now outnumber every other generational cohort and will
hold this position for at least two decades. 69 Millennial consumers
behave differently from those from previous generations. They are
known to ignore much traditional advertising, and often postpone
marriage and home purchases—but they may not hesitate to jump
right into car and travel purchases. They check blogs and social
media for product reviews, and also tend to be more brand loyal
501
than other generational segments. The value that millennials place
on brand authenticity and brand involvement with social causes, as
well as their desire to participate in product creation processes and
dialogues (usually virtually), provide strong clues to marketing
managers about how to win them over. 70 It seems that Amex
largely missed these cues, and Chase was only too happy to cash
in on the oversight.
So Chase developed and marketed a card rich with rewards,
designed to appeal to millennials’ value-seeking behavior and
attitudes. They positioned the Sapphire Reserve card as “not your
father’s credit card,” directly opposite to Amex’s positioning. Chase
smartly set out to provide a different value proposition by offering
up a brand image based on experiences rather than conspicuous
consumption (meaning “showing off” one’s ability to buy). Using
basic demographic segmentation, but deepening the insights with
psychographics of the millennial target segment, Chase discovered
that younger consumers typically shunned the Amex card
because, as one consumer stated, using the Amex card felt
“braggy” (an antithetical value for millennials). But Chase’s
Sapphire card, tinted dark blue and made of metal, feels more
authentic to the younger consumer. It says, “If I have this card I’m
interesting.” 71
To be sure, the Sapphire Reserve card offers plenty of
benefits, especially for travelers—a 100,000-mile reward sign-up
bonus, credit toward TSA-Pre? enrollment, an automatic extended
warranty on purchases, trip insurance, and access to airport
lounges. But Chase’s main brand message is that these rewards
are designed to get you to the snowboard slopes and the after-
parties at the hottest local venues, rather than to an exclusive
upscale wine tasting in the Loire Valley. To say that Chase’s
Sapphire Reserve card has been a slam dunk would be an
understatement. In the first seven months after its release, Chase
signed up more than 1 million new cardholders, half of whom were
under age 35! 72 But don’t count Amex totally out of the millennial
ballgame—they are working hard for a comeback, but how well
they do is “all in the cards.”
502
Questions for Consideration
1. Why is the millennial generation, in particular, so important to
Amex?
2. This case focuses primarily on the battle between Chase and
Amex over millennial consumers. But, as the content in this
chapter points out, lumping all older consumers into a
generalized segment overlooks some important variables.
Looking at the generational groups and their representative
values (see Exhibit 7.7), where would you suggest Amex focus
its marketing efforts, and why?
3. As noted in the chapter, an external positioning statement is not
just about being able to describe how your product benefits the
customer—it also needs to explain how your product is different
from the competition. Chase’s “It’s not your father’s credit card”
external positioning statement sums up in six words the idea
that Chase is young while its competitors are old. The statement
leads millennial consumers to consider what this card could do
for them, beyond what their father’s card could. Amex’s
positioning has always been that its card is for the successful
professional—what would happen if Amex changed that
positioning? (As a bonus, try to create a short external
positioning phrase for Amex to use with millennials.)
208
MARKETING PLAN EXERCISES
ACTIVITY 7: Identify Target Markets
In this chapter you learned that effective segmentation, target
marketing, and positioning favorably impact marketing management.
For purposes of your marketing plan, we’ll leave the specifics of
developing your overall positioning strategies to the upcoming chapters
503
on the marketing mix. At this point, the following steps are needed.
1. Consider the various approaches to segmenting your market(s).
What segmentation approaches do you recommend? Why do you
recommend those approaches over other available approaches?
2. Evaluate your proposed segments against the criteria for effective
segmentation. What does this evaluation lead you to conclude about
the best way to proceed?
3. Systematically analyze each potential segment on your list using the
three steps you learned in the chapter: (1) assess each in terms of
segment size and growth potential, segment competitive forces, and
strategic fit of the segment; (2) for the short set that emerges,
develop profiles of each potential target market, then identify each of
your final set as primary, secondary, tertiary, or abandoned; (3)
select the target marketing approach for each of your primary
targets.
4. Identify the likely sources of differential advantage on which you will
focus later in developing your positioning strategies.
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http://www.metro.co.uk/news/article.html?in_article_id=23982&in_page_id=34
Market Knowledge Diffusion in a Dynamic System of
Competition,” Journal of Marketing 68, no. 3 (July 2004), pp. 1–
20.
62. Cherise Threewitt, “14 Best Luxury Car Brands,” U.S. News &
World Report, November 22, 2016,
https://cars.usnews.com/cars-trucks/best-luxury-car-brands; and
“Compare 2017 Acura NSX vs 2017 Audi R8,” Car Connection,
http://www.thecarconnection.com/car-compare-
results/acura_nsx_2017-vs-audi_r8_2017.
63. Michael E. Porter, Competitive Advantage (New York: Simon &
Schuster, 1985).
64. David W. Cravens and Nigel F. Piercy, Strategic Marketing, 9th
ed. (Boston: McGraw-Hill/Irwin, 2009).
65. Gregory Gethard, “Failing Giant: A Case Study of AIG,”
Investopedia, August 31, 2016,
http://www.investopedia.com/articles/economics/09/american-
investment-group-aig-bailout.asp; “AIG: America’s Improved
Giant,” Economist, February 2, 2013,
http://www.economist.com/news/finance-and-
economics/21571139-insurer-has-done-good-job-rehabilitating-
itself-can-it-stand-its-own; and “AIG Recognized for Corporate
and Philanthropic Leadership.” AIG, June 22, 2016,
http://www.aig.com/about-us/awards-and-recognition/aig-
recognized-for-corporate-and-philanthropic-leadership.
66. Charles Duhigg, “Amex, Challenged by Chase, Is Losing the
Snob War,” New York Times, April 14, 2017,
https://www.nytimes.com/2017/04/14/business/american|-
express-chase-sapphire-reserve.html?_r=0.
67. Matthew Frankel, “5 Things You Didn’t Know about American
Express,” Motley Fool, April 28, 2017,
https://www.fool.com/investing/2017/04/28/5-things-you-didnt-
know-about-american-express.aspx?yptr=yahoo.
68. “Best Global Brands,” Interbrand, 2016,
http://interbrand.com/best-brands/best-global-
brands/2016/ranking/.
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https://cars.usnews.com/cars-trucks/best-luxury-car-brands
http://www.thecarconnection.com/car-compare-results/acura_nsx_2017-vs-audi_r8_2017
http://www.investopedia.com/articles/economics/09/american-investment-group-aig-bailout.asp
http://www.economist.com/news/finance-and-economics/21571139-insurer-has-done-good-job-rehabilitating-itself-can-it-stand-its-own
http://www.aig.com/about-us/awards-and-recognition/aig-recognized-for-corporate-and-philanthropic-leadership
https://www.fool.com/investing/2017/04/28/5-things-you-didnt-know-about-american-express.aspx?yptr=yahoo
http://interbrand.com/best-brands/best-global-brands/2016/ranking/
69. Richard Fry, “Millennials Overtake Baby Boomers as America’s
Largest Generation,” Pew Research, April 25, 2016,
http://www.pewresearch.org/fact-tank/2016/04/25/millennials-
overtake-baby-boomers/.
70. Dan Schawbel, “10 New Findings about the Millennial
Consumer,” Forbes, January 20, 2015,
https://www.forbes.com/sites/danschawbel/2015/01/20/10-new-
findings-about-the-millennial-consumer/.
71. Duhigg, “Amex, Challenged by Chase, Is Losing the Snob War.”
72. Duhigg, “Amex, Challenged by Chase, Is Losing the Snob War.”
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http://www.pewresearch.org/fact-tank/2016/04/25/millennials-overtake-baby-boomers/
https://www.forbes.com/sites/danschawbel/2015/01/20/10-new-findings-about-the-millennial-consumer/
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PART THREE
Develop the Value
Offering– The
Product Experience
CHAPTER 8
Product Strategy and New Product Development
CHAPTER 9
Build the Brand
CHAPTER 10
Service as the Core Offering
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212
CHAPTER 8
Product Strategy
and New Product
Development
LEARNING OBJECTIVES
LO 8-1 Understand the essential role of the product
experience in marketing.
LO 8-2 Define the characteristics of a product.
LO 8-3 Recognize how product strategies evolve from one
product to many products.
LO 8-4 Understand the life of a product and how product
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strategies change over time.
LO 8-5 Recognize the importance of new product
development to long-term success.
LO 8-6 Understand the new product development process.
LO 8-7 Identify how new products become diffused in a
market.
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PRODUCT: THE HEART OF MARKETING
LO 8-1
Understand the essential role of the product experience in marketing.
As we discussed in Chapter 1, the primary function of marketing and,
more broadly speaking, the entire organization is to deliver value to the
customer. The essential component in delivering value is the product
experience, which is why it is considered the heart of marketing. Consider
Nespresso, a single-serve, high-end espresso maker and one of the fastest-
growing brands in the Nestlé company. The company’s focus on
delivering the “perfect coffee in the perfect portion” has led to global
growth and demonstrated that customers are willing to pay for a product
that delivers value. Indeed, many Nespresso customers argue that the
Nespresso single-serve coffee experience rivals the best espressos in any
restaurant. 1
Instead of focusing solely on its product, Starbucks has been
successful selling “the Starbucks experience,” which extends beyond
drinking coffee to social interaction and lifestyle. The company defines the
“product” (coffee) and the coffee-drinking experience in a way that
delivers value to millions of customers around the world every day. Given
the importance of the product experience in delivering customer value, it is
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not surprising that companies place a great deal of significance on getting
the product experience right.
When the product is wrong, no amount of marketing communications
and no degree of logistical expertise or pricing sophistication will make it
successful. Apple is widely regarded as a product innovator with the
iPhone, Apple Watch, iPad, iMac, and other products. However, the
company has also experienced some product missteps. One of the most
notable was Newton, the first PDA, introduced in the early 1990s but
discontinued after Palm brought out its line of smaller, more user-friendly
products. While technically superior to Palm, Apple did not understand the
key value drivers in the product. People wanted PDAs with connectivity to
other computers, a reasonable combination of features, and a realistic price
(early Newtons cost over $1,000). 2 Newton’s failure highlights an
interesting fact: the best product technically is not always the most
successful product. People look for the product that delivers the best
overall product experience.
The Apple Newton, while technically better than similar PDAs, failed in the
marketplace because it did not deliver a better product experience than
competitors such as Palm.
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©Chris Willson/Alamy Stock Photo
Product Characteristics
LO 8-2
Define the characteristics of a product.
Define the Product What does the term product mean? Most people
define a product as a tangible object; however, that is not accurate. The
product experience encompasses a great deal more, as we will learn over
the next several chapters. Consider the customer walking into Starbucks; is
he or she just buying a cup of coffee? Did the owner of a new Toyota Prius
buy just a new car? Is a pair of Madewell jeans just a pair of jeans? The
answer is that, while customers are buying a cup of coffee, a new car, and
a pair of jeans, they are also buying a product experience. It is important
for the marketer to understand exactly what the customer includes in that
experience. This is a particularly difficult challenge because different
target markets will view the same product in completely different ways.
Parents buying their daughter a pair of jeans would probably consider
Madewell jeans to be just another pair of jeans; however, to the teenager,
the same purchase makes an important statement about herself and her
choice of clothes. 3
Product can be defined as anything that delivers value to satisfy a need
or want and includes physical merchandise, services, events, people,
places, organizations, information, even ideas. Most people have no
problem considering a computer or car a product, but would these same
individuals consider a get-away weekend at the Amelia Island Ritz-Carlton
in Florida a product? The Ritz-Carlton does, and it develops a specific
marketing strategy around the resort.
It is important to differentiate between a product and a product item. A
product is a brand such as Post-it Notes or Tide detergent. Within each
product a company may develop a number of product items, each of which
represents a unique size, feature, or price. Tide
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powder detergent offers 12 “scents,” including fragrance-free, in a variety
518
of sizes designed to reach a variety of target markets. 4 Each combination
of scent and size represents a unique product item in the Tide product line
and is known by a stock-keeping unit (SKU). An SKU is a unique
identification number used to track a product through a distribution
system, inventory management, and pricing.
Essential Benefit Why does someone purchase a plane ticket? The
answer quite obviously is to get from one place to another. Simply stated,
the essential benefit of purchasing a plane ticket is getting somewhere else;
therefore, the essence of the airline product experience is transporting
people. Successful airlines, indeed all companies, understand that before
anything else, they must deliver on the essential benefit.
The essential benefit is the fundamental need met by the product. No
matter what other value-added product experiences are provided to the
customer, the essential benefit must be part of the encounter. For example,
an airline can offer low fares, an easy-to-navigate website, or in-flight Wi-
Fi, but unless the customer receives the essential benefit (getting from
Point A to Point B), the other items have very little meaning to the
customer. Without the essential benefit, other benefits may actually
increase the customer’s dissatisfaction with the experience. What good are
low fares if the customer doesn’t arrive at the destination?
Core Product Aircraft, pilots, flight attendants, baggage handlers,
reservation agents, managers, and an IT system are a few of the elements
needed to get people and their luggage from one place to another. An
airline brings all those pieces together to create a product that efficiently
and effectively delivers the essential benefit, transporting someone from
Point A to Point B.
Companies translate the essential benefit into physical, tangible
elements known as the core product. Some companies do it better than
others, making this critical challenge an important differentiator separating
successful companies from their competitors. 5 Southwest Airlines, for
example, has done a very good job of translating the essential benefits of
air travel. By using one kind of airplane, identifying efficiencies in
everything from reservations to flight routes, and taking care of
employees, the company is the industry leader in low-cost air travel and, in
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the process, has revolutionized the entire airline industry. Contrast
Southwest with the long list of carriers over the past 15 years that defined
the core product experience in ways many customers found unsatisfying.
Many of the “legacy” carriers such as United, American, and Delta
experienced financial problems, even bankruptcy, in part because they did
not adequately deliver a positive core product experience to the customer.
As a company creates the core product experience, it is vital to clearly
understand customer expectations. Every aspect of the product experience
is evaluated by the customer and then considered against a set of
expectations. When an airline creates a flight, there is an expectation that
the flight will arrive at its stated time. If the flight does not arrive on time,
the passenger assesses the reasons. Was it the airline’s fault, the weather,
or something else? Airlines are sensitive about their on-time arrival
percentage and where they rank relative to the competition because they
know customers believe this is an important characteristic of the core
product experience. The customer’s evaluation of a product experience
against a set of defined expectations is a critical element contributing to
overall satisfaction or dissatisfaction with the product. 6
Enhanced Product The core product is the starting point for the
product experience. All cell phones deliver on the essential benefit of
mobile communication, but there is a vast difference between the low-end
feature phone offered by many service providers and the latest iPhone or
Android. Features, cutting-edge designs, and functionality differentiate one
product from another. As consumers around the world become more
sophisticated, companies are required to look beyond delivering great core
products to creating products that enhance, extend, and encourage the
customer.
The enhanced product extends the core product to include additional
features, designs, and innovations that exceed customer expectations. In
this way, companies build on the core product, creating opportunities to
strengthen the brand. Consider Southwest Airlines once again, which has
done a good job of delivering people on time and meeting customer
expectations regarding low-cost air travel. Southwest added features such
as frequent flyer
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520
EXHIBIT 8.1 Defining the Product at Southwest
Airlines
opportunities, EarlyBird Check-In, and Upgraded Boarding to further
augment the customer’s air travel experience. Exhibit 8.1 shows how the
essential benefit, core product, and enhanced product are created for
Southwest Airlines.
Product Classifications
Products can be classified in four ways. Two of the four classifications
define the nature of the product: tangibility and durability. The other two
classification criteria deal with who uses the product: consumers or
businesses. It is important to understand the nature and use of a product
because marketing strategies differ among the various product
classifications.
Tangibility: Physical Aspects of the Product Experience
Products, as opposed to services, have a physical aspect referred to as
tangibility. Tangible products present opportunities (customers can see,
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touch, and experience the product) and also some challenges (customers
may find the product does not match their personal tastes and preferences).
Services, which we will explore in Chapter 10, are intangible. A
significant challenge for marketers today is that many tangible products
have intangible characteristics. 7 For example a significant element in an
individual’s satisfaction with a new car is the customer service before and
after the purchase. Intangible products, on the other hand, such as services,
have tangible characteristics. Airlines, for example, introduce new seats on
their planes to create a competitive advantage.
Durability: Product Usage Durability references the length of
product usage. Nondurable products are usually consumed in a few uses
and, in general, cost less than durable products. Examples of consumer
nondurables include personal grooming products such as toothpaste, soap,
and shampoo, while business nondurables include office supplies such as
printer ink, paper, and other less expensive, frequently purchased items.
Because these products are purchased frequently and are not expensive,
companies seek a wide distribution to make them as readily available as
possible, create attractive price points to motivate purchase, and heavily
advertise these products. Durable products have a longer product life and
are often more expensive. Consumer durables include microwave ovens,
washer/dryers, and certain electronics such as televisions. Business
durables include products that may be used in the manufacturing process
such as IT networks, as well as equipment such as office furniture and
computers to facilitate the running of the business. 8
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Consumer Goods Consumers purchase thousands of products from
an assortment of millions of choices. On the surface it may seem difficult
to develop a classification system for the variety of products consumers
purchase, but the reality is that consumer purchase habits fall into four
broad categories: convenience, shopping, specialty, and unsought.
Frequently purchased, relatively low-cost products for which
customers have little interest in seeking new information or considering
other options and rely heavily on prior brand experience and purchase
behavior are called convenience goods. These products include most
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items people buy regularly such as toiletries, gasoline, and paper products
and fall into four categories. Staples are usually food products people buy
weekly or at least once a month such as Folgers coffee or Boar’s Head
ham. Impulse products, as the name implies, are purchased without
planning. If you think about the products available in vending machines,
you will have a good idea of an impulse product. Finally, there are a host
of products people only purchase in times of emergency. For example, as
hurricanes approach communities, people rush out to purchase extra
supplies of food, gas, batteries, and other products. It is not uncommon to
see occasional shortages of some products as distribution systems are
strained to meet unplanned spikes in demand for these everyday products.
Products that require consumers to do more research and compare
across product dimensions such as color, size, features, and price are called
shopping goods. Consumer products that fall into this category include
clothes, furniture, and major appliances such as refrigerators and
dishwashers. These products are purchased less frequently and are more
costly than convenience goods. Price concerns, a variety of choices at
various price levels, many different features, and a fear of making the
wrong decision are among the factors that drive consumers to research
these purchases. As a result, companies often develop product strategies
that target product price points with particular features to appeal to the
broadest range of consumers. For example, Whirlpool brand makes over
40 different electric dryers ranging in price from $599 to $1,899.
Specialty goods are a unique purchase made based on a defining
characteristic for the consumer. The characteristic might be a real or
perceived product feature such as Apple iPhone’s easy user interface or
brand identification like Porsche’s reputation for building sports cars.
Whatever the attribute(s), consumers apply decision rules that frequently
minimize the number of different product choices and focus less on price.
They are also more willing to seek out the product; however, expectations
about product service, salesperson expertise, and customer service are
higher. Bang & Olufsen’s line of high-end electronic equipment is not
available in regular retail outlets. Rather, the company has a limited
number of retail stores in major cities. Consumers wanting to purchase
Bang & Olufsen equipment must seek out those stores.
The final categories of goods, unsought goods, are products that
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consumers do not seek out and, indeed, often would rather not purchase at
all. Insurance, particularly life insurance, is not a product people want to
purchase. In general, customers do not want to purchase products or
services related to sickness, death, or emergencies because, in part, the
circumstances surrounding the purchase are not pleasant. As a result,
companies have well-trained salespeople skilled in helping customers
through the purchase process. These salespeople often must be supported
by extensive marketing communications.
Business Goods Businesses buy a vast array of products that can be
classified into three broad areas based on two dimensions: (1) whether or
not they are used in the manufacturing process and (2) cost. Goods
incorporated into the company’s finished product as a result of the
manufacturing process are either materials or parts. Materials are natural
(lumber, minerals such as copper) or farm products (corn, soybeans) that
become part of the final product. Parts consist of equipment either fully
assembled or in smaller pieces that will be assembled into larger
components and, again, used in the production process.
In addition to the products that are used directly in the production
process, companies purchase a number of products and services to support
business operations. These can generally be placed on a continuum from
low-cost/frequent purchases to very
217
high-cost/infrequent purchases. MRO (maintenance, repair, operating)
supplies are the everyday items that a company needs to keep running.
While per unit cost is low, their total cost over a year can be high.
At the other end of the cost/purchase-frequency continuum are capital
goods, which are major purchases in support of a significant business
function. Building a new plant or a new IT network can require large
equipment purchases that cost millions of dollars and require significant
customization. These purchases are negotiated over a period of months,
sometimes years. Consider that it takes two to five years to build a new
data center for companies like Apple or Amazon, and the cost is between
$1.5 and $2.5 billion. Companies selling capital goods to businesses focus
on personal selling and a high level of customer service with significant
product customization.
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Product Discrimination: Create a Point of
Differentiation
A fundamental question in the product purchase decision-making process
is what makes this product different? As a result, marketing managers
must identify important characteristics that successfully differentiate their
product from others in the customer’s mind. Then they must produce those
elements in the product itself, balancing a number of factors including
customer preferences, costs, and company resources.
Bombardier builds a wide range of small to medium-size jets to meet
transportation needs around the world.
©Graham Hughes/Alamy Stock Photo
Form The most elemental method of differentiating a product is to
change its form—size, shape, color, and other physical elements. Many
products considered very similar in functionality can be differentiated by
variations in packaging or product delivery. Among the reasons cited for
the growth of Guinness in the U.S. over the past several years has been
new product variations and packaging (Exhibit 8.2). Bombardier is a
leader in business and regional jet production. Bombardier recently
announced its C Series airliners, its first product to compete against
Boeing and Airbus in the mainline market. The C Series has two planes:
the CS300, a 130-seater, and the CS100, a 108-seater. The C Series’
lightweight aluminum and composite body makes for attractive efficiency,
and its turbofan engines are more fuel efficient than current airplanes,
making the plane 15 percent cheaper to operate. Delta Airlines placed an
525
order for 75 CS100 airliners with Bombardier—a deal that is worth about
$5.6 billion. 9
Features When asked what makes a product different, many people
will respond by talking about features. A feature is any product attribute or
performance characteristic and is often added to or subtracted from a
product to differentiate it from competitors. However, while delivering
consumer value is the primary driver in making product decisions, a
company must balance the features customers want with what they will
pay at a given quality level. 10
EXHIBIT 8.2 Form and Product Variations for
Guinness Products
©Editorial Image, LLC
Interestingly, based on their research, competitors often create
products with very different feature configurations. Cell phone
manufacturers, for example, are constantly assessing the feature mix
across their product line. When comparing similar Samsung versus Apple
models, a number of feature differences will be easily identified. One of
the great challenges for marketers is determining the feature mix that best
526
218
satisfies the needs and wants of the target audience and at what price. No
competitors ever arrive at the same feature mix, which means decisions
about which features to include and exclude are critical to a product’s
success.
Performance Quality Should a company always build the highest-
quality product? Some people would say the answer is yes. However, the
answer is more complex than that. Essentially, companies should build
products to the performance quality level that their target audience is
willing to pay for. Often this means a company will build products at
multiple performance levels to meet demand at various price points. Keep
in mind that the key is to deliver value to the customer. Consider the
airline industry. With the exception of a few airlines, such as Southwest,
every airline offers different classes of service. On domestic flights, many
offer economy class and first class. On international flights, airlines often
offer three or four different classes of service—economy, premium
economy, business, and first. These different experiences come with very
different prices. For example, a round-trip flight from New York to
London could be as low as $700, while a first-class ticket on the same
flight could cost over $16,000. The key is to define the experience so that
customers are willing to pay for the value received. 11
The market’s perception of the company’s performance quality is
critical in defining its market space. Companies generally try to match
product performance quality with the market’s perception of the brand.
Timex will not develop a $25,000 watch because the market would not
expect, and may not accept, a watch with production quality at that level
from Timex, although they do expect it from Rolex. 12 At the same time,
companies need to be careful not to lower performance quality too
dramatically in an effort to cut costs or reach new markets. Losing control
of a quality image can do significant harm to a brand’s image. For
example, product safety remains a critical concern for consumers. Products
that fail to meet quality standards can lead to a loss of consumer
confidence.
Conformance Quality An important issue for consumers is
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conformance, which is the product’s ability to deliver on features and
performance characteristics promised in marketing communications. The
challenge for marketers and manufacturing is that every product must
deliver on those promises. A product is said to have high conformance
quality when a high percentage of the manufactured products fulfill the
stated performance criteria. 13 If someone opened a Coke and there was no
“fizz,” it wouldn’t be a Coke. The challenge for Coca-Cola and its bottlers
is to ensure that every Coke has just the right carbonation when the
consumer opens the can or bottle anywhere in the world.
Durability Consumer research and purchase patterns affirm that people
find durability, the projected lifetime of the product under specific
operating conditions, an important discriminating product characteristic
and are willing to pay a premium for products that can demonstrate greater
durability. 14 KitchenAid appliances have a reputation for durability that
has translated into a price premium for their products.
Reliability A similar discriminator references the dependability of a
product. Reliability is the percentage of time the product works without
failure or stoppage. Businesses and consumers consistently report this is an
important discriminator in their purchase decision; however, a product can
be too reliable. While it is possible to build computers that will last for
years and cost a premium, most computer manufacturers do not build them
because computer technology changes so quickly and product
improvements happen so fast that people will not pay the premium for a
computer that will last for many years. 15 They know that better, cheaper
technology will be available before the computer actually malfunctions.
Repairability Increasingly, consumers and businesses evaluate the
repairability, ease of fixing a problem with the product, as part of the
product evaluation process. As a result, companies have built better
diagnostics into their products to help isolate, identify, and
219
repair products without the need for the costly repairs of a professional
service. 16 Many car companies, including most of the luxury car
manufacturers, now offer run-flat tires that enable the driver to continue
528
driving even after a tire has been damaged. At the same time and where
appropriate, products are designed to “call in” to repair services online or
on the phone. Cell phone manufacturers and service providers work
together to build self-diagnostic phones that can be accessed in the field by
service technicians. The technician can look at the phone’s functionality
and actually do minor software upgrades or repairs during a phone call. Of
course, repairability has a cost, and companies must constantly evaluate
the costs and benefits of this dimension. For example, General Motors
reduced the free trial period for its OnStar Guidance Plan from six months
to three months, but reminds consumers that new vehicles still come with
the OnStar Basic Plan for five years, free of charge. OnStar’s Protection
Plan offers the most important safety-related features offered by OnStar
for several hundred dollars annually. Similar services are offered by Ford
and Kia without a subscription cost to customers. This change comes
shortly after GM reduced its powertrain warranty to cover up to five years
or 60,000 miles. These changes in service reduced the perceived value of
GM vehicles, and hurt GM’s operating margins. 17
Style One of the most difficult discriminators to accurately assess and
build into a product is the look and feel of the product, or style. It is easy
for someone to say a particular product has style, but designing it into a
product can be a challenge. More than any other discriminator, style offers
the advantage of being difficult to copy. Many companies, from Samsung
to Fitbit to Microsoft, have tried to develop a successful wearable device,
but none of them have been able to develop a “must have” wearable that
can compete with the Apple Watch. Despite issues with battery life and
missing functions, Apple Watch is the leader in the wearables market. A
key to the Apple Watch’s success has been the product’s style, which
builds on Apple’s strong reputation for creating products, such as the
iPhone and iMac, that not only perform well but look great while doing
their job.
The real challenge is that style can be difficult to create consistently.
Consumer tastes change over time, and what is considered stylish can
quickly lose its appeal. Companies invest in information systems that help
them spot trends. Once a trend is identified, product development teams
must be able to translate it into design elements that can be incorporated
529
into the product. 18 In some industries this is critical; for example, clothing
manufacturers anticipate future trends, then use efficient production
processes to design, build, and distribute their clothes while a particular
style is still popular.
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Exhibit 8.3 identifies product discriminators and gives examples.
EXHIBIT 8.3 Product Discriminators
Form With a large number of spray
heads, ambient rain shower
panels provide luxurious water
delivery.
Features The new London Taxi TX 5 is
a completely redesigned
version of the classic London
Taxi. It incorporates a number
of new features, such as in-car
entertainment, and is
completely electric to meet the
most demanding emissions
standards.
Performance
Quality
Oil companies produce
several grades of gasoline to
meet the demands of
consumers.
Conformance
Quality
Crest Whitestrips are a good
low-priced teeth whitener. The
system also comes with a
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standard 60-day money-back
guarantee, should you not
care for the results.
Durability Timberland has a reputation
for building high-quality,
durable products like these
boots that come with a
commitment to customer
satisfaction.
Reliability Carrier promotes the fact that
its air conditioners are reliable.
In addition, it provides different
quality levels with varying
warranties.
Repairability Many bicycle manufacturers
highlight the easy repair of
their bikes. A key point is that
anyone can fix most of the
problems that may occur.
Style Apple Watch promotes style in
the design of the watch as well
as the ability to customize
through color choice and a
variety of watch bands.
Sources: (shower head): ©Nalinratana Phiyanalinmat/Alamy Stock Photo; (Taxi TX
5): ©Adrian Dennis/AFP/Getty Images; (gas pumps): ©David
Muscroft/SuperStock/Alamy Stock Photo; (Crest Whitestrips): Procter & Gamble;
(Timberland boot): ©xMarshall/Alamy Stock Photo; (Carrier air conditioner):
©Editorial Image, LLC; (woman repairing bike): ©Jetta Productions/Blend Images;
and (Apple watch): ©Neil Godwin/MacFormat Magazine via Getty Images.
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531
Product Plan: Moving from One Product to Many
Products
LO 8-3
Recognize how product strategies evolve from one product to many
products.
Our discussion thus far has focused on a single product; however,
companies generally create a range of products. These products can be
variations or extensions of one basic product or completely different
products. Most people would consider Post-it Notes, 3M’s iconic brand of
self-adhesive notes, a single product, but over 600 Post-it products are sold
in more than 100 countries. 19 When you couple the extensive range of
Post-it products with the thousands of products offered by 3M across more
than 40 core product lines, it becomes apparent why management must
understand how a product fits into the company’s product strategy.
Developing a plan sets strategy not only for a single product, but also for
all the products in the company’s catalog.
Product Line A product line is a group of products linked through
usage, customer profile, price points, and distribution channels or needs
satisfaction. Within a product line, strategies are developed for a single
product, but also for all the products in the line. For example, 3M develops
a strategy for each Post-it product, such as Post-it cards, that identifies
possible product uses, different target markets, and marketing messages.
At the same time, the company combines individual products for specific
markets to create consumer- based solution catalogs. Students can find
Post-it products targeted for them and teachers can find a separate listing
of products.
Companies must balance the number of items in a product line. Too
many items and customers find it difficult to differentiate between
individual products. In addition, cost inefficiencies involved in producing
multiple products lower margins for the entire product line. Too few
products and the company runs the risk of missing important market
opportunities. Consumers are gravitating toward small and boutique
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brands, and younger consumers have increased their fresh food
consumption by 23 percent. For Campbell Soup, these trends require a
new recipe for the future, as the former cold-weather staple is getting
hammered. In response, the company has developed three new lines of
soup: Well Yes!, Garden Fresh Gourmet, and Souplicity. Garden Fresh
Gourmet and Souplicity are refrigerated products sold in plastic containers
instead of the traditional metal can. Souplicity is completely organic and
the highest-end line of the three. Garden Fresh Gourmet soups are family-
sized, and although they are not completely organic it is still a health-
focused brand. Well Yes! is more traditional, still appearing in can form,
but it uses healthful ingredients and puts a twist on traditional recipes. At a
low price point, Well Yes! is geared toward consumers who try to make
positive changes to better their health, but do not follow strict rules, and
already buy canned soups. 20
Product Mix Combining all the products offered by a company is
called the product mix. Small, start-up companies frequently have a
relatively limited product mix, but, as companies grow, their list of
products grows as well. Developing strategies for the entire product mix is
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EXHIBIT 8.4 3M’s Product Mix of 55,000 Products
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©Editorial Image, LLC
done at the highest levels of the organization. 21 Large companies, like 3M
or GE, have widely disparate product lines that encompass hundreds of
products and thousands of product items. Exhibit 8.4 lists some of the
more than 55,000 products in 3M’s product mix, which range from Post-it
Notes to communication technology systems and a host of industrial
applications.
Product Decisions Affect Other Marketing Mix
Elements
Decisions about the product affect other elements of the marketing mix.
Let’s look at how two key marketing mix elements, pricing and marketing
communications, are influenced by product decisions.
Pricing Pricing is one of the key marketing mix components and will
be covered in detail in Chapter 11; however, several key issues related to
product line pricing are appropriately covered here. Individual product
pricing within the context of a broader product line requires a clear
understanding of the price points for all the products in the line. Often
multiple price points are targeted at specific markets with unique features
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following a “good, better, best” product line strategy. This strategy
develops multiple product lines that include products with distinct features
at each particular price point to attract multiple target markets. When new
products are introduced, marketers carefully consider customer perceptions
of the product’s feature mix and price point to avoid customer confusion.
Technology companies, for many years, have faced the challenge of
pricing new products that are less expensive but with more features than
previous models. Dell and HP are sensitive to pricing new products
because as new, more-powerful, less-expensive products come into the
product mix, demand often drops for existing products. Dell prices new
computer models to minimize disrupting demand for its existing products
while, at the same time, lowering prices of existing products to create
greater separation between the new product and current products (see
Exhibit 8.5).
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EXHIBIT 8.5 Dell Offers a Wide Range of Products
at Different Price Points on Its
Website
Source: Dell
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Marketing Communications A key strategic decision for
marketers is the degree to which marketing communications focuses on a
single product item versus a product brand. Usually, companies do both,
but the emphasis on one approach versus the other makes a big difference
in the communications strategy. For example, 3M focuses much of its
Post-it marketing communications on the Post-it product line, emphasizing
the brand. Contrast that with Häagen-Dazs, which focuses on specific
products (ice cream, sorbet, and yogurt) and specific product items within
each product (chocolate, almond hazelnut swirl, pineapple coconut).
A second communications issue is the allocation of communications
budget dollars across product items in a product line. Häagen-Dazs has
more than 30 specific kinds of ice cream and dozens of other products
across its entire product line. The company must make decisions about the
allocation of budget dollars to each product, then each specific product
item. This raises several challenges for marketing managers. Do they
allocate dollars based on the most popular flavors like chocolate and
vanilla? Or do they focus on new product items such as Mayan chocolate
to build a competitive edge with products that are not offered by the
competition? New products almost always have additional communication
budgets to support the product’s introduction. The assumption is that, once
the product is established, it will be possible to cut back on the heavy
expenditure of a new product communications campaign (see Exhibit 8.6).
THE LIFE OF THE PRODUCT: BUILDING THE
PRODUCT EXPERIENCE
LO 8-4
Understand the life of a product and how product strategies change over
time.
Companies create, launch, and transform products as market conditions
change over time. This product evolution is referred to as the product life
cycle (PLC) and defines the life of a product in four basic stages:
introduction, growth, maturity, and decline (see Exhibit 8.7). 22
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The PLC generally refers to a product category (fitness bicycles) rather
than a product item (Cannondale Quick bicycles), although companies
often track their own product items against an industry PLC. The PLC is a
useful tool because it (1) provides a strategic framework for market
analysis, (2) tracks historical trends, and (3) identifies future market
conditions. Cannondale Bicycles, for example, can evaluate the current
fitness bike market and then consider growth opportunities for the Quick
brand based on that product’s position in the PLC.
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EXHIBIT 8.6 Häagen-Dazs Promotes One Product
Item
Source: HDIP, INC
537
Häagen Dazs has been successful building a product line that features old favorites
but also frequently introduces new product flavors.
EXHIBIT 8.7 The Product Life Cycle
Kerin, Roger, Steven W. Hartley, and William Rudelious, Marketing, 13th ed., New
York, NY: McGraw-Hill Education, 2017. Copyright ©2017 by McGraw-Hill Education.
All rights reserved. Used with permission.
225
Product Life Cycle Sales Revenue and Profitability
Notice there are two lines on the PLC graph. The top line charts the
industry sales revenue for the product over time. The sales revenue line
increases dramatically in the introduction and growth stages as the product
moves through the consumer adoption process. At some point, sales begin
to decline. However, a sales decline does not necessarily mean the death of
the product. Companies may create new products or market conditions
538
may change, which can reinvigorate the product and start a new growth
phase. Bottled water was long considered a product in decline until Evian,
Dasani, Voss, and others developed new packaging, added new flavors,
and emphasized the healthy aspects of water. Now the product category is
experiencing a period of significant growth around the world.
The second line on the PLC graph is the total profits from the
companies that compete in that industry. When the product is introduced,
the category pioneer, the company introducing the product, has incurred
product development costs. At the same time, new companies entering the
market also sustain product development and initial marketing costs
associated with the product launch. As a result, the industry starts the PLC
“in the red” (no profits). As the product category grows, successful
companies recoup their initial costs and begin to realize a return on their
investments. A good example of the challenge around revenue and
profitability in the product life cycle is Elon Musk’s Tesla car company.
The electric vehicle pioneer has a soaring stock price and a group of loyal
followers right alongside a growing group of skeptics. Tesla has continued
to report losses, and analysts suggest the losses will continue, at least in
the short to medium term, which calls into question the company’s long-
term viability. Demand for the Tesla Model S and Model X is plateauing,
as customers look for newer models like the Model 3. In addition, Tesla
has experienced quality control issues after a recall of 53,000 cars with a
parking brake problem. Growing sales is one thing, but increasing
profitability can be more difficult, particularly for new products. 23
Product Life Cycle Timeline
The speed at which products within a category move through the PLC is
not consistent, and there is a great deal of variability across product
categories. In some cases, a product moves through an entire cycle in a
period of months and is replaced with the next product design. Fads come
and go quickly, often reaching only a limited number of individuals but
creating a lot of buzz in the marketplace. 24 Often, women’s fashion is
seasonal, with a product line being introduced in the spring, moving
through its growth cycle in the summer and fall, then finally going into
decline by winter. The cycle takes one selling season, in this case, one
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year. With other products such as men’s suits, it may take decades from
introduction to decline. Men’s classic two-piece suits experience
incremental changes every season, but the same basic design has been
around for many years. The functionality of the product has made it an
enduring style for men.
Product Life Cycle Caveats
It is important to note several caveats about the product life cycle. The
PLC is a helpful conceptual tool that works best when viewed as a
framework for studying a product category. It can be difficult to know
with certainty what stage a product is in, particularly at transition points in
the PLC. Rather, the PLC enables marketing managers to assess historical
trends in the category and track how the product has behaved over time.
Naturally, there may be different interpretations of the same data as
marketing managers in one company look at the numbers and arrive at one
conclusion while managers in another company arrive at a different
conclusion.
The PLC is also useful when marketing managers focus on historical
precedent—Where has the product been?—and future possibilities—How
do we plan now to be successful in the next stage? By using the PLC as a
planning tool for developing new products, it is possible to avoid getting
caught in the immediacy of volatile market fluctuations. Exhibit 8.8
summarizes the phases of the product life cycle.
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EXHIBIT 8.8 Product Life Cycle
Introduction
Phase
Growth Phase Maturity
Phase
Objective Build market
awareness
for the
product
Differentiate
product from
those of new
competitors,
Transition
product from
high growth
to sales
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leading to
trial
purchase.
promoting rapid
expansion.
stability.
Profitability Sales are
low, typically
high failure
rate.
Sales grow at
increasing rate.
Sales
continue to
increase but
at a
decreasing
rate.
High
marketing
and product
costs.
Profits become
healthier as
operations are
streamlined.
Cost
minimization
has reached
full extent.
Market
Conditions
Market Segment Nonexistent. New market
segment now
established.
Market is
approaching
saturation.
Targeted
Consumers
Innovators
and Early
Adopters
Early Adopters to
Majority Adopters
Majority
Adopters
Competitive
Environment
Little
competition.
Many competitors
enter market.
Marginal
competitors
dropping out.
Competitor
Reaction
Market
followers will
release
product
similar to
that of the
pioneer.
Large companies
may acquire small
pioneering firms.
Typified by
models of
products with
an emphasis
on style over
function.
Strategies
Product High-quality,
innovative
design
providing
More features and
better design,
learning from
issues from first
Product lines
are widened
or extended.
541
new benefit
to
consumers.
generation.
Features
well received
and
understood
by target
consumers.
Diversification of
product and
release of
complementary
products/services.
Work to
further
differentiate
product from
those of
competitors.
Price Market
penetration:
Attractive
price point to
gain market
share and
discourage
competitors.
New and
improved models
sold at high price
points.
Target high-
end market
with
differentiated
product and
higher price
point.
Market
skimming:
High initial
price point
targeting
less price-
sensitive
consumers
to recoup
R&D costs
before
competitors
enter market.
Existing models
or earlier
generations move
down in price.
Established
competition
makes price
pressures
more
pronounced,
forcing lower-
price strategy
if product not
well-
differentiated.
Marketing
Communications
Inform and
educate
target
audience
about the
product’s
features and
benefits.
Link the brand
with key product
features and
highlight
differentiation
between
competitors.
Challenge of
deciding
between
short-term
sales
promotions or
investing
more in the
brand.
Promotion
focused on
product
Promotion
emphasizes
brand advertising
542
awareness
and to
stimulate
primary
demand.
and comparative
ads.
Distribution Wide
distribution
network with
limited
product
availability:
Create
anticipation
by promoting
excitement
and sense of
scarcity.
Broaden
distribution
networks to keep
up with expanding
market demand.
Product has
reached its
maximum
distribution.
Limit
distribution
but increase
product
availability:
Release to
limited
number of
target
markets with
high
availability.
Intensive
personal
selling to
retailers and
wholesalers.
Maintain high
levels of product
quality and boost
customer service
efforts to keep up
with product.
Channel
members
identify weak
products and
begin
dropping out
if necessary.
227
NEW PRODUCTS—CREATING LONG-TERM
SUCCESS
543
No matter how good a company’s current products are, long-term growth
depends on new products. This can be done in one of two basic ways:
acquisition or internal development. Both approaches have their
advantages and disadvantages.
228
“New” Defined
LO 8-5
Recognize the importance of new product development to long-term
success.
What does the term new mean? Every day, consumers see or hear
marketing communications that talk about “new and improved.” At the
same time, people speak about buying a new car (which may in fact be a
used car) as well as a new TV (which may be last year’s model). Let’s
look at how the term is defined by the product’s manufacturer and
customers.
Company Perspective Most people would define new as a product
that has not been available before or bears little resemblance to an existing
product, and one type of new product is actually referred to as a new-to-
the-world product because it has not been available before. Sometimes
new-to-the-world products are so innovative they create a fundamental
change in the marketplace and are known as disruptive innovation. They
are called disruptive because they shift people’s perspective and frequently
alter their behavior by offering dramatically simpler, more convenient, and
usually less-expensive products than currently exist. In the process they
frequently make existing products less desirable. A Google search of
“new-to-the-world products” reveals a list of self-proclaimed “new-to-the-
world” items on Google Shopping, including a veggie bullet spiralizer, a
nose irrigation device, and an air horn. Ironically, while such results
demonstrate the importance of defining “new,” Google itself is intent on
developing innovative, groundbreaking products. Through Project
Jacquard, Google has partnered with Levi to develop and embed
544
technology into fabrics to create connected clothing and interactive
surfaces. This technology aims to revolutionize the way that consumers
interact with spaces around them. 25
A second type of new-to-the-world product, sustaining innovations,
are newer, better, faster versions of existing products that target, for the
most part, existing customers. Sustaining innovations can be revolutionary
by taking the market in a new direction. They can also be upgrades or
modifications to existing products and represent incremental
enhancements to current products. 26
Once a product has been developed and is on the market, the company
can extend the product by creating additions to existing product lines. For
years, Coca-Cola has added new products to the Coke line, first with Diet
Coke in the early 1980s and now with many different Coke-branded
products including Coke Life. These products are also available in various
sizes and packaging, giving Coke many different product items.
Another “new” product approach is to reposition existing products to
target new markets. The cell phone market used this strategy successfully
to introduce cell phones in the mid-1990s. Originally cell phone service
providers positioned the phones as a tool for businesspeople or as a safety
tool targeting individuals such as working women and moms. As the
product became more widely adopted, the positioning of the product
changed to become an important work tool. As the market for cell phones
has expanded, the positioning has evolved to include younger users. Cell
phones are the dominant communication device for teenagers, and phones
have been created for kids as young as seven.
Cost reduction, as the name implies, is a specific method for
introducing lower-cost products that frequently focus on value-oriented
product price points in the product mix. Generally this approach involves
eliminating or reducing features, using less-expensive materials, or altering
the service or warranty to offer the product at a lower price point to the
market. 27
Customer’s Perspective While the company follows a specific
strategy in creating a new product, the customer is unaware and, in reality,
often does not really care about how the product arrived in the
marketplace. The customer’s perspective is much more narrow and self-
545
directed. The customer is most interested in an answer to the fundamental
question—is this product new to me? From the company’s perspective it is
important to realize that every customer approaches a new product a little
differently. For example, an individual going in to buy his or her first car
can find the process intimidating. As a result,
229
EXHIBIT 8.9 Why Do Products Fail?
salespeople at the car dealer handle those customers carefully to reduce
anxiety, concentrating on things like basic features, a low-stress selling
environment, and friendly service. Experienced car buyers are interested in
talking about the latest product updates, new leasing options, and extended
service plans. One challenge companies face is dealing with historical
customer perceptions. When Infiniti updated its line of luxury cars, it
decided to change the names of many of its models to reflect significant
updates to the models as well as a new, more modern image.
Reasons for New Product Success or Failure
Since new product development is such a critical factor in the long-term
success of an organization, you might think companies are good at the
development process. Unfortunately, this is not the case; 70 to 80 percent
of all new products worldwide fail. While it is true that many of those
546
products are developed by small entrepreneurs, no company is immune to
product failure. Have you ever heard of Levi’s business wear or Dunkin’
Donuts cereal? Probably not, because these new products failed despite the
fact they were introduced by companies with a track record of marketing
success. Consider also the disastrous failure of Samsung’s Galaxy Note 7,
due to repeated instances of the phones exploding or catching fire. The
phones were banned from all airline flights by the U.S. Department of
Transportation as a fire hazard after over 100 instances of problems and
injuries caused by the phone malfunctioning were reported. Similar bans
were imposed by airlines in Europe, Asia, and Australia after persistent
problems with the phone. Ultimately, the product was withdrawn from the
market, which severely impacted Samsung’s market leadership—at least in
the short term. 28 The reasons vary, but it is possible to identify the role of
the company, customers, and competitors in the success or failure of a new
product. 29 Exhibit 8.9 summarizes the reasons for new product failure.
NEW PRODUCT DEVELOPMENT PROCESS
The new product development process consists of three main activities and
eight specific tasks. Failure at any step significantly lowers the probability
of long-term success. The three major activities in new product
development are to (1) identify product opportunities, (2) define the
product opportunity, and (3) develop the product opportunity.
There is a great deal of variability in the new product development
timeline. Marketers must balance the product development process with
the ever-changing demands of the marketplace. Take too long in product
development and the market may have changed; rush the process and the
product may be poorly designed or lack quality. 30
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Identify Product Opportunities
LO 8-6
Understand the new product development process.
547
The first step in the new product development process, identify potential
product opportunities, has two specific tasks. First, companies must
generate sufficient new product ideas. Very few product ideas make it
through the entire process and, as we have seen already, far fewer products
actually become successful. As a result, it is important to have a steady
flow of new ideas into the development process. Second, ideas need to be
evaluated before resources are committed to development.
Kimberly-Clark’s Huggies brand of disposable diapers has developed dozens of
different diaper products for newborns, older babies, and toddlers, as well as
specialized products for extra comfort, overnight, and swimming diapers. K-C
even manufactures six different kinds of baby wipes.
©McGraw-Hill Education/Jill Braaten, photographer
Generate New Ideas Product ideas are generated in one of two
ways: internal or external to the firm. While companies develop a
preference for one approach over the other, the reality is that both internal
and external sources produce good new product ideas. A number of
factors, including the company’s commitment to innovation, the reputation
of competitors for new product development, and customer expectations,
affect which approach a company prefers. 31
Internal Sources include employees from R&D, marketing, and
manufacturing. Key employees know both the capabilities of the company
and the needs of the market. Therefore, it is not surprising that internal
sources are the single best source for new product ideas. Funding product
research is expensive; companies spend billions of dollars every year to
generate product ideas.
People who work directly with customers are another source of ideas.
548
As salespeople, customer service representatives, and others interact
directly with customers, it is possible to identify new product ideas. Often
these ideas are incremental changes to existing products that solve a
particular problem; however, occasionally the customer challenge requires
a truly innovative solution.
Working with academia helps support the research activities of many
organizations. Under Armour (UA) established a partnership with Johns
Hopkins Medicine to conduct health and fitness research and develop
UA’s connected fitness platforms. UA currently has the largest connected
fitness community in the world with over 190 million registered users.
Through this agreement, UA is able to develop and market new products
based on medical research as experts from Johns Hopkins provide
research, insights, and recommendations on sleep, fitness, activity, and
nutrition to improve UA’s connected fitness community. 32
External An excellent source of ideas comes from individuals and
organizations not directly connected with the company. In some industries,
such as Internet applications, small entrepreneurs drive innovation.
Instagram is a popular Internet destination owned by Facebook. Started by
entrepreneurs in 2010 who wanted to share files across social media
platforms, the company has over 1200 million registered users. The
company’s acquisition by Facebook exemplifies how larger companies
continue to grow by acquiring smaller companies with innovative
products. Google, Microsoft, and Apple all maintain dedicated staff whose
job it is to identify and acquire new start-up organizations with great
product ideas.
Customers Customers are also an excellent source of product ideas.
Solving their problems can lead to innovative solutions that have market
potential beyond the immediate customer. Many companies encourage
customer input directly online through e-mail and online discussion
groups. Ford, BMW, Mercedes-Benz, and others sponsor user group
bulletin boards that discuss improvements to existing products. While this
will not likely lead to “new-to-the-world” products, it can lead to
incremental or even substantial enhancements to existing products.
Distributors Distributors are a good source for new product ideas,
549
particularly when they are the primary link between the customer and the
company. Small organizations
231
generally do not have the resources for a national sales force and use
distributors in many markets. The distributor network is a key partner in
the development of new products for the company. In actuality, almost
anyone outside the organization can generate a new product idea.
Companies understand that even though the majority of ideas from
external sources will not pass the screening process, they still want to
encourage people to submit their product concepts. HP gets thousands of
product ideas from a variety of individuals every year; however, very few
are actually developed.
Screen and Evaluate Ideas Ideas need to be screened and
evaluated as quickly as possible. The screening process has two primary
objectives. The first objective is to eliminate product ideas judged
unworthy of further consideration. New product development is expensive
and resources are scarce, so ideas are evaluated early to assess their
viability. An idea is rejected for several reasons. Perhaps the proposal is
just not very good or it may be reasonable but inconsistent with the
company’s overall business strategy. Evaluating ideas can sometimes
create difficult choices for managers as they wrestle with broader societal
issues. 33 Consider the challenge of creating “kid friendly” television for
young children. Netflix has created a number of shows that seek to provide
an educational experience in an entertaining way to kids of various ages.
Shows like Ask the Storybots answer questions on a variety of topics—
with a group of friendly, funny bots.
Two types of mistakes are associated with rejecting or moving forward
with a new product design, and both are potentially expensive for the
company. The first is the go-to-market mistake made when a company
fails to stop a bad product idea from moving into product development.
This mistake runs on a continuum from very costly (the new product is not
accepted and the company loses its initial investment) to not meeting
targeted ROI projections (the product does not hit established benchmarks
for profitability, or unit sales). Expensive mistakes often initiate a review
of the screening process to figure out how the product made it through the
550
development process. When the product fails to hit targeted benchmarks
for success, the review may focus on errors in marketing strategy, target
market adjustments, or competitive response to the product launch.
A stop-to-market mistake happens when a good idea is prematurely
eliminated during the screening process. Almost every CEO can relate a
story of the product success that got away. Most often companies are
reluctant to talk about stop-to-market mistakes because it makes
management uncomfortable and provides additional information about
product development to competitors. For example, we have talked a lot
about Apple, pointing out its wildly successful iPhone and iPad. But in
addition to its failed Newton, which we discussed earlier, the company has
also developed a number of other products that never made it to market.
For example, the Macintosh PowerBook Duo Tablet was, arguably, the
first tablet PC and was created in the early 1990s during the same period as
Newton. Apple stopped development of the product, code-named PenLite,
to avoid confusion with Newton. Among PenLite’s many features was a
wireless, full-function computer that connected with all PowerBook
accessories. 34
Apple’s iPad was a smash success, unlike the Newton.
© Leszek Kobusinski/Alamy Stock Photo
551
A second objective of the screening process is to help prioritize ideas
that pass the initial screening and evaluation. All new product concepts are
not equal, and it is important to focus resources on those that best match
the success criteria. The criteria used to prioritize ideas vary by company
but often include:
Time to market (how long will it take to develop and get the product
to market).
ROI (what is the expected return for the dollars invested in the
project).
New product fit with overall company product portfolio.
This analysis includes an internal assessment by a team from specific areas
across the company (finance, marketing, R&D, manufacturing,
logistics). 35 Often these people are directly involved in new product
development and have a thorough understanding of the success criteria and
the company’s overall product portfolio. Additionally, a relevant member
of senior management provides continuity with
232
long-term strategic goals and leadership in the screening process. Members
of the team are rotated to ensure fresh ideas as there is often a significant
time commitment required and members of the assessment team have
other responsibilities in the company. 36
Define the Product Opportunity
Ideas that pass through the screening process move into a development
phase to define the product potential and market opportunity. Three
specific tasks in this stage are to (1) define and test the product idea, (2)
create a marketing strategy for the product, and (3) analyze the product’s
business case.
Define and Test Product Concept The product idea now needs
to be clearly defined and tested. Ideas at this stage are frequently not fully
developed or operational. At this point, depending on the concept, people
and resources are allocated to move the product development forward and
a budget is created to develop the product.
552
Product definition has three objectives. First, it defines the product’s
value proposition: what customer needs are being addressed and, in broad
terms, at what price. Second, the definition briefly identifies the target
market(s) and the purchase frequency. Third, the definition delineates the
product’s characteristics (look, feel, physical elements, and features of the
product). As the product moves through development, the physical
characteristics become more defined and particular features, often at
different price points, are included in the prototypes. 37
Target customers are useful in defining the product concept.
Companies present models, limited prototypes, and verbal or written
descriptions of the product concept to customers, individually or in focus
groups. Computer graphics are also used to depict elements of the product
and even functionality. For example, in the development of new jet
airliners, Boeing and Airbus develop sophisticated simulations that allow
passengers to virtually sit in the airplane. In this way, customers get a
more realistic perspective at a fraction of the cost to develop a full-scale
working prototype.
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In creating an effective new product marketing strategy, it is important to clearly
identify the product benefits to the target audience. Here Mini is identifying a
benefit: buy a mini and get better gas mileage as well as have more fun.
Source: MINI USA
During this phase, companies start getting market input to refine and
develop the concept. Customers are asked about their attitudes toward the
product idea and if they perceive the idea as different from other products
on the market. Product developers want to know, Would you buy this
product and how much are you willing to pay? The company needs to
know if the product is appealing to the target audience. A second question
is also essential in this testing: What would you like to change about the
product concept? If customers suggest changes that are not feasible (too
costly to implement, not technically possible), it dramatically reduces the
viability of the project. Whenever possible, however, customer feedback is
incorporated into the product’s development. By making adjustments
during this phase rather than waiting until after the launch, companies can
increase the probability of success. Since the information is so critical,
researchers use large samples of target customers to ensure confidence in
the findings.
Create Marketing Strategy The product development process
leads to a distinct set of physical characteristics and a detailed feature mix.
As the product becomes better defined, marketing specialists develop a
tentative, but detailed, marketing strategy. Even though the product is still
under development, there are several reasons for preparing a marketing
strategy now. First, defining the target market is helpful to the product
developers. In addition to the basic market information (size, geography,
and demographics), product developers appreciate knowing how the
product will be used (context, environment) and the psychographics of the
market (the market’s activities, interests, and opinions). Marketers also
assess the market share potential at critical points in time (how much
market share can the new product get after one year?). At this point,
tentative pricing, distribution, and marketing
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communications strategies are created that will be adapted as the product
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gets closer to rollout. 38 Often, as part of the initial marketing
communications, appropriate publications will include articles about a new
product. Finally, marketing managers begin to develop budgets for the
product launch and estimates of the marketing communications budget,
manufacturing capacity, and logistical needs.
Conduct Business Case Analysis As the product definition is
developed and a tentative marketing strategy created, a critical “go–no go”
decision is made before the next product development stage. At this point,
the costs have been small relative to the cost of moving to full product
development, market testing, and launch. There is a lot of pressure to get
the decision right because a mistake is expensive. The business case
analysis is an overall evaluation of a product and usually assesses the
product’s probability of success. It is often done when there are changes to
an existing marketing plan, such as an increase in the marketing
communications budget. The business case would assess the feasibility of
increasing the communications budget. 39 In new product development, the
business case focuses on two key issues. First, the total demand for the
product over a specified period of time, usually five years, is determined.
Second, a cash flow statement is developed that specifies cash flow,
profitability, and investment requirements.
Total Demand Sales are defined in two ways: revenue (unit sales × price)
and unit sales. Each provides important information. Revenue is the top
line number in a profitability analysis and is affected by price variations
common to global products with substantial price differences around the
world. Because currencies fluctuate, which can lead to wide variations in
revenue, and price increases can also dramatically affect total revenue, unit
sales is often considered a more realistic picture of product growth and
represents the number of units sold, in various product configurations,
around the world.
Estimating total demand is a function of three separate purchase
situations.
New purchases—first-time sales. With new products, these sales are
called trial purchases. This is also calculated as the trial rate (how
many individuals in a particular target market have tried the product).
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Repeat purchases—the number of products purchased by the same
customer. This can be important with frequently purchased products
such as convenience goods that rely on frequent repeat purchases for
success.
Replacement purchases—the number of products purchased to
replace existing products that have become obsolete or have
malfunctioned. Estimates are made on the number of product failures
in any given year based on the expected product life. As more
products are sold into a market through first-time and repeat
purchases, the number of replacement sales will increase.
Profitability Analysis To this point, costs have been primarily in R&D and
market research. However, at the next step, the company will incur
manufacturing, marketing, accounting, and the logistical costs of bringing
the product to market. As a result, a thorough analysis is conducted of the
short- and long-term product profitability.
Develop the Product Opportunity
If the result of the previous analysis is a “go” decision, then the number of
people and the resources allocated to the product’s development increase
substantially. For much of the 20th century, companies would move a
substantial number of new product concepts through to this stage and use
product development and market testing to screen and eliminate ideas.
That changed in the 1990s as the cost of taking products to market
increased dramatically while failure rates remained high. Companies now
screen product ideas much earlier in the development process. As a result,
far fewer product ideas make it to this stage, and those products targeted
for further development and market testing have a much higher probability
of actually being launched in the marketplace. 40 In a classic article in the
Harvard Business Review on the myths of product development, Thomke
and Reinertsen define one main fallacy as the belief that more features
create a better product. Increasing the number of features
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on a product can sometimes simply lead to confusion and frustrate
customers. Often, customers desire simplicity and want a product that is
easy to use. Amazon’s Echo, for example, is a successful high-tech but
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easy-to-use product. Consumers of all ages can easily use the hands-free
Bluetooth speaker and access the Alexa Voice Service by simply
speaking. 41
Develop the Product So far the product exists primarily as a
concept, or, at most a working prototype, but if the product idea is to go
forward, it must move from viable product concept to a working product
that meets customer needs profitably. The challenge for the development
team is to design and build a product the customer wants to buy while
hitting the company’s success metrics—sales price, revenue, profit
margins, unit sales, and cost to build. 42
Previous research during concept testing provides substantial
information about what customers are looking for in the product. Coupled
with input from engineers, designers, and marketing specialists, the
product definition developed earlier is operationalized. This process moves
from a strategic understanding of the customer’s basic needs to a specific
operational definition of the product’s characteristics. Following this
process, the product’s physical characteristics are defined by targeting the
essential benefits delivered to the customer. 43
There are two product development models. The first incorporates
more planning and follows a sequential timeline with key process metrics
being met at each stage before moving on through the process. In this
scenario, product development spends a lot of time creating a product that
is considered close to the final product that will be rolled out to customers.
Consequently, product testing is used primarily to affirm the extensive
development done earlier in the process.
The next approach encourages more prototypes that incrementally
move the product through the development process. Here the product does
not need to be “perfect” before testing; rather, the idea is to continuously
test the product and use the testing process to enhance the product and
solicit customer feedback. Through this process, the market becomes
aware of the product, and if properly managed, interest in the product is
increased during development.
In this second method, the goal is to shorten the time spent in
development, moving from development to testing as quickly as possible
to minimize cost and get the product in the hands of potential users. The
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longer a company takes at this stage, the greater the likelihood that
competitors learn of the product, customer preferences change, or external
environment conditions dictate further product adjustments.
Product Testing Generally a product undergoes two types of testing. As
the product’s characteristics are being finalized, most of the testing is done
internally by engineers, product specialists, and other employees. This type
of testing, called alpha testing, helps clarify the basic operationalization of
the product such as the physical characteristics and features.
At some point, the company will want potential customers to begin
testing the product. Beta testing encourages customers to evaluate and
provide feedback on the prototype. The product may be close to the final
configuration, but beta tests allow for further product testing and
refinement. 44
Test the Market Once the product has reached the point where the
product development team is satisfied with its performance, physical
characteristics, and features, it is ready to be tested in the marketplace. To
maintain security, minimize product information leaks, and disrupt
competitor intelligence, products are often given code names. Once the
product moves to the marketplace testing stage, a marketing strategy is
created for the test using the product’s market name. Some elements of the
strategy such as brand name and packaging will have been tested with
consumers during product development. 45 For example, engineers work
with package design professionals to ensure that, first, the product is
protected and, second, the packaging maximizes marketing
communications opportunities.
The amount of market testing is a function of several critical factors
that are in conflict with one another. First, a company must evaluate the
cost of being wrong. While a great deal of money has been spent to this
point, the cost of launching a product failure is much higher. The greater
the risk of failure, the more market testing a company will want to do
before a full product launch.
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At the same time, market testing takes time, and competitors can take
advantage to enhance their product mix or develop marketing strategies to
counter a successful product launch. In addition, depending on the product,
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the selling season may dictate faster product rollout because waiting too
long may cost the company significant sales. Ultimately, management
must balance these factors and choose the optimum market testing
strategy. 46
Consumer Product Market Tests In creating the market test, management
must make four key decisions:
Where: The location of the market test is based on how well it
reflects the potential target markets. Most market tests involve
somewhere between two and five cities to mitigate regional
differences in purchase patterns (if there are any).
How long: Most test markets run less than a year. The test should be
long enough to include several purchase cycles. With many
consumer products, purchase cycles are relatively short (days or
weeks) so there is less need for a long market test.
Data: Critical information needed to make necessary decisions must
be identified. Management frequently wants to know how long it
takes for the product to move through the distribution system,
tracking the product from manufacturing plant through to the point of
sale (matching inventory as it leaves the plant with store sales). In
addition, buyers are interviewed on their product experience.
Decision criteria: Metrics for further action must be identified. At
this stage it is difficult to pull a product, but if the product fails in the
market test, management is faced with a difficult decision—drop the
product or send it back for major redesign. If the product is a success,
then the product launch decision is much easier. Exhibit 8.10 is a
summary of the decision criteria used in market tests.
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Trader Joe’s conducts a great deal of analysis before it introduces a new
product in its stores. The company considers hundreds of new products every
year, but only a few make it onto store shelves.
©J. Emilio Flores/The New York Times/Redux
EXHIBIT 8.10 Summary of Decision Criteria in
Market Tests
Category Criteria
Financial Gross margin
Profit per unit shelf space
Opportunity cost of capital needed to obtain ?
the new item
Competition Number of firms in the trading area
Number of competing brands
Marketing
strategy
Product uniqueness
Vendor effort
Marketing support
Terms of trade: slotting allowances, off-invoice
?allowances, free cases, bill-back provisions
Price
Other Category growth
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Synergy with existing items
Source: www.emeraldinsight.com.
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Consumer product market testing has two goals. The first is to provide
specific numbers to the business case estimates including new (trial
purchases), repeat, and, if appropriate, initial replacement purchases.
Additionally, information about buyer demographics is evaluated against
earlier target market scenarios and is compared against company business
case models and historical data. The company takes data from the market
test and projects the future.
The second objective of market testing is to get feedback on the tactics
that can be used to adjust the marketing plan before product launch. While
a company will often hold back implementing the entire marketing plan
for security reasons, input from customers, distributors, and retailers is
helpful in adjusting the final marketing plan.
Business Product Market Test Products designed for business markets are
tested differently than their consumer product counterparts. Essentially, the
tests are smaller in scope and involve fewer individuals and companies;
however, they are no less important in the new product development
process. Because business markets are smaller, beta testing often includes
only a few key customers with a long-standing company relationship. If,
on the other hand, the company has independent distributors, it identifies a
limited number for the market test and provides additional support to them
as the product is being tested. 47
Often in parallel with beta testing, companies will use trade shows to
solicit customer feedback. Trade shows are a cost-effective way to get
customer input because they are an efficient and convenient location to
introduce new products or test new product ideas.
Product Launch At this point in the new product process, it is time
to implement the marketing plan. By now, considerable time, money, and
human capital have been expended in the development of the product.
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Management has made the decision to launch the product. Now it is time
to define the product’s objectives (sales, target markets, success metrics),
specify the value proposition, plan the marketing tactics, and implement
the marketing plan. As we mentioned earlier, all of this will already have
been done, but any necessary adjustments are made after the market test.
The product launch is critical to the long-term success of the product.
Products that start poorly seldom recover from a poor launch. The pressure
to create excitement, particularly for consumer products, leading to
consumer trial purchase is a primary reason companies spend millions of
dollars on a product launch. Netgear, a leading provider of networking
devices, introduced the world’s first tri-band mesh network to good
reviews and broad customer acceptance. While other companies were
earlier to market with mesh network systems, Netgear took a different
approach with a unique tri-band system that outperforms the
competition. 48
Many marketing communication dollars are front-loaded at the product
launch with the goal of creating sufficient product interest that will turn
into repeat and replacement purchases later. If the product is not successful
early, management is often unwilling to spend additional dollars as the
product becomes widely distributed. The end result can be a downward
spiral with low product interest generating fewer sales, which leads to
more cutbacks in marketing support. 49
CONSUMER ADOPTION AND DIFFUSION
PROCESS
LO 8-7
Identify how new products become diffused in a market.
A target market consists of many people with different predispositions to
purchase a product. Some will want to adopt a product early; others will
wait until much later. The rate at which products become accepted is
known as the adoption process. Marketers are interested in knowing the
rate at which a product will be adopted into a market as well as the
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timeline (how long it will take for the product to move through the
process). Of particular interest in a new product launch are the groups at
the beginning of the process, innovators and early adopters. 50
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Consumer Product Adoption Process
As we have discussed, new products come in various forms, from new-to-
the-world products to incremental changes to existing products, but the
consumer adoption process is less concerned with the product definition
and more concerned with the individual consumer’s perception of the
product. A product can be in the market for a long time and still be
considered an innovation to an individual consumer. The innovation
diffusion process is how long it takes a product to move from first
purchase to last purchase (the last set of users to adopt the product). An
individual moves through five stages before adopting a product:
1. Awareness—know of the product, but insufficient information to
move forward through the adoption process.
2. Interest—receive additional information (advertising, word of
mouth) and motivated to seek out added information for further
evaluation.
3. Evaluation—combine all information (word of mouth, reviews,
advertising) and evaluate the product for trial purchase.
4. Trial—purchase the product for the purpose of making a value
decision.
5. Adoption—purchase the product with the intent of becoming a
dependable user.
Marketers, particularly those involved in a new product launch, want to
move consumers through the process as quickly as possible. One reason to
spend heavily at the product launch phase is to move people through
awareness, interest, and evaluation, getting them to try the product quickly.
Sales promotion tools (coupons, product sampling), endorsements, third-
party reviews, and other marketing communications methods are all part of
a strategy to move people toward trial purchase. Trial purchase is the focus
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of a product launch marketing plan because if you can get consumers to try
the product, you can win them over with superior product design, features,
and value. 51
The Diffusion of Innovations
Everyone in a target market falls into one of five groups based on his or
her willingness to try the innovation (see Exhibit 8.11). A person can be an
innovator or early adopter in one product category and a laggard in
another. However, marketers want
EXHIBIT 8.11 Consumer Product Adoption Chart
Rubicon Consulting, www.rubiconconsulting.com.
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to identify where individuals fall on the innovation curve for a particular
product or product class. Interestingly, the process by which products
become diffused in a market remains remarkably constant. Research into
the adoption of the Internet in the United States found it very similar to the
adoption of color television in the United States in the 1960s.
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The process begins with a very small group who adopt the product,
perhaps through targeted marketing (they are given the product to try, for
example) or high involvement with the product. From there, larger
numbers in the different groups move through the adoption process. Two-
thirds of all adopters for a given product fall in the early and late majority.
The final group, laggards, may not move into the adoption process until
late in the product’s life cycle. 52
Innovators (2.5 percent)—Product enthusiasts enjoy being the first
to try and master a new product. Individuals in this group are prime
candidates for beta testing and represent a good source of feedback
late in the product development process or early in the product
launch phase.
Early Adopters (13 percent)—Product opinion leaders seek out new
products consistent with their personal self-image. This group is not
price-sensitive and is willing to pay the price premium for a product.
At the same time, early adopters demand a high level of personalized
service and product features.
Early Majority (34.5 percent)—Product watchers want to be
convinced of the product’s claims and value proposition before
making a commitment. This group is considered critical to long-term
success as they take the product into the mainstream.
Late Majority (34 percent)—Product followers are price-sensitive
and risk-averse. They purchase older-generation or discontinued
models with lower prices and fewer product features.
Laggards (16 percent)—Product avoiders want to evade adoption as
long as possible. Resistant to change, they will put off the purchase
until there is no other option.
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SUMMARY
The product experience is the essential element in delivering value to
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the customer. Organizations understand that, no matter what else
happens in the customer experience, the product must deliver on its
value proposition to the customer. Products have a detailed set of
characteristics that include defined customer benefits as well as core
and enhanced product attributes. Companies develop individual
product strategies consistent with broader product line and category
strategies that, in turn, achieve corporate goals and objectives.
Products follow a product life cycle that includes introduction, growth,
maturity, and decline. As a product moves through the cycle, marketing
strategies change to meet new market conditions.
A key to the long-term success of any company is the development
of new products. New product development can take many forms from
“new to the world” to variations of existing products. The new product
development process has three elements: identify the product
opportunity, define the product opportunity, and develop the product
opportunity. A new product moves through a diffusion process with a
market as different people purchase the product at different times.
KEY TERMS
product 213
stock-keeping unit (SKU) 214
essential benefit 214
core product 214
enhanced product 214
tangibility 215
durability 215
nondurable product 215
durable product 215
convenience goods 216
shopping goods 216
specialty goods 216
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unsought goods 216
materials 216
parts 216
MRO supplies (maintenance, repair, operating) 217
capital goods 217
form 217
feature 217
conformance 220
durability 220
reliability 220
repairability 220
style 220
product line 221
product mix 221
product life cycle (PLC) 223
fads 225
market penetration 227
market skimming 227
new-to-the-world product 228
upgrades or modifications to existing products 228
additions to existing product lines 228
reposition existing products 228
cost reduction 228
go-to-market mistake 231
stop-to-market mistake 231
business case analysis 233
innovation diffusion process 237
APPLICATION QUESTIONS
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More application questions are available online.
1. You are a marketing manager for Starbucks. Describe the following
as it relates to the product experience at Starbucks: essential
benefit, core product, and enhanced product. Now imagine you are
the marketing manager for Aquafresh Extreme toothpaste. Describe
the product experience in terms of essential benefit, core product,
and enhanced product.
2. Choose two comparable phones from Samsung and
Microsoft/Nokia and examine each product. How does the product
form differ between the two products? How are they the same? Now
consider the features of the two products. What features are unique
to each phone? Which phone, overall, appeals to you most and
why?
3. One of the most difficult characteristics of a product to define is
style. You are the marketing manager for Cadillac; define the
product style for an Escalade. Compare and contrast that with
product style for a Chevrolet Tahoe (another large SUV built on the
same platform as the Escalade).
240
4. You are the marketing manager for Coca-Cola products in the
United States. Describe the product line for Coke-branded products
and briefly describe how each product differs from the other
products in the Coke brand product line.
5. Motorola is introducing a new phone that incorporates Internet
surfing capability using new LTE technology, a GPS program, and
other new features that will greatly expand the features available on
a cell phone. Develop a marketing strategy for the launch of the new
product.
MANAGEMENT DECISION CASE
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REACHING MILLENNIALS THROUGH NEW
PRODUCT INNOVATION AT CAMPBELL’S
SOUP
What is a marketer to do when their whole product category is
shrinking? That’s the situation Campbell’s Soup found itself in as
many consumers decided that soup was no longer “mmm mmm
good.” 53
Campbell’s Soup was a pioneer of mass food manufacturing,
making “shelf-stable” (canned) goods a fixture in American
pantries. But many of today’s consumers prefer a different
approach to eating—seasonal, fresh, and organic. This is
particularly true for America’s 80 million millennials, an important
generation that Campbell’s and other soup makers were not
attracting to their traditional canned soup products. To reconnect
with this market segment, new CEO Denise Morrison took the 125-
year-old company in some bold new directions, using a
combination of internally driven product innovation and acquisitions
of food industry trailblazers. 54
Job one was to understand what millennials want in food. For
this research, Morrison sent Campbell’s employees to cities known
as hipster hubs—Austin, Texas; Portland, Oregon; London; and
Paris—to learn about the preferences of these potential customers.
This generation, they learned, is culturally diverse and globally
connected. While they have college degrees, they also tend to be
underemployed. This “dine-out” generation likes cuisines that were
once considered exotic: Mexican, Indian, and Asian. Campbell’s
vice president of consumer insights summed it up: “They go
through life hunting out and gathering different experiences. They
sample foods in the same way they sample jobs.” The Campbell’s
team didn’t just ask customers what they wanted—they used a
process of deep immersion, which involved executives eating
meals with customers in their homes, looking in their pantries, and
tagging along on trips to the supermarket. 55
Campbell’s also wanted to predict where food tastes would be
569
headed in the future. For this task, the company interviewed chefs,
nutritionists, and academics, but also experts of a different sort:
designers, anthropologists, and futurists. Campbell’s learned not
only what consumers may soon be eating, but how they want to
buy their food. Technologies such as augmented/virtual reality,
artificial intelligence, and new kinds of currency will affect how food
is purchased—both through mobile devices and brick-and-mortar
retail. 56
Acquisitions were one route Campbell’s took to add to its
product line. Garden Fresh Gourmet was a health-focused brand
with a loyal following for its salsa and hummus. Now a Campbell’s
brand, it provides customers with gourmet soups in sizes to feed a
whole family. Bolthouse Farms, a seller of fresh carrots and
refrigerated beverages, brought additional expertise and
customers. To reach millennial parents, Plum Organics was added,
bringing with it a food line for babies and toddlers. 57
These acquisitions helped address another finding of the
research: the high priority placed on healthy, fresh food.
Consumers were concerned about the levels of sodium and high
fructose corn syrup in Campbell’s traditional soups. 58 The trend
toward a preference for organic food also influenced the
company’s innovation choices. Campbell’s launched an internally
developed product, Go Soups, a premium-priced line of soups
focused on freshness and packaged not in cans, but in plastic
pouches designed to convey that freshness. 59 But Campbell’s has
not kicked the can completely, offering its Well Yes! soups in a
can, but without artificial ingredients. And Campbell’s Souplicity
line uses high-pressure processing, allowing the product to retain
its flavor and color without the use of preservatives. 60
This focus on health extends beyond products to education and
a unique service offering. Campbell’s now offers a website and
app, whatsinmyfood.com, that allows consumers to see details
about the ingredients, where the food is sourced, and how it’s
made. 61 Even more revolutionary is its acquisition of Habit, a start-
up providing personalized diet recommendations. Customers send
an at-home nutrition test kit to a certified lab and then receive a
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personalized diet along
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with coaching from a nutritionist, all based on the consumer’s
lifestyle, physiology, and health goals. 62
For a company accustomed to a few innovations each year, the
new pace of product development is breathtaking—in one year,
they planned to introduce 200 new products. 63 Not all are hits: a
kit to make soup in Keurig coffeemakers was abandoned due to
disappointing sales. 64 However, to keep pace with the changing
priorities of millennials and all its customers, Campbell’s will likely
have to keep up this aggressive rate of innovation, using additional
acquisitions and continuous R&D to roll out more products and
services.
Questions for Consideration
1. In what category of the product life cycle are Campbell’s soup
products? Can a company’s products be in one stage of the
PLC while the industry category is in another?
2. Beyond product innovation, what other parts of the Campbell’s
marketing mix could be adjusted to try to get millennials to grab
their soup spoons?
3. Campbell’s expanded its offerings through both its own R&D
and by acquiring other companies and their products. What are
the pros and cons of these two options? Which should be
Campbell’s focus going forward?
4. Since consumer research shows a clear preference among
millennials for foods other than soup, should Campbell’s slowly
abandon soup in favor of other alternatives or continue to try to
reinvigorate the soup product line?
MARKETING PLAN EXERCISES
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ACTIVITY 8: Define the Product Strategy
In this chapter we looked at the essential element in the marketing mix
—the product. Developing an effective marketing plan begins with an
understanding of your product, its role in the company’s overall
business strategy, and, more specifically, where it fits in the company’s
product mix. Additionally, it is important to establish a new product
development process that ensures a new product pipeline of potentially
successful new products. Your assignment in this chapter includes the
following activities:
1. Define the product to include:
a. Value proposition.
b. Characteristics.
c. Nature of product (consumer versus business product, and what
type of product it represents).
2. Identify the product’s position in the product line (if offered with other
similar products) and, more broadly, the company’s overall product
mix. Address the following:
a. How would this product differ from other products in the product
line (if appropriate)?
b. What price point would this product target and is there any conflict
with existing products?
c. How does the marketing message differ for this product from other
products in the product line?
ACTIVITY 9: New Product Development
In this chapter we looked at the essential element in the marketing mix
—the product. Developing an effective marketing plan begins with an
understand ing of your product, its role in the company’s overall
business strategy, and, more specifically, where it fits in the company’s
product mix. Additionally, it is important to establish a new product
development process that ensures a
242
new product pipeline of potentially successful new products. Marketing
plan activities in this section include the following:
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1. Define a new product development process for next-generation
products. While the product may be new, it is important to have a
plan in place for next-generation models.
a. Do you want to expand existing products into new markets?
b. Define expected features that will likely be added over the next 36
months and a timeline for introduction.
2. Does the company want to be known as innovative with regard to
new product development?
3. Chart the diffusion of the company’s product into the market. Define
each of the groups in the diffusion.
NOTES
1. Kupluthai Pungkanon, “Nothing Like a Nespresso,” Sunday
Nation, April 30, 2017,
http://www.nationmultimedia.com/news/life/living_health/30313686
2. Albert M. Muniz Jr. and Hope Jensen Schau, “Religiosity in the
Abandoned Apple Newton Brand Community,” Journal of
Consumer Research 31, no. 4 (2005), pp. 737–48; and Hope
Jensen Schau and Albert Muniz, “A Tale of Tales: The Apple
Newton Narratives,” Journal of Strategic Marketing 14, no. 1
(2006), pp. 19–28.
3. Hollister Jeans, www.hollisterco.com, January 2014.
4. Jack Neff, “Tide’s Washday Miracle: Not Doing Laundry,”
Advertising Age 78, no. 45 (2007), p. 12.
5. Andreas B. Eisingerich and Tobias Kretschmer, “In E-
Commerce, More Is More,” Harvard Business Review 86, no. 3
(2008), pp. 20–35.
6. Lance A. Bettencourt and Anthony W. Ulwick, “The Customer-
Centered Innovation Map,” Harvard Business Review 86, no. 5
(2008), p. 109.
7. Stephen L. Vargo and Robert F. Lusch, “From Goods Go
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http://www.hollisterco.com
Service(s): Divergences and Convergences of Logics,” Industrial
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33. John Saunders, Veronica Wong, Chris Stagg, and Mariadel Mar
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Management,” Journal of Product and Brand Management 14,
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Framework for Managing the New Product Development
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Management Science 54, no. 5 (2008), pp. 907–22.
36. Dean Richard Prebble, Gerritt Anton De Waal, and Cristiaan de
Groot, “Applying Multiple Perspectives to the Design of a
Commercialization Process,” R&D Management 38, no. 3
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Industry,” Management Science 53, no. 9 (2007), pp. 1452–66.
38. Lenny H. Pattikawa, Ernst Verwaal, and Harry R. Commandeur,
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and Serdar S. Durmusoglu, “Your New Product Development
(NPD) Is Only as Good as Your Process: An Exploratory
Analysis of New NPD Process Design and Implementation,”
R&D Management 37, no. 95 (2007), pp. 399–415.
40. Glen L. Urban and John R. Hauser, “Listening In to Find and
Explore New Combinations of Customer Needs,” Journal of
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41. Stefan Thomke and Donald Reinertsen, “Six Myths of Product
Development,” Harvard Business Review, May 2012,
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42. B. Sorescu and Jelena Spanjol, “Innovation’s Effect on Firm
Value and Risk: Insights from Consumer Packaged Goods,”
Journal of Marketing 72, no. 2 (2008), pp. 114–31.
43. J. Brock Smith and Mark Colgate, “Customer Value Creation: A
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Practical Framework,” Journal of Marketing Theory and Practice
15, no. 1 (2007), pp. 7–24.
44. Sanjiv Erat and Stylianos Kavadias, “Sequential Testing of
Product Designs: Implications for Learning,” Management
Science 54, no. 5 (2008), pp. 956–69.
45. Wei-Lun Chang, “A Typology of Co-Branding Strategy: Position
and Classification,” Journal of the Academy of Business 12, no.
92 (2008), pp. 220–27.
46. Sharan Jagpal, Kamel Jedidi, and M. Jamil, “A Multibrand
Concept Testing Methodology for New Product Strategy,”
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34–51.
47. Destan Kandemir, Roger Calantone, and Rosanna Garcia, “An
Exploration of Organizational Factors in New Product
Development Success,” Journal of Business and Industrial
Marketing 21, no. 5 (2006), pp. 300–18.
48. Keith Shaw, “Netgear Doubles Down on Orbi Wireless Gear,”
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Current Customer Inclination to Spread Negative Word of
Mouth,” Journal of Brand Management 15, no. 4 (2008), pp.
258–62; and Niederhoffer et al., “The Origin and Impact of CPG
New Product Buzz.”
50. Christophe Van Den Butte and Yogesh V. Joshi, “New Product
Diffusion with Influentials and Imitators,” Marketing Science 26,
no. 3 (2007), pp. 400–24.
51. Kapil Bawa and Robert Shoemaker, “The Effects of Free
Sample Promotions on Incremental Brand Sales,” Marketing
Science 23, no. 3 (2004), pp. 345–64.
52. Morris Kalliny and Angela Hausman, “The Impact of Cultural
and Religious Values on Consumer’s Adoption of Innovation,”
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pp. 125–37; and Stacy L. Wood and C. Page Moreau, “From
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Fear to Loathing? How Emotion Influences the Evaluation and
Early Use of Innovations,” Journal of Marketing 70, no. 3 (July
2006), pp. 44–60.
53. Sarah Halzack, “The Soup Business Has Grown Cold. Inside
Campbell’s Plan to Turn Up the Heat,” Washington Post,
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up-the-heat/?utm_term=.6401befc68d7.
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CHAPTER 9
Build the Brand
LEARNING OBJECTIVES
LO 9-1 Recognize the essential elements in a brand.
LO 9-2 Learn the importance of brand equity in product
strategy.
LO 9-3 Explain the role of packaging and labeling as critical
brand elements.
LO 9-4 Define the responsibility of warranties and service
agreements in building consumer confidence.
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BRAND: THE FUNDAMENTAL CHARACTER
OF A PRODUCT
LO 9-1
Recognize the essential elements in a brand.
Why does someone purchase an $89 Tommy Hilfiger Polo shirt instead of
a $12 Walmart pullover polo shirt? In part, the quality is better, but
something else is also driving the purchase—a complex relationship
between the individual purchasing the shirt and the brand Tommy Hilfiger.
Why do Tommy Hilfiger and other manufacturers such as Lacoste and
Under Armour prominently display their logo on merchandise? Because
people who buy those products want others to know who manufactured the
shirt, jacket, or pants. Equally important, the manufacturers want everyone
to see the logo. Both customers and manufacturers realize the importance
of the brand.
If asked, you could probably identify the logo for Tommy Hilfiger, but
how would you define the brand? Exhibit 9.1 highlights some of the
different ways Tommy Hilfiger translates his brand into products and
services. A brand, as defined by the American Marketing Association, is
“a name, term, design, symbol, or any other feature that identifies one
seller’s goods or services as distinct from those of other sellers.” While the
Hilfiger flag is a recognizable symbol of Tommy Hilfiger products,
customers and noncustomers assign a much deeper meaning to the brand. 1
In this chapter we’ll focus on branding and critical elements in the
branding process to learn more about this essential product building block.
First we will discuss the many roles of a brand, including those assigned
by customer, company, and competition as well as potential problems for a
brand. Next, we’ll examine an important concept—brand equity—which is
used to frame the relationship of the brand to the customer. In addition, we
examine four branding strategies. Finally, two other key elements of a
customer’s overall perception of a brand are examined: packaging and
labeling as well as warranties and service agreements.
The importance of branding is not limited to consumer products.
Business-to-business customers also consider brands when making
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purchase decisions. As we will see in this chapter, brands are important for
customers and companies, which is why marketing managers are vitally
interested in learning as much as possible about their customers’ brand
perceptions when developing effective branding strategies.
Brands Play Many Roles
Brands take on different roles for customers, manufacturers, even
competitors. No other single product element conveys more information
about the company. Brand strategy is an integral part of the product
development process because companies know that successful new
products result from a well-conceived branding strategy. At the same time,
established products are defined, in large measure, by their brand, and
companies work very hard to protect this critical asset. Let’s examine
brand roles.
Customer Brand Roles Whether the customer is a consumer or
another business, brands have three primary roles. First, the brand conveys
information about the product. Without any additional data, customers
construct expectations about quality, service, even features based on the
brand. Netflix is a leader in online digital media content, and the brand is
recognized around the world for its ease of use and variety of choices.
More recently it has become known for its original content with shows like
House of Cards. Despite being one of the more expensive options, the
brand conveys a strong image of quality to many of its customers.
Brands also educate the customer about the product. People assign
meaning to their product experiences by brand and, over time, make
judgments about which brands are best at meeting their needs and which
are not. As a result, product evaluations and purchase decisions become
less formidable as the customer relies on the cumulative brand experience
to simplify the purchase process. 2 The thought process works something
like this: “I have had great product experiences with Brand X in the past. I
will purchase Brand X again, making this purchase decision easier and
faster.” In essence, the customer’s “brand education” helps make the
purchase decision with less effort. For many, home repair is daunting, so
hardware retailers like Lowe’s provide as much information as possible to
reduce anxiety
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EXHIBIT 9.1 The Tommy Hilfiger Brand
Source: Tommy Hilfiger Licensing, LLC
about the process. Indeed, Lowe’s has worked hard to develop a
reputation for making the home repair process easy for everyone.
A third brand role is to help reassure the customer in the purchase
decision. 3 For many years there was a phrase in IT: “No one ever got fired
for buying IBM.” IBM’s reputation and market dominance in the large
computer and network server market meant that even if the product did not
meet performance expectations, the customer felt more secure and less
anxious about choosing IBM equipment. Older, established brands like
Lysol provide a sense of security and reduce concerns about product
quality (see Exhibit 9.2).
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Company Brand Roles Brands also perform important roles for the
brand’s sponsor (manufacturer, distributor, or retailer). They offer legal
protection for the product through a trademark. By protecting the brand,
the company is able to defend essential product elements such as its
features, patentable ideas in manufacturing or product design, and
packaging. 4 A second critical role is that brands offer an effective and
efficient methodology for categorizing products. 5 Samsung has thousands
of products across many product categories and branding helps keep track
of those products.
Competitor Brand Roles Market-leading brands provide
competitors with a benchmark against which to compete. In industries with
strong market-leading brands, competitors design and build products
targeted specifically at the market leader. In these situations, the
competitor leverages its product strength against the market-leading
brand’s perceived weakness. In the highly competitive smartphone market
everyone is familiar with global brands like Samsung and Apple.
However, there are a number of competitors working to get noticed in the
marketplace. Companies like Huawei and LG compare their phones to the
market leaders (like Samsung) to highlight additional features they
provide, often at a lower price.
The Boundaries of Branding
While branding can have a strong effect on the product experience, it is not
all-powerful. A good branding strategy will not overcome a poorly
designed product that fails to deliver on the value proposition. 6 Too
frequently companies put a good brand on a bad product,
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which often leads to erosion of the brand’s value. Years before the iPhone
there was BlackBerry, the smartphone leader in the early 2000s.
Unfortunately, the company was not able to keep up with innovations in
the smartphone market such as touch screen technology (BlackBerrys had
buttons). While highly regarded in its time, the product, company, and
brand were overwhelmed by their competitors and changing customer
preferences. A brand must also be protected. Counterfeit products or
illegal activities conducted under the name of another company’s brand
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can do significant damage to the brand. 7
Finally, there must be real, identifiable, and meaningful differences
among products. If all products are perceived to be equal, then it is more
difficult to create a brand identity, which is a summary of unique qualities
attributed to the brand. 8 Commodities are difficult to brand because
customers often fail to perceive a difference among products. Major oil
companies such as ExxonMobil, Shell, and BP want to differentiate their
gasoline from competitors’ but find it difficult because most people do not
perceive a difference. Despite all their efforts, companies still find it
difficult to overcome perceptions about a brand.
EXHIBIT 9.2 Consumer Brand Roles
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Sources: (Netflix): ©Grzegorz Knec/Alamy Stock Photo; (Lowe’s): ©Jonathan
Weiss/Shutterstock; and (Lysol): ©Editorial Image, LLC.
BRAND EQUITY—OWNING A BRAND
LO 9-2
Learn the importance of brand equity in product strategy.
Equity is about ownership and value. For example, people often think of
their homes when they consider the term equity. Home equity is the
difference between the price of the home (asset) and the mortgage
(liability). The larger the difference between the value of the property and
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the mortgage loan value, the more equity is accrued to the homeowner.
In a very real sense the same is true of brand equity. Every brand has
positives—for example, Mercedes-Benz has a reputation for high-quality
cars—and negatives—Mercedes also has a reputation for being expensive.
The greater the perceived difference between the positives and negatives,
the more a customer will develop equity in the brand. When customers
take “ownership” of a brand, they make an “investment” that often extends
beyond a financial obligation and includes emotional and psychological
attachment. Then the company can realize a number of benefits, which we
discuss in the next section; however, if the company does a poor job of
managing the brand, such as lowering the product quality, those same
customers may become negative. As a marketing manager, you want to
learn about the brand equity of your product to better understand the
relationship of your product to target markets and create more effective
marketing strategies. 9
Defining Brand Equity
Brand equity can be defined as “a set of assets (and liabilities) linked to a
brand’s name and symbol that adds to (or subtracts from) the value
provided by a product or service to a firm or that firm’s customers.” This
definition, developed by David Aaker, can be broken into five
dimensions: 10
Brand awareness: The most basic form of brand equity is simply
being aware of the brand. Awareness is the foundation of all other
brand relationships. It signals a familiarity and potential commitment
to the brand.
Brand loyalty: This is the strongest form of brand equity and reflects
a commitment to repeat purchases. Loyal customers are reassured by
the brand and are often ambassadors to new customers. Loyal
customers enable a company to reduce marketing costs, leverage
trade relationships, and speak to competitive threats with greater
success.
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Perceived quality: Brands convey a perception of quality that is
either positive or negative. Companies use a positive perceived
quality to differentiate the product and create higher price points.
Rolex watches have been able to sustain a price premium long into
their life cycle because of the perceived quality in design and
performance of the product.
Brand association: Customers develop a number of emotional,
psychological, and performance associations with a brand. In many
cases, these associations become a primary purchase driver,
particularly with brand-loyal users. Dell has a reputation as a mass-
market computer company with reasonably good-quality products
but poor customer service. As a result, competitors, such as Hewlett-
Packard, have been able to create market opportunities by associating
their brand with higher levels of product support and customer
service.
Brand assets: Brands possess other assets such as trademarks and
patents that represent a significant competitive advantage. Google is
very protective of its search algorithm intellectual property, which, in
the view of the company, gives the company a significant advantage
over other search engines.
Coca-Cola has created one of the most powerful global brands and its logo,
displayed on a Coke truck in India, is recognized around the world.
©Erica Simone Leeds
Let’s consider the implications of these dimensions for marketing
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managers. First, moving customers from brand awareness to loyalty
requires a thorough understanding of the target market and a successful
marketing strategy. This is accomplished by developing a strong value
offering and then communicating that to the target market. This is an
essential element of the marketing manager’s job. 11 Second, as we
discussed in Chapter 6, customers develop perceptions about a product and
associate it with attitudes and even emotions that are encompassed in a
product’s brand equity. By learning how customers view competitors’ as
well as their own brand, managers seek to affect people’s perceptions and
attitudes about their product. 12 Finally, managers protect their brands
because they represent a vital asset for the company. They are vigilant
about how they are portrayed in the marketplace, particularly by
competitors.
Both the customers and the company have a stake in the brand’s
success. People do not want to purchase a brand if there is a question about
quality, performance, or some other dimension of the product experience.
They seek to maximize the benefits of the purchase and minimize the
disadvantages. At the same time, companies understand every brand has
liabilities that must be overcome to enhance the customer’s perceived
equity in the product. As a result, marketing managers constantly battle to
increase brand equity or the customer’s perception that the product’s
positive elements are greater than the negative elements. Brands do have
real value and represent a significant company asset. 13 Exhibit 9.3 lists the
most valuable brands in the world as measured by Brand Z. Note the value
of these brands runs into the billions of dollars and changes are based on a
number of things including changes in company strategy, brand success or
failure, competitive pressures, and consumer acceptance.
Benefits of Brand Equity
Building brand equity takes time and money. Given the necessary
commitment of resources required to build brand equity, it is reasonable to
question whether it is worth the investment. High brand equity delivers a
number of benefits to the customers and manufacturers, retailers, and
distributors or brand sponsors who control the brand. Three benefits are
perceived quality, brand connections, and brand loyalty. Let’s consider
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each of these benefits
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EXHIBIT 9.3 The Most Valuable Brands in the
World
Source: Brand Z, Top 100 Most Valuable Global Brands 2016, April 29, 2017.
Photos: (Google, Microsoft, Facebook, VISA, Amazon, Verizon, and IBM):
©rvlsoft/Shutterstock; (Apple): ©tanuha2001/Shutterstock; (AT&T): ©Peter
Probst/Alamy Stock Photo; and (McDonald’s): ©Rose Carson/Shutterstock.
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from two perspectives, the customer and the company managing the brand
or the brand sponsor. Many of these benefits are difficult to quantify but
dramatically affect the success or failure of the brand.
Perceived Quality
Customers All things being equal (value proposition, product features), the
branded product gives customers a reason to buy. This is a big advantage
over unbranded products because customers will infer a level of quality
from the branded product that facilitates their purchase decision. 14
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Brand Sponsor The perceived quality of a brand provides three distinct
benefits to the company. First, the perception of a brand’s quality enables
companies to extend the product range. Ford Motor continues to maintain
a strong brand, which has been an important factor in building consumer
interest and confidence in the Fusion Hybrid, Ford’s answer to the
challenge of Prius’s domination of the hybrid market. Second, the
perception of quality can lead to a price premium opportunity. 15 P&G and
other consumer products companies, for instance, enjoy consistently
higher prices (and margins) than generic and other locally branded
products in the same category. Finally, the perception of quality is an
excellent differentiator in the market. For example, Ray-Ban was among
the first to successfully brand sunglasses. Its branding strategy positions
the sunglasses in the high-quality, premium-priced segment of the market
and has been successful for more than 65 years.
Linking Benefit to Strategy Successful marketing strategy builds quality
into the entire customer experience—product, service, and any interaction
with the company. As companies extend their product lines, they must
ensure the customer’s brand experience remains positive; put simply, get it
right before you introduce new products and services. 16 Quality can create
a price premium, but managers understand that to validate that price
premium they must constantly validate the value proposition for the
customer and answer the customer question, “what makes this product
different?” 17
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Brand Connections
Customers Two primary customer advantages result from brand
associations. First, customers process, store, and retrieve product
information by brand, which is a big advantage for strong brands. People
are more likely to connect information with a brand they know rather than
sort through information on unfamiliar brands. For example, consumers
generally don’t consider checking accounts from all banks; rather, they
consider the branded product such as Bank of America’s checking or
another brand they know. A second benefit is that strong brands generate a
more positive attitude toward the product. 18 Customers generally have
more upbeat thoughts about a powerful brand than a weak brand or generic
product. Cisco network servers are an industry leader with an excellent
reputation supported by IT professionals, who use a wide range of other
manufacturers.
Brand Sponsor When customers identify with a brand and then transfer
that loyalty to the product, it creates an additional barrier to entry for new
brands, 19 particularly for smaller firms that lack brand recognition. The
default choice for network servers is Cisco in many corporate IT
departments because executives have heard of Cisco even if they are not
familiar with the product itself, thus making it harder for other servers to
enter the market.
Linking Benefit to Strategy Because of customer brand connections,
marketing managers generally want to extend the brand to new products.
However, extending a brand needs to fit the target market’s perception of
the brand. When Toyota, Honda, and Nissan created luxury cars, they
realized the need to create a new brand because the target markets would
be less willing to accept their current brands in a luxury automobile. It is
also important for strong brands to reinforce their market presence because
it helps maintain a barrier to entry.
Brand Loyalty
Customers Brand-loyal customers do not spend as much time searching
for new information and, as a result, generally spend less time in the
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purchase decision process. 20 Motorcycles have experienced a high degree
of brand loyalty among the major competitors such as BMW, Honda, and
Harley-Davidson. It is not unusual to find owners across all three brands
who are driving their third or fourth motorcycle.
Brand Sponsor Loyalty to the brand offers four distinct benefits that
represent real market advantages to the brand sponsor. A well-executed
branding strategy helps reduce long-term marketing costs, giving the brand
sponsor more flexibility in the marketing budgets. While Starbucks spends
several hundred million dollars on advertising around the world every
year, its advertising budget is much smaller than its competitors’. The
Starbucks brand is so
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well known that the company doesn’t need to spend much money raising
brand awareness. Branded products give sponsors additional channel
leverage. 21 Walmart’s ability to extract lower prices from suppliers is
legendary, but companies understand the importance of having their
products in the world’s largest retailer. Brand-loyal customers are vocal
and tell others about their experiences, which attracts new customers.
Disney has a loyal base of guests who visit the parks every year and
become excellent ambassadors for the company. The company offers loyal
users specific benefits to cultivate continued loyalty and encourage them to
bring new guests. Finally, brand-loyal customers are forgiving, which
enables companies to respond to a negative experience. Frequent guests to
the Disney parks are not shy about voicing their opinions about everything
from rides to the cleanliness of the parks. This creates a sense of
ownership (equity) and loyalty.
Linking Benefit to Strategy Because of customer loyalty, marketing
managers with a strong brand have greater flexibility in their marketing
budgets. For example, Rolls Royce spends very little on paid advertising
because customers already have brand equity. At the same time, Intel,
which makes a product most people never see, spends a great deal of
money building its brand, and now people ask for “Intel Inside.”
Marketing managers know that loyal customers are great advocates for a
brand. As a result, blogs and other online communities have become
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excellent tools for marketers to reinforce the brand’s message. 22
BRANDING DECISIONS
Branding is a complex concept that brings together all the elements of a
product into a single, focused customer idea. As a result, the branding
decision is among the most important in marketing. Four basic strategic
decisions in defining a brand are (1) stand-alone or family branding, (2)
national or store branding, (3) licensing, and (4) co-branding.
Stand-Alone or Family Branding
Does the brand stand alone or exist as part of a brand family? Each choice
has advantages and disadvantages. Stand-alone brands separate the
company from the brand, which insulates the company if there is a
problem with the brand. But stand-alone brands are expensive to create
and maintain as there is little or no synergy between company brands.
Family branding advantages and disadvantages are just the opposite. There
is synergy among members of a brand family, but a negative event with
one product often leads to negative publicity for the entire brand family. 23
Unilever, a worldwide leader in consumer products, follows a stand-
alone brand strategy in its personal care division with brands that operate
independently of each other (AXE, Dove, Lifebuoy, Lux, Ponds, Rexona,
Sunsilk, Signal, and Vaseline) (see Exhibit 9.4). Kraft Heinz, on the other
hand, uses a family branding strategy with all products introduced under
the Heinz brand (ketchup and other condiments).
Companies also use branding to extend a line. For example, Microsoft
extends its Windows OS platform to a broad range of machines including
mobile devices, laptops, and desktops. Each new extension of the
Windows OS connects the customer back to the brand and provides a
seamless experience across devices. 24 Also, a company can use its brand
to expand into new product categories, known as a category extension. 25
Patagonia uses its strong brand to expand into new product categories such
as food and liquor. Exhibit 9.5 illustrates product extensions through
brand, line, and category.
Yet another option is combining family brands with a more distinct
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individual product brand. Many companies follow a variation of this
strategy. American Express introduced the One card that incorporates the
American Express brand as well as its own stand-alone brand One.
National or Store Branding
Another decision is whether the product should adopt a national or store
brand strategy. Large consumer products companies such as Procter &
Gamble create national brands
254
EXHIBIT 9.4 Sample of Branding Decisions
596
597
Sources: Unilever; and The Kraft Heinz Company.
255
EXHIBIT 9.5 Brand, Line, and Category
Extensions
598
Sources: (Dove Men+ Care and Patagonia): Editorial Image, LLC; and (Windows
OS): Microsoft.
that are sold around the country under the same brand. Gillette Fusion,
Crest toothpaste, and many others are national brands that can be found
anywhere. National brands enable manufacturers to leverage marketing
resources by creating efficiencies in marketing communications and
distribution. 26 In addition, national brands generally have a higher
perceived quality and, as a result, enjoy a price premium. However,
developing a national brand is costly and lower-priced store brands are
strong competitors in many product categories. 27
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An alternative to creating a national brand is a store brand. Many large
retailers create a store brand to market their own products. For example,
Target has a number of store brands including “Up & Up,” which includes
a broad range of household commodities (including everything from
contact solution to laundry detergent to paper plates). Often contracting
with the large manufacturers such as Procter & Gamble, retailers are able
to compete directly with national brands by offering lower prices.
Licensing
Companies can also choose to extend their brand by licensing—offering
other manufacturers the right to use the brand in exchange for a set fee or
percentage of sales. There is very little risk to the brand sponsor, and
licensing can generate incremental revenue. In addition, it can extend the
brand and build more brand associations among new users, creating
additional benefits. 28 The brand sponsor does need to monitor the
licensees to ensure product quality and proper use of the brand. Finally,
license partners should fit the company’s overall marketing strategy for the
brand. 29 Among the best followers of the license strategy are movies,
which license their brand (the movie) to a wide range of companies
(restaurants, toy manufacturers, and others). Rogue One: A Star Wars
Story, while not part of the main Star Wars story line, still did well at the
box office, with over $1 billion in global box office revenue, but license
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agreements still keep making money for the franchise. Not only did Disney
sell merchandise, it had licensing agreements with Nissan, General Mills,
Gillette, Duracell, and Verizon, which continue to generate revenue long
after the movie’s release.
Co-Branding
Frequently a company discovers advantages to linking its products with
other products inside the company or externally with products from other
companies, called co-branding. Co-branding joins two or more well-
known brands in a common product or takes two brands and markets them
in partnership. One advantage of co-branding is the opportunity to
leverage the strengths of each brand to increase sales beyond what they
could do independently. In addition, it may open each product up to new
markets as well as lower costs by sharing marketing communications
expenses. 30
There are also several potential disadvantages. First, companies that
co-brand externally give up some measure of control over their brand; by
joining brands, each company sacrifices some control to market the co-
branded product. If one of the brands encounters a problem, for example, a
quality issue, it can have a negative effect on the co-branded product.
Another potential disadvantage is overexposure; a successful product does
not want too many co-branded relationships because it can dilute the
brand’s image. 31
Successful co-branding relationships work best when both brands
come together as equals that make sense in the marketplace. Costco and
Visa joined together to offer a Costco Visa card that allows users to earn
rebates on their purchases at Costco while expanding the reach of Visa to
Costco members. Critical decisions in the process revolve around resource
commitments, which company is spending what, and what other resources
are asked of each company. In addition, it is important for each company
in the relationship to understand the performance objectives and expected
benefits of each partner.
Generally, co-branding involves one of four relationships. The first is a
joint venture between two companies; for example, American Express uses
this model frequently, partnering with a variety of third-party financial
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institutions that issue the Amex-branded cards and are responsible for
customer service and billing, but the credit card company supplies the
transaction processing and merchant network. A second type of co-
branding affiliation happens when a company combines two of its own
products. Procter & Gamble combined its Crest toothpaste and Scope
mouthwash to create Crest + Scope Outlast—a toothpaste that combines
teeth cleaning properties with a “fresh breath feeling.” A third type of co-
branding relationship involves bringing multiple companies together to
form a new branded product. For instance, Moxy Hotels is a joint venture
effort from Marriott Hotels and Inter IKEA, the parent company of
Swedish furniture company IKEA. The JV will be Marriot’s first line of
budget hotels in Europe, and is designed specifically to appeal to
millennials.
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PACKAGING AND LABELING: ESSENTIAL
BRAND ELEMENTS
LO 9-3
Explain the role of packaging and labeling as critical brand elements.
The product package and label must perform several critical roles in
support of the brand. As a result, marketers, product developers, and
package design specialists are involved in package design early in product
development. Then, as product updates occur, the package is reconfigured
to accommodate product modifications.
Package Objectives
Protect Above all, the package must protect the product. The challenge
is defining how much protection is necessary and cost-effective. In some
cases, as in a can of Coke, the package is a significant component of the
product’s overall cost so there is concern about any increases in package
cost. However, the can of Coke must be strong enough to hold the
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carbonated beverage under variations in temperature and other use
conditions. Additionally, Coca-Cola must consider a variety of package
materials (plastic, metal), sizes, and shapes (regular can, Coke’s classic
“contour” design), and it must design each to operate more or less the
same under a variety of situations (see Exhibit 9.6).
Protecting customers from unauthorized access to the product is also
part of package design. Prescription bottles and most over-the-counter
medicines are required to be tamper-proof and child-proof to protect
customers. Package safety seals provide a layer of security and verification
to the customer that the product has not been altered before purchase.
Finally, a growing concern is product theft, particularly in the retail
store. 32 As a result, the package design should include anti-theft
methodology, such as bar coding or magnetic stripes, that discourages
shoplifting.
Communicate Packages communicate a great deal of information
about the product. Some of that information is designed as marketing
communications. At the point of sale, the package is the last marketing
communication the customer will see before the purchase. Consequently,
packaging plays a critical role in the company’s overall marketing
communications strategy, particularly for consumer products. Coke’s
distinctive contour bottle design (pictured in Exhibit 9.6) is so unique the
package can be identified in the dark. Additionally, packaging offers the
brand sponsor the opportunity to present the trademark, logo, and other
relevant information in an appealing and persuasive manner. As the
customer stands in front of a shelf full of products in a store, the marketer
wants the brand to be clearly visible to the buyer. This means packaging
must be designed to easily communicate critical brand messages quickly
through color or design cues. 33 The familiar Coke swirl logo is among the
most recognized brand symbols in the world and is easily identified on a
store shelf or in a vending machine.
EXHIBIT 9.6 Coke Bottle Designs Over the Years
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Source: The Coca-Cola Company
Unique package design can create a distinctive competitive advantage.
Coke’s contour bottle is an important component of Coke’s overall brand
image. Its distinctive package
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EXHIBIT 9.7 Innovative Package Designs
Water in a Box is a water product
that seeks to use packaging that’s
better for the environment. The
paperboard packaging attempts to
emphasize the purity of the
product. It is made of 100 percent
renewable and sustainable
material.
Festina Watches are expensive
watches. To demonstrate that the
watches hold up to their
waterproof promise, they are
packaged in bags with distilled
water at their point of sale.
The Nike Air packaging was a shift
from the traditional cardboard box
typically used for shoes. It helped
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to demonstrate the cushioning of
the brand, and it conveyed the
illusion of floating.
design increases brand awareness at the point of sale where the
customer makes the final purchase decision (see Exhibit 9.7).
EXHIBIT 9.8 Nerf Puts Smiling Kids on Their
Packaging
©Editorial Image, LLC
Promote Usage Package design also encourages product use. It does
this in several ways. First, packages frequently show the product being
used by a happy customer (Nerf shows kids using and enjoying its
products on many of its boxes), which supports the overall marketing
message (see Exhibit 9.8). This connects the product to the target
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customer. Second, in many cases, packages visually demonstrate a
product. In Exhibit 9.8, the boy is shown using the Nerf Alpha Hawk, and
the product itself is clearly visible in the package. Third, marketers and
package designers make extensive use of blister packs (products encased
in clear plastic) and other package designs to visibly present and protect
the product. When buying a SanDisk Cruzer flash drive, it is much easier
to visualize using it when you can see the product and have key features
highlighted on the package.
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Effective Packaging
Effective packaging accomplishes the objectives noted above in a
persuasive, interesting, and visually appealing manner consistent with the
target market’s expectations. Materials, shape, colors, graphics, indeed all
the design elements are used to create an aesthetically appealing package
for the customer.
Aesthetics Color plays a significant role in package design, indeed, in
the entire branding strategy. 34 It is no accident that Coke’s packaging has
red as the dominant color (red connotes active and energetic) while Pepsi
uses blue (fresh and relaxed). The colors reflect the brand and are carried
through in the package design. Exhibit 9.9 relates the aesthetics of color to
package design.
A visually appealing package, however, is not enough. It must be
directed at the target audience to be successful. In most retail
environments, a package has very little time to connect with the customer
at the point of purchase. As a result, designs that are appropriate,
interesting, and persuasive to the target market are critical.
Harmonizes with All Marketing Mix Elements A successful
product package coordinates with all other marketing mix elements and is
an extension of the product’s
EXHIBIT 9.9 The Meaning of Color in Package
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Design
Source: Pantone LLC.
Color plays an important role in package design. Each color conveys a different
mood.
260
marketing strategy. At the point of purchase, the package reinforces
marketing communications by connecting advertising images (logo,
pictures on the package) to the customer. As a result, package designers
frequently work closely with advertising and other marketing
606
communications specialists to orchestrate an integrated message and look
throughout the marketing communications process. Canon professional
digital cameras are packaged in a box dominated by a picture of the
camera. The boxes stand alone as a promotional tool that includes the logo,
camera model number, and picture. In addition, the package design and
logo are coordinated with other collateral marketing literature as well as
the website.
Labeling
The package label is an important and valuable location. Often there is not
enough space to accommodate all the information relevant parties would
like to include on the label. Consider, for example, that government
agencies require certain information on almost every label while company
attorneys want disclaimers to limit product liability. Also, marketing
managers want promotional messages and brand information, while
product managers would like product use instructions.
Legal Requirements Labels must meet federal, state, even local
rules and regulations. The Food and Drug Administration (FDA) requires
all processed-food companies to provide detailed nutritional information
clearly identifying calories, fats, carbohydrates, and other information.
Other products must have warnings of a certain size that are easily read
and understood by the customer. 35 Hazardous materials such as cleaning
products, pesticides, and many other items require 14 different pieces of
information be included on the label. It is easy to understand why space on
the label is at such a premium.
Consumer advocacy groups and government agencies evaluate labels
to identify misleading or mislabeled products, and there is a long history of
legal prosecution for inappropriate, unethical, even illegal product
labeling. In 1914, the federal government, through the Federal Trade
Commission, first ruled misleading or blatantly phony labels were illegal
and represented unfair competition. Since then, additional legislation has
been passed by the federal government such as the Fair Packaging and
Labeling Act (1967). States have also passed legislation, which, in most
cases, supports federal legislation but also extends specific rules and
policies.
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EXHIBIT 9.10 Bounce Fabric Softener Packaging
©Editorial Image, LLC
Consumer Requirements Consumers want to use products out of
the box and package labeling is the most convenient place for initial use
instructions. Additionally, product precautions, simple assembly
information, and appropriate age for product use may also be included on
the package. Essentially, any information the consumer needs to make a
product choice, particularly at the point of purchase, needs to be on the
package.
Marketing Requirements Since package labeling represents the
last marketing opportunity before the purchase decision, as much label
space as possible is allocated to marketing communications. Brand, logo,
product image, and other relevant marketing messages take up the
dominant space on the label. On a box of Procter & Gamble’s Bounce
fabric softener sheets, the brand name “Bounce” is approximately 50
percent of the space on the front panel and the rest of the space is a bright
color (orange) with clean, fresh clothes hanging on the line and a green
field. P&G uses the entire front panel of the box to support the marketing
efforts of the brand (see Exhibit 9.10).
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WARRANTIES AND SERVICE
AGREEMENTS: BUILDING CUSTOMER
CONFIDENCE
LO 9-4
Define the responsibility of warranties and service agreements in
building consumer confidence.
Part of the customer’s overall perception of a brand is the seller’s
commitment to the product. This commitment is most clearly articulated in
the product’s warranties and service agreements. 36 As part of the purchase
contract with the customer, manufacturers are required by law to state the
reasonable expectations for product performance. If the product does not
meet those reasonable performance expectations, the customer has the
legal right to return the product to the appropriate location for repair,
replacement, or refund.
The two kinds of warranties are general and specific. General
warranties make broad promises about product performance and customer
satisfaction. These warranties are generally open to customers returning
the product for a broad range of reasons beyond specific product
performance problems. Many companies have adopted lenient policies that
allow a product return without even asking the customer for a reason.
Others require a reason, although there is often a great deal of latitude in
what is an acceptable justification. Specific warranties, on the other hand,
offer explicit product performance promises related to components of the
product. Automobile warranties are specific warranties covering various
components of the product with different warranties. The warranty for tires
is by the tire manufacturer while warranties for the power train (engine,
drive system) are generally different from those for the rest of the
automobile.
Warranties Help Define the Brand
The manufacturer’s promise of performance helps define the brand for the
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customer. Victorinox, maker of the famous Swiss Army knife, states its
warranty as follows: “Swiss Army Brands, Inc., warrants its Victorinox
Original Swiss Army Knives to be free from defects in material and
workmanship for the entire life of the knife.” Swiss Army knives have the
reputation of being among the best knives in the world, and the company’s
warranty supports that perception. A company willing to stand behind its
product for life provides a lot of reassurance to the customer. In addition,
there is an implied quality perception about a product warranted for life.
Cost versus Benefit Honoring a warranty incurs costs. At one
level, the company must be competitive and offer warranties consistent
with the industry. However, companies constantly evaluate their
warranties (length of time, return/replacement/refund policies, nature of
product performance) to consider whether the benefits of the warranty
exceed the costs. 37 This is particularly true when companies offer
warranties above the industry average. For years, luxury carmakers such as
Lexus, Mercedes-Benz, BMW, Audi, and others offered warranties (four
years or 50,000 miles bumper to bumper) beyond those provided by other
manufacturers (GM, Ford, and Chrysler, which offered three years or
36,000 miles). Offering longer warranties helped validate the perception of
a luxury, quality automobile manufacturer. Recently, however, BMW has
quietly reduced its warranty coverage by eliminating some free scheduled
maintenance because the costs were too high. At the same time, Hyundai
and others have expanded their warranties to build consumer confidence in
their cars. They realize that extending the period of warranty coverage
demonstrates they are making better cars in a very tangible way.
Convey a Message to the Customer Warranties convey a
powerful message to the customer about perceived product quality and
manufacturer commitment to customer satisfaction. Particularly with
expensive products or purchase decisions in which the customer has
anxiety, the warranty can play a significant role in the final product choice.
As a result, companies focus a lot of time not only creating the warranty
but also considering how best to communicate it to the customer. John
Deere, one of the world’s leading agricultural manufacturers, continues to
use a tag line even after many years, because it says a great deal about the
product and the company. The promise of John Deere products is
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understood in the simple phrase “Nothing Runs Like a Deere.” With most
products, however, companies take a lower profile and build warranty
statements into the overall marketing communications strategy and product
information. 38
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SUMMARY
An essential element in any product is its brand. The brand conveys a
great deal of information about the product and the customer
experience. Powerful brands enjoy benefits in the market that other
products do not. As a result, companies carefully consider a product’s
branding strategy in creating an overall marketing plan. Packaging and
labeling are also critical brand elements that convey a lot about the
product to the customer. Finally, customers attach great importance to
the sellers’ commitment to the products as conveyed in the product’s
warranties and service agreements.
KEY TERMS
brand 247
brand strategy 247
brand identity 249
brand equity 249
brand awareness 249
brand loyalty 249
perceived quality 250
brand association 250
brand assets 250
stand-alone brands 253
family branding 253
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category extension 253
national brands 253
store brand 256
licensing 256
co-branding 256
general warranties 261
specific warranties 261
APPLICATION QUESTIONS
More application questions are available online.
1. You are the product manager for Ralph Lauren’s Polo shirts. What
specific information are you trying to convey in the brand’s iconic
polo pony logo? For example, what does the Polo brand say about
quality, features, and style relative to the Tommy Hilfiger and
Lacoste brands?
2. Johnson & Johnson has been able to establish strong brand equity
for its line of baby products. What benefits does J&J have because
of its brand equity for these products?
3. You have been asked by Coca-Cola’s product manager to present
the arguments for and against extending the Coke brand to a new
cola drink. What would be the arguments for and against extending
the Coke brand to a new cola drink?
4. SanDisk is introducing a new line of flash drives to complement its
existing products, and you are responsible for creating the package
design. What key information and other creative elements would
you include on the package?
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MANAGEMENT DECISION CASE
VIRGIN GROUP BRAND EXTENSIONS:
LOTS OF HITS AND A FEW MISSES
One of the most valuable aspects of a strong brand is its ability to
be extended to new products in the category and even into
completely new categories. This capability allows companies to
take advantage of the strong brand equity that has been built
through good customer experiences with the brand’s products and
the many marketing activities that have helped build the brand’s
image. Most companies tread carefully into new product or
category territory, but the Virgin Group is a corporation known for
its bold moves in extending its brand with new companies and
products marketed around the world. Its successes and failures
provide insights for marketers using a brand extension strategy to
increase brand equity and company revenues.
Virgin’s flamboyant founder, Sir Richard Branson, has become
well known as an adventurer, playboy, and the brand’s chief
cheerleader. He named his new
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enterprise “Virgin” to represent his lack of business experience in
his early days. 39 His first major venture was his independent
record label, Virgin Records, in 1972. Signing music superstars
Phil Collins, Janet Jackson, and the Rolling Stones propelled the
company’s growth and eventually led to the opening of the Virgin
Records Megastore in London in 1976, and later in major cities
around the world. 40
During the high-flying years of the record business, Virgin
decided to fly high in a more literal way. Virgin Atlantic focused on
more comfortable air travel for transatlantic passengers; it was the
first airline to offer individual TV screens with a choice of channels
—even in economy class. This superior service caught the
attention of customers, but also of its major competitor, British
Airways, whose employees used underhanded techniques to
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poach Virgin Atlantic customers. 41 The Virgin airline business
soon expanded to other parts of the world with Virgin Australia and
Virgin America. 42
Branson next observed that many young people found
expensive monthly cell phone charges too high for their budgets.
Virgin Mobile was born, offering a pay-as-you-go approach so
teenagers wouldn’t have to be locked into yearlong contracts. The
youth-oriented marketing offered features designed to make cell
phones more playful and fun, such as Rescue Rings (a feature
allowing you to save yourself from a bad blind date), wake-up calls,
and ringtones using the latest hit songs. 43
There have been a few other businesses, too: Virgin Media,
Virgin Active (health clubs), Virgin Books, Virgin Cosmetics, Virgin
Games, Virgin Radio, Virgin Wines, Virgin Vodka, Virgin Hotels,
Virgin Vacation, Virgin Trains—these plus more, for a total of about
400 companies in all. 44 If it seems that the sky is the limit for
Virgin’s ambitions, think again. Virgin Galactic is currently testing
spacecraft that will take passengers on a joyride into space. So far,
700 people have either paid their full fare of $250,000 or a deposit
of $20,000 to hold their spot, including renowned physicist Stephen
Hawking. 45
But with such a large number of brand extensions, not all could
be hits. Virgin Cola fizzled because it was not different enough
from Coca-Cola. The company’s website for buying and selling
cars (Virgin Cars, of course) failed, Branson said, due to a “wrong
angle” and because the business was not focused on
sustainability. VirginStudent.com tried to beat MySpace and
Facebook to the social media game, but didn’t gain traction. Virgin
Pulse followed the Apple iPod’s lead, but did it with a much larger
portable music player that never took off. Despite (or perhaps
because of) a launch that included founder Branson dressed in a
wedding gown, Virgin Bride was also a bust. 46 However, even
these failures served to build the Virgin brand. Each time Virgin
took on a major brand (like Coca-Cola) a tremendous amount of
media coverage was generated and Branson’s image as a risk-
taker was reinforced. 47
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Although the list of Virgin businesses represents a diverse
group of industries, they share two common attributes: an
unconventional approach to marketing and flying in the face of
ordinary customer service. 48 Perhaps the most important common
denominator is Sir Richard Branson himself. Although many
modern executives have been visible parts of their company’s
marketing messaging, few can match the promotional energy of
Branson. In addition to a Virgin bride, he also dressed as a female
flight attendant and a Zulu warrior (to promote a new South African
flight route). To take a shot at Coca-Cola, he drove a tank down
New York City’s Fifth Avenue and “fired a missile” at the famous
Coca-Cola sign on Times Square. Bolstering his image as an
adventurous risk-taker, he attempted to circumnavigate the globe
in a hot air balloon. 49 Having a mere mortal personifying the brand
comes with risks. “Every day that Richard gets older the issue of
the Virgin brand becomes a bigger one because so much of it is
tied to him,” according to an executive at brand consultancy
Interbrand. 50
For now, the Virgin Group brand is strong, with brand
recognition of 99 percent in the UK, 96 percent in the United
States, and 97 percent in Australia and South Africa, and with
annual sales of $24 billion. 51 After 50 years and 400 businesses
opened (and many closed), the “virgin” name may no longer fit its
founder. Whether this breathtaking pace of brand extension can
continue will be closely watched by brand strategists and by fans
of the Virgin Group and its flashy founder.
Questions for Consideration
1. When founder Richard Branson is no longer at the helm (and in
the news), do you believe Virgin will be able to continue its
forays into radically different brand extensions? What strategies
can the Virgin Group employ to ensure continued brand success
after Branson is out of the picture? Should those strategies be
implemented now or after the founder’s departure?
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2. In this chapter, you learned about Aaker’s five dimensions of
brand equity. Assess the Virgin brand on the basis of these
dimensions. With these dimensions in mind, what steps could
the Virgin Group take to increase brand equity even further?
3. Is the Virgin experience with brand extensions an anomaly, or
are there lessons that could be applied to any brand wanting to
expand this way?
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MARKETING PLAN EXERCISES
NOTES
ACTIVITY 10: Define the Branding Strategy
As we have learned in this chapter, building a strong brand is critical to
a product’s long-term success. At the same time, it is important to
understand how a product’s position in its life cycle influences
marketing mix decisions. Specific activities include:
1. Create a package design for the product. Specifically, the design
should include necessary legal statements, marketing
communications, and other information considered important for the
package.
2. Develop a warranty for the product. What elements are specifically
covered in the warranty? Does the warranty meet, equal, or fail to
meet market expectations and competitor warranties?
3. Create a branding strategy to include
a. National/store branding.
b. Stand-alone/family branding.
c. Possible licensing considerations.
d. Co-branding opportunities.
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Interplay of Brand Management Capability, Brand Orientation
and Formalisation,” European Journal of Marketing 51, no. 1
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17. Marc Fisher and Alexander Himme, “The Financial Brand Value
Chain: How Brand Investments Contribute to the Financial
Health of Firms,” International Journal of Research in Marketing
34, no. 1 (March 2017), pp. 137–53.
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Brands in Industrial Markets,” Journal of Business & Industrial
Marketing 32, no. 3 (2017), pp. 337–46, doi: 10.1108/JBIM-11-
2014-0225.
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Market Size on New Market Entry: A Contingency Approach,”
European Journal of Marketing 51, no. 1 (2017), pp. 2–22, doi:
10.1108/EJM-12-2013-0696
20. Rong Huang and Emine Sarigollu, “Assessing Satisfaction with
Core and Secondary Attributes,” Journal of Business Research
61, no. 9 (2008), pp. 942–59.
21. Suraksah Gupta, Susan Grant, and T. C. Melewar, “The
Expanding Role of Intangible Assets of the Brand,” Management
Decision 46, no. 6 (2008), pp. 948–61.
22. Brad D. Carlson, Tracy A. Suter, and Tom J. Brown, “Social
versus Psychological Brand Community: The Role of
Psychological Sense of Brand Community,” Journal of Business
Research 61, no. 4 (2008), pp. 284–301.
23. Jing Lei, Niraj Dawar, and Jos Lemmink, “Negative Spillover in
Brand Portfolios: Exploring the Antecedents of Asymmetric
Effects,” Journal of Marketing 72, no. 3 (May 2008), pp. 111–29.
24. Satish Nambisan and Priya Nambisan, “How to Profit from a
Better ’Virtual Customer Environment,’” MIT Sloan Management
Review 49, no. 3 (2008), pp. 53–70.
25. Graham Ferguson, Kong Cheen Lau, and Ian Phau, “Brand
Personality as a Direct Cause of Brand Extension Success:
Does Self-Monitoring Matter?” Journal of Consumer Marketing
33, no. 5 (2016), pp. 343–53, doi: 10.1108/JCM-04-2014-0954.
26. N. Amrouche, G. Martin-Herran, and G. Zaccour, “Pricing and
Advertising of Private and National Brands in a Dynamic
Marketing Channel,” Journal of Optimization Theory and
Applications 137, no. 3 (2008), pp. 465–84.
27. Tsung-Chi Liu and Chung-Yu Want, “Factors Affecting Attitudes
toward Private Labels and Promoted Brands,” Journal of
Marketing Management 24, no. 3/4 (2008), pp. 283–99; and
Kyong-Nan Kwon, Mi-Hee Lee, and Yoo Jin Kin, “The Effect of
Perceived Product Characteristics on Private Brand Purchases,”
Journal of Consumer Marketing 25, no. 2 (2008), pp. 105–22.
619
28. Najam Saqib and Rajesh V. Manchanda, “Consumers’
Evaluations of Co-Branded Products; The Licensing Effect,”
Journal of Product and Brand Management 17, no. 2 (2008), pp.
73–89.
29. Klaus-Peter Wiedmann and Dirk Ludewig, “How Risky Are
Brand Licensing Strategies in View of Customer Perceptions
and Reactions?” Journal of General Management 33, no. 3
(2008), pp. 31–50.
30. Alokparna Basu Monga and Loraine Lau-Gesk, “Blending Co-
Brand Personalities: An Examination of the Complex Self,”
Journal of Marketing Research 44, no. 3 (2007), pp. 389–402.
31. Wei-Lun Chang, “A Typology of Co-Branding Strategy: Position
and Classification,” Journal of the American Academy of
Business 12, no. 2 (March 2008), pp. 220–27.
32. Bo Rundh, “The Role of Packaging within Marketing and Value
Creation,” British Food Journal 118, no. 10 (2016), pp. 2491–
2511, doi: 10.1108/BFJ-10-2015-0390.
33. Ulrich R. Orth and Keven Malkewitz, “Holistic Package Design
and Consumer Brand Impressions,” Journal of Marketing 72, no.
3 (2008), pp. 64–81.
34. Marina Puzakova, Hyokjin Kwak, Suresh Ramanathan, and
Joseph F. Rocereto, “Painting Your Point: The Role of Color in
Firms’ Strategic Responses to Product Failures via Advertising
and Marketing Communications,” Journal of Advertising 45, no.
4 (2016), pp. 365–76.
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Effective Product Warning,” Risk Management 55, no. 6 (2008),
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36. Yu Ying, Fengjie Jing, Bang Nguyen, and Junsong Chen, “As
Time Goes By . . . Maintaining Longitudinal Satisfaction: A
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37. D. N. P. Murthy, O. Solem, and T. Roren, “Product Warranty
Logistics: Issues and Challenges,” European Journal of
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Lindsey, “Towards Dimensionalizing Warranty Information: The
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Consumer Psychology 17, no. 1 (2007), pp. 70–88.
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and What Makes for a Rewarding Customer Experience,”
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branson-talks-retail-fails-retail-success-and-what-makes-for-a-
rewarding-customer-experience/; Fastco Studios, “Virgin
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April 24, 2017.
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https://www.virgin.com/virgingroup/content/about-us
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Virgin Galactic,” Seeker.com, March 20, 2017,
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virgin-galactic-2322034945.html.
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https://www.virgin.com/virgingroup/content/about-us
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CHAPTER 10
Service as the Core
Offering
LEARNING OBJECTIVES
LO 10-1 Understand why service is a key source of potential
differentiation.
LO 10-2 Explain the characteristics that set services apart
from physical goods.
LO 10-3 Explain the service-profit chain and how it guides
marketing management decisions about service.
LO 10-4 Describe the continuum from pure goods to pure
services.
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LO 10-5 Discuss the elements of service quality and gap
analysis.
LO 10-6 Measure service quality through use of
SERVQUAL.
LO 10-7 Understand service blueprinting and how it aids
marketing managers.
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WHY SERVICE IS IMPORTANT
LO 10-1
Understand why service is a key source of potential differentiation.
There’s no debate that today we operate in an economy that is increasingly
focused on intangible offerings—services—instead of just physical goods.
A service is a product in the sense that it represents a bundle of benefits
that can satisfy customer wants and needs, yet it does so without physical
form. As such, the value a customer realizes from purchasing a service is
not based on its physical attributes, but rather on some other effect the
service has on him or her in fulfilling needs and wants. And differences in
the quality of a service can be profound; just think for a moment about the
best and worst experiences you’ve had with a server in a restaurant. Even
if the food itself is good, it is the service aspect of a meal out that everyone
remembers most. All the data suggest that we now live in a predominantly
service economy. More than 80 percent of jobs in the United States are
service-related. Compare that to 55 percent of jobs in 1970. The Bureau of
Labor Statistics expects service jobs to account for all new domestic job
growth for the foreseeable future, partly because the number of jobs
outside the service sector is actually declining. Jobs represented in the
service sector of the economy include such important categories as
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intellectual property, consulting, hospitality, travel, law, health care,
education, technology, telecommunications, and entertainment—all high-
growth job categories. In terms of U.S. gross domestic product, services
account for more than 75 percent and that number is growing. The long-
term shift from goods-producing to service-producing employment is
expected to continue. Service-providing industries are expected to see
continued growth over the next 10 years, while goods-producing industries
will see overall job loss. In today’s workplace everyone is involved in
service in some way; everyone has customers either outside or inside the
firm, or both.
Changing U.S. demographics represent a major driver for why the
service sector is thriving. For example, as baby boomers retire and spend
their discretionary income on travel and entertainment, firms in those
industries will prosper. As the baby boomers continue to age, health
services will begin to predominate their spending. In the meantime, the
fixation of Generation Y and millennials toward all things technological
will continue to drive impressive growth in gaming, music, computing,
cellular phone, and other technological industries.
Service as a Differentiator
In Chapter 7, we mentioned that service leadership and personnel
leadership are two important sources of differentiation for a company.
Recall that differentiation means communicating and delivering value in
different ways to different customer groups. Presumably these groups are
segments that show the most promise for return on marketing investment.
As a marketing manager, a significant challenge with using differentiation
as a core market strategy is that competitors are constantly coming to
market with new differentiators that trump the efficacy of the current ones.
In his book On Great Service, Leonard Berry, a leading expert in the
field of services marketing, advocates that a focus on service and on
enabling employees to effectively deliver service can be one differentiator
that is hard for the competition to replicate. Many firms are reluctant to
invest in great service, largely because it takes time and patience before a
return on the investment may be noticeable. But Berry’s point is that
although the payback might take time, once a firm is able to deliver great
625
service as a core differentiator, it is much more likely to provide a
sustainable competitive advantage than are most other sources of
differentiation. 1
SERVICE IS THE DOMINANT LOGIC OF
MARKETING
For more than a hundred years it was believed that a company’s purpose
was to manufacture and distribute products that were then purchased by
customers. The organization’s value and competitive advantage were
embedded in the product, maximum control and efficiency was achieved
through product standardization, and products could be produced away
from the market and then inventoried and distributed to markets as needed.
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Singapore Airlines provides a spacious seat with attentive flight attendants as a
way to differentiate itself as a premium provider of air travel.
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Source: Singapore Airlines
Today’s global economies are driven, however, by a new logic that
considers service and the customer experience to be the principal
rationality in marketing. Articulated as service-dominant logic more than a
decade ago, and widely researched since then, there are a number of
principles that guide the development of this new view of marketing. 2
However, let’s consider three basic axioms that help support this new
logic:
1. Service is the fundamental basis of exchange. Remember that
historically, goods or products were the basis of exchange. In the
new logic, service (defined as unique skills and competencies
offered by the company) is the basis of exchange. Put simply,
customers don’t buy a car (product)—they buy the company’s ability
to add value through a defined set of benefits. For example, a
customer who may be concerned about safety will evaluate the
company in terms of how well it builds safety into its cars. The more
a company knows about safety and is able to build it into the
customer’s car experience, the more favorable that customer will
evaluate the company.
2. Value is co-created by multiple parties, including the company and
the customer. The customer is an integral, even essential, part of
creating value in the experience. To continue the car example, every
customer interacts with the car in a different way, creating a unique
value experience for that individual. His or her interaction can be
initiated by the company’s marketing efforts (for example, the
website could highlight key features), influenced by the salesperson
pointing out certain functional or aesthetic elements of the car, and
directed by the car’s layout and physical characteristics. In the end,
however, the customer creates a unique experience by interacting
with the company’s marketing efforts and product in his or her own
way.
3. Value is defined by the customer. Customers receive value from their
experience, not from the company. The “bundle” of benefits that
create value are different for each customer, making it important to
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understand the unique buying trends of specific customers in
addition to broad customer behavior trends. So, while target markets
may define the BMW product experience based on the driving
experience or new technologies, individual customers can and do
have very different definitions of the value delivered by BMW. It is
clear that service-dominant logic puts even more emphasis on data
analytics and the ability to learn about individual customers in
addition to broad markets. 3
The service-dominant logic of marketing has radically altered the focus of
the marketing manager, who must now ask the question, “Just what is it
we are marketing?” Put another way, the marketing manager must identify
what the product is and where the value comes from. Since the customer is
now central to value creation, a “customer-centric” approach that aligns
people, processes, systems, and other resources to best serve customers is
fundamental to a successful marketing strategy.
The remainder of this chapter is devoted to providing insights for
effectively capitalizing on the service opportunities associated with a
company’s value offering. First, unique characteristics of services are
described that set services apart from physical goods for marketing
managers. Second, the concept of the service profit chain is discussed.
Third, service attributes are discussed along with a continuum of products
from pure goods to pure services. Fourth, the concept of service quality is
presented along with its measurement and uses by management. Finally,
blueprinting is discussed as a way for a marketing manager to map out the
overall delivery system for a business.
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CHARACTERISTICS OF SERVICES
Services possess several distinct characteristics different from physical
goods. As illustrated in Exhibit 10.1, these are intangibility, inseparability,
variability, and perishability. We’ll discuss each one and its impact on
customers and marketing.
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EXHIBIT 10.1 Characteristics of Services
Intangibility
A service cannot be experienced through the physical senses. It cannot be
seen, heard, tasted, felt, or smelled by a customer. This property represents
the intangibility of services versus goods; goods can easily be experienced
through the senses. A State Farm Insurance agent issues a policy for an
automobile. Yes, the customer will receive a written policy document. But
the policy itself is not the product in the sense of a physical good such as a
box of cereal or a bottle of shampoo. Instead, the product is the sense of
financial security the insurance policy provides to the customer. It is the
confidence that if something dire happens to the car, State Farm will fix it
or replace it.
LO 10-2
Explain the characteristics that set services apart from physical goods.
So how do customers draw conclusions about a brand such as State
Farm if they can’t actually try the product before purchase? This is one of
the challenges of intangibles. Strong branding can be an important way to
make a service seem more tangible. Service firms such as State Farm use
strong imagery to send out signals about their products, increase trust, and
ease customer uncertainty about what is being purchased. Ever see the ads
saying, “Like a good neighbor, State Farm is there”? This phrase and the
accompanying visual images provide cues about the dependability of the
629
service, replacing to an extent the ability customers have to try physical
products in advance of purchase. When it comes to making purchase
decisions about services, customers draw conclusions from what tangibles
they can experience—things like the company’s people, website,
marketing communications, office ambience, and pricing. In a service
setting, the importance and impact of marketing are heightened
considerably because in many cases there’s little else tangible for the
customer to experience before purchase. 4
Sometimes it is possible to enhance tangibility of a service through a
bit of customer trial. For example, MBA programs often encourage
prospective students to come to open houses or visit classes to gain a sense
of how the school they are considering approaches teaching and learning.
Vacation ownership companies such as Hilton Grand Vacations Club and
Marriott Vacation Club actively solicit guests for tours of their facilities
while they are visiting an area to allow them to experience a taste of what
the location is like as a regular vacation destination. And advertising
agencies make portfolios of past work available to prospective clients as a
sampling of the firm’s creative capabilities. 5
Inseparability
Even with the best efforts at enhancing a service’s tangibility, a customer
still can’t really experience it until it is actually consumed. This
characteristic represents the inseparability of a service—it is produced and
consumed at the same time and cannot be separated from its provider.
With physical goods, the familiar process is production, storage, sale, and
then consumption. But with services, first the service is sold and then it is
produced and consumed at the same time. Perhaps it is more accurate to
think of a service as being performed rather than produced. 6 In a theatrical
play or an orchestral concert, many individuals have a part in the
performance. Similarly, the quality of a service encounter is determined in
part by the interaction of the players. Most elegant restaurants structure
their customer encounters as elaborate productions involving servers, the
wine steward, the maître d’, the chef, and, of course, the table of diners.
Benihana restaurants take the concept of service as drama to truly new
heights of customer involvement and excitement—the company’s tag line
630
is “an experience at every table.”
270
The inseparability of performance and consumption of services
heightens the role of the human service providers in the customer’s
experience. It also leads to opportunities for considerable customization in
delivering the service. Finicky customers in the hair stylist’s chair can
coax just the right cut. Want two scoops of cinnamon ice cream instead of
one on that apple tort? Just ask the server.
In the financial services industry, for example, customization of
services is prominent. As the need for physical bank branches diminishes
with the growth in online banking, banks are faced with the challenge of
maintaining a strong customer connection and providing good service. To
provide greater customization options, customers can “create” their own
bank web page with information specifically targeted to their needs. At the
same time, online chat support is ready to provide real-time, specific help
when needed. 7
Variability
An offshoot of the inseparability issue, variability of a service means that
because it can’t be separated from the provider, a service’s quality can
only be as good as that of the provider him-/herself. 8 Ritz-Carlton,
Nordstrom, Disney, and Southwest Airlines have become iconic firms in
their industries largely by focusing on their people—hiring, training,
keeping, and promoting the very best people they can get. Legendary
Southwest Chairman Herb Kelleher built a business in part around
ensuring that his people were different from typical airline employees—
more engaged, fun, and fiercely loyal to the company. 9 The same can be
said for the other firms above. Focusing on employees as a source of
differentiation in marketing is usually a smart move, mainly because so
many firms just can’t seem to pull it off very well. The point is to remove
much of the variability of customers’ experiences with your service and
instead provide a more dependable level of quality. Go into any Nordstrom
and work with any of Nordstrom’s sales associates and you will very likely
experience the same high level of satisfaction with the service. The same is
true for Ritz-Carlton, and any of the great service organizations. 10
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Goods, in general, tend to be much more standardized than services
because, once a firm has invested in continuous process improvement and
quality control in its manufacturing operations, products flow off the line
with very little variation. With services, continual investment in training,
retraining, and good management of people is required if variability is to
be consistently low. It is in this area where the disciplines of marketing,
operations, leadership, and human resource management probably have
their closest intersection. What makes Ritz-Carlton great? A quick answer
is: its people. But what makes its people great? World-class operations,
leadership, and HR practices. And the net effect for Ritz-Carlton is that its
branding and market positioning are largely defined by its wonderful
people and the way they handle each customer as a valued guest. For
service firms, great marketing cannot take place without a strong
overarching culture that values employees.
Perishability
If you schedule an appointment for a routine physical with your physician
and then simply don’t show up, the doctor loses the revenue from that time
slot. That’s perishability—the fact that a service can’t be stored or saved
up for future use. 11 Perishability is a major potential problem for service
providers, and explains why, under the circumstances above, many
physicians have a policy of charging the patient for the missed
appointment. Ever wonder why an airline won’t issue a refund or let you
change your super-low-fare ticket after the door closes and the plane
leaves without you? It’s because the value of that empty seat—its ability to
generate incremental revenue for the airline—dropped to zero when the
door closed and the plane backed away from the gate.
Fluctuating demand is related to perishability of services. 12 Consider
rental car firms such as Hertz, Avis, and the like in a city such as Orlando,
which brings in both tourists and conventions. If demand were relatively
constant, the rental car companies could keep the same basic inventory on
the lot at all times. However, in the case of both individual vacationers and
conventioneers, demand for cars varies considerably by season, and for the
latter is driven by the size of the convention. The worst scenario is for the
city to attract a
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huge convention and for the rental firms not to have sufficient cars
available. No cars, no revenue for Hertz and Avis. Not to mention, the
convention organizers would likely think twice before scheduling their
event in Orlando again.
Because demand for most goods tends to be more stable and because
they can generally be stored for use after purchase, this critical issue of
synchronizing supply and demand is easier to deal with for goods than for
services. Hertz and Avis don’t want to maintain huge extra inventories of
vehicles in off-peak periods; hence they might use price incentives to
promote more rentals during those times. Or they might literally move cars
around—pulling in massive numbers of extra vehicles from other nearby
markets such as Miami or Tampa to take care of high-demand periods.
One thing they know for sure is that if there are no cars on the lot, any
opportunity for revenue perishes.
THE SERVICE-PROFIT CHAIN
LO 10-3
Explain the service-profit chain and how it guides marketing
management decisions about service.
In a now-famous Harvard Business Review article and follow-up book,
James Heskett and his colleagues proposed a formalization of linkages
between employee and customer aspects of service delivery called the
service-profit chain. Because of the inseparability and variability of
services, employees play a critical role in their level of success. The
service-profit chain, which is portrayed in Exhibit 10.2, is designed to help
managers better understand the key linkages in a service delivery system
that drive customer loyalty, revenue growth, and higher profits.
Internal Service Quality
This aspect of the service-profit chain includes elements of workplace
design, job design, employee selection and development processes,
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employee rewards and recognition approaches, and availability of effective
tools for use by employees in serving customers.
EXHIBIT 10.2 The Service-Profit Chain
Source: Heskett, James L., Thomas O. Jones, Gary W. Loveman, W. Earl Sasser Jr,
Leonard A. Schlesinger, “Putting the Service-Profit Chain to Work,” Harvard
Business Review, March/April 1994.
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Considerable evidence exists that internal marketing, treating employees
as customers and developing systems and benefits that satisfy their needs,
is an essential element of internal service quality. Firms practicing internal
service quality are customer-centric—they place the customer at the center
of everything that takes place both inside and outside the firm. Firms that
are customer-centric exhibit a high degree of customer orientation, which
means they do the following:
1. Instill an organization-wide focus on understanding customers’
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requirements.
2. Generate an understanding of the marketplace and disseminate that
knowledge to everyone in the firm.
3. Align system capabilities internally so that the organization can
respond effectively with innovative, competitively differentiated,
satisfaction-generating goods and services.
In the context of internal service quality, it is assumed that a firm’s
culture, business philosophy, strategy, structure, and processes will be
aligned in order to create, communicate, and deliver value to customers.
Finally, a focus on internal service quality implies that employees hold a
customer mind-set, meaning that employees believe that understanding
and satisfying customers, whether internal or external to the firm, is central
to doing their job well. 13
Satisfied, Productive, and Loyal Employees
Great service doesn’t happen without great people. A big part of making
the service-profit chain work is creating an environment in which all
employees can be successful. Internal marketing is an integral element of
this, and Caesars Entertainment is a great example of a firm that almost
obsessively focuses on facilitating the success of its people, regardless of
their position, and especially if they are in direct contact with customers.
It’s not surprising Caesars has such a zest for internal marketing and
enablement of employee success. Gary Loveman, one of the original
authors of the service-profit chain concept, went on to become chairman,
CEO, and president. During his tenure, the company became the most
successful hotelier/casino in Las Vegas and continues to expand elsewhere
as well. Caesars’ stable of brands includes Caesars Palace, Bally’s, Paris,
Rio, Flamingo, Harrah’s, and others. 14 Caesars’ focus on employees and
great customer service continues under the current CEO. The company
wins awards for both employee loyalty and guest service, with a large staff
dedicated to ensuring a satisfied guest experience even when the guest
loses at the gaming tables.
To be executed effectively, internal marketing must include the
following critical elements: competing for talent, offering an overall
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vision, training and developing people, stressing teamwork, modeling
desired behaviors by managers, enabling employees to make their own
decisions, measuring and rewarding great service performance, and
knowing and reacting to employees’ needs. Perhaps most important of all,
employees must have a deep understanding of the brand and must be able
to consistently articulate a clear, concise message to customers that reflects
the firm’s service strategy and branding. 15 At Caesars, the CEO points
with pride to the fact that everyone in the firm understands and can
articulate its branding and values.
Michael Phelps as a symbol for Under Armour adds a strong sense of pride to
the company and its products. It also captures the attention of prospective
customers.
Source: Under Armour®, Inc.
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Greater Service Value for External Customers
There is strong evidence that attention to internal service quality and to
employee satisfaction, productivity, and retention results in stronger value
to external customers of a service. Remember that when the concept of
value was introduced in Chapter 1 we discussed it as the ratio of what a
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customer gives versus what he or she gets in return from a purchase.
Importantly, the customer inputs are not just financial—customers give up
time, convenience, and other opportunities in making a purchase choice.
Customers set their expectations for the value they hope to derive from a
service based largely on the evidence provided by the marketer before the
purchase. A fundamental rule in marketing is to not set customer
expectations so high that they cannot be effectively met on a consistent
basis. 16 This is because it is always better to underpromise and
overdeliver than the reverse scenario. This concept is often called
customer expectations management.
When the Oklahoma City Thunder were founded, the owners
understood the importance of personalizing the fan base. So they invested
in a CRM system, which they continue to update and improve. The
Thunder wanted to be the most fan-focused team in all of sports (not just
the NBA), and they are able to target specific fans with special promotions
based on their analysis of spending patterns and fan interest. The NBA
even created an award for teams that exhibit excellence in delivering great
guest experience and named it after the senior vice president of guest
relations at the Oklahoma City Thunder. 17
Customer Satisfaction and Loyalty
In the service-profit chain, meeting or exceeding customer expectations
leads to customer satisfaction, since the service was designed and
delivered in a manner that added value. A strong correlation exists
between satisfied and loyal customers. Loyalty sparks high customer
retention—low propensity to consider switching to other providers—as
well as repeat business, referrals, and customer advocacy, a willingness
and ability on the part of a customer to participate in communicating the
brand message to others within his or her sphere of influence. 18 Why do
customers consider switching from one service provider to another?
Reasons run the gamut from low utility to various forms of service failure
to concerns about a firm’s practices. A summary of causes of switching
behavior is presented in Exhibit 10.3.
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EXHIBIT 10.3 Causes of Switching Behavior
Pricing
High price
Price increases
Unfair pricing
Deceptive pricing
Inconvenience
Location/hours
Wait for appointment
Wait for service
Core Service Failure
Service mistakes
Billing errors
Service catastrophe
Service Encounter Failures
Uncaring
Impolite
Unresponsive
Unknowledgeable
Response to Service Failure
Negative response
No response
Reluctant response
Competition
Found better service
Ethical Problems
Cheating
Hard sell
Safety concerns
Conflict of interest
Involuntary switching
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Customer moved
Provider closed
Source: Keaveney, Susan M., “Customer Switching Behavior in Service Industries:
An Exploratory Study,” Journal of Marketing, pp. 71–82, April 1995.
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EXHIBIT 10.4 Focus on the Most Satisfied
Customers
Source: Heskett, James L., Thomas O. Jones, Gary W. Loveman, W. Earl Sasser Jr,
Leonard A. Schlesinger, “Putting the Service-Profit Chain to Work,” Harvard
Business Review, March/April 1994.
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Caesars Entertainment understands the strong linkage between high
customer satisfaction and loyalty and invests heavily in its most highly
satisfied customers to ensure their loyalty and advocacy. Exhibit 10.4
portrays this relationship.
CRM and database marketing are key tools that allow Caesars
Entertainment, as well as any firm interested in increasing satisfaction and
loyalty and improving retention, to use the concepts in Exhibit 10.4 to
focus on serving the most profitable customers. For the various Caesars
casino brands, this approach manifests itself through the Total Rewards
loyalty program. Caesars has found that its ROI for customers in the “Zone
of Affection” is considerably higher than in the other zones (“Indifference”
and “Defection”). Very satisfied customer “apostles” are the ones that
Caesars wants to develop to the fullest extent to keep them coming back
and spending money in its hotels and casinos. Research indicates that,
although investing in indifferent customers to improve their satisfaction
may yield some returns, only when customers reach the “Zone of
Affection” do they truly maximize their profitability to the brand.
Revenue and Profit Growth
In the context of Exhibit 10.4, customers that are “satisfied” and “very
satisfied” are identified through Caesars’ Total Rewards loyalty program
cards, which they use at hotel check-in, in slot machines, and at all gaming
tables. They truly are the apple of the eye of Caesars’ employees while
they are on the property, and more broadly they represent the total focus of
Caesars’ marketing efforts—largely through direct marketing approaches
with customized offers. Like slots? You’ll get an invitation to a slot
tournament. Poker’s your thing? Look for an invitation to a poker
tournament. It’s not that Caesars is disinterested in or doesn’t want the
money of the other customers, but it has learned from its research that
customers in the
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“Zone of Affection” spend considerably more money and provide a
substantially greater return on customer investment than others. 19
Caesars embraces customer satisfaction measurement and it segments
markets based on satisfaction score groups. The ultimate Caesars customer
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is the “apostle”—highly satisfied, fiercely loyal, a frequent Caesars guest
who serves as a strong advocate for the Caesars experience to friends and
acquaintances. For the service-profit chain to provide insight for marketing
managers into how to best develop and execute service strategies, a variety
of metrics must be in place with measures taken continually. In fact, all
aspects of the chain—from internal service quality to employee issues to
value to satisfaction and loyalty to financial performance—must be
quantified and used for marketing management decision making. Chapter
5 provides a detailed treatment of marketing metrics, and many of the
measures developed and exemplified in that chapter relate directly to
executing the service-profit chain.
SERVICE ATTRIBUTES
LO 10-4
Describe the continuum from pure goods to pure services.
So far we’ve looked at why service is at the core of firm success, identified
characteristics of services, and gained an understanding of the linkages in
the service-profit chain. We’re now ready to gain a better understanding of
how services fit within the broader context of different types of offerings.
A useful way to approach answering this question is through consideration
of a continuum of goods and services that range from easy to evaluate to
difficult to evaluate based on three major types of attributes relevant to any
offering: search attributes, experience attributes, and credence attributes.
Exhibit 10.5 illustrates exemplar goods and services across a continuum of
these attributes.
Search Attributes
Depending on the type of offering, consumers may engage in a search for
various alternative products to find the one that most closely meets their
decision criteria for purchase. With physical goods, such comparison is
usually relatively simple as there are many search attributes, which are
aspects of an offering that are physically observable before
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EXHIBIT 10.5 Continuum of Evaluation for
Different Types of Offerings
Source: Zeithami, Valarie A., “How Consumer Evaluation Processes Differ between
Goods and Services,” in Marketing of Services, James H. Donnelly and William R.
George, eds., American Marketing Association, 1991.
276
consumption. For example, a shopper can compare the picture quality,
price, and warranty of several high-definition televisions right on the Best
Buy showroom floor. Because of the intangibility aspect of services,
however, it is much more difficult to do such direct comparisons during a
search process. Try comparing the performance of one mutual fund over
another; the exercise gives new meaning to the old phrase “comparing
apples and oranges.” The bottom line is that services are low in search
qualities because it is difficult to evaluate many aspects of them before
purchase. Usually the customer doesn’t truly know how the service
performs until after the sale—that’s the inseparability aspect of services. 20
Experience Attributes
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Experience attributes are aspects of an offering that can be evaluated only
during or after consumption. Many services fit this category, including
restaurants, vacations, haircuts, and child care. They tend to have both
tangible and intangible aspects; for example, a dining-out experience
includes a physical good, the meal, as well as the service portion. Based on
the level to which customer expectations were met, a decision will be
made about whether or not to repeat the purchase another time. 21
Credence Attributes
In many cases, a customer cannot make a reasonable evaluation of the
quality of a service even after use. Services such as television repair, legal
services, dentistry, auto repair, and medical services require specialized
training to deliver. The customer may only know the desired end state—a
car that runs or a pretty new crown molar. To assess these credence
attributes would require customers to have expertise not generally shared
by the public. As such, many providers of services in this category rely on
professional certifications or degrees to convey a level of trust to the
purchaser. Thus, services at this end of the continuum are often referred to
as professional services—providers such as doctors, lawyers, accountants,
even plumbers. They typically have industry or trade groups that self-
regulate the quality of their services and serve as a clearinghouse for
information and referrals.
One interesting professional service for consideration is higher
education. College business courses are high in credence attributes because
of the difficulty in evaluating their real impact until much later, often after
a student is able to apply knowledge and skills gained to a particular job
situation. The perennial question in business education is, “Who is the
customer?” One approach frames the companies that hire a business
school’s students as the primary customer, which would seem to imply the
students are a product of the business school rather than its customers.
Employing a marketing metaphor, this approach puts the professor in the
role of product development and branding—positioning the student for
success in the marketplace. This overall approach may be appropriate
because business education is high in credence attributes. Understandably,
however, all students want to be treated as “customers” too.
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Ritz-Carlton presents imagery and a tag line that are clearly reflective of a
service heavy in experience attributes.
Source: The Ritz-Carlton Hotel Company, L.L.C.
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Importance of Understanding Service Attributes
Because services tend to exhibit high experience and credence attributes,
marketing strategies must be developed that consider the implications of
these characteristics. As we’ve discussed, service customers tend to take
their cues on what to purchase from whatever evidence they can gather to
make up for the lack of ability to try the service beforehand. Word-of-
mouth referrals, physical cues such as the ambience of the physical
location, functionality of the website, and professionalism of the
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employees operate as a surrogate for trial. Because of the higher risk
involved in purchasing a service versus a good, once a customer begins to
have a positive experience with a service provider and build a relationship
with the firm, customer loyalty to services tends to be greater than loyalty
to goods. Of course, the flip side of that for the marketing manager is that
if your competitor offers great service and people as a key differentiator,
and you can’t match it, it can be very difficult to get customers to switch to
or even try a new provider. 22
SERVICE QUALITY
Earlier we mentioned the importance of managing customer expectations
—the notion that underpromising and overdelivering is powerful because
it contributes to a high level of customer satisfaction. Exceeding customer
expectations is often referred to as customer delight, which has been
shown to correlate highly with loyalty and high return on customer
investment. 23 Firms practicing great service often build in delightful
surprises for their customers as part of their service experience—the warm
chocolate chip cookie you get at Doubletree on every stay was originally
conceived as a delightful surprise, a fairly inexpensive way to make a
memorable impact on weary travelers. Although Doubletree patrons have
now come to expect their cookie, this little extra has become a part of the
firm’s branding and image, and customer surveys regularly indicate it is
one of the most-loved aspects of the Doubletree experience.
Just what is service quality? In many respects, service quality
represents a formalization of the measurement of customer expectations of
a service compared to perceptions of actual service performance. The
playing field for service quality is the service encounter, which is the
period during which a customer interacts in any way with a service
provider. This can be in person, by phone, or through other electronic
means. While much of the actual service delivery might occur behind the
curtain—consider the tax preparer who works on your IRS return or the
travel agent who spends hours pulling together your extreme sport trip to
Reykjavík—customer evaluations of a service tend to be based on the
behaviors of the service provider and the accompanying physical
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surroundings during the service encounter itself. This is why the face-to-
face time between customer and service provider is often called the
moment of truth. Most customer judgments take place at that moment. 24
More and more professional associations such as the American Heart and
American Stroke Associations are marketing themselves and providing value-
added information to end-user consumers.
Source: American Heart Association, Inc.
Gap Analysis
LO 10-5
Discuss the elements of service quality and gap analysis.
Review the Gap Model of Service Quality, presented in Exhibit 10.6. The
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basis of the gap model is the identification and measurement of differences
in five key areas of the service delivery process. Notice how the model is
divided by a horizontal line, with the area below the line representing the
provider side of the service encounter and the area above the line
representing the customer side. For marketing managers, ongoing
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EXHIBIT 10.6 Gap Model of Service Quality
Source: 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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use of the gap model to identify emerging problems in service delivery is
an important way to ensure service quality.
Let’s take a closer look at each of the gaps. To illustrate the power of
the analysis, we will develop a threaded example involving Outback
Steakhouse, one of the restaurant brands owned and operated by Bloomin’
Brands, Inc. of Tampa, Florida. Their other brands include Carrabba’s
Italian Grill, Bonefish Grill, and Fleming’s Prime Steakhouse & Wine Bar.
From a surface viewpoint, most people might assume that the founders of
Outback—the original restaurant was in Tampa, Florida—built their
differentiation primarily on the Australian theme and hearty portions at
moderate prices. However, that is only part of their original success
formula. From the beginning, Outback’s founders relied heavily on its
service delivery system to set it apart from other mid-priced, family-style
restaurants. Their success is undeniable, with Outback units consistently
leading their segment of the industry in customer turns per table, revenue
and profit per square foot, and the all-important metrics of customer
satisfaction. Using a service-profit chain approach to the business,
Outback’s founders focused strongly on its people, assuring that every
store manager is a proprietor/owner of the business. Servers, even college
students, tend to stay much longer than the industry average due to higher
tips generated by more rapid table turnover. 25
Gap 1: Management’s Perceptions of Customer Service
Expectations versus Actual Customer Expectations of
Service In Chapter 4 you learned about the importance of ongoing,
well-executed market research to provide input for
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marketing management decision making. Gap 1 is where a lack of the right
customer data can wreak havoc on service delivery. Unfortunately, firms
all too often make unfounded assumptions about customers’ wants and
needs and translate them into product offerings. Then management is
surprised when new products fail or customers begin to switch to other
providers.
Outback Steakhouse was an early leader in providing convenient
phone-ahead curbside service for customer pickup. Although it varies by
location, some stores do as much as 15 to 20 percent of their revenue in
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customer takeout. This is especially profitable because it requires little
extra server labor to fill these pickup orders. How did Outback know to
add this new service? Not surprisingly, it was through market research that
showed customers were increasingly disappointed with traditional fast-
food drive-throughs and were willing to pay more for a quality, convenient
meal they could enjoy at home. Convenience and time utility are two
major drivers of busy young professional families today, which just
happens to be Outback’s primary target market. 26
Gap 2: Management’s Perceptions of Customer Service
Expectations versus the Actual Service Quality
Specifications Developed In Gap 2, management may or may not
accurately perceive actual customer expectations of service, but regardless
builds an aspect of the service delivery system that does not meet customer
wants and needs. A perfect example of this would be if Outback had
designed its curbside carryout system differently. Customers grabbing
takeout after work do not want to park, get out of the car, and go into the
restaurant to pick up the food. Almost all of Outback’s competitors
originally designed takeout that way. By designing the system as a
curbside pickup in front of the store, Outback not only accurately met
customer expectations of service but also designed service delivery
specifications to match.
Gap 3: Actual Service Quality Specifications versus
Actual Service Delivery Interestingly, unlike the previous two
gaps, this one has no element of perception—this gap strictly asks whether
the service is provided in the manner intended. As such, when there is a
negative gap at Gap 3, it nearly always points to management and
employees simply not getting the job done. This could be due to vague
performance standards, poor training, or ineffective monitoring by
management.
Like many firms, Outback uses teamwork to enhance its service
delivery system. Ever notice that more than one person makes contact with
you at your table, asks how you are doing, brings food or drink, and so
forth? To make the curbside pickup system work like clockwork,
employees from the phone order-taker to the cooks to the car-runner must
be in sync. If cars back up, employees are trained to go down the line to
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make contact, provide estimated remaining wait times, and even handle
payment so that when the food does come out the customer can
immediately depart. You may wait a while to get your table at an Outback
restaurant on a peak evening (if it’s a nice night, you can sit outside and
sip a beverage), but once you’re seated the restaurant has aggressive
standards for wait times for getting your meal at the table. When these wait
times are significantly exceeded, the employees are trained to apologize,
not offer lame excuses, and then offer something extra like a free dessert
or a coupon for a free Bloomin’ Onion next time.
This process is called service recovery and is actually a very strategic
aspect of marketing management. Much research in services marketing has
shown that service failure, when properly handled through service
recovery, does not necessarily impact customer satisfaction, loyalty, or
retention unless service failures become habitual. 27 All firms employing
service as a marketing strategy must plan ahead for the eventuality of
service failures and train employees to properly execute service recovery.
Sometimes a service failure can be quite severe. A good example
occurred in April 2017, when members of the flight and ground crews for
United Airlines Flight 3411 allowed local police to forcibly remove a
passenger from the flight by dragging him down the aisle. Video of the
event was soon posted to YouTube and the Internet exploded with
condemnation. Calling it an “involuntary de-boarding situation,” United
compounded the problem by initially blaming the passenger—CEO Oscar
Munoz called the passenger “belligerent” and
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uncooperative. The reaction to the event was profoundly negative and
widespread, with United’s stock dropping more than 6 percent the day
after the events were reported and many people saying they would never
fly United Airlines again.
Is service recovery even possible given the magnitude of the service
failure that United Airlines experienced on that flight? After realizing its
initial reaction was inappropriate, the company—and more specifically,
the CEO—sent out a letter to members of United’s frequent flyer program
(see Exhibit 10.7). In the letter, Mr. Munoz apologized for the incident and
acknowledged that “our corporate policies were placed ahead of our shared
values.” In addition, the company announced 10 changes it would make to
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the way it conducts business, including reducing the amount of
overbooking (a key issue in the incident) and increasing the amount of
passenger compensation for voluntary denied boarding to $10,000.
Unfortunately for United, the incident was only one of several service
failures, as the airline continues to be in the middle of the pack in terms of
on-time arrivals and lost luggage. So, while United Airlines’ business
model may not have suffered, its reputation certainly was damaged as a
result of the incident.
Gap 4: Actual Service Delivery versus What the Firm
Communicates It Delivers This gap fundamentally represents
customer expectations management through marketing communications.
Part Five of this book will familiarize you with different ways to
communicate the value offering to customers. The messages the marketing
manager puts out through various communication vehicles are in large
measure what sets the expectations for the customer. Thus, deceptive
advertising, overly zealous sales pitches, and coupon promotions backed
by too little stock to handle demand all create a negative gap at Gap 4. In
the case of Outback’s curbside pickup, although it has done some
advertising over the years, most of Outback’s media ads focus more on
special occasions and the fun theme of the restaurant. Because much of
Outback’s product is the experience provided the diner inside the
restaurant, it has allowed the pickup business to grow more through word
of mouth and in-store signage. Outback has not set any unrealistic
expectations about its curbside takeout via its marketing communications.
Gap 5: Perceived Service by Customers versus Actual
Customer Expectations of Service Finally, Gap 5 represents
the core issue of expectations versus perceptions and is the only gap that
occurs exclusively in the customer’s space. This is the gap between the
service a customer expects to receive and the customer’s perceptions of the
level of service actually received. The score for this gap, which can be
positive or negative, is the manifestation of a firm’s customer expectations
management strategy and the efficacy of its service delivery system. 28 For
Outback Steakhouse, as well as most other firms, these scores are a direct
flow-through into customer satisfaction measurement. Occasionally after
eating at Outback, you might get a special receipt that has a toll-free
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number to call at Outback to answer a brief telephone questionnaire about
your service encounter. Outback might offer some free food for
completing the survey by providing you with an activation number.
Almost always such survey research efforts are aimed at measuring
importance scores (how important various aspects of a service are to the
customer) versus actual performance scores (how well did we do on
delivering against these service aspects during your last service encounter
with us).
To provide an example of Gap 5 in practice, Exhibit 10.8 lists 14
hypothetical attributes that a restaurant like Outback might consider for
analysis in terms of customer perceptions of their importance. Then,
Exhibit 10.9 portrays a matrix based on a hypothetical analysis of
importance perceptions versus performance perceptions for those 14
attributes, showing areas where the restaurant can invest in service
improvement, areas where it needs to simply keep up the current service,
areas of low priority for attention, and areas where too much emphasis is
being placed on service aspects. One other analysis could be easily added
—comparative matrices for several of Outback’s closest competitors so the
chain can easily see how well the competition is doing in delivering
against the same attributes. Such analytical approaches are invaluable in
allowing marketing managers to know how to best invest in service
quality.
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EXHIBIT 10.7 United Airlines CEO Letter to
Members of the Company’s
Frequent Flyer Club
MileagePlus # XXXXX
Dear Mr. Honig,
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AirlinesEach flight you take with us represents an important promise
we make to you, our customer. It’s not simply that wemake sure you
reach your destination safely and on time, but also that you will be
treated with the highest level ofservice and the deepest sense of
dignity and respect.
Earlier this month, we broke that trust when a passenger was forcibly
removed from one of our planes. We can neversay we are sorry
enough for what occurred, but we also know meaningful actions will
speak louder than words.
For the past several weeks, we have been urgently working to answer
two questions: How did this happen, and howcan we do our best to
ensure this never happens again?
It happened because our corporate policies were placed ahead of our
shared values. Our procedures got in the wayof our employees doing
what they know is right.
Fixing that problem starts now with changing how we fly, serve and
respect our customers. This is a turning point forall of us here at
United – and as CEO, it’s my responsibility to make sure that we learn
from this experience andredouble our efforts to put our customers at
the center of everything we do.
That’s why we announced that we will no longer ask law enforcement
to remove customers from a flight andcustomers will not be required to
give up their seat once on board – except in matters of safety or
security.
We also know that despite our best efforts, when things don’t go the
way they should, we need to be there for you tomake things right.
There are several new ways we’re going to do just that.
We will increase incentives for voluntary rebooking up to $10,000 and
will be eliminating the red tape on permanentlylost bags with a new
“no-questions-asked” $1,500 reimbursement policy. We will also be
rolling out a new app for ouremployees that will enable them to
provide on-the-spot goodwill gestures in the form of miles, travel credit
and otheramenities when your experience with us misses the mark.
You can learn more about these commitments and manyother
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changes at hub.united.com.
While these actions are important, I have found myself reflecting more
broadly on the role we play and theresponsibilities we have to you and
the communities we serve.
I believe we must go further in redefining what United’s corporate
citizenship looks like in our society. If our chief goodas a company is
only getting you to and from your destination, that would show a lack
of moral imagination on ourpart. You can and ought to expect more
from us, and we intend to live up to those higher expectations in the
way weembody social responsibility and civic leadership everywhere
we operate. I hope you will see that pledge expressitself in our actions
going forward, of which these initial, though important, changes are
merely a first step.
Our goal should be nothing less than to make you truly proud to say, “I
fly United.”
Ultimately, the measure of our success is your satisfaction and the
past several weeks have moved us to go furtherthan ever before in
elevating your experience with us. I know our 87,000 employees have
taken this message toheart, and they are as energized as ever to fulfill
our promise to serve you better with each flight and earn the
trustyou’ve given us.
We are working harder than ever for the privilege to serve you and I
know we will be stronger, better and thecustomer-focused airline you
expect and deserve.
With Great Gratitude,
Oscar Munoz
CEO
United AirlinesEach
282
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http://www.hub.united.com
EXHIBIT 10.8 Example Attributes
1. Healthy food options.
2. Convenient locations.
3. Quick to-go pickup outside.
4. Clean restrooms.
5. Variety of menu items.
6. Friendly and courteous staff.
7. Children’s food choices.
8. Fun ambience.
9. Accurate order fulfillment.
10. Speed of service.
11. Senior discounts.
12. Accommodating hours of operation.
13. Children’s play area.
14. Innovative new menu items.
Customers would likely be surveyed on the attributes with questions such
as the following, using an appropriate rating scale:
Rate the importance of each attribute to your decision to dine at _____
restaurant.
Rate how well _____ restaurant provides each attribute.
EXHIBIT 10.9 Importance–Performance Analysis
Matrix
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SERVQUAL: A Multiple-Item Scale to Measure
Service Quality
LO 10-6
Measure service quality through use of SERVQUAL.
Marketers didn’t separate out services for separate study from goods until
the early 1980s. The movement toward a focus on service as a core
differentiator was driven, in part, by a team of professors: Leonard Berry,
Valarie Zeithaml, and A. Parasuraman. Much of their work resulted in the
gap analysis approach described in the prior section. 29 But another
important aspect of their research was determining what service quality
really means from the perspective of customers. Their work uncovered
five dimensions of service quality, illustrated by Exhibit 10.10 and
described below.
Tangibles Tangibles are the physical evidence of a service or the
observable aspects that help customers form advance opinions about the
service despite its general intangibility.
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283
Examples of tangibles include appearance of service providers, website,
marketing communications materials, and the ambience and look of the
office or retail store. Such tangibles send cues to the customer about the
quality of the service.
Reliability Reliability is the ability to provide service dependably and
accurately and thus to deliver what was promised. Reliability means
performing the service right the first time and every time. Research has
consistently demonstrated that reliability tends to be one of the most
important aspects of service quality.
Responsiveness Responsiveness is the willingness and ability to
provide prompt service and to respond quickly to customer requests.
Customers often complain about a lack of responsiveness on the part of
service providers. Service providers exhibit poor responsiveness when
they create difficulty making contact, exhibit poor follow-up, make
excuses for poor service, and generally act as though they are doing the
customer a favor.
EXHIBIT 10.10 Dimensions of Service Quality
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Assurance Assurance is the knowledge and courtesy of employees,
and the ability to convey trust and build a customer’s confidence in the
quality of the service. Service providers often provide assurance primarily
through their own competence in the job.
Empathy Empathy is the caring and individual attention a service
provider gives to customers. Empathy means considering things from the
customer’s point of view.
The SERVQUAL Instrument
Parasuraman, Zeithaml, and Berry developed a measurement instrument
called SERVQUAL to reflect these five dimensions. 30 The scale has been
applied in tens of thousands of service settings across all types of
industries. It can be adapted to most any application in which the
marketing manager wishes to gain customer input about the importance
and performance of a firm against the five dimensions of service quality.
Companies track SERVQUAL scores over time to understand how their
service quality is tracking so that marketing managers can create
approaches to improve areas as needed. 31 Exhibit 10.11 provides a generic
version of the SERVQUAL scale.
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EXHIBIT 10.11 Generic SERVQUAL Instrument for
XYZ Company
Please circle the number that best corresponds with your
view related to XYZ.
284
1. XYZ has modern-looking equipment.
Strongly
disagree
Neither agree
nor disagree
Strongly
agree
1 2 3 4 5 6 7
2. The physical facilities at XYZ are visually appealing.
1 2 3 4 5 6 7
3. Employees at XYZ appear professionally dressed.
1 2 3 4 5 6 7
4. Materials associated with XYZ (website, promotional
brochures, service tracking documents, invoices, etc.) are
visually appealing.
1 2 3 4 5 6 7
5. When employees at XYZ promise to do something by a
certain time, they do so.
1 2 3 4 5 6 7
6. When a customer has a problem, employees at XYZ show
a sincere interest in solving it.
1 2 3 4 5 6 7
7. XYZ employees perform the service right the first time.
1 2 3 4 5 6 7
8. XYZ employees provide their services at the time they
promise to do so.
1 2 3 4 5 6 7
9. XYZ insists on error-free records.
1 2 3 4 5 6 7
10. Employees at XYZ tell you exactly when services will be
performed.
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1 2 3 4 5 6 7
11. Employees at XYZ give prompt service to you.
1 2 3 4 5 6 7
12. Employees at XYZ are always willing to help you.
1 2 3 4 5 6 7
13. Employees at XYZ are never too busy to respond to your
requests.
1 2 3 4 5 6 7
14. The behavior of employees at XYZ instills confidence in
you.
1 2 3 4 5 6 7
15. You feel safe in your transactions with XYZ.
1 2 3 4 5 6 7
16. Employees at XYZ are consistently courteous to you.
1 2 3 4 5 6 7
17. Employees at XYZ have the knowledge to answer your
questions.
1 2 3 4 5 6 7
18. XYZ employees give you individual attention.
1 2 3 4 5 6 7
19. XYZ has operating hours convenient to all its customers.
1 2 3 4 5 6 7
20. XYZ has employees who give you personal attention.
1 2 3 4 5 6 7
21. XYZ employees have your best interests at heart.
1 2 3 4 5 6 7
22. XYZ employees understand your needs.
1 2 3 4 5 6 7
Key to the instrument by SERVQUAL dimension: Tangibles = Questions 1–4;
Reliability = Questions 5–9; Responsiveness = Questions 10–13; Assurance =
Questions 14–17; Empathy = Questions 18–22.
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285
SERVICE BLUEPRINTS
LO 10-7
Understand service blue-printing and how it aids marketing managers.
Earlier in the chapter, you read that from its inception Outback Steakhouse
conceived of its service delivery system as an important source of
differentiation in its positioning against other mid-priced family
restaurants. How does a marketing manager conceive of such a system, lay
it out, and then implement it so that everyone in the firm can follow it and
play their part? The answer is through service blueprints, which borrows
concepts from manufacturing and operations management to actually map
out (likely through the use of computer software) a complete pictorial
design and flow chart of all the activities from the first customer contact to
the actual delivery of the service.
A simple example of a service blueprint for a floral delivery service is
mapped out in Exhibit 10.12.
Note in tracking through the floral delivery service blueprint that
activities are divided between those above the line of visibility (or those
activities directly involving the customer that the customer sees) and those
below the line of visibility to the customer (in this case, backstage
operations and processing activities). The “moments of truth” we
discussed earlier occur above the line of visibility.
A service blueprint is invaluable as a tool for marketing managers,
especially for service encounters that are more complex than floral
delivery, restaurants, and the like. First, the mere creation of the document
serves to uncover potential bottlenecks in the service delivery system
before it goes operational. Second, it represents a tremendous training
device for employees involved in service delivery. Especially in a
teamwork environment such as Outback Steakhouse where servers, cooks,
and bartenders are so dependent on each other’s performance to maximize
the customer’s positive experience overall, familiarizing each person
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involved in service delivery with exactly how his or her role fits into the
entire system helps everyone take on a customer mind-set—even
employees who ordinarily don’t directly interface with the external
customers such as the cooks. 32 Finally, using a service blueprint provides
managers with an important way to integrate service topics into the
performance evaluation process for all employees. Smart firms that rely on
service for differentiation such as Outback, Ritz-Carlton, and Southwest
Airlines provide incentives to their people who consistently contribute to
the delivery of great service.
EXHIBIT 10.12 Service Blueprint for Floral
Delivery
286
SUMMARY
In today’s competitive marketplace, service is an important source of
662
differentiation. But services have unique characteristics that must be
understood as well as attributes that make services quite different from
goods. An important concept for marketing managers to master is the
service-profit chain, which provides a framework for linking elements of
the service delivery system that drive customer loyalty, revenue growth,
and higher profits. Key tools for establishing and measuring effective
service include gap analysis, SERVQUAL, and service blueprints.
KEY TERMS
service 267
service economy 267
service sector 267
service dominant logic 268
intangibility 269
inseparability 269
variability 270
perishability 270
fluctuating demand 270
service-profit chain 271
internal marketing 272
customer-centric 272
customer mind-set 272
customer expectations management 273
customer retention 273
customer advocacy 273
search attributes 275
experience attributes 276
credence attributes 276
professional services 276
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customer delight 277
delightful surprises 277
service quality 277
service encounter 277
moment of truth 277
gap model 277
service recovery 279
service failure 279
dimensions of service quality 282
tangibles 282
reliability 283
responsiveness 283
assurance 283
empathy 283
SERVQUAL 283
service blueprints 285
line of visibility 285
APPLICATION QUESTIONS
More application questions are available online.
1. Marketing managers must be cognizant of the unique
characteristics of services: intangibility, inseparability, variability,
and perishability.
a. How does each of these characteristics potentially impact the
development and execution of marketing plans?
b. What might a manager do to mitigate any negative consequences
of each characteristic on the delivery of his or her firm’s service?
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c. Come up with an example of a service encounter you have had
as a customer (either in the B2C or B2B market) in which each of
these characteristics came into play in how the service was
delivered.
2. The service-profit chain guides managers toward understanding and
facilitating successful linkages in the service delivery system to
drive loyalty, revenue growth, and higher profits.
a. What functional areas of a firm must a marketing manager
effectively interface with to implement a service-profit chain
approach?
b. What potential impediments do you foresee in implementing the
service-profit chain in an organization? How might these
impediments best be overcome?
c. What do you believe are the key advantages in implementing a
service-profit chain approach?
3. Review Exhibit 10.5 and the accompanying discussion on search,
experience, and credence attributes of offerings.
a. Why are the types of offerings on the far right side of the
continuum—professional services—difficult for customers to
evaluate?
b. What challenges does this difficulty create for marketing
managers in professional services firms? Why?
4. Review the Gap Model of Service Quality (Exhibit 10.6). Consider
each of the five gaps where customer expectations might not be
met. Select a firm of your choice and for each potential gap list
specific actions that the firm could take to improve the likelihood that
customer expectations will be met on a regular basis.
5. Consider the five dimensions of service quality: tangibles, reliability,
responsiveness, assurance, and empathy.
a. Identify a recent service encounter you have experienced as a
customer (either B2C or B2B) that you would classify as a
generally bad experience. In what ways specifically did each of
the five service quality dimensions contribute to your perceptions
of poor service? Be as specific with your examples as you can.
665
What could the service provider have done to improve each of the
relevant dimensions and thus improve your experience?
b. Repeat the above process but instead of a bad service
experience this time identify a generally good service experience.
For each relevant dimension, specifically what did the service
provider do really well? Did you experience any delightful
surprise? If so, what?
287
MANAGEMENT DECISION CASE Amazon
Dash: More Than Just a Dash of Service
Imagine you just walked into your local Target. What do you see?
We’re betting that you picture the aisles of goods for sale. This
might lead you to believe that retail stores are mostly in the
business of providing products. However, retailers rarely
manufacture the goods they sell—in fact, they’re actually in the
business of service.
Most retailers rely on repeat business and referrals to earn
their profits, and therefore need to maintain high levels of service.
The American Consumer Satisfaction Index (ACSI) has been
tracking U.S. consumer satisfaction across different retail
segments since the 1990s. A quick review of the ACSI consumer
satisfaction scores shows higher satisfaction for all types of retail
stores, including supermarkets, specialty retail, and department
stores, over other industries such as banks or cable companies.
But the leading edge of customer satisfaction with retail is Internet
retail, and its star is Amazon.com. 33
Amazon.com (Amazon), founded in 1994 by Jeff Bezos, has
grown into the world’s largest Internet retailer, capturing nearly
three-quarters of all online commerce in 2016. It has nearly 125
million customers, half of whom subscribe to Amazon Prime, which
provides free two-day shipping along with access to a large catalog
of streaming music, movies, and TV shows. 34 Many companies
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http://www.Amazon.com
http://www.Amazon.com
have a difficult time justifying the cost of providing top-notch
service, but Bezos actually planned for it, budgeting a loss for
Amazon’s first five years. It ended up taking seven years for
Amazon to see its first profit! But as Leonard Berry once said, if a
firm is able to deliver great service as its core differentiator, it can
likely create a sustainable competitive advantage, and Amazon
has done just that. Amazon’s investments and relentless customer
focus have created innovations that align to the key service
attributes of search, credence, and experience.
In the search attribute, which applies to Amazon due to the
large number of products it sells, Amazon has invested heavily in
algorithms that recommend and suggest products for each
individual customer. Amazon is so focused on correctly
understanding the customer that Bezos sees a future where a
customer coming to Amazon’s home page finds “one product, the
one you are about to buy.” 35
While the credence attribute typically applies to services where
special skills are required, it applies to Amazon because it sells
products online, where customers cannot rely on the usual clues
as to product quality. To address this issue, Amazon allows
customers to share their opinions (positive and negative) about
both Amazon’s service and the products it sells. This provides
potential buyers a consensus of the post-purchase evaluations of
other customers. (In fact, Amazon was one of the first Internet
retailers to establish this type of review system!)
Finally, in the experience attribute, Amazon designs its service
to give customers as much control
288
as possible, allowing them to create the experience that meets
their specific needs. Through personalized settings and features,
customers can “tell” Amazon exactly what they want to experience
when they place an order. For example, Amazon’s customer can
preselect the delivery speed, destination, and payment method,
and then order simply with “One-Click,” a technology that Amazon
patented. The customer can just as easily override these settings
for a single order. In addition, when ordering items that need to be
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installed, Amazon allows customers to order a professional
installer at the same time the product order is placed. And that’s
just for ordering via their website.
Although it may sound like Amazon has done enough to stay at
the head of the pack, it continues to innovate in ways beyond web-
based ordering. A recent service innovation, the Amazon Dash,
allows customers to immediately place an order for a specific item
from any location in their home—all with the push of one button.
The Dash is a consumer goods offering that combines a
replenishment service with two different physical devices, the Dash
Button and the Dash Wand. The main device, the Dash Button, is
a small, single-purpose button that is predefined for a specific
product and can be placed where that product is used. For
example, the Dash Button for Tide detergent can be hung or
mounted in your laundry room, and pushing the Dash Button
automatically reorders Tide. To setup a Dash, the customer orders
the button for the desired product type from Amazon and pairs it to
his or her Amazon account.
The Dash Button is part of a complete platform, combining
physical devices, software linked to the devices, and Amazon’s
fulfillment capabilities. Hundreds of Dash Buttons, each for a
different product, are available. And thousands of products are
accessible as part of the Amazon Dash subscription service. In
addition, Amazon offers the Dash Wand, which allows customers
to say an item’s name (or scan a barcode) to quickly create a
shopping list. And while the Dash is designed for consumable
consumer goods, Amazon’s Echo and Dot products (voice-
activated “assistants”) can help customers place orders from a
listing of hundreds of thousands of Amazon Prime–eligible
products.
Amazon’s customer-centric actions emanate from the top;
Bezos has said, “If you’re competitor-focused, you have to wait
until there is a competitor doing something. Being customer-
focused allows you to be more pioneering.” 36 And, to emphasize
the point, Bezos periodically brings an empty chair into meetings,
telling employees the chair represents the most important person
668
in the room: the customer. 37
Questions for Consideration
1. Leonard Berry suggests that companies delivering great service
as a differentiator may create a sustainable competitive
advantage. Using Amazon as an example, what problems might
some companies face in trying to create that advantage?
2. Amazon invests in predictive algorithms to assist its customers
in finding products they may be interested in. What are some
concerns Amazon should look out for as it improves its search
and recommendation tools?
3. Amazon Prime, briefly mentioned in the case, is a subscription
service that gives members free two-day shipping on hundreds
of thousands of products, as well as many other features such
as access to music, movies, TV shows, book sharing, and more.
In the United States, Prime membership is $100 per year. What
effect do you think Prime membership has on customer loyalty
and switching costs?
MARKETING PLAN EXERCISE
ACTIVITY 11: Differentiating via Service Quality
In your marketing plan, consider how you might effectively use service
as a source of differentiation for your offering(s). As you learned in this
chapter, to successfully accomplish this, you must be sensitive to
nuances of services versus goods and also be able to ensure that the
people and processes in your firm are able to properly support the
service.
1. Evaluate the opportunity to utilize service as an important
differentiator.
2. Employ a service-profit chain approach to identify people and
669
operational aspects of your plan to support service differentiation.
3. Develop specific action plans and metrics in support of your service
differentiation approach.
289
NOTES
1. Leonard L. Berry, On Great Service: A Framework for Action
(New York: The Free Press, 1995).
2. Stephen L. Vargo and Robert F. Lusch, “Evolving to a New
Dominant Login for Marketing,” Journal of Marketing, 68, no. 1
(January 2004), pp. 1–17; Stephen L. Vargo and Robert F.
Lusch, “Service-Dominant Logic: Continuing the Evolution,”
Academy of Marketing Science Journal, 36, no. 1 (2008), pp. 1–
10; and Stephen L. Vargo and Robert F. Lusch, “Institutions and
Axioms: An Extension and Update of Service Dominant Logic,”
Journal of the Academy of Marketing Science, 44 no. 1, (2016),
pp. 5–23.
3. Brian A. Zinser and Gary J. Brunswick, “The Evolution of
Service-Dominant Logic and Its Impact on Marketing Theory and
Practice: A Review,” Academy of Marketing Studies Journal, 20
no. 2, (2016), pp 120–36.
4. Michael K. Brady, Brian L. Bourdeau, and Julia Heskel, “The
Importance of Brand Cues in Intangible Service Industries: An
Application to Investment Services,” Journal of Services
Marketing 19, no. 6/7 (2005), pp. 401–11.
5. Harvir S. Bansal, Shirley F. Taylor, and Yannik St. James, “
‘Migrating’ to New Service Providers: Toward a Unifying
Framework of Customers’ Switching Behaviors,” Journal of the
Academy of Marketing Science 33, no. 1 (Winter 2005), pp. 96–
116.
6. Jeremy J. Sierra and Shaun McQuitty, “Service Providers and
670
Customers: Social Exchange Theory and Service Loyalty,”
Journal of Services Marketing 19, no. 6/7 (2005), pp. 392–401.
7. Dylan Baddour, “Branches Dwindle as Bank Customers Spend
More Time Online,” Houston Chronicle, May 4, 2017,
http://www.houstonchronicle.com/business/article/Branches-
dwindle-as-bank-customers-spend-more-11121129.php.
8. Christian Homburg, Wayne D. Hoyer, and Martin Fassnacht,
“Service Orientation of a Retailer’s Business Strategy:
Dimensions, Antecedents, and Performance Outcomes,” Journal
of Marketing 66, no. 4 (October 2002), pp. 86–102; and Medhi
Mourali, Michael Laroche, and Frank Pons, “Individualistic
Orientation and Customer Susceptibility to Interpersonal
Influence,” Journal of Services Marketing 19, no. 3 (2005), pp.
164–74.
9. Conor Shine, “New Southwest President, Ready for Airline’s
Takeoff, Says Your Bags Will Still Fly Free,” Dallas News, May
3, 2017, https://www.dallasnews.com/business/southwest-
airlines/2017/05/03/new-southwest-president-plotting-next-
chapter-airlines-growth-bags-will-still-fly-free.
10. Ram Sharma, “Top 10 Companies with the Best Customer
Service,” Trendintopmost.com, February 2017,
http://www.trendingtopmost.com/worlds-popular-list-top-
10/2017-2018-2019-2020-2021/highest-selling-brands-products-
companies-reviews/companies-with-the-best-customer-service/.
11. Rajshekhar G. Javalgi, Thomas W. Whipple, Amit K. Ghosh,
and Robert B. Young, “Market Orientation, Strategic Flexibility,
and Performance: Implications for Services Providers,” Journal
of Services Marketing 19, no. 4 (2005), pp. 212–22.
12. Kenneth J. Klassen and Thomas R. Rohleder, “Combining
Operations and Marketing to Manage Capacity and Demand in
Services,” Service Industries Journal 21, no. 2 (April 2001), pp.
1–30.
13. D. Todd Donovan, Tom J. Brown, and John C. Mowen, “Internal
Benefits of Service-Worker Customer Orientation: Job
Satisfaction, Commitment, and Organizational Citizenship
671
http://www.houstonchronicle.com/business/article/Branches-dwindle-as-bank-customers-spend-more-11121129.php
https://www.dallasnews.com/business/southwest-airlines/2017/05/03/new-southwest-president-plotting-next-chapter-airlines-growth-bags-will-still-fly-free
http://www.trendingtopmost.com/worlds-popular-list-top-10/2017-2018-2019-2020-2021/highest-selling-brands-products-companies-reviews/companies-with-the-best-customer-service/
Behaviors,” Journal of Marketing 68, no. 1 (January 2004), pp.
128–46.
14. Jim Tierney, “Caesars Entertainment Hits Jackpot at Loyalty 360
Awards,” Loyalty360, May 4, 2017,
https://www.loyalty360.org/content-gallery/daily-news/caesars-
entertainment-hits-jackpot-at-loyalty360-a.
15. Ceridwyn King and Debra Grace, “Exploring the Role of
Employees in the Delivery of the Brand: A Case Study
Approach,” Qualitative Market Research 8, no. 3 (2005), pp.
277–96.
16. Deepak Sirdeshmukh, Jagdip Singh, and Barry Sabol,
“Customer Trust, Value, and Loyalty in Relational Exchanges,”
Journal of Marketing 66, no. 1 (January 2002), pp. 15–38.
17. Jason Gumpert, “NBA Team Reboots Customer Engagement
with Microsoft Dynamics CRM Upgrade, Data Management
Refresh,” MSDynamicsWorld, April 25, 2016,
https://msdynamicsworld.com/story/nba-team-rethinks-
customer-engagement-microsoft-dynamics-crm-upgrade-data-
management-refresh; “NBA Announces Pete Winemiller Guest
Experience Innovation Award,” ABS-CBN Sports, March 24,
2017, http://sports.abs-cbn.com/nba/news/2017/03/24/nba-
announces-guest-experience-innovation-award-23692.
18. Lawrence A. Crosby and Brian Lunde, “Loyalty Linkage,”
Marketing Management 16, no. 3 (May/June 2007), p. 12; and
James H. McAlexander, John W. Schouten, and Harold F.
Koening, “Building Brand Community,” Journal of Marketing 66,
no. 1 (January 2002), pp. 38–55.
19. Sudhir N. Kale and Peter Klugsberger, “Reaping Rewards,”
Marketing Management 16, no. 4 (July/August 2007), p. 14.
20. Anita Goyal, “Consumer Perceptions towards the Purchase of
Credit Cards,” Journal of Service Research 6 (July 2006), pp.
179–91.
21. Minakshi Trivedi, Michael S. Morgan, and Kalpesh Kaushik
Desai, “Consumer’s Value for Informational Role of Agent in
Service Industry,” Journal of Services Marketing 22, no. 2
672
https://www.loyalty360.org/content-gallery/daily-news/caesars-entertainment-hits-jackpot-at-loyalty360-a
https://msdynamicsworld.com/story/nba-team-rethinks-customer-engagement-microsoft-dynamics-crm-upgrade-data-management-refresh
http://sports.abs-cbn.com/nba/news/2017/03/24/nba-announces-guest-experience-innovation-award-23692
(2008), pp. 149–59.
22. Frances X. Frei, “The Four Things a Service Business Must Get
Right,” Harvard Business Review 86, no. 4 (April 2008), pp. 70–
80.
23. Kevin M. McNeilly and Terri Feldman Barr, “I Love My
Accountants—They’re Wonderful: Understanding Customer
Delight in the Professional Services Arena,” Journal of Services
Marketing 20, no. 3 (2006), pp. 152–59.
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Customer Socialization Paradox: The Mixed Effects of
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28. Teck H. Ho and Yu-Sheng Zheng, “Setting Customer
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SERVQUAL Scale,” Journal of Retailing 67, no. 4 (1991), pp.
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PART FOUR
Price and Deliver
the Value Offering
CHAPTER 11
MANAGE PRICING DECISIONS
CHAPTER 12
MANAGE MARKETING CHANNELS, LOGISTICS, AND
SUPPLY CHAIN
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292
CHAPTER 11
Manage Pricing
Decisions
LEARNING OBJECTIVES
LO 11-1 Understand the integral role of price as a core
component of value.
LO 11-2 Explore different pricing objectives and related
strategies.
LO 11-3 Identify pricing tactics.
LO 11-4 Describe approaches to setting the exact price.
LO 11-5 Determine discounts and allowances to offer to
channel members.
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LO 11-6 Understand how to execute price changes.
LO 11-7 Examine legal considerations in pricing.
PRICE IS A CORE COMPONENT OF VALUE
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LO 11-1
Understand the integral role of price as a core component of value.
You have learned that value is a ratio of the bundle of benefits a customer
receives from an offering compared to the costs incurred by the customer
in acquiring that bundle of benefits. From the customer’s perspective,
many but not all of those costs are reflected within the price paid for the
offering. There are other types of costs, such as time invested in the
purchase process or the opportunity costs of choosing one offering over
another. But for most purchasers, regardless of whether the setting is B2C
or B2B, the vast majority of costs are associated with the purchase price.
As such, price—or, more specifically, the customer’s perception of the
offering’s pricing—is a key determinant of perceived value. When
customers exhibit strongly held beliefs that a firm’s offerings provide high
value, they are much more likely to remain loyal to the firm and its brands
as well as actively tell others about their favorable experiences. Thus,
marketing managers must take pricing decisions very seriously. 1
From a marketing planning and strategy perspective, Michael Porter
has consistently advocated that firms that are able to compete based on
some extraordinary efficiency in one or more internal processes bring to
the market a competitive advantage based on cost leadership. And
although firms competing on cost leadership will likely also engage in one
of Porter’s other competitive strategies (differentiation or focus/niche),
their core cost advantages translate directly to an edge over their
competitors, based on much more flexibility in their pricing strategies as
well as their ability to translate some of the cost savings to the bottom
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line. 2
For example, Southwest Airlines is widely regarded as a cost leader in
its industry, which becomes a critical factor when jet fuel prices go up.
Southwest’s internal process efficiencies stem from several important
sources. First, it flies mostly the same type of plane—various series of the
Boeing 737. This makes the maintenance process much more efficient than
carriers whose fleet includes multiple types of aircraft. Second, Southwest
has a very simple process of booking passengers and does not offer
assigned seats. Finally, it only has one class of cabin service and does not
serve meals, mostly opting for nuts and pretzels instead. These and other
internal efficiencies translate into a cost structure second to none in the
industry.
But what does such cost leadership mean for Southwest’s pricing
decision making? A knee-jerk response might be to simply lower fares to
match the level of cost advantage. That might increase sales volume, but it
also might start a price war with other airlines that have cost advantages
(JetBlue, for instance). A more strategic approach—and the approach
Southwest actually uses—is to translate part of its cost advantage into a
more transparent, mileage-driven pricing structure for customers but at the
same time take a portion of the cost advantage to increase the firm’s profit
margins, partly to reward shareholders and partly to reinvest for the firm’s
growth.
Most importantly, Southwest’s pricing model not only contributes to
its financial performance but also is an integral part of its overall value
proposition and provides a valuable lesson for the way a marketing
manager should approach pricing decisions—that is, pricing decisions
cannot be made in a vacuum but rather must consider the whole of the
firm’s offering, especially the concurrent decisions the firm is making
about branding and products, service approaches, supply chain, and
marketing communication. For the marketing manager, pricing is much
more than an economic break-even point or a cost-plus accounting
calculation. Price is a critical component that plays into a customer’s
assessment of the value afforded by a firm and its offerings. As such,
managerial decisions about pricing should be undertaken methodically and
always with a focus on how price impacts the all-important cost-versus-
bundle-of-benefits assessment that equates to customer perceived value. 3
679
The rest of this chapter details the important pricing decision-making
process from a marketing manager’s perspective: establish pricing
objectives and related strategies; select pricing tactics; set the exact price;
determine channel discounts and allowances; execute price
294
EXHIBIT 11.1 Elements of Pricing Decisions
changes; and understand legal considerations in pricing. Exhibit 11.1
portrays these elements of pricing decisions.
680
ESTABLISH PRICING OBJECTIVES AND
RELATED STRATEGIES
LO 11-2
Explore different pricing objectives and related strategies.
As illustrated in the Southwest Airlines example, pricing objectives are but
one component leading to an overall value proposition. However, a
product’s price tends to be so visible and definitive that customers often
have trouble moving past price to consider other critical benefits the
product affords. This characteristic puts pressure on marketing managers
to establish pricing objectives that best reflect and enhance the value
proposition, while at the same time achieving the firm’s financial
objectives. Striking a balance between these two forces sometimes makes
pricing an especially challenging part of marketing. 4
Pricing objectives are the desired or expected result associated with a
pricing strategy. Pricing objectives must be consistent with other
marketing-related objectives (positioning, branding, etc.) as well as with
the firm’s overall objectives (including financial objectives) for doing
business. 5 Exhibit 11.2 portrays several of the most common pricing
objectives, along with their related strategies.
The decision of which pricing objective or objectives to establish is
driven by many interrelated factors. As you learn about each of the
approaches, keep in mind that most firms attempt to balance a range of
issues through their pricing objectives, including internal organization-
level goals, internal capabilities, and a host of external market and
competitive factors. Dunkin’ Donuts’ pricing objective is a competitor-
based approach (more on that later), and its pricing strategy is based on its
positioning relative to rivals McDonald’s and Starbucks in the breakfast
market. Rather than engage in a price war with McDonald’s, Dunkin’
Donuts has tried to close the gap between itself and Starbucks. Although
Dunkin’ Donuts makes more money on breakfast sales overall than
Starbucks, its average customer check is much lower. Additionally, Panera
Bread and Starbucks have seen an impressive sales boost due to their
loyalty programs that offer deals to customers after a certain amount of
681
money has been spent. But not to be left behind, Dunkin’ Donuts has its
own loyalty program called DD Perks that gives you free beverages when
you sign up, on your birthday, and with every 200 points earned. Members
can use the associated app to call ahead and speed past the line. And to
keep things really interesting, DD Perks serves up surprises every month
for members, including offers and discounts on favorite items, points with
every purchase, and other extra treats and goodies. Fortunately for Dunkin’
Donuts, to date McDonald’s does not feature a consumer loyalty
program. 6
Penetration Pricing
Market share is the percentage of total category sales accounted for by a
firm. When a firm’s objective is to gain as much market share as possible,
a likely pricing strategy is penetration pricing, sometimes also referred to
as pricing for maximum marketing share. In markets where customers are
sensitive to price and where internal efficiencies lead to cost advantages
allowing for acceptable margins even with aggressive pricing, a
penetration objective can create a powerful barrier to market entry for
other firms, thus protecting market share.
Sometimes penetration pricing is used as part of a new-product
introduction. In both the B2C and B2B markets, it is common for prices to
be set low initially to ward off competition
295
and then for prices to creep up over time. 7 Such pricing is built into the
product’s budget over the life cycle of the item. Recall from Chapter 8 that
as a product progresses through the product life cycle, margins tend to be
at their highest during the maturity stage. This is partly because weaker
competitors tend to drop out due to penetration pricing earlier in the cycle
(introduction and growth stages), which creates the potential for remaining
firms to decrease spending and raise prices during the maturity stage.
Be careful with a penetration pricing strategy. Because price is a cue
for developing customer perceptions of product quality, the value
proposition may be reduced if a low price belies the product’s actual
quality attributes. 8 An axiom in marketing is that customers always find it
more palatable when a firm reduces a price than when it raises a price, and
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a corollary to the axiom is that once a price has been changed (one way or
the other), changing it back creates confusion about positioning and brand
image.
When Pringles was introduced by P&G years ago, its vacuum-packed
tube and less greasy product created a sensation (Pringles are now
marketed by Kellogg). Not to be usurped by this upstart, more recently the
number-one snack producer Frito-Lay launched its Lay’s Stax, a chip
nearly the same as Pringles’ curve-shaped chips. To make sure people tried
them, at the initial product launch Stax cans were priced super-low at 69
cents—a penetration pricing strategy. Gradually, the can has risen to above
a dollar. Putting Stax’s pricing strategy even more clearly into perspective,
today Lay’s Stax sell for approximately 22 cents per ounce, while Pringles
sell for about 29 cents per ounce, revealing that post-penetration Frito-Lay
wanted Stax positioned lower in price than its closest competitor. 9
EXHIBIT 11.2 Pricing Objectives and Related
Strategies
Objective: Market share maximization
Strategy: Penetration pricing
Objective: Market entry at the highest possible initial price
Strategy: Price skimming
Objective: Profit maximization
Strategy: Target ROI
Objective: Benchmark the competition
Strategy: Competitor-based pricing
Strategy: Value pricing
Objective: Communicate positioning through price
Price Skimming
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A strategy of price skimming addresses the objective of entering a market
at a relatively high price point. In proposing price skimming, the
marketing manager usually is convinced that a strong price–quality
relationship exists for the product. This might be done to lend prestige to a
brand, or skimming is sometimes used in a new-product introduction by a
firm with a first-mover advantage to skim early sales while the product has
a high level of panache and exclusivity in the marketplace. 10
Major developers of gaming consoles, including Nintendo, Microsoft,
and Sony, always introduce a new platform with the objective of price
skimming. Flat-panel televisions all started with very high price points and
have gradually inched pricing downward as more and more customers
began to purchase. Pharmaceutical companies justify very high
introductory prices for new medications based on a necessity to recoup
exorbitant R&D costs associated with their industry. Those same drugs
steadily decline in price as more advanced competitive drugs come along,
and, when patent protection runs out, the price drops precipitously as
generic versions of the drug flood the market.
Regardless of the motivation for a price skimming strategy, as with
penetration pricing, when multiple-year budgets are developed, marketing
managers must consider the likelihood of competitive entry and adjust
pricing projections accordingly. An initial pricing objective of skimming
will require modification over time based in part on the rate of adoption
and diffusion by consumers.
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You gamers know that when a new generation of a gaming console is
introduced the price starts high and then typically declines over time—that’s
price skimming!
©Joseph Branston/T3 Magazine via Getty Images.
In general, skimming can be an appropriate pricing objective within
the context of a focus (niche) strategy. By definition,
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such an approach positions a product for appeal to a limited (narrow)
customer group or submarket of a larger market. Because niche market
players typically attract fewer and less-aggressive competitors than those
employing differentiation strategies within the larger market, a focus
strategy can usually support higher prices and the potential for skimming
can be extended. The ability to use price skimming declines precipitously,
however, if the product migrates from a niche position to that of a
differentiated product within the larger market. 11
Profit Maximization and Target ROI
Pricing objectives very frequently are designed for profit maximization,
which necessitates a target return on investment (ROI) pricing strategy.
Here, a bottom-line profit is established first and then pricing is set to
achieve the target. Although this approach sounds straightforward, it
actually brings up an important reason pricing is best cast within the
purview of marketing instead of under the sole control of accountants or
financial managers in a firm. When pricing decisions on a given product
are made strictly to bolster gross margins, bottom-line profits, or ROI
without regard to the short- and long-term impacts of the pricing strategy
on other important market- and customer-related elements of success, the
product becomes strategically vulnerable. Marketing managers are in the
best position to take into account the competitor, customer, and brand
image impact of pricing approaches. 12
Still, in preparing product budgets and forecasts, marketing managers
are expected to pay close attention to their organization’s financial
objectives. During the research that leads to a decision to introduce a new
product or modify an existing one, one key variable of interest is whether
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the market will bear a price point that enhances the firm’s overall financial
performance. Often, price elasticity of demand—the measure of
customers’ price sensitivity estimated by dividing relative changes in
quantity sold by relative changes in price—becomes central to whether a
product can even be viably introduced within the context of a firm’s
financial objectives. 13 The basic price elasticity (e) equation is portrayed
below:
e=% change inquantity demanded% change in price
Unfortunately, price sensitivity is notoriously one of the most difficult
issues to determine through market research. Sometimes, historical records
or secondary data can provide evidence of pricing’s impact on sales
volume. When primary research methods are used to ask customers about
pricing—whether through survey, focus group, experiments, or other
methodology—they most often place the respondents into a hypothetical
“what if” mode of thinking in which they are asked to predict how one
price or the other might impact their decision to buy. This is a very
difficult assertion for a person to make and can lead to bad data and
ultimately poor pricing decisions. Importantly, in many instances, much of
a customer’s reaction to pricing is more psychological or emotional in
nature than rational and logical. 14
Finally, the idea of pricing based on purely economic models and
solely for profit maximization raises important ethical concerns, especially
in cases where essential products are in short supply. The latest wonder
drugs, building materials after a major disaster, and new technologies
needed for emerging markets are but three examples in which pricing for
pure profit motive can damage both a firm’s image and ultimately its
relationships with customers. Mylan, a pharmaceutical company, jumped
onto the radar screens of many people due to its pricing strategy for the
EpiPen, which has been widely interpreted by consumers and consumer
advocates as unethical. An EpiPen is a potentially life-saving allergy-
reaction injector that was selling for $100 for a two-pack in 2009. But by
2016, the price of a two-pack had spiked to a whopping $608—a six-fold
price increase!—giving the impression that Mylan thought it could
demand the high price until the expected arrival of a generic version of the
686
drug. Recently, though, CVS announced that it will sell a new, generic
two-pack for about $110 before potential discounts. 15
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Competitor-Based Pricing
Gaining a thorough understanding of competitors’ marketing practices is a
key element of successful marketing planning and execution. A
competitor’s price is one of the most visible elements of its marketing
strategy, and you can often infer the pricing objective by carefully
analyzing historical and current pricing patterns. Based on such analysis, a
firm may develop competitor-based pricing strategies. This approach
might lead the marketing manager to decide to price at some market
average price, or perhaps above or below it in the context of penetration or
skimming objectives.
The logic of competitor-based pricing is quite rational unless (1) it is
the only approach considered when making the ultimate pricing decisions
or (2) it leads to exaggerated extremes in pricing such that on the high end
a firm’s products do not project customer value or on the low end price
wars ensue. A price war occurs when a company purposefully makes
pricing decisions to undercut one or more competitors and gain sales and
net market share. 16 Such was the case in the early 1990s when Sears
embarked on a short-lived “low-price” strategy to compete with Walmart
on certain high-profile goods, sparking a major price war. Sears
management, concerned at the time about losing the Gen X market to
Walmart and other discounters, fired the first salvo by publicly announcing
a list of items on which it would not be undersold. One of these items,
branded disposable diapers such as Pampers and Luvs, led the way in
Sears’ ads nationwide at prices well below cost.
Unfortunately for Sears, management grossly underestimated the
power of Walmart to thwart such competitive threats. First, Walmart’s
chairman went public in the press by reiterating that Walmart was the true
low-price king in retailing (the company’s tagline at the time was “Always
Low Prices”) and assuring customers Walmart would match any
advertised Sears price. Then, within days and in market after market,
Walmart took to the newspapers with full-page ads discounting diapers to
687
ridiculous levels never before seen, thus negating Sears’ approach. This
price war was short-lived and forced Sears to immediately rethink its
pricing strategy.
Stability Pricing A potentially more productive strategy related to
competitor-based pricing is stability pricing, in which a firm attempts to
find a neutral set point for price that is neither low enough to raise the ire
of competition nor high enough to put the value proposition at risk with
customers. Many factors go into selecting a specific product’s stability
price point. In markets where customers typically witness rapidly changing
prices, stability pricing can provide a source of competitive advantage. 17
Southwest Airlines employs a stability pricing strategy by displaying only
five or six fares to a particular destination, with price points based on when
the ticket is purchased and the days of the week the customer will be
traveling. Unlike most other domestic carriers, Southwest actually bases
prices more on the distance of the trip and is less tied to load-maximization
formulas in which a fare can change minute by minute depending on ticket
sales. The airline’s stability pricing approach has proved highly popular
with customers, and it’s been successful for the firm as its seat occupancy
rate continues to be among the highest in the industry.
688
Metro PCS sends a strong value pricing signal with its $30 unlimited data, talk,
text.
Source: T-Mobile USA, Inc.
Value Pricing
Firms that have an objective of utilizing pricing to communicate
positioning use a value pricing strategy. Value pricing overtly attempts to
consider the role of price as it reflects the bundle of benefits sought by the
customer. Because value is in the eyes of the beholder, affected by his or
her perceptions of the offering coupled with the operative needs and wants,
pricing decisions are strongly driven by the sources of differential
advantage a product can realistically deliver. Effectively communicating a
product’s differential advantages is
298
at the heart of positioning strategy, and exposure to these elements spurs
the customer to develop perceptions of value and a subsequent
understanding of the value proposition. 18
Value pricing is complex and overarches the other pricing objectives
689
discussed so far. Through value pricing, a marketing manager seeks to
ensure that the offering meets or exceeds the customer’s expectations—
that is, when he or she does the mental arithmetic that calculates whether
the investment in the offering is likely to provide sufficient benefits to
justify the cost. Put another way, value pricing considers the whole
deliverable and its possible sources of differential advantage—image,
service, product quality, personnel, innovation, and many others—the
whole gamut of elements that create customer benefit. For instance,
Toyotas and Hondas cost more to purchase initially than other comparable
vehicles, but they last longer, require fewer repairs, are more fuel-efficient,
and hold their resale value much better; overall, they have a lower lifetime
cost of ownership.
From this assessment, the marketing manager makes a pricing decision
that best reflects the product’s capacity to be perceived as a good customer
value. This high-impact decision helps frame customers’ reactions and
their relationship with the product and the company. Not surprisingly,
Toyota and Honda drivers tend to be very brand loyal, with a very high
repeat purchase rate, and many multiple-car families of one or the other.
Would a firm ever benefit from pricing without regard to value? This
is an intriguing question that can best be illustrated through the example of
a positioning map like the one in Chapter 7. Exhibit 11.3 provides a
positioning map with price on one axis and quality on the other. In this
instance, we’re using the term quality rather generically to simply denote a
range of differential advantages that might comprise the perceived bundle
of benefits for the offering.
Notice in Exhibit 11.3 that a diagonal range of feasible positioning
options exists based on matching price to the benefits achieved. For most
products, as long as the customer perceives the ratio of price and benefit to
be at least at equilibrium, perceptions of value will likely be favorable.
Thus, a poorer-quality product offset by a super-low price can be
perceived as a good value just as a higher-quality product at a high price
can be.
The key lesson marketing managers should draw about value pricing
goes back to a key point about managing customer expectations in Chapter
10: Overpromising and underdelivering is one of the quickest ways to
create poor value perceptions and thus alienate customers. Marketers will
690
do well to not overpromise benefits, but rather should communicate and
deliver a realistic level of benefits for a price. 19
But what happens when one strays off the favorable diagonal of
price/benefit harmony? In the lower-right quadrant—high quality/low
price—a penetration strategy might be in play. Or perhaps a firm is taking
advantage of its cost leadership by offering a somewhat reduced price.
However, over the long run, reducing price too much based on either of
these pricing strategies can unnecessarily damage both margins and brand
image. Penetration is usually intended to be a temporary strategy, giving
the product a chance to gain a strong foothold in
EXHIBIT 11.3 Generic Price–Quality Positioning
Map
299
market share while warding off competition for a time. Michael Porter has
long advocated that cost leadership based on value chain efficiencies
should not be translated wholesale to low prices—the reason the approach
is called cost leadership, not price leadership. Successful cost leaders tend
to offer a somewhat lower price in the marketplace, but they also translate
a substantial portion of their efficiencies to margin, thus enhancing the
691
long-term growth and performance of the firm. Bottom line, it may be all
right to play in the bottom-right quadrant temporarily in the case of
penetration or to creep slightly into that quadrant over the long haul with a
properly executed cost leadership approach.
Clearly, operating in the upper-left (high price/low benefits) quadrant
can be problematic. Some firms utilize price skimming strategies,
especially on product introductions, even when all the bugs have yet to be
worked out of the product. New technology products are notorious for
having surprises in quality, functionality, and reliability crop up soon after
introduction. When this happens, it can be extremely damaging to the
value proposition and to the brand. In such cases, from an ethical
perspective, one could question the firm’s intent. Did the company rush a
product to market to beat an impending entry by competition, pricing it
high due to first-mover advantage, all the while knowing that serious
quality problems existed? Firms and brands that continually attempt to
operate in the high-price/low-benefits quadrant do not survive over the
long run as customer trust is damaged. Unfortunately, some highly
unscrupulous companies perpetuate their operations in this quadrant by
constantly changing company name, location, and brand names. Stories of
customer rip-offs are particularly prolific in the service sector (from
construction to financial services to health care) because in this sector the
offering is inextricably linked to the provider and it’s difficult to assess
quality until after the service is rendered.
Opening 2 million unauthorized accounts in the retail segment of
business to meet sales quotas, and charging the fake accounts service fees,
are the colossally unbecoming actions that likely will leave their mark
indefinitely on Wells Fargo’s reputation. The firm reached a $110 million
settlement to help make things right for their customers by paying back
out-of-pocket losses resulting from the unauthorized accounts. Shortly
after the debacle, credit card applications were down 43 percent and new
checking account openings were down 40 percent from the prior year.
Only time will tell how this massive rip-off will affect Wells Fargo’s
viability with customers over the long haul. 20
SELECT PRICING TACTICS
692
LO 11-3
Identify pricing tactics.
Once management establishes the overall pricing objectives and strategies,
it’s time to develop and execute the pricing tactics in the marketplace that
will operationalize the strategies. Exhibit 11.4 summarizes tactical pricing
approaches.
As with establishing pricing strategies, for a variety of reasons firms
frequently rely on combinations of pricing tactics in the marketplace rather
than putting all their eggs in one basket. As you read about each approach,
don’t think of it as a stand-alone strategy but instead consider how it might
work in tandem with other approaches that a marketing manager might
decide to employ.
Product Line Pricing
As you have learned, firms rarely market single products. Most products
are part of an overall product line of related offerings, and this is true
whether the product is in the B2C or B2B marketplace, or in the realm of
goods or service. Product line pricing (or price lining) affords the
marketing manager an opportunity to develop a rational pricing strategy
across a complete line of related items. As a customer is evaluating the
choices
300
EXHIBIT 11.4 Tactical Pricing Approaches
693
EXHIBIT 11.5 Product Line Pricing by Room Type
at the Fairmont Kea Lani on Maui
Room Type Description of View Price
Fairmont Neighborhood side streets and
landscaping
$ 669
Fairmont
Mountainside
Majestic Haleakala and sunrise $ 719
Fairmont
Garden View
Tropical gardens and landscaping $ 759
Partial Ocean
View
Partial or angled view from
outside the suite on lanai
$ 839
Poolside Upper lagoon pool and garden $ 839
Ocean View Superb ocean and sunset views
from lanai
$ 909
Deluxe Ocean
View
Best ocean and sunset views $ 999
Kilohana
Signature
Spectacular panoramic ocean and
sunset views
$1,269
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Source: Fairmont Kea Lani. www.fairmont.com/kea-lani-maui, accessed May 22,
2017, for reservation dates in August 2017.
available within a firm’s product line, the price points established for the
various items in the line need to make sense and reflect the differences in
benefits offered as the customer moves up and down the product line.
Consider the different types of rooms offered by a resort hotel on
Maui. At top properties such as the Fairmont Kea Lani in Wailea, even a
room on a lower floor with a limited view might easily run well over $600
per night during peak season. Exhibit 11.5 shows the array of room types
and prices across the product line—the different grades of guest room.
In price lining, the escalation of product prices up the product line has
to consider factors such as real cost differences among the various features
offered, customer assessments of the value added by the increasing level of
benefits, and prices competitors are charging for similar products. Price
lining can greatly simplify a customer’s purchase decision making by
clearly defining a smorgasbord of offerings based on different bundles of
benefits at different prices. Regardless of the product category, customers
often approach a purchase with some preconceived range of price
acceptability in mind, and product line pricing helps guide them toward the
best purchase match to their needs while facilitating easy comparison
among offerings. 21
The venerable Ford Mustang has been a popular cultural icon for over
50 years. It’s still a stunning pony car with muscular lines at a relatively
affordable price. Auto manufacturers often use price lining, and the
Mustang is no exception. For example, the 2017 Ford Mustang Fastback
started with a base model that could be upgraded to premium and Ecoboost
versions, and the V6 engine could be upgraded to a V8 (which is a staple
of the Mustang GTs). What was the base MSRP, you might ask? Base was
a very reasonable $25,185. But Ford would much prefer you stack on the
extras—a top-of-the-line 2017 Shelby GT350R Mustang had a stout
MSRP of $63,645! But the “secret sauce” of the Mustang family is that no
matter which model you price yourself up to, each car still has that
distinctive “Mustang look.” 22
Price lining can occur at a level much broader in scope than individual
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http://www.fairmont.com/kea-lani-maui
products. For example, Marriott has branded its entire family of
accommodations based on different value propositions, supported by
clearly delineated pricing strategies. Its offerings include Ritz-Carlton and
JW Marriott for the most discriminating patron, Marriott and Renaissance
at the next level of full service, and an array of differentially positioned
brands such as Courtyard, Residence Inn, SpringHill Suites, Fairfield Inn,
and TownePlace Suites.
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Mariott’s acquisition of Starwood Hotels brings even more variety of
brands with different pricing strategies into their portfolio of offerings.
Marriott clearly communicates the differences and value in each of these
brands, partly by how each is priced in relation to the others. By now you
should have a strong sense of how strategically important price is within
the marketing mix as a cue for the customer’s perceptions of value. 23
Captive Pricing
Captive pricing, sometimes called complementary pricing, entails gaining
a commitment from a customer to a basic product or system that requires
continual purchase of peripherals to operate. 24 What is the most profitable
part of Hewlett-Packard’s office products business: printers or ink
cartridges? It’s the cartridges. And although other sources for replacement
cartridges exist for HP machines, the company does a great job of
convincing users that only genuine HP cartridges can be depended on for
high-quality performance.
Like HP in printers, Gillette built its business in razors by hooking
customers on the latest and greatest new multi-blade system through every
type of promotion possible, from Super Bowl ads to free samples. Gillette
counts on the fact that we will go back time and again to repurchase the
replacement blades that carry the real margins the company is after.
However, captive pricing strategies are not guaranteed to be successful!
HP faces serious challenges by other providers and recyclers, while
Gillette is trying to stave off competition from Dollar Shave Club and
other lower-priced, convenience-oriented, direct-delivery competitors.
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HP certainly wants to encourage its printer owners to use genuine HP
replacement ink cartridges. This special pricing encourages multiple cartridge
purchases all at once.
Source: HP Development Company, L.P.
Captive pricing is just as common in the service sector, where it is
sometimes called two-part pricing. Any firm that charges a monthly access
fee, membership, retainer fee, or service charge and then bills by the
specific service provided is using this pricing approach.
Price Bundling
When customers are given the opportunity to purchase a package deal at a
reduced price compared to what the individual components of the package
would cost separately, the firm is using a price bundling strategy. 25 Cable
television providers want you to buy the full gamut of entertainment
products from them, and the more you add to your bundle—digital
television, premium channels, downloadable movies, local and long-
distance phone service, cellular service, gaming, high-speed Internet—the
better the deal becomes compared to the total of the individual prices of
each piece of the bundle.
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Price bundling is commonly used by television providers to sell cable
subscriptions. However, streaming services and smaller bundle options are
threatening the traditional large subscription bundle business. Amazon,
Google’s YouTube, and Hulu continue to negotiate the rights to stream
live television over the Internet in an innovative approach that will offer
consumers TV on demand in smaller bundle options at lower costs. These
smaller bundles provide viewers with more limited, specialized channel
options at a lower price. YouTube’s “Unplugged” streaming TV service,
for example, offers a “skinny bundle” that features TV’s most popular
channels for $30 to $40 a month. In an era when Americans are paying all-
time-high cable subscription fees, these slimmer streaming bundles cut
monthly cable fees almost in half—a benefit appreciated especially by
millennials. 26
A potential dark side to price bundling is that, in some industries, it
can become unclear just what the regular, or unbundled, price is for a
given component of a package. The cable/telecommunications industry is
regulated to the point that this is less an issue, but in unregulated
industries, unscrupulous firms sometimes set artificially high prices for the
sake of pushing customers into buying a package. Later in the chapter we
will review several of the most important legal considerations related to
pricing.
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Beyond legalities, ethical issues sometimes arise with regard to price
bundling. For example, car shoppers often find every car on the lot within
a given model has many of the same features automatically bundled as
add-ons. How many of those features would you buy if you had a choice?
The extra features being bundled typically carry much larger margins than
the margin on the core vehicle itself. If you special order a car without the
bundle, chances are you will be waiting months for it to be delivered to the
lot—if the dealer will even order it for you.
Reference Pricing
As in price bundling, it can be useful for customers to have some type of
comparative price when considering a product purchase. Such a
comparison is referred to as reference pricing and, in the case of price
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bundling, the reference price is the total price of the components of the
bundle if purchased separately versus the bundled price. The savings
would be expected to stimulate purchase of the bundle so long as the
perceived value realized is sufficient.
Reference pricing is implemented in a number of ways. Sometimes a
product catalog might show a manufacturer’s suggested list price next to
the actual price the product is offered for in the catalog. In retail stores, in
any given product category a private-label product (say, the Walgreens
brand for instance) is often purposely displayed on a shelf right next to its
national brand equivalent. The retailer hopes the savings realized by the
direct price comparison of a bottle of Walgreens’ mint mouthwash versus
the bottle of Scope next to it will be enough to stimulate purchase.
Reference pricing is very heavily used in B2B price lists, often reflecting
price level differences depending on how many items are purchased or
reflecting the amount saved by a firm’s special “contract rate” with a
vendor versus what a noncontract rate would be.
Clearly, reference pricing can create a powerful psychological impact
on a customer by virtue of the savings (real or imagined) demonstrated by
the comparison. Ever have a salesperson tell you that a price increase is
imminent and if you don’t purchase today you’ll pay more tomorrow?
Customer hedging behaviors against pricing uncertainty are driven by
referencing projected prices in the future. And, of course, a sale or
promotional price provides a strong reference point and, if the comparative
difference is great enough, shoppers flock to the store as if going into
battle to take advantage of temporary price reductions while they are in
effect. 27
Prestige Pricing
As mentioned earlier, one rationale for establishing a price skimming
objective is prestige pricing—lending prestige to a product or brand by
virtue of a price relatively higher than the competition. With prestige
pricing, some of the traditional price/demand curves cannot properly
predict sales or market response because it violates the common
assumption that increasing price decreases volume. From the perspective
of financial returns, prestige pricing is a phenomenal approach because,
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everything else being equal, commanding a premium price reflects directly
on margins and bottom line. 28
Prestige pricing plays on psychological principles that attach quality
attributions to higher-priced goods—a typical response to some higher-
priced products is that they must be better than their competitors;
otherwise the price would be lower. When the Norwegian glacier water
Voss entered the U.S. market in the 2000s, it entered with a prestige
pricing strategy that helped create a whole new category of ultra-premium
bottled waters. Order Voss in a chic restaurant and you can expect to pay a
double-digit price per bottle. What’s the value proposition that would
support such a high price? The exclusivity of distribution, unique cylinder
shape of the bottle, and exotic glacial imagery all combine so that a
premium price actually enhances the customer’s feelings of experiencing
something really special (yes, water can be an experiential purchase).
Promotion of Voss water has included numerous product placements
showing celebrities and others among the rich and famous partaking of the
brand. Had Voss entered the market without such a prestige pricing
strategy, it is highly unlikely it would have achieved the buzz and early
cult status it did.
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Prestige pricing is crucial in the luxury goods market, where elite
prices and limited availability are key factors that attract customers.
Handbag and accessories companies Coach and Michael Kors (MK) both
experienced the consequences for brand image of selling handbags at
discounted rates at department stores. As it became easier and less
expensive to purchase price-discounted Coach and MK handbags at
multiple outlets, many of their high-end customers no longer desired to be
associated with the brand and began carrying other, more chic handbags.
Some high-end retailers began to react to this shift in target market as well
—Nordstrom even dropped some MK lines due to perceptions of lower
quality. In response, Coach and MK recognized this market problem and
have pulled many of the lines back away from department stores,
requested exclusion from department store coupons, reduced inventory to
reestablish their brands as true luxury, and moved back toward a true
prestige pricing approach once again. 29
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Odd/Even Pricing
Odd pricing simply means that the price is not expressed in whole dollars,
while even pricing is a whole-dollar amount ($1.99 versus $2.00, for
example). Odd pricing originally came about before the advent of sales
taxes and widespread credit card use to bolster cash register security and
reduce theft. That is, if a customer brings a $5.00 item to a clerk and
presents a $5.00 bill for payment, it was believed that the temptation
would be greater for the clerk to simply pocket the bill and not record the
sale. It was reasoned that if the clerk had to make change—say a nickel if
the item were priced at $4.95—the likelihood was higher that the sale
would actually be rung into the cash register. 30
Now, the rationale for odd pricing is very different and it is often
regarded as a key element of psychological pricing, or creating a
perception about price merely from the image the numbers provide the
customer. Studies indicate that at certain important price breaks—$9.99
versus $10.00, $99.95 versus $100.00, and so on—customers mentally
process the price as significantly lower because of the reduced digit count
in the price point. 31 However, odd pricing can backfire if misapplied. For
example, it seems acceptable for a bottle of Voss to be prestige priced at
$12.95 instead of $13.00, but a physician, management consultant, or CPA
wouldn’t want to charge a client $195 instead of simply $200 for services
rendered.
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Coach is working hard to maintain the level of exclusivity of its brand necessary
to successfully utilize a prestige pricing approach.
Source: Coach, Inc.
One-Price Strategy and Variable Pricing
An ethnocentric aspect of the U.S. marketplace is the nearly total reliance
by marketers on a one-price strategy with end-user consumers. That is,
except for temporary price reductions for promotional or clearance
purposes, the price marked on a good is what it typically sells for. The
Snicker bar at the convenience store is $1.25 regardless of whether you are
a schoolchild or corporate CEO, and the clerk doesn’t want to bargain with
you about the price. A one-price strategy makes planning and forecasting
infinitely easier than the alternative approach, variable pricing, which is
found in many other countries and cultures but is relatively rare in the
United States. With variable pricing, customers are allowed—even
encouraged—to haggle about prices. Ultimately, the price is whatever the
buyer and seller agree to—a marked price is nothing more than a starting
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point for negotiation. Variable pricing is traditional in the United States
with a few consumer goods—cars, boats, houses, and the like. But it is the
pervasive way of doing business with all sorts of products across large
parts of the globe.
In the U.S. service sector, variable pricing is much more common. It is
also more common in B2B in general versus B2C. When variable pricing
is used in the United States, in some cases it carries legal limitations.
Many pricing laws have been enacted specifically to protect both channel
purchasers and end-user consumers from a variety of unfair pricing
practices.
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Everyday Low Pricing (EDLP) and High/Low
Pricing
The rise of Walmart as one of the world’s largest corporations brought the
concept of everyday low pricing (EDLP) to the forefront of global
consumer consciousness. EDLP is not an option just for retailers; it’s an
important strategic choice for nearly any firm. The fundamental
philosophy behind EDLP is to reduce investment in promotion and transfer
part of the savings to lower price. Thus, firms practicing an EDLP strategy
typically report substantially reduced promotional expenditures on their
financial statements. They instead rely much more on generating buzz in
the market about the EDLP to create and maintain customer traffic and
sales volume. EDLP, when successfully implemented, has a strong
advantage of reducing ups and downs in customer traffic, thus making
forecasting more accurate.
The antithesis to EDLP is a high/low pricing strategy, in which firms
rely on periodic heavy promotional pricing, primarily communicated
through advertising and sales promotion, to build traffic and sales volume.
The promotional investment is offset by somewhat higher everyday prices.
Why would a firm elect high/low pricing instead of EDLP? Usually, the
firm has little choice because of what competitors are doing. It takes a long
time for any product or service provider to convince the market that it has
EDLP. Most often, firms use various elements of promotion to build sales
of new products, shore up sales of declining products, or combat
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competitors’ promotional activity in the same marketplace. Some
industries truly are over the top in employing high/low pricing strategies—
airlines, auto dealerships, and personal computers are a few that run so
many price promotions that customers are conditioned to wait and rarely
purchase a product at full price. When high/low pricing reaches this
fevered pitch in an industry, it almost always hurts the bottom line of all
firms. 32
Walmart has historically used its EDLP strategy to grow the business
and expand its market. Recently Walmart is shifting emphasis from giant
supercenters to stores with smaller footprints. As such, the launch and
growth of Walmart Neighborhood Market continues to pose a real threat to
traditional supermarket competitors like Kroger, Publix, and H-E-B, and
even to a degree to niche players like Whole Foods and Trader Joe’s.
Walmart Neighborhood Markets are smaller stores that are more plentiful
and more centrally located within communities than Walmart’s traditional
supercenters. These markets focus more on the customer experience—
especially convenience—and feature an increased array of specialized and
fresh foods, offering locally grown produce and organic food items at
much more attractive prices than their specialty food competitors. This
new Walmart formula combining EDLP and shopper convenience is
proving to be a powerful competitive win for the world’s largest retailer. 33
Auction Pricing
Auctions have been around for centuries. In an auction, in which
individuals competitively bid against each other and the purchase goes to
the high bidder, the market truly sets the price (although some minimum
bid amount is often established by the seller). As a strategy, auction
pricing has gained in prominence as Internet commerce has come of age.
Of course, the most famous example of auction pricing is eBay, but there
are numerous others. Whereas in the past prices at auction were wholly
dependent on the level of demand represented by a fairly small number of
people either physically gathered at the auction location or connected
through traditional telecommunication, today the Internet provides a vast
electronic playing field for customers to participate in the auction on a
real-time basis.
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This phenomenon has resulted in a marketplace in which auction
prices can be considerably more reflective of the real value of an offering
versus other static price purchase environments. Besides standard auction
approaches (buyers bid for a seller’s offering), online reverse auctions are
now very common in which sellers bid prices to capture a buyer’s
business. Priceline.com is a prominent example of a reverse auction firm
that serves as a clearinghouse for extra capacity from hotels and rental car
firms. 34
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SET THE EXACT PRICE
LO 11-4
Describe approaches to setting the exact price.
To set an exact price for an offering, be it a good or service, marketing
managers should consider several calculations to arrive at the optimal
price. We will discuss four methods here that are frequently used: cost-
plus pricing/markup on cost, markup on sales price, average-cost pricing,
and target return pricing.
Cost-Plus Pricing/Markup on Cost
Cost-plus pricing is really just a general heuristic that builds a price by
adding a standardized markup on top of costs for an offering, hence the
term markup on cost. 35 First, an estimate of costs involved must be
developed. In accounting courses, you learn that determining costs is no
easy task. For example, many different types of costs can be considered,
including fixed and variable costs, direct costs and indirect costs, and
shared or overhead costs, which might be allocated to the offering on some
prorated basis. Nevertheless, once a cost has been established, cost-plus
pricing requires the predetermination of some standardized markup
percentage that is to be applied based on company guidelines. Often,
managers will receive a list of standard markup amounts by product line.
Easy pricing decision making is the advantage of cost-plus pricing, but for
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most firms it is too simplistic.
Consider the following example. Assume the firm desires a standard
markup of 50 percent over cost. Thus:
Cost= $ 7.00Markup on cost (.50×$7.00)=+$ 3.50Price= $10.50
Markup on Sales Price
In determining markup, one approach is to use the sales price as a basis.
Consider the following example:
Sales price=$12.00Cost=$ 7.00Markup=$ 5.00
The markup percentage is $5.00 ÷ $12.00 = 41.7 percent. That is, the
$5.00 markup is 41.7 percent of the sales price. In most applications, when
a marketing manager simply refers to “markup,” he or she is referring to
this calculation—markup on sales price, which uses the sales price as a
basis for calculating the markup percentage. This is because most
important items on financial reports (gross sales, revenue, etc.) are sales,
not cost, figures. 36
All else being equal, calculating a markup on cost makes the markup
appear higher than a markup on price even though the dollar figures are
identical. For the above example, the markup on cost is $5.00 ÷ $7.00 =
71.4 percent, which seems more attractive than the 41.7 percent we
calculated above. Sometimes marketers will refer to “100 percent
markup,” usually meaning they are simply doubling the cost to establish a
price.
Average-Cost Pricing
Often pricing decisions are made by identifying all costs associated with
an offering to come up with what the average cost of a single unit might
be. 37 The basic formula for average-cost pricing is:
All costs ÷ Total number of units = Average cost of a single unit
To make this calculation requires predicting how much of the offering
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will be demanded. Assuming total costs of $100,000 and forecasted total
number of units of 250, the average cost of a single unit is:
$100,000÷250=$400
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One can then add a profit margin to the total cost figures to calculate a
likely price for a unit of the offering:
$100,000 total cost + $25,000 profit margin = $125,000
Thus, the average price of a single unit based on the above profit
margin is:
$125,000÷250 units=$500
Caution is warranted in employing average-cost pricing, as it is always
possible that the quantity demanded will not match the marketing
manager’s forecast. Let’s assume that instead of 250, the actual number of
units in the above example turns out to be only 200. Revenue would drop
to $100,000, but total costs would not drop proportionately because many
of the costs are incurred regardless of sales volume. This example vividly
illustrates the point made earlier in the chapter that it is unwise to base
pricing decisions on costs alone. Market and customer factors must also be
carefully considered in establishing a price.
Target Return Pricing
To better take into account the differential impact of fixed and variable
costs, marketing managers can use target return pricing. First, a few
definitions are in order. Fixed costs are incurred over time, regardless of
volume. Variable costs fluctuate with volume. And total costs are simply
the sum of the fixed and variable costs. 38 To use target return pricing, one
must first calculate total fixed costs. Second, a target return must be
established. Let’s assume that total fixed costs are $250,000 and the target
return is set at $50,000 for a total of $300,000.
Next, a demand forecast must be made. If demand is forecast at 1,500
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units:
(Fixed costs + Target return) ÷ Units = ($250,000 + $50,000) ÷ 1,500 =
$200 per unit
Suppose the variable costs per unit are $50. This results in a price per unit
of:
$200 + $50 = $250
As with average-cost pricing, the effectiveness of target return pricing
is highly dependent on the accuracy of the forecast. In the example above,
if customer demand comes in at 1,000 units instead of 1,500, at a price of
$250 the marketing manager will experience a $50 per unit loss!
DETERMINE CHANNEL DISCOUNTS AND
ALLOWANCES
LO 11-5
Determine discounts and allowances to offer to channel members.
Discounts are direct, immediate reductions in price provided to
purchasers. Allowances remit monies to purchasers after the fact. In
general, in B2B transactions, marketing managers must be cognizant of
several types of discount and allowance approaches that essentially
amount to price adjustments for channel buyers. While the pricing
discounts and purchasing allowances mentioned in this section primarily
pertain to B2B, in some instances, end-user consumers may be offered
some of the same price adjustments.
Sellers offer discounts and allowances for a variety of reasons. Paying
a bill early, purchasing a certain quantity, purchasing seasonal products
during the off-season, and experiencing an overstock on certain products
are common rationales for offering various discounts and allowances. At
its essence, the approach hopes to impact purchaser behavior in directions
that benefit the selling firm by sweetening the buying organization’s terms
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of sale.
Cash Discounts
Sellers offer cash discounts to elicit quicker payment of invoices. The
rational purchaser weighs the discount offered for early payment versus
the value of keeping the money until
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it is due. Ideally, the cash discount results in financial advantage for both
parties. Cash discounts are stated in a typical format such as 2%/10,
Net/40, which translates to the buyer receiving 2 percent off the total bill if
payment is received within 10 days of the invoice date, but after that point
there is no discount and the whole invoice is due within 40 days of the
invoice date.
Trade Discounts
Trade discounts, also sometimes called functional discounts, provide an
incentive to a channel member for performing some function in the
channel that benefits the seller. Examples include stocking a seller’s
product or performing a service related to that product, such as installation
or repair, within the channel. Trade discounts are normally expressed as a
percentage off the invoice price.
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Walmart is a master at taking advantage of all types of channel discounts and
allowances. Doing so results in lower costs and helps keep their retail prices
low for consumers.
© Patrick T. Fallon/Bloomberg via Getty Images
Quantity Discounts
Quantity discounts are taken off an invoice price based on different levels
of product purchased. Quantity discounts may be offered on an order-by-
order basis, in which case they are noncumulative, or they may be offered
on a cumulative basis over time as an incentive to promote customer
loyalty. From a legal standpoint, it is essential that quantity discounts are
offered to all customers on an equally proportionate basis so that small
buyers as well as large buyers follow the same rules for qualification. The
later section on legal considerations in pricing extends the discussion about
fairness in pricing practices. 39
Seasonal Discounts
Firms often purchase seasonal products many months before the season
begins. For example, a retailer might purchase a winter apparel line at a
trade show a year before its season, accept delivery in August, begin
displaying it in September, yet cold weather may not hit until November or
December. To accommodate such lengthy sales processes, firms offer
seasonal discounts, which reward the purchaser for shifting part of the
inventory storage function away from the manufacturer. 40 Seasonal
discounts are often expressed as greatly extended invoice due dates. In the
winter clothes line example, terms of 2%/120, Net 145 would not be
unusual.
Promotional Allowances
Within a given channel, sellers often want purchasers to help execute their
promotional strategies. A consumer products marketer like P&G, for
example, depends heavily on wholesalers, distributors, and retailers to
promote its brands. When a retailer runs an ad for a P&G brand such as
Crest toothpaste, it is nearly always in response to promotional allowances
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provided by the manufacturer. Ordinarily, upon proof of performance of
the promotion, the retailer will receive a check back from the manufacturer
to compensate for part of the promotional costs. The allowance might be
calculated as a percentage of the invoice for Crest purchased from P&G or
it might be a fixed dollar figure per dozen or per case. 41
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Geographic Aspects of Pricing
A variety of geographically driven pricing options are common within a
channel. Among those most used are FOB pricing, uniform delivered
pricing, and zone pricing.
FOB Pricing The initials FOB stand for free on board, meaning that
title transfer and freight paid on the goods being shipped are based on the
FOB location. For example, FOB-origin or FOB-factory pricing indicates
that the purchaser pays freight charges and takes title the moment the
goods are placed on the truck or other transportation vehicle. The greater
the distance between shipper and customer, the higher the freight charges
to the customer. In contrast, FOB-destination indicates that until the goods
arrive at the purchaser’s location, title doesn’t change hands and freight
charges are the responsibility of the seller. 42
Uniform Delivered Pricing Many direct-to-consumer marketers
such as Amazon and Lands’ End practice uniform delivered pricing, in
which the same delivery fee is charged to customers regardless of
geographic location within the 48 contiguous states. 43 Pricing rates are
quoted for other locations, and expedited delivery is generally available for
a higher fee.
Zone Pricing In a zone pricing approach, shippers set up geographic
pricing zones based on the distance from the shipping location. The parcel
post system of the U.S. Postal Service is set up this way. 44 Rates are
calculated for the various combinations of sending and receiving zones.
EXECUTE PRICE CHANGES
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LO 11-6
Understand how to execute price changes.
Over time, price changes are inevitable. A marketing manager may want to
raise or lower a price for competitive or other reasons, or competitors may
make price changes that require a considered pricing response from your
own firm. Among the marketing mix variables, price is the easiest and
quickest to alter, so sometimes firms overrely on price changes to
stimulate additional sales or gain market share. You’ve already seen that
establishing pricing objectives and strategies and implementing pricing
tactics are complex and entail important managerial decisions. It is
important to also recall that in the overall scope of marketing planning and
strategy, pricing does not take place in a vacuum. That is, a change in an
offering’s price—either up or down—can dramatically impact the
effectiveness of the overall marketing mix variables in reflecting your
offering’s positioning in the eyes of customers.
It is important for marketing managers to conduct appropriate market
research in advance of major price changes to try to determine the likely
impact of a price change on customer perceptions of the offering and
likelihood to purchase. Both qualitative research approaches, such as focus
groups, and quantitative approaches, such as surveys and experiments, can
be designed to determine the degree to which an anticipated price change
might influence customer response. Ideally, price changes upward will
reflect the just noticeable difference (JND) in a price, which is the amount
of price increase that can be taken without affecting customer demand.
If a potential upward price change is being driven by pressure on
margins, creative marketers often look for ways to save margin without
increasing price. Over the years, candy manufacturers have been severely
affected by swings in the price of sugar. As the sugar price has gone up, a
good portion of the profit margin of a candy bar has been preserved by
simply reducing the size of the bar. Today’s chocolate lovers would be
amazed at seeing how much larger a Snickers bar was in 1970 versus
today. At the same time, the basic bar size has shrunk multiple times
during that period, including the most recent 10 percent reduction (and
concurrent 30-calorie reduction) in early 2013. While the price of a bar has
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also risen dramatically during the same period (an average of four times
the 1970 price), the price increase would have been even more dramatic
without the reduction in ounces.
In addition to reducing the offering in terms of size or quantity, other
nonprice approaches to mitigating the pressure to maintain margins
include altering or reducing discounts and allowances, unbundling some
services or features from the original offering, increasing minimum order
quantities, or simply reducing product quality. However, marketing
managers
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should be cautious when they begin to consider altering the product itself
to retain margins; customer response to such tinkering might be negative.
A worst-case scenario occurs when a firm takes a price decrease on an
offering to stimulate volume and grow share, only to have one or more
competitors immediately and aggressively jump in to meet or beat the
price decrease, resulting in a price war. Price wars are the quickest way to
destroy margins and bottom-line profit. The old marketing adage “We’ll
price our product lower but make it up on volume” doesn’t work when
competitive price pressure forces prices below cost!
Assume that you, as a marketing manager, just found out that a
competitor has taken a price increase or decrease. You must evaluate the
change and select the appropriate response for your product line. The basic
principles and cautions about competing on price are the same, regardless
of whether your firm or a competitor fires the first shot. If your firm is the
market leader, you may find that competitors tend to create similar but
somewhat inferior offerings at attractive prices in an attempt to knock you
off as leader.
When formulating a response to a competitor’s price reduction,
remember to consider your offering from the perspective of its overall
value proposition to customers and not be too quick to react in kind with a
price decrease. In the case of a competitor’s price increase, perhaps based
on escalating costs or margin pressure, analysis may reveal the increase is
an opportunity to both gain a price advantage and perhaps increase your
volume and share, especially if you are a cost leader and can maintain
desired margins at your current price. Or you may simply wish to take a
concurrent price increase and enjoy the related margin enhancement.
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Remember, a cost leadership strategy does not necessarily imply price
leadership; rather, the best cost leader firms take a portion of their cost
leadership to margin and perhaps a portion to price advantage.
UNDERSTAND LEGAL CONSIDERATIONS IN
PRICING
LO 11-7
Examine legal considerations in pricing.
In the process of setting pricing objectives and developing and
implementing pricing strategies and tactics, marketing managers must be
aware that some aspects of pricing decision making can be very sensitive
legally. Laws at the national, state, and local levels are in place that impact
a firm’s pricing practices. Federal legislation includes the Sherman
Antitrust Act (1890), Clayton Act (1914), Robinson-Patman Act (1936),
and Consumer Goods Pricing Act (1975). The Federal Trade Commission
(FTC) actively monitors and enforces federal pricing laws. Several of the
more important legal considerations in pricing and their associated
regulatory bases are discussed below.
Price-Fixing
Companies that collude to set prices at a mutually beneficial high level are
engaged in price-fixing. When competitors are involved in the collusion,
horizontal price-fixing occurs. 45 The Sherman Act forbids horizontal
price-fixing, which could result in overall higher prices for consumers
since various competitors are all pricing the same to maximize their
profits.
When independent members of a channel (for example, manufacturers,
distributors, and retailers) collude to establish a minimum retail price,
referred to as retail price maintenance, vertical price-fixing occurs.
Vertical price-fixing is illegal under the Consumer Goods Pricing Act, and
for good reason. Vertical price-fixing ensures everybody in the channel is
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satisfied with their “cut” of the profits, but the profit boost is achieved by
increased prices to consumers.
Price Discrimination
Price discrimination occurs when a seller offers different prices to
different customers without a substantive basis, such that competition is
reduced. The Robinson-Patman Act explicitly prohibits giving, inducing,
or receiving discriminatory prices except under certain
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specific conditions such as situations where proof exists that the costs of
selling to one customer are higher than to another (such as making
distributions to remote locations) or when temporary, defensive price
reductions are necessary to meet competition in a specific local area. 46
Deceptive Pricing
Knowingly stating prices in a manner that gives a false impression to
customers is deceptive pricing. Deceptive pricing practices are monitored
and enforced by the FTC. Deceptive pricing may take several forms.
Sometimes, firms will set artificially high reference prices for merchandise
just before a promotion so that an advertised sale price will look much
more attractive to customers. 47 Or a seller may advertise an item at an
unbelievably low price to lure customers into a store, and once the
customer arrives refuse to sell the advertised item and instead push a
similar item with a much higher price and higher margin. When this occurs
and it can be demonstrated that a seller had no true intent to actually make
the lower-priced item available for sale, the practice is called bait and
switch and is illegal. Finally, the ubiquitous reliance of retailers on
scanner-based pricing has opened a plethora of stealth pricing fraud
schemes, perpetrated by dishonest retailers who label an item on the shelf
sign at a lower price than it is actually priced within the scanner database.
For certain, some of the scanner errors result from mistakes and not fraud,
but the nontransparent nature of scanner pricing puts a burden on the
customer to return to the days of “buyer beware.”
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Predatory Pricing
A strategy to intentionally sell below cost to push a competitor out of a
market, then raise prices to new highs, is called predatory pricing.
Predatory pricing is illegal but prosecuting it can be very tricky because
intent must be proved. Other plausible explanations exist for drastic price
reductions including inventory overstocks, so proving that predatory
pricing has occurred is difficult.
Fair Trade and Minimum Markup Laws
Fair trade laws were popular in the past because they allowed
manufacturers to establish artificially high prices by limiting the ability of
wholesalers and retailers to offer reduced or discounted prices. Fair trade
laws varied greatly from state to state, depending largely on how strong
the independent retailer and wholesaler lobby was in a particular locale.
These laws protected mom-and-pop operators from the price discounting
by chain stores. 48
Closely associated with fair trade laws are minimum markup laws,
which require a certain percentage markup be applied to products. In one
extreme case in the 1970s, the State of Oklahoma took legal action against
Target Corporation to force the discounter to obey Oklahoma’s minimum
markup law that prohibited advertising a wide variety of merchandise for
less than a 6 percent profit. This effectively shut down Target’s ability to
advertise loss leader products, items (typically paper towels, toilet paper,
toothpaste, and the like) sacrificed at prices below cost to attract shoppers
to the store. 49 Target fought back by creating special versions of its
famous full-color Sunday advertising inserts for Oklahoma shoppers that
showed in very large type the nationally advertised sales price
accompanied by a disclaimer clearly showing a much higher “in
Oklahoma” price. In effect, the ads told Oklahomans they couldn’t get the
same prices as the rest of the country, and it didn’t take long for Oklahoma
consumers to come to their senses and realize that the state’s fair pricing
law might protect small retailers, but it hurt everyday shoppers. In 1975,
the federal Consumer Goods Pricing Act repealed all state fair trade laws
and minimum markup laws.
311
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SUMMARY
Clearly, price is a critical element in an offering’s perceived value.
Marketing managers must establish clear pricing objectives and related
strategies, supported by well-executed pricing tactics. In setting the
exact price, it is best to compare several approaches before making a
decision. Several channel discounts and allowances are available that
can impact purchaser behavior in ways that benefit the selling firm.
Price changes are inevitable and marketing managers must anticipate
customer and competitor responses. Finally, marketing managers must
be sensitive to legal ramifications of certain pricing practices.
KEY TERMS
cost leadership 293
pricing objectives 294
market share 294
penetration pricing 294
price skimming 295
target return on investment (ROI) 296
price elasticity of demand 296
competitor-based pricing 297
price war 297
stability pricing 297
value pricing 297
product line pricing (price lining) 299
price points 300
captive pricing (complementary pricing) 301
price bundling 301
reference pricing 302
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prestige pricing 302
odd pricing 303
even pricing 303
psychological pricing 303
one-price strategy 303
variable pricing 303
everyday low pricing (EDLP) 304
high/low pricing 304
auction pricing 304
reverse auctions 304
cost-plus pricing 305
markup on cost 305
markup on sales price 305
average-cost pricing 305
target return pricing 306
discounts 306
allowances 306
cash discounts 306
trade discounts 307
quantity discounts 307
seasonal discounts 307
promotional allowances 307
FOB 308
uniform delivered pricing 308
zone pricing 308
just noticeable difference (JND) 308
price-fixing 309
price discrimination 309
deceptive pricing 310
bait and switch 310
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fair trade laws 310
minimum markup laws 310
loss leader products 310
APPLICATION QUESTIONS
More application questions are available online.
1. Why might penetration pricing potentially negatively impact brand
image and product positioning in the long run? Given this risk, why
would a marketing manager use penetration pricing? Identify a
brand (other than the examples in the chapter) that you believe is
engaged in penetration pricing.
2. Pricing against competitors is common. Yet the approach carries
some significant problems.
a. What are the advantages of competitor-based pricing?
b. What are the risks of using competitor-based pricing exclusive of
other approaches?
c. Identify a few industries in which taking competitor-based pricing
into account might be especially beneficial when developing an
overall pricing strategy. What caused you to select the industries
you did?
3. Review Exhibit 11.3 on price-quality positioning, along with the
accompanying discussion.
a. Consider the low quality/high price quadrant. Identify a brand
(other than the examples in the chapter) that you believe currently
resides in this
312
quadrant. How is it able to command a high price? Do you believe
the pricing strategy is sustainable for that brand? Why or why not?
b. Consider the high quality/low price quadrant. Identify a brand
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(other than the examples in the chapter) that you believe currently
resides in this quadrant. In your opinion, why has the brand
undertaken this pricing strategy? Do you believe there are risks to
the brand in remaining too long in that quadrant? Why or why not?
4. Select any three of the pricing tactics identified in the chapter. For
each tactic:
a. Identify a brand (other than the examples in the chapter) that you
believe is currently employing that tactic.
b. Provide evidence to support the use of that tactic.
c. Is the use of the tactic effective? Why or why not?
d. What factors might cause a need to abandon this tactic in favor of
another?
5. Assume that you are a marketing manager for Pantene shampoo
and conditioner, two of P&G’s star products, and that several of
P&G’s competitors have recently begun to cut prices to retailers and
also to offer more aggressive channel allowances to boost sales
and market share.
a. What options do you have as a response to the competitive price
declines?
b. What are the risks associated with each of the options?
c. Assuming Pantene is the market leader in its category, what
response to the price cuts do you recommend?
MANAGEMENT DECISION CASE
Surge Pricing: BUT IS IT A SURGE OF
CUSTOMER VALUE?
Would you be willing to pay a higher price for a good or service just
because demand is high? Actually, you may already be doing so
more often than you think. When demand is up, consumers pay
higher prices for airline seats, hotel rooms, electricity (in some
cities), theater tickets, and even newly minted and (seemingly
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scarce) iPhones. Some of these prices, such as those for airline
seats, react quickly to changes in demand, changing even within
minutes as bookings occur. Other prices shift over a longer period,
as in price skimming or penetration pricing strategies you read
about in the chapter. Of note, and as often commented on by the
press and on social media, is a demand-based pricing strategy that
is referred to as “surge pricing,” that is, pricing flexibly based on
real-time market demand. One company that’s received a lot of
attention for its implementation of surge pricing is the ride-sharing
firm Uber.
Uber currently completes about 40 million rides globally per
month (that’s about 54,000 rides per hour). 50 A key aspect of its
business model is the fact that drivers are not considered
employees of Uber, but rather independent contractors. This
means that Uber cannot mandate specific hours a driver must
work, and hence it’s entirely possible there might be a shortage of
passenger capacity available when a particular rider wants to take
a trip. To manage this, Uber has two forms of pricing: The first and
more traditional approach bases a fare on variables such as route,
traffic conditions, and number of riders. Most conventional taxis
use this approach—after all, it makes sense to a customer that a
40-mile ride to the airport costs more than a ride to the
supermarket 3 miles away. The value proposition to the customer
of those two scenarios is clear. But the customer value proposition
behind surge pricing is not so self-evident!
Uber makes the switch to surge pricing at times of high
demand. (For the record, Disney does the same thing at its theme
parks, so don’t get the idea that surge pricing is evil.) As Uber
explains it, “Fares may increase to make sure those who need a
ride can get one. Surge rates are charged as a multiplier of X. For
example, a rider in a surging area may see and accept a surge
multiplier of 1.3x or 2.1x.” 51 Breaking down the math simply, a
surge multiplier of 2x on a fare that is normally $10 would mean
the new fare is now $20, or twice as much.
If customers were perfect economists, they would understand
and accept that when the supply of drivers is down it’s reasonable
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for prices to go up as the customer is vying for a scarcer resource.
But alas, many riders feel that Uber’s implementation of surge
pricing is a form of price gouging. 52 Perhaps it is the
313
uncertainty and unpredictability of it—Uber’s surge pricing can kick
in suddenly and frequently (up to 20 times an hour), and the
multiplier does not have a known cap (there have been cases of
local fares that were more than $300). 53 This price variability
makes it difficult for customers with some flexibility to decide when
to request a ride, as they’re unsure if waiting a few minutes will
result in a lower or higher price. 54 Further exacerbating the issue
is the fact that Uber has marketed the value of surge pricing almost
exclusively to drivers, and not to riders. Professor Utpal Dholakia,
a pricing expert at Rice University, suggests that Uber should
instead be explaining the benefit of surge pricing to the customer,
and that even the name “surge pricing” is focused on the driver
side of the transaction rather than its riders. 55 Put another way, it’s
hard for the customer to think of surge pricing as adding value to
them when it seems focused only on the upside to Uber of the
supply/demand relationship.
In the end, for marketing managers the concept of surge
pricing is really not that new and is certainly not limited to just Uber
(we’ve already mentioned that Disney uses it). In fact, even
automated surge pricing has been tested in the past, with Coke
deploying vending machines specially outfitted with thermometers
in the price display to investigate the potential for raising the price
of the soda as the temperature went up. 56 Electronic shelf labels
that would allow retail stores to change prices automatically based
on stock and demand are already available, if not widely
implemented. 57 And some upscale restaurants have taken to
selling prepaid meal tickets, with higher prices during peak dining
times. Believe it or not, even the city of Chicago is getting into the
act, as it is installing surge-priced parking meters near Wrigley
Field to capture more revenue during games.
So despite the negative attention Uber received for its surge
pricing—which as we now understand may be more attributable to
722
its implementation and communication with customers than the
practice of surge pricing per se—it’s clearly a valid pricing strategy
that we’ll all as customers likely experience more commonly in the
future.
Questions for Consideration
1. While many consumers don’t like Uber’s surge pricing, it can’t
easily be claimed that it is price-fixing (as it is not coordinated
with competitors such as Lyft), price discrimination (as all
customers in a surge area are subject to the same price
increase), or deceptive pricing (Uber is nothing if not obvious
about the price increase). Thus, despite the negative reactions,
surge pricing is legal. Do you agree that it should be legal? Build
a strong case either way, depending on your feelings about
surge pricing.
2. What adjustments and improvements to the implementation and
communication with customers about Uber’s surge pricing
strategy do you suggest in order to help those customers better
understand the value proposition and improve acceptance? How
might you explain surge pricing to consumers so the benefit they
receive from it is better understood?
3. If surge pricing were found to be illegal, do you think prices for
Uber’s service would rise in general? Why or why not?
MARKETING PLAN EXERCISES
ACTIVITY 12: Price Your Offering
As you learned in this chapter, your approach to pricing is an integral
aspect of positioning your offering. Price sends a signal to customers
about the offering’s quality and other characteristics. At the same time,
effective pricing ensures margins and profits needed for continued
success.
723
1. Review the options for pricing objectives and strategies and establish
an appropriate set for your offering.
2. Review the various available pricing tactics and select a mix of
tactics that you believe is most appropriate for your offering.
3. Consider the methods of establishing an exact price presented in the
chapter. Use these approaches to develop a comparative set for
review. Select a final price for the offering.
4. What channel discounts and allowances will you provide on your
offering?
314
NOTES
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724
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wmlspartner=wlpa&selectedSellerId=0&adid=22222222227075684943&wmlspartner=wmtlabs&wl0=&wl1=g&wl2=c&wl3=188286056570&wl4=pla-
291896542270&wl5=9011778&wl6=&wl7=&wl8=&wl9=pla&wl10=8175035&wl11=online&wl12=136119600&wl13=&veh=sem
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725
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726
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riders/.
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CHAPTER 12
Manage Marketing
Channels, Logistics,
and Supply Chain
LEARNING OBJECTIVES
LO 12-1 Define a value network and how organizations
operate within this approach.
LO 12-2 Identify various types of intermediaries and
distribution channels.
LO 12-3 Understand the impact of intermediary contributions
via physical distribution functions, transaction and
732
communication functions, and facilitating functions.
LO 12-4 Explain the different types of vertical marketing
systems.
LO 12-5 Utilize suitable criteria to select appropriate channel
approaches.
LO 12-6 Identify the logistics aspects of supply chain
management.
LO 12-7 Understand the role of retailing and e-commerce in
delivering the value offering to the customer.
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THE VALUE CHAIN AND VALUE NETWORKS
LO 12-1
Define a value network and how organizations operate within this
approach.
The concept of the value chain, which was introduced in Chapter 3, is
worth revisiting at this point. The value chain portrays a synthesis of
primary and support activities utilized by an organization to design,
produce, market, deliver, and support its products (see Exhibit 12.1).
EXHIBIT 12.1 Porter’s Generic Value Chain
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Source: Porter, Michael, E., Competitive Advantage: Creating and Sustaining
Superior Performance. New York, NY: Simon & Schuster, 1998.
Several of the value chain activities are directly relevant to what you
will read about in this chapter, including inbound and outbound logistics,
operations issues, and procurement. A supply chain represents all
organizations involved in supplying a firm, the members of its channels of
distribution, and its end-user consumers and business users. The goal is
coordination of these value-adding flows among the entities in a way that
maximizes overall value delivered and profit realized. 1 The management
of this process is called supply chain management. Emblematic of the
central role that channel and supply chain issues play in forming the value
proposition of modern firms, it is telling that today more and more
marketing managers are turning to elements of the “place P” within the
4Ps of the marketing mix for sources of differential competitive
advantage. 2 How value is added by successfully managing a firm’s
channels and the supply chain is the central topic of this chapter.
At the broadest level, a firm might view itself as an integral part of a
value network, which may be thought of as an overarching system of
formal and informal relationships within which the firm participates to
procure, transform and enhance, and ultimately supply its offerings in final
form within a market space. Value networks are fluid and complex. They
are composed of potentially numerous firms with which a company
interacts vertically within its channel of distribution and horizontally
across other firms whose contributions are essential to getting the right
734
offering to the right customers. A value network perspective is a macro-
level
Yes, FedEx delivers packages—but it also prides itself on being a provider of
integrated supply chain solutions to businesses of all kinds.
Source: FedEx
318
EXHIBIT 12.2 Elements of a Value Network
• The overarching process
focus is on value co-creation.
• Network and team relationships are
key elements in the co-creation of the
value.
• A shared vision exists within • This value is viewed as network
735
the network with a common
aim of fostering value co-
creation.
value.
• Value co-creation is viewed
as emanating from the
expertise and competencies
of all parties within the
network.
• Relationship conflicts are viewed as
potential barriers to the creation of
network value and a process for
conflict co-management is essential.
Source: Stephen L. Vargo and Robert F. Lusch, “Evolving to a New Dominant Logic
for Marketing,” Journal of Marketing 68 (January 2004), pp. 1–17.
strategic approach that is being adopted by many firms in part because of
the intense competition to cut costs and maximize process efficiencies
every step of the way to market. The approach suggests opportunities for
breaking outside of traditional thinking that marketing is encapsulated
within an organization, and instead suggests looking for such opportunities
as alliances, strategic partnerships, nontraditional channel approaches,
episodic collaborations, and outsourcing opportunities to provide unique
sources of competitive edge. 3
At its core, a value network exists to co-create value. The aim is value
co-creation by the participating suppliers, customers, and other
stakeholders in which the members of the network combine capabilities
according to their expertise and the competencies required from the
situation. 4 The key elements of a value network are portrayed in Exhibit
12.2.
Based on the concept of value networks, a whole new breed of
organization is arising called a network organization, or virtual
organization, because it eliminates many in-house business functions and
activities in favor of focusing only on those aspects for which it is best
equipped to add value. 5 Such approaches are often pursued to provide
quicker market response and to free resources to focus on the firm’s core
deliverables. Network firms usually formalize contracts with suppliers,
distributors, and other important partners to contribute the aspects of the
value chain those entities do best, then draw on their own internal
capabilities to focus on core internal sources of value. Some network
organizations operate much like a shell in which most or all of the actual
manufacturing, distribution, operations, and maybe even R&D and
736
marketing execution are outsourced to efficient experts. 6
The now infamous Chipotle Mexican Grills restaurants’ food illness
outbreaks a few years back evidenced the critical role that supply chain
management plays in a company’s success. In 2015, Chipotle experienced
numerous food-borne illness outbreaks within its restaurants, including
salmonella, E. coli, and norovirus, that infected scores of customers in
Chipotle restaurants across the United States. Chipotle built huge brand
loyalty among millennials through its “build-your-own” menu layout as
well as its commitment to ethical food standards. However, since the food-
borne illness outbreaks, some have argued that these very standards, which
contributed to Chipotle’s success, are also responsible for Chipotle’s
supply chain breakdowns, which compromised the integrity of its food—
the very thing Chipotle champions. Due to its farm-raised, hormone-free
meat policy, Chipotle has had difficulty finding sufficient numbers of
sustainable suppliers who meet their standards. At times, this has resulted
in meat shortages for the restaurant chain. In essence, Chipotle’s supply
chain historically has been comprised of many small, local suppliers. The
approach is great for sustainability but makes it considerably more
challenging both to ensure food safety in the first place and to trace the
origins of any food-borne illnesses that may manifest within its supply
chain. 7
In the future, more firms, and especially start-ups, entrepreneurial
organizations, and those whose core products are in the critical
introduction and growth phases, will opt for a network organization
approach to take advantage of the value network concept. This prediction
is based on a competitive need for firms to be nimble in all aspects of their
operation—that is, to be in a position to be maximally flexible, adaptable,
and speedy in response to
319
the many key change drivers affecting business today such as rapidly
shifting technology, discontinuous innovation, fickle consumer markets,
and relentless market globalization. 8 Taking a value network approach
frees up internal resources so a firm can be more nimble in addressing
external uncontrollable opportunities and threats, thus yielding a potential
competitive advantage over firms that have high costs associated with
performing many of the value chain functions themselves. A network
737
organization facilitates concentration on one’s own distinctive
competencies while efficiently gathering value from outside firms that are
concentrating their efforts in their own areas of expertise within your value
network.
Many organizations are beginning to consider their customers—both
end users and within a channel—as important members of a value
network. That is, firms cultivate customer involvement in various aspects
of product and market development to enable customer advocacy, which is
a willingness and ability on the part of a customer to participate in
communicating the brand message to others within his or her sphere of
influence. There are several potential value-adding ways to involve
customers, in both B2B and B2C settings, including participation in
ongoing research and customer advisory panels and provision of
recognition, rewards, and delightful surprises for customers that participate
in the relationship at a high level.
Overall, managing marketing channels and the supply chain is a
fruitful area of concentration for marketing managers because of its
potential to enhance the value of the firm’s goods and services in a variety
of ways. As you read further about the various specific components of the
“place P” in the marketing mix, keep in mind that in today’s business
environments, the boundaries of just how these value-adding activities are
delivered and by whom within the value network is a very open
opportunity. As we have learned, these decisions are made with the
knowledge that intelligent investment in the primary and support activities
within the value chain should positively enhance profit margin through
more efficient and effective firm performance.
CHANNELS AND INTERMEDIARIES
LO 12-2
Identify various types of intermediaries and distribution channels.
A channel of distribution consists of interdependent entities that are
aligned for the purpose of transferring possession of a product from
producer to consumer or business user. Put another way, a channel is a
738
system of interdependent relationships among a set of organizations that
facilitates the exchange process. 9 Most channels are not direct from
producer to consumer. Instead, they contain a variety of intermediaries,
formerly called middlemen, that play a role in the exchange process
between producer and consumer. 10 A wide variety of types of
intermediaries exist, and they usually fall within two principal categories:
merchant intermediaries, who take title to the product, and agent
intermediaries, who do not take title to the product. 11 Agent
intermediaries perform a variety of physical distribution, transaction and
communication, and facilitating functions that make exchange possible.
Exhibit 12.3 provides further insight about major types of intermediaries.
On the surface, intermediaries may seem unnecessary. Wouldn’t it be
much more efficient for all channels to be direct from producer to
consumer? Put another way: Why don’t manufacturers just distribute
directly to consumers instead of through Amazon and other
intermediaries? The answer goes back to what we learned in Chapter 3
about the different types of utilities—form, time, place, and ownership.
Sometimes you might hear a phrase such as, “We save you money by
cutting out the middleman!” But, in reality, cutting out intermediaries is
not a guarantee of saving consumers money. In the long run, channel
intermediaries tend to continue to participate in a channel only as long as
their value added to the channel supports their inclusion. If an intermediary
of any of the types shown in Exhibit 12.3 doesn’t carry its weight, the
channel structure eventually will change
739
The majority of L.L. Bean’s sales are through its online and catalog direct
channels. But they also have a channel intermediary in the form of their own
retail stores and outlets.
©Andre Jenny/Alamy Stock Photo
320
EXHIBIT 12.3 Major Types of Intermediaries
MIDDLEMAN: Independent business entity that links producers and end-
user consumers or organizational buyers.
MERCHANT MIDDLEMAN: Middleman that buys goods outright, taking
title to them.
AGENT: Business entity that negotiates purchases, sales, or both but
does not take title to the goods involved.
MANUFACTURERS’ AGENT: Agent that usually operates on an
extended contract, often sells within an exclusive territory, handles
noncompeting but related lines of goods, and has limited authority to price
and create terms of sale.
DISTRIBUTOR: Wholesale middleman, found especially when selective
or exclusive distribution is common and strong promotional support is
needed. Sometimes used synonymously for a wholesaler.
WHOLESALER: Entity primarily engaged in buying, taking title to, storing
(usually), and physically handling goods in large quantities. Wholesalers
resell the goods (usually in smaller quantities) to retailers or to
organizational buyers.
JOBBER: Middleman that buys from manufacturers and sells to retailers.
This intermediary is sometimes called a “rack jobber” to connote the
service of stocking racks or shelves with merchandise.
740
FACILITATING AGENT: Entity that assists in the performance of
distribution tasks other than buying, selling, and transferring title
(examples include trucking companies, warehouses, importers, etc.).
RETAILER: Entity primarily engaged in selling to end-user consumers.
Source: Bennett, Peter D., ed. Dictionary of Marketing Terms. Chicago, IL: American
Marketing Association, 1995.
accordingly to maximize efficiencies across the utilities. Thus, channel
members add their value by bridging gaps in form, time, place, and
ownership that naturally exist between producers and consumers.
Exhibits 12.4 and 12.5 illustrate examples within two distinct channel
situations: one with end-user consumers as the final element in the channel
and one ending with an organizational buyer in which the product is used
within the business. The exhibits call attention to the fact that channels are
distinguishable based on the number of intermediaries
EXHIBIT 12.4 End-User Consumer Channels
741
321
EXHIBIT 12.5 Organizational Channels
they contain—the more intermediaries that are involved, the longer the
channel. A direct channel, portrayed as the first example in each exhibit,
has no intermediaries and operates strictly from producer to end-user
consumer or business user. An indirect channel contains one or more
intermediary levels, as represented by all the other examples within each
exhibit. 12
FUNCTIONS OF CHANNEL INTERMEDIARIES
LO 12-3
Understand the impact of intermediary contributions via physical
distribution functions, transaction and communication functions, and
facilitating functions.
Channel intermediaries enhance utilities by providing a wide array of
specific functions. Their contributions can be classified into physical
742
distribution functions, transaction and communication functions, and
facilitating functions.
Physical Distribution Functions
One function of channel intermediaries is physical distribution, or
logistics, which is the integrated process of moving input materials to the
producer, in-process inventory through the firm, and finished goods out of
the firm through the channel of distribution. Let’s examine how channel
intermediaries contribute to the physical distribution function in five key
ways: breaking bulk, accumulating bulk and sorting, creating assortments,
reducing transactions, and transportation and storage.
Breaking Bulk In many industries, such as consumer health products,
when finished goods come off a firm’s production line, the manufacturer
packages the individual pieces into large cartons for shipping into the
channel of distribution. This is a convenient way for manufacturers to ship
out the product. In physical distribution, shipping a “gross” of any product
represents 12 dozen (144). But consumers shopping in a drugstore,
whether a national chain such as Walgreens or an independent pharmacy
in your hometown, don’t need to see 144 units of a shampoo or deodorant
on a store shelf. The function of breaking bulk occurs within a channel to
better match quantities needed to space constraints and inventory turnover
requirements. 13 Importantly, like most channel functions, breaking bulk
could be performed by different types of intermediaries, in the case of
Walgreens by the retailer’s own warehouse and in the case of the local
pharmacy by a drug wholesaler such as McKesson.
Accumulating Bulk and Sorting In some industries, rather than
breaking bulk, the intermediaries perform a process of accumulating bulk
—that is, they take in product from multiple sources and transform it, often
through sorting it into different classifications
322
for sales through the channel. 14 Eggs, for example, might come into a
processing house from individual farm operators for sorting by grade and
size, then to be packaged and sent on their way to retailers.
743
Creating Assortments Intermediaries engage in creating
assortments when they accumulate products from several sources and
then make those products available down the channel as a convenient
assortment for consumers. 15 Assume for a moment you are looking for a
new HD smart TV. With no channel intermediaries you would have to
review the entire line of HD smart TVs from each manufacturer to truly
understand the different product features offered across their product lines.
But walk into Best Buy or go to the retailer’s website and an assortment
across those manufacturers is already waiting for your review, selected by
Best Buy’s expert buying staff based on features and value. Most
consumers appreciate the convenience associated with having an
assortment of choices available for review. Shoppers love Costco, and
Costco uses economies of scale to purchase its inventory in bulk at lower
prices, allowing them to accumulate assortments and then subsequently
resell the items—in smaller bulk chunks—to customers at low prices. The
corporation’s business model is remarkably successful, and it has proven
resilient even against retail giant and industry disrupter Amazon. Through
its warehouse membership model, Costco has become a multi-billion-
dollar global retailer that now operates in eight countries. 16
Reducing Transactions We’ve already seen how the introduction
of even one intermediary into a channel can contribute to greatly reducing
transactions necessary to complete an exchange. While it might seem
counterintuitive to those who are not studying marketing management,
channels with intermediaries actually tend to save end-user consumers
money over what most direct producer to consumer distribution
approaches would cost, given the same product. 17 Manufacturers’ costs
would skyrocket if they held the responsibility for interfacing with and
delivering product to every one of their end users. Consider that
conveniently located retailers save consumers a lot of money by reducing
travel costs versus buying directly from a manufacturer. As mentioned
earlier, in the long run, channel intermediaries remain in the channel only
as long as they are adding efficiencies, reducing costs, and adding value
within that channel.
Transportation and Storage Relatively few producers operate
744
their own transportation networks or provide warehousing facilities.
Producers make money by pushing finished goods out the door and into
the channel of distribution. As such, transportation and storage functions
are among the most commonly provided channel intermediary activities. In
the publishing industry, Amazon.com and other online booksellers play an
invaluable role for both publishers and consumers by ensuring that
sufficient inventories of the right books are available for shipping across a
variety of transportation choices, from UPS ground to next-day air
depending on the urgency of the order.
Transaction and Communication Functions
Another category of intermediary contribution within a channel is the
performance of transaction and communication functions. These functions
include:
Selling. Often, intermediaries provide a sales force to represent a
manufacturer’s product line. This could take the form of
manufacturers’ representatives, or brokers, that represent a product
line down the channel. Alternatively, the salespeople might work for
a wholesaler or retailer. 18
Buying. Both wholesalers and retailers perform an important function
by evaluating products and ultimately simplifying purchase decisions
by creating assortments. 19
Marketing communications. Intermediaries frequently receive
incentives from manufacturers to participate in helping promote
products in the channel. 20 When a Target ad features Tide laundry
detergent, it’s a safe bet that Target has received a promotional
allowance from P&G to feature the brand. Likewise, that shelf tag in
your neighborhood pharmacy featuring a special price on Tums very
likely was placed there by the pharmacy’s wholesaler as part of a
promotion by GlaxoSmithKline, its producer.
323
Facilitating Functions
745
In a channel, facilitating functions performed by intermediaries include a
variety of activities that help fulfill completed transactions and also
maintain the viability of the channel relationships. These include:
Financing. Without readily available credit at various stages in the
distribution process, many channels could not operate. In any given
channel, when credit is required by one channel member, it may be
facilitated by another channel member such as a producer,
wholesaler, or retailer, depending on the situation. Alternatively,
credit may be facilitated by outside sources such as banks and credit
card providers. 21
Market research. Because intermediaries are closer to end-user
consumers and business users than manufacturers, they are in an
ideal position to gather information about the market and consumer
trends. Collecting and sharing market and competitive information
helps members of the channel continue to offer the right product mix
at the right prices. 22 Between Internet tracking and smartphone
technology, data are being collected on consumers 24/7. Your
smartphone offers a conduit for collecting valuable insights on your
geographic location, Internet browsing history, health information,
and product preferences to omnipresent companies like Google and
Facebook, as well as cellular service providers like Verizon and
AT&T. As you read in Chapter 5, this constant, instantaneous
collection of consumer data facilitated the rise of Big Data and has
greatly heightened the importance of data analytics to marketing
managers. Although this trend has raised security concerns, some
companies such as Fitbit have strategically leveraged the opportunity
to generate consumer interest in collecting and analyzing personal
data. Through its wearable technology, Fitbit collects data on a host
of wearers’ daily activities such as steps taken, calories burned, and
more. The company then uses the data not only to improve its
products but also to inform its users as part of its personal training
services. 23
Risk-taking. A big part of how an intermediary can add value is by
reducing the risk of others in the channel. Any of the major physical
distribution functions described above that are assumed by a channel
746
member come with potential risks and liabilities. 24 For example,
accumulating bulk in perishable goods comes with a risk of spoilage
if customer demand estimates are inaccurately high. Also, when
product liability lawsuits are filed, the defendants named are nearly
always anyone within the distribution channel that played a part in
getting the product to market.
Other services. Services performed by intermediaries run a gamut of
activities such as training others in the channel on how to display or
sell the products, performing repair and maintenance of products
after a sale, and providing customized software for inventory
management, accounting and billing, and other operational processes.
ADP is one of the largest global providers of business processing and
cloud-based human capital management solutions. Serving over
650,000 clients in over 110 countries, ADP provides services such as
payroll processing, human resources management, and benefits
administration so that clients can allocate time and resources to focus
on their core business instead of investing in internal specialty
operations. 25
DISINTERMEDIATION AND E-CHANNELS
Driven largely by the advent of electronic commerce and online
marketing, disintermediation, or the shortening or collapsing of marketing
channels due to the elimination of one or more intermediaries, is common
in the electronic channel. In the early days of e-commerce, many
entrepreneurs rushed to market with a website to sell their favorite
products. This
324
dot-com boom quickly turned to a bust, however, in part because many of
these new-age marketers didn’t understand the basics of distribution
channels. Simply opening a website that features a product is one thing,
but it’s another thing entirely to invest in the infrastructure and capabilities
needed to consistently fulfill orders in a timely and accurate manner. Most
postmortems on the cause of the dot-com bust point to poor channel and
supply chain practices as the No. 1 reason so many of those initial e-
747
marketers failed. That is, customer expectations were peaked by the
novelty and convenience of buying online only to be dashed by delays and
errors in product fulfillment after the sale. 26
Today, electronic commerce has settled into a more rational position
as one of several approaches within marketing management for
distributing and promoting goods and services. E-marketers are much
more savvy about how they set up and manage their channels and realize
that disintermediation may not improve aggregate channel performance.
The trend toward more stability in online shopping was facilitated in large
measure by the entry of firms such as UPS and FedEx into the market of
providing a broad range of integrated supply chain solutions.
Recently, many e-commerce (and other) firms are finding that handing
over one or more of their core internal functions, such as most or all of
their supply chain activities, to other (third-party) companies that are
experts in those areas allows the firm to better focus on its core business.
This approach, which is referred to as outsourcing or third-party logistics
(3PL), is attractive for many firms whose own core competencies do not
include these elements. The trend has opened up opportunities for firms
such as UPS and FedEx, as well as a host of other smaller firms, to change
their business focus from mere shippers into broad-based logistics
consultancies that handle all aspects of clients’ supply chain functions. 27
Amazon offers intermediary services to aspiring entrepreneurs and
business start-ups through its Fulfilled by Amazon (FBA) services. By
adopting the FBA business model, small businesses can advertise and sell
their products through Amazon, and Amazon stores and ships the
inventory and handles the distribution and fulfillment logistics. In addition,
Amazon provides customer support and Prime shipping eligibility for FBA
products. The FBA business model allows individual sellers and small
businesses to utilize the existing infrastructure, capabilities, and consumer
base of a large company. 28
VERTICAL MARKETING SYSTEMS
LO 12-4
Explain the different types of vertical marketing systems.
748
Whereas standard marketing channels are comprised of independent
entities, a vertical marketing system (VMS) consists of vertically aligned
networks behaving and performing as a unified system. 29 A VMS can be
set up in three different ways: corporate systems, contractual systems, and
administered systems. At its essence, in a VMS a channel member (1)
owns the others, (2) has contracts with them, or (3) simply forces
cooperation through sheer clout within the channel.
Corporate Systems
In corporate VMS, a channel member has invested in backward or forward
vertical integration by buying a controlling interest in other intermediaries.
In the Midwest, the Braum’s chain started in the 1930s as a family dairy
farm in Kansas. Over time, the Braum family acquired almost every aspect
of its distribution channel—milk processing, other product manufacturing,
transportation, warehousing, and the Braum’s stores. An owned, or
corporate, VMS such as that practiced by Braum’s creates a powerful
competitive advantage in the marketplace due to cost and process
efficiencies realized when a channel is strictly controlled by one entity.
Contractual Systems
A contractual VMS consists of otherwise independent entities that are
bound together legally through contractual agreement. The most famous
example of this arrangement is a franchise organization, which is designed
to create a contractual relationship between a
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franchisor that grants the franchise and the franchisee, or the independent
entity entering into an agreement to perform at the standards required by
the franchisor. 30 Entrepreneur magazine reports that franchising remains
the highest-potential start-up and growth mechanism for small-business
owners, and it’s an effective way to expand a distribution channel quickly
and efficiently. Subway, the world’s largest franchise system, has over
44,000 outlets in over 100 countries.
Another common contractual VMS is the retailer cooperative, or co-
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op. In this era of chain stores, independent retailers across a variety of
product categories have banded together to gain cost and operating
economies of scale in the channel. Associated Wholesale Grocers (AWG)
is the largest co-op food wholesaler to independently owned supermarkets
in the United States, with more than 3,500 stores in 35 states. Through
enhanced buying and distribution power, AWG-serviced stores can better
compete with supermarket chains than if the stores were buying
separately. 31 A variation on this concept is the wholesaler cooperative,
such as Ace Hardware, in which retailers contract for varying degrees of
exclusive dealings with a particular wholesaler. 32
Administered Systems
In an administered VMS, the sheer size and power of one of the channel
members place it in a position of channel control. The lead player in such
situations may be referred to as the channel captain or channel leader,
signifying its ability to control many aspects of that channel’s
operations. 33 For decades, P&G was the channel captain in every channel
in which it was a member based on the clout of its extensive stable of No.
1 brands. It became notorious for dictating terms of sale, limiting
quantities of promotional goods to intermediaries, and steamrolling
uncooperative wholesalers and retailers into submission. But the rise of
giant retailers—Walmart, in particular—shifted the power in the channel
and forced P&G to become more customer-compliant.
It is possible that an administered VMS can be more formally
structured through strategic alliances and partnership agreements among
channel members that agree to work in mutual cooperation. P&G and
Walmart have a long-standing strategic alliance that includes connectivity
of inventory, billing systems, and market research. The result is improved
inventory management, more efficient invoice processing, and product
development that better serves the consumer marketplace. Approaches
such as this are often referred to as partner relationship management
(PRM) strategies. The goal of PRM is to share resources, especially
knowledge-based resources, to effect optimally profitable relationships
between two channel members. 34
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CHANNEL BEHAVIOR: CONFLICT AND
POWER
The very nature of channels, especially traditional channels composed of
independent entities, fosters differences in channel power among
members. Channel power is the degree to which any member of a
marketing channel can exercise influence over the other members of the
channel. As we saw with the administered VMS, power can directly
influence the relationships within the channel. Ultimately, channel conflict
can occur in which channel members experience disagreements and their
relationship can become strained or fall apart. Unresolved channel conflict
not only can result in an uncooperative and inefficient channel, but it also
can ultimately impact end-user consumers through inferior products,
spotty inventory, and higher prices.
Danskin sells activewear through thousands of retail outlets, not the
least of which are Amazon and Danskin’s own online presence. But when
the company first decided to launch its website, it was very mindful of
potential channel conflict. Thus, the company initially offered only plus-
sized products on the web so that it would not compete directly with the
retail stores. When Danskin’s retail customers did not show resistance to
the website, the company slowly expanded its online presence, adding
regular-sized apparel and more fashion styles. To avoid competing with its
retail customers on price, Danskin’s online merchandise was offered at the
manufacturer’s suggested retail price. But recently as various online
channels have become
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EXHIBIT 12.6 Sources of Channel Power
751
ubiquitous, they’ve become more aggressive on their websites—for
example, offering a Memorial Weekend sale in 2017 with every item 25
percent off. 35
French and Raven have identified five important sources of power that
are relevant in a channel setting. Those power sources are illustrated in
Exhibit 12.6 and explained below.
Coercive power. Coercive power involves an explicit or implicit
threat that a channel captain will invoke negative consequences on a
channel member if it does not comply with the leader’s request or
expectations. Walmart has exceedingly tight standards for how
shippers must schedule delivery appointments at a Walmart
distribution center. If the truck misses the appointment by even a few
minutes, the error results in punitive financial consequences for the
vendor. If the problem becomes repetitive, a vendor will be placed on
probation as an approved source.
Reward power. Despite Walmart’s ability to coerce, few vendors will
turn up their nose at potential business from the retailing giant just
because they can be difficult to work with. Naturally, the motivating
force is Walmart’s huge reward power in the form of writing big
orders.
Expert power. Often, channel members adopt an approach of
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utilizing their unique competencies to influence others in the channel.
Expert power might take the form of sharing important product
knowledge, such as a representative from Clinique setting up a
demonstration for cosmetic consultants in a Nordstrom store to
stimulate sales expertise. Or it might involve sharing of information
such as Kroger Supermarkets providing consumer preference data to
Frito-Lay to get it to produce a special flavor of chips for a specific
geographic area that Kroger serves.
Referent power. When a channel member is respected, admired, or
revered based on one or more attributes, that member enjoys referent
power within the channel. Only the best of the best brands can rely
on this power source. In frozen foods, Stouffer’s (a unit of Nestlé)
commands a level of respect well above the competition because of
its outstanding quality standards, successful marketing and branding
strategies, and cooperativeness with retailers. When frozen-food
sections of supermarkets are reset to accommodate new-product
entries and remove discontinued items, Stouffer reps are often trusted
to help store clerks reset the shelves, and in many instances
Stouffer’s is given prime display space in the freezer case.
Legitimate power. Legitimate power results from contracts such as
franchise agreements or other formal agreements. When McDonald’s
requires franchisees that want to participate in the latest iteration of
their famous Monopoly scratch-off game to sign an agreement as to
how the game will be promoted and administered in the store, it is
exercising legitimate power to control misuse of the promotional
activity. 36
SELECTING CHANNEL APPROACHES
LO 12-5
Utilize suitable criteria to select appropriate channel approaches.
Given the plethora of choices of channel intermediaries and channel
structures that we’ve reviewed, marketing managers have a lot to consider
753
when designing or selecting the channel approach that will best meet their
needs. When marketing planning, a good channel decision can be one of
the most important within the entire planning process and can lead to
market advantage over competitors. Among the issues for consideration
are:
1. What is the level of distribution intensity sought within the channel?
2. How much control and adaptability are required over the channel
and its activities?
3. What are the priority channel functions that require investment?
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Distribution Intensity
Distribution intensity refers to the number of intermediaries involved in
distributing the product. Distribution strategies can be intensive, selective,
or exclusive.
Intensive Distribution When the objective is to obtain maximum
product exposure throughout the channel, an intensive distribution strategy
is designed to saturate every possible intermediary and especially retailers.
Intensive distribution is typically associated with low-cost convenience
goods. Impulse goods are also appropriate for intensive distribution, as
their sales rely on the consumer seeing the product, feeling an immediate
want, and being able to purchase now.
Chobani uses intensive distribution to sell its yogurt throughout the
United States, Australia, Asia, and Latin America. 37 Chobani founder
Hamdi Ulukaya describes the company’s journey as beginning “in 2005 in
a hundred-year-old, shuttered manufacturing plant in Central New York
[state], where we spent more than 540 tireless days and nights perfecting
the recipe for our authentic strained Greek Yogurt.” 38 The company’s first
distributor was a small grocer in Long Island, New York, in 2007. Within
three years, Chobani had become the No. 1–selling Greek yogurt in the
United States. 39 Chobani products are now distributed by virtually every
major grocer across the United States as well as by convenience stores
such as Wawa and 7-Eleven, and online platforms such as Amazon Fresh,
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Fresh Direct, and Instacart. 40 In 2017, Chobani launched a food incubator
program for food industry entrepreneurs where selected start-ups showcase
products to potential investors, distributors, and customers upon
completion of the program. 41
Tiffany & Company benefits from exclusive distribution as it plays up the
luxurious benefits of its products.
Source: T&CO
Selective Distribution Shopping goods, goods for which a
consumer may engage in a limited search, are candidates for selective
distribution. Examples of goods that fit this approach include most
appliances, midrange fashion apparel, and home furnishings. A selective
distribution strategy may require that intermediaries provide a modicum of
customer service during the sale and, depending on the type of good,
follow-up service after the sale. Intermediary reputation, especially of the
retailers, can be an asset in selective distribution. For example, selecting a
retailer whose brand connection enhances and is compatible with the
product is essential. Distributing a Kenneth Cole watch or accessory at
either Walgreens or Tiffany & Company is not a good fit, but gaining
distribution in Dillard’s and Macy’s makes a lot of sense.
Exclusive Distribution When a manufacturer opts for exclusive
distribution in a channel, it is often part of an overall positioning strategy
built on prestige, scarcity, and premium pricing. In Chapter 11, you read
about Voss water’s highly successful entry into the ultra-premium bottled
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water market. Voss’s prestige was greatly enhanced by a distribution
strategy that involved only one wholesale distributor per state, which had
to be a liquor, wine, and spirits wholesaler with relationships already built
among the exclusive restaurants and hotels that Voss was targeting.
Exclusive distribution also often arises because a significant personal
selling effort is required with the consumer before product purchase.
Products that possess complex or unique properties that only a one-to-one
in-person interaction with a customer can explain are often best served by
intermediaries with specialized sales capabilities. 42
Channel Control and Adaptability
Review of the types of intermediaries in Exhibit 12.3 and channel
examples in Exhibits 12.4 and 12.5 reveals a variety of options that can
lead to more or less control and adaptability over the channel. Hiring an in-
house sales force, investing in a fleet of trucks, building a
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warehouse facility, pursuing a corporate VMS through vertical integration,
and engaging in a contractual VMS with other intermediaries each would
increase a firm’s control of the channel but at the same time limit its
flexibility to change if the competition and other external forces require it.
Other options such as brokers, manufacturer’s agents, and common
carriers have the opposite effect in that a firm’s influence and control in
the channel are minimized but great flexibility is attained to dramatically
and quickly alter aspects of the channel if needed.
In deciding on the right balance between control and flexibility in a
channel, marketing managers must consider the type of products involved,
cost issues among the various options, strength of belief in the accuracy of
the sales forecast, and likelihood that major changes will occur in the
customer or competitive marketplace that would necessitate restructuring
the channel. Often, customers drive the ultimate choice a marketing
manager makes about a channel, as flexibility or control differentially
impact the value proposition from one customer to the next.
Prioritization of Channel Functions—Push versus
Pull Strategy
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The third aspect of channel decisions by marketing managers relates to
what channel functions are most important to the success of the particular
products. In large measure, this decision is framed by whether the general
approach is a push strategy or a pull strategy. A push strategy means that
much of the intensive promotional activities take place from the
manufacturer downward through the channel of distribution. Think of this
approach as an investment by the manufacturer in intermediaries so that
they will have a maximal incentive to stock, promote, sell, and ship the
firm’s products. Push strategies usually are supported by heavy allowance
payments to intermediaries for helping accomplish the manufacturer’s
goals. Examples include funding an extra incentive to a wholesale drug
salesperson for pushing a particular medication to an independent
pharmacy, or paying a slotting allowance or shelf fee to secure distribution
in an intermediary’s inventory listing and warehouse or onto a retail
shelf. 43
In contrast, a manufacturer employing a pull straegy focuses much of
its promotional investment on the end-user consumer. In this case, heavy
advertising in mass media, direct marketing, couponing, and other direct-
to-consumer promotion are expected to create demand from intermediaries
from the bottom of the channel upward. A pull strategy doesn’t mean a
manufacturer wouldn’t engage in any channel incentives, but rather that
the incentives would likely be greatly reduced versus a push strategy. 44
Obviously, a number of important marketing management decisions
about channel structure and types of intermediaries to best utilize are
influenced by the degree to which the channel intermediaries are relied on
to help create and support demand. The degree of push versus pull used is
fundamental in framing the channel structure and relationships that are
likely to optimize a product’s success.
LOGISTICS ASPECTS OF SUPPLY CHAIN
MANAGEMENT
LO 12-6
Identify the logistics aspects of supply chain management.
757
Physical distribution, or logistics, is the integrated process of moving input
materials to the producer, in-process inventory through the firm, and
finished goods out of the firm through the channel of distribution.
Traditionally, logistics was thought of as an internal flow going one
direction—outbound logistics. That is, it was thought that logistics started
with production and ended with receipt of the finished good by the end-
user consumer or business user. From a supply chain perspective, logistics
professionals today tend to take a more holistic view of physical
distribution. Thus, along with outbound logistics, it is important to
consider inbound logistics—sourcing materials and knowledge inputs
from external suppliers to the point at which production begins.
Today, the concept of reverse logistics must also be taken into
account. Reverse logistics deals with how to get goods back to a
manufacturer or intermediary after purchase.
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Product returns result for many reasons including spoilage and breakage,
excess inventory, customer dissatisfaction, and overstocks. 45 In particular,
online sellers in both the B2C and B2B space recognize that an inherent
aspect of electronic commerce is the increased likelihood of product
return. Returns are higher in this channel in large part because of the
inability to physically examine the merchandise before purchase. Smart
online sellers build return allowances—either free, with shipping charges,
or with a restocking fee—into their pricing model. To do this, the seller
must work out an efficient and customer-friendly procedure for how
merchandise is to be returned. In many cases, the selling firm partners with
one logistics company to handle the reverse logistics. For example, Zappos
partners with UPS and the USPS and provides its customers the
convenience of printing a free return label online at the Zappos website.
Several logistics aspects of supply chain management require close
attention by marketing managers. These are order processing, warehousing
and materials handling, inventory management, and transportation.
Order Processing
Receiving and properly processing customer orders is a critical step in
getting product moving through the supply chain. It is also a point at which
758
mistakes can easily occur, and when a mistake occurs in the order, it
usually carries through the whole fulfillment system. If the item ordered is
in stock, outbound processing from inventory occurs. If the item is not in
stock, referred to as a stock-out, then inbound replenishment processes are
triggered.
Fortunately, in many modern organizations, order processing has
become highly mechanized. Sophisticated and integrated enterprise
resource planning (ERP) systems now manage much of the logistics and
other processes for many firms. ERP is a software application designed to
integrate information related to logistics processes throughout the
organization. Once data are entered, they are automatically linked through
internal systems and become available for use with all relevant decisions
that rely on the ERP information. ERP enables employees throughout the
system, whether in sales, billing, customer service, or some other group, to
take ownership of their piece of the supply chain and to accurately
communicate order status both to the customer and among themselves. 46
Warehousing and Materials Handling
In an ideal supply chain, materials of all kinds are handled as few times as
possible. Any warehouse needs to be designed so that after goods are
received and checked in, they move directly to their designated storage
locations. Efficient, orderly, clean, and well-marked warehouses enhance
the flow of goods.
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Logistics issues are critical in shipping food products such as produce.
Exposure to too much heat or cold can ruin the inventory in transit.
©Cultura Limited/SuperStock
Decisions must be made about the optimal size for a warehouse, how
many warehouses to have, and where they should be located to minimize
transportation costs. The last point is especially important if the warehouse
serves as a distribution center in which functions such as breaking and
accumulating bulk occur for ultimate reshipping to customers.
Inventory Management
To ensure that inventories of both raw materials and finished goods are
sufficient to meet customer demand without undue delay, firms utilize
sophisticated just-in-time (JIT) inventory control systems. A JIT system’s
goal is to balance the double-edged sword of potentially having too many
goods on hand and creating unnecessary warehousing costs, with the
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330
EXHIBIT 12.7 Comparative Attributes across
Different Transportation Modes
Low
Cost
Speed Reliability
of
Delivery
Flexibility
of
Delivery
Reputation
for
Delivering
Undamaged
Goods
1.
Pipeline
1. Air 1. Pipeline 1. Motor 1. Pipeline
2.
Water
2.
Motor
2. Air 2. Rail 2. Water
3. Rail 3. Rail 3. Motor 3. Air 3. Air
4.
Motor
4.
Pipeline
4. Rail 4. Water 4. Motor
5. Air 5.
Water
5. Water 5. Pipeline 5. Rail
Note: Numbers indicate relative ranking based on general trade-offs of cost versus
other attributes of each mode.
chance of having so little inventory in stock that stock-outs occur,
requiring expensive rush production and express delivery situations. 47
PRM arrangements often open up their collective IT systems for data
sharing toward more reliable JIT inventory management. Walmart’s
legendary capability of real-time analysis and data transmission to vendors
about inventories at any store or distribution center location has created a
substantial competitive advantage over many other retailers. In any
industry, customers expect product to be in stock and available, and when
it’s not they quickly become prone to switching to competitors. One
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component of ERP systems is usually materials requirement planning
(MRP). MRP guides overall management of the inbound materials from
suppliers to facilitate minimal production delays. 48
Transportation
With the cost of fuel today, it is not unusual for transportation costs to run
as much as 10 percent of the cost of goods sold. Effective transportation
management is one way that many firms keep a lid on costs while also
optimizing delivery options for customers. Exhibit 12.7 provides a
comparison of several transportation options on a variety of criteria such
as dependability, cost, speed, and suitable products. The decision about
which one or what mix of these transportation options to choose will have
a major impact on a firm’s bottom line.
LEGAL ISSUES IN SUPPLY CHAIN
MANAGEMENT
As with pricing practices, a variety of laws impact the decision making
about channels and logistics. Among others, the Sherman Antitrust Act
(1890), Clayton Act (1914), and Federal Trade Commission Act (1914)
provide much of the basis for legislation impacting supply chains. Three
key legal issues related to distribution are exclusive dealing, exclusive
territories, and tying contracts.
Exclusive Dealing
When a supplier creates a restrictive agreement that prohibits
intermediaries that handle its product from selling competing firms’
products, exclusive dealing has occurred. Whether a particular
arrangement is legal depends on whether it interferes with the
intermediary’s right to act independently or the rights of competitors to
succeed—that is, is competition lessened by the arrangement? Exclusive
dealing lessens competition if it (1) accounts for substantial market share,
(2) involves a substantial dollar amount, and (3) involves a big supplier
and smaller intermediary, which sets up a case for coercion.
762
331
For example, the Federal Trade Commission (FTC) reached a
settlement with Transitions Optical on charges of illegally maintaining a
monopoly by engaging in exclusive dealing in the photochromic lens
distribution chain. Photochromic treatments are applied to eyeglass lenses,
and treated lenses darken when exposed to UV light. It was alleged that the
company illegally maintained its monopoly by engaging in exclusive
dealing at nearly every level of the photochromic lens distribution chain
and that Transitions’ exclusionary tactics locked out rivals from
approximately 85 percent of the lens caster market, and partially or
completely locked out rivals from up to 40 percent or more of the retail
and wholesale lab market. Essentially, they accomplished this by using
exclusive agreements that restricted retail and wholesale parties’ ability to
sell competing lens. Under the FTC consent order, Transitions agreed to
stop all exclusive dealing practices that pose a threat to competition,
making it easier for competitors to enter. 49
Exclusive dealing may be legal if the parties show exclusivity is
essential for strategic reasons, such as to maintain product image. High-
fashion brands often engage in exclusive dealing with retailers so that their
image is not sullied by being merchandised in the store next to step-down
labels. Also, if limited production capacity on the part of the supplier
legitimately restricts its sales capabilities, exclusive dealing may also be
legal. In this case, the point of the exclusive deal is to try to ensure the
limited quantities of product have the best possible chance of being “sold
through” to end users. 50
Exclusive Territories
An exclusive territory protects an intermediary from having to compete
with others selling a producer’s goods. Can a producer always grant an
intermediary an exclusive territory for sales purposes? Not necessarily. For
this practice to be legal, it would have to be demonstrated that the
exclusivity doesn’t violate any statutes on restriction of competition. This
issue often manifests itself in the context of suppliers limiting the number
of retail outlets within a certain geographic area. One possible defense of
exclusive territories might be that the costs of a new store (restaurant,
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retailer, dealer, etc.) entering the market are so great that the nature of the
market and risks involved demand an opportunity for exclusivity. 51
Years ago, health and nutrition retailer GNC famously and very
publicly faced class action lawsuits after the firm opened company-owned
stores near its franchised locations and lowered prices. Inevitably,
franchised locations lost customers and some went out of business. The
highly visible and brand-damaging lawsuits included charges of territory
violations and unfair competition. Ultimately, a multimillion dollar
settlement was reached designed to enhance GNC’s franchising system
and customer service. 52
Tying Contracts
If a seller requires an intermediary to purchase a supplementary product to
qualify to purchase the primary product the intermediary wishes to buy, a
tying contract is in place. Example: “You can buy my printer, but to do so
you must sign a contract to buy my ink”—thus, the products are “tied
together” as terms of sale. Tying contracts are illegal, but historically it has
often been difficult to prove in a court of law whether an agreement is or
isn’t a tying contract. 53 In a classic example, prior to going out of
business, Kodak had become embroiled in a legal battle after unlawfully
tying the sale of service for Kodak copying machines to the sale of parts.
Independent service organizations contended that Kodak restricted their
access to replacement parts for Kodak machines, thus effectively shutting
them out of the service business. Effectively, customers were left to either
buy service directly from Kodak or service the machines themselves. 54
RETAILING AND ELECTRONIC COMMERCE
LO 12-7
Understand the role of retailing and e-commerce in delivering the value
offering to the customer.
You have learned that retailers are one form of channel intermediary. In
this section we will focus a bit more on them as they tend to be the type of
764
intermediary that most people encounter most frequently. Retailing is any
business activity that creates value in the delivery of goods and services to
consumers for their personal, nonbusiness consumption
332
Most people know Walmart is the world’s largest retailer, but the world’s
second-largest retailer—Carrefour, based in France—is also very powerful with
thousands of different retail formats around the world.
©Kevin Foy/Alamy Stock Photo
and is an essential component of the supply chain. As we discussed earlier
in the chapter, an efficient, effective supply chain moves materials from
manufacturer to consumer. Retailing, in whatever form, is the point of
contact in the supply chain with the consumer of the product. Put another
way, retailing in its various forms represents a very important point of
customer interface.
In our highly interconnected world where customers interface with
manufacturers directly and through social media, much traditional brick-
and-mortar retailing is migrating online, either through manufacturer
websites or via Amazon and similar broad-based online providers. To be
sure, in many cases online shopping is putting a serious dent in in-store
purchases. Electronic commerce (e-commerce) refers to any action using
electronic media to communicate with customers; facilitate the inventory,
exchange, and distribution of goods and services; or make payments. It is
the fastest-growing customer interface and has fundamentally changed the
765
way companies and customers interact.
Electronic commerce has created new business opportunities and
enabled existing business models to be more efficient. Less than a decade
ago, for many retailers e-commerce was basically just a secondary channel
to their traditional store operations. Today, that’s changed and an effective
e-commerce strategy is central to most firms’ marketing strategy. E-
commerce is relevant in both the B2B and B2C space.
Business-to-Consumer Electronic Commerce
Electronic retailing (e-retailing or e-tailing) is the communication and sale
of products or services to consumers over the Internet. E-retailing is by far
the fastest-growing retail format, with growth of upwards of 10 percent per
year. 55 A recent study by Pew Research indicates that nearly 80 percent of
Americans do at least some shopping on the Internet, with 43 percent
shopping weekly or a few times a month. When this question was first
asked by Pew in 2000, just 22 percent of respondents said they’d ever
made a purchase online! 56
E-retailing offers even the smallest entrepreneur the opportunity to
open a shop on the Internet. However, although many small and mid-size
companies utilize e-retailing, the vast majority of e-retail sales and Internet
traffic is dominated by all sorts of famous names that started in brick-and-
mortar retailing of their products or services. Companies such as Walmart,
Best Buy, Merrill Lynch, and many others offer products and services as
well as extensive customer support online. Today, most of these
companies coordinate a sophisticated brick (store, physical location) and
click (online) strategy that links the retail formats. Omnichannel retailing
uses a variety of channels in a customer’s shopping experience, including
research before a purchase. Such channels include physical stores, online
stores, mobile stores, mobile app stores, telephone sales, and any other
method of transacting with a customer.
The greatest success in e-retailing has been in products where
convenience and price are key drivers in the purchase decision. People do
enjoy shopping at Barnes & Noble, but they also appreciate the
convenience of shopping online for books. Companies such as e-Trade and
traditional financial organizations such as Merrill Lynch are successful
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offering low-cost trading options and other services online. As consumers
become more comfortable evaluating products and making purchase
decisions online, they expand their electronic shopping experience. And of
course the 800-pound gorilla of e-retailing—Amazon—continues to set the
bar for variety and convenience in the customer interface.
Advantages of E-Retailing
Extensive Selection No other channel offers the breadth and depth of
selection. From information search to purchase, the Internet gives
consumers greater access to more
333
choices and different product options. In the time it takes someone to drive
to Barnes & Noble and find a book, it is possible to visit the Barnes &
Noble website, order the book (probably at a lower price), and have it
shipped for next-day delivery (or visit Amazon for increasing access to
same-day delivery!). 57
Considerable Information Available for Product Research and
Evaluation The Internet dramatically expands consumers’ knowledge,
offering an almost unlimited number of websites that research, evaluate,
and recommend products and services. From retailers (Best Buy in
electronics) to independent testing organizations (CNet in technology),
consumers can find information on anything. 58 For example, if a
consumer wants to find out more about a 1958 John Deere 420T tractor, all
he or she has to do is visit www.antiquetractors.com. If a consumer wants
a 1935 Whittall Bird of Paradise rug, he or she can simply check out eBay.
Additionally, many sites offer additional tools such as side-by-side product
comparisons, video product reviews, or three-dimensional interactive
product displays that educate consumers in an entertaining and visually
informative manner.
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http://www.antiquetractors.com
Online retailers like eBay have moved into mobile apps for easier customer
access.
© dennizn/Shutterstock
Build Product Communities The Internet brings together groups of
individuals with a shared interest to create virtual communities. These
communities share information, ideas, and product information.
Babycenter.com offers parents a one-stop source for information about
babies, children, and parenting. These sites are an excellent
communication channel for companies marketing products to relevant
target markets. One example is Babycenter.com, a part of the Johnson &
Johnson family of companies. It serves as a popular online community
where parents connect on a variety of topics. 59
Individualized Customer Experience The Internet allows a great deal of
personalization for both the consumer and the company. Consumers can
get one-on-one interaction from a customer service representative and
create their own web content based on personal preferences. At the same
time, companies can tailor messages and web content by analyzing
consumer web history. The end result is a more customized, personal
experience for the consumer.
Disadvantages of E-Retailing Despite clear advantages to e-retailing, it
does have several drawbacks.
Easier for Customers to Walk Away The customer is in total control
of the web experience and has the opportunity to walk away at any
768
time. In sharp contrast to a personal-selling situation or even a retail
store, the customer can simply click to another site. This puts
additional pressure on the website to attract and then hold on to
visitors. In evaluating a website, one of the key measures is its
“stickiness,” which refers to the amount of time visitors remain at the
site. A good website not only attracts a lot of visitors, but it also gets
them to remain and explore the site. Chapter 13 provides some ideas
on using digital and social media marketing in ways that increase
customer stickiness.
Reduced Ability to Sell Features and Benefits Websites incorporate
sophisticated tools to display and highlight critical features and
benefits. However, unless the customer initiates additional contact
via web live chat, phone, or e-mail, it can prove challenging to
engage the customer to answer questions or deal with objections.
Security of Personal Data Over the past several years, numerous
highly publicized data security breaches have occurred involving e-
retailers (as well as retail stores). While companies work hard to
make their websites secure and keep personal data such as credit card
numbers private, many consumers still have concerns about the
security of their data. These concerns lead some consumers to limit
their electronic purchases. 60
334
B2B E-commerce
Although the Internet has reshaped the way businesses and consumers
interact, it also plays a significant role in B2B customer interface.
Forrester estimates that B2B e-commerce will top $1.1 trillion and will
account for over 12 percent of all B2B sales in the United States by 2020.
For perspective, they predict the B2C e-commerce market to reach about
$480 billion by that time. (Yes, you read it correctly, B2B e-commerce
will be valued at over double that of B2C.) Just like B2C firms, B2B
providers are investing heavily in delivering excellent omnichannel
customer experiences. 61
Many companies now require their vendors to do business online.
769
Disney suppliers become part of Disney’s EDI (electronic data
interchange) network and process orders via the Internet. This requires an
initial investment of thousands of dollars to get the infrastructure
(hardware and software) to connect with Disney. As mentioned earlier in
the chapter, Walmart, a pioneer in the application of technology into
business processes, directly connects its large suppliers such as P&G with
its IT network so that stock replenishment is fast and seamlessly accurate.
The Internet has also increased the efficiency of B2B relationships
through dedicated B2B sites that facilitate the exchange of products and
services. This has made many markets, such as the wholesale distribution
of electricity, more efficient as buyers and sellers get together quickly.
Known as market makers, these sites (such as Lendingtree.com for
mortgage and other loans) bring buyers and sellers together. 62
Customer communities are, as the name suggests, websites (often
gated) where customers come to engage with other customers, the
sponsoring firm, and others in the ecosystem to share ideas and collaborate
on topics of mutual interest. Today, there are many such communities
including firms such as Adobe, Cisco, Oracle, and Spiceworks (for IT pros
and tech vendors), among many others. As has been a theme throughout
this chapter, the key goal of such communities is to enhance the
experience of the customer. 63
335
SUMMARY
Channel and supply chain decisions are central to creating a firm’s
value proposition. Competitive advantage can be gained through
effective and efficient channel management, physical distribution, and
logistics. Vertical marketing systems and partner relationship
management strategies add attractive levels of integration among
channel members. The aim of such value networks is value co-creation
by the participating suppliers, customers, and other stakeholders in
which the members of the network combine capabilities according to
their expertise and the competencies required from the situation.
770
Retailers are the type of channel intermediary that most people
encounter most frequently. Technology has dramatically changed how,
where, and when consumers choose to interact with retailers. Although
the growth of B2C e-retailing has certainly been impressive, B2B e-
commerce actually has grown even faster and now accounts for
considerably more revenue than B2C.
KEY TERMS
supply chain 317
supply chain management 317
value network 317
value co-creation 318
network organization (virtual organization) 318
nimble 318
channel of distribution 319
intermediaries 319
merchant intermediaries 319
agent intermediaries 319
direct channel 321
indirect channel 321
physical distribution (logistics) 321
breaking bulk 321
accumulating bulk 321
sorting 321
creating assortments 322
reducing transactions 322
transportation and storage 322
facilitating functions 323
disintermediation 323
771
outsourcing (third-party logistics, 3PL) 324
vertical marketing system (VMS) 324
corporate VMS 324
vertical integration 324
contractual VMS 324
franchise organization 324
retailer cooperative 325
wholesaler cooperative 325
administered VMS 325
channel captain (channel leader) 325
partner relationship management (PRM) strategies 325
channel power 325
channel conflict 325
coercive power 326
reward power 326
expert power 326
referent power 326
legitimate power 326
distribution intensity 327
intensive distribution 327
convenience goods 327
impulse goods 327
shopping goods 327
selective distribution 327
exclusive distribution 327
push strategy 328
slotting allowance (shelf fee) 328
pull strategy 328
outbound logistics 328
inbound logistics 328
772
reverse logistics 328
stock-out 329
enterprise resource planning (ERP) systems 329
just-in-time (JIT) inventory control system 329
materials requirement planning (MRP) 330
exclusive dealing 330
exclusive territory 331
tying contract 331
retailing 331
electronic commerce (e-commerce) 332
electronic retailing (e-retailing or e-tailing) 332
omnichannel retailing 332
market makers 334
customer communities 334
APPLICATION QUESTIONS
More application questions are available online.
336
1. Consider the concept of value co-creation.
a. In your own words, explain the concept of value co-creation.
b. What are some specific ways value can be co-created?
c. Provide an example of a specific value network you believe
results in a high level of value co-creation.
d. Provide an example of a specific firm or firms that could benefit by
establishing a value network and engaging in value co-creation. In
what ways would this approach be an improvement over their
existing business approach?
773
2. The chapter discusses the importance of being “nimble” in all
aspects of a firm’s operation—that is, to be in a position to be
maximally flexible, adaptable, and speedy in response to change.
a. Identify two firms in two different industries that you believe exhibit
a nimble nature in their operations.
b. What specific evidence leads you to believe these firms are
nimble, especially in their channel and supply chain activities?
3. Consider the issue of disintermediation in electronic channels.
a. Do you believe that all channels will disintermediate down to
simple direct channels over time? Why or why not?
b. Does your opinion change if the question is asked only about B2C
channels? Only for B2B channels? Why?
c. Consider this statement: “It’s important in business today for all
firms to work to cut out the middleman. Intermediaries represent
costs that can be saved by finding ways to cut them out of the
system. Down-channel buyers always benefit when this happens.”
Do you agree with this statement? Why or why not? Be specific in
arguing your point based on what you learned in the chapter.
d. Exhorting firms to develop networks and alliances for purposes of
value co-creation sounds like a good idea. However, is there a
point at which such approaches can be taken too far (a) from a
legal perspective, (b) from an ethical perspective, and (c) from a
strategic perspective? Explain your viewpoint.
4. Consider your school’s e-commerce capabilities.
a. From a student’s perspective, what e-commerce functions are
available on your campus website (for example, class registration,
payment, delivery of course materials)?
b. How would you rate the website’s ease of use for the functions
you identified?
c. What functions does the campus website perform well and what
functions does it perform poorly? Explain.
d. What e-commerce functions do you think should be added to the
website’s capabilities that are not currently offered?
774
MANAGEMENT DECISION CASE
Restoration Hardware—Using the Brick-
and-Mortar Store as a “3D Catalog”
The Internet has been a major disruptive force in modern retailing,
helping bring about the demise of numerous familiar stores in your
local mall: The Limited, American Apparel, Wet Seal, Aeropostale,
and Pacific Sunwear, to name a few. 64 Even stalwart Macy’s has
closed at least 100 of its stores. 65 While most retailers have
rushed to embrace e-retailing as their future, interestingly
Restoration Hardware (or RH, as it likes to be called) is not ready
to write an obituary for its brick-and-mortar presence. 66
337
To the contrary, it is utilizing an array of rather “traditional” retail
marketing approaches, including one that may seem to some like a
relic of retailing’s past.
RH is a luxury brand offering home furnishings, lighting, décor,
bathware, and a variety of other products clearly targeted to an
upper-income clientele. 67 Visit its stores and you can pick up a
nice linen couch for $7,000 or perhaps a crystal chandelier for
$9,000. 68 You can also find a selection of decorative drawer pulls,
faux fur throws, and even some affordable plush toys for under
$50. 69 RH has decreased its total number of stores, but then has
“doubled down” on the remaining ones by renovating them into big,
beautiful galleries located in renovated historic buildings. These
45,000-square-foot stores are filled with natural light and include
cafés where you can enjoy a latte or a Bellini cocktail while you
contemplate just which French steamer trunk you want to
purchase. 70 One store even has a wine cellar! 71 And of course,
child care will also be provided (we would expect nothing less in
such a rarefied retail environment). 72
Particularly fascinating about RH is how it views its retail
spaces—not as stores, but rather as galleries or showrooms,
where customers can get inspiration and style guidance. 73 CEO
Gary Friedman’s vision is to “reinvent physical retail” with these
775
elaborate new stores and a broader set of services. RH’s
emphasis on the service experience puts it in a league with
retailers like Apple, where customers get to see, touch, and try out
all the latest Apple products. 74 According to one retail consultant,
these new RH showrooms serve as a kind of “giant 3D real-time
catalog.” 75
And RH knows a thing or two about catalogs. It is famous
(some would say infamous) for its annual catalogs called Source
Books. One year, it sent out a shrink-wrapped set of 13 different
books weighing in at a reported 17 pounds and 3,000 pages. 76
These are not your grandpa’s Sears catalogs—rather, they are
more like fashion magazines, with high-quality photography
throughout. Rather than timing the mailing of these catalogs with
seasons, RH gives customers the whole source book of products
all at once so that it can be referenced throughout the entire
year. 77
In another break from tradition, the chain is implementing a
loyalty card with a blanket discount for members and no regular
promotional sales. The RH Grey Card costs $100 per year, but
provides members with a 25 percent savings on all full-priced
purchases (there are still clearance sales). 78 Ninety percent of RH
revenue now comes from Grey Card members, and since its
implementation RH has seen growth in the average order size. The
company also expects margins to grow due to deferred
memberships and renewals from the program’s current members.
It also expects additional new members to join every year. 79
But perhaps RH’s most striking departure from current
“mainstream” retail strategic thinking is the lack of priority they
place on Internet sales, which is near heresy in today’s market
where e-commerce rules. Although approximately 37 percent of its
business comes via the web, CEO Friedman insists that RH’s
business is “not about the Internet.” 80 Rather than competing with
other retailers through websites (where it is difficult to differentiate
by size and quality), RH leverages its extravagant physical retail
spaces (and its stylish source books) to strategically differentiate
its brand in the marketplace. Friedman sums up his feelings about
776
Internet-obsessed retailers as follows: “Make no mistake, many
retailers find themselves in a race to the bottom, a race we at RH
have chosen not to join.” Recent RH sales numbers show an
increase in “same store sales,” but not as great as in past years. 81
So it remains to be seen whether the firm’s contrarian approach is
one that will have long-term positive profit impact, and also
whether any other retailers will embrace a similar swim upstream
from convention to lure customers away from their laptops and
smartphones and back into brick-and-mortar stores.
Questions for Consideration
1. RH’s CEO believes that the Internet is limited in its ability to
facilitate differentiation among retailers. Do you agree? Which
retailers do a particularly effective job at presenting their
products through their websites?
2. Does the RH strategy work only for high-end/prestige products
or are there elements of its approach that would be appropriate
for retailers at all price levels? Choose one of your favorite
retailers and discuss how that company could best apply the
approach that RH is using.
3. Is it environmentally responsible for RH to produce and
distribute such large paper catalogs? Are there ways it could
mitigate the environmental impact of this program? How could it
best deal with the likely negative reaction from “green”
customers?
4. What are some other novel ways that retailers could define the
role of their brick-and-mortar stores to optimize their
effectiveness in contributing to increasing firm revenues and
profits?
338
777
MARKETING PLAN EXERCISES
ACTIVITY 13: Establish Distribution Channels for Your
Offering
Selecting the most appropriate channels of distribution for your offering
and then working out the overall best approach to establishing and
operating your supply chain is a critical element of your marketing plan.
1. Define and describe the value network within which you will operate.
Develop an approach to ensure that your supply chain operation is a
nimble as possible.
2. Decide what type of channel configuration is optimal for you and
what intermediaries should be part of the channel.
3. Select what physical distribution functions you will accomplish in-
house and how these will be set up. Then select what physical
distribution functions you will outsource and to whom.
4. Identify what aspects of e-channels you must address.
5. Decide:
a. What level of distribution intensity you seek within each channel.
b. How much control and adaptability are required over the channel
and its activities.
c. The priority channel functions that require investment.
6. Develop your plans for the following logistics functions:
a. Order processing.
b. Warehousing and materials handling.
c. Inventory management.
d. Transportation.
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the-future-of-b2b-e-commerce/#24ea39de1eb9.
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PART FIVE
Communicate the
Value Offering
CHAPTER 13
Promotion Essentials: Digital and Social Media Marketing
CHAPTER 14
Promotion Essentials: Legacy Approaches
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CHAPTER 13
Promotion
Essentials: Digital
and Social Media
Marketing
LEARNING OBJECTIVES
LO 13-1 Understand promotion and identify the elements of
the promotion mix.
LO 13-2 Explain the hierarchy of effects (AIDA) model and
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its usefulness to promotional strategy.
LO 13-3 Discuss the role and key types of digital marketing
in communicating value to customers.
LO 13-4 Identify the key types of social media and their
benefits to marketers in communicating value to customers.
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ESSENTIALS OF PROMOTION
LO 13-1
Understand promotion and identify the elements of the promotion mix.
Marketing managers communicate with customers through promotion.
Promotion involves communication with customers or potential customers
designed to inform, persuade, or remind. Exhibit 13.1 identifies and
defines five key promotional elements, and these elements make up the
promotion mix used by marketing managers: digital and social media
marketing, advertising, sales promotion, public relations (PR), and
personal selling.
The promotion mix is vital to marketing planning. The development of
promotion mix strategies, or simply promotional strategies, involves
decisions about which combination of elements in the promotion mix is
likely to best communicate the offering to the marketplace.
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Entertainment companies like Cirque du Soleil recognize the importance of a
strong promotion mix strategy. Here they present a beautiful and engaging
website for their immersive touring show “OVO.”
Source: Cirque du Soleil
EXHIBIT 13.1 Definitions of Elements of the
Promotion Mix
Promotion
Mix
Element
Definition
Digital and
Social
Media
Marketing
Promotion through the use of digital technologies
such as desktops, laptops, tablets, and
smartphones that does not involve a salesperson.
Often called interactive marketing, this approach
enables customers to connect with a company
directly in a two-way exchange.
Advertising Paid form of relatively less personal marketing
communications, often through a mass medium to
one or more target markets. Example media
include television, radio, magazines, newspapers,
and outdoors.
Sales
Promotion
Provides an inducement for an end-user consumer
to buy your product or for a salesperson or
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someone else in the channel to sell it. Designed to
augment other forms of promotion; rarely used
alone. Example sales promotion tools for
customers are coupons, rebates, and
sweepstakes. Inducements for salespeople or
channel members often involve special monies or
prizes for pushing a particular offering.
Public
Relations
(PR)
Systematic approach to influencing attitudes,
opinions, and behaviors of customers and others.
Often executed through publicity, which is an
unpaid and relatively less personal form of
promotion, usually through news stories and
mentions at public events.
Personal
Selling
One-to-one personal communication with a
customer by a salesperson, either in person or
through other means.
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EXHIBIT 13.2 Capabilities of Promotion
Goal One: To Inform
• Indicate features when introducing new products or making product
modifications
• Provide explanation of product functionality
• Articulate what a company and its brands stand for in order to
develop a clear image
• Discuss various uses and applications for the product
Goal Two: To Persuade
• Impact customer perceptions of a product, especially in comparison
to competitor’s products
• Get customers to try a product, hopefully resulting in a more
permanent switch from a competitor
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• Influence customers to purchase right now due to some strong
benefit or need
• Drive customers to seek more information online or through a
salesperson
Goal Three: To Remind
• Maintain a customer relationship with a brand
• Provide impetus for purchase based on some impending event
The mix is designed to achieve an acceptable ROI for the marketer, given
the product and target markets involved. For ongoing planning purposes,
much of marketing communications operates on a campaign-to-campaign
basis. A promotional campaign for a particular product or product line
tracks the effectiveness and efficiency of promotional strategies as it
allocates expenditures to a specific creative execution over a given time
period.
Sometimes several media vehicles are used within one campaign.
Nike+ is a built-in app in the iPhone, iPod, and iPod nano that allows you
to pair a Nike+ Sensor to track your workouts. To promote the product, the
firms combine multiple promotion mix elements that collectively provide
more usage information, foster a sense of customer community, and of
course allow for purchase of more related products! The purpose of the TV
commercial is to drive traffic to the website. 1
Earlier we defined promotion as the means by which various forms of
communication are used to inform, persuade, or remind potential
customers. Exhibit 13.2 summarizes these essential capabilities of
promotion and some examples of how each might be deployed by
marketing managers.
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Nike+ members benefit from a variety of promotions designed to add value to
their experience.
Source: Nike, Inc.
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The Marketing Manager’s Role in Promotional
Strategy
The field of promotion is very broad and requires a good understanding in
many distinct areas to execute effectively. As a part of the marketing field,
the area of promotion tends more than any other to be heavily outsourced.
Creative companies such as advertising and PR agencies have the focus
and expertise to add substantial value to the execution of a marketer’s
promotional planning. And because of the unique nature of personal
selling, most firms set up the sales organization as a separate entity from
marketing, or they outsource it in the form of external distributors or
brokers that represent a company’s offerings to customers within the
channel. But the proliferation of outsourcing of marketing communications
and separation of sales from marketing do not absolve the marketing
manager from the need to understand the basics of promotion so that the
agency’s contributions, as well as those of the sales force, can be properly
integrated into the marketing planning process.
The seven major elements of the marketing manager’s role in
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managing promotion are identified in Exhibit 13.3 as follows: identify
targets for promotion, establish goals for promotion, select the promotion
mix, develop the message, select media for use in promotion, prepare the
promotion budget, and establish measures of results.
What kinds of decisions are involved in developing and executing a
promotion mix strategy? Consider Exhibit 13.4, which compares the
impact of marketing management factors in an advertising/sales promotion
focused promotional approach with those of a personal selling focused
approach. As you can see, a gamut of critical issues from buyer
information needs to purchase size to the configuration of the marketing
mix elements all influence the decision about where to invest promotional
budget dollars. In fact, in many marketing planning situations, the
promotional budget is the lion’s share of the overall marketing budget—
typically surpassing packaging, distribution, and other marketing elements
by a wide margin.
EXHIBIT 13.3
Elements of the Marketing Manager’s
Role in Promotional Strategy
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Source: Cravens, David R., and Piercy, Nigel F. Strategic Marketing, New York, NY:
McGraw-Hill Education, 2013.
EXHIBIT 13.4 Illustrative Factors Influencing
Promotion Mix Strategy
797
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EXHIBIT 13.5 Selected Pros and Cons of
Individual Promotion Mix Elements
Promotion
Mix
Element
Pros Cons
Digital and
Social
Media
Marketing
• Message
customization
without high costs
of personal selling
• Strong relationship
building, especially
when customer
can control the
interaction
• Spam and other
unwanted
correspondence
when targeting is
poorly executed
• Reliance on CRM
and database
marketing
requires constant
updating
Advertising • Many media
choices
• Efficiently reaches
large numbers of
customers
• Great creative
flexibility
• Shotgun
approach reaches
many outside the
target
• Oversaturation of
ads lessens
impact
• High production
costs
Sales
Promotion
• Stimulates
purchase directly
through incentive
to buy
• Serves as an
effective
accompaniment to
other promotion
forms
• Can lead
customers to
continually wait
for the next
coupon, rebate,
etc.
• Brand may be
impacted by
price-cutting
image
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Public
Relations
• Unpaid
communication
seen as more
credible than paid
forms
• Association of
offering with quality
media outlet
enhances brand
• Low control of
how the message
turns out
• Highly labor
intensive cost of
mounting PR
campaigns
Personal
Selling
• Strong two-way
communication of
ideas
• Directly eases
customer
confusion and
persuades
purchase
• Very expensive
cost per customer
contact
• Salesperson may
go “off message”
from brand to
secure the sale
The allocation of the promotional marketing budget across the various
elements of the promotion mix is a complex decision. Each promotional
form has its own individual pros and cons, as Exhibit 13.5 shows. Within
the promotion mix concept, it is the integration of the elements—not just
each individual element—and the resulting synergies of the branding
message that make the strongest sustainable impact on customers.
Push and Pull Strategies
Two fundamental approaches to promotional strategy utilized by
marketing managers are push and pull strategies. These are depicted in
Exhibit 13.6. The specific promotion mix elements selected for investment
will vary depending on the relative degree of push or pull desired.
EXHIBIT 13.6 Push and Pull Promotional
Strategies
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347
In a push strategy, the focus is on the channel of distribution, and in
getting the offering into the channel. Members of the channel are targeted
for promotion and are depended on to then push the offering into the hands
of end users. A push strategy typically relies on a combination of personal
selling and sales promotion directed toward channel members. 2 In a pull
strategy, the focus shifts to stimulating demand for an offering directly
from the end user. Advertising, consumer-directed sales promotion, PR, or
direct and interactive marketing can be combined in various ways to target
end users, creating demand that results in the channel making an offering
available for purchase. In practice, push and pull strategies are rarely used
mutually exclusively. 3 Rather, a promotional strategy is developed that
strikes the best balance of investment of promotional funds in both push
and pull strategies that make sense for the product and market involved.
Internal Marketing
A final critical aspect is internal marketing, which is the application of
marketing concepts and strategies inside an organization. A great deal of
research has shown that if members of an organization aren’t
knowledgeable about its offerings, don’t understand who the customers
are, and can’t effectively articulate the branding message, successful
marketing management is very difficult. The firm’s employees are
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potentially its best and most trusted brand and message ambassadors.
Properly armed, they can articulate what the firm and its offerings stand
for in ways that nobody else can. 4
Great brand marketers today pay a lot of attention to ensuring that
everybody in the firm has pride of ownership in its brand, products, and
services. From Southwest Airlines to Starbucks to Nordstrom to Ritz-
Carlton, companies that do great marketing are placing a high priority on
enabling each and every employee to communicate the marketing
message. Most firms that are successful in internal marketing enlist the
help of the human resources department to communicate the brand
messages to all employees, beginning with employee orientation programs
and continuing when new products are introduced or new markets are
entered.
HIERARCHY OF EFFECTS (AIDA) MODEL
LO 13-2
Explain the hierarchy of effects (AIDA) model and its usefulness to
promotional strategy.
In developing and executing promotional strategy, it is important that
marketing managers remember that customers pass through purchase
decision processes in three steps: cognitive (learn), affective (feel), and
behavioral (do). Various models support our understanding by illustrating
these stages as a hierarchy of effects in the context of customer response to
marketing communications. Here we illustrate one popular version of such
models, the AIDA model, so named because the effects (or steps) build in
this order: Attention (or Awareness), Interest, Desire, and Action. The
attention stage correlates to the cognitive step of buyer decision making,
the interest and desire stages to the affective step, and the action stage to
the behavioral step. 5 Exhibit 13.7 portrays the AIDA model.
Where target customers fit on the model is critically important to
effective selection and execution of the promotion mix. As in the general
communication model, various mixes of messages and media are required
to ensure that the different targets are likely to decode and process the
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communication successfully. Below are tips for maximizing success in
promoting across the stages of the AIDA model. Exhibit 13.8 suggests the
general appropriateness of applying each of the promotion mix elements in
coordination with each stage of the hierarchy of effects of the targets.
EXHIBIT 13.7 AIDA Model
Attention
If target customers are essentially unaware of an offering, most of the
investment in communication must be in raising awareness and gaining
their attention. Depending on the situation, this may involve developing
the customer’s awareness for a whole new set of customer needs and wants
as well as revealing that your product exists to address those needs and
wants. In the initial
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EXHIBIT 13.8 General Suggestions for Applying
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Promotion Mix Elements at AIDA
Stages
Promotion Mix
Element
Attention
Stage
Interest
Stage
Desire
Stage
Action
Stage
Digital and Social
Media Marketing
↑↑↑ ↑↑↑ ↑↑↑ ↑↑↑
Advertising ↑↑↑ ↑↑↑ ↑↑ ↑↑
Sales Promotion ↑↑ ↑↑ ↑↑↑ ↑↑↑
Public Relations ↑↑↑ ↑↑↑ ↑↑ ↑
Personal Selling ↑ ↑ ↑↑↑ ↑↑↑
↑ = Generally least appropriate for use
↑↑↑ = Generally most appropriate for use
introduction of the Prius, Toyota put much effort into building awareness
of the emerging need for hybrid cars and also into educating potential
customers about what a hybrid car actually is. Essentially, the automaker
created a product category from scratch, and for a while there was little
return on the promotional investment. However, when gas prices began to
soar and environmental issues became more prominent, Prius was in a
prime position to become the leader in its product category, gaining a first-
mover advantage and making it difficult for competitors to catch up. Now,
every major car manufacturer is jumping into the category.
Gaining attention and building initial awareness can be a daunting task
for marketers. Tremendous expenditures may be required to establish a
foothold with customers, especially when a brand is relatively unknown or
a product category is in its infancy. Chapter 6 covered different categories
of adopters depending on how willing a potential customer is to try and
buy a new product. At the attention stage of the AIDA model, marketing
managers hope to use promotions to gain awareness of their offering with
the innovators and early adopters. If marketers can influence these groups
to purchase, innovators and early adopters can get others to jump on the
bandwagon.
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In many cases, gaining attention requires investment in mass appeal
forms of promotion, especially advertising and PR. When ultra-premium
Voss Artesian Water from Norway was introduced in the United States,
marketers relied heavily on PR to create awareness, connecting the water
to celebrities and gaining product placements in movies and in magazines
sold in outlets frequented by the target customers.
Interest
To translate customer attention into interest requires persuasive
communication. For more technical or complicated products, this means
beginning to inform customers more specifically about what a product
offering can do for them—how it helps fulfill needs and wants. To
stimulate interest, the promotion must begin to touch a customer’s hot
buttons.
Ultra-premium Voss Artesian Water from Norway relied on heavy PR to create
initial awareness when it was first introduced in the United States.
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Source: Voss
For example, generating awareness about the next-generation iPhone
is not a problem for Apple—the buildup in the media is always gargantuan
for months before the initial product introduction. But what would
stimulate a person to
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move beyond inevitable awareness to interest in possibly purchasing?
Apple masterfully uses its early promotion to cleverly point out new
features and convince customers that any ordinary cell phone simply
would not do. Interest is piqued by the communication of all the new bells
and whistles that make your old iPhone “obsolete,” and also by the
imagery suggesting that each new iPhone is something really different.
Desire
Moving from interest to desire means that a customer has to move past a
need and begin to really want that specific product. Promotion feeds desire
through strong persuasive communication. At this stage, salespeople and
customized direct and interactive marketing enter the promotion mix.
Messages are altered to influence customers to feel that they simply can’t
do without the item. The innovators and early adopters show off their
purchases to holdouts, and the ball is rolling.
Such is certainly the case with first-week purchasers of next-
generation iPhones. Many people undoubtedly let their friends and co-
workers see and touch their prized possession—sharing the experience of
its functionality and form. Apple wisely drives the momentum through
targeted promotions of all kinds, inviting potential customers into Apple
stores so that salespeople can fully demonstrate the broad spectrum of
product virtues. The interest stage of the hierarchy is generally where the
emotional part of buyer decision making peaks, and much of the
promotional message is centered on creating positive feelings for the brand
and product.
Action
The action stage is the purchase itself. To stimulate ultimate purchase,
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marketers often rely on salespeople, accompanied by some form of sales
promotion, to close the sale. The reason sales organizations put so much
emphasis on training salespeople in closing techniques is that they are seen
as the final stimulant to purchase. And sometimes sales promotion alone
can stimulate purchase. For the customer, it can be a coupon, rebate, or
other special extra to push them over the edge to buy.
Growing evidence suggests that millennials respond differently to
promotional strategies than prior generations. These differences may be
attributable to the hierarchy of effects they go through in making purchase
decisions. Previous generations, which have been the focus of marketing
for years (i.e., Gen X and older), did not grow up with the same level of
information availability and access as the younger groups. As a result,
marketers have traditionally been placed in the pivotal role of outbound
information providers for these customers, largely through traditional
promotional elements. This is true not only in the B2C marketplace, but
also in B2B markets where organizational buyers have traditionally relied
heavily on their salespeople for information about products and markets.
Millennials have experienced a very different set of circumstances related
to information. With today’s web-based communications, they are
accustomed to doing their own research on products, developing their own
opinions, and then taking action with less influence from traditional
promotional approaches (including salespeople).
This is not to say that the role of the marketing manager in developing
promotional strategy is less important when it comes to the younger
generation. Rather, the caution is that the response of younger generations
to different promotional approaches is not the same as that of previous
generations. They are much less likely to want to be “sold to,” are
generally disinterested in mass advertising, and tend to place high value on
objective information for decision making, likely from sources outside of
traditional promotion. For example, communication going on in social
media, blogs, message boards, chat rooms, and other forms of virtual
communities carry much more weight than other communication forms.
Although in some ways these qualities make marketing to the younger
generations different than to previous generations, be assured that their
unique attitudes toward marketing also create important opportunities for
marketers. For example, millennials are generally very tuned in to brands,
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thus affording an opportunity for marketing managers to smartly integrate
branding into promotional themes.
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In doing marketing planning in the 21st century, the marketing
manager who addresses these preferences among the important younger
generational markets will gain a competitive edge over marketers that
attempt to capture this business through more traditional promotion forms.
THE ROLE OF DIGITAL MARKETING IN
COMMUNICATING VALUE
LO 13-3
Discuss the role and key types of digital marketing in communicating
value to customers.
The Internet has redefined the relationship between organizations and
customers. As access to the Internet has grown and a wide range of
Internet access points has proliferated, digital marketing has become a
critical component of promotional strategy. Today some would say it is the
most critical component. Digital marketing refers to the marketing of value
offerings through the use of digital technologies (for example, desktops,
laptops, tablets, and smartphones). Digital technologies have enabled
individuals to access vast amounts of information almost instantaneously
and have revolutionized the way organizations connect and communicate
with their customers. An important aspect is that now customers have a
great deal of control over when, where, and how they want to interact with
marketers through digital media to gather information on products and
services. This transformation presents a challenge to organizations, which
now must determine how to expand digital access to information on their
products and services in the most effective way. In both B2C and B2B
markets, digital marketing is an essential element in an overall
promotional strategy, thus becoming a key element in the promotion mix
used by marketing managers to communicate the value offering.
The data collection capabilities facilitated by digital technologies
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enable marketing managers to gain access to information on customers at a
breadth and depth never before possible, and at reasonable cost. These data
can be collected either through interactions a firm creates or engages in
with a customer, or via interactions that customers have with each other
without direct firm involvement. As customers increasingly search for
information, make transactions, and communicate through digital
channels, an increasing amount of data will become available, enabling
marketers to gain a more holistic view of individuals (recall our discussion
of Big Data back in Chapter 5). Thus, for marketing managers one
important aspect of a digital presence is the benefits it can provide in the
form of enhanced information gathering and feedback. 6 This yields
greater capability to apply key metrics to measure the effectiveness of
specific marketing actions—for example, the percentage of customers who
redeemed an online purchase discount code delivered through e-mail, or
the average proportion of additional items that were included in the
resulting online purchase.
Advances in digital technologies have opened the door to a broad array
of potential means for marketers to interact with customers online, as
illustrated by Exhibit 13.9. An important objective is to get the right
information into the right hands at the right time in order to maximize
desirable marketing outcomes. Options available to marketing managers
for information dissemination can be classified as owned media, paid
media, and earned media. 7 Exhibit 13.10 provides some examples and
characteristics of these three types of digital media. Paid media refers to
marketing communication channels requiring that the marketer pay
someone else for customer access. In digital marketing, access to paid
media can generally be purchased on a per-unit basis. Common pricing
models include cost per impression, in which the marketing manager pays
a set amount each time a customer is exposed to the promotion and cost
per click, in which the marketing manager pays a set amount each time a
customer clicks on a link. Owned media refers to marketing
communication channels that the marketer’s organization has complete
control over. The content created on an organization’s website is an
example of owned media.
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EXHIBIT 13.9 Examples of Digital Options for
Marketing Information Sharing
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EXHIBIT 13.10 Examples and Characteristics of
Paid Media, Owned Media, and
Earned Media
Examples Advantages Potential
Issues
Paid
Media
• Display
ads
• Search
ads
• Native ads
• Social
network ads
• Speed
• Flexibility
• Targeting
capabilities
• Scalability
• Control
•
Measurability
• Difficulty
standing out
• Declining
response rates
• Potential
credibility issues
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Owned
Media
• Firm’s
website
(mobile and
non-mobile)
• E-mail
• Firm’s
blog
• Firm’s
social
media
account
• Longevity
• Flexibility
• Ability to
speak to
niche
audiences in
depth
• Potential
credibility issues
• Potentially
substantial
development
effort required
• Desired results
may be
achieved over
longer time
horizons
Earned
Media
• Social
media
shares
• User
reviews of
products
• Mentions
of an
organization
on a third
party’s
website or
blog
• Credibility
• Potential
cost
efficiencies
•
Transparency
• Lack of control
•
Communications
and
conversations
may be negative
• Value can be
difficult to
measure
Earned media is a bit different, as it refers to the case where either a
customer or a commercial entity (such as a news media organization)
chooses to act as a marketing communication channel for the
dissemination of information associated with the marketer’s organization
at no cost. An example is when a customer shares a link to a blog post
about a new product’s launch on a social network because he or she is
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excited about the new product. Later on in this chapter there’s a section
specific to social media, and there we will discuss factors that motivate
earned media and its benefits to marketers. For now, let’s discuss various
paid media and owned media options.
Digital Advertising
Digital advertising is the creation and execution of an advertisement via
any form of digital media. Like other digital marketing efforts, digital
advertising benefits from the richness of data that is generated by the
customer’s exposure to the ad, which in turn allows for a more granular
review of the ad’s performance. This measurement capability is especially
clear when a digital ad drives a customer to take a specific action on a
website that has a clear monetary value, such as when an ad contains a
promotional offer to purchase a product at a discounted rate and clicking
on it leads to a page where the offer can be redeemed and the purchase
made. The ad’s value in generating sales can be directly measured by how
many customers were exposed to the ad and how many of those exposed
customers redeemed the offer. Unlike most non-digital types of
advertising, with this approach the promotional strategy can be adjusted
quickly if the data indicate that the current message isn’t working well.
Another key benefit of digital advertising is its ability to distribute
different information to different segments of customers of varying sizes
with greater flexibility. Because some digital communication channels
such as social networking platforms and search engines are designed so
that what is displayed on their pages can be custom-adjusted for a given
viewer at relatively minimal cost, the marketer is afforded great flexibility
in the communication. Ad messaging can be adjusted based on
predetermined factors such as how many customers the marketing
manager wishes to deliver the communication to or specific characteristics
possessed by a customer (for example, customer demographics or the use
of a specific
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search term). The result is that the marketing manager has greater
confidence that the advertising expenditure is going toward targeting the
desired customer. Contrast this level of confidence with that of a
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marketing manager placing an ad in a print magazine that boasts a
substantial number of readers fitting the desired target market. Of course,
the readership also contains a substantial (probably by a large majority)
number of readers who are not a very good fit for the ad message. A
magazine’s advertising rates are typically based on its full readership base,
yet the marketing manager is stuck communicating to many who will not
find value in the message. And, adding insult to injury, it is much more
difficult to gauge impact from print versus digital media via marketing
metrics.
The above example isn’t a bash on print advertising—rather, it is a
reminder that marketers need to carefully think through what investments
of their promotion budget are the best ROI for their offering. There are
contexts where digital advertising may be a more appropriate choice
versus more traditional advertising, as well as contexts where the opposite
holds true. The customer whom the marketer is attempting to reach, the
cost of reaching that customer through a given form of media, and the
specific communication forms available through that media generally
determine whether digital or other advertising is the more suitable choice
and which of the potential options within each will produce the most
desirable outcome.
Display Ads Digital ads that are displayed on a given page within a
website that clearly demarcates the ad from the webpage’s primary content
(what the customer navigated to that page for) are called display ads.
Display ads can take on multiple forms, including banner ads and
interstitials. Banner ads are boxes embedded into a website that can
contain graphics, text, or video elements as well as an embedded hyperlink
to take the viewer to a webpage intended to facilitate subsequent
interactions between the viewer and the advertiser. The sophistication of
banner ads has increased over time, with the inclusion of greater
interactive capabilities and richer media experiences. An interesting
historical tidbit is that the original banner ad that was distributed in 1994
was a simple image with some graphical and textual elements contained
within it. In its first four months, 44 percent of those exposed to it
succumbed to temptation and clicked on it. Today’s surfers are more wary
—the average for a banner ad today is clicks by only four people for every
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10,000 who are exposed to it! 8 Interstitials are full-page ads that are
delivered before the viewer is directed to the intended webpage visit.
Interstitials tend to be very visually appealing, with graphical elements that
capitalize on the substantial real estate they inherently hold.
This Volvo ad is an interstitial ad on the Kelley Blue Book website.
Source: Kelley Blue Book Co.®, Inc./Volvo Car Corporation
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EXHIBIT 13.11 Example of Retargeting Process
Flow
813
Display ads can be placed on specific websites in which an ad is
expected to be more relevant based on the assumed interests,
characteristics, or preferences of visitors to the website. Banner ads can
also be distributed to customers based on specific past behaviors online.
For example, a method known as retargeting displays ads for a given
product on different websites (not associated with the product) only after a
customer has visited the website for the related product. The presumption
is that this customer has a higher level of interest in the product, so the
retargeting of display ads is more likely to result in a positive outcome (an
inquiry or sale) for the advertiser of the product. Exhibit 13.11 provides an
example of how the process of retargeting works.
Search Ads Another effective digital ad option is search ads, which
are displayed with the results produced by search engines, typically at the
top of or along a column to the side of the search results on a webpage. For
example, Googling for “Orlando hotels” most likely will bring up at the
top of the page search ads for Expedia, Hotels.com, Trip Advisor, and
Kayak (all flagged by Google as “Ad”) before you ever get to specific
hotel websites in the area.
As with most types of digital advertising, a key component of a search
ad is the inclusion of a hyperlink to the advertiser’s webpage. Aside from
the widespread use of search engines which provides marketers with the
ability to reach a substantial proportion of the population through access to
the results they display, search advertising also offers marketers the unique
capability to target customers with ads based on the potential relationship
between the specific information that a customer is interested in obtaining
from the search and the information that can be obtained by engaging with
the ad that appears. The way it works is that a marketer will bid on a
specific keyword, which can be a combination of words and phrases, in
order to have a text ad placed in the displayed results of a search that
matches the keyword(s) that the marketer successfully bid on. Search ads
can be priced on a cost-per-click, cost-per-impression, or cost-per-
conversion basis—the latter being a desirable and trackable action such as
a sale. Also, it is highly useful that the advertising firm is able to determine
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how many click-throughs or relevant interactions they are interested in
paying for based on budget and related factors. 9
Importantly, the contents of a customer’s keyword search can offer
key insights into both the information sought and the customer’s stage in
the buying process. 10 For example, a marketing manager may be more
interested in purchasing search ads associated with a keyword that
suggests that a customer is at one stage or another in the buying decision
process. The message about the offering can be appropriately customized
for a particular customer’s stage in the process. In the case of cars, a
customer who uses a keyword such as “deals on new cars” is probably
more receptive to a search ad from any of the car dealers in the locale as
compared to a customer who searches for “upcoming specials on Ford F-
150s,” who likely will be most receptive to an ad from the local Ford
dealer (or who may just go directly to the relevant page on the dealer’s
website that is probably already displayed in the normal search results). In
the case of this example, it is probably reasonable to believe that the
keyword “deals on new cars” will carry a greater cost than the keyword
“upcoming specials on Ford F-150s” due to the greater competition
expected when bidding on the former versus the latter phrase.
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Notice the social network ads on the right in the LinkedIn page above. Such ads
take advantage of a captive audience of viewers who hopefully will have a high
likelihood of attracting click-through to provide more details about the offer.
Source: LinkedIn
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Social Network Ads Digital ads displayed on various forms of
social media are called social network ads. Distributed through a wide
range of social networking platforms such as Facebook, Twitter, and
LinkedIn, these can vary considerably in their format, placement, and
style. Some forms of social network ads are designed to resemble and
function in a manner similar to the different ways that users on the
particular platform communicate with each other, while other forms
resemble and function similarly to our earlier discussion of display ads.
Later in this chapter we will look in greater detail at the topic of social
media (extending beyond just social networks) and its relevance to
marketing managers. For now, it is important to know that social
networking platforms can offer marketers the ability to reach very specific
segments of customers based on criteria that could not easily be achieved
through other digital or more traditional promotional channels. Users share
a wide range of information on social networking platforms and engage in
a wide range of interactions. Examples of customer information that is
readily accessible to marketers through different social networking
platforms include current and permanent location, demographic
characteristics, purchase behaviors, general interests, and relationships
with people, brands, and organizations. Obviously, this information can be
gathered and used for reaching specific segments of customers and for
crafting more personalized marketing communications.
Native Ads Digital ads that are designed to fit the format and style of
content that is offered through the website on which the ad is being
displayed are called native ads. In the case of online publications, native
ads tend to be articles or posts that cover a topic of interest to the
readership. The content of a native ad tends not to include any type of
heavy sales pitch for a marketer’s offering; instead, it will typically cover a
topic that has some logical connection to the marketer’s organization, and
potentially one of their specific products or services. Most organizations
that offer native advertising options on their websites or platforms take
specific steps to ensure that viewers of the related ads understand that the
content came from and was paid for by another organization. While
increased recognition by viewers of some content as a native ad may have
a negative influence on their evaluations of the content, it also helps avoid
816
the risk that viewers will feel that the host provider of native advertising
options is deceiving them. 11
E-Mail
Although e-mail has been with us for over 20 years, it still offers marketers
many advantages as a promotion tool. First, e-mail is a communication
channel that the marketer has control over because it is owned media.
Second, it can be targeted and customized to the individual. Third, it is
immediate, so organizations can offer coupons or other sales promotions
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quickly and expect and monitor the results. Fourth, it allows for additional
personalization as individuals can opt for specific messaging that increases
the likelihood it will be read. Fifth, it produces a rich amount of data on
how individuals interact with an e-mail. Examples include if and when
they open the e-mail, specific links clicked on within the e-mail,
subsequent customer actions on the organization’s website, and if and
when the e-mail is forwarded by one person to another person.
Despite all these potential advantages, e-mail does have a substantial
downside as a digital marketing tool. The 800-pound gorilla is that, just
like unsolicited direct mail sent through the post office, e-mail can easily
be dumped without even opening the message. Most people are inundated
with e-mail today and incorporate spam filters and other tools to limit the
e-mails they receive. And the millennial and post-millennial generations
look on e-mail as old hat, preferring to correspond by text or social media
platforms. Bottom line, e-mail works best when it is part of a broader
marketing communications strategy that includes a good mix of modalities
to communicate with the target audience. In the current era of multimedia
channels with customers and firms that over-rely or even rely solely on e-
mail for promotional messaging risk coming up short on results.
Organizational Website
An organization’s website is the primary point of connection with the
online customer and arguably the most critical form of owned media for an
organization. Customers visit a website to get information, ask questions,
register complaints, develop a sense of community with other users, and
817
hopefully ultimately make a purchase. As a result, a website must do a
number of things well. Performing the traditional role of a retail storefront,
an organization’s website needs to convey the value proposition to anyone
who visits. Effective sites are able to draw new potential customers inside
to check out the products and services therein. At the same time, the
website must service existing customers by providing access to customer
service and information in an easy manner.
From a technical standpoint, a landing page is any page on a website
that a user is directed to by clicking on a hyperlink. However, in the
context of our present discussion on digital marketing a landing page is a
distinct type of page on an organization’s website designed for the sole
purpose of getting a customer to take an action that increases the expected
value of the customer to the organization. All of the marketing
communications options discussed so far commonly contain a hyperlink
pointing to a landing page that is intended to serve just such a specific
purpose, such as enabling an immediate transaction, providing additional
information about an offering, and capturing personal information
(including contact information) from a customer so that the marketer can
better customize subsequent communications. For example, a customer
interested in exploring the possibility of obtaining an MBA degree online
might begin the journey by clicking on an intriguing digital ad provided by
a university. The ad takes the customer to a landing page where some
initial information on the program is provided, along with a prompt to
submit some personal information through an e-form, with the promise of
prompt recontact with additional information by a university admissions
officer.
Dimensions of Website Interface Customer website interface is
often defined by 7 Cs: context, content, community, customization,
communication, and commerce. Exhibit 13.12 illustrates the 7 Cs for the
popular and very successful Zappos website.
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Kingsley Judd Wine Investments is an example of an effective landing page
designed for lead generation.
Source: Kingsley Judd
Context Context refers to the overall layout, design, and aesthetic
appeal of the site. Broadband and high-speed Internet has led to more
graphics, video, and
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EXHIBIT 13.12 7 Cs of Customer Website
Interface at Zappos
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Source: Zappos.com, Inc
interesting design features that make a website more appealing. The
perennial challenge for the web designer is balancing the aesthetic
appeal of high graphic content with the download time for graphics
and other complex visual elements. The look and feel of the site must
be consistent with the organization or product’s overall brand image.
For example, visit the Zappos website and then go to Lucky Brand
website to see how different organizations approach the layout and
design of a website.
Content In the past, organizations put their existing print materials
(catalogs, for example) on the website, and there was little in the way
of original web content. Today, organizations’ websites incorporate a
great deal of web-specific content. Organizations such as Costco and
Target have a specific web strategy that displays products not
available in stores, and many organizations such as The Gap offer
web-exclusive deals on products. Text, photos, videos, charts, and
graphics are all part of web content.
Community A key advantage of web-based communication is the
opportunity to create a community of users or visitors to the site.
Blogs and organizational bulletin boards encourage a sense of
820
community that enhances customers’ experiences with the product
and selling firm. In many cases, rather than selling firms, it is third
parties such as Kelley Blue Book (an auto industry site) that operate
the most powerful online communities. These communities bring
users (or car owners in the case of Kelley Blue Book) together to
discuss a variety of topics. They provide solutions (generated by
members of the community) to problems, discuss the advantages and
disadvantages of product features, and encourage people interested in
the product to connect with each other and with the selling firms.
Customization The ability to create a unique individual experience
with an organization website adds great value to the customer
interface, because nowadays online customers appreciate and expect
customization of their website experiences. Simple customization
includes the ability to turn off the sound from the site and reduce the
graphic interface (html versus flash sites). More customized sites
enable customers to choose content and context. ESPN, for example,
allows each user of the site to customize the homepage to
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display relevant information in a side column about a given user’s
favorite teams, including upcoming games, scores, and stories.
Communication Websites allow organizations to communicate with
customers in three key ways. First, organizations communicate to
customers and visitors to the website one on one through the Contact
feature or e-mail. Second, customers and interested visitors
communicate directly with the organization through customer service
requests. Finally, organizations use instant messaging for customer
service requests and sales inquiries (ever have one of those pop-up
boxes that says “I’m here—do you need help?”). They’re like
convenient little salespeople who often can generate quite a lot of
business.
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WWF employs a simple, yet effective, call to action on its website.
Source: World Wildlife Fund
Connection The web allows for communication among many
sources. Information sites such as Edmunds.com (automobiles) and
CNET.com (electronics) offer a lot of information at the site but also
allow users to access relevant manufacturer and retailer websites
when a customer needs more information or wishes to make a
purchase. This easy, seamless connectivity greatly expands the
usefulness of the site for customers.
Commerce The number of products purchased online has grown
dramatically in both B2C and B2B markets. Web designers know that
creating a simple, easy-to-understand, and secure purchase experience
is essential for success in online commerce. Given the proliferation of
theft of credit card numbers electronically, customers are correctly
concerned with a provider’s level of online purchase security. Today,
the website must be able to legitimately assure customers that their
data are secure.
Microsites In addition to an organization’s primary website, they may
also create smaller, more focused sites that deal with specific topics such
as new product introductions or targeted products. The smaller, more
focused websites within such a portfolio are called microsites. For
example, Audi, Mercedes-Benz, and Sony create smaller sites to highlight
822
certain products. In another application, banks create microsites to help
customers work through specific issues such as home financing (value of
current home, links to real estate sites like Zillow) or information about
cars (reviews, getting a loan).
Blogs As noted previously, content is one of the seven key dimensions
of web interface. One of the ways that an organization can communicate
with potential customers and continue to communicate with current
customers is through the development of a blog (a word that truncates the
words “web” and “log”). An organization’s blog serves as a repository of
content they create to provide information of interest to customers in the
form of blog posts, which can be one or more paragraphs in length and
written to stand on their own or be thematically connected to other posts.
A blog can either be developed as a stand-alone website or integrated into
an organization’s primary website. Blog posts can contain information
specific to the organization (such as information on a new product) or they
can provide information on a relevant topic that customers are interested in
learning more about. In the B2B space, organizations such as Salesforce
and Hubspot have incorporated blogs into their websites which contain
posts written both by employee experts and industry thought leaders with
the objective of providing valuable information to marketing and sales
professionals (and, of course, influencing them to adopt their products).
Search Engine Optimization (SEO)
As mentioned in our discussion of search ads, search engines play an
important role in how customers search for and gather information. Search
engine optimization (SEO) comprises the set of different actions that can
be undertaken by an organization to positively influence the
358
placement of their digital assets (vis-à-vis their websites) in relevant search
engine results. For many organizations, being able to be displayed near the
top of organic search results (searches that are not paid for) is of high
value because it increases the likelihood of being found by potential
customers and further strengthening relationships with existing customers.
The old adage that you want to be on the first page of a list of search
823
results is absolutely true! Most, if not all, of the digital communication
options we’ve discussed so far have implications for an organization’s
SEO efforts. This is because, in a fairly simplified sense, search engines
attempt to provide users with web results viewed to be the best fit for their
specific searches based both on the relevance and the reputation of the
source that pours into the output results. 12 A benefit of having a website
displayed toward the top of the results is that customers tend to view it as a
more credible source, resulting in additional benefits to an organization
and its brand beyond just a greater likelihood that the customer will click
on the link. 13 A well-integrated digital communication strategy can help
improve an organization’s SEO performance by ensuring that their paid,
earned, and owned media efforts all provide value to current customers,
potential customers, and other stakeholders in a consistently relevant
manner.
Mobile Marketing
Today, for a massive number of customers, it’s all about the handheld
device. Mobile communication devices have accelerated in sophisticated
capabilities and are literally an omnipresent part of the daily lives of many
customers (some might call it an obsession). Hence, mobile marketing, or
the marketing of value offerings through a mobile communication device,
is a central aspect of digital marketing strategies.
Before we proceed, it is worth reinforcing that when we refer to
mobile communication devices we are primarily talking about
smartphones and tablets. Their extreme portability and ubiquitous nature
provides marketers with many advantages, including the fact that both
time-sensitive and location-sensitive communications can be most
effectively delivered to customers through them. Some estimates suggest
that the average adult in the United States spends almost three hours per
day on a mobile device, and this is increasing. 14 Because of the
characteristic differences in how mobile devices are both designed by
manufacturers and used by customers, we need to point out how marketing
communications are designed and executed on them differently than their
non-mobile counterparts.
Ads and Website Experiences Designed for Mobile Devices Differences in
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how information is displayed and interacted with on mobile devices create
both opportunities and challenges for how marketing managers
communicate with customers. For example, a smartphone’s relatively
smaller screen size and touch-based interface means that certain aspects of
websites or ads designed may be viewed and interacted with differently
than they would be on other media. Obviously, a navigational element on a
website that would require a user to hover a mouse to view its contents
would not be suitable on a smartphone. So organizations tend to either
construct separate mobile-friendly websites, or alternatively to include
within their main websites responsive design elements that contain the
ability to make adjustments (reorientation and resizing of sections of the
site, touch-friendly interfaces, and the like) based on the type of device
that is being used to view it. For marketing managers, clearly these same
considerations are important when developing ads that will be offered
exclusively on mobile devices or across both mobile and non-mobile
media types.
Gatwick Airport in the London area offers great consistency in style and
messaging to users accessing their site via either computer or mobile device.
Source: Gatwick Airport Limited
Customers are massively engaging in making purchases with mobile
devices. M-commerce, sales generated from a mobile device, is a rapidly
growing component of the customer mobile experience. Given the process
825
complexities involved in purchasing a product or service online, it is
critical that marketing
359
managers have a lead seat at the table with IT and operations to ensure that
their organization’s websites are designed to make the shopping
experience on different customer interface modalities as seamless as
possible. Think of it this way: Customers who become frustrated with the
process of making a purchase on their mobile device may drop out of the
purchase process and instead seek out a competitor’s more user-friendly
site instead, or they may slog through the painful purchase but vow never
to come back.
Location-Based Targeting Mobile devices accommodate tracking
of an individual’s location at a level of precision that is not possible with
most other types of devices. Geolocation marketing is the use of
geographic data to drive marketing messaging and other marketing
management decisions. In mobile marketing, this capability has several
potential applications. One such application is that it can be used to
provide promotional offers from an organization to customers when they
are near one of the organization’s storefronts. Or promotions can be
offered to individuals when they are not near the location but have been in
or near the store recently, as a way to get the customer’s attention to go
back. For example, Whole Foods has used geolocation marketing to
deliver ads to smartphones both when customers were near its own
locations or when they were near the locations of competitors. Ads were
primarily served on weekends when “out and about” customers were more
likely to have plans to shop for groceries. People exposed to these ads
responded to them at a rate about triple the industry average. 15 Also,
promotional offers for specific products can be offered to customers in-
store as they shop in order to drive product sales that otherwise might not
have been part of their shopping basket. 16 For these types of applications,
best practice in marketing dictates that customers willingly opt in in
advance. In addition to transparency, as with all things digital marketing,
customer privacy and security issues must be paramount for marketing
managers when deploying geolocation marketing.
Another opportunistic application of geolocation marketing is
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enhancement of specific services where knowledge of a customer’s
location and improved timing of service delivery can increase customer
satisfaction. For example, enabling a restaurant customer to order, pay for
a food or beverage item, and receive an estimated time that the item will
be ready from a nearby location via smartphone provides increased
convenience for the customer, who is able to save time by showing up
right when the item is ready. Previous technological limitations to
consistently executing such a real-time service approach are being
overcome, and one can imagine many uses for this approach by savvy
marketers determined to tap into the convenience-seeking customer.
Text Messaging Text messaging (also referred to as short message
service or SMS) is certainly a popular form of communication and ideally
suited for marketing messaging when a shorter format is feasible and
appropriate. Text messaging can be effectively used for instantly
redeemable promotional offers, contest voting, sweepstakes participation,
informational alerts, and many other real-time offers. SMS campaigns are
inherently simple to develop and execute, and can serve as a particularly
effective communication medium for reaching a younger segment of the
market for whom e-mail is not a first or primary choice for
correspondence. 17 Despite the potential advantages of SMS, it is
important for organizations to make sure that customers are given the
choice to opt in to text message communications and also have an easy and
transparent means of opting out at any point in time. The delivery of
unsolicited text messages or difficulty in getting off of a text messaging
list can badly damage an organization’s image and even potentially result
in legal ramifications (remember that text messages go to phone numbers,
which may be on do not call lists). 18 And even in the case where a
customer does opt in to text messaging of promotions, the delivery of a
high frequency of messages can be perceived as intrusive and damage the
brand and customer relationship. In sum, it is important for marketing
managers to monitor and understand how effective their SMS
communications are and when they border on being excessive.
Branded Mobile Apps and In-App Based Ads Mobile apps
offer marketers another robust digital mobile marketing approach to
827
promoting their offerings to customers. Branded mobile apps display the
brand’s name and logo prominently throughout the various screens and
features within the app. These apps, which are a type of owned media, can
be an effective means of communicating with customers because they
offer numerous
360
valuable functions and benefits that cause the customer to willingly decide
to make the effort to do the download (many are free, of course). An app
can positively influence how the customer views the brand and stimulate
purchase and loyalty. 19
In addition, a variety of other types of mobile apps (for example,
mobile game apps, social media apps, and nonbranded productivity apps)
offer opportunities for marketing managers to communicate with
customers through ads that feature a mix of text, image, and video
elements. Ads displayed within such mobile apps are called in-app ads,
and these have become an increasingly important option within the
marketer’s digital tool kit. Their popularity is driven by the overall growth
of app usage on mobile devices. Basically, all of the advantages and
capabilities we have discussed in relation to digital marketing and mobile
marketing are available for marketing managers to leverage within the
context of in-app ads.
MANAGING SOCIAL MEDIA MARKETING:
NOW THE CUSTOMER IS INVOLVED IN THE
DIALOGUE
LO 13-4
Identify the key types of social media and their benefits to marketers in
communicating value to customers.
Perhaps no change has had a greater impact on how organizations
communicate with customers than the exponential growth of social media.
Evidence of social media’s widespread use and adoption is supported by
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research finding that more than half of adults within the United States use
two or more social networking sites. 20 The ability for people to come
together online has moved the conversation about an organization and its
offerings away from the organization as initiator and into the hands of the
public. Customers speak directly to each other about the good and bad of
their product and service experiences. Organizations can monitor,
participate, and respond, but they cannot control this external dialogue,
thus creating both opportunities and threats for organizations as they look
to first understand the impact of social media on their business and then to
develop effective marketing strategies to manage it. When done well, an
organization’s social media presence can reinforce existing marketing
messaging as well as give them a more community-focused, tech-savvy
presence. In addition, the immediacy of social media actually works to
“force” marketers to stay connected to their customers 24/7. On the flip
side, an ineffective or poorly executed social media strategy can
immediately damage an organization’s image and spill over to reduce the
effectiveness of other marketing communications.
Communications about an organization that are distributed through
social media can fit into all three of the classifications of marketing
communications discussed earlier in the chapter—paid media, earned
media, and owned media. Because of the “social” aspect of social media,
an organization can benefit from the generation of earned media by
customers who are passionate about the organization’s brands, products, or
services, with the potential for these communications to reach huge
audiences at little or no cost to the marketing budget. Within social media
platforms, marketers typically seek to create communications that
customers will find informative, entertaining, or hopefully both, with the
potential added benefit that some members of the audience will act to
spread the communication to an even larger audience (a topic we will
discuss in greater detail later in this chapter). In addition, the interactive
nature of social media platforms allows marketers to identify
conversations about a brand and join into those conversations. Put another
way, rather than simply “talking at” customers, as is the case with some
other marketing communications, social media marketing fosters a more
salient two-way relationship in real time.
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Types of Social Media
The key forms of social media most relevant to marketers are social
networks and viral marketing, product/service review sites, and online
brand communities.
Social Networks As the name implies, social networks are about
connecting people through friendships, mutual interest, or some other
characteristics. The concept of a social network goes back to the 1800s,
when it referred to a collection of people who developed a relationship
based on some unifying element. A modern interpretation of the term
refers
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to groups of people connected through technology. Today, there are
hundreds of social networks that vary widely in the interests catered to and
the ways that users communicate and interact within the network. Given
the sheer number of social networking platforms available to customers, it
is generally not feasible (or desirable) for even the largest organizations to
maintain an effective digital presence across them all. Thus, identifying the
particular social networks that an organization’s customers tend to interact
with most helps determine where a marketing manager can best invest
promotional budget.
As mentioned previously, each social network tends to possess unique
characteristics of how users communicate on the network. So the content
developed and communication strategy employed typically is different for
the marketer on each network. For example, a strategy focused on sharing
short videos on one platform and sharing still images on another platform
is common. These varying ways of media sharing across networks give
marketers a chance to spread their creative wings and have some fun
reflecting brand personalities through different approaches such as making
a funny comment about a specific current event as it is happening on one
platform, while sharing an amusing meme on another. A well-orchestrated
mix of actions on social media has positive benefits for brand image and
reinforces customer relationship quality with the brand. 21
To get a better sense of some of the more distinctive characteristics
and capabilities of social networks and their implications for marketers,
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let’s examine four of the more popular social networking platforms:
Facebook, Twitter, Snapchat, and LinkedIn.
Facebook Active users at present: over 1.5 billion and growing.
Facebook currently is the largest social networking platform in the
world. It was originally started as a site for college students to
connect with each other, but Facebook has grown to include a broad
L.L. Bean has a strong presence on Facebook, a smart approach that
contributes to their overall success in the marketplace.
Source: L.L. Bean/Facebook
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base of different users, from grandparents to kids, large organizations
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to small entrepreneurs. For marketers, Facebook represents one of the
best opportunities to engage a social network, as its open access and
broad appeal can translate to a large number of Facebook friends.
Some organizations such as L.L. Bean, with over 700,000 followers,
have embraced Facebook with a strategy designed to offer unique
photos, videos, and tips related to experiences in the outdoors. Other
organizations such as Apple take a more conservative approach, with
minimal presence on Facebook. One of the challenges for
organizations is the never-ending need for currency and immediacy of
postings on social network sites. Creating a Facebook page may not
have budget implications in and of itself, but making it continually
interesting and, more importantly, giving people a reason to come
back requires a significant ongoing commitment. In addition, as
individuals post comments, the company must dedicate resources to
make sure that the folks posting “feel the love” of being connected in
a two-way dialogue with the organization.
Twitter Active users at present: over 300 million and growing.
Twitter features the creation and dissemination of short-form
communications (tweets). Users on Twitter can post photos, videos,
and text. One of the hallmark characteristics of Twitter is its limited
number of characters per given tweet. This parameter creates some
interesting dynamics for the nature of interactions between customers
and marketers, as marketers learn how best to maximize the value of
this platform for communications. 22 Twitter clearly presents an
opportunity to engage in discussions with customers and disseminate
or respond to news related to the brand. Note, though, that a hallmark
of Twitter is the user expectation of very quick and timely response to
questions or comments. Organizations such as JetBlue use Twitter to
deliver customer service excellence by closely monitoring and
responding to basically every tweet that is sent its way. If a bunch of
passengers are stuck on a delayed plane on the tarmac at JFK airport,
you can bet that one or more will tweet, and you can count on JetBlue
to respond probably before the plane finally takes off. More broadly,
Twitter activity can offer marketers
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JetBlue embraces Twitter as a key way to stay on top of customer sentiments
and trends.
Source: JetBlue Airways/Twitter
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valuable insights into customer experiences with products and
services as well as capture their feelings about organizations and their
brands.
Snapchat Active users at present: over 200 million and growing.
Snapchat offers users the capability to share photos and videos, but
with limits on the number of views and length of time of views. This
temporary nature of the content on Snapchat provides a certain level
of appeal to users that arguably resonates most with a younger
demographic. While many social networks may have user-age
distributions that skew toward the younger side, Snapchat boasts that
about 60 percent of its users are between the ages of 13 and 24. 23
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Snapchat also features the use of filters, which are visual effects that
alter a user’s face in different, oftentimes amusing ways.
Organizations can even work with Snapchat to develop sponsored
filters to promote specific products or brands. For example, Gatorade
worked with Snapchat to create a Super Bowl filter where users could
create videos that showcased a floating Gatorade cooler being
dumped on their heads (as a takeoff from the iconic “Gatorade bath”
that the players on a sports teams that just won a championship
typically give their coach). The fleeting nature of content shared on
Snapchat likely also encourages customers to be more honest in their
posts, and marketers that take a similar approach to providing brand-
related content that comes across as more honest and less polished
can see substantial benefits from this platform.
LinkedIn Active users at present: over 400 million and growing.
Targeted toward working professionals, LinkedIn offers some distinct
advantages in terms of a professional calling card. Key features
include the ability to create a contact network of people that allows
for offering introductions, staying in touch, reading and sharing
content relevant to a professional audience (such as industry news,
opinions on how a profession is changing, and tips on job hunting),
and gaining access to resources for developing or enhancing
professional skills. People opt in to an individual’s contact network
by being asked to join and responding affirmatively. Organizations
are making extensive use of LinkedIn for recruiting. The amount of
information individuals place on LinkedIn about their professional
background and industry affiliations make it an especially valuable
tool for recruiters looking for great candidates for a job opening. For
jobs that have especially technical or unique requirements, LinkedIn’s
search capabilities allow recruiters to identify a set of potential
individuals to whom to promote a job opportunity, folks who very
closely match the job requirements. Not surprisingly, salespeople are
prolific users of LinkedIn to smoke out prospects or to find
influencers of purchase decisions in target firms. The good news
about LinkedIn for marketing managers is its strong focus on B2B,
allowing for communication of goods and services relevant to B2B
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users.
Viral Marketing The immediacy and personalization of social
networks (and actually the web itself) sets the stage for viral marketing,
sometimes also called buzz marketing. Viral marketing is simply a
marketing phenomenon that facilitates and encourages people to pass
along a marketing message. 24 The concept is called “viral” because the
process of exposure to a message mimics the process of passing a virus or
disease from one person to another. It’s the process of creating a video
clip, image, message, e-book, or some other content in an effort to have it
passed on by individuals within a social network or by word of mouth.
Marketing managers have understood for decades how valuable strong
word of mouth can be to product success. The rapid growth of social
networking on the Internet and today’s laser-targeting capabilities in
marketing combine to make it possible to create marketing communication
campaigns that simulate an in-person, word-of-mouth, one-to-one
approach online.
Important considerations for viral marketing include the characteristics
of the social networks (that is, how members communicate and what they
value) to be used and the relationship characteristics (such as the strength
and number of relationships) of those networks. Finding the right
combination of these elements hopefully yields appropriate conditions for
a successful seeding strategy, which entails initiating a viral marketing
approach to specific customers or groups of customers who then further
stimulate the internal dynamics of the target market, thus resulting in the
diffusion process (spread of the virus). A seeding strategy benefits from
including both individuals who can spread a message effectively
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EXHIBIT 13.13 Examples of Social Group
Dynamics that Enable the Effective
Implementation of a Seeding
Strategy
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within one or several large social groups that share common
characteristics, as well as individuals who can spread a message across a
set of social groups that don’t otherwise share many connections in
common. 25 Exhibit 13.13 provides a graphical depiction of these two
types of beneficial approaches to seeding strategy.
Effective viral marketing approaches and content typically capture the
attention of people in a unique way, speak to their interests and needs, and
connect recipients to an experience that is enriched when shared with
others. Dove Beauty Bar’s “Real Beauty Sketches” campaign was an
uplifting example of effective viral marketing. The video featured sketches
of women produced by an FBI-trained forensic artist. The artist created the
sketches based on each woman’s description of her own appearance, along
with separate sketches of the same women based on a stranger’s
description. The drawings based on the strangers’ accounts were more
closely aligned with reality and also generally more flattering than those
self-described by the women. The message of the videos was clear and
resonated with a large audience, evidenced by the more than 114 million
views and close to 4 million shares generated in the first month. 26 Was it
inherently obvious in advance to Dove’s marketing managers that their
approach would be a viral hit? Unlikely, as viral marketing is as much or
more of an art than a science, and marketers often have difficulty
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predicting what actions and conditions will result in a big viral marketing
hit with the public!
Viral marketing has practical advantages for marketing managers.
First, the “birds of a feather” aspect of viral marketing works to one’s
advantage since the group targeted by a seeding strategy most often
possesses common bonds, and thus content shared with by a social
network member with other members may be viewed as more relevant,
credible, and trustworthy than the same content received directly from the
marketer. Second, marketing budget efficiencies can be obtained when
viral marketing is done successfully. Think of viral marketing as one of the
most potent types of earned media, in that it enables the spread of a
marketing communication to potentially large audiences through the
activation of individual users as marketing communication channels. In
some cases, audience size reached through a viral marketing effort could
be equivalent to what might have been obtained through the purchase of a
television advertising spot requiring a substantial chunk of marketing
budget.
365
Product and Service Review Sites Product and service review
sites offer the opportunity for customers to provide feedback on their
experience with the organization and its offering, and also provide an
information repository for customers to search of information before
purchase. Because of these customer uses, marketers must continually
monitor review sites that are relevant for their offerings. Examples of some
well-known product and service review sites include the following:
CNET is one of the most popular sites for individuals interested in
consumer technology and electronics. The site posts professional
product reviews across a wide range of products and also encourages
users to post their own feedback.
Urbanspoon is a user-generated review site of local restaurants.
Urbanspoon creates a local community of users (supported by
professional critical reviews from local media), with restaurant
reviews posted by location, price, cuisine, and features.
Consumersearch acts as an aggregator of reviews across a wide
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range of products—everything from home and garden to automotive.
The site includes Consumersearch’s own reviews of many products,
and also posts reviews from other sources as well as customer
reviews from Amazon.
Consider the results of a recent study finding that about 70 percent of
Americans consult either a user review site or an independent review site
(with equal likelihood) before making a purchase. 27 This trend makes it
makes it imperative that marketers develop and execute a consistent
strategy for staying on top of postings on product and service review sites
relevant to their offerings. Such monitoring allows marketing managers to
track and learn from customers’ experiences and identify opportunities to
both take remedial actions with customers and make modifications in
offerings as appropriate. Post-purchase, marketers can run into potential
reputational and ethical issues if they go too far in trying to influence
ratings and reviews on these websites. It’s not unusual for marketers to
offer financial incentives or other customer benefits in exchange for users
posting ratings and reviews on various sites after purchase. The implicit
assumption is that incentivized participants will be more inclined to
provide positive ratings and reviews. These types of influence approaches
must be undertaken with extreme care, lest the customer feel manipulated
by the organization. In more overt cases, an organization may use paid
(sponsored) web bloggers to post ratings and reviews in a positive light in
an attempt to stack the deck more favorably on the review site. Review
sites themselves must be diligent in working to screen out such
unscrupulous activity, as it ruins the credibility of the site. For the
organization sponsoring such fake posts, the risk is high that exposure will
do irreparable damage to the brand and customer trust in the organization.
Online Brand Communities In recent years marketing managers
have led their organizations to understand the potential of creating their
own online brand communities, where customers can engage in
meaningful interaction right on the organization’s own website rather than
at independent sites. For such an owned media review site to be attractive
and effective, naturally it must be perceived as “honest,” meaning that the
organization must not selectively delete negative posts; rather, it must
838
allow participants to share a wide range of views. Online brand
communities, whether hosted by an organization or by an independent
third party, can have substantial value for an organization in terms of
useful feedback for the design and marketing of its offerings. 28 Probably
not too surprisingly, Apple is one organization that has embraced the
online brand community strategy, with thousands of communities built
around their products and end-user consumers. These forums offer
important product support, deal with product and service concerns, and
build a strong sense of community among Apple users.
Interactions among online brand community members can deliver
major benefits to the host organization in different forms. For example,
cost savings can be achieved when customers are able to answer each
other’s questions related to technical difficulties and the like, rather than
contacting customer service. Another benefit occurs when the host
organization learns from the online community dialogue ways to better
educate its customers on product or service usage after the sale. Also,
aesthetically, online brand communities
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can make a customer’s experience with offerings more enjoyable through
the sharing and comparing of ideas and war stories among users, building
a greater bond with the brand. When user-generated content is developed
and loaded onto the online brand community by customers, it brings the
customer directly into the process of communicating the value offering,
which no doubt increases customer satisfaction, loyalty, and pride of
association with the brand and organization.
Sony’s PlayStation Community is aimed at engaging and entertaining
customers. It offers users of different PlayStation products and services the
opportunity to ask questions and to engage in conversations about different
systems, services, and games. In addition, users can upload in-game
images and videos directly onto specific forums within the online
community so they can share interesting aspects of the different games
they are currently playing with other members of the community. Sony
also allows selected outside brands to share content through the platform
to further enhance its value to PlayStation users.
Assessing the Value of Social Media Marketing
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Assessing the value of social media marketing efforts can be a real
challenge for marketing managers, especially in terms that other
organizational stakeholders are willing to accept as important to
performance. This is especially the case when social media efforts do not
drive easily tractable types of customer behaviors that are clearly and
directly linked to a specific product purchase (thus de facto linked to the
broader revenue and financial performance of the organization). For
example, it is not at all uncommon for C-suite executives to question the
value of the number of “likes” or “followers” that are being generated by a
given social media marketing campaign. As discussed in Chapter 5,
nowadays greater analytic capabilities are making it easier for marketers to
demonstrate the value derived from various digital marketing efforts,
including social media marketing. Marketing managers need to redouble
efforts to firm up the linkages between investments in marketing via social
media platforms and important ROI-based organizational outcomes.
One way to approach this challenge is for marketing managers to take
full advantage of the data collection capabilities inherent in interacting
with customers through social media and other digital marketing
approaches. Marketing has a strong story to tell the C-suite about the value
of customer insights to a wide range of strategic organizational decisions,
from product design and modification to supply chain approaches to
branding and marketing approaches and more. Mindful of the value of
their data to organizations for insight-based decision making, many social
networks understand the importance of providing advanced analytic
capabilities within their own platforms to organizations that are keen to
understand the ROI of their social media efforts. All that being said, it is
nonetheless still important to be able to set realistic expectations for upper
management ahead of time about what a given social media marketing
effort is intended to accomplish, exactly how the related objectives will be
measured and controlled for, and what specifically those measurable
outcomes will mean for the organization’s success (especially if their value
is not inherently self-evident).
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SUMMARY
840
Developing promotional strategies is an integral part of marketing. A
firm’s investment in promotion often involves a substantial amount of
money. Marketing managers utilize a promotion mix in developing
promotional strategies that includes elements of digital and social
media marketing, advertising, sales promotion, public relations (PR),
and personal selling. These promotion mix elements all have
advantages and disadvantages; the goal is to align the right tool with
the right objective.
In recent years, digital marketing has emerged as a key component
of promotional strategy. Widespread adoption of digital technologies
has a significant impact on how marketing managers communicate with
current and potential customers in both B2C and B2B markets. The
resulting data collection capabilities provide marketers with the ability to
better understand the personal characteristics and behaviors of
individual customers and gather more in-depth feedback on the efficacy
of digital marketing efforts almost instantaneously. Marketing managers
have access to a wide variety of digital communication options
including paid media, owned media, and earned media. In addition, the
proliferation of mobile devices provides substantial new opportunities
but also comes with important considerations such as the ability to use
location information to target individuals with promotions in real time
and the need to tailor specific promotions and other types of digital
experiences to the unique design features and interactive
characteristics of a mobile device.
Clearly, social media has revolutionized the way customers interact
with each other and with organizations interested in marketing to them.
Social media has the capability to be a powerful generator of earned
media for savvy marketers who understand how current and potential
customers interact via the many diverse social media platforms in
common use today. The interactive nature of social media requires
marketers to both listen to and engage users, increasingly turning away
from old-style marketing that is reliant on “talking at” customers. Three
main forms of social media tend to have the most impact for marketers:
social networks, product/service review sites, and online brand
communities. There’s no doubt that today that the capability to engage
841
current and potential customers effectively on social media is mission
critical. As such, it is also very important that marketing managers
effectively measure, analyze, and communicate the value of social
media marketing strategies internally within their firms to others who
might otherwise be wary or skeptical of the ROI of investing in this
robust promotion mix element.
KEY TERMS
promotion 343
promotion mix 343
digital and social media marketing 343
advertising 343
sales promotion 343
public relations (PR) 343
personal selling 343
promotion mix strategies 343
promotional campaign 344
push strategy 347
pull strategy 347
internal marketing 347
AIDA model 347
digital marketing 350
paid media 350
cost per impression 350
cost per click 350
owned media 350
earned media 351
digital advertising 351
display ads 352
842
banner ads 352
interstitials 352
retargeting 353
search ads 353
social network ads 354
native ads 354
landing page 355
microsites 357
368
blog 357
search engine optimization (SEO) 357
mobile marketing 358
M-commerce 358
geolocation marketing 359
branded mobile apps 359
in-app ads 360
social networks 360
viral marketing 363
seeding strategy 363
online brand communities 365
APPLICATION QUESTIONS
More application questions are available online.
369
1. The chapter discusses the role of the marketing manager in
promotional strategy (Exhibit 13.3 and accompanying discussion).
The trend today in both large and small firms is for much of the
843
promotion function to be outsourced.
a. Comment on this outsourcing trend. What are the major reasons
for the trend? What are the pros and cons? What is your personal
view about outsourcing all or part of promotion?
b. Assume you are a marketing manager for a firm that outsources
promotion to a creative agency. In what ways does this
arrangement impact your job? In particular, concentrate on how it
impacts your marketing planning (being mindful that promotion
planning is a key element of marketing planning). How would you
interact with the agency as a manager representing your firm
(assume you have responsibility for the agency relationship with
your company)? That is, what are the key things you should do to
ensure a productive relationship?
2. Consider a major purchase you have made recently. Review the
AIDA model (Exhibits 13.7 and 13.8) and accompanying discussion.
a. Think back on the process that led up to your purchase and
reconstruct the types of promotion that you experienced during
each stage of the AIDA model. Which of the promotional forms
was most effective in your situation, and why?
b. As you reconstruct this purchase experience and the promotional
messages you received during it, what other promotion mix
elements that you did not experience at the time might have been
effective in convincing you to make the purchase? At what stage
of the AIDA model would they have been helpful, and in what
ways do you believe they might have impacted your decision
process?
3. Select a B2C company that you are familiar with, along with a
product sold by that company. Identify a particular consumer target
market. Imagine you have been tasked with developing a paid
media strategy for the related product to that target.
a. Pick two of the digital ad options listed in the chapter. Explain the
concept for each of the two digital ads (they can be the same or
different) and identify the content (text, imagery, video, and other
elements) of each digital ad and explain why the related concept
and content will be an effective match for communicating to your
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selected consumer segment. In doing so, be sure to explain how
you would use the capabilities associated with each chosen ad
option to effectively target the associated consumer segment.
b. For each of the two selected digital ad options, specify the pricing
model that you believe is most appropriate for the type of ad (that
is, cost-per- impression or cost-per-click). If the pricing models
discussed in the chapter do not seem to be appropriate for the ad
option selected, then explain why not and propose an alternative
pricing model (that is, what do you suggest is more appropriate in
terms of compensation between the advertiser and the
communication channel).
4. Consider the concept of a landing page and its use in assisting the
completion of specific desirable actions as well as its relationship
with other forms of digital marketing communication. Identify one
landing page associated with a display ad as well as one landing
page associated with a search ad where the user is required to
submit some information on the landing page. In your response,
make sure to identify the company that each landing page is
associated with.
a. What makes the ad tied to each landing page effective or
ineffective in motivating an individual to click on it?
b. Do the ad and the landing page seem well integrated together? If
yes, what visual, textual, and other elements support the
connection between the ad and the related landing page?
c. Put yourself in the shoes of someone who has a legitimate need
for the products or services offered by the organization
responsible for each ad and associated landing page. Does the
landing page do an effective job of motivating the user to fill out
the related form? Are there any particular aspects of the page that
serve as potential motivators or detractors for completing the
form?
5. Select a specific branded product associated with a company and
assume you are the marketing manager in charge of mobile
marketing strategy for the product.
a. Come up with a simple concept for a branded mobile app and
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explain how the specific purpose of the app (or functionality
provided by it) fits thematically with your branded product and how
it will help create value for customers.
b. Identify a specific mobile app or game (not associated with the
brand) that would be a good fit for the distribution of in-app ads.
Explain what characteristics of the app make it a good fit based
on what is known (or assumed) about your branded product’s
target market.
6. You are the marketing manager for the Tesla Model 3 and have
been tasked with developing an effective social media strategy.
Review the discussion of social media and consider the following:
a. Develop a concept for an online brand community for Tesla Model
3 enthusiasts. Outline the specific features that the brand
community will have as well as the value of the specific features
to the community members and to Tesla.
b. Identify specific social networking platforms that you would use in
the development of a social media strategy for Tesla, explain the
reasons why you would use each of the selected platforms,
identify the specific ways that you would use each one, and list
the specific outcomes that you would use to determine the
effectiveness of your overall social media strategy across those
platforms.
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MANAGEMENT DECISION CASE How Oreo
Uses Social Media to Market Milk’s Favorite
Cookie
For many Oreo lovers, the question is not whether to eat them, but
how to eat them—twist and lick or just eat them whole. For the
record, about 50 percent of Oreo lovers eat their cookies whole
and 50 percent are “pull-aparters,” but men eat them whole more
often than do women. Several years ago the marketing team at
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Kraft, the company that produced Oreos at the time, was dealing
with weightier matters: how to move the popular brand “from old
school advertiser to new-age content creator.” 29
First introduced in 1912, the Oreo grew to be the most popular
cookie in the world, with a roughly 5 percent share of worldwide
cookie sales—three times more than any other cookie. 30 However,
Oreo’s senior marketing managers at Kraft came to the realization
that for decades Oreo had been approaching their promotions in a
formulaic and repetitive manner. Advertising stories had been
limited to those that could be told in the kitchen, “staring down the
barrel of a glass of milk.” And the overall approach was very self-
focused—as their CMO put it, “We loved to look in the mirror … the
power of looking out the window was that we said this brand can
behave in and drive culture.” With this revelation, social media
became the vehicle for opening that window and reaching out to
the broader consumer culture—with some carefully orchestrated
programs and one serendipitous opportunity seized. 31
To coordinate with its 100th anniversary, Oreo launched the
Daily Twist, in which for 100 days its famous cookie was cast on
Facebook in a series of cultural moments and stories tied to
trending news. For its first promotion under this approach, a
controversial rainbow-filled Oreo was created for Gay Pride
week. 32 Later, a red cookie with tire tracks celebrated the Mars
Rover landing. Then the king of cookies delivered an Oreo made to
look like the king of rock and roll—Elvis—on his birthday. 33 But the
most successful post was one featuring an Oreo designed to look
like the famous Tokyo Ueno Zoo panda Shin-Shin in celebration of
the birth of a new baby panda, which reached almost 4.5 million
views. 34
Pulling off these daily messages required some real marketing
acrobatics by Oreo’s advertising agency. After checking the news
each day, the team would mock up four options judged to be the
most culturally interesting. Within hours, one of these would get
approved by the client, the legal department, and the corporate
communications department, and then it was released to the world
on Facebook. It is noteworthy that in “the old days” it could take
847
more than three months to get a proposed traditional ad fully
through the approval process. 35
The agility developed during this social media campaign paid
off when opportunity came knocking a few months later. For the
first time ever, the power went out at the New Orleans Superdome
during the biggest sports (and marketing) event of the year—the
Super Bowl. While the Ravens and 49ers took an unplanned time
out, the Oreo social media team jumped into action. 36 Within a few
minutes, Oreo sent out a tweet that said “Power out? No Problem.
You Can Still Dunk in the Dark.” 37 Without spending a cent on
expensive Super Bowl advertising, Oreo managed to reach a
massive group of hungry (and bored) football fans with “The Tweet
Heard around the World.” 38 Truly a marketing tour de force!
In its Wonderfilled campaign, the team used clever animated
videos to show how some of the darker characters in our
memories (like a vampire or the Big Bad Wolf) can be made more
cheerful with the help of America’s favorite cookie. 39 These videos
were delivered via traditional TV advertising but also on YouTube,
Facebook, and Twitter. 40 Oreo also executed a mobile app called
Twist, Lick, Dunk that was the number one “advergame” in 15
countries and not only promoted the brand but actually made
money for the company—about $100,000—from virtual Oreo
cookies sold and from in-app advertising. 41
Social media has been important to Oreo not only for its reach
and low cost, but also because so many of us are glued to our
smartphones at the very moment when we could be encouraged to
consider buying an Oreo snack. In the past, the time spent waiting
in line to pay at the grocery store was prime time for a visual
suggestion for an impulse purchase—gum, candy, or a sleeve of
delicious Oreos displayed on a rack right in front of us. However, in
today’s connected world, we are more likely to be looking at
Facebook and Twitter on our smartphones while waiting rather
than at the racks full of “suggestions.” So to recapture shoppers’
attention, Oreo regularly sends a clever and entertaining
suggestion for satisfying that sweet tooth using those same social
media tools. 42
848
Oreo’s efforts to become more social media savvy have paid
off. Today, Oreo’s Facebook community numbers more than 42
million in 200 countries, which incredibly puts it among the top 10
Facebook brand pages in the world. 43 In the year in which the
Wonderfilled campaign was launched, Oreo’s North American
business saw double-digit growth. Although many other marketing
efforts, including product innovation, were also executed, there is
little doubt that “looking out the window” and engaging with the
culture made a difference in Oreo’s phenomenal success. 44
371
Questions for Consideration
1. How should Oreo’s success in social engagement be
evaluated? What metrics would be most useful? Consider both
the usage-specific metrics that a social media provider might
supply as well as outcome-based measures. What are the pros
and cons of relying on one of these types of measures versus
the other?
2. While growing their social media presence, Oreo continues to
advertise in traditional media. Why is it important to ensure that
messages are consistent among platforms? What specific
tactics could be used to ensure this consistency?
3. Although most of Oreo’s social media efforts are directed toward
adults, many Oreo lovers are children. To what degree should
Oreo also have a focus on marketing directly to children? What
are the risks and ethical considerations of such an approach?
Are there approaches to marketing Oreos to children that would
stand up to ethical scrutiny? (Hint: Among other issues, consider
the trend toward childhood obesity.)
MARKETING PLAN EXERCISE
849
ACTIVITY 14: Promote Your Offering
The promotion plan is an integral part of any marketing plan, and often
carries a significant portion of the marketing budget. Develop the
following elements for promoting your offering:
1. Review the promotion mix elements and begin to develop goals for
promotion and a promotional strategy utilizing the elements of the
mix that are most appropriate for your offering.
2. Link the promotional strategy to PLC stages as well as the stages
your customers will go through on the AIDA model.
3. Decide how you intend to manage promotion for the offering. Decide
on outsourced elements versus elements that will be handled in-
house. Establish a structure and process for promotion
management.
NOTES
1. Bob Garfield, “The Post Advertising Age,” Advertising Age,
March 26, 2007.
2. P. Rajan Varadarajan, Satish Jayachandran, and J. Chris White,
“Strategic Interdependence in Organizations: Deconglomeration
and Marketing Strategy,” Journal of Marketing 65, no. 1
(January 2001), pp. 15–28.
3. Frederick E. Webster Jr., “Understanding the Relationships
among Brands, Consumers, and Resellers,” Journal of the
Academy of Marketing Science 28, no. 1 (Winter 2000), pp. 17–
23.
4. Emim Babakus, Ugar Yavas, Osman M. Karatepe, and Turgay
Avci, “The Effect of Management Commitment to Service
Quality on Employees’ Affective and Performance Outcomes,”
Journal of the Academy of Marketing Science 31, no. 3
(Summer 2003), pp. 272–86.
5. Yu-Shan Lin and Jun-Ying Huang, “Internet Blogs as a Tourism
850
Marketing Medium: A Case Study,” Journal of Business
Research 59, no. 10/11 (October 2006), pp. 1201–05.
6. Maria Teresa Pinheiro and José Manuel Cristóvão Veríssimo,
“Digital Marketing and Social Media: Why Bother?” Business
Horizons 57, no. 6 (2014), pp. 703–8.
7. Sean Corcoran, “Defining Earned, Owned, and Paid Media,”
Forrester, December 16, 2009,
http://blogs.forrester.com/interactive_marketing/2009/12/defining-
earned-owned-and-paid-media.html.
8. Joe McCambley, “The First Ever Banner Ad: Why Did It Work
So Well?” The Guardian, December 12, 2013,
https://www.theguardian.com/media-network/media-network-
blog/2013/dec/12/first-ever-banner-ad-advertising.
9. “Understanding Bidding Basics,”
https://support.google.com/adwords/answer/2459326.
10. Oliver J. Rutz, Michael Trusov, and Randolph E. Bucklin,
“Modeling Indirect Effects of Paid Search Advertising: Which
Keywords Lead to More Future Visits,” Marketing Science 30,
no. 4 (2011), pp. 646–65.
11. Bartosz W. Woldjynski and Nathaniel J. Evans, “Going Native:
Effects of Disclosure Position and Language on the Recognition
and Evaluation of Online Native Advertising,” Journal of
Advertising 45, no. 2 (2015), pp. 157–68.
12. Arvind Rangaswamy, C. Lee Giles, and Silvija Seres, “A
Strategic Perspective on Search Engines: Thought Candies for
Practitioners and Researchers,” Journal of Interactive Marketing
23, no. 1 (2009), pp. 49–60.
372
13. Ron Berman and Zsolt Katona, “The Role of Search Engine
Optimization in Search Marketing,” Marketing Science 32, no. 4
(2013), pp. 644–51.
14. Dave Chaffey, “Digesting Mary Meeker’s 2015 Internet Trends
Analysis,” Smart Insights, June 11, 2015,
http://www.smartinsights.com/internet-marketing-
statistics/insights-from-kpcb-us-and-global-internet-trends-2015-
851
http://blogs.forrester.com/interactive_marketing/2009/12/defining-earned-owned-and-paid-media.html
https://www.theguardian.com/media-network/media-network-blog/2013/dec/12/first-ever-banner-ad-advertising
https://support.google.com/adwords/answer/2459326
Insights from KPCB US and global internet trends 2015 report
report/.
15. “Whole Foods Market Partners with Thinknear to Drive Store
Visits,” Thinknear, http://www.thinknear.com/wp-
content/uploads/2015/06/Case-Study-Whole-Foods-
Thinknear .
16. Dhruv Grewal, Yakov Bart, Martin Spann, and Peter Pal
Zubcsek, “Mobile Advertising: A Framework and Research
Agenda,” Journal of Interactive Marketing 34, no. 2 (2016), pp.
3–14.
17. Venkatesh Shankar and Sridhar Balasubramanian, “Mobile
Marketing: A Synthesis and Prognosis,” Journal of Interactive
Marketing 23, no. 2 (2009), pp. 118–29.
18. Graham Winfrey, “8 Best Practices for Text Message
Marketing,” Inc., August 20, 2014, http://www.inc.com/graham-
winfrey/8-text-message-marketing-best-practices.html.
19. Steve Bellman, Robert F. Potter, Shiree Treleaven-Hassard,
Jennifer A. Robinson, and Duane Varan, “The Effectiveness of
Branded Mobile Phone Apps,” Journal of Interactive Marketing
25, no. 4 (2011), pp. 191–200.
20. Shannon Greenwood, Andrew Perrin, and Maeve Duggan,
“Social Media Update 2016,” Pew Internet, November 11, 2016,
http://www.pewinternet.org/2016/11/11/social-media-update-
2016/.
21. Simon Hudson, Li Huang, Martin S. Roth, and Thomas J.
Madden, “The Influence of Social Media Interactions on
Consumer–Brand Relationships: A Three-Country Study of
Brand Perceptions and Marketing Behaviors,” International
Journal of Research in Marketing 33, no. 1 (2016), pp. 27–41.
22. Andrew N. Smith, Eileen Fischer, and Chen Yongjian, “How
Does Brand-Related User-Generated Content Differ across
YouTube, Facebook, and Twitter?” Journal of Interactive
Marketing 26, no. 2 (2012), pp. 102–13.
23. Giselle Abramovich, “15 Mind-Blowing Stats about Snapchat,”
CMO, August 19, 2016,
http://www.cmo.com/features/articles/2016/8/15/15-mind-
852
http://www.thinknear.com/wp-content/uploads/2015/06/Case-Study-Whole-Foods-Thinknear
http://www.inc.com/graham-winfrey/8-text-message-marketing-best-practices.html
http://www.pewinternet.org/2016/11/11/social-media-update-2016/
http://www.cmo.com/features/articles/2016/8/15/15-mind-blowing-stats-about-snapchat.html#gs.6YUw9s4
blowing-stats-about-snapchat.html#gs.6YUw9s4.
24. http://www.ama.org.
25. Oliver Hinz, Bernd Skiera, Christian Barrot, and Jan U. Becker,
“Seeding Strategies for Viral Marketing: An Empirical
Comparison,” Journal of Marketing 75, no. 6 (2011), pp. 55–71.
26. Jason Ankeny, “How These 10 Marketing Campaigns Became
Viral Hits,” Entrepreneur, April 23, 2014,
https://www.entrepreneur.com/article/233207.
27. “Seven in 10 Americans Seek Out Opinions before Making
Purchases,” Mintel, June 3, 2015, http://www.mintel.com/press-
centre/social-and-lifestyle/seven-in-10-americans-seek-out-
opinions-before-making-purchases
28. Mavis T. Adjei, Stephanie M. Noble, and Charles H. Noble, “The
Influence of C2C Communications in Online Brand Communities
on Customer Purchase Behavior,” Journal of the Academy of
Marketing Science 38, no. 5 (2010), pp. 634–53.
29. Danielle Sacks, “The Story of Oreo: How an Old Cookie
Became a Modern Marketing Personality,” Fast Company,
October 23, 2014, https://www.fastcompany.com/3037068/the-
story-of-oreo-how-an-old-cookie-became-a-modern-marketing-
personality.
30. Roberto A. Ferdman, “Why Oreos Might as Well Exist in Their
Own Cookie Stratosphere,” Washington Post, July 7, 2015,
https://www.washingtonpost.com/news/wonk/wp/2015/07/07/why-
oreos-might-as-well-exist-in-their-own-cookie-stratosphere/?
utm_term=.51815f9cd7f4.
31. Sacks, “The Story of Oreo.”
32. Sacks, “The Story of Oreo.”
33. Ann-Christine Diaz, “Oreo’s 100-Day ’Daily Twist’ Campaign
Puts Cookie in Conversation,” Advertising Age, September 10,
2012, http://adage.com/article/digital/oreo-s-daily-twist-
campaign-puts-cookie-conversation/237104/.
34. Dan Milano, “Oreo’s ’Daily Twist’ on Social Marketing,” ABC
News, October 2, 2012,
853
https://www.entrepreneur.com/article/233207
http://www.mintel.com/press-centre/social-and-lifestyle/seven-in-10-americans-seek-out-opinions-before-making-purchases
https://www.fastcompany.com/3037068/the-story-of-oreo-how-an-old-cookie-became-a-modern-marketing-personality
https://www.washingtonpost.com/news/wonk/wp/2015/07/07/why-oreos-might-as-well-exist-in-their-own-cookie-stratosphere/?utm_term=.51815f9cd7f4
http://adage.com/article/digital/oreo-s-daily-twist-campaign-puts-cookie-conversation/237104/
http://abcnews.go.com/blogs/business/2012/10/oreos-daily-
twist-on-social-marketing-ends-in-grand-style/.
35. Sacks, “The Story of Oreo.”
36. Jeff Briggs, “Super Bowl 2013 Start Time and Location for
Ravens vs. 49ers,” SBNation, January 24, 2013,
http://dc.sbnation.com/2013/1/24/3907878/2013-super-bowl-
start-time.
37. Sacks, “The Story of Oreo.”
38. Brian Sheehan, “How Oreo Stayed Relevant for 100 Years,”
Adweek, July 17, 2015, http://www.adweek.com/digital/how-
oreo-stayed-relevant-for-100-years/.
39. Ann-Christine Diaz, “Oreo’s New ’Wonderfilled’ Campaign
Wants to Sap the Cynicism Out of Your Day,” Advertising Age,
May 14, 2013, http://adage.com/article/behind-the-work/oreo-s-
wonderfilled-campaign-sap-cynicism-day/241459/.
40. “Wonderfilled,” Bēhance,
https://www.behance.net/gallery/36260905/Oreo-Wonderfilled-
Animation-Social-Media, accessed May 9, 2017.
41. Sacks, “The Story of Oreo”; “Twist, Lick, Dunk, 5,” Advertolog,
http://www.advertolog.com/oreo/casestudy/twist-lick-dunk-5-
18597405/, accessed May 9, 2017.
42. Sacks, “The Story of Oreo.”
43. “2017 Fact Sheet,” Mondelez International,
http://www.mondelezinternational.com/~/media/MondelezCorporate/Uploads/downloads/OREO_Fact_Sheet
accessed May 9, 2017.
44. Sacks, “The Story of Oreo.”
854
http://abcnews.go.com/blogs/business/2012/10/oreos-daily-twist-on-social-marketing-ends-in-grand-style/
http://dc.sbnation.com/2013/1/24/3907878/2013-super-bowl-start-time
http://www.adweek.com/digital/how-oreo-stayed-relevant-for-100-years/
http://adage.com/article/behind-the-work/oreo-s-wonderfilled-campaign-sap-cynicism-day/241459/
https://www.behance.net/gallery/36260905/Oreo-Wonderfilled-Animation-Social-Media
http://www.advertolog.com/oreo/casestudy/twist-lick-dunk-5-18597405/
http://www.mondelezinternational.com/~/media/MondelezCorporate/Uploads/downloads/OREO_Fact_Sheet
374
CHAPTER 14
Promotion
Essentials: Legacy
Approaches
LEARNING OBJECTIVES
LO 14-1 Understand the key types of advertising and the role
of the creative agency.
LO 14-2 Identify various approaches to sales promotion and
how each might be used.
LO 14-3 Describe the activities and aims of public relations.
LO 14-4 Understand the role of personal selling in marketing
855
communications.
LO 14-5 Learn the process of relationship selling.
LO 14-6 Understand the major job responsibilities of sales
management.
375
In this chapter we explore critical marketing communication tools that we
refer to as “legacy approaches” to promotion. We like the term legacy
because it denotes a heritage of tools that still carry great value for
marketing managers, but are distinct from the digital and social media
marketing approaches that comprise much of the focus of Chapter 13.
Some of these legacy approaches tend to be directed toward broad or mass
markets—advertising, sales promotion, and public relations PR—while
personal selling tends to be one-on-one. In the introductory section of
Chapter 13 that defines and compares each element of the promotion mix,
you read that advertising is a paid form of relatively less personal
marketing communications, often through a mass medium to one or more
target markets. For much of the general public, advertising is synonymous
with marketing because advertising is a very visible side of marketing—
not surprising, since advertising is one of the dominant forms of marketing
communication.
Beyond advertising, marketers have additional promotional tools—
sales promotion and PR—to facilitate communication with their broad
target markets. Recall from Chapter 13 that sales promotion provides an
inducement for an end-user consumer to buy your product or for a
salesperson or someone else in the channel to sell it. It is rarely used as the
sole promotional method; instead it usually augments other forms of
promotion. And PR is a systematic approach to influencing attitudes,
opinions, and behaviors of customers and others. PR is often executed
through publicity, which is an unpaid and relatively less personal form of
marketing communications, usually through news stories and mentions at
public events.
Let’s first take a look at each of these three approaches to marketing
856
communications to broad markets in greater detail. Then, later in the
chapter, we will turn attention to personal selling as a more laser-focused
element of the promotion mix.
ADVERTISING
LO 14-1
Understand the key types of advertising and the role of the creative
agency.
To most of the general public, advertising is synonymous with marketing.
Advertising is what most people see as the visible side of marketing—of
course, this is due in part to the large amount of money spent on
advertising. According to MAGNA (IPG Mediabrands research company),
global spending on advertising is over $500 billion dollars per year.
However, this figure comes with an important caveat: these numbers only
track more traditional forms of advertising that are considered “measured
media”—magazine, TV, radio, outdoor, and display advertising on the
Internet. Not included are so-called unmeasured media such as Internet
paid search and social media.
Who are the largest advertisers in the world? The list includes many
companies you recognize such as P&G, Unilever, L’Oréal, and
Volkswagen. It is noteworthy that the largest global advertisers operate
primarily in the consumer marketplace. Advertising is ubiquitous
EXHIBIT 14.1 The World’s Most Effective
Advertisers
Rank Advertiser Points
1 Procter & Gamble 594.3
2 Unilever 477.5
3 Coca-Cola Company 454.9
857
4 Heineken 287.6
5 PepsiCo 231.1
6 McDonald’s 207.7
7 Volkswagen Group 207.2
8 Mondelez International 193.5
9 Tata Group 177.5
10 Luxottica 151.0
Source: Vizard, Sarah, “P&G Overtakes Unilever to Top List of Most Effective Global
Advertisers,” Marketing Week, March 1, 2016.
376
promotion, and because it is so visible and seemingly easily understood,
many turn to advertising as their promotion mix element of first choice.
However, for the advertiser a more important question is: How effective is
the company’s advertising? Exhibit 14.1 highlights a research firm’s
analysis of the most effective advertisers in the world. It should come as
no surprise that the largest advertisers are also among the most effective. It
is also interesting to note, however, that companies like Heineken can still
be very effective despite spending much less (about $400 million each
year) than the largest advertisers like P&G (which spent $7 billion on
global advertising in 2016).
There is a danger in overrelying on advertising to the exclusion of
other promotional choices. Customers can quickly and easily become
bored with any given advertising campaign, a concept referred to as
advertising wearout. This phenomenon necessitates a constant creation of
new ads with new or adjusted themes, resulting in a constant churn of
messages. 1 For several years Apple ran a series of ads around the “Mac
vs. PC” theme. The campaign featured two actors who represented Mac
(cool computers that work) versus PC (computers that were complicated
and didn’t always work). While the campaign was hugely successful, the
company eventually stopped the ads because they were no longer
perceived as original or effective in conveying the brand message for
Apple’s Mac computers. The need for constant renewal of ads is great for
advertising agencies, which get paid to create them, but incredibly
858
expensive for marketing managers.
Another problem with advertising is that beyond a certain ad spending
level, diminishing returns tend to set in. That is, market share stops
growing—or even begins to decline—despite continued spending. This
effect is known as the advertising response function and leads marketing
managers to rely more heavily on advertising early in the product life cycle
(PLC), as well as to focus on it during target customers’ initial stages of
the AIDA model that we presented in Chapter 13. 2 Spending higher
dollars, in this case on advertising, on the promotional goals of informing
and persuading is likely to pay back at a higher level than spending equal
dollars on the promotional goal of reminding.
Despite these challenges, advertising is not only a potentially highly
effective promotional vehicle (when applied properly), but it is also a part
of the very fabric of the U.S. culture and, increasingly, of the global
culture. The craze associated with the annual Super Bowl advertisements
is a testament to the power of advertising to excite the masses.
Types of Advertising
There are two major types of advertising: institutional advertising and
product advertising. The choice of which approach to use depends on the
promotional goals and the situation.
Institutional Advertising The goal of institutional advertising is to
promote an industry, company, family of brands, or other issues broader
than a specific product. Institutional advertising is often used to inform or
remind, but to a lesser degree to persuade. Earlier you read about the
concept of corporate identity in the context of the sender of
communication. 3 Many customers pay a great deal of attention to the
organization behind an advertising message, how socially responsible the
company is, and what values for which it stands. Institutional advertising
can help build and enhance a corporate brand or family brand. For
instance, P&G runs institutional ads about a charitable cause it supports—
the Special Olympics. Certain families of P&G brands (Crest, Pampers,
etc.) generally are featured as well. Such an approach helps build the
corporate identity of P&G and can enhance its brands through positive
association.
859
Sometimes entire industries will run institutional advertising. For
example, the trade organization for cotton, Cotton Incorporated,
introduced a new campaign called “Leave Comfort to Clothes” to reinforce
people’s connection with the fabric, cotton. Famous for its “Cotton, the
fabric of our lives” campaign, industries like cotton search for messages
that help connect customers to their products, a bit like the famous “Intel
Inside” branding on computers. 4 Consider these additional examples of
industry-sponsored institutional advertising, manifest through catchy
taglines:
The incredible edible egg.
Pork, the other white meat.
Beef, it’s what’s for dinner.
377
Institutional advertising is a particularly smart strategy during the early
phases of the PLC and AIDA model in that it can enhance feelings of trust
in potential customers with a message that is broader than just “buy me.”
Institutional advertising is also often employed when a company or
industry has a PR problem to dig out from. Recall from Chapter 10 that
when United Airlines experienced a significant customer service issue in
2017 the airline started a massive service recovery effort that included a
letter from the CEO and institutional advertising to reinforce the airline’s
commitment to better service for its passengers.
860
Doritos does a great job of product advertising by showing its products
surrounded by distinct imagery and bold tag lines.
Source: Frito-Lay North America, Inc.
Product Advertising The vast majority of advertising is product
advertising, designed to increase purchase of a specific offering (good or
service). Three principal types of product advertising are available:
pioneering advertising, competitive advertising, and comparative
advertising. The decision as to which to employ often depends on the stage
of the PLC.
Pioneering advertising stimulates primary demand. Hence, it tends to
be used during the introductory and early growth stages of the PLC when
it is important to gain purchase by innovators and early adopters. From an
AIDA model perspective, pioneering advertising seeks to gain awareness
and initial interest. Marketing managers introducing new products almost
always focus advertising on this form, letting potential customers know
what the product is and how it is used. The appeal is usually more rational
than emotional. 5
Marketing managers employ competitive advertising to build sales of
a specific brand. Here, the appeal often shifts to more emotion and the goal
is persuasion as well as providing information. Building a positive
customer attitude toward the brand is a key component of competitive
advertising, and this approach is heavily used during the growth and early
maturity stages of the PLC. Triggering the desire and action stages of the
AIDA model is a focus of the message. 6
In comparative advertising, two or more brands are directly compared
against each other on certain attributes. 7 Comparative advertising is
common during the maturity stage of the PLC, as attempts at shaking out
weaker competitors are generally part of a marketing strategy. Obviously,
a key to successfully employing this approach is having one or more
legitimate claims about your brand that put it in a favorable position
against the competition. For example, Samsung has done a great job of
whittling away at Apple’s market share in the smartphone category
through its strong comparative approach to touting the advantages of its
Galaxy line over the iPhone.
861
Comparative advertising works especially well when you are not No. 1
in a product category because you can put the market leader on the
defensive. The cellular provider T-Mobile has made significant market
share gains in the United States by aggressively lowering data plan rates.
The company’s success prompted major competitors like Verizon and
AT&T to lower their rates to offset T-Mobile’s success. However, it is a
very risky advertising approach when you are the top brand. Customers
may perceive that you are on the defensive, when in reality you are not.
The psychology of a top brand stooping to comparisons with a lower brand
usually does not make sense. Most experts recommend avoiding
comparative advertising if your brand is the leader.
This comparative ad by Progressive Insurance takes on competitors by directly
comparing insurance rates.
Source: Progressive Casualty Insurance Company
378
Advertising Execution and Media Types
862
In selecting which types of advertising media to employ, the marketing
manager must consider reach and frequency. Reach measures the
percentage of individuals in a defined target market that are exposed to an
ad during a specified time period. Frequency measures the average number
of times a person in the target market is exposed to the message.
Obviously, the greater the reach and the higher the frequency, the more
expensive the overall advertising campaign will be. As you might imagine,
because advertising budgets are not unlimited, trade-offs are usually
required in balancing reach and frequency within budgetary constraints.
Goals are generally set and budgeted based on a desired level of reach and
frequency. During the course of a campaign, the marketing manager may
intentionally vary the reach and frequency. For example, the intensity of
the campaign might start heavily to gain initial exposure, then be reduced
to stave off advertising wearout.
The Energizer Bunny is a long-standing “spokesperson” for the company’s line
of batteries.
Source: Energizer Brands, LLC
Advertising execution is the way an advertisement communicates the
information and image. A variety of different types of advertising
execution are available. In Chapter 13 you learned about three general
types of promotional appeals: rational, emotional, and moral. Think of the
different approaches to advertising execution as the creative
operationalization of these different types of appeal. Exhibit 14.2 presents
863
several of the more common advertising execution approaches.
Seven broad categories of advertising media are available: television,
radio, newspapers, magazines, outdoor (billboard, bus and train signs,
etc.), direct mail, and the Internet. Each of these media types has a variety
of pros and cons that must be considered by marketing managers in
deciding how to allocate advertising dollars. Exhibit 14.3 summarizes
some of the more important issues when making media choices.
EXHIBIT 14.2 Common Approaches to
Advertising Execution
Slice of Life Portrays regular people in everyday
settings. The college student doing laundry
with Tide in the Laundromat.
Humor Gains attention and interest through
humorous portrayal. Budweiser’s famous
frogs are not soon forgotten.
Mood/Affect Sets a positive tone around the offering.
Sandals Resorts provides visual images to
back the theme of “Luxury Included.”
Research-
Based
Often used in comparative ads, a brand
provides scientific evidence of its
superiority. L’Oréal Youth Code products
message the science behind their
development.
Demonstration Physically shows how the product works.
Bounty paper towels are regularly shown on
TV ads as having superior absorbency.
Musical Uses music or a specific song to connect
directly to a brand or product. Jingles may
not be as pervasive as in the past, but
Subway has immortalized the “five dollar
footlong” to music.
Endorser Connects a celebrity, actor posing as an
authority figure (with appropriate
864
disclaimer), company officer, or everyday
consumer with the product to sanction and
support its use, such as LeBron James for
Nike.
Lifestyle Portrays ways a product will connect with a
target customer’s lifestyle; Dodge Ram
pickup trucks navigating through the back
roads of America.
Fantasy
Creation
Offers a fantasy look at how it might be if a
customer purchases the product; Taco
Bell’s “Live Más” ads.
Animation and
Animal
An animated character or an animal is
featured in the ads, sometimes as a
spokesperson; the GEICO Gecko.
379
EXHIBIT 14.3 Pros and Cons of Key Advertising
Media
Type of
Media
Pros Cons
Television
Combines
multimedia
Appeals to
multiple senses
Works for both
mass coverage
and selected
markets
Infomercial
option
Impressions are
fleeting
Short shelf life
Din (clutter) of
competing ads
TiVo effect—
cutting out ads
High cost
865
Radio
Quick
placement and
high message
immediacy
Easy selectivity
by market and
station
programming
Low cost
Geographic
flexibility
Audio only
Short shelf life
Din of competing
ads
Newspapers
Flexible
Timely
Highly credible
medium
Short shelf life
Big city and
national papers
can be very
costly
Poor
reproduction
quality,
especially in
color
Low pass-along
rate
Magazines
Many titles; high
geographic,
demographic,
and lifestyle
selectivity
Good
reproduction
quality and
color
High pass-along
rate
Long lead time
for ad placement
due to
production
Final location of
ad within the
publication often
cannot be
guaranteed
866
Outdoor Repeat
exposure in
heavy traffic
areas
Relatively low
cost
Fewer
competing ads
Easy
geographic
targeting
Space and
structure limit
creative
execution
Sometimes
requires longer-
than-desired
commitments to
a location
Public discontent
over
environmental
clutter
Direct Mail
High audience
selectivity
Creates feel of
one-to-one
marketing
Flexible
Overuse and
“junk mail” image
Too many
competing ads
Relatively high
cost
Online and
Social
Media
Interactive
capabilities
Flexible
Timely
Low cost per
exposure
Reader in control
of exposure
(click-through)
Spam
Variations in
connectivity
speed and
computers
Privacy concerns
In reviewing the pros and cons of each of the major media choices, it
becomes apparent that decisions on media selection always involve trade-
offs. One issue inherent to most media forms is some degree of clutter—
the level of competing messages on that medium. Clutter is sometimes
867
described in the context of the overall din of advertising, meaning that
consumers are bombarded by so many messages that they become
confused or have difficulty distinguishing what ad goes with what brand.
Rising above the din is an overarching goal in media selection and creative
execution of the message.
The Role of the Creative Agency
Advertising and PR are among the most outsourced functions in
marketing, and with good reason. Most organizations naturally focus on
their own product or service expertise; thus, developing sufficient internal
expertise in the creative side of promotion would be extremely costly and
could reduce their focus on their core business. For many marketing
managers, the relationship with their firm’s creative agency is an important
part
380
of the job. Agencies vary, with some being specialized firms that focus on
an industry or on a particular area of promotion, such as print media or
product placement. Others are full-service shops that manage all aspects of
their clients’ marketing communications. Today, the trend is toward more
full-service creative agencies and even toward integration of marketing
planning and branding services with traditional agency tasks. Almost
always a client is billed an hourly rate, plus the costs of media purchases.
Over the past several years, another major trend has been the
development of strategic partnerships between creative agencies and full-
service web builders. For many marketers, the website is the core of their
marketing communications strategy. Often a new-product introduction or
rebranding initiative focuses largely on the website, with print and other
media types used primarily to drive customers to the web. Some of the
very largest agencies have even established their own comprehensive web
operations and are able to perform a full gamut of web services for clients
including website building and maintenance, hosting, management of
direct e-mail correspondence with customers, and management of the
client’s overall CRM system.
It is likely that the importance of the outsourced full-service marketing
agency will continue to grow into the next decade. As marketing itself
868
becomes more strategic within organizations, more and more of the
tactical or programmatic aspects of marketing that were formerly handled
in-house will be outsourced. In such a scenario, the importance of the
marketing manager role is heightened, as that individual will be the front-
line person in a firm that is charged with managing all aspects of the
outsourced agency relationship.
SALES PROMOTION
LO 14-2
Identify various approaches to sales promotion and how each might be
used.
Sales promotion was defined in Chapter 13 as a promotion mix element
that provides an inducement for an end-user consumer to buy a product or
for a salesperson or someone else in the channel to sell it. Sales promotion
is designed to augment other forms of promotion and is rarely used alone.
This is because sales promotion initiatives rely on other media forms such
as advertising and direct or interactive marketing as a communication
vehicle. Think of sales promotion as prompting a “buy now” response; that
is, it is squarely aimed at the action (behavior) stage of the AIDA model.
Sales promotion can be aimed directly at end-user consumers, or it can
be targeted to members of a channel on which a firm relies to sell product.
In the latter case, sales promotion is an important element of a push
strategy. One additional potential target for sales promotion is a firm’s
own sales force. Bonus payments, prizes, trips, and other incentives to
induce a salesperson to push one product over another are forms of internal
sales promotion. Let’s look at sales promotion to consumers and to
channel members.
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In this sales promotion, Domino’s offers a number of “specials” to customers
based on what and how many items they wish to purchase.
Source: Domino’s Pizza
Sales Promotion to Consumers
When a firm is looking to gain product trial, spike distribution, shore up
sagging quarterly sales, or rekindle interest in a waning brand, sales
promotion can be an appropriate choice for investment of promotional
dollars. Exhibit 14.4 summarizes nine popular consumer sales promotion
approaches.
As with most promotional elements, marketing managers rarely select
only one form of consumer sales promotion for execution. Many of the
sales promotion options complement each other and all are potentially
complementary of the overall promotion mix. One potential downside
381
EXHIBIT 14.4 Consumer Sales Promotion Options
Sales
Promotion
Approach
Description Comments Example
Product A physical Excellent for Gillette
870
sampling sample of
the product
is given to
consumers.
inducing trial.
Sample can be
received by
mail or in a
store.
sends out a
free razor to
induce
switching
from an older
model.
Coupons An instant
price
reduction at
point of sale,
available in
print media,
online, or in-
store.
Coupon usage
is generally
down among
consumers.
Still a good
inducement to
“buy now.”
Inside the
free razor
from Gillette
is a coupon
for $1.00 off
the purchase
of a pack of
blades.
Rebates A price
reduction for
purchase of
a specific
product
during a
specific time
period.
Possibly
instant at point
of sale, but
more
frequently
requires
submission
and delay in
processing.
Samsung
offers a
rebate for its
televisions
purchased at
Best Buy.
Contests
and
sweepstakes
Appeal to
consumers’
sense of fun
and luck.
May suggest
a purchase
but legally
must be
offered
without a
purchase
requirement.
Contests
require some
element of skill
beyond mere
chance.
Sweepstakes
are pure
chance.
McDonald’s
famous
Monopoly
game—the
more you
eat, the more
you play
(and vice
versa!).
Premiums Another
product
offered free
for
purchasing
Gives the
customer a
bonus for
purchase.
Products may
Burger King
offers the
latest movie
hero toy with
purchase of
871
the brand
targeted in
the
promotion.
be
complementary
or unrelated.
a meal.
Multiple-
purchase
offers
Incentive to
buy more of
the brand at
a special
price.
Typically “buy
2, get 1 free” or
similar.
Centrum
Vitamin offer
—buy a
bottle of 100,
get an extra
mini-bottle of
20.
Point-of-
purchase
materials
Displays set
up in a retail
store to
support
advertising
and remind
customers
to purchase.
Especially
good at driving
purchase
toward a
featured brand
in a product
category at the
store aisle.
Dr. Scholl’s
FootMapping
Center kiosk
at
Walgreens.
Product
placements
Having
product
images
appear in
movies, on
television, or
in
photographs
in print
media.
Strong
connections
with the show
or story, as
well as to any
associated
celebrities.
Apple
products
often appear
in popular
movies and
TV shows.
Loyalty
programs
Accumulate
points for
doing
business
with a
company.
Designed to
strengthen
long-term
customer
relationships
Especially
popular among
the airline and
hospitality
industry. Credit
card providers
often facilitate.
American
Airlines
AAdvantage
program,
facilitated by
Citi and
MasterCard.
872
and reduce
switching.
to sales promotion is a tendency by some firms and industries to overrely
on sales promotion to bring in sales on a regular basis. This occurs because
of sales promotion’s power to elicit an actual purchase. Consider the
proliferation of rebates on new-car purchases. Car manufacturers
essentially “train” car shoppers not to look for a new vehicle unless a
rebate is being offered. Ultimately, if sales promotion becomes
institutionalized in such a manner, firms simply build in a hefty cushion
into the “everyday” price of the product, thus negating any real benefit to
the customer of the promotion. Overuse of sales promotion is not a good
promotional strategy and can lead to a general cheapening of brand image
and distrust by customers.
382
Sales Promotion to Channel Members
Several sales promotion approaches are available for use with members of
a firm’s channel of distribution. Typically, these channel members would
be distributors, brokers, agents, and other forms of middlemen. The
purpose is to stimulate them to push your product, resulting in more sales
in the channel and ultimately to end users.
Trade shows can be a very fruitful form of sales promotion. A trade
show is an industry- or company-sponsored event in which booths are set
up for the dissemination of information about offerings to members of a
channel. Sometimes actual sales occur at a trade show, but often the
primary purpose is promotion to attendees. Sales leads are obtained and
passed along to the firm’s sales organization for follow-up after the trade
show. 8
Another form of sales promotion to a channel is cooperative
advertising and promotion. In cooperative advertising, a manufacturer
provides special incentive money to channel members for certain
performances such as running advertisements for one of the
873
manufacturer’s brands or doing product demonstrations with potential
customers. The idea of cooperative advertising and promotion is that the
manufacturer shares promotional expenses with channel members in the
process of marketing to end-user consumers. 9
Sometimes money is made available for a channel member in the form
of a special payment for selling certain products, making a large order, or
other specific performance. This form of channel-focused sales promotion
is called an allowance. In addition, as with the consumer market, contests
and displays with point-of-purchase materials are also frequently used as
sales promotion approaches in the channel. 10
PUBLIC RELATIONS (PR)
LO 14-3
Describe the activities and aims of public relations.
In Chapter 13 we defined public relations (PR) as a systematic approach to
influencing attitudes, opinions, and behaviors of customers and others. PR
is often executed through publicity, which is an unpaid and relatively less
personal form of marketing communications, usually through news stories
and mentions at public events. 11
PR is a specialized field. Usually, undergraduate and graduate
marketing programs do not include training in PR. Many PR professionals
receive specialized training in communication, and outstanding PR people
are highly sought after. Some firms have in-house PR departments, while
others outsource much or all of the PR function to external agencies.
Major responsibilities of a PR department might include any of the
following activities:
Gaining product publicity and buzz.
Securing event sponsorships (for the company and its brands).
Managing a crisis.
Managing and writing news stories.
Facilitating community affairs.
874
Managing relationships with members of the local, national, and
global media (media relations).
Serving as organizational spokesperson.
Educating consumers.
Lobbying and governmental affairs.
Handling investor relations.
However, few PR departments perform all of these functions; some of
the above functions are often spread across other areas of a firm, such as
investor relations to the finance department and lobbying and
governmental affairs to the legal department.
We’ll focus on the three core functions of PR that are most closely
aligned with the role of the marketing manager: gaining product publicity
and buzz, securing event sponsorships, and crisis management.
383
Gaining Product Publicity and Buzz
Especially when it comes to new product offerings, gaining publicity in
news outlets and other public forums can provide a major boost to sales.
During the introductory phase of the PLC, communication of information
is a central promotional goal. The most credible and trusted information
sources for potential customers are those that write or tell about a product
for free. Newspaper and magazine articles, web postings and blogs, social
marketing websites, news stories on television and radio—all of these
forms of communication can be cultivated through an active PR program.
Many new products have benefited from the initial awareness generated by
a well-placed story in a publication or on a website frequented by targeted
customers.
Although the media employed are free, by no means is the process of
securing the story placements free. In fact, PR can account for a great deal
of money in a promotion budget due to the work hours required to
constantly be writing stories and cultivating media outlets. But the payoff
on that investment can be substantial due to the buzz generated among
everyday consumers about a brand. Buzz, or word-of-mouth
communication, is consumer-to-consumer communication generated about
875
a brand in the marketplace. The impact of buzz is not limited to current
customers or even potential customers. When buzz about a brand hits the
marketplace, and especially when it sweeps through social media, it can
quickly become a cultural phenomenon. With an estimated 50 million
users, and 8 billion resulting “connections,” Tinder has become a one-stop
shop for finding romantic prospects and is a major threat to traditional
online dating sites. Tinder shies away from traditional media outlets,
opting to rely on word-of-mouth, even from the onset. When the app was
first released, Tinder hired college campus representatives to host events
that required downloading and using the Tinder app to generate brand
advocacy. 12
Securing Event Sponsorships
Event sponsorships, having your brand and company associated with
events in the sports, music, arts, and other entertainment communities, can
add tremendous brand equity and also provide substantial exposure with
the right target customers. Event sponsorships have become a mainstay of
promotional strategy. A huge success story for marketers in event
sponsorship is NASCAR, which appeals to millions of loyal and
passionate racing fans. Consumers transfer the loyalty and passion about
NASCAR directly to the brands represented by the sponsorships. No
wonder NASCAR cars are referred to as “speeding billboards.” 13
Closely related to event sponsorship is issue sponsorship, in which a
firm and its brands connect with a cause or issue that is especially
important to its customers. Ever since the movie Super Size Me railed on
McDonald’s unhealthy menu items, the venerable chain has been under
fire for not taking a lead in nutrition education. In recent years the
company has taken a significant stand against obesity by introducing
healthier meal options, such as salads, and providing nutritional
information right on the menu boards. Sure, you can still eat your burger
and fries there, but at least consumers can now compare those calories
with the counts of several less-fattening items now available. Like
publicity, the right sponsorships can generate positive buzz in the
marketplace that enhances brand image.
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One of the world’s biggest sponsorship opportunities is the Olympics.
Source: Visa
Crisis Management
Crisis management is a planned, coordinated approach for disseminating
information during times of emergency and for handling the effects of
unfavorable publicity. 14 In 2017, several airlines encountered significant
crises. United Airlines had to
384
deal with a passenger being dragged off an airplane (which we discussed
in more detail in Chapter 10), British Airways had to manage a massive
computer malfunction that impacted the airline for several days, and
American Airlines had to handle an incident in which a mother had a
stroller taken from her while boarding the plane and carrying her infant. In
much the same way as earlier incidents, video of the American Airlines
877
incident quickly showed up on a number of media sites, presenting
American Airlines in an unfavorable light. In the video the passenger is
clearly upset, and the American Airlines flight attendant comes across as
argumentative and uncaring. However, American chose to handle the
incident proactively by posting an apology on the company’s website
within minutes. In addition, the airline dealt with the woman’s concerns
quickly, respectfully, and compassionately. The result was that while the
airline was “technically” correct in refusing to allow the woman to put the
stroller in the overhead compartment, the reality of the situation required a
different solution that focused on the passenger’s needs. All firms should
have a crisis management plan in place for contingencies that are relevant
to their industry and customers.
PERSONAL SELLING—THE MOST
PERSONAL FORM OF COMMUNICATION
LO 14-4
Understand the role of personal selling in marketing communications.
Interactive communications enable companies to create a conversation
with their customers. As we discussed in Chapter 13, these tools offer
some powerful advantages over traditional marketing communications,
while still connecting to broader marketing communication strategies.
Advertising, sales promotion, and public relations are essential marketing
communication tools, but unidirectional for the most part. In other words,
the company communicates with the customer, but the customer has
limited ability to provide feedback. Companies know how important it is
to communicate directly with the customer and, in turn, receive direct
feedback from the customer. Effective marketing communications
therefore incorporates personal communication elements. Companies like
GAP combine traditional marketing communication tools like advertising
with more personal communication, using social media and personal
selling (in their stores) to foster a stronger relationship with their
customers.
878
With the average cost of a sales call exceeding $500 and the Internet’s
interactive capabilities, some people have predicted the decline of personal
selling as an effective marketing communications tool. However, this has
not been the case. While there is no question that selling is among the most
expensive forms of marketing communication, personal selling offers three
distinct advantages over other marketing communications methods:
Immediate feedback to the customer. Customers don’t want to wait
for information. They demand accurate information quickly, putting
pressure on companies for immediate, personal communication with
a salesperson or customer service representative. 15
Ability to tailor the message to the customer. No other marketing
communication method does a better job of creating personal, unique
customer messages in real time. Salespeople generate distinctive
sales messages that directly address customer problems and
concerns. 16
Enhance the personal relationship between company and customer.
Salespeople and the personal selling function are the single most
effective approach for establishing and enhancing the personal
relationship between company and customer. In particular, business-
to-business (B2B) customers appreciate the efficiency of the Internet
and other communication tools but expect a personal relationship
with their suppliers. There is no substitute for a salesperson working
with the customer one-on-one to solve problems. 17
879
Brands like GAP are expected to maintain constant contact with customers
through social media and other web services anywhere in the world.
Source: Gap Inc.
385
Activities in Personal Selling
Personal selling is a two-way communication process between salesperson
and buyer with the goal of securing, building, and maintaining long-term
relationships with profitable customers. To be successful in this process,
salespeople need a variety of skills that change all the time. Research
suggests salespeople today are expected to be more skilled, available, and
better communicators than ever before. Four basic selling activities
composed of dozens of individual tasks define the salesperson’s job:
communicate, sell, build customer relationships, and manage information.
The challenge for many companies is defining the correct mix of activities
and then adapting the activities as the selling environment changes. 18
Exhibit 14.5 identifies the four major selling activities and specific tasks
associated with each activity.
880
Communicate Effective communication is an essential selling
activity. As the point of contact between customer and company, a
salesperson must communicate effectively with both. With the customer,
the salesperson needs good verbal communication skills to present the
sales message. Equally important are good presentation skills and tools
that incorporate technology (PowerPoint, social media) into the sales
presentation. Finally, customers expect near constant access to the
company so the salesperson must also have mobile communications
skills. 19
Communication with the company is also important. As discussed in
Chapter 3, salespeople represent an excellent source of market
information; they are familiar with customers and their needs. Customer
feedback is also an excellent source of new-product ideas. Finally, field
salespeople frequently find out about competitor or marketplace changes
before anyone else in the company. All this information needs to be
collected, analyzed, and disseminated to appropriate marketing managers.
EXHIBIT 14.5 Matrix of Selling Activities
Communicate Sell Build Customer
Relationships
Technology
1. E-mail
2. Make
telephone
calls/leave
voice-mail
messages
1. Script sales
pitch
2. Create
customer-
specific
content
3. Provide
relevant
technology
to customer
1.
2.
Nontechnology
1. Enhance 1. Learn 1.
881
language and
overall
communication
skills
2. Develop
effective
presentation
skills
relationship-
selling skills
2. Conduct
research on
customer’s
business
3. Define and
sell value-
added
services to
customer
4. Follow up
after
customer
contact
5. Identify and
target key
customer
accounts
6. Listen
effectively
2.
3.
4.
5.
386
Sell Selling requires a specific, complex set of tasks to reach the point
where the customer agrees to purchase the product. From customer
research early in the process through the sales presentation and customer
support after purchase, the sales process is difficult. 20
Build Customer Relationships Customers demand a close,
strategic relationship with suppliers, and, as the primary point of contact
with the company, salespeople are expected to build and support the
customer relationship. This means spending time with the customer,
882
developing excellent customer relationship management skills, and
ultimately building trust with a customer. 21
Information Management Salespeople today must be excellent
information managers, collecting information from a variety of sources
(their own company, customers, competitors, and independent information
sources), determining what is relevant, and then presenting it to the
customer. For example, managing the flow of customer information inside
the company to ensure the right people get the right information at the
right time takes time and follow-up. Often, information is collected from
customers and other external sources such as transportation companies to
facilitate an order inside the company. Customers will have preferred
shipping times that need to be coordinated with transportation companies
to ensure on-time arrival. At the same time, being sensitive to customer
security concerns means controlling access to information. 22
Sales in B2C versus B2B Markets
In terms of sheer numbers, most salespeople are employed in various kinds
of retail selling, or B2C. These jobs involve selling products to end users
for their personal use. Examples of these types of sales positions are direct
sellers such as Mary Kay and Tupperware, residential real estate agents,
and retail store salespeople. However, salespeople in B2B markets do
much more relationship selling.
Some personal characteristics and sales activities are similar across
both B2C and B2B markets. Good interpersonal and communication skills,
excellent knowledge of the products being sold, and an ability to discover
customer needs and solve their problems are characteristics common to
both sales environments. Similarly, managers must recruit and train
appropriate people no matter what the sales job, provide them with
objectives that match the firm’s overall marketing program, then
supervise, motivate, and finally evaluate their performance. 23
But B2C and B2B selling also differ in some important ways. Many of
the goods and services sold by B2B salespeople are more expensive and
technically complex than those in B2C. In addition, B2B customers tend to
be larger and engage in extensive decision-making processes involving
many people.
883
Classifying Sales Positions
While retail selling employs more people, personal selling plays a more
important and strategic purpose in business-to-business markets. Because
of the important strategic function of personal selling in B2B markets, our
discussion of sales positions will focus on various sales positions in this
arena. There are many different types of sales jobs that require a variety of
specific and unique skills. However, no matter what the job title, the
salesperson’s primary responsibility is to increase business from current
and potential customers by providing a good value proposition to
customers and effectively dealing with their concerns. The four major
types of sales positions are trade servicer, missionary seller, technical
seller, and solutions seller.
Though we typically think of business-to-consumer salespeople in retailing, a
great deal more selling occurs between businesses.
©Blend Images/Getty Images
387
Trade Servicer Trade servicers are the group of resellers such as
retailers or distributors with whom the sales force does business. Their
primary responsibility is to increase business from current or potential
customers by providing them with merchandising and promotional
884
assistance. For example, the P&G salesperson selling soap products to
individual store managers in a large grocery chain is an example of a trade
servicer.
Missionary Seller Missionary salespeople often do not take orders
from customers directly but persuade customers to buy their firm’s product
from distributors or other suppliers. Anheuser-Busch does missionary
selling when its salespeople call on bar owners and encourage them to
order a particular brand of beer from the local distributor. One of the best
examples of missionary salespeople is a pharmaceutical rep, or detailer,
who calls on doctors as a representative of the pharmaceutical
manufacturers. When Sanofi and Regeneron Pharmaceuticals introduced
Kevzara, a top-selling drug for treating rheumatoid arthritis, its salespeople
communicated with physicians to alert them of the efficacy of the product,
explain its advantages over other drugs, and influence them to prescribe it
to their patients. Keep in mind that the Sanofi salesperson does not “sell”
any product directly to the patient. 24
Anheuser-Busch uses missionary selling to get its Budweiser beer into stores.
©Fred de Novelle/Photononstop/Getty Images
Technical Seller An example of technical selling is the sales
engineer from General Electric who calls on Boeing to sell the GE90 jet
engine to be used in Boeing 777 aircraft. The trend is for most technical
selling to be done in cross-functional teams. The complexity of many of
the products and associated services involved in technical selling makes it
difficult for any one salesperson to master all aspects of the sale. Cross-
885
functional teams often include someone who is technically competent in
the product (an engineer), a customer service specialist, a financial analyst,
and an account manager responsible for maintaining the customer-
company relationship.
Solution Seller More and more customers look for strategic partners
who provide comprehensive solutions to their business problems. Key
account salespeople, those responsible for managing large accounts, are
skilled in developing complex solutions to a particular customer
problem. 25 In addition, in industries such as information technology,
customers look to suppliers for wide-ranging solutions from IT
infrastructure design to defining product specifications, to purchase and
installation of equipment or software, and support after the sale. A Cisco
Systems or IBM salesperson, for example, needs to know not only a great
deal about hardware and software but also the customer’s business in order
to develop a solution to the customer’s IT problems.
388
The Personal Selling Process
LO 14-5
Learn the process of relationship selling.
Because personal selling is so important in establishing and maintaining
customer relationships, particularly in B2B markets, many companies
create a separate personal selling function that operates independently
from the rest of marketing. As a result, marketing managers often do not
have salespeople reporting directly to them. However, marketing managers
need to understand the personal selling process for two reasons. First, in
companies where salespeople play an important role, personal selling is
the single most critical connection to the customer. From selling to
customer service, salespeople are often the customer’s primary contact
point with the company. Marketing managers need a clear understanding
of the selling process because it has such a profound effect on the
customer relationship. Second, a number of marketing activities such as
886
customer service and marketing communications will be affected by the
personal selling function. Understanding the selling process helps
marketing managers better plan a marketing communications strategy and
coordinate other marketing activities such as customer service.
Exhibit 14.6 shows the six stages in the personal selling process.
Although the selling process involves only a few steps, the specific
activities involved at each step vary greatly depending on the type of sales
position and the firm’s overall customer relationship strategy.
EXHIBIT 14.6 The Personal Selling Process
Marketing managers must ensure that a firm’s sales program incorporates
sufficient policies to guide each salesperson while at the same time
coordinating the selling effort with the firm’s marketing and relationship
strategy. B2C and B2B salespeople use the same selling process, although
how the process works varies greatly between the two environments. For
example, B2C salespeople generally do not actively prospect for
customers, since the customer is visiting the store, or follow up with the
customer after the sale.
Prospect for Customers Prospecting is critical because recruiting
new customers is an essential element in a company’s growth strategy.
Marketing managers encourage sales-people to use a variety of sources to
identify prospects, including trade association and industry directories,
other customers and suppliers, and referrals from company marketing
efforts.
Telemarketing and other direct marketing efforts, which we will
discuss in the next section, are also used to generate prospective
customers. Outbound telemarketing involves calling potential customers at
887
their home or office, either to make a sales call via telephone or to set up
an appointment for a field salesperson. Inbound telemarketing, where
prospective customers call a toll-free number for more information, is also
used to identify and qualify prospects. When prospects call for more
information, a telemarketing representative determines the extent of
interest and assesses the prospect qualifications, then passes the contact
information on to the appropriate salesperson. The Internet has the ability
to generate potential new customer leads, and a number of companies have
dedicated teams to manage their Internet lead generation and customer
inquiries. In addition, many companies, particularly those selling complex
products, provide technical product information to customers. Salespeople,
assigned in some firms specifically for Internet customers, follow up on
legitimate inquiries with a traditional sales call. Hubspot is a software
service company that allows its users (companies) to use its inbound
marketing techniques to build up businesses, which is great news for
smaller companies that don’t have the marketing budgets of larger
companies. Not only does Hubspot offer inbound marketing techniques,
but it practices what it preaches, using inbound marketing techniques to
attract new customers with great success. 26
In coordinating the marketing effort, marketing managers must
understand how much emphasis salespeople give to prospecting for new
customers versus calling on existing customers. The appropriate policy
depends on the selling and customer relationship strategy of the company,
the nature of the product, and the firm’s customers. Working with sales
managers, the marketing manager considers the right mix of activities for
the salesperson. For example, firms that have established customer
relationships or products that require substantial service after the sale like
Epic Healthcare encourage salespeople to devote most of their effort to
servicing existing customers. 27
Open the Relationship In the initial approach to the prospective
customer, the sales representative should try to determine who has the
greatest influence or authority in the purchase. For example, when the
firm’s product is inexpensive and purchased routinely, salespeople are
frequently instructed to deal with the purchasing department. At the other
end of the continuum, the sales effort for complex, technical products
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generally requires an extensive program: calling on influencers and
decision makers in various departments and different managerial levels.
When the purchase involves people across the customer’s organization, the
sales staff often works in teams.
Qualify the Prospect Before salespeople spend much time trying to
establish a relationship with the prospective account, it is important to
qualify the prospect to determine if the company is a legitimate potential
customer. The process involves answering five questions:
Does the prospect have a need for the company’s products?
Can the prospect derive added value from the product in ways that
the company can deliver?
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Can the salesperson effectively contact, communicate, and work with
the prospect over an extended time period (the time it takes to
complete the sale and follow up after the sale)?
Does the prospect have the financial ability and authority to make the
sale?
Will the account be profitable for the company?
Sales Presentation The sales presentation is the delivery of
information relevant to meet the customer’s needs and is the heart of the
selling process. It is the process salespeople use to transition customers
from interest in the product to purchase of the product.
Communicating the sales message is the number one priority of the
presentation. The stereotype of a sales presentation is a salesperson talking
in front of a customer or group of customers. In reality, sales presentations
are carefully choreographed interactions in which the salesperson tries to
discern the customer’s real needs while at the same time providing critical
information in a persuasive way so the customer appreciates the benefits
and advantages of the product. Remember, the goal is not simply to make
the sale but to create a strong value proposition that will lead to a mutually
beneficial long-term relationship. 28
Setting goals and objectives is the first step in communicating.
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Ultimately, the goal of the presentation is to secure a purchase
commitment from the customer. However, the salesperson does not just
walk in asking for the purchase order. Successful salespeople understand
that the purchase order does not come until customers believe the
company’s products offer the best solution to their needs. In defining the
goal, salespeople consider where the customer is in the buying process and
have a clear understanding of the customer relationship. 29 New customers,
for example, generally need more information about company products,
policies, and procedures than existing customers. Based on an analysis of
these factors, salespeople identify at least one of five principal goals for
the presentation. At some point, however, the goal of the presentation will
be to obtain customer action.
Sales presentations are an important element of personal selling.
©monkeybusinessimages/Getty Images
Educate the customer by providing enough knowledge about the
company’s products.
Get the customer’s attention.
Build interest for the company’s products.
Nurture the customer’s desire and conviction to purchase.
Obtain a customer commitment to action (purchase).
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Characteristics of a Great Sales Presentation How would
you respond if someone asked you, “What makes a great sales
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presentation?” Many people can give examples of a bad presentation, such
as not listening to the customer, but not the characteristics of a great sales
presentation. 30 Perhaps an even more important question is, “Does a great
sales presentation make a difference?” Consider this example: what started
as a Maine lobster food truck now has 20 franchised trucks in 13 cities
across the United States and an e-commerce platform. The company,
Cousins Maine Lobster, flourished after it appeared on Shark Tank, a
television show where entrepreneurs present their businesses in hopes of
securing funds from a shark. 31 In Cousins Maine Lobster’s episode, the
cousins made a deal with Barbara Corcoran, a successful businesswoman.
Corcoran credited the cousins’ sales presentation as what secured the deal
because they answered objections and questions flawlessly, and were very
clear. 32 The cousins’ extensive preparation of their sales presentation paid
off hugely for their small business. 33 Exhibit 14.7 identifies the four
characteristics of a great presentation.
Handle Objections—Negotiating Win-Win Solutions
Casual observation may suggest there are many different customer
concerns; however, when you look closely, customer anxieties fall into
four areas. Customers often mask true concerns with general problems, but
successful salespeople know how to identify and clarify true objections. 34
Exhibit 14.8 identifies common customer concerns.
EXHIBIT 14.7 Characteristics of a Great Sales
Presentation
Characteristic Answers the Customer
Question
Explains the value proposition What is the value-added of the
product?
Asserts the advantages and
benefits of the product
What are the advantages and
benefits of the product?
Enhances the customer’s
knowledge of the company,
What are the key points I should
know about this company,
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product, and services product, and services?
Creates a memorable
experience
What should I remember about
this presentation?
Source: Johnston, Mark W., and Marshall, Greg W. Contemporary Selling. London,
UK: Routledge Publishing, 2013.
EXHIBIT 14.8 Common Customer Concerns
Product Need The customer may not be convinced there is a need for the
product. The customer’s perspective can be summarized as, “We’ve
always done it one way; why should we start something new now?” Key to
the answer is a well-conceived value proposition that explains clearly how
the product will benefit the customer and how it will be better than the
existing solution. 35 It is important to remember that customers are
generally not risk takers.
A much more common concern is whether the customer views the
salesperson’s product as a better solution than existing options. The
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customer is already familiar with the current products and change means
learning a new product. Careful preparation is critical in dealing with
questions about competitors, which is why salespeople spend a great deal
of time learning about competitors’ products. Cisco has developed an
excellent reputation with its customers. It is leveraging that reputation with
a sophisticated line of teleconferencing products. Business customers have
confidence in Cisco, which translates into business opportunities.
Company Trust Personal selling is based a great deal on mutual trust
between the buyer and the seller. As we discussed, most customers already
have a supplier, and while they may not be totally satisfied, they are
familiar with it. For example, they know the process for resolving a
problem (who to call, expected wait times, costs, etc.). If the customer is
unaware of the company, a common concern is the company’s ability to
deliver what is needed, when it’s needed, and where it’s needed. 36 This is
a legitimate concern as the customer puts the company at risk by choosing
the salesperson’s company as the supplier. In other situations, customers
may not object to the salesperson’s company but are happy with their
existing supplier. When a company trusts a supplier, the relationship can
be beneficial to both parties. Accenture, a leading global business services
firm, has had 98 out of its top 100 customers on the books for at least 10
years. 37 Accenture was named the 2017 World’s Most Ethical Company,
an award given to a company that, among other qualities, makes trust part
of its corporate DNA—it’s an award Accenture has earned for the past 10
years consecutively. Integrity is part of Accenture’s core values and is
defined as inspiring trust by following through on its word. 38
More Time One of the most common customer objections is, “I need more
time to consider the proposal.” Certainly, concern about making a
purchase decision too quickly is legitimate; however, the most likely
scenario is that the value proposition has not been sufficiently developed.
391
Price Salespeople consistently report that price is the most common
customer apprehension. In many cases, the customer has legitimate
objections about the price of a product. Nevertheless, the price objection
usually means the customer has not accepted the value proposition. In
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essence, if the customer does not perceive that the product benefits exceed
the price, there will be no sale. The salesperson is left with two options:
lower the price until it is below the product’s perceived benefits or raise
the perceived benefits until they exceed the price. 39
Close the Sale Closing the sale is obtaining commitment from the
customer to make the purchase. The close is not a discrete event but rather
a nonlinear process that begins with the approach to the customer.
Research suggests salespeople make four critical mistakes in closing. First,
a negative attitude about the customer or situation can affect the sales
presentation and customer relationship. Second, the failure to conduct an
effective pre-approach shows a lack of preparation that turns off
customers. Third, too much talking and not enough listening demonstrates
a lack of interest in finding out the customer’s real needs. Fourth, using a
“one size fits all” approach indicates the salesperson lacks creativity and is
unwilling to focus on the customer’s unique situation. 40
Follow-Up after the Sale One of the most critical aspects to the
selling process is not what happens before the purchase decision but what
happens after, the follow-up. Salespeople often rely on support people
inside the company to help in post-sales service. Customer service
personnel, product service call centers, technicians, and others are part of
the follow-up process. But no matter who else has contact with the
customer, the customer will hold the primary salesperson most responsible
for the level and quality of service and support after the sale.
Customers expect three activities after the purchase decision: (1)
delivery, installation, and initial service of the product: (2) any training
needed to operate the equipment correctly: and (3) the effective and
efficient disposition of appropriate customer problems that arise from the
product purchase. Not meeting those expectations is a primary reason for
customer complaints. 41 Any following purchase decisions are based to a
large extent on the customer’s experience with the product and the
company. Douglas McIntyre, the editor of 24/7 Wall Street, publishes an
annual Customer Service Hall of Fame. 42 The results each year are
republished by major news sources such as USA Today and CNN Money.
Amazon, Chick-fil-A, and Marriott consistently rank among the top five
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customer service companies, and Amazon has taken first place for the past
seven consecutive years. It is no coincidence that these companies are
consistently ranked as leaders in the industries due, in part, to maintaining
a strong customer service culture. 43
Organizing the Sales Force
Since salespeople work closely with many departments inside the
company, marketing managers have a real interest in working with sales
managers to organize the sales force to maximize the efficiency and
effectiveness of not only the sales force but also everyone in the company
who interacts with the customer. The best sales structures are based on the
company’s objectives and strategies. In addition, as the firm’s
environment, objectives, or marketing strategy changes, its sales force
must be flexible enough to change as well. 44
Company Sales Force or Independent Agents Maintaining
a sales force is expensive, and companies are constantly assessing the most
practical method to reach customers. One option is to use independent
agents instead of company salespeople. It is not unusual for a company,
such as IBM, to use both company salespeople and independent agents.
Using independent sales agents is referred to as outsourcing the sales
force.
The decision to use independent agents or a company sales force
involves four factors:
Economic: The costs and expected revenue associated with
maintaining a sales force are analyzed and weighed against
outsourcing to independent agents.
Control: A critical factor is the amount of control senior management
believes is necessary for the sales function. A company sales force
offers complete control in key areas such as recruiting, training, and
compensation. On the other hand, independent agents operate
without direct company management supervision.
392
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Transaction costs: Finding a good replacement for a poor-performing
independent sales agent can be difficult, and once one is found, it is
often months before the new agent learns enough about the product
and its applications to be effective in the sales job. Transaction cost
analysis (TCA) states that when substantial transaction-specific assets
are necessary to sell a manufacturer’s product, the cost of using and
administering independent agents is likely higher than the cost of
hiring and managing a company’s sales force. 45
Strategic flexibility: In general, a vertically integrated distribution
system incorporating a company sales force is less flexible than
outsourcing. Independent agents can be added or dismissed at short
notice, especially if no specialized assets are needed to sell the
product. Furthermore, it is not necessary to sign a long-term contract
with independent agents. Firms facing uncertain and rapidly
changing competitive or market environments and industries
characterized by shifting technology or short product life cycles often
use independent agents to preserve flexibility in the distribution
channel.
Geographic Orientation The simplest and most common method
of organizing a company sales force is geographic orientation, as
illustrated in Exhibit 14.9. Individual salespeople are assigned to separate
geographic territories. In this type of organization, each salesperson is
responsible for performing all the sales activities in a given territory. The
geographic sales organization has several advantages. First, and most
importantly, it tends to have the lowest cost because (1) there is only one
salesperson in each territory, (2) territories tend to be smaller than other
organizational structures so travel time and expenses are minimized, and
(3) fewer managerial levels are required for coordination so sales
administration and overhead expenses are lower. Second, the simplicity of
the geographical structure minimizes customer confusion because each
customer is called on by one salesperson. The major disadvantage is that it
does not encourage or support any division or specialization of labor. Each
salesperson is expected to be good at many things (various customer
needs, product applications and specifications).
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Product Organization Some companies have a separate sales force
for each product or product category (see Exhibit 14.10). The primary
advantage of a product organization is that individual salespeople can
develop familiarity with the technical attributes, applications, and most
effective selling methods associated with a single product. Also, there
tends to be a closer relationship between sales and engineering, product
development, and manufacturing when salespeople focus on one product
or product category. Finally, this structure enables greater control in the
allocation of selling effort across various products. Management can then
adjust sales assets based on the needs of individual products. The major
disadvantage
EXHIBIT 14.9 Example of Geographic
Organization
Source: Johnston, Mark W., and Marshall, Greg W. Sales Force Management (12th
ed.). London, UK: Routledge Publishing, 2016.
393
EXHIBIT 14.10 Example of Product Orientation
897
Source: Johnston, Mark W., and Marshall, Greg W. Sales Force Management (12th
ed.). London, UK: Routledge Publishing, 2016.
is the duplication of effort with salespeople across different products
assigned to the same geographic territory. This generally leads to higher
sales costs.
Customer Type or Market Segmentation It has become
increasingly popular for organizations to structure their sales force by
customer type, as IBM did when it created separate sales teams to call on
small and large business customers. Organizing by customer type is a
natural extension of creating value for the customer and reflects a market
segmentation strategy (see Exhibit 14.11). When salespeople specialize in
calling on a particular type of customer, they gain a better understanding
of those customers’ needs and requirements. They can be trained to use
different selling approaches for different markets and to implement
specialized marketing and promotional programs. 46
A related advantage is that as salespeople become familiar with the
customers’ specific needs, they are more likely to discover ideas for new
products and marketing approaches that will appeal to those customers.
The disadvantage, as with product organization, is that sales costs are
higher as a result of having multiple salespeople operating in the same
898
geographic area. In addition, when customers have different departments
operating in different industries, two or more salespeople from the same
company may be calling on the same customer.
EXHIBIT 14.11 Example of Customer Orientation
Source: Johnston, Mark W., and Marshall, Greg W. Sales Force Management (12th
ed.). London, UK: Routledge Publishing, 2016.
394
Managing the Sales Force
LO 14-6
Understand the major job responsibilities of sales management.
Sales and marketing work together to deliver value to the customer and
achieve company objectives. While primary responsibility for managing a
sales force generally falls to sales managers, integrating the marketing and
sales function requires a coordinated effort with marketing managers.
Understanding how salespeople are managed helps marketing managers
better understand the selling function and coordinate sales with the rest of
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the marketing department. The sales function is unique in the organization
and requires talented management to maximize its efficiency and
effectiveness. Managing a sales force involves five primary
responsibilities: salesperson performance, recruitment and selection,
training, compensation and rewards, and performance evaluation.
Performance: Motivating the Sales Force Understanding
sales agents’ performance is important to sales managers because almost
everything they as managers do influences sales performance one way or
another. For example, how the manager selects staff members and the kind
of training they receive affect their own aptitude and skills. The
compensation program and the way it is administered influence motivation
and overall sales performance.
It helps to understand what people want and expect from their jobs.
Gen Yers entered the workforce with a different set of rules than their
baby boomer parents. While still focused on high performance and high-
paying jobs, they also look for positions that are fun and exciting. In
essence, they are not just looking for a job but an opportunity to both enjoy
their job and be well rewarded in the process. Gen Yers place a higher
priority on finding the right life-work balance, so the 60-hour workweek
does not appeal to them, but working remotely and with flexible schedules
does. 47 For marketing managers this means developing positions that offer
a broader range of experiences (for example, increased travel and
opportunities for faster and more frequent promotions).
As presented in Exhibit 14.12, salesperson performance is a function
of five factors: (1) role perceptions, (2) aptitude, (3) skill level, (4)
motivation, and (5) personal, organizational, and environmental factors.
Role Perceptions. The role of a salesperson is the set of activities or
behaviors he or she must perform on the job. This role is largely
defined through the expectations, demands, and pressure
communicated to the salesperson by role partners. These partners
include people inside as well as outside the company with a vested
interest in how a salesperson performs the job—top management, the
salesperson’s sales manager,
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EXHIBIT 14.12 Model of Salesperson
Performance
Source: Johnston, Mark W., and Marshall, Greg W. Sales Force Management (12th
ed.). London, UK: Routledge Publishing, 2016.
395
customers, and family members. How salespeople perceive their roles
has significant consequences that affect job satisfaction and
motivation, which, in turn, have the potential to increase sales force
turnover and hurt performance. 48
Sales Aptitude: Are Good Salespeople Born or Made? Sales ability
has historically been considered a function of (1) physical factors
such as age and physical attractiveness, (2) aptitude factors such as
verbal skills and sales expertise, and (3) personality characteristics
such as empathy. However, there is no proof these measures, by
themselves, affect sales performance. As a result, most managers
believe the things a company does to train and develop its salespeople
are the most important determinants of success.
Sales Skill Levels. Sales skill levels are the individual’s learned
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proficiency at performing necessary sales tasks. They include such
learned abilities as interpersonal skills, leadership, technical
knowledge, and presentation skills. The relative importance of each
of these skills and the need for other skills depend on the selling
situation. 49
Motivation. Motivation is how much the salesperson wants to expend
effort on each activity or task associated with the sales job. Sales
managers constantly try to find the optimal mix of motivation
elements that direct salespeople to perform sales activities.
Companies often use motivators such as remote workdays and
flexible work schedules to inspire employees. Global security and
aerospace company Lockheed Martin offers 9-80 and 4-10 flexible
work schedules and telecommuting options to employees at most of
its locations across the United States and around the world. Such
options are designed to promote productivity and motivate employees
through workplace flexibility. 50 As you would expect, motivational
factors that work well with one person may not motivate another. For
example, an autocratic managerial style may work with a midcareer
salesperson but have a profoundly negative effect on a senior
salesperson. In addition, a number of motivational factors are not
directly under the sales manager’s control, such as personal family
issues or general economic conditions. 51
Organizational, Environmental, and Personal Factors.
Organizational factors include the company marketing budget, current
market share for the company’s products, and the degree of sales
management supervision. Personal and organizational variables such
as job experience, the manager’s interaction style, and performance
feedback influence the amount of role conflict and ambiguity
salespeople perceive. 52 In addition, the desire for job-related rewards
(such as higher pay or promotion) differs with age, education, family
size, career stage, and organizational climate.
Rewards. A company bestows a variety of rewards on any given level
of performance. There are two types of rewards—extrinsic and
intrinsic. Extrinsic rewards are those controlled and given by people
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other than the salesperson such as managers and customers. They
include pay, financial incentives, security, recognition, and
promotion. Intrinsic rewards are those salespeople primarily attain for
themselves and include feelings of accomplishment, personal growth,
and self-worth. 53
Satisfaction. Salesperson job satisfaction refers to all the
characteristics of the job individuals find rewarding, fulfilling, and
satisfying—or frustrating and unsatisfying. Satisfaction is a complex
job attitude, and salespeople can be satisfied or dissatisfied with many
different aspects of the job. 54
Recruiting and Selecting Salespeople Hiring the people who
best fit the job and organization is important to long-term success, so there
is a great deal of focus on recruiting and selecting qualified salespeople.
The recruitment and selection process has three steps: (1) analyze the job
and determine selection criteria, (2) find and attract a pool of applicants,
and (3) develop and apply selection procedures to evaluate applicants.
Firms can easily be up against competitors and other industries for the
best candidates. As a result, companies develop a well-coordinated
recruiting strategy that, contrary to popular belief, does not seek to
maximize the number of applicants. Having too many recruits overloads
the selection process. The true objective of a successful recruiting strategy
is to identify a few exceptionally qualified recruits. 55
396
EXHIBIT 14.13 Sales Training Topics
903
Source: Johnston, Mark W., and Marshall, Greg W. Sales Force Management (12th
ed.). London, UK: Routledge Publishing, 2016.
Training Sales managers work with marketing managers to identify
training objectives that integrate the needs of the salesperson with
corporate marketing objectives. These objectives typically include (1)
improved customer relationships, (2) increased productivity, (3) improved
morale, (4) lower turnover, and (5) improved selling skills. The challenge
for sales managers is measuring the effectiveness of sales training. 56
Sales training most often involves one or more of the seven topics
listed in Exhibit 14.13, ranging from product knowledge to very
specialized topics such as communication and customer relationship
building. The key for sales managers is fitting the sales training content to
the needs of the individual salespeople.
Johnson & Johnson incorporates several online tools to help train
employees. Its online “e-university” provides a variety of learning
experiences for employees. In addition, personalized learning and
development programs deliver specific training based on the individual’s
own career goals. Some of the topics included are management
fundamentals, negotiation skills, and mentoring essentials. Once they have
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completed the learning and development program, certain employees are
allowed to take additional course work in a leadership development
program. Ultimately J&J wants to develop the full potential of salespeople
and other employees to maximize their performance opportunities. 57
Compensation and Rewards The total financial compensation
paid to salespeople has several components designed to achieve different
objectives. A salary is a fixed sum of money paid at regular intervals.
Most firms that pay a salary also offer incentives or incentive pay to
encourage better performance. Incentives are generally commissions tied
to sales volume or profitability, or bonuses for meeting or exceeding
specific performance targets (for example, meeting quotas for a particular
product). Such incentives direct salespeople’s efforts toward specific
strategic objectives during the year, as well as offer additional rewards for
top performers. A commission is payment based on short-term results,
usually a salesperson’s dollar or unit sales volume. Since there is a direct
link between sales volume and the amount of commission received,
commission payments are useful for increasing salespeople’s sales
efforts. 58 Exhibit 14.14 summarizes the components and objectives of
financial compensation plans.
In addition to financial compensation, sales management (and
management across the company) incorporates a range of nonfinancial
incentives. Most sales managers consider promotional opportunities
second only to financial incentives as effective sales force motivators. This
is particularly true for young, well-educated salespeople who tend to view
their sales position as a stepping-stone to a senior management position.
Evaluating Salesperson Performance Monitoring sales
activity and evaluating salesperson performance are fundamental issues.
Salespeople should be evaluated solely on those elements of the sales
process they control. To do this, a company develops objective and
subjective measures that distinguish between controllable and
noncontrollable factors. 59 For example, companies, for the most part,
understand that the overall economic environment is not within the
salesperson’s control; however, direct sales to a customer are quite clearly
in the salesperson’s control. This means that if sales are declining because
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the economy is not doing well, the salesperson should not be penalized;
however, if sales are declining because the salesperson is not meeting the
customer’s needs, then he or she should be held accountable. For many
Chick-fil-A restaurant employees, high performance
397
EXHIBIT 14.14 Components and Objectives of
Financial Compensation Plans
Source: Johnston, Mark W., and Marshall, Greg W. Sales Force Management (12th
ed.). London, UK: Routledge Publishing, 2016.
906
evaluations and low food waste records equate to free food, an often-
overlooked but highly effective motivator for young teen and college-aged
employees. At many Chick-fil-A locations, employees are rewarded with
discounts on food (ranging from percentages off to free) depending on
food waste quantities for the month. Such reward systems encourage
efficiency and discourage kitchen staff from wasting food, a problem that
generates significant costs for restaurants. 60
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SUMMARY
Advertising is a paid form of relatively less personal marketing
communications, often through a mass medium to one or more target
markets. Two major forms of advertising are institutional and product
advertising. For marketing managers, creative agencies play an
important role due to the proliferation of outsourcing of advertising
initiatives in firms. A variety of types of advertising media are available
—a key to success is knowing when and how to apply each type of
those approaches. Sales promotion is a promotion mix element that
provides an inducement for an end-user consumer to buy a product or
for a salesperson or someone else in the channel to sell it. Thus, sales
promotion is relevant in both B2C and B2B settings, but the
approaches used are quite different between the two. Sales promotion
is designed to augment other forms of promotion and is rarely used
alone. Public relations (PR) is a systematic approach to influencing
attitudes, opinions, and behaviors of customers and others. PR is often
executed through publicity, which is an unpaid and relatively less
personal form of marketing communications, usually through news
stories and mentions at public events. Buzz, or word-of-mouth
communication, is the consumer-to-consumer communication
generated about a brand in the marketplace. Finally, the most important
personal communication tool is personal selling. Personal selling is a
unique company function, and managing the sales force presents
several unique challenges.
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KEY TERMS
advertising wearout 376
advertising response function 376
institutional advertising 376
product advertising 377
pioneering advertising 377
competitive advertising 377
comparative advertising 377
reach 378
frequency 378
advertising execution 378
clutter 379
trade show 382
cooperative advertising and promotion 382
allowance 382
publicity 382
buzz 383
event sponsorships 383
crisis management 383
personal selling 385
trade servicers 387
missionary salespeople 387
technical selling 387
key account salespeople 387
outbound telemarketing 388
inbound telemarketing 388
sales presentation 389
closing the sale 391
908
follow-up 391
outsourcing the sales force 391
transaction cost analysis (TCA) 392
sales skill levels 395
motivation 395
extrinsic rewards 395
intrinsic rewards 395
salary 396
incentives 396
commission 396
nonfinancial incentives 396
APPLICATION QUESTIONS
More application questions are available online.
399
1. Consider the concept of advertising wearout.
a. What is advertising wearout?
b. What do you think are some causes of wearout?
c. Come up with as many ads as you can that, for you, are “worn
out.” Can you recall how long each ad interested you before
wearout began to set in?
2. You are the vice president of sales for a $30 million manufacturer of
home building materials. The company employs 50 salespeople
around the country to market the company’s products to hardware
stores and major building contractors. The CEO believes the
company needs to cut costs and wants to reduce the sales force by
50 percent. You have been asked to come in and explain why that
is a bad long-term strategy for the company. Discuss why
salespeople are critical to the success of the company.
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3. Review the Common Approaches to Advertising Execution (Exhibit
14.2) and Pros and Cons of Key Advertising Media (Exhibit 14.3).
Review some ads in any three of the seven different types of media
identified, watching for examples of the different execution
approaches.
a. Make notes about the ads you reviewed and the different types of
media execution you witnessed. Which ads do you think were the
most effective? Why?
b. For the same ads, based on the chapter’s list of pros and cons for
each, identify specific examples of ads for which one or more of
the pros and cons apply.
c. Share your findings with another student or with the class.
4. Exhibit 14.4 presents some of the most common consumer sales
promotion approaches. Select any three of the approaches and
think of a purchase you have made in response to each. How
important was the availability of the sales promotion to your ultimate
decision to buy?
a. Crisis management is a very important function of any type of
organization including for-profit firms, nonprofits, governmental
entities, and others. Identify an example of an organization that
faced a crisis of some type that was highly publicized. This could
be a product recall that challenged a firm, a management or
financial scandal, a natural disaster faced by a governmental
body or charitable agency, or any other such issue.
b. How did the organization address the crisis? What specifically did
they do once it was evident a crisis was afoot?
c. Give your opinion of how they handled the crisis. What would you
recommend that they could have done better?
MANAGEMENT DECISION CASE
Intel Uses Storytelling to “Let the Inside
Out”
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Many users of personal computers are very familiar with the little
stickers that appear on the keyboard, reminding you that your
device has “Intel Inside.” For years, tech giant Intel’s marketing
was centered on telling us that its technology was the secret sauce
inside the gadgets we’ve come to depend upon. And that
marketing has worked: its five-note chime tune is probably clearly
imprinted upon your memory (can you hear it?). While Intel’s chips
are best known for their role in personal computing, today the
company has moved far beyond the microprocessor and PC into
other areas. The brand, however, was still stuck in this limited role
in the minds of consumers. 61
Intel’s marketing team decided that it was time to change the
image of the brand. The goal was to “Let the inside out” and
highlight the exciting work that their chips allow people to do. 62 To
accomplish that goal, Intel executed a major advertising campaign
that used the power of storytelling to make the invisible nature of
the Intel technology visible. 63 And to create those stories, Intel
used a new and different approach that might seem strange for a
company trying to move away from the concept of “inside.”
To introduce its new persona, Intel produced an ad called “Intel
Amazing,” showing the things in American life that the processors
from Intel make possible. This included movie maker DreamWorks
Animation, NASA missions, and prosthetic hands. Other stories
show how Intel technology helps young innovators in different
parts of the world. Jessica Orji of Lagos, Nigeria, participated in
Intel’s #SheWillConnect program, learning how to grow her
hairdressing business. The Intel XDK coding language was
featured in the story of Caroline Wambui, a 16-year-old from
Nairobi, Kenya. She and fellow classmates used the programming
language to create an organ donor app. 64 Another video shows a
woman in India who used the Intel Edison to help her epileptic son.
The
400
Edison is a minicomputer the size of a postage stamp, and was
used in the creation of a glove that can detect oncoming epileptic
episodes. 65
911
The advertising team recognized that Intel was not getting
credit for its role in major cultural events that were centered around
technology: the space shuttle, the Hubble Space Telescope—even
Stephen Hawkings’s computer. This new approach was important
for reaching the next generation of Intel customers. As Intel’s vice
president and global creative director, Teresa Herd, put it: “Kids
today don’t care about what’s inside—they care about what they
get to do with it.” 66
Popular culture became part of the strategy in a real-time
display of Intel technology at the Grammy Awards show. Using its
video-projection technology, Intel merged performer Lady Gaga’s
face with that of the late David Bowie in a special tribute
performance. The Intel magic helped create “digital skin” that
changed Gaga’s “makeup” and created a digital spider that
appeared to dart across her face! 67 This was not only a live event
promotion (viewed by 25 million), but later was incorporated into an
ad for television. The campaign accompanying the event worked,
generating more than 120 news stories. It also drove a 122 percent
“brand lift” among millennials, evaluating their view of Intel as an
innovative brand. 68
Ironically, one of the keys to “getting the inside out” was
moving responsibility for much of the creation of the advertising
inside Intel. Like many major corporations, Intel depended heavily
on outside advertising agencies to create its campaigns. For this
change in direction, the CMO felt it was important to have Intel’s
own employees driving the creative process. This provided Intel
with efficiencies and cost savings, but it also provided something
more. The 90-person team has a major advantage over an outside
agency: they have visibility and access to current projects and
those planned for the future. Intel still uses outside agencies, and
the internal team works collaboratively with those groups. But with
special access to the creative minds at Intel, Herd says that this
inside team can go to the business side of Intel and ask, “All right,
what do you have now?” 69
Intel’s advertising and its approach to managing its creation
has paid off, changing the brand’s image from a microchip
912
manufacturer to a technology innovator used by icons such as
Lady Gaga and football’s Tom Brady. 70 Between advertising,
related event marketing, and other initiatives, Intel generated
nearly 60 billion media impressions in a single year. 71 Brand
consultant Millward Brown moved the company up from the 86th
position to 51st in its Brand Z list—a good indication that the brand
is growing in value and that the marketing efforts to reposition the
brand are working. 72 And the next time you see an Intel sticker on
a computer or other gadget, you may notice a visible result of this
changing personality for the brand: Instead of “Intel Inside,” the
new labels carry the tag line “Experience what’s inside.” 73
Questions for Consideration
1. What was the issue with Intel’s old branding? Was this just
change for change’s sake? Why might it be important for Intel’s
future business success to promote a new brand image?
2. Intel uses both its new internal creative team and outside
advertising agencies. What are the pros and cons of using an
internally staffed creative advertising team? What activities that
an ad agency performs might be more efficiently handled by an
outside group?
3. Intel shows its storytelling ads on both TV and via the Internet. Is
TV still a viable media choice for tech companies like Intel, or
should it migrate all these ads to the Internet? If it uses both
types of media, how can it use a coordinated communications
approach to optimize its advertising spend?
MARKETING PLAN EXERCISE
ACTIVITY 15: Building the Promotional Elements
Building on Activity 14 in the last chapter, continue to build your
promotion plan as an integral part of your marketing plan.
913
1. What approaches to advertising will you take? Select and justify the
media types to be used and discuss how you will execute each.
2. Make a decision on whether some forms of sales promotion will be
part of your promotion plan to consumers and/or channel members.
If so, select the sales promotion approaches you will employ and
justify each.
3. Develop your PR plan.
4. Decide how you intend to manage promotion for the offering. Decide
on outsourced elements versus elements that will be handled in-
house. Establish a structure and process for promotion
management.
401
ACTIVITY 16: Building the Interpersonal Relationship
A critical component of your company’s marketing communications is
the interpersonal connection to the customer. Developing an effective
interpersonal communications strategy is essential and can include (1)
sales force, (2) website, and (3) direct marketing. In this exercise, you
will create an interpersonal communications strategy as part of the
overall marketing communications plan. The following tasks are part of
the strategy:
1. Review the overall marketing communications plan and determine
the role of interpersonal marketing communications in
communicating with target customers.
2. If personal selling is part of the marketing communications plan,
create a sales strategy to include nature of sales force (company
sales force or external sales team), sales structure, hiring/recruiting
policies, and compensation program.
3. Determine the level of direct marketing for the company. Specifically,
define the role of direct marketing in the overall marketing
communications plan. Next, identify specific objectives for the direct
marketing effort. Finally, create a direct marketing campaign and
follow-up plan.
914
NOTES
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G-1
GLOSSARY
A
acceleration effect When small changes in consumer demand lead
to considerable shifts in business product demand.
accumulating bulk A function performed by intermediaries that
involves taking product from multiple sources and sorting it into
different classifications for sales through the channel.
action plans The implementation element of a marketing plan that
discusses issues such as timing, persons responsible, and resources
necessary.
adaptive selling Being able to adjust the sales style from one sales
situation to another in real time based on customer feedback.
additions to existing product lines An extension to an existing
product that has already been developed and introduced to the
market.
administered vertical marketing system (VMS) When the channel
control of a vertical marketing system is determined by the size and
power of one of its channel members.
advantages The particular product/service characteristic that helps
meet the customer’s needs.
advertising Paid form of relatively less personal marketing
communications often through a mass medium to one or more target
markets.
advertising execution The way an advertisement communicates the
information and image.
advertising response function An effect in which, beyond a certain
924
ad spending level, diminishing returns tend to set in.
advertising wearout When customers become bored with an existing
advertising campaign.
agent intermediaries Intermediaries who do not take title to the
product during the exchange process.
AIDA model A model designed to illustrate the hierarchy of effects in
the context of customer response to marketing communications. It
states that the effects build in this order: Attention (or Awareness),
Interest, Desire, and Action.
allowances A remittance of monies to the consumer after the
purchase of the product.
all-you-can-afford method Method of promotional budgeting that
sets the promotional budget as whatever funds are left over after
everything else that’s considered a necessity is paid for.
ASEAN Founded in 1967, it is the most important Asian market zone
and includes 10 countries running the entire length of the Pacific Rim
(Brunei Darussalam, Indonesia, Malaysia, Philippines, Cambodia,
Laos, Myanmar, Singapore, Thailand, and Vietnam).
aspirational purchases Products bought outside the individual’s
social standing.
assortment The number of different product items within a product
category.
attitude Learned predisposition to respond to an object or class of
objects in a consistently favorable or unfavorable way.
attitude-based choice A product choice that relies on an individual’s
beliefs and values to direct his or her assessment.
attribute-based choice A product choice based on the premise that
product choices are made by comparing brands across a defined set
of attributes.
auction pricing A pricing tactic in which individuals competitively bid
against each other and the purchase goes to the highest bidder.
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average-cost pricing A pricing decision made by identifying all costs
associated with an offering to come up with what the average cost of a
single unit might be.
awareness set A reduced set of possible alternatives a consumer
considers after eliminating available options based on gathered
information and personal preference.
B
backward integration When a firm merges operations back up the
supply chain away from the consumer.
bait and switch When a seller advertises a low price but has no intent
to actually make the lower-priced item available for sale.
banner ads Internet advertisements that are small boxes containing
graphics and text, and have a hyperlink embedded in them.
basket of global advertising themes Global advertising strategy in
which distinct ads built around several marketing messages are
created that local marketers can select from to best fit their specific
market situation.
behavioral data Information about when, what, and how often
customers purchase products and services as well as other customer
“touches.”
behavioral segmentation Dividing consumer groups based on
similarities in benefits sought or product usage patterns.
benefits The advantageous outcome from the advantage found in a
product feature.
Boston Consulting Group (BCG) Growth-Share Matrix A popular
approach for in-firm portfolio analysis that categorizes business units’
level of contribution to the overall firm based on two factors: market
growth rate and competitive position.
G-2
brand A name, term, sign, symbol, or design, or a combination of
926
these elements, intended to identify the goods or services of one
seller or groups of sellers and to differentiate them from those of
competitors.
brand assets Other assets brands possess such as trademarks and
patents that represent a significant competitive advantage.
brand association When customers develop a number of emotional,
psychological, and performance associations with a brand. These
associations become a primary purchase driver, particularly with
brand loyal users.
brand awareness The most basic form of brand equity is simply
being aware of the brand. Awareness is the foundation of all other
brand relationships.
brand equity A set of assets and liabilities linked to a brand’s name
and symbol that adds to or subtracts from the value provided by a
product or service to a firm or that firm’s customers.
brand extensions A firm’s use of knowledge of an existing brand
when introducing a new product.
brand identity A summary of unique qualities attributed to a brand.
brand loyalty The strongest form of brand equity, reflecting a
commitment to repeat purchases.
brand strategy The unique elements of a brand that define the
products sold by a firm.
breadth of merchandise The number of different product categories
offered by a retailer.
breaking bulk A shipping method used by manufacturers to better
match quantities needed in terms of the space constraints and
inventory turnover requirements of their buyers.
B2B (business-to-business) markets Markets in which a firm’s
customers are other firms, characterized by few but large customers,
personal relationships, complex buying processes, less price-sensitive
demand.
business case analysis An overall evaluation of a product that
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usually assesses the product’s probability of success.
buying center A number of individuals with a stake in a purchase
decision who manage the purchase decision process and ultimately
make the decision.
buying decision Decisions made throughout the purchase decision
process that vary widely and are based on factors such as nature of
the purchase, number of people involved in the decision,
understanding of the product being purchased, and time frame for the
decision.
buzz Word-of-mouth communication generated about a brand in the
marketplace.
C
capital equipment A firm’s significant, long-term investments in
critical equipment or technology necessary for its manufacturing and
production activities.
capital goods Major purchases in support of significant business
functions.
captive pricing (complementary pricing) A pricing tactic of gaining
a commitment from a customer to a basic product or system that
requires continual purchase of peripherals to operate.
cash discounts A percentage discount off invoice to elicit quicker
payment by the customer.
catalog retailer A retailer that offers merchandise in the form of a
printed or online catalog.
category extensions When a firm uses its brand to expand into new
product categories.
causal research Descriptive research designed to identify
associations between variables.
census A comprehensive record of each individual in the population.
change conflict A customer’s reluctance to choose change by
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selecting a company’s product.
channel captain (channel leader) The lead player in an administered
vertical marketing system (VMS).
channel conflict Disagreements among channel members that can
result in their relationship becoming strained or even falling apart.
channel of distribution A system of interdependent relationships
among a set of organizations that facilitates the exchange process.
channel or medium The conduit by which an encoded message
travels.
channel power The degree to which any member of a marketing
channel can exercise influence over the other members of the
channel.
closed-ended questions Question format that encourages
respondents to provide specific responses.
closing the sale Obtaining commitment from the customer to make
the purchase.
clutter The level of competing messages on a particular medium.
co-branding The joining of two or more well-known brands in a
common product or taking two brands and marketing them in
partnership.
coercive power An explicit or implicit threat that a channel captain will
invoke negative consequences on a channel member if it does not
comply with the leader’s request or expectations.
cognitive learning Active learning that involves mental processes
that acquire information to work through problems and manage life
situations.
commission Payment based on short-term results; usually a
salesperson’s dollar or unit sales volume.
G-3
communication The process of exchanging information and
conveying meaning from one party to another.
929
community A group of intended visitors to the website.
comparative advertising Advertising in which two or more brands
are directly compared against each other on certain attributes.
comparative-parity method Method of promotional budgeting that
focuses on comparing promotion expenditures across all key
competitors in the market to determine a budget number.
competitive advertising Advertising intended to build sales of a
specific brand through shifting emotional appeal, persuasion, and
providing information.
competitive scenario analysis Analyzing competitors using various
scenarios to predict competitor behavior.
competitive strategy An organization-wide strategy designed to
increase a firm’s performance within the marketplace in terms of its
competitors.
competitor-based pricing A pricing strategy in which a firm decides
to price at some market average price in context with prices of
competitors.
competitor orientation A reactive marketing strategy that uses
competitor analysis as its primary driver.
complete set The very large set of possible alternatives a consumer
considers during the initial search for information.
concentrated target marketing (focus or niche strategy) The target
marketing approach that involves targeting a large portion of a small
market.
conditioning The creation of a psychological association between
two stimuli.
conformance A product’s ability to deliver on features and
performance characteristics promised in marketing communications.
consideration (evoked) set A refined list that encompasses the
strongest options an individual considers in a purchase decision once
he or she has obtained additional information and carried out an
evaluation.
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consumer marketing The practice of marketing toward large groups
of like-minded customers.
content The materials that are included on the website.
context The overall layout, design, and aesthetic appeal of a website.
contingency planning Also called scenario planning, a planning
approach that requires the establishment of different planning options
depending on the expected case, best case, or worst case.
contractual agreements Enduring, nonequity relationships with
another company that allow a company to expand its participation in a
foreign market.
contractual VMS The binding of otherwise independent entities in the
vertical marketing system legally through contractual agreements.
controls Elements put in place to ensure progress is being made in
the implementation of a marketing plan. Controls must be in place
from the outset of the planning process to specify the timing,
procedure, and persons responsible for systematically monitoring.
convenience goods Frequently purchased, relatively low-cost
products that customers have little interest in seeking new information
about or considering other product options.
cooperative advertising and promotion When a manufacturer
provides special incentive money to channel members for certain
promotional performance.
core competencies The activities a firm can do exceedingly well.
core product The physical, tangible elements that make up a
product’s essential benefit.
corporate identity Consumers’ perceptions of a corporation that
influences their attitudes and responses toward products or services
offered by it.
corporate-level strategic plan An umbrella plan for the overall
direction of the corporation developed above the strategic business
unit (SBU) level.
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corporate vertical marketing system (VMS) The investment of a
channel member in backward or forward vertical integration by buying
controlling interests in other intermediaries.
cost-based price An international pricing strategy in which the firm
considers cost plus markup to arrive at a final price.
cost leadership A marketing strategy in which a firm utilizes its core
cost advantages to gain an advantage over competitors due to
flexibility in pricing strategies as well as its ability to translate cost
savings to the bottom line.
cost-plus pricing Building a price by adding standardized markup on
top of the costs associated with the offering.
cost reduction A specific method for introducing lower-cost products
that frequently focuses on value-oriented product price points in the
product mix.
country-of-origin effect The influence of the country of manufacture,
assembly, or design on a customer’s positive or negative perception of
a product.
creating assortments The process of accumulating products from
several sources to then make those products available down the
channel as a convenient assortment for consumers.
credence attributes Aspects of an offering for which customers
cannot make a reasonable evaluation, even after use.
crisis management A planned, coordinated approach for
disseminating information during times of emergency and for handling
the effects of unfavorable publicity.
cultural values Principles shared by a society that assert positive
ideals.
G-4
culture A system of values, beliefs, and morals shared by a particular
group of people that permeates over time.
customer advocacy A willingness and ability on the part of a
customer to participate in communicating the brand message to others
932
within his or her sphere of influence.
customer benefit Some type of utility that a company and its
products (and services) provide its customers.
customer-centric Placing the customer at the core of the enterprise
and focusing on investments in customers over the long term.
customer communities Websites where customers come and share
stories about their vendor experiences.
customer delight The exceeding of customer expectations.
customer expectations management The process of making sure
the firm does not set customer expectations so high that they cannot
be effectively met on a consistent basis.
customer loyalty A customer’s commitment to a company and its
products and brands for the long run.
customer marketing The practice of marketing that focuses on
developing relationships with individuals.
customer mind-set An individual’s belief that understanding and
satisfying customers, whether internal or external to the organization,
is central to the proper execution of his or her job.
customer orientation Placing the customer at the core of all aspects
of the enterprise.
customer relationship management (CRM) A comprehensive
business model for increasing revenues and profits by focusing on
customers.
customer retention Low propensity among a firm’s customer base to
consider switching to other providers.
customer satisfaction The level of liking an individual harbors for an
offering.
customer touchpoints Where the selling firm touches the customer
in some way, thus allowing for information about him or her to be
collected.
customization The degree to which the website creates a unique
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individual experience for each visitor.
customized (one-to-one) marketing A marketing strategy that
involves directing energy and resources into establishing a learning
relationship with each customer to increase the firm’s customer
knowledge.
D
data collection Distributing a survey to its respondents, recording the
respondents’ responses, and making the data available for analysis.
data mining A sophisticated analytical approach to using the massive
amounts of data accumulated through a firm’s CRM system to develop
segments and microsegments of customers for purposes of either
market research or development of market segmentation strategies.
data warehouse A compilation of customer data generated through
touchpoints that can be transformed into useful information for
marketing management decision making and marketing planning.
database marketing Direct marketing involving the utilization of the
data generated through CRM practices to create lists of customer
prospects who are then contacted individually by various means of
marketing communication.
deceptive pricing Knowingly stating prices in a manner that gives a
false impression to customers.
decider An individual within the buying center who ultimately makes
the purchase decision.
decision-making authority An issue that arises when companies
grow internationally and lines of authority become longer and more
complicated, resulting in difficulty in defining decision-making
protocols.
decoding process When a receiver interprets the meaning of the
message’s symbols as encoded by the sender.
degree of affiliation The amount of interpersonal contact an
individual has with the reference group.
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degree of centralization The degree to which decisions are made at
the firm’s home office.
delightful surprises Built-in extras in service delivery not expected by
the customer.
Delphi technique A subjective method of forecasting that is done
iteratively, employing repeated measurement and controlled
anonymous feedback instead of direct confrontation and debate
among those preparing the forecast.
demographic segmentation Dividing consumer groups based on a
variety of readily measurable descriptive factors about the group.
demographics The characteristics of human populations and
population segments, especially when used to identify consumer
markets.
depth of merchandise The number of different product items within a
product category.
derived demand Demand that originates from the demand for
consumer products in business-to-business (B-to-B) marketing.
descriptive research Research designed to explain or illustrate some
phenomenon.
desirability The extent and direction of the emotional connection an
individual wishes to have with a particular group.
developed economies Specific economies that have fueled world
economic growth for much of the 20th century, including Western
Europe, the United States, and Japan.
G-5
differentiation Communicating and delivering value in different ways
to different customer groups.
dimensions of service quality The five aspects of a service that
make up its total quality, including tangibles, reliability,
responsiveness, assurance, and empathy.
direct and interactive marketing Personal communication with a
935
customer by means other than a salesperson.
direct channel A channel that has no intermediaries and operates
strictly from producer to end-user consumer or business user.
direct competitors Competing firms that produce products
considered very close substitutes for those of other firms’ current
products and services.
direct foreign investment A strategic alliance with long-term
implications in which a company moves manufacturing or operations
into a foreign market.
direct marketing An interactive marketing system that uses one or
more advertising media to effect a measurable response and/or
transaction at any location.
direct selling A form of non-store retailing that involves independent
businesspeople contacting consumers directly to demonstrate and sell
products or services in convenient locations.
discounts Direct, immediate reductions in price provided to
purchasers.
disintermediation The shortening or collapsing of marketing
channels due to the elimination of one or more intermediaries.
display ads Ads put out by companies for advertising on the Internet
that include banner ads and interstitials.
distinctive competencies A firm’s core competencies that are
superior to those of their competitors.
distribution intensity The number of intermediaries involved in
distributing the product.
distributor Represents the company and often many others in foreign
markets.
diversification strategies Strategies designed to seize on
opportunities to serve new markets with new products.
dumping A global pricing issue that refers to the practice of charging
less than their actual costs or less than the product’s price in the firm’s
936
home markets.
durability The length of product usage.
durable product Products with a comparatively long product life that
are often expensive.
E
early adopter A consumer who is a product opinion leader who seeks
out new products consistent with his or her personal self-image.
early majority Consumers who are product watchers who want to be
convinced of the product’s claims and value proposition before making
a commitment to it.
e-commerce The degree to which the website allows direct purchase
of products and services.
electronic commerce (e-commerce) Any action that uses electronic
media to communicate with customers; facilitate the inventory,
exchange, and distribution of goods and services; or facilitate
payment.
electronic data interchange (EDI) Sophisticated programs that link a
customer with its suppliers to manage inventories and automatically
replenish supplies.
electronic retailing (e-retailing or e-tailing)?The communication and
sale of products or services to consumers over the Internet.
e-mail Mail communications delivered by electronic device.
emerging markets Growing economies that have developed over the
last 25 years that are projected to contribute toward 75 percent of
world economic growth over the next 20 years.
emotional appeal Promotional appeal that plays on human nature
using a variety of human emotions and aspirations in developing
promotional messages.
emotional choice A product choice based more on emotional
attitudes about a product rather than rational thought.
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encoding process The process in communication in which the
sender translates an idea to be communicated into a symbolic
message in preparation for transmittal to a receiver.
end-user purchase A category of products purchased by
manufacturers that represents the equipment, supplies, and services
needed to keep their business operational.
enhanced product Additional features, designs, or innovations that
extend beyond the core product to exceed customer expectations.
enterprise resource planning (ERP) system A software application
designed to integrate information related to logistics processes
throughout the organization.
e-procurement The process of online business purchasing.
essential benefit The fundamental need met by a product.
European Union A successful regional marketing zone founded more
than 50 years ago by six European countries (Belgium, France, Italy,
Luxembourg, The Netherlands, and West Germany) with the Treaty of
Rome and that now includes 28 countries.
even pricing A pricing tactic in which the price is expressed in whole-
dollar increments.
event sponsorship Having your brand and company associated with
events in the sports, music, arts, and other entertainment
communities.
everyday low pricing (EDLP) A pricing tactic that entails relatively
low, constant prices and minimal spending on promotional efforts.
G-6
exchange The giving up of something of value for something desired.
exclusive dealing When a supplier creates a restrictive agreement
that prohibits intermediaries that handle its product from selling
competing firms’ products.
exclusive distribution Distribution strategy built on prestige, scarcity,
and premium pricing in which a producer only distributes its products
938
to one or very few vendors.
exclusive territory The protection of an intermediary from having to
compete with others selling a producer’s goods.
experience attributes Aspects of an offering that can be evaluated
only during or after consumption.
expert power A channel member’s utilization of its unique
competencies and knowledge to influence others in the channel.
exploratory research Research geared toward discovery that can
either answer the research question or identify other research
variables for further study. It is generally the first step in the marketing
research process.
exporter International market specialist that helps companies by
acting as the export marketing department.
exporting The most common method for entering foreign markets, it
offers firms the ability to penetrate foreign markets with minimal
investment and very little risk.
extensive information search When a consumer makes a purchase
decision based on a thorough process of investigation and research.
external information sources Additional information an individual
seeks from outside sources when internal information is not sufficient
to make a purchase decision.
extrinsic rewards Rewards controlled and given by people other than
the salesperson such as a manager and customers.
F
FAB A selling approach designed to make the company’s products
more relevant for customers by explaining the product’s features,
advantages, and benefits.
facilitating functions Activities that help fulfill completed transactions
and also maintain the viability of the channel relationships.
fad Products that come and go quickly, often reaching only a limited
939
number of individuals but creating a lot of buzz in the marketplace.
fair trade laws Laws designed to allow manufacturers to establish
artificially high prices by limiting the ability of wholesalers and retailers
to offer reduced or discounted prices.
family A group of two or more people living together and related by
birth, marriage, or adoption.
family branding The creation of brands that have synergy between
them in terms of the overall company brand.
family life cycle The changes in life stage that transform an
individual’s buying habits.
feature Any product attribute or performance characteristic.
feedback loop Two-way communication in which a receiver can
communicate reactions back to the sender.
firing a customer The shifting of investment of resources from a less
attractive customer to more profitable ones.
first-mover advantage When a firm introduces a new market offering,
thus defining the scope of the competitive marketplace.
fluctuating demand When the level of consumer demand is not
constant, having serious implications related to the perishability of
services.
FOB (free on board) Determination of title transfer and freight
payment based on shipping location.
focus group A qualitative research method that consists of a meeting
(either in person or increasingly online) of 6 to 10 people that is
moderated by a professional who carefully moves the conversation
through a defined agenda in an unstructured, open format.
follow-up A company’s actions after the customer has decided to
purchase the product.
food retailer Any retailer that includes food as a part of its breadth of
merchandise.
form The physical elements of a product, such as size, shape, and
940
color.
formalization The formal establishment of a firm’s structure,
processes and tools, and managerial knowledge and commitment to
support its culture.
forward integration When a firm moves its operations more toward
the end user.
franchise organization A contractual relationship between a
franchisor, who is the grantor of the franchise, and the franchisee, who
is the independent entity entering into an agreement to perform at the
standards required by the franchisor.
franchising A contractual agreement in which a firm provides a
contracted company in a foreign market with a bundle of products,
systems, services, and management expertise in return for local
market knowledge, financial consideration, and local management
experience.
frequency The average number of times a person in the target market
is exposed to the message.
functional-level plans Plans for each business function that makes
up one of the firm’s strategic business units (SBUs). These include
core business functions within each SBU such as operations,
marketing, and finance, as well as other pertinent operational areas.
G-7
G
gap model A visual tool used in the measurement of service quality
that identifies and measures the differences between consumer and
marketer perceptions of a provided service.
gatekeeper An individual who controls access to information and
relevant individuals in the buying center.
GE business screen A popular approach for in-firm portfolio analysis
that categorizes business units’ level of contribution to the overall firm
based on two factors: business position and market attractiveness.
941
gender roles Behaviors regarded as proper for men and women in a
particular society.
general warranties Broad promises about product performance and
customer satisfaction.
generic strategy An overall directional strategy at the business level.
geographic regions An international organizational structure that
divides international markets by geography, building autonomous
regional organizations that perform business functions in the
geographic areas.
geographic segmentation Dividing consumer groups based on
physical location.
geolocation marketing The use of geographic data to drive
marketing messaging and other marketing decisions.
global marketing themes Global advertising strategy in which a
basic template is used for global ads that allows for slight
modifications depending on local markets.
global marketing with local content Global advertising strategy in
which a firm keeps the same global marketing theme as the home
market but adapts it with local content.
global product lines Products that are sold across country borders.
goals General statements of what the firm wishes to accomplish in
support of the mission and vision.
go-to-market mistake When a company fails to stop a bad product
idea from moving into product development.
government Local, state, and federal entities that have unique and
frequently challenging purchasing practices for manufacturing firms.
gray market A global pricing issue that references the unauthorized
diversion of branded products into global markets.
growth phase A stage of the product life cycle marked by rapid
expansion as competitors come into the market and customers learn,
understand, and begin to adopt the product.
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H
harvesting A product strategy that involves a measured but
consistent investment reduction in a product.
high-involvement learning The learning process in which an
individual is stimulated to acquire new information.
high mass consumption An economy characterized by rising income
levels, creating a large population with discretionary income, which
results in consumers that demand higher levels of service and more
durable goods.
high/low pricing A pricing strategy in which the retailer offers
frequent discounts, primarily through sales promotions, to stated
regular prices.
household life cycle (HLC) A structured set of chronological
activities a particular household follows over time.
I
impulse goods Goods whose sales rely on the consumer seeing the
product, feeling an immediate want, and being able to purchase now.
inbound logistics The process of sourcing materials and knowledge
inputs from external suppliers to the point at which production begins.
inbound telemarketing When a prospective customer contacts a
company for more information.
incentives Generally commissions tied to sales volume or profitability,
or bonuses for meeting or exceeding specific performance targets.
in-depth interview A qualitative research method that consists of an
unstructured (or loosely structured) interview with an individual who
has been chosen based on some characteristic of interest, often a
demographic attribute.
indirect channel A channel that contains one or more intermediary
levels.
indirect competitors Competing firms that offer products that may be
943
substituted based on the customer’s need and choice options.
inelastic demand When changes in demand are not significantly
affected by changes in price.
influencer An individual, either inside or outside the organization, with
relevant expertise in a particular area who provides information used
by the buying center in making a final buying decision.
information search The process consumers use to gather
information to make a purchase decision.
initiator The individual who starts the buying decision process.
innovation diffusion process How long it takes a product to move
from first purchase to last purchase (the last set of users to adopt the
product).
innovator A consumer who is a product enthusiast who is among the
first to try and master a new product.
inseparability The characteristic of a service in which it is produced
and consumed at the same time and cannot be separated from its
provider.
G-8
institutional advertising Advertising that promotes industry,
company, family of brands, or some other issues broader than a
specific product.
institutions Nongovernmental organizations driven by the delivery of
service to the target constituency, rather than by profits.
instrumental performance The actual performance features of the
product in terms of what it was promised to do.
intangibility The characteristic of a service in which it cannot be
experienced through the physical senses of the consumer.
integrated marketing communications (IMC) A strategic approach
to communicating the brand and company message to targeted
customers in ways that are clear, concise, and consistent and yet are
customizable as needed to maximize the impact on a particular
944
audience.
intensive distribution A distribution strategy designed to saturate
every possible intermediary, especially retailers.
interactive marketing An Internet-driven relationship between
companies, their brands, and customers. Interactive marketing
enables customers to control information flow and encourages
customer-company interaction as well as a higher level of customer
service.
intermediaries Organizations that play a role in the exchange
process between producers and consumers.
internal information sources All information stored in memory and
accessed by the individual regarding a purchase decision.
internal marketing The treating of employees as customers and
developing systems and benefits that satisfy their needs to promote
internal service quality.
international joint ventures A strategic alliance formed by legal
entities, consisting of a partnership of two or more participating
companies that share management duties and a defined management
structure in which every partner holds an equity position.
interstitials Graphic, visually interesting Internet advertisements that
move across the web page.
intrinsic rewards Those rewards salespeople primarily attain for
themselves; they include feelings of accomplishment, personal
growth, and self-worth.
involvement A significant outcome of an individual’s motivation that
mediates the product choice decision. It is activated by three
elements: background and psychological profile, aspirational focus,
and the environment at the time of purchase decision.
J
joint venture A partnership of two or more participating companies
that differs from other strategic alliances in that (1) management
945
duties are shared and a management structure is defined; (2) other
corporations or legal entities, not individuals, formed the venture; and
(3) every partner holds an equity position.
jury of executive opinion Subjective method of forecasting that relies
on a formal or informal poll of key executives within the firm to gain
their assessment of sales potential.
just-in-time (JIT) inventory control system An inventory
management system designed to balance levels of overstock and
stock-out in an effort to reduce warehousing costs.
just noticeable difference (JND) The amount of price increase that
can be taken without impacting customer demand.
K
key account salespeople Salespeople responsible for the firm’s
largest customers.
L
laggard A consumer who is a product avoider and evades adoption
until there is no other product choice.
language An established system of ideas and phonetics shared by
members of a particular culture that serves as their primary
communication tool.
late majority Consumers who are product followers and are price
sensitive, are risk averse, and generally prefer products with fewer
features.
learning Any change in the content or organization of long-term
memory or behavior.
legitimate power A channel member’s ability to influence other
members based on contracts or other formal agreements.
licensing When a firm offers other manufacturers the right to use its
brand in exchange for a set fee or percentage of sales.
946
lifestyle An individual’s perspective on life that manifests itself in
activities, interests, and opinions.
lifetime value of a customer The measurement of important
business success factors related to long-term relationships with
customers.
limited information search When a consumer makes a purchase
decision based on incomplete information and/or lack of personal
knowledge.
line extensions Introducing a new product to an existing product line.
line of visibility The separation between activities customers see and
those they do not see in the process of service delivery.
local market ad generation Global marketing strategy in which a firm
allows local marketers to create local ads that do not necessarily
coordinate with its global marketing messages.
local market conditions price An international pricing strategy in
which the firm assigns a price based on local market conditions with
minimal consideration for the actual cost of putting the product into the
market.
G-9
long-term memory Enduring memory storage that can remain with an
individual for years or even a lifetime.
loss leader products Products sacrificed at prices below costs in an
effort to attract shoppers to the retail location.
low-involvement learning The learning process in which an
individual is not prompted to value new information, characterized by
little or no interest in learning about a new product offering.
low-price guarantee policy A pricing strategy used by retailers that
guarantees consumers the lowest price for any given product by
matching the sales price of competitors.
loyalty programs Programs that reinforce the customer’s benefits of
purchasing at the retailer.
947
M
macroeconomics The study of economic activity in terms of broad
measures of output and input as well as the interaction among various
sectors of an entire economy.
management research deliverable The definition of what
management wants to do with marketing research.
market creation Approaches that drive the market toward fulfilling a
whole new set of needs that customers did not realize was possible or
feasible before.
market deterioration The third and final phase of the maturity stage
of the product life cycle in which the market starts to lose customers
and competitors begin to feel the pressure of overcapacity in the
market.
market development strategies Strategies designed to allow for
expansion of the firm’s product line into heretofore untapped markets,
often internationally.
market-driven strategic planning The process at the corporate or
strategic business unit (SBU) level of a firm that acts to marshal the
various resource and functional areas toward a central purpose
around the customer.
market expansion When a firm that operates in closely related
markets expands into new markets to compete more directly.
market information system (MIS) A continuing process of
identifying, collecting, analyzing, accumulating, and dispensing critical
information to marketing decision makers.
market makers Websites that bring buyers and sellers together.
market mavens Individuals who have information about many kinds
of products, places to shop, and other facets of markets, and initiate
discussions with consumers and respond to requests from consumers
for market information.
market orientation The implementation of the marketing concept,
based on an understanding of customers and competitors.
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market penetration strategies Strategies designed to involve
investing against existing customers to gain additional usage of
existing products.
market research The methodical identification, collection, analysis,
and distribution of data related to discovering and then solving
marketing problems or opportunities and enhancing good decision
making.
market segmentation Dividing a market into meaningful smaller
markets or submarkets based on common characteristics.
market share The percentage of total category sales accounted for by
a firm.
market space A powerful new communication channel that
encourages customer-company interaction and a higher level of
customer service.
market stability The second phase of the maturity stage of the
product life cycle in which a product experiences no market growth as
the market reaches saturation.
market test Objective method of forecasting that involves placing a
product in several representative geographic areas to see how well it
performs and then projecting that experience to the market as a
whole.
marketing The activity, set of institutions, and processes for creating,
communicating, delivering, and exchanging offerings that have value
for customers, clients, partners, and society at large.
Marketing (big M) The dimension of marketing that focuses on
external forces that affect the organization and serves as the driver of
business strategy.
marketing (little m) The dimension of marketing that focuses on the
functional or operational level of the organization.
marketing audit A systematic review of the current state of marketing
within an organization.
marketing concept Business philosophy that emphasizes an
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organization-wide customer orientation with the objective of achieving
long-run profits.
marketing control The process of measuring marketing results and
adjusting the firm’s marketing plan as needed.
marketing dashboard A comprehensive system of metrics and
information uniquely relevant to the role of the marketing manager in a
particular organization. Dashboards provide managers with up-to-the-
minute information necessary to run their operation.
marketing intelligence The collecting, analyzing, and storing of data
from the macro environment on a continuous basis.
marketing management The leading and managing of the facets of
marketing to improve individual, unit, and organizational performance.
marketing metrics Tools and processes designed to identify, track,
evaluate, and provide key benchmarks for improvement of marketing
activities.
G-10
marketing mix (4Ps of marketing) Product, price, place, and
promotion—the fundamental elements that comprise the marketer’s
tool kit that can be developed in unique combinations to set the
product or brand apart from the competition.
marketing plan The resulting document that records the marketing
planning process in a useful framework.
marketing planning The ongoing process of developing and
implementing market-driven strategies for an organization.
marketing’s stakeholders Any person or entity inside or outside a
firm with whom marketing interacts, impacts, and is impacted by.
markup on cost The addition to the price of an offering after costs
have been considered.
markup on sales price Using the sales price as a basis for
calculating the markup percentage.
mass customization Combining flexible manufacturing with flexible
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marketing to greatly enhance customer choice.
mass marketing The classic style of consumer marketing in which a
firm views all consumers as equal reactors to a firm’s marketing
strategies.
materials Natural or agricultural products that become part of the final
product.
materials, repairs, operational (MRO) Products used in everyday
business operations that are not typically considered to be a
significant expense for the firm.
materials requirement planning (MRP) The overall management of
the inbound materials from suppliers to facilitate minimal production
delays.
matrix structure An international organizational structure that
encourages regional autonomy among organizations while building
product competence in key areas around the world.
maturity An economy that, through private and public investments,
has reached the point where it seeks to maintain its growth rates.
maturity stage A stage of the product life cycle in which a product is
in the transition from high growth to relative sales decline. There are
three phases in the maturity stage: relative market expansion, market
stability, and market deterioration.
m-commerce Sales generated by a mobile device.
mechanical observation A variation of observational data that uses a
device to chronicle activity.
memory Where people store all past learning events.
merchandise category An assortment of items considered
substitutes for each other.
merchant intermediaries Intermediaries who take title to the product
during the exchange process.
MERCOSUR Inaugurated in 1995, it is the most powerful market zone
in South America and includes the major economies of South
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America: Argentina, Bolivia, Brazil, Chile, Paraguay, and Uruguay.
message transmission Placing a communication into some channel
or medium so that it can make its way to the intended receiver.
microeconomics The study of individual economic activity.
microsite A more focused site from a company’s primary site that
addresses specific topics such as new product introductions or
targeted products within a large product.
minimal information search When a consumer makes a purchase
decision based on very little information or investigation.
minimum markup laws Laws that require retailers to apply a certain
percentage of markup to their products for sale.
mission statement The verbal articulation of an organization’s
purpose, or reason for existence.
missionary salespeople Salespeople who do not take orders from
customers directly but persuade customers to buy their firm’s product
from distributors or other suppliers.
modifications to existing products Creating newer, better, faster
versions of existing products that target, for the most part, existing
customers.
modified rebuy A buying decision in which a customer is familiar with
the product and supplier in a purchase decision but is looking for
additional information because of one or more of three circumstances:
the supplier has performed poorly, new products have come into the
market, or the customer believes it is time for a change.
moment of truth The face-to-face time between customer and
service provider.
monopolistic competition When there are many companies offering
unique products in different market segments.
monopoly When a market is controlled by a single company offering
one set of products.
moral appeal Promotional appeal that strikes a chord with a target
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customer’s sense of right and wrong.
motivation The stimulating power that induces and then directs an
individual’s behavior.
MRO supplies (maintenance, repair, operating) The everyday items
that a company needs to keep running.
multiattribute model A model that measures an individual’s attitudes
toward an object by evaluating it on several important attributes.
N
NAFTA (North American Free Trade Agreement) Created to
eliminate tariffs between Canada, Mexico, and the United States, and
which stands as the single largest economic alliance today.
G-11
national brands Products created, manufactured, and marketed by a
company and sold to retailers around the country and the world.
network organization (virtual organization) Organization that
eliminates many in-house business functions and activities in favor of
focusing only on those aspects for which it is best equipped to add
value.
new purchase A buying decision in which the purchase of a product
or service by a customer is for the first time.
new-to-the-world product A product that has not been available
before or bears little resemblance to an existing product.
nimble Being in a position to be maximally flexible, adaptable, and
speedy in response to the many key change drivers affecting
business.
noise The distortion or interference that can occur at any stage of a
communication process.
nondurable product Products that are usually consumed in a few
uses and, in general, are of low cost to the consumer.
nonfinancial incentives Sales force motivators beyond financial
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compensation.
nonprobability sampling The selection of individuals for statistical
research in which the probability of everyone in the population being
included in the sample is not identified.
non-store retailer A retailer that uses alternative methods to reach
the customer that do not require a physical location.
nonverbal communication The means of communicating through
facial expressions, eye behavior, gestures, posture, and any other
body language.
North American Industrial Classification System (NAICS) A
system developed by the United States, Canada, and Mexico that
classifies companies on the basis of their primary output to define and
segment business markets.
O
objective forecasting methods Forecasting methods that rely
primarily on sophisticated quantitative (empirical) analytical
approaches.
objective-and-task method Method of promotional budgeting that
takes an investment approach in that goals are set for the upcoming
year and then promotional dollars are budgeted to support the
achievement of those goals.
objectives Specific, measurable, and potentially attainable milestones
necessary for a firm to achieve its goals.
observational data The documentation of behavioral patterns among
the population of interest.
odd pricing A pricing tactic in which the price is not expressed in
whole dollar increments.
offering A product or service that delivers value to satisfy a need or
want.
oligopoly When a market is controlled by more than one company in
an industry that is either standardized or differentiated.
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one-price strategy A pricing tactic in which the price marked on a
good is what it typically sells for.
one-to-one marketing Directing energy and resources into
establishing a learning relationship with each customer and
connecting that knowledge with the firm’s production and service
capabilities to fulfill that customer’s needs in as customary a manner
as possible.
one world price An international pricing strategy in which the firm
assigns one price for its products in every global market.
online database Data stored on a server that is accessed remotely
over the Internet or some other telecommunications network.
open-ended questions Question format that encourages
respondents to be expressive and offers them the opportunity to
provide more detailed, qualitative responses.
opinion leaders Individuals with expertise in certain products or
technologies who classify, explain, and then bestow information to a
broader audience.
organizational factors Organization-wide beliefs and attitudes that
factor into a purchase decision.
organizational learning The analysis and refinement phase of the
CRM process that is based on customer response to the firm’s
implementation strategies and programs.
original equipment manufacturer (OEM) Manufacturing firms that
sell products that are used as integral manufacturing components by
their customer companies.
out supplier A company that is not on a firm’s list of approved
suppliers.
outbound logistics The process of a product’s movement from
production by the manufacturer to purchase by the end-user
consumer.
outbound telemarketing Calling potential customers at their home or
office, either to make a sales call via telephone or to set up an
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appointment for a field salesperson.
outsourcing (third-party logistics, 3PL) Handing over one or more
of its core internal functions, such as most or all of its supply chain
activities, to other (third-party) companies that are experts in those
areas allows the firm to better focus on its core business.
outsourcing the sales force Using independent sales agents to sell
a company’s products.
P
partner relationship management (PRM) strategies A strategic
alliance that includes connectivity of inventory, billing systems, and
market research among marketing channel members.
G-12
parts Equipment that is either fully assembled or in smaller pieces
that will be assembled in larger components and then used in the
production process.
penetration pricing A pricing strategy in which a firm’s objective is to
gain as much market share as possible.
perceived quality The conveyed perception of quality of a brand that
is either positive or negative.
percent-of-sales method Method of promotional budgeting that
allocates funding for promotional activities to certain products as a
function of their forecasted sales revenues.
perception A system to select, organize, and interpret information to
create a useful, informative picture of the world.
perceptual maps A visual tool used in positioning that allows for
comparing attributes to gauge consumer perceptions of each
competitor’s delivery against those attributes.
perishability The characteristic of a product or service in which it
cannot be stored or saved for future use.
personal factors The needs, desires, and objectives of those
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involved in a purchase decision.
personal selling A two-way communication process between
salesperson and buyer with the goal of securing, building, and
maintaining long-term relationships with profitable customers.
personality An individual’s set of unique personal qualities that
produce distinctive responses across similar situations.
physical distribution (logistics) The integrated process of moving
input materials to the producer, in-process inventory through the firm,
and finished goods out of the firm through the channel of distribution.
pioneering advertising Advertising intended to stimulate primary
demand, typically during the introductory or early growth stages of an
offering.
portfolio analysis A tool used in strategic planning for multibusiness
corporations that views SBUs, and sometimes even product lines, as
a series of investments from which it expects maximization of returns.
positioning The communication of sources of value to customers so
they can easily make the connection between their needs and wants
and what the product has to offer.
post-purchase dissonance A feeling of doubt or anxiety following a
recent purchase, generally associated with high-involvement, large
purchases.
preferred state An individual’s desires that reflect how he or she
would like to feel or live in the present time.
prestige pricing A pricing tactic that lends prestige to a product or
brand by virtue of a price relatively higher than the competition.
price bundling A pricing tactic in which customers are given the
opportunity to purchase a package deal at a reduced price compared
to what the individual components of the package would cost
separately.
price elasticity of demand The measure of customers’ price
sensitivity, estimated by dividing relative changes in quantity sold by
relative changes in price.
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price-fixing When companies collude to set prices at a mutually
beneficial high level.
price points Prices established to convey the differences in benefits
offered as the customer moves up and down the product line.
price skimming A pricing strategy in which a firm enters a market at a
relatively high price point, usually in an effort to create a strong price-
quality relationship for the product.
price war When a company purposefully makes pricing decisions to
undercut one or more competitors and gain sales and net market
share.
pricing objectives The desired or expected results associated with a
pricing strategy that is consistent with other marketing-related
objectives.
primary data Data collected specifically for a particular research
question.
primary group A reference group an individual has frequent contact
with.
primary target markets Market segments that clearly have the best
chance of meeting ROI goals and the other attractiveness factors.
private-label brands Products managed and marketed by retailers,
also known as store or house brands.
probability sampling The specific protocol used to identify and select
individuals from the population in which each population element has
a known nonzero chance of being selected.
product advertising Advertising designed to increase purchase of a
specific offering.
product choice The end result of evaluating product alternatives in
the purchase decision process.
product deletion Discontinuing the production of a product.
product demand Demand within business markets affected by three
critical dimensions: derived demand, fluctuating demand, and inelastic
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demand.
product development strategies Strategies designed to recognize
the opportunity to invest in new products that will increase usage from
the current customer base.
product expansion When a firm leverages its existing expertise
(technical product experience or supply chain) to create new products
for existing or new markets.
product life cycle (PLC) The life of a product that includes four
stages: introduction, growth, maturity, and decline.
G-13
product line A group of products linked through usage, customer
profile, price points, and distribution channels or needs satisfaction.
product line pricing (price lining) A pricing tactic in which a firm
affords the marketing manager an opportunity to develop a rational
pricing approach across a complete line of related items.
product mix The combination of all the products offered by a firm.
production orientation The maximization of production capacity
through improvements in products and production activities without
much regard for what is going on in the marketplace.
professional services Services that require specialized training and
certification that are typically self-regulated by industry or trade
groups.
profitability analysis A thorough analysis that accounts for all costs
associated with bringing a product to market to determine short- and
long-term product profitability.
promotion Various forms of communication to inform, persuade, or
remind.
promotion mix The elements of promotion, including advertising,
sales promotion, public relations (PR), personal selling, direct
marketing, and interactive marketing.
promotion mix strategies Decisions about which combination of
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elements in the promotion mix is likely to best communicate the
offering to the marketplace and achieve an acceptable ROI for the
marketer.
promotional allowances Sales promotions initiated by the
manufacturer and carried out by the retailer, who is then compensated
by the manufacturer.
promotional appeal The connection an offering establishes with
customers; includes rational appeals, emotional appeals, and moral
appeals.
promotional campaign Promotional expenditures to a particular
creative execution aimed at a particular product or product line during
a specified time period.
psychographic segmentation Dividing consumer groups based on
variables such as personality and AIOs: activities, interests, and
opinions.
psychological pricing Creating a perception about price merely from
the image the numbers provide the customer.
public relations (PR) Systematic approach to influencing attitudes,
opinions, and behaviors of customers and others.
publicity An unpaid and relatively less personal form of marketing
communications, usually through news stories and mentions at public
events.
puffery Relatively minor embellishments of product claims to bolster
the persuasive message.
pull strategy Promotional and distribution strategy in which the focus
is on stimulating demand for an offering directly from the end user.
pure competition When there are many companies offering
essentially the same product in the market.
push strategy Promotional and distribution strategy in which the
focus is on stimulating demand within the channel of distribution.
Q
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qualitative research Less structured research not meant to be used
for statistical analysis that can employ methods such as surveys and
interviews to collect data.
quantitative research Research used to develop a measured
understanding using statistical analysis to assess and quantify the
results.
quantity discounts Discounts taken off an invoice price based on
different levels of product purchased.
R
rational appeal Promotional appeal that centers on the benefits an
offering can provide to a customer.
reach The percentage of individuals in a defined target market that
are exposed to an ad during a specific time period.
real state An individual’s perceived reality of present time.
receiver The individual who is the target of the communication.
reducing transactions The process of lowering the number of
purchasing transactions carried out by a firm by utilizing the services
of intermediaries.
reference group A group of individuals whose beliefs, attitudes, and
behavior influence (positively or negatively) the beliefs, attitudes, and
behavior of an individual.
reference pricing A pricing strategy in which a firm gives customers
comparative prices when considering purchase of a product so they
are not viewing a price in isolation from prices of other choices.
referent power A channel member’s ability to influence other
members based on respect, admiration, or reverence.
regional market zones A group of countries that create formal
relationships for mutual economic benefit through lower tariffs and
reduced trade barriers.
relationship orientation Investing in keeping and cultivating
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profitable current customers instead of constantly having to invest in
gaining new ones.
relationship-based enterprise A firm that strives to facilitate long-
term, win-win relationships between buyers and sellers.
relative market expansion The first phase in the maturity stage of
the product life cycle in which product category sales continue to grow
but at a rate significantly less than in the growth stage.
G-14
reliability The percentage of time a product works without failure or
stoppage.
repairability The ease of fixing a problem with a product.
repeat purchase A function of total demand that considers the
number of products purchased by the same customer.
replacement purchase A function of total demand that considers the
number of products purchased to replace existing products that have
either become obsolete or malfunctioned.
reposition existing products A “new” product approach that targets
new markets with existing products.
repositioning Using the marketing mix approach to change present
consumer perceptions of a firm’s product or service.
request for proposal (RFP) The document distributed to potential
vendors that outlines an organization’s product or service needs. It
serves as a starting point from which vendors put together their
product solution.
research design A framework for a study that directs the identification
of a problem and collection and analysis of data.
research problem The definition of what information is needed to
help management in a particular situation.
resellers Companies that buy products and then resell them to other
businesses or consumers for a profit.
retail positioning The retailer’s brand image in the consumer’s mind.
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retail target market The group of consumers targeted by a retailer.
retailer cooperative (co-op) The binding of retailers across a variety
of product categories to gain cost and operating economies of scale in
the channel.
retailer experience The overall experience a consumer has shopping
at a retail location or online.
retailing Any business activity that creates value in the delivery of
goods and services to consumers for their personal, nonbusiness
consumption and is an essential component of the supply chain.
return on customer investment (ROCI) A calculation that estimates
the projected financial returns from a customer. It is a useful strategic
tool for deciding which customers deserve what levels of investment of
various resources.
return on marketing investment (ROMI) What impact an investment
in marketing has on a firm’s success, especially financially.
reverse auctions When sellers bid prices to buyers and the purchase
typically goes to the lowest bidder.
reverse logistics The process of moving goods back to the
manufacturer or intermediary after purchase.
reward power A channel member’s ability to coerce vendors by
offering them incentives.
S
salary A fixed sum of money paid at regular intervals.
sales contests Short-term incentive programs designed to motivate
salespeople to accomplish specific sales objectives.
sales experience The level of ease a consumer experiences in
purchasing and returning merchandise at a retailer.
sales force composite Subjective method of forecasting that relies
on the opinion of each member of the field sales staff.
sales orientation The increase of sales and consequently production
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capacity utilization by having salespeople “push” product into the
hands of customers.
sales presentation The delivery of information relevant to meet the
customer’s needs.
sales promotion An inducement for an end-user consumer to buy a
product or for a salesperson or someone else in the channel to sell it.
sales skill levels The individual’s learned proficiency at performing
necessary sales tasks.
sample A subgroup of the population selected for participation in
research.
SBU-level strategic plan Planning that occurs within each of the
firm’s strategic business units (SBUs) designed to meet individual
performance requirements and contribute satisfactorily to the overall
corporate plan.
search ads Paid advertisements featured in Internet search engine
results based on analysis of keywords entered in the search field.
search attributes Aspects of an offering that are physically
observable before consumption.
seasonal discounts Discounts that reward the purchaser for shifting
part of the inventory storage function away from the manufacturer.
SEC 10-K report A document filed with the Securities and Exchange
Commission (SEC) that reports detailed information about a firm’s
operations and strategies.
secondary data Data collected for some other purpose than the
problem currently being considered.
secondary group A reference group with which an individual has
limited contact.
secondary target markets Market segments that have reasonable
potential but for one reason or another are not best suited for
development immediately.
seeding strategy A viral marketing approach to specific customers or
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groups of customers who then further stimulate the internal dynamics
of the target market, thus resulting in the diffusion process (spread of
the virus).
selective awareness A psychological tool an individual uses to help
focus on what is relevant and eliminate what is not relevant.
G-15
selective distortion The process in which an individual can
misunderstand information or make it fit existing beliefs.
selective distribution A distribution strategy in which goods are
distributed only to a limited number of intermediaries.
selective perception Different meanings assigned to the same
message by different receivers that are based on an array of individual
differences.
selective retention The process of placing in one’s memory only
those stimuli that support existing beliefs and attitudes about a product
or brand.
sender The source of the message in communication.
service A product that represents a bundle of benefits that can satisfy
customer wants and needs without having physical form.
service blueprints Complete pictorial designs and flow charts of all of
a service’s activities from the first customer contact to the actual
delivery of the service.
service dominant logic The logic that considers service and the
customer experience to be the principal rationality of marketing.
service economy An economy that is predominantly comprised of
service-related jobs.
service encounter The time period during which a customer interacts
in any way with a service provider.
service failure When a service fails to meet the quality level promised
by the provider.
service-profit chain The formalization of linkages between employee
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and customer aspects of service delivery.
service quality The formalization of the measurement of customer
expectations of a service compared to perceptions of actual service
performance.
service recovery The restoring of service quality to a level at or
above the customer’s expectations following a service failure.
service sector The portion of an economy that is comprised of
service-related jobs.
SERVQUAL A measurement instrument designed to reflect the five
dimensions of service quality.
shopping experience The consumer’s holistic experience while
looking for and evaluating products during the purchase decision
process.
shopping goods Products that require consumers to do research and
compare across product dimensions like color, size, features, and
price.
short-term memory The information an individual recalls at the
present time. Sometimes referred to as working memory.
showrooming Consumers going into a store and taking advantage of
a product demonstration and the expertise of the salesperson and
then buying the product from an online retailer at a lower price.
situation analysis An analysis of the macro- and micro-level
environment within which a firm’s marketing plan is being developed.
SKU (stock-keeping unit) Unique identification numbers used in
tracking products through a distribution system, inventory
management, and pricing.
slotting allowance (shelf fee) Extra incentives paid to wholesalers or
retailers by the manufacturer for placing a particular product into
inventory.
social class A ranking of individuals into harmonized groups based
on demographic characteristics such as age, education, income, and
occupation.
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societal marketing The concept that, at the broadest level, members
of society at large can be viewed as a stakeholder for marketing.
sorting The process of classifying products for sale through different
channels.
specialty goods Unique products in which consumers’ purchase
decision is based on a defining characteristic.
specific warranties Explicit product performance promises related to
components of the product.
sponsorships Spaces sold on high-traffic websites that enable
companies to subsidize some section of the web page on the site.
stability pricing A pricing strategy in which a firm attempts to find a
neutral set point for price that is neither low enough to raise the ire of
competition nor high enough to put the value proposition at risk with
customers.
stand-alone brands Brands created to be separate from a company
brand that can insulate the company if there is a problem with the
brand.
stock-out When an item is not in stock.
stop-to-market mistake When a product that is a good idea is
prematurely eliminated during the screening process and ultimately
never introduced to the market.
store brands Brands created by retailers for sale only in their store
locations.
straight rebuy A buying decision that requires little evaluation
because the products are purchased on a consistent, regular basis.
strategic alliances A market entry strategy designed to spread the
risk of foreign investment among its partners. Examples of strategic
alliances would be international joint ventures or direct foreign
investment.
strategic marketing The long-term, firm-level commitment to
investing in marketing—supported at the highest organization level—
for the purpose of enhancing organizational performance.
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strategic type Firms of a particular strategic type have a common
strategic orientation and a similar combination of structure, culture,
and processes consistent with that strategy. Four strategic types are
prospectors, analyzers, defenders, and reactors—depending on a
firm’s approach to the competitive marketplace.
G-16
strategic vision Often included within a firm’s mission statement, it is
a discussion of what the company would like to become in the future.
strategy A comprehensive plan stating how the organization will
achieve its mission and objectives.
style The look and feel of a product.
subculture A group within a culture that shares similar cultural
artifacts created by differences in ethnicity, religion, race, or
geography.
subjective forecasting methods Forecasting methods that do not
rely primarily on sophisticated quantitative (empirical) analytical
approaches.
supplier choice Selecting between multiple suppliers offering similar
product configurations by examining their qualifications.
supply chain A complex logistics network characterized by high
levels of coordination and integration among its members.
supply chain management The process of managing the aspects of
the supply chain.
survey A quantitative research method that employs structured
questionnaires given to a sample group of individuals representing the
population of interest and intended to solicit specific responses to
explicit questions.
sustainability The practicing of business that meets humanity’s
needs without harming future generations.
sustainable competitive advantage The resulting advantage a firm
has when it invests in distinctive competencies.
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SWOT analysis A convenient framework used to summarize key
findings from a firm’s situational analysis into a matrix of strengths,
weaknesses, opportunities, and threats.
symbolic performance The image-building aspects of the product in
terms of how it makes the consumer feel after purchase.
T
tactical marketing Marketing activities that take place at the
functional or operational level of a firm.
tangibility The physical aspects of a product.
target marketing Evaluating market segments and making a decision
about which among them shows the most promise for development.
target return on investment (ROI) A pricing strategy in which a
bottom-line profit is established first and then pricing is set to achieve
that target.
target return pricing A pricing decision made by considering fixed
and variable costs and then demand forecasting to determine the
price per unit.
technical selling Selling that requires a salesperson to have technical
understanding of the product or service.
television home shopping A form of non-store retailing that involves
showcasing products on a television network that can be ordered by
the consumer.
tertiary target markets Market segments that may develop emerging
attractiveness for investment in the future but that do not appear
attractive at present.
time-series analysis Objective method of forecasting that relies on
the analysis of historical data to develop a prediction for the future.
total demand The cumulative demand for a product over a given time
period.
trade discounts An incentive to a channel member for performing
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some function in the channel that benefits the seller.
trade servicer Resellers such as retailers or distributors with whom
the sales force does business.
trade show An industry- or company-sponsored event in which
booths are set up for the dissemination of information about offerings
to members of a channel.
traditional society A society dependent on agriculture as the primary
driver of the economy; these economies lack the capabilities to
industrialize and have high rates of illiteracy, which hinders advances
in technology.
transaction cost analysis (TCA) A tool that measures the cost of
using different types of selling agents.
transfer pricing The cost companies charge internally to move
products between subsidiaries or divisions.
transportation and storage Commonly provided intermediary
functions for producers that do not perform these functions
themselves.
tying contract A formal requirement by the seller of an intermediary
to purchase a supplementary product to qualify to purchase the
primary product the intermediary wishes to buy.
U
undifferentiated target marketing (mass market) The broadest
approach to target marketing that involves offering a product or
service that can be perceived as valuable to a very generalized group
of consumers.
uniform delivered pricing When the same delivery fee is charged to
customers regardless of geographic location within a set area.
unsought goods Products that consumers do not seek out and often
would rather not purchase at all.
users Actual customers of a product or service who have a great deal
of input at various stages of the buying decision process but are
970
typically not decision makers.
user expectations Subjective method of forecasting that relies on
answers from customers regarding their expected consumption or
purchase of a product.
utility The want-satisfying power of a good or service. There are four
types of utility: form utility, time utility, place utility, and ownership
utility.
G-17
V
VALS ™ A proprietary psychographic instrument developed by
Strategic Business Insights (SBI) that divides U.S. adults into groups
based on their primary motivation and resources. The acronym
VALS ™ was originally derived from “values and lifestyles.”
value A ratio of the bundle of benefits a customer receives from an
offering compared to the costs incurred by the customer in acquiring
that bundle of benefits.
value chain The synthesis of activities within a firm involved in
designing, producing, marketing, delivering, and supporting its
products or services.
value co-creation The combining of capabilities among members of a
value network to create value.
value-creating activities Activities within a firm’s value chain that act
to increase the value of its products and services for its customers.
These can take the form of either primary activities or support
activities.
value network An overarching system of formal and informal
relationships within which the firm participates to procure, transform,
and enhance, and ultimately supply its offerings in final form within a
market space.
value pricing A pricing strategy in which a firm attempts to take into
account the role of price as it reflects the bundle of benefits sought by
971
the customer.
value proposition The whole bundle of benefits a company promises
to deliver to the customer, not just the benefits of the product itself.
variability The characteristic of a service in which its service quality
can only be as good as that of its provider.
variable pricing A pricing tactic in which customers are allowed or
encouraged to haggle about prices.
variety The number of different product categories offered by a
retailer.
vending machine retailing The selling of merchandise or services
that are stored in a machine, then dispensed to the consumer when
the payment has been made.
vendor reliability A vendor’s ability to meet contractual obligations
including delivery time and service schedules.
vertical marketing system (VMS) Vertically aligned networks
behaving and performing as a unified system.
viral marketing Entertaining and informative messaging created by a
firm intended to be passed among individuals and delivered through
online and other media channels.
W
wholesaler cooperative When retailers contract for varying degrees
of exclusive dealings with a particular wholesaler.
workload method A method for determining the correct size of a
company’s sales force based on the premise that all salespeople
should undertake an equal amount of work.
Z
zero-based budgeting An investment approach in that marketing
goals and objectives are set for the upcoming year and then budget
dollars are secured to support the achievement of those goals and
972
objectives.
zone pricing When shippers set up geographic pricing zones based
on the distance from the shipping location.
973
I-1
COMPANY INDEX
A
A. C. Nielsen. See Nielsen Co.
Accenture, 390
Ace Hardware, 325
Acura, 111
Adobe, 334
ADP, 323
ADRIA Airways, 35
Adventist Health System, 171
Aegean Airlines, 35
Aeroflot, 35
Aerolineas Argentinas, 35
AeroMexico, 35
Aeropostale, 336
AIG. See American International Group (AIG)
Air Canada, 35
Air China, 35
Air France, 35
Air India, 35
Air New Zealand, 35
Airberlin, 35
Airbus, 33
AirEuropa, 35
AirTran Airways, 65
974
Alitalia, 35
Allegiant Air, 68
Amana, 191
Amazon, 11, 25, 33, 91, 204, 217, 234, 251, 287–288, 301, 308, 324, 325, 332,
391
American Airlines, 35, 214, 384
American Apparel, 336
American Express, 33, 127, 168, 206–207, 253, 256
American International Group (AIG), 204
American Stroke Associations, 277
ANA, 35
Anheuser-Busch, 19–20, 38, 387
Apple, 25, 27, 38, 89, 157, 165, 186, 204, 213, 216, 217, 219, 220, 230, 231,
248, 251, 337, 348–349, 362, 365, 376, 377
Asiana Airlines, 35
Associated Wholesale Grocers (AWG), 325
AT&T, 17, 146, 251, 323, 377
Audi, 111, 203, 261, 357
Avianca, 35
Avis, 270, 271
Aviva, 10
Avon, 191
B
Babycenter.com, 333
Bang & Olufsen, 216
Bank of America, 252
Barnes & Noble, 332, 333
BCG. See Boston Consulting Group (BCG)
Berkshire Hathaway, 207
Best Buy, 322, 332, 333
975
Blackbaud, 201
Blockbuster, 13
Blooming’ Brands, Inc., 278
BMW, 38, 94, 111, 204, 230, 252, 261
Boeing, 33, 175
Bolthouse Farms, 240
Bombardier, 186, 217
Boston Consulting Group (BCG), 61, 62, 137
BP, 25, 249
Braum’s Ice Cream and Dairy Store, 324
Braun, 95
British Airways, 35, 263, 384
Brussels Airlines, 35
Burberry, 12
Burger King, 35, 201, 202
C
Caesars Entertainment, 272, 274, 275
Campbell Soup Co., 161, 191, 221, 240–241
Canon, 260
Carrefour, 332
Carrier, 218
Caterpillar, 26, 38
Cathay Pacific, 35
Chase, 207
Chick-fil-A, 200, 204, 391, 396–397
China Airlines, 35
China Eastern, 35
China National Petroleum, 25
China Southern, 35
Chipotle Mexican Grills, 14, 317
976
Chobani, 327
Chrysler, 39, 261
Cirque du Soleil, 344
Cisco Systems, 62, 176, 252, 334, 390
Claritas, 193–194
CNET, 333, 357
Coach, 303
Coca-Cola Company, 11, 38, 41, 146, 161, 220, 228, 250, 257, 263, 375
Copa Airlines, 35
Corona, 387
Costco, 160, 207, 256, 322, 356
Cotton Incorporated, 376
Cousins Maine Lobster, 389
Croatia Airlines, 35
CVS, 296
Czech Airlines, 35
D
Danskin, 325
Deere & Company. See John Deere
Dell, 157, 222, 223, 250
Delta Air Lines, 35, 72, 214, 217
DHL, 33
Disney. See Walt Disney Company
Dollar Shave Club, 12, 180, 301
Domino’s Pizza, 380
Doubletree, 277
Dow Chemical, 27
DreamWorks Animation, 399
Dunkin’ Donuts, 75–76, 229, 294
Duracell, 256
977
E
e-Trade, 332
eBay, 25, 32, 304, 333
Edmunds.com, 357
EgyptAir, 35
eHarmony, 200
Emirates, 26
ESPN, 357
Estee Lauder, 29
Ethiopian Airlines, 35
EVA Air, 35
Expedia, 353
ExxonMobil, 25, 249
F
Facebook, 123, 125, 190, 230, 251, 323, 354, 361–362, 370
Fairmont, 299
FedEx, 26, 33, 200–201, 204, 317, 324
Festina Watches, 258
Finnair, 35
Fitbit, 220
Ford Motor Company, 39, 164, 165, 230, 252, 261, 299
Fred Meyer, 64
Frito-Lay, 147, 192, 295, 377
Frontier Airlines, 68
G
Gap Inc., 26, 384
Garden Fresh Gourmet, 240
Garuda Indonesia, 35
978
Gatorade, 363
Gatwick Airport, 3587
GEICO, 14, 202
General Electric (GE), 9, 10, 25, 27, 60, 61, 162, 221
General Mills, 256
General Motors (GM), 25, 27, 146, 150, 220, 261
Gigante, 31
Gillette, 12, 190, 256, 301
GNC, 331
Goodyear, 26
Goodyear Tire & Rubber Company, 26, 164, 165
Google, 91, 125, 228, 230, 250, 251, 301, 323, 353
GoPro, 148, 194–195
H
H. J. Heinz Company. See Kraft Heinz Company
H&M, 33, 136
Häagen-Dazs, 223, 224
Habit, 240
Haliburton, 37
Hammock Pharmaceuticals, 34
Harley-Davidson, 100, 102, 154, 204, 252
H-E-B, 304
Heineken, 375, 376
Hershey Foods, 96
Hertz, 270, 271
Hewlett-Packard (HP), 26, 157, 162, 163, 222, 231, 250, 301
I-2
Hilton Grand Vacations Club, 269
Home Depot, 26, 170
Honda, 146, 195, 252, 298
979
Hotels.com, 353
HP. See Hewlett-Packard (HP)
Huawei, 248
Hubspot, 357, 388
Hulu, 301
Hyundai, 56, 261
I
Iberia, 35
IBISWorld, 104
IBM, 107, 248, 251, 391, 393
IKEA, 63, 256
InBev, 20, 38
Information Resources, 103
InfoScan, 103
Instagram, 230
Intel, 27, 165, 253, 399–400
Intuit, 55
J
J. D. Power and Associates, 103, 146
Jaguar Land Rover North America, 143
Japan Airlines, 35
JetBlue Airways, 62–65, 67–72, 207, 293, 362
John Deere, 176, 261
Johns Hopkins Medicine, 230
Johnson & Johnson, 27, 44, 150, 157, 199, 333, 396
Johnson Products, 191
K
980
Kayak, 353
Kellogg, 38, 295
Kelly Blue Book, 356
Kenya Airways, 35
Ketel One, 159
KFC, 35, 67
Kia, 56
Kickstarter, 180
Kimberly-Clark, 230
Kingsley Judd Wine Investments, 355
KitchenAid, 220
KLM Royal Dutch Airlines, 35
Kodak, 331
Korean Air, 35
Kraft Heinz Company, 129, 253, 254, 370
Kroger, 64, 122, 304
L
L. L. Bean, 319, 361, 362
Lacoste, 247
Land Rover, 143
Lands’ End, 308
LATAM Airlines, 35
Lego, 72
Lehman Brothers, 206
Lenovo, 157, 162
Levi, 228, 229
Lexis/Nexis, 104
Lexus, 111, 261
LG, 56, 248
Limited, The, 336
981
LinkedIn, 354, 361, 363
Lockheed Martin, 395
L’Oréal, 150, 191, 375
LOT Polish Airlines, 35
Lowe’s, 247, 248, 249
Lufthansa, 35
Lush Ltd., 190
Luxottica, 375
LVMH, 192
M
Macy’s, 336
Madewell Inc., 213
Malaysia Airlines, 35
Mall of America, 70–71
Marriott Hotels, 256, 299, 301, 391
Marriott Vacation Club, 269
Mary Kay, 386
MasterCard, 33
Match.com, 200
McDonald’s, 27, 35, 60, 61, 67, 98, 188, 201, 202, 203, 204, 251, 294, 326,
375, 383
McKesson, 321
McKinsey & Company, 17
Mercedes-Benz, 94, 230, 249, 261, 357
Merrill Lynch, 332
Metro PCS, 297
Michael Kors (MK), 303
Michelin, 155
Microsoft, 97, 220, 230, 251, 253, 255, 295
Middle East Airlines, 35
982
MilanPharm/TriLogic Pharma, 34
Millennial Branding, 190
MINI USA, 232
MMGY Global, 103
Mondelez International, 375
Moxy Hotels, 256
Mr. Coffee, 38, 95
Mylan, 296
N
NASA, 399
NASCAR, 383
National Realtors Association, 108
Nestlé, 25, 38, 213
Netflix, 13, 96, 129, 201, 231, 247
Netgear, 236
Nielsen Co., 103, 108
Nike, 27, 47, 58, 179–180, 195, 258, 343, 344
Nintendo, 295
Nissan, 252, 256
Nordstrom, 270, 303, 347
O
OkCupid, 200
Oklahoma City Thunder, 273
Old Navy, 195
Oracle, 334
Outback Steakhouse, 278, 279, 280, 285
Outline India, 136–137
983
P
P&G. See Procter & Gamble (P&G)
Pacific Sunwear, 336
Palm Inc, 213
Panera Bread, 67, 294
Pantone LLC, 259
Lockheed Martin, 395
L’Oréal, 150, 191, 375
LOT Polish Airlines, 35
Lowe’s, 247, 248, 249
Lufthansa, 35
Lush Ltd., 190
Luxottica, 375
LVMH, 192
M
Macy’s, 336
Madewell Inc., 213
Malaysia Airlines, 35
Mall of America, 70–71
Marriott Hotels, 256, 299, 301, 391
Marriott Vacation Club, 269
Mary Kay, 386
MasterCard, 33
Match.com, 200
McDonald’s, 27, 35, 60, 61, 67, 98, 188, 201, 202, 203, 204, 251, 294, 326,
375, 383
McKesson, 321
McKinsey & Company, 17
Mercedes-Benz, 94, 230, 249, 261, 357
Merrill Lynch, 332
984
Metro PCS, 297
Michael Kors (MK), 303
Michelin, 155
Microsoft, 97, 220, 230, 251, 253, 255, 295
Middle East Airlines, 35
MilanPharm/TriLogic Pharma, 34
Millennial Branding, 190
MINI USA, 232
MMGY Global, 103
Mondelez International, 375
Moxy Hotels, 256
Mr. Coffee, 38, 95
Mylan, 296
N
NASA, 399
NASCAR, 383
National Realtors Association, 108
Nestlé, 25, 38, 213
Netflix, 13, 96, 129, 201, 231, 247
Netgear, 236
Nielsen Co., 103, 108
Nike, 27, 47, 58, 179–180, 195, 258, 343, 344
Nintendo, 295
Nissan, 252, 256
Nordstrom, 270, 303, 347
O
OkCupid, 200
Oklahoma City Thunder, 273
985
Old Navy, 195
Oracle, 334
Outback Steakhouse, 278, 279, 280, 285
Outline India, 136–137
P
P&G. See Procter & Gamble (P&G)
Pacific Sunwear, 336
Palm Inc, 213
Panera Bread, 67, 294
Pantone LLC, 259
Paramount, 141
Patagonia, 253
PepsiCo, 26, 41, 375
Philips Electronics NV, 38
Photodex Corporation, 104
Porsche, 216
Priceline, 304
Procter & Gamble (P&G), 25, 50, 95, 146, 164, 186, 191, 199, 218, 252, 253,
256, 260, 295, 307, 325, 334, 375, 376
Progressive Casualty Insurance Company, 202, 377
Publix, 304
Pulte Homes, 89
Q
Qantas, 35
Qatar Airways, 35
Qualcomm, 27
QuestionPro, 104
986
R
Ray-Ban, 252
Raymond James, 198
Reckitt Benckiser, 198, 199
Red Cross, 171
Regeneration Pharmaceuticals, 387
Restoration Hardware, 333–337
Rite Aid, 59
Ritz-Carlton Hotel Company, 203, 213, 270, 275, 285, 347
Rolex, 219, 250
Rolls Royce, 253
Royal Dutch Shell, 25, 249
Royal Jordanian, 35
S
S7 Airlines, 35
Salesforce.com, 93, 115, 357
Sam’s Club, 160
Samsung, 55, 56, 94–95, 157, 195, 204, 220, 229, 248, 377
Sanofi, 387
SAS, 35
SAS Institute, 35, 104, 107
Saudia, 35
I-3
SBI. See Strategic Business Insights (SBI)
Sears, 297
Seventh Generation, 161
Shell. See Royal Dutch Shell
Shenzhe Airlines, 35
Siemens, 37
Singapore Airlines, 35, 268
987
Sinopec Group, 25
Snapchat, 361, 363
Sonic Drive-In, 67
Sony, 141, 157, 295, 357, 366
South African Airlines, 35
Southwest Airlines, 11, 65, 68, 175, 204, 214–215, 219, 270, 285, 293, 294,
297, 347
Spark Networks, 200
Spiceworks, 334
Spirit Airlines, 45, 68
SriLankan Airlines, 35
Starbucks, 47, 75, 76, 213, 252, 294, 347
Starwood Hotels, 301
State Farm Insurance, 202, 269
State Grid, 25
Strategic Business Insights (SBI), 195
Subway, 325
Survey Monkey, 101
SWISS, 35
T
T-Mobile, 377
Tableau, 58
Taco Bell, 192
Tag Heuer, 152
TAP Portugal, 35
Target Corporation, 118, 124, 188, 190, 256, 310, 356
TAROM Romanian Air Transport, 35
Tata Group, 375
Tesla, 152, 225
Thai, 35
988
Thomas Global Register, 174
3M Corporation, 221, 222, 223
Tiffany & Company, 327
Timberland, 218
Time Warner, 141
Timex, 219
Tinder, 383
Tommy Hilfiger, 247, 248
TOMS Shoes, 7, 180
Toyota, 6, 55, 146, 252, 298, 348
Toyota Motor, 25
Trader Joe’s, 235, 304
Transitions Optical, 331
Trip Advisor, 353
Tupperware, 386
Turkish Airlines, 35
Twitter, 4–5, 354, 361, 362–363, 370
Tyson Foods, 26
U
Uber, 312–313
Under Armour, 179, 230, 247, 272
Unilever, 7, 49–50, 101, 189, 253, 254, 375
United Airlines, 35, 214, 279–280, 281, 377, 383
United Parcel Service (UPS), 33, 200–201, 324, 329
United States Postal Service (USPS), 308, 329
Universal Orlando, 128, 141
USAA, 123
V
989
Verizon Wireless, 146, 251, 256, 323, 377
Victorinox, 261
Vietnam Airlines, 35
Virgin Group, 262–263
Visa, 33, 251, 256, 383
Volkswagen, 25, 43, 44, 203, 375
Volvo, 352
Voss Artesian Water, 302, 327, 348
W
Walgreens, 196, 321
Walmart, 13, 25, 26, 31, 32, 58, 101, 162, 164, 196, 204, 247, 253, 297, 304,
307, 326, 330, 332, 335
Walt Disney Company, 16, 141, 253, 256, 270, 312, 334
Warby Parker, 180
Warner Communications, 206
WaWa, 193
Wella Corporation, 191
Wells Fargo, 43, 299
Wendy’s, 4–5, 201, 202
Wet Seal, 336
Whirlpool, 95, 216
Whole Foods, 304, 359
Workday, 14
World Wildlife Fund (WWF), 356
X
Xiamen Airlines, 35
Y
990
YMCA, 17
YouTube, 96
Z
Zappos, 125, 126, 329, 356
Zillow, 357
991
I-4
NAME INDEX
A
Aaker, David, 264
Abnett, Kate, 209
Abrahams, Marc, 242
Abramovich, Giselle, 372
Aceto, Ali, 79
Achrol, Ravi S., 338, 339
Adidam, P. T., 403
Adjei, Mavis T., 372
Agarwal, Ritu, 315
Ahluwalia, Harveen, 139
Ahmed, Sadrudin A., 51
Ahmed, Zafar U., 182
Ahn, Jae Hyeon, 340
Ailawadi, Kusum L., 77, 314, 315
Ajzen, I., 181
Albaum, Gerald, 113
Aldas-Maznazo, Joaquin, 182
Allen, B. J., 113
Almquist, Eric, 210
Alspach, K., 402
Alvino, Chris, 138
Amir, On, 182
Amrouche, N., 265
992
Anders, George, 290
Anderson, Erin, 339, 402
Anderson, Eugene W., 138
Anderson, Monica, 340
Angulo, Natalia, 21
Anheuser, Eberhard, 19
Ankeny, Jason, 372
Ansoff, H. Igor, 71
Ariely, Dan, 314
Armstrong, Katrina, 181
Arnold, Eric J., 78
Athavaley, Anjali, 243
Auh, Seigyoung, 21
Aurand, Timothy W., 137
Avci, Turgay, 371
Avlonitis, George J., 314, 315
B
Babakus, Emim, 371
Bacon, Jonathan, 21
Baddour, Dylan, 289
Bagozzi, Richard P., 209
Baker, Kenneth G., 113
Bakker, A. B., 402
Balasubramanian, Sridhar, 372
Balazs, Anne L., 208
Ball, Brad, 78
Banerjee, Saikat, 51, 264
Bansal, Harvir S., 289
Barksdale, Hiram C., Jr., 182, 402
Barone, Michael J., 21
993
Barr, Terri Feldman, 289
Barrot, Christian, 372
Barry, Thomas E., 209
Bart, Yakov, 372
Barton, David, 112
Bascoul, Ganael, 113
Bashkansky, E., 339
Basilico, Justin, 138
Baskin, Jonathan Salem, 21
Basuroy, S., 113
Bateman, Connie R., 113
Baurer, Hans H., 182
Bawa, Kapil, 243
Bayon, Tomas, 209
Bayus, Barry L., 208
Becker, Christine, 182
Becker, Jan U., 372
Beer, Jeff, 403
Beintema, Rob, 264
Bell, Jim, 113
Bell, Simon J., 21
Bellman, Steve, 372
Bello, Daniel C., 339
Belonax, J. J., Jr., 402
Bennett, Peter D., 320
Bennett, Roger, 112
Berfield, Susan, 51
Bergin, Richard, 113
Berman, Barry, 51
Berman, Ron, 372
Berry, Leonard L., 267, 278, 282, 283, 287, 289, 290
Bettencourt, Lance A., 242
994
Bettman, James R., 182
Bezos, Jeff, 11, 287, 288
Bhagat, Parimal S., 181
Bharadwaj, Neeraj, 20
Bharadwaj, Sundar, 21, 339
Bhattacharya, C. B., 209
Bink, Audrey J. M., 51
Bird, Monroe M., 182
Birk, Matthias M., 182
Bishop, Terrence R., 137
Bissell, Jennifer, 244
Bitner, Mary Jo, 21
Blair, B., 402
Blair, Edward, 113
Blair, Margaret Henderson, 401
Blyth, Bill, 113
Bohlmann, Jonathan D., 208
Boles, James S., 182, 402
Bolton, Lisa E., 181
Bolton, Ruth N., 183, 209, 289
Bomey, Nathan, 314
Bonfrer, André, 401
Bonoma, Thomas V., 197, 402
Booms, Bernard H., 21
Boone, Louis E., 21
Borden, Neil H., 21
Bourdeau, Brian L., 289
Bowers, M. R., 402
Bowie, David, 400
Bowman, Jeremy, 78
Boyer, Kenneth K., 339
Brace, Ian, 182
995
Bradlow, Eric T., 210
Brady, Michael K., 289
Brady, Tom, 400
Brannon, J. Isaac, 315
Branson, Sir Richard, 262, 263
Braselton, J., 402
Braun, Curt C., 265
Brewster, Mike, 182
Bridges, Wesley, 339
Briggs, Jeff, 372
Brodie, Roderick J., 138, 208
Brooks, Jay R., 22
Brosnan, K., 113
Brouthers, Lance Eliot, 51
Brown, Millward, 400
Brown, Stanley A., 137
Brown, Stephen W., 183
Brown, Tom J., 265, 289
Broyles, Sheri J., 181
Brunswick, Gary J., 289
Bucklin, Randolph E., 371
Buffett, Warren, 207
Burgess, Thomas F., 137
Burkink, Tim, 339
Burns, Will, 22, 340
Burnsed, Brian, 209
Bursk, E. C., 402
Burton, Mark, 314
Busch, Adolphus, 19, 20
Buskirk, Bruce, 210
Byrne, John, 315
996
C
Caceres, Ruben Chumpitaz, 182
Calantone, Roger J., 243
Cameron, Nadia, 138
Campbell, Kerry, 50
Campbell, Kid Sydow, 402
Cao, Jing, 183
Capell, Kerry, 51
Capillure, Eva M., 182
Cardy, Robert L., 78
Carlson, Brad D., 265
Carmon, Ziv, 314
Carpenters, Jason M., 339
Carter, Theresa, 401
Cateora, Philip R., 39
Cerquides, Jesus, 182
Chabowski, Brian R., 182
Chaffey, Dave, 372
Chaison, Gary, 78
Chakrabarti, Avik, 182
Challagalla, G. N., 402
Champagne, Christine, 79
Chan, Tat Y., 208
Chang, Chia-Chi, 401
Chang, Chiaho, 182
Chang, Chingching, 401
Chang, Wei-Lun, 243, 265
Chang, Y. H., 183
Chang, Yuanchen, 182
Chao, Raul O., 243
Charan, Ram, 78
997
Chatterjee, D., 183
Chen, Cheng-Hao Steve, 264
Chen, Junsong, 265
Chen, Li, 340
Chen, Qimei, 209
Chen, Yuxin, 315
I-5
Cheung, Christy M. K., 340
Childers, Terry L., 182
Chintagunta, Pradeep K., 315, 338
Chiou, Jyh-shen, 21
Chitturi, Ravinda, 242
Chou, S. Y., 183
Choudhary, Vidhi, 139
Chu, Junhong, 338
Chuang, Pao-Tiao, 290
Chumpitaz, Ruben, 183
Chun, Rosa, 20
Clark, Terry, 21
Clifford, Catherine, 265
Clift, Robert, 78
Colby, Charles L., 78
Colgate, Mark, 243
Collins, Phil, 263
Columbus, Louis, 340
Comen, Evan, 402
Comer, Lucette B., 113, 402
Comiteau, Jennifer, 113
Commandeur, Harry R., 243
Connor, John M., 315
Constantinides, Efhymios, 21
Cooper, Donald R., 90, 105
998
Cooper, Lee G., 338
Corcoran, Barbara, 389
Corcoran, Sean, 371
Corkery, Michael, 314
Corriveau, Gilles, 339
Coulter, Keith S., 315
Court, David, 138
Cova, Bernard, 21, 338
Coviello, Nicole E., 138, 208
Cowgill, Bo, 138
Cowley, Elizabeth, 181
Coyles, Stephanie, 77
Cravens, David W., 210, 345
Crawford, Blair, 138
Crosby, Lawrence A., 289
Crowhn, Judith, 50
Cunha, Marcus, Jr., 182, 314
Curry, Andrew, 210
D
Dahl, Darren W., 182, 210
Dahlgaard, Jens J., 242
Dahneke, M., 402
Dai, Fan, 182
Dan, Avi, 243, 244
Danaher, Peter J., 138, 208, 401
Darling, John, 50
Darmon, R. Y., 403
d’Astous, Alain, 51
David, R., 339
Davies, Gary, 20
999
Davis, John, 181
Davis, L., 402
Davis, Scott, 137
Davvetas, Vasileios, 264
Dawar, Niraj, 265
Day, George S., 21, 138
D’Cunha, Suparna Dutt, 139
de Groot, Cristiaan, 243
de Jong, Ad, 113
de Ruyter, Ko, 113
De Waal, Gerritt Anton, 243
Deaton, Jamie Page, 77
Decios, P., 402
DeGraba, Patrick, 315
Dekimpe, Marnik G., 50
del Campo, Cristina, 50
DeMers, Jayson, 20
DeNavas-Walt, Carmen, 209
Denegri-Knott, Janice, 113
Desai, Kalpesh Kaushik, 289
Desai, Preyas S., 242
Deshpande, Rohit, 209
Desouza, Kevin C., 78
Detior, Brian, 181
Deutschman, Alan, 265
Deutskens, Elisabeth, 113
Dhar, Sanjay, 401
Dholakia, Utpal M., 113, 313, 315
Diakopoulos, Nicholas, 315
Diamantopoulos, Adamantios, 113, 264
Diaz, Ann-Christine, 372
Dibb, Sally, 209
1000
Dickson, Peter R., 210
Dietz, B., 402
DiMauro, Vanessa, 340
Dobbelstein, Thomas, 314
Dolnicar, S., 113
Donavan, D. Todd, 401
Donnelly, James H., 21, 275
Donovan, D. Todd, 289
Donthu, Naveen, 339
Dossi, Andrea, 51
Draganska, Michaela, 314
Dreze, Xavier, 314
Droge, Cornelia, 21, 243
Dror, S., 339
Drucker, Peter F., 6, 20
Drury, Colin, 315
Du, Rex Y., 182, 209
Dube, Jean-Pierre, 315
Dubinsky, Karen, 78
Duggan, Maeve, 372
Duhigg, Charles, 210
Duke, D., 52
Durland, Maryann, 78
Durmusoglu, Serdar S., 243
E
East, Robert, 182
Easterbrook, Steve, 61
Eden, Benjamin, 51
Egan, Matt, 314
Eisingerich, Andreas B., 242, 340
1001
Elango, B., 51
Elkington, John, 46, 51
Elliot, Stuart, 20
Erat, Sanjiv, 243
Erdem, Tulin, 314
Escalas, Jennifer Edson, 182
Espejel, Joel, 264
Etzel, Michael J., 338, 339
Evans, K. R., 402, 403
Evans, Kenneth R., 289
Evans, Malcolm, 182
Evans, Nathaniel J., 371
F
Fan, Terence, 50
Fandos, Carmina, 264
Farris, Paul W., 210
Fassnacht, Martin, 289
Fassoula, Evangelia D., 21
Fatt, Chen Kehng, 182
Faulds, David J., 209
Feldman, David, 209
Feloni, Richard, 402
Fennell, Geraldine, 209
Ferdman, Roberto A., 372
Ferguson, Graham, 265
Ferguson, Rick, 139
Fernandez, Teresa M., 113
Finkbeiner, Carl, 139
Fisch, Jan Hendrik, 51
Fischer, Eileen, 372
1002
Fishbein, M., 181
Fisher, Marc, 264
Flavian, Carlos, 264
Floyd, David, 50
Ford, Henry, 8, 9
Forehand, Mark R., 209
Fornell, Alice, 290
Fornell, Claes, 139
Fountain, Stefan J., 21
Foxall, Gordon R., 182
Franke, G. R., 403
Frankel, Matthew, 210
Frazier, Gary L., 210
Frederick, James, 209
Frei, Frances X., 289
French, John R. P., 326, 339
Friedman, Gary, 337
Friedman, Thomas L., 77
Frohlich, Thomas, 402
Fromm, Jeff, 22
Fry, Richard, 210
G
Gabrielsson, Mika, 50
Gabrielsson, Peter, 50
Gandomi, Amir, 138
Ganesan, Shankar, 22
Gang, Eric, 51
Gao, Tao, 182
Gao, Yan, 51
Gara, T., 314
1003
Garcia, Rosanna, 243
Gardiner, Stanley C., 340
Garfield, Bob, 371
Garrido-Rubio, Ana, 314
Gaskin, Steven, 401
Gaudet, Charles, 210
Geddes, James, 79
George, William R., 21, 275
Georges, L., 402
Gethard, Gregory, 210
Ghosh, Amit K., 289
Giammona, Craig, 338
Gibson, Peter, 183
Gielens, Katrijn, 50
Gilbert, Richard J., 340
Giles, C. Lee, 371
Gilles, Laurent, 182
Gilly, Mary C., 39
Girotra, Karan, 243
Goel, Rajeev K., 242
Gohmann, Stephan F., 209
Gokey, Timothy C., 77
Goldenberg, Barton, 21
Golder, Peter N., 242
Goldsmith, M., 402
I-6
Golson, Jordan, 314
Gonda, Michael, 339
Gong, James J., 181
Goode, Caroline, 182
Goodstein, Ronald C., 208
Goodwin, Ross, 78
1004
Goolsby, Jerry R., 78, 119, 138
Gorchels, Linda, 137
Gordon, Jonathon, 242
Gordon, Sarah, 265
Gosain, Sanjay, 315
Goudreau, J., 243, 244
Goyal, Anita, 289
Grabov, P., 339
Grace, Debra, 289
Graham, John, 39
Grant, John, 20
Grant, Susan, 265
Green, David, 181
Green, Penelope, 242
Greenberg, H. M., 401
Greenhouse, Linda, 340
Greenwood, Shannon, 372
Grewal, Dhruv, 21, 314, 372
Grewal, Rajdeep, 78
Griffith, David A., 51
Griin, B., 113
Gruber, V., 51
Gruca, Thomas S., 22
Grunbacher, Paul, 242
Guenzi, P., 402
Guilding, Chris, 315
Gumpert, Jason, 289
Gupta, Pola B., 20
Gupta, Suraksah, 265
Gürhan-Canli, Zeynep, 264
Gustafsson, Anders, 77, 137, 208
Gutierrez-Cilian, Jesus, 208
1005
H
Haggett, Steve, 314
Haider, Murtaza, 138
Hair, Joe F., Jr., 138
Halzack, Sarah, 242, 243, 244, 315, 340
Handfield, Robert B., 243
Hanlon, Patrick, 78
Hanlon, Zachary, 183
Hann, Il-Horn, 315
Hanna, Joe B., 340
Hansen, Havard, 183
Hansotia, Behram, 139
Hanssens, Dominique M., 139
Harlam, Bari, 315
Harmal, Bari, 77
Harmancioglu, Nukhet, 243
Harris, James Edwin, 209
Hartley, Steven W., 224
Harvey, Michael G., 51
Hauser, John R., 243, 401
Hausman, Angela, 243
Havila, Virpi, 339
Hawking, Stephen, 263, 400
Hays, Constance L., 315
He, Chuan, 315
Heath, Davidson, 264
Heide, Jan B., 338
Heitmeyer, J., 181
Henderson, Naomi R., 113
Heneghan, Carolyn, 244
Hensel, Anna, 265
1006
Hensgen, Tobin, 78
Herd, Teresa, 400
Herndon, Neil, 51
Herrman, Andreas, 77
Hershey, L., 402
Heskel, Julia, 289
Heskett, James L., 271, 274
Hess, James D., 314
Hesseldahl, Arik, 208
Hill, C. Jeanne, 51
Hill, Logan, 210
Himme, Alexander, 264
Hinz, Oliver, 372
Ho, Shu Hsun, 51
Ho, Teck H., 289
Hofstetter, Joerg, 338
Hogan, J., 402
Holmlund, Maria, 183
Homburg, Christian, 289
Homer, Pamela Miles, 264
Hong, Paul, 182
Hoornweg, Daniel, 96
Hopkins, Christopher D., 208, 403
Horner, Pamela Miles, 181
Houston, Mark B., 78
Howard, Daniel J., 314
Howell, Elizabeth, 265
Hoyer, Wayne D., 21, 289
Hoyt, Jennifer, 50
Hozier, George C., Jr., 113
Hsieh, Yi-Ting, 182
Huang, Jen-Hung, 51
1007
Huang, Jun-Ying, 371
Huang, Li, 372
Huang, Rong, 265
Huber, Frank, 77
Hudson, Simon, 372
Huff, Sid L., 138
Hult, G. Tomas M., 51, 77, 182, 339
Hunger, J. David, 64, 70, 77, 78, 210
Hupfer, Maureen E., 181
Huston, John, 315
Hutt, Michael D., 78
I
Iezzio, Teresa, 79
Im, Subin, 208, 210
Indounas, Kostis A., 314, 315
Ingenbleek, Paul, 51, 112
Inglis, Robert, 78
Iqbal, Zafar, 243
Irani, Tracy, 401
J
Jackson, Janet, 263
Jagadish, H. V., 138
Jagpal, Sharan, 243
Jain, Chaman L., 78
Jain, Dipak C., 314
Jain, Shallendra Pratap, 265
Jamil, M., 243
Janiszewski, Chris, 182, 314
1008
Jansen, Bernard J., 340
Japutra, Arnold, 264
Jaramillo, F., 403
Javalgi, Rajshekhar G., 289
Jaworski, Bernie, 21
Jayachandran, Satish, 78, 339, 371
Jayaraman, Vaidyanathan, 339
Jedidi, Kamel, 243
Jeuland, Abel P., 51
Jin, Hyun Seung, 401
Jing, Bing, 264
Jocumsen, Graham, 113
Johanson, Jan, 339
Johlke, M. C., 401, 402
Johnson, Devon S., 339
Johnson, James P., 182
Johnson, Julie T., 182, 402
Johnson, Lester W., 339
Johnson, Michael D., 77, 208
Johnston, Mark W., 21, 182, 390, 392, 393, 394, 396, 397
Johnston, Wesley J., 138, 183, 208
Jones, Riley, 77
Jones, Thomas O., 271, 274
Joo, Mingyu, 138
Jopez, T. B., 403
Joshi, Yogesh V., 243
Judd, L. Lynn, 339
K
Kale, Sudhir N., 208, 289
Kalliny, Morris, 243
1009
Kalra, Ajay, 208
Kamakura, Wagner A., 51, 182, 209
Kambewa, Emma, 51
Kamdar, Nipoli, 315
Kandemir, Destan, 243
Kandil, Magda, 51
Kang, Wooseong, 51
Kannan, P. K., 113, 138
Kapferer, Jean-Noel, 182
Karatepe, Osman M., 371
Karray, Salma, 401
Karunaratna, Amal R., 339
Karwatka, Tomasz, 290
Katona, Zsolt, 372
Katsikeas, Constantine S., 183
Kavadias, Stylianos, 243
Keane, Michael P., 314
Keaveney, Susan M., 273
Keh, Hean Tat, 112
Keliner, Peter, 113
Kell, John, 22
Kelleher, Herb, 270
Keller, Kevin Lane, 339
Kennedy, Karen Norman, 78, 119, 138
Kerin, Roger A., 224, 314
Ketchen, David J., Jr., 182
Ketzenberg, Michael, 339
Khan, M. Sajid, 183
Kilgore, Patricia, 138
Kim, Eugene, 290
Kim, MinChung, 139
Kim, Myonung Soo, 340
1010
Kim, Namwoon, 208, 265
Kim, Sang Yong, 401
Kim, Stephen Keysuk, 338
Kimmel, Allan J., 315
Kin, Yoo Jin, 265
King, Ceridwyn, 289
King, Stephen F., 137
Kingston, William, 264
Kint, Jason, 339
Kiridena, Senevi, 183
I-7
Klassen, Kenneth J., 289
Kline, Kenny, 401
Klugsberger, Peter, 208, 289
Ko, Kenneth D., 51
Koca, Cenk, 208
Kock, Soren, 50
Koenigsberg, Oded, 242
Koening, Harold F., 289
Kokemuller, Neil, 314
Kolowich, Lindsay, 78
Kopalle, Praveen K., 314
Kotabe, Masaaki, 182
Kovac, M., 402
Kovach, Steve, 314, 315
Kozarich, Daniel, 314
Kretschmer, Tobias, 242, 340
Kriendler, P., 402
Krishnan, Balaji, 314
Krishnan, M. S., 139
Kulviwat, Songpol, 21
Kumar, Pratyush, 340
1011
Kumar, V., 21, 138, 209
Kumcu, Erdogan, 315
Kurtz, David L., 21
Kuruzovich, Jason, 315
Kusek, Kathleen, 340
Kuyumcu, Harun Ahmet, 314
Kwak, Hyokjin, 265
Kwon, Kyong-Nan, 265
L
Labrinidis, Alexandros, 138
Laczniak, Gene R., 51
Lady Gaga, 400
LaGesse, David, 290
LaPointe, Patrick, 138
Laran, Juliano, 182
Laroche, Michael, 289
Larsen, John P., 401
Lassk, Felicia G., 119, 138
LaTour, Michael S., 340
Lau, Kong Cheen, 265
Lau-Gesk, Loraine, 265
Lawson, Rob, 209
Lazzarini, Sergio G., 50, 51
Le Bon, Joel, 113
Leach, M. P., 403
Ledingham, D., 402
Lee, Bruce C. Y., 51
Lee, D. H., 403
Lee, Matthew K. O., 340
Lee, Mi-Hee, 265
1012
Lee, Se Young, 243
Lee, Stephen, 264
Lee, Sungho, 339
Lee, Wai Jin (Thomas), 264
Lee, Yikuan, 314
Lehmann, Donald R., 314
Lei, Jing, 265
LeMeunier-FitzHugh, K., 403
Lemmink, Jos, 265
Lemon, Katherine N., 77, 78, 139, 183, 209
Leonidou, Leonidas C., 50, 182
Lerman, Rachel, 78
Levav, Jonathan, 182
Levisohn, Ben, 209, 242
Levy, Karyne, 78
Levy, Michael, 314
Lewin, Jeffrey E., 183
Lewis, Bob, 138
Lewis, Katherine Reynolds, 22
Li, Jiatao, 51
Li, Ning, 51
Liang, Wen-ko, 181
Liao, Kun, 182
Lieberman, David, 181
Liechty, John C., 138
Lilien, Gary, 138
Lin, Yan-Shu, 315
Lin, Yu-Shan, 371
Lindridge, Andrew, 209
Lindsey, Charles D., 265
Lindsey-Mullikin, Joan, 21
Ling-yee, Li, 401
1013
Liu, A. H., 403
Liu, Mei-Ling, 181
Liu, Sandra S., 113, 402
Liu, Tsung-Chi, 265
Liu, Yuping, 209
Loane, Sharon, 113
Locander, William B., 78
Lodish, Leonard M., 208
Lopex-Sanchez, Maite, 182
Lorimer, S. E., 402
Love, Dylan, 78
Loveman, Gary W., 271, 272, 274
Lovett, Mitchell J., 20, 22
Lowrey, Annie, 315
Loyka, Jeffrey J., 51
Lu, Jane W., 51
Lucas, G. H., 402
Ludewig, Dirk, 265
Lueg, Jason E., 182
Lunde, Brian, 289
Luo, Xueming, 314, 339
Luo, Yadong, 339
Luomala, Harri T., 340
Luostarinen, Reijo, 50
Lusch, Robert F., 21, 208, 242, 289, 318, 339
Luzardo, R., 402
M
Ma, Xufei, 51
MacDonald, Jason B., 20, 22
MacDonald, Jon, 183
1014
Mace, Chris, 264
Madden, Thomas J., 372
Madhani, P. M., 51
Magion-Muller, Katja, 182
Mahajan, V., 52, 242
Malcolm, Rob, 21
Malkewitz, Keven, 265
Malter, Alan J., 22
Manchanda, Rajesh V., 265
Manning, Kenneth C., 21
Marinova, Detelina, 210
Markey, Pete, 10
Marshall, Greg W., 21, 182, 390, 392, 393, 394, 396, 397, 402
Martin, X. C., 403
Martin De Hoyos, Ja Jose, 183
Martin-Herran, G., 265
Martinez, Julio Jimenez, 183
Marvel, Howard P., 340
Mason, Charlotte H., 208
Massey, Joseph Eric, 401
Matchar, Emily, 242
Matlack, Carol, 50
Mayer, D., 401
Mayzlin, Dina, 340
Mazumdar, Tridib, 314
McAlexander, James H., 289
McAlister, Leigh, 139
McCafferty, Stephen, 340
McCambley, Joe, 371
McCannon, A., 403
McCarthy, E. Jerome, 21
McChesney, Fred S., 315
1015
McClure, James, 315
McClymont, Hoda, 113
McFarland, Richard G., 51, 402
McGovern, Gail J., 138
McIntyre, Douglas, 391
McLean, Piper, 209
McMillon, Doug, 315
McNally, Regina C., 243
McNaughton, Rob, 113
McNeilly, Kevin M., 289
McNicol, Jason Patrick, 51
McNiven, Malcolm A., 20
McPhee, Wayne, 77
McQuitty, Shaun, 289
Meese, Alan J., 340
Meichtry, Stacy, 242
Melewar, T. C., 265
Melirovich, Gavriel, 242
Mercer, David, 78
Meredith, Geoffrey, 208
Merunka, Dwight, 113
Mesquita, Luiz F., 50
Metters, Richard, 339
Miao, C. F., 402, 403
Michel, K., 113
Milano, Dan, 372
Miles, Raymond E., 65, 66
Miller, Kenneth E., 182, 264
Min, Sungwook, 265
Miniard, Paul W., 21
Mintzberg, Henry, 73, 78
Miquel, Salvador, 182
1016
Mirchandani, Rohan, 138
Mirza, Y. H., 402
Mitchell, Mark Andrew, 209
Mithas, Sunil, 139
Mitra, Sounak, 139
Mittal, Vikas, 138
Mittelman, Melissa, 183
Mizokami, Kyle, 182
Mol, Michael J., 182
Molinillo, Sebastian, 264
Moller, Kristian, 50
Monga, Alokparna Basu, 265
Monllos, Kristina, 22
Monroe, Kent B., 314
Monteiro, Carlos M. F., 50
Montgomery, Alan L., 138
Montgomery, Alexandra, 182
Mooth, Rob, 242
Moreau, C. Page, 210, 243
Morgan, Lisa, 138
Morgan, Michael S., 289
Morgan, Neil, 21
Morgan, Neil A., 138
Morgeson, Forrest V., III, 139
Morrison, Denise, 240
Mosley, Richard W., 77
Mottl, Judy, 265
I-8
Mourali, Medhi, 289
Moutot, Jean Michel, 113
Mowen, John C., 289
Mucha, Zofia, 401
1017
Muir, C., 403
Mukharya, Prerna, 136
Mukherjee, Avinandan, 138
Mulki, J. P., 403
Muniz, Albert M., Jr., 242
Munoz, Oscar, 279, 280, 281
Murphy, Patrick E., 51
Murray, Janet Y., 182
Murray, Lynn, 289
Murthy, D. N. P., 265
Musk, Elon, 152, 153, 225
N
Nadeem, Mohammed M., 182
Nagle, T., 402
Naito, Masa K., 315
Nambisan, Priya, 265
Nambisan, Satish, 265
Nancarrow, Clive, 182
Nath, Prithwiraj, 138
Naumann, Earl R., 183
Neeleman, David, 62, 69
Neff, Jack, 210, 242
Nelson, Jack, 52
Nelson, Michelle R., 51
Neslin, Scott A., 314
Netemeyer, Richard G., 314
Neu, Wayne A., 183
Newell, S. J., 402
Newman, Daniel, 209
Ng, Hwei Ping, 112
1018
Nguyen, Bang, 264, 265
Nguyen, Thi Mai, 112
Niederhoffer, Kate, 242
Niezen, Carlos, 51
Nix, Nancy, 339
Noble, Charles H., 372
Noble, Stephanie M., 372
Noor, Muhammad A., 242
Norris, D. T., 402
Nudd, Tim, 78
Nurmilaakso, Juha Mikka, 183
O
O’Cass, Aron, 264
O’Connor, Gina Colarelli, 314
Ohta, Hiroshi, 315
Ojala, Marydee, 182
Olenski, Steve, 78, 79
Olson, Eric M., 51, 77
O’Marah, Kevin, 338
Orji, Jessica, 399
Ortega, Blanca Hernandez, 183
Orth, Ulrich R., 265
Owusu, Richard A., 50
P
Padmanabhan, V., 208
Paek, Hye-Jin, 51
Paellmatier, Robert W., 51
Palmatier, R. W., 402
1019
Palumbo, Frederick A., 209
Pancras, Joseph, 339
Pant, S., 183
Paparoidamis, Nicholas G., 182, 183
Parasuraman, A., 78, 278, 282, 283, 290
Pardo, C., 402
Park, J. E., 403
Parker, Robert P., 182
Pasquarelli, Adrianne, 403
Patelli, Lorenzo, 51
Pati, Niranjan, 242
Patterson, Paul G., 181, 209
Pattikawa, Lenny H., 243
Patton, Leslie, 338
Paulssen, Marcel, 182
Payan, Janice M., 51
Pearson, Ann, 181
Pearson, J. Michael, 181
Pekkarinen, M., 402
Pennanen, Kyosti, 340
Peppers, Don, 12, 21, 210
Perrin, Andrew, 372
Petersen, J. Andrew, 21, 209
Petersen, Kenneth J., 243
Peterson, Haley, 315
Peterson, Hayley, 78, 338
Peterson, R. M., 402
Peterson, Tim, 209
Pettijohn, C. E., 403
Pettijohn, L. S., 403
Phan, Phillip, 50
Phau, Ian, 265
1020
Phelps, Michael, 272
Phelps, Stan, 21
Picchi, Aimee, 113
Piercy, Nigel F., 210, 345, 403
Pigato, Joseph, 21
Pinheiro, Maria Teresa, 371
Plank, R. E., 402
Plaskitt, Sarah, 209
Plumer, Brad, 113
Polcha, Andrew E., 78
Polo-Redondo, Yolanda, 314
Ponder, Nicole, 182
Pons, Frank, 289
Pope, Kevin, 96
Popescu, Ioana, 314
Porter, Michael E., 56, 57, 64, 65, 66, 68, 69, 77, 201, 202, 203, 210, 293, 299,
317
Potter, Robert F., 372
Powell, Guy R., 132
Powell, Shaun, 20
Powers, Thomas L., 51, 210
Prebble, Dean Richard, 243
Proctor, Bernadette D., 209
Proença, Joäo F., 113
Prospero, Michael A., 77
Prothero, Andrea, 51
Pu, Pearl, 340
Pullig, Chris, 314
Pungkanon, Kupluthai, 242
Purohit, Devarat, 242
Putrevu, Sanjay, 209
Puzakowa, Marina, 265
1021
Q
Quade, Michael, 183
Quelch, John A., 138
R
Rabiser, Rick, 242
Rabjohn, Neil, 340
Ragatz, Gary L., 243
Raghunathan, Rajagopal, 242
Rai, Saritha, 139
Raj, S. P., 314
Rajguru, G., 402
Ralph, David L., 210
Ralston, Roy W., 314
Ramanathan, Suresh, 265
Ramani, Girish, 21
Ramaseshan, B., 264
Ramaswami, S. N., 403
Ramdas, Kamalini, 242
Randall, Taylor, 242
Rangaswamy, Arvind, 371
Ranger, Steve, 113
Rao, Akshay R., 182
Rao, Ramesh K. S., 20
Rauyruen, Papassapa, 182
Raven, Bertram, 326, 339
Ravichandran, T., 183
Raymond, M. A., 403
Reed, Americus, II, 181
Rego, Lopo L., 22
1022
Reichheld, Frederick F., 77, 116, 137
Reinartz, Werner, 138
Reinertsen, Donald, 233, 243
Reingen, Peter H., 78
Reis, Dayr, 242
Rella, Emily, 339
Reuter, Joseph, 71
Reyes-Moro, Antonio, 182
Reynolds, N. L., 113
Richard, James E., 138
Richardson, L. D., 402
Ricks, J. M., Jr., 403
Rindfleisch, Aric, 314
Ringland, Gill, 210
Robinson, Jennifer A., 372
Robinson, L., Jr., 402
Rocereto, Joseph F., 265
Roderick, Leonie, 20
Rodgers, Aaron, 202
Rodgers, Shelly, 209
Rodriguez, Eric, 51
Rodriguez, Julio, 51
Rodriguez-Aguilar, Juan A., 182
Rodriguez-Escudero, Ana Isabel, 208
Rodriguez-Pinto, Javier, 208
Rogers, Charlotte, 20
Rogers, Martha, 12, 21, 210
Rogers, Robert A., 113
Rohleder, Thomas R., 289
Rokkan, Aksel I., 338
Romaniuk, Jenni, 181
Roos, Inger, 77, 208
1023
Roren, T., 265
Rosa, Jose Antonio, 209
Rosenbloom, Bert, 339
Roskos-Ewoldsen, David R., 181
Rossman, J., 402
Roster, Catherine A., 113, 208
Rotfeld, Herbert Jack, 113
Roth, Martin S., 372
Rowley, Jennifer, 338
I-9
Rudelius, William, 224
Rukstales, Brad, 139
Rundh, Bo, 265
Rust, Roland T., 77, 78, 139
Rutherford, Brian N., 182
Rutz, Oliver J., 371
Ryan, Maxwell, 340
Ryan, Tom, 340
S
Sa Vinhas, Alberto, 339
Sabol, Barry, 289
Sacks, Danielle, 372
Salle, Roberrt, 21, 338
Samuelsen, Bendik M., 183
Sanchez-Franco, Manuel J., 314
Sandhu, Maqsood, 50
Saqib, Najam, 265
Sarial-Abi, Gulen, 264
Sarigollu, Emine, 265
Sasser, W. Earl, Jr., 271, 274
1024
Sauer, Nicola E., 182
Sauers, Dale G., 340
Saunders, John, 243
Saunders, Paula M., 20
Savin, Sergei, 315
Sawhney, Mohanbir, 78, 137, 138
Schaafsma, Sjoerd, 338
Schaninger, Charles M., 209
Schau, Hope Jensen, 242
Schawbel, Dan, 21, 210
Scheer, Lisa K., 51, 402
Schewe, Charles D., 208
Schilli, Bruno, 182
Schindler, Pamela S., 90, 105
Schindler, Robert M., 315
Schlesinger, Leonard A., 271, 274
Schmidt, JoAnn, 113
Schmidt, Stacy M. P., 210
Schouten, John W., 289
Schroeder, Jonathan E., 113
Schubert, Petra, 183
Schultz, Don E., 139
Schultz, E. J., 181, 210
Schweidel, David A., 210
Seetharaman, P. B., 208
Seggie, Steven H., 22
Seiders, Kathleen, 315
Seiffert, Don, 244
Selipsky, Adam, 59
Semaan, Rania, 183
Sen, Sankar, 209
Sengupta, Sanjit, 264
1025
Seres, Silvija, 371
Sethi, Rajesh, 243
Setijono, Djoko, 242
Shankar, Venkatesh, 372
Shaoming, Z., 403
Shapiro, Benson P., 197
Sharma, Arun, 21, 402
Sharma, Bishnu, 78
Sharma, Ram, 289
Shaver, Eric F., 265
Shaw, Keith, 243
Shay, Jeffrey P., 51
Sheehan, Brian, 372
Shen, C. Y., 183
Shervani, T. A., 402
Sheth, Jagdish N., 21, 402
Shine, Conor, 289
Shiv, Baba, 314
Shocker, Allan D., 208
Shoemaker, Robert, 243
Shueh, Jason, 138
Shugan, Steven M., 51, 401
Shughart, William F., II, 315
Shukla, Nagesh, 183
Sichtmann, C., 402
Siefo, George, 403
Sierra, Jeremy J., 289
Silver, Jon, 181
Simanis, E., 52
Simintiras, A. C., 113
Sinclair, Janas, 401
Singh, Jagdip, 289, 403
1026
Singh, Vishal, 315
Sinha, Indrajit, 314
Sinha, P., 402
Sirdeshmukh, Deepak, 289
Sirgy, M. Joseph, 182
Siseth, Pal R., 183
Sisodia, Rajendra S., 21
Sjodin, Henrik, 243
Skiera, Bernd, 138, 372
Skinner, L., 402
Slater, Robert, 78
Slater, Stanley F., 51, 77
Slavin, Stephen, 165
Slotegraaf, Rebecca J., 265
Smale, Thomas, 339
Smalley, Karen, 21
Smidts, Ale, 112
Smith, Aaron, 340
Smith, Alan D., 340
Smith, Amy K., 289
Smith, Andrew N., 372
Smith, Denis, 78
Smith, Devlin, 340
Smith, H. L., 402
Smith, J. Brock, 243
Smith, Jeremy, 20
Smith, Jessica, 209
Smith, Todd, 67
Snow, Charles C., 65, 66
Soares, Joao Oliveira, 50
Soergel, Andrew, 340
Sok, Phyra, 264
1027
Solem, O., 265
Solomon, Micah, 21
Soni, Phalguni, 183
Sood, Suresh, 264
Sorescu, B., 243
Southwick, Ron, 78
Souza Fontan, Mariadel Mar, 243
Spanjol, Jelena, 243
Spann, Martin, 372
Sparrow, Nick, 113
Speed, Richard J., 314
Spink, Amanda, 340
Srinivasan, Kannan, 138
Srinivasan, Raji, 139
St. James, Yannik, 289
Staelin, Richard, 401
Stagg, Chris, 243
Stamps, M. B., 402
Stan, Simona, 289
Stanley, Sarah M., 181
Steadman, Jim, 401
Stebbins, Samuel, 402
Steenkamp, Jan-Benedict E. M., 402
Stein, Liad, 21
Sterling, Jay U., 210
Stewart, David W., 20
Stewart, Jack, 242
Stock, Ruth Maria, 21
Stokes, David, 113
Stride, Helen, 264
Stuyck, Jules, 315
Sudhir, K., 339
1028
Suh, Jaebeom, 401
Sullivan, Chris T., 289
Sullivan, P., 181
Sullivan, Ursula Y., 208
Sun, Baohong, 314
Surowiecki, James, 338
Suter, Tracy A., 265
Svahn, Senja, 50
Swan, J. E., 402
Swant, Marty, 403
Swift, Ronald S., 116, 137
T
Takeuichi, Riki, 51
Tam, J. L. M., 402
Tamilla, Robert D., 339
Tanenbaum, Michael, 209
Tanna, Shreyas, 112
Tanner, Christian, 183
Tansuhaj, Patriya, 78
Tapp, Alan, 113
Tayles, Mike, 315
Taylor, A. J., 403
Taylor, Kate, 339
Taylor, Ronald D., 182
Taylor, Shirley F., 289
Teich, Ira, 209
Tellis, Gerald J., 242
Terryn, Evelyne, 315
Terwiesch, Christian, 243, 315
Theodosiou, M., 50
1029
Thiagarajan, Palaniappan, 182
Thilenius, Peter, 339
Thirkell, Peter C., 138
Thomas, Jacquelyn S., 138, 208
Thomke, Stefan, 233, 243
Thorpe, Daniel, 139
Threewitt, Cherise, 210
Tiainen, Tarja, 340
Tichy, Noel, 78
Tierney, Jim, 79, 289
Tilbury, Aad Van, 51
Till, Brian D., 181
Timberlake, Cotton, 21
Tinson, Julie, 182
Tischler, Linda, 79
Todd, Sarah, 209
Treleaven-Hassard, Shiree, 372
Trivedi, Minakshi, 289
Trotter, Cody, 77
Trusov, Michael, 371
Tsai, Ming-tiem, 181
Tsao, Hsiu-Yuan, 264
I-10
Tse, David K., 314
Tucci, Linda, 78
Turner, Gregory B., 209
Turner, Marcia Layton, 340
U
Ulrich, Karl T., 243
Ulukaya, Hamdi, 327, 339
1030
Ulutas, Alptekin, 183
Ulwick, Anthony W., 242
Urban, Glen L., 243, 401
V
Van Auken, Stuart, 209
Van Bruggen, Gerrit H., 112
Van Den Butte, Christophe, 243
Van der Stede, Wim A., 181
van Dyck, Tom, 315
Vanhuele, Marc, 314
Varadarajan, P. Rajan, 78, 339, 371
Varan, Duane, 372
Vargas, Vicente, 339
Vargo, Stephen L., 21, 208, 242, 289, 318
Varinsky, Dana, 112
Vaught, Bobby C., 339
Verbeke, Willem J. M. I., 210, 402
Vergara, Sofia, 95
Verhoef, Peter C., 77, 138, 183, 209
Verhoeven, Piet, 51
Veríssimo, José Manuel Cristóvão, 371
Verwaal, Ernst, 243
Vetter, William, 51
Viardot, Eric, 264
Vijayan, Jaikumar, 138
Vilcassim, Naufel J., 338
Villanueva, Julián, 138
Villarejo-Ramos, Angel F., 314
Vinod, Ben, 315
Viswanathan, Madhubalan, 209
1031
Viswanathan, Siva, 315
Volpp, Kevin G., 181
Voss, Glenn B., 315
Vriens, Marco, 22
W
Waaser, E., 402
Walker, Beth A., 78
Walker, Rob, 403
Wallendorf, Melanie, 208
Walton, Sam, 25
Wambui, Caroline, 399
Wang, Guangping, 314
Wang, Hui-Ming Deanna, 264
Wang, Jeff, 208
Wangenheim, Florian V., 209
Want, Chung-Yu, 265
Wardlaw, Christian, 242
Wathne, Kenneth H., 338
Watson, Tom, 51
Waxman, Olivia, 209
Weaver, Dianne Altman, 113
Webster, Frederick E., Jr., 22, 339, 371
Wedel, Michel, 138
Weeks, W. A., 403
Wehmeyer, Kai, 113
Weihrich, Hans, 70
Weinberger, Joshua, 113
Weinmann, K., 402
Weinstein, Mindy, 21, 338
Weissel, M., 402
1032
Welch, Jack, 63
Wells, William D., 209
Wetzels, Martin, 113
Wheelen, Thomas H., 64, 70, 77, 78, 210
Wheeler, David, 77
Whipple, Thomas W., 289
White, J. Chris, 78, 339, 371
White, Joseph B., 181
White, Katherine, 182
Wieczner, Jen, 51
Wiedmann, Klaus-Peter, 265
Wierenga, Berend, 112
Wiersema, Fred, 13, 21
Wiesel, Thorsten, 138
Wiesenfeld, David, 242
Wilbur, Kenneth C., 138
Williams, Alex, 209
Williams, J. A., 403
Williams, Jasmine E. M., 50
Williams, Jerome D., 181
Williams, Patti, 210
Williams, Paul Jeremy, 183
Williamson, Nicholas C., 339
Wilson, R. Dale, 113
Wiman, Alan R., 315
Winchester, Maxwell, 181
Winfrey, Graham, 372
Woldjynski, Bartosz W., 371
Wolffle, Ralf, 183
Wong, Veronica, 243
Wong, Y. J., 402
Wood, Charles M., 208
1033
Wood, Stacy L., 243
Woodall, Regina D., 78
Woodside, Arch G., 264
Workman, John P., Jr., 210
Worthy, Sheri Lokken, 182
Wu, Yaozhong, 314
Wyner, Gordon A., 113, 210, 402
Y
Yang, Moonhee, 181
Yani-de-Soriano, M. Mirella, 182
Yates, Scott, 210
Yavas, Ugar, 371
Ying, Yu, 265
Yip, George S., 51
Yongjian, Chen, 372
Yoo, Boonghee, 339
Young, Laurie, 210
Young, Robert B., 289
Young, S. Mark, 181
Yu, Seongjae, 77
Z
Zabin, Jeff, 78, 137, 138
Zaccour, Georges, 265, 401
Zacharia, Zach, 339
Zaczkiewicz, Arthur, 290
Zeithaml, Valarie A., 77, 78, 139, 275, 278, 282, 283, 290
Zhan, Ge, 265
Zhang, Benjamin, 242
1034
Zheng, Yu-Sheng, 289
Zhu, Yi, 138
Zielke, Stephan, 314
Zinkhan, George M., 113
Zinser, Brian A., 289
Zmuda, Natalie, 138
Zoltners, A. A., 402
Zubcsek, Peter Pal, 372
Zwick, Detiev, 113
1035
I-11
SUBJECT INDEX
A
Abuse of information, 118
Acceleration effect, 165
Accumulating bulk, 321–322, 323
Achievers, 195
Action plans or programs, 60, 72
Activities, interests, and opinions (AIO), 143
Adaptability, 73
Additions to existing product lines, 228
Administered VMS, 325
Adoption process, 236
Advertising, 375–380
AIDA, 348
approaches to advertising execution, 378
brand-specific keyword searches, 129
company website, 380
creative agency, 379–380
defined, 343
global markets, 41
influencing factors (exhibit 13.4), 345
media choices, 378, 379
opinion leaders, 153
pros/cons, 346
types, 376–377
1036
world’s most effective advertisers, 375
Advertising agencies, 269
Advertising execution, 378
Advertising media, 378, 379
Advertising response function, 376
Advertising wearout, 376
Aesthetics, 259
African Americans, 191
Afro Sheen, 191
Age segmentation, 188
Agent intermediaries, 319
AIDA model, 347–349. See also Hierarchy of effects (AIDA) model
AIO. See Activities, interests, and opinions (AIO)
Airline strategic alliances, 34
Alderfer’s ERG theory, 145
Alexa, 102
Allowance, 306–307, 382
Alpha testing, 234
AMA. See American Marketing Association (AMA)
Amazon Dash, 288
Amazon Echo, 234
Amazon Prime, 288
Ambient rain shower panels, 218
America. See United States
American consumer satisfaction index (ASCI), 287
American Heart Association, 277
American Marketing Association (AMA)
code of ethics, 45
definition of brand, 247
definition of marketing, 6
Intellectual Agenda 1.0, 8
7 Big Problems in Marketing, 8
1037
American Stroke Association, 277
Analyzer, 66
Analyzing the data, 104–105
Animation/animal advertising, 378
Ansoff’s product-market matrix, 71
Apple iPad, 231
Apple Newton, 213
Apple Watch, 219, 220
Appliance companies, 95
ASCI. See American consumer satisfaction index (ASCI)
ASEAN, 32
Ask the Storybots, 231
Aspirational purchase, 152
Assurance, 283
Attitude, 144–145
Attitude-based choice, 159
Attribute-based choice, 159
Attribution, 129
Auction pricing, 304
Automobile dealers, 150, 160
Average-cost pricing, 305–306
Awareness set, 158
Axe product line, 189, 253
B
B2B market, 162, 163. See also Business market
B2C market, 163. See also Consumer market
Baby boomers, 189–190
Baby bust generation, 190
Babycenter.com, 333
Bait and switch, 310
1038
Bally’s Las Vegas, 272
Banner ads, 352, 353
Bargaining power of buyers, 68, 81
Bargaining power of suppliers, 69, 81
BCG matrix approach, 61–62
Behavioral data, 101
Behavioral segmentation, 196
Beliefs/values, 144–145
Believers, 195
Benefish Grill, 278
Benefit, 55
Benefits (nonfinancial rewards), 396, 397
Benefits sought, segmentation by, 196
Beta testing, 234
Bicycle manufacturers, 219
Big Data, 120–124
business systems, 122–123
commercial entities, 124
defined, 120
four “Vs,” 120
government agencies, 124
Internet-connected devices, 123–124
marketing analytics, 128–130
mobile apps, 124
social media, 123
sources, 122–124
structured/unstructured data, 120–121
Big M Marketing vs. little m marketing, 15–16
BlackBerry, 249
Blog, 357
Blue, 160
Bolivia, 28
1039
Bonuses, 396, 397
Boston Consulting Group (BCG) growth-share matrix, 61–62
Boston sports fan, 154
Bounce fabric softener sheets, 260
Brand, 246–265
boundaries of branding, 248–249
co-branding, 256
defined, 247
example marketing plan, 84
family branding, 253
global strategy, 38
labeling, 260
licensing, 256
most valuable brands in world, 251
national, 253–255
online brand communities, 365–366
packaging, 257–260
roles, 247–248
stand-alone, 253
store, 256
warranties, 261
Brand assets, 250
Brand association, 250
Brand awareness, 249
Brand connections, 252
Brand education, 247
Brand equity
benefits of, 250–253
brand connections, 252
brand loyalty, 249–250, 252–253
defined, 249
dimensions, 249–250
1040
perceived quality, 250, 251–252
Brand extension, 255
Brand identity, 249
Brand loyalty, 249–250, 252–253
Brand sponsor, 252, 253
Branded mobile apps, 359–360
Branding decisions, 253–256
Branding strategy, 247
Breaking bulk, 321
Bureau of Labor Statistics, 124, 267
Business case analysis, 233
Business education, 276
Business function sites, 177
Business goods, 216–217
Business market
buying center, 167–169
buying situations, 166–167
complexity of buying process, 164
consumer market, contrasted, 163
customer, relationship with, 163–164
diversity of businesses, 169
e-commerce, 334
e-procurement, 177
geographic concentration, 164
government, 171
institutions, 171
manufacturers, 169–170
market testing, 236
marketing segmentation, 197–198
NAICS, 169, 170
number of size of customers, 164
product demand, 164–165
1041
purchase decision. See Business market purchase decision process
resellers, 170–171
I-12
supply chain, 164
technology, role of, 177
variable pricing, 303
Business market purchase decision process, 171–177. See also Business
market
define the need and product specifications, 172–173
financial analysis, 175
making the purchase decision, 174–176
personal and organizational factors, 176
post-purchase evaluation, 176–177
problem recognition, 172
product selection, 174–176
request for proposal (RFP), 173
sales proposals, 174
search for suppliers, 174
service criteria, 175
steps in process (exhibit 6.14), 172
supplier choice, 175–176
value criteria, 175
Business market segmentation, 197–198
Business product market test, 236
Business-related legislation, 97
Business-to-business (B2B) e-commerce, 334
Business-to-business (B2B) market, 162, 163. See also Business market
Business-to-consumer (B2C) e-commerce, 332–333
Business-to-consumer (B2C) market, 163. See also Consumer market
Buying center, 167–169
Buzz, 383
Buzz marketing, 363
1042
Buzzwords, 5
C
Cable/telecommunications industry, 301
Caesars Palace, 272
Candy bars, 308
Cannibals with Forks: The Triple Bottom Line of 21st Century Business
(Elkington), 46
Capital equipment, 170
Capital equipment purchase, 168, 170
Capital goods, 217
Captive pricing, 301
Car dealers, 150, 160
Carrabba’s Italian Grill, 278
Carrier air conditioners, 218
Cartwheel, 124
Case studies. See Management decision cases
Cash Cows, 62
Cash discount, 306–307
Category extension, 253, 255
Causal research, 100
Cell phone manufacturers/service providers, 220
Census, 102, 103
Census Bureau. See U.S. Census Bureau
Census data, 124
Centralization, 36
CFO. See Chief financial officer (CFO)
Change drivers, 12–17
Big M Marketing vs. little m marketing, 15–16
generational shifts, 14
information power, 13–14
1043
product glut and customer shortage, 13
relevance/payback of marketing investment, 16–17
Channel captain, 325
Channel conflict, 325
Channel control and adaptability, 327–328
Channel discounts and allowances, 306–307
Channel leader, 325
Channel of distribution, 319. See also Marketing channels
Channel power, 325–326
Chief financial officer (CFO), 168
China
coverage of consumer market, 40
free flow of information, 107
GDP, 28
reading/writing character symbols, 109
Chipotle, food-borne illness outbreaks, 318
Chocolate bars, 308
ChristianMingle, 200
Classical conditioning, 147
Classy Curl, 191
Clayton Act, 309, 330
Clearasil, 198
Clickstream data, 122
Closed-ended question, 102
Closing the sale, 391
Cloud database, 106
CloudCab example marketing plan, 80–86
competitive environment, 81
contingency planning, 86
first-year budget, 85
implementation, 85–86
integrated marketing communications (IMC) strategies, 85
1044
internal environment, 82
macro-level external environment, 80–81
market research, 83
market segmentation, 83
marketing control and metrics, 86
marketing goals and objectives, 83
marketing mix strategies, 84
marketing strategies, 83–85
positioning, 84
pricing strategies, 84
product/branding strategies, 84
service strategies, 84
situation analysis, 80–82
supply chain strategies, 84
SWOT summary/analysis, 82
target marketing, 83–84
CLV. See Customer lifetime value (CLV)
CNET.com, 154, 357, 365
Co-branding, 256
Code of conduct, 45
Code of ethics, 45
Coercive power, 326
Cognitive learning, 147
Coke bottle designs, 257
Coke’s contour bottle, 257
Cold medicine, 150
Collaborative filtering, 129
College business courses, 276
Colombia, 28
Color, 259
Commission, 396, 397
Company brand roles, 248
1045
Company buying sites, 177
Company website, 355–357
Comparative advertising, 377
Competitive Advantage (Porter), 56, 203
Competitive advertising, 377
Competitive environment, 68–69, 81
Competitive strategy, 64–65
Competitive strategy matrix, 66
Competitor-based pricing, 297
Competitor brand roles, 248
Complaints, 162
Complementary pricing, 301
Complete set, 157
Concentrated target marketing, 201
Concentration strategy, 64
Conditioning, 147
Conformance, 220
Conformance quality, 218, 220
Confused positioning, 204
Connection, 200
Consideration (evoked) set, 158
Consumer adoption and diffusion process, 236–238
Consumer decision-making process, 155–162. See also Consumer market
evaluation of alternatives, 158–159
post-purchase assessment, 160–162
problem recognition, 156
product choice decision, 159–160
search for information, 156–158
steps in process (exhibit 6.6), 156
Consumer goods, 216
Consumer Goods Pricing Act, 309, 310
Consumer market
1046
attitude, 144–145
business market, contrasted, 163
cultural factors, 148–150
decision making. See Consumer decision-making process
e-retailing, 332–333
external factors, 148–154
family, 151
gender, 143–144
global marketplace, 37–39
internal forces, 141–148
involvement, 154–155
learning, 147
life cycle stage (age), 143
lifestyle, 143
market testing, 235–236
motivation, 144, 145
occupation, 143
opinion leaders, 152–153
overview (exhibits 6.1, 6.9), 142, 163
perception, 145–147
personal characteristics, 141–144
personality, 148
psychological attributes, 144–148
purchase decision. See Consumer decision-making process
reference groups, 153–154
situational factors, 150
social class, 151–152
social factors, 151–154
Consumer product adoption chart, 237
Consumer product adoption process, 237
Consumer product market tests, 235–236
Consumer Reports, 55, 158
1047
Consumer sales promotion options, 381
Consumer satisfaction/dissatisfaction, 161–162
Consumer’s Union, 158
Consumersearch, 365
Content filtering, 129
Contests and sweepstakes, 381
Contingency planning, 72, 86
Contractual agreements, 34–35
Contractual VMS, 324–325
Convenience goods, 216, 327
I-13
Convenience leadership, 204
Cooperative advertising and promotion, 382
Core competencies, 65
Core personality traits, 148
Core product, 214, 215
Corporate code of ethics, 45
Corporate-level strategic plan, 60
Corporate responsibility, 46
Corporate VMS, 324
Cost-based price, 42
Cost leadership, 65, 293, 299, 309
Cost per click, 350
Cost per impression, 350
Cost-plus pricing, 305
Cost reduction, 228
Cote d’Ivoire, 29
Cotton Incorporated, 376
Counterfeit products, 249
Country of origin, 38–39
Country-of-origin effect, 38
Coupons, 381
1048
Courtyard Marriott, 300
Creating assortments, 322
Credence attributes, 276
Credit cards, 160
Crest + Scope Outlast, 256
Crest toothpaste, 255
Crest Whitestrips, 218
Crisis management, 383–384
CRM. See Customer relationship management (CRM)
Crowding, 160
Cultural values, 144, 149
Culture, 148
Customer acquisition, 115
Customer advocacy, 273
Customer brand roles, 247–248, 249
Customer-centric, 11, 272
Customer-centric culture, 118–119
Customer communities, 334
Customer delight, 277
Customer expectations, 273
Customer expectations management, 273, 298
Customer lifetime value (CLV), 116
Customer loyalty
customer relationship management (CRM), 115
customer retention, 56
Customer loyalty programs, 126
Customer mind-set, 119, 272
Customer orientation, 11, 119
Customer profitability, 115
Customer relationship management (CRM), 12, 115–120
analysis and refinement, 117
Caesars Entertainment, 274
1049
customer-centric culture, 118–119
customer interaction, 117
dark side of CRM, 117–118
defined, 115
knowledge discovery, 116–117
marketing analytics, 128
marketing planning, 117
objectives, 115
post-purchase assessment, 161
process cycle, 116–117
uses, 92
Customer retention, 56, 115, 273
Customer ripoffs, 299
Customer satisfaction, 55, 115, 273–274
Customer service, 391
Customer Service Hall of Fame, 391
Customer switching, 56
Customer touchpoints, 116, 117–118
Customization of services, 270
Customized (one-to-one) target marketing, 201
Czech Republic
business customs, 28
Velvet Revolution, 29
willingness to respond, 108
D
Dashboard metrics, 130–131
Data accessibility, 108
Data analysis, 104–105
Data collection, 101, 104
Data comparability, 108
1050
Data dependability, 108
Data mining, 116
Data warehouse, 116
Database marketing, 117, 274
DD Perks, 294
Deaf Singles, 200
Debit card, 160
Decentralization, 36
Deceptive pricing, 310
Deciders, 168
Decision-making authority, 36
Decline phase, 224, 226, 227
Deep-discount retailers, 192
Defender, 66
Degree of affiliation, 154
Degree of centralization, 36
Delightful surprise, 277
Demographic factors, 67
Demographic segmentation, 188
Demographics, 94–95, 142
Demonstration advertising, 378
Department of Commerce, 108
Derived demand, 165
Descriptive analytics, 125–126
Descriptive research, 100
Desirability, 154
Dettol, 198
Developed economies, 29
Diagnostic analytics, 126
Differentiated target marketing, 200–201
Differentiation
competitive strategy option, as, 65
1051
defined, 186
differentiated target marketing, 200
positioning, 203–204
product discrimination, 217–221
service, 267
Differentiation orientation, 11
Diffusion of innovations, 237–238
Digital advertising, 351–354
banner ads, 352, 353
benefits, 351–352
defined, 351
display ads, 352–353
interstitials, 352
native ads, 354
retargeting, 353
search ads, 353
social network ads, 354
Digital and social media marketing, 350–366
AIDA, 348
defined, 343
digital advertising, 351–354
e-mail, 354–355
effectiveness, 366
mobile marketing, 358–360
online brand communities, 365–366
organizational website, 355–357
product and service review sites, 365
pros/cons, 346, 379
search engine optimization (SEO), 357–358
social networks, 360–363
types of social media, 360–366
viral marketing, 363–364
1052
Digital marketing, 350
Dimensions of service quality, 282–283
Direct channel, 321
Direct foreign investment, 35–36
Direct mail advertising, 379
Direct marketing, 116
Direct product extension, 37
Direct sales force, 34
Discounts, 306–307
Disintermediation, 323–324
Display ads, 352–353
Disruptive innovation, 228
Dissonance, 161
Distinctive competencies, 65
Distribution and product life cycle, 227
Distribution channels. See Marketing channels
Distributor, 34, 320
Diversification strategies, 71
Diversification strategy, 64
Dodd-Frank Wall Street Reform and Consumer Protection Act, 97
Dogs, 62
“Doing well by doing good,” 46
Dollar menus (fast-food restaurants), 192
Doritos, 147, 377
Doubtful positioning, 204
Dove, 253
Dumping, 42
Durability, 215, 218, 220
Durable products, 215
E
1053
E-commerce, 331–334
E-mail, 354–355
E-procurement, 177
E-retailing, 332–334
E-survey, 101
E-tailing, 332
Early adopters, 237, 238
Early majority, 237, 238
Earned media, 351
Economic Census, 103
Economic conditions, 95
Economic environment, 67, 81
EDI. See Electronic data interchange (EDI)
EDLP. See Everyday low pricing (EDLP)
Edmunds.com, 357
Educational segmentation, 193
80/20 rule, 196
Elastic demand, 165
Elasticity of demand, 296
Electronic commerce (e-commerce), 331–334
Electronic data interchange (EDI), 177, 334
Electronic payment methods, 160
Electronic retailing (e-retailing), 332–334
Emerging markets, 29
Emotional choice, 159
I-14
Empathy, 283
End-user consumer channels, 320
End user purchase, 170
Endorser, 378
Energizer Bunny, 378
Energy costs, 96
1054
Engineers, 168
Enhanced product, 214, 215
Enterprise resource planning (ERP) system, 329, 330
Entertainment companies, 344
Environmentally friendly marketing, 7, 67–68
Environmentally friendly products, 161
EpiPen, 296
ERP. See Enterprise resource planning (ERP) system
Essential benefit, 214, 215
Ethics, 43–45
corporate code of ethics, 45
distribution, 44, 45
marketing communications, 44
price, 44, 45
price bundling, 302
product, 44–45
promotion, 45
switching behavior, 273
value proposition, 43–44
Ethnic groups, 95
EU. See European Union (EU)
EU Business Development Center, 108
European Union (EU)
data-rich market environment, 107
freedom of movement between member countries, 95
GDP, 28
regional trade agreement, 30–31
Even pricing, 303
Event sponsorships, 383
Everyday low pricing (EDLP), 304
Exact price, 305–306
Excel (software), 107
1055
Exchange, 7
Exchange rate fluctuations, 42
Exclusive dealing, 330–331
Exclusive distribution, 327
Exclusive territory, 331
Executive Suites, 194
Exotic travel experiences, 192
Experience attributes, 276
Experiencers, 195
Experiential information source, 158
Expert power, 326
Exploratory research, 100
Exporter, 34
Exporting, 33–34
Extensible Markup Language (XML) files, 122
Extensive information search, 156–157
External customer mind-set, 119
External environment, 67–68, 80–81
External information sources, 93–97, 157, 158
External stakeholders, 7
Extranet, 177
Extrinsic rewards, 395
Eye cameras, 102
F
Facebook, 361–362
Facilitating agent, 320
Facilitating functions, 323
Fads, 225
Fair Packaging and Labeling Act, 260
Fair trade laws, 310
1056
Fairfield Inn, 300
Fairmont Kea Lani, 300
Family, 149, 151
Family and household segmentation, 191
Family branding, 253
Family life cycle, 143, 191
Fantasy creation and advertising, 378
FBA services. See Fulfilled by Amazon (FBA) business model
FDA. See Food and Drug Administration (FDA)
Feature, 217, 218
Federal government contracts, 171
Federal Trade Commission (FTC), 260, 309, 310
Federal Trade Commission Act, 330
Female shaver, 190
Festina Watches, 258
Financial analysis, 175
Financial service industry, 270
Firing a customer, 116
Firm culture, 69, 81
Firm leadership, 69
Firm resources, 69, 81
Firm structure and systems, 69, 81
First-mover strategy, 65
Flamingo Las Vegas, 272
Fleming’s Prime Steakhouse & Wine Bar, 278
Flexibility and adaptability, 73
Flexible manufacturing, 201
Flexible work schedules, 395
Floral delivery service, 285
Fluctuating demand, 165, 270
FOB-destination, 308
FOB-factor pricing, 308
1057
FOB-origin, 308
FOB pricing, 308
Focus group, 101, 106
Focus strategy, 65, 201
Follow-up, 391
Food and Drug Administration (FDA), 260
Ford Mustang, 300
Foreign marketing, 27
Form, 217, 218
Form utility, 55
Formalization, 119
4 Ps of marketing, 10
Four “Vs” of Big Data, 120
France
assimilating foreigners into their culture, 95
business customs, 28
labor laws, 28–29
marketing research costs, 107
Franchise organization, 324–325
Franchising, 34–35, 324–325
Frequency, 378
FTC. See Federal Trade Commission (FTC)
Fulfilled by Amazon (FBA) business model, 324
Functional discount, 307
Functional-level plan, 62
G
Galvanometer, 102
Gap analysis, 277–280
Gap model, 277, 278
Garden Fresh Gourmet soups, 221
1058
Gatekeeper, 168
Gatwick Airport, 358
GE Business Screen, 61, 62
GEICO Gecko, 378
Gender roles, 143–144
Gender segmentation, 190–191
General knowledge sites, 104
General warranties, 261
Generation X, 189, 190
Generation Y, 189, 190, 394
Generation Z, 189, 190
Generational cohorts, 189–190
Generational segmentation, 188–190
Generational shifts, 14
Generic price-quality perceptual map, 203
Generic price-quality positioning map, 298–299
Generic strategy, 64
Geodemographic segmentation, 193–194
Geographic changes (migration of people), 95
Geographic segmentation, 187–188
Geographical regions, 37
Geolocation marketing, 359
Germany
business customs, 28
labor laws, 28–29
marketing research costs, 107
GI Generation, 189
Gillette Fusion, 255
Gillette Venus, 190
Global companies, 26
Global experience learning curve, 25–26
Global market channels, 39–40
1059
Global market strategies, 33–42
Global marketing, 27
Global marketing communications, 40–41
Global markets. See International issues
Global product lines, 37
GNP, 95
Go-to-market mistake, 231
Goals, 63
Gourmet restaurants, 192
Government agencies
Big Data, 124
market research, 103
oversight of labeling, 260
purchase decisions, 171
Gray market, 42
Great Britain
labor laws, 29
marketing research costs, 107
Great Recession, 192
Green marketing, 7, 67–68
Green movement, 46
Grocery stores, 151
Growth phase, 224, 226, 227
Growth strategies, 64
Guinness products, 219
H
Handbag and accessories companies, 303
Hánzi, 109
Harrah’s, 272
Hazardous materials, 260
1060
Heinz products, 253, 254
Herzberg’s two-factor theory, 145
Hierarchy of effects (AIDA) model
action, 349
attention, 347–348
desire, 349
interest, 348–349
overview (exhibit 13.7), 347
promotion mix elements, 348
I-15
High-involvement learning, 154
High-involvement purchase, 154
High/low pricing, 304
Hispanics/Latinos, 192
Histograms, 126
Historical overview, 8–11
HLC. See Household life cycle (HLC)
Home assistant, 102
Horizontal price-fixing, 309
House of Cards, 247
Household life cycle (HLC), 151
Humor and advertising, 378
I
IBM SPSS, 107
Image leadership, 204
IMC. See Integrated marketing communications (IMC) strategies
Implementation plan, 72, 85–86
Import fees, 42
Importance-performance analysis matrix, 282
Impulse goods, 327
1061
In-app ads, 360
In-depth interview, 101
Inbound logistics, 328
Inbound telemarketing, 388
Incentives, 396, 397
Income segmentation, 192
India
free flow of information, 107
GDP, 28
official languages, 109
real GDP growth rate, 29
Indirect channel, 321
Individual-level personalization, 130
Industry competition, 68–69
Industry purchasing sites, 177
Industry-sponsored institutional advertising, 376
Inelastic demand, 165
Influencer, 168
Information
abuse of, 118
Big Data, 120–124
external sources, 157, 158
global marketing, 27–29
importance, 89
internal sources, 157
MIS. See Market information system (MIS)
secondary sources, 103–104
Information data services, 103
Information power, 13–14
Information Resources, 103
Information security, 118
InfoScan, 103
1062
Initiator, 167–168
Innovation diffusion process, 237
Innovative leadership, 203
Innovators, 195, 237, 238
Inseparability, 269–270
Institutional advertising, 376–377
Institutions, 171
Instrumental performance, 162
Insurance Industry Charitable Foundation, 204
Intangibility, 269
Integrated marketing communications (IMC) strategies, 85
Intellectual Agenda 1.0, 8
Intensive distribution, 327
Interactive marketing, 343. See also Digital and social media marketing
Intermediaries, 319, 320
Internal customer mind-set, 119
Internal environment, 69, 82
Internal information sources, 91–93, 157
Internal marketing, 272, 347
Internal service quality, 271–272
Internal stakeholders, 6
International channel structure, 39
International issues
brand strategy, 38
business customs, differences in, 28
consumers, 37–39
country of origin, 38–39
emerging markets, 29
essential information, 27–29
fastest-growing world economies, 29
global companies, 26
global experience learning curve, 25–26
1063
global market strategies, 33–42
global marketing, 27
international marketing, 27
language differences, 38
large U.S. global companies, 27
market channels, 39–40
market entry strategies, 33–36
market research, 107–109
marketing communications, 40–41
organizational structure, 36–37
pricing, 41–42
product, 37
quality, 38
regional market zones, 29–32
selecting the global market, 32–33
top 5 economies based on GDP, 28
world’s largest international companies, 25
International joint venture, 34–35
International marketing, 27
International regional market zones, 29–32
Internet
adoption process, 238
e-procurement, 177
e-retailing, 332–333
global markets, 33
information source, as, 104, 333
marketer-customer interaction, 350
online market research tools, 106
product communities, 333
search for suppliers, 174
“Internet and the French Model” commercials, 202
Interstitial, 352
1064
Intrinsic rewards, 395
Introduction phase, 224, 226, 227
Inventory management, 329–330
Investment decisions, 132
Involvement, 154–155
J
“Jake for State Farm” commercials, 202
Japan
business customs, 28
data-rich market environment, 107
GDP, 28
marketing research costs, 107
national values, 144
spending behaviors, 192
values, 148
J.D. Power automobile quality and customer satisfaction rankings, 103
JDate, 200
JIT inventory. See Just-in-time (JIT) inventory control system
JND. See Just noticeable difference (JND)
Jobber, 320
Joint venture, 34–35, 256
Just-in-time (JIT) inventory control system, 329–330
Just-in-time training, 123–124
Just noticeable difference (JND), 308
JW Marriott, 300
K
Kevzara, 387
Key account salespeople, 387
1065
Kickstarter, 180
Kipsu, 70
Knowledge discovery, 116–117
L
Laggards, 237, 238
Landing page, 355
Language, 149
Language comprehension, 109
Language differences, 38
Language translation, 109
Late majority, 237, 238
Lay’s Stax, 295
LDS (Latter-Day Saints) Singles, 200
Learning, 147
Legitimate power, 326
Lendingtree.com, 334
Lexis/Nexis, 106
Libya, 29
Licensing, 34, 256
Lifebuoy, 253
Lifestyle, 143
Lifestyle advertising, 378
Limited information search, 157
Line extension, 253, 255
Line of visibility, 285
LinkedIn, 363
Listerine, 196
Local market conditions price, 42
Location-based targeting, 359
Logistics, 321. See also Physical distribution
1066
London Tax TX 5, 218
Long-term memory, 147
Loss leader products, 310
Low-involvement consumers, 155
Low-involvement learning, 155
Low-involvement purchase, 154
Loyalty programs, 381
Lux, 253
Luxury automobiles, 192
Lysol, 198
M
M-commerce, 358
“Mac vs. PC” advertising campaign, 376
Machine learning techniques, 129
Macintosh PowerBook Duo Tablet (PenLite), 231
Macro-level external environmental factors, 67–68, 80–81
Macroeconomics, 95
Magazine advertising, 379
I-16
Mail survey, 102
Maintenance, repair, operating (MRO) supplies, 170, 217
Makers, 195
Mall of America, 70–71
Management decision cases
Amazon, 287–288
Amex vs. Chase Bank, 206–207
BMW, 111–112
Budweiser, 19–20
Campbell’s Soup, 240–241
Dunkin’ Donuts, 75–76
1067
Intel, 399–400
Nike, 179–180
Oreo, 370–371
Outline India, 136–137
Restoration Hardware, 336–337
surge pricing, 312–313
Unilever, 49–50
Virgin Group, 262–263
Management research deliverable, 98
Manufacturer, 169–170
Manufacturers’ agent, 320
Market channels. See Marketing channels
Market development strategies, 71
Market-driven strategic planning, 60
Market-driving strategies, 16
Market entry strategies, 33–36
contractual agreements, 34–35
direct foreign investment, 35–36
exporting, 33–34
franchising, 34–35
licensing, 34
strategic alliance, 35–36
Market information system (MIS), 89–97
competition, 97
defined, 91
demographics, 94–95
economic conditions, 95
external information sources, 93–97
factors to consider, 91
internal information sources, 91–93
natural world, 96–97
political and legal environment, 97
1068
salespeople, 93
technology transformations, 96
Market maker, 334
Market maven, 153
Market orientation, 11
Market penetration strategies, 71, 227
Market research, 70–71
characteristics of good research, 98
data analysis, 104–105
data collection, 104
defined, 97–98
example marketing plan, 83
global markets, 107–109
importance, 97–98
intermediaries, 323
online research tools, 106
opinion leaders, 153
overview (exhibit 4.1), 90
price changes, 308
problem definition, 98–99
report the findings (research report), 105
research design, 99–103
secondary sources of information, 103–104
statistical software, 107
steps in process (exhibit 4.6), 99
top five market research companies, 98
Market research organizations, 103–104
Market research process, 98–105
Market research technology, 105–107
Market segmentation
age segmentation, 188
behavioral segmentation, 196
1069
benefits sought, segmentation by, 196
business market segmentation, 197–198
defined, 185
demographic segmentation, 188
educational segmentation, 193
effective segmentation, 186–187
example marketing plan, 83
examples of segmentation approaches, 197
family and household segmentation, 191
gender segmentation, 190–191
generational segmentation, 188–190
geodemographic segmentation, 193–194
geographic segmentation, 187–188
income segmentation, 192
occupational segmentation, 192–193
product life cycle, 226
psychographic segmentation, 194–195
race and ethnicity segmentation, 191–192
salespeople, 393
simultaneous use of multiple approaches, 196–197
social class segmentation, 193
underlying logic/principles, 186
usage-based segmentation, 196
Market share, 294
Market skimming, 227
Market testing, 234–236
Marketer information, 158
Marketing
AMA definition, 6
buzzwords, 5
change drivers, 12–17
core objective, 141
1070
database, 117
foreign, 27
fuzzy field, 17
global, 27
historical overview, 8–11
internal, 272, 347
international, 27
misconceptions, 4
one-to-one, 12
public perceptions, 3
purpose, 7
7 Big Problems, 8
societal, 7
stakeholders, 6–7
strategic, 15
tactical, 16
visibility, 3–5
Marketing (Big M), 15, 58
marketing (little m), 16
Marketing accountability, 17
Marketing analyst, 125
Marketing analytics, 125–130
Big Data, 128–130
defined, 125
descriptive analytics, 125–126
diagnostic analytics, 126
examples (exhibit 5.5), 128
increased personalization, 129–130
marketing mix enhancement, 128–129
predictive analytics, 126–127
prescriptive analytics, 127
Marketing channels
1071
channel conflict, 325
channel control and adaptability, 327–328
channel power, 325–326
direct/indirect channel, 321
disintermediation, 323–324
distribution and product life cycle, 227
distribution intensity, 327
e-channels, 323–324
end-user consumer channels, 320
ethics, 44, 45
facilitating functions, 323
global markets, 39–40
organizational channels, 321
physical distribution functions, 321–322
push vs. pull strategy, 328
six Cs of channel strategy, 40
transaction and communication functions, 322–323
vertical marketing system (VMS), 324–325
Marketing communications
ethics, 44
global market, 40–41
intermediaries, 322–323
product, 223
product life cycle, 227
Marketing concept, 10
Marketing control, 71
Marketing dashboard, 130–131
Marketing ethics, 43. See also Ethics
Marketing goals and objectives, 71, 83
Marketing intelligence, 93
Marketing management, 5–6
Marketing metrics, 16–17
1072
Marketing misconceptions, 4
Marketing mix, 10, 11
Marketing mix enhancement, 128–129
Marketing mix strategies, 84
Marketing plan, 17
defined, 58
flexibility/adaptability required, 73
sample plan. See CloudCab example marketing plan
Marketing plan exercises
branding strategy, 264
business market relationships, 181
consumer markets, 180–181
CRM system, 137
distribution channels, 338
identifying critical information, 112
interpersonal communication strategy, 401
marketing plan, 76
new product development, 241–242
pricing your offering, 313
product strategy definition, 241
promotion, 371, 400–401
situation analysis, 77
target markets, 208
Marketing planning
both art and science, 73
competitive environmental factors, 68–69
condensed framework (exhibit 3.2), 60
connect marketing plan to business plan, 60–63
contingency planning, 72
customer relationship management (CRM), 117
defined, 58
I-17
1073
Marketing planning (continued)
external environmental factors, 67–68
implementation plan, 72
internal environmental factors, 69
market research, 70–71
marketing goals and objectives, 71
marketing strategies, 71
ongoing, organic process, 73
organizational mission, vision, and goals, 63
organizational strategies, 64–66
required conditions, 59
situation analysis, 66–70
strategic and tactical, 58–59
success and failures, 73
SWOT analysis, 69–70
tips/guidance, 73
Marketing research. See Market research
Marketing return on investment (MROI), 17
Marketing stakeholders, 6–7, 46
Marketing strategies, 71, 83–85
Markup on cost, 305
Markup on sales price, 305
Maslow’s hierarchy of needs theory, 145
Mass customization, 12, 201
Mass personalization, 129, 130
Materials, 216
Materials, repairs, operational (MRO), 170
Materials requirement planning (MRP), 330
Matrix structure, 37
Maturity phase, 224, 226, 227
MBA programs, 269
McClelland’s achievement motivation theory, 145
1074
Mechanical devices, 102
Mechanical observation, 102
Memory, 147
Merchant intermediaries, 319
Merchant middleman, 320
MERCOSUR, 31–32
Mexico City, 96, 97
Microeconomics, 95
Microsite, 357
Middleman, 320
Migration of people (geographic changes), 95
Miles and Snow’s strategy types, 66
Millennials, 14, 47, 189, 190
Minimal information search, 156
Minimum markup laws, 310
MIS. See Market information system (MIS)
Mission statement, 63
Missionary salespeople, 387
Mizani, 150
Mobile apps, 124
Mobile marketing, 358–360
Modes of transportation (exhibit 12.7), 330
Modifications to existing products, 228
Modified rebuy, 166, 172
Moment of truth, 277, 285
Money and Brains, 194
Mood, 160
Mood/affect advertising, 378
Motivation, 144, 145, 154, 395
Motorcycles, 252
Movie studios, 141
Movie theaters, 141
1075
MRO purchases, 170
MRO supplies, 170, 217
MROI. See Marketing return on investment (MROI)
MRP. See Materials requirement planning (MRP)
Multiattribute model, 145
Multiple-purchase offers, 381
Musical advertising, 378
Myanmar, 29
N
NAFTA (North American Free Trade Agreement), 31
NAICS. See North American Industrial Classification System (NAICS)
NASCAR, 383
National Archives and Records Administration, 106
National Association of State Purchasing Officials, 171
National brands, 253–255
National Do Not Call Registry, 97
National Realtors Association, 108
Native ads, 354
Natural environment, 67–68
Natural resources, 96
Natural world, 96–97
Negative mood states, 160
Nerf Alpha Hawk, 258
Network organization, 318
Network servers, 252
New Market Leaders, The (Wiersema), 13
New product. See New products
New product development process, 229–236
New product ideas, 230–231
New product launch, 236
1076
New products, 227–238
business case analysis, 233
consumer adoption and diffusion process, 236–238
customer perspective, 228–229
defining the product opportunity, 232–233
developing the product opportunity, 233–236
development process, 229–236
estimating total demand, 233
generating new ideas, 230–231
identifying product opportunities, 230–232
marketing strategy, 232–233
“new,” defined, 228–229
I-18
penetration pricing, 294
product launch, 236
product testing, 234
profitability analysis, 233
screening/evaluating ideas, 231–232
success or failure?, 229
testing the market, 234–236
New purchase, 166–167, 172, 233
New-to-the-world product, 228
New York City Traffic Management Center, 120
Newspaper advertising, 379
NGOs. See Nongovernmental organizations (NGOs)
Niche strategy, 65, 201
Nielsen TV ratings, 103
Nike Air packaging, 258
Nike+, 343, 344
Nimble, 318
Nondurable products, 215
Nonfinancial incentives, 396, 397
1077
Nongovernmental organizations (NGOs), 171
Nonprobability sampling, 103
Nonverbal communication, 149
North American Free Trade Agreement (NAFTA), 31
North American Industrial Classification System (NAICS), 169, 170
O
Objectives, 63
Observational data, 102
Occupational segmentation, 192–193
Odd pricing, 303
OECD, 108
OEM. See Original equipment manufacturer (OEM)
Oil companies, 218
Old Spice, 186
Omnichannel retailing, 332
On Great Service (Berry), 267
One-price strategy, 303
One-to-one marketing, 12
oneworld Alliance, 34
Online and social media advertising, 379. See also Digital and social media
marketing
Online brand communities, 365–366
Online clothing retailers, 201
Online database, 106
Online focus group, 106
Online market research tools, 106
Online sampling, 106
Online survey, 104
Online survey companies, 106
OnStar Protection Plan, 220
1078
Open-ended question, 102
Operant conditioning, 147
Opinion leaders, 152–153
Order processing, 329
Organizational buying. See Business market
Organizational channels, 321
Organizational factors, 176
Organizational learning, 117
Organizational mission, 63
Organizational strategies, 64–66
Organizational structure, 36–37
Organizational vision, 63
Organizational website, 355–357
Original equipment manufacturer (OEM), 169–170
Out suppliers, 166
Outback Steakhouse, 278–280
Outbound logistics, 328
Outbound telemarketing, 388
Outdoor advertising, 379
Outsourcing, 324
Outsourcing the sales force, 391
Over-the-counter medicines, 257
Overpositioning, 204
Overpromising and underdelivering, 298
“OVO,” 344
Owned media, 350, 351
Ownership utility, 55
P
Package safety seals, 257
Packaging
1079
aesthetics, 259
color, 259
innovative package designs, 258
objectives, 257–258
part of integrated message and look, 259–260
Paid media, 350, 351
Paris Las Vegas, 272
Partner relationship management (PRM) strategies, 325, 330
Parts, 216
Payment method, 160
Penetration pricing, 294–295
PenLite, 231
Perceived quality, 250, 251–252
Perception, 145–147
Perceptual map, 202–203
Performance quality, 218, 219
Perishability, 270
Personal associations, 158
Personal factors, 176
Personal selling, 384–397
advantages, 384
AIDA, 348
B2C vs. B2B markets, 386
closing the sale, 391
communication, 385
consumer concerns, 389–391
defined, 343, 385
follow-up, 391
global markets, 41
handling objections, 389–391
influencing factors (exhibit 13.4), 345
information management, 385, 386
1080
post-purchase activities, 391
pros/cons, 346
prospecting, 388
qualifying the prospect, 388–389
relationship building, 385, 386
sales force. See Salespeople
sales positions, 386–387
sales presentation, 389, 390
selling, 385, 386
steps in process (exhibit 14.6), 387
Personal selling process, 387–391
Personal space, 149
Personal values, 144
Personality, 148
Personality trait theories, 148
Personalization, 129–130
Personnel leadership, 204
Pharmaceutical companies, 34
Phoenix, Arizona, 96
Photodex ProShow Gold, 104
Physical distribution, 328–330
accumulating bulk and sorting, 321–322
breaking bulk, 321
creating assortments, 322
defined, 321
inventory management, 329–330
order processing, 329
reducing transactions, 322
transportation and storage, 322
transportation management, 330
warehousing and materials handling, 329
Physical surroundings, 160
1081
Pie charts, 126
Pioneering advertising, 377
Place utility, 55
PlayStation Community, 366
PLC. See Product life cycle (PLC)
Point-of-purchase materials, 381
Point-of-sales (POS) system, 122
Political and legal environment, 67, 80–81, 97
Pollution, 97
Ponds, 253
Populations of interest, 94–95
Porter’s generic value chain, 57, 317
Portfolio analysis, 61–62
POS system. See Point-of-sales (POS) system
Positioning, 201–204
common positioning errors, 204
defined, 185
example marketing plan, 84
perceptual maps, 202–203
repositioning, 203
sources of differentiation, 203–204
Positioning strategy, 185
Positive state of mind, 160
Post-it Notes, 221
Post-purchase assessment
business markets, 176–177
consumer markets, 160–162
Post-purchase dissonance, 161
PR. See Public relations (PR)
Pre-Industrial Revolution, 8
Pre-marketing concept approaches, 11–12
Predatory pricing, 310
1082
Predictive analytics, 126–127
Preferred state, 156
Premiums, 381
Prescription bottles, 257
Prescriptive analytics, 127
Prestige pricing, 302–303
Price. See Pricing
Price bundling, 301–32
Price changes, 308–309
Price discrimination, 309–310
Price elasticity of demand, 296
Price-fixing, 309
Price leadership, 204
Price lining, 299, 300
Price points, 300
Price-quality positioning map, 298–299
Price sensitivity, 296
Price skimming, 295–296
Price war, 297, 309
Pricing, 292–315
auction, 304
average-cost, 305–306
captive, 301
channel discounts and allowances, 306–307
competitor-based, 297
cost-plus, 305
elements of pricing decisions (exhibit 11.1), 294
ethics, 44, 45
everyday low pricing (EDLP), 304
exact price, 305–306
example marketing plan, 84
generic price-quality positioning map, 298–299
1083
geographic aspects, 308
global markets, 41–42
high/low, 304
legal considerations, 309–310
legislation, 309
objectives and related strategies, 294, 295
odd/even, 303
one-price strategy, 303
penetration, 294–295
personal selling, 391
prestige, 302–303
price bundling, 301–32
price changes, 308–309
price skimming, 295–296
product, 222
product life cycle, 227
product line, 299–301
profit maximization and target ROI, 296
psychological, 303
reference, 302
stability, 297
surge, 312–313
switching behavior, 273
tactical pricing approaches (exhibit 11.4), 299
target return, 306
value, 297–299
variable, 303
Pricing for maximum marketing share, 294
Pricing objectives, 294, 295
Primary data, 100–101, 108–109
Primary group, 154
Primary target markets, 199
1084
Primary value-creating activities, 57
Pringles, 295
PRIZM, 193–194
PRM. See Partner relationship management (PRM) strategies
Probability sampling, 103
Problem Children, 62
Processed-food companies, 260
Product
characteristics, 213–215
classification, 215–217
defined, 213
discrimination (differentiation), 217–221
ethics, 44–45
example marketing plan, 84
global market, 37
life cycle, 223–227
marketing communications, 223
new. See New products
pricing, 222
Product adaptation, 37
Product advertising, 377
Product and service review sites, 365
Product characteristics, 213–215
Product choice, 174
Product choice decision
business markets, 174–176
consumer markets, 159–160
Product classifications, 215–217
Product communities, 333
Product demand, 164–165
Product development strategies, 71
Product discrimination, 217–221
1085
Product disposition, 161
Product export costs, 42
Product glut and customer shortage, 13
Product invention, 37
Product launch, 236
Product leadership, 204
Product life cycle (PLC), 223–227
Product line, 221
Product line pricing, 299–301
Product-market matrix, 71
Product mix, 221
Product orientation, 9
Product placement, 381
Product plan, 221
Product sampling, 381
Product testing, 234
Professional services, 276
Profitability analysis, 233
Programs/action plans, 60, 72
Project jacquard, 228
I-19
Promotion, 342–401
advertising. See Advertising
advertising/sales promotion focused approach, 345
AIDA model, 347–349
capabilities of (exhibit 13.2), 344
defined, 343
digital marketing. See Digital and social media marketing
internal marketing, 347
marketing manager’s role, 345
personal selling. See Personal selling
personal selling focused approach, 345
1086
PR. See Public relations (PR)
push and pull strategies, 346–347
sales promotion. See Sales promotion
Promotion mix, 343
Promotion mix strategies, 343
Promotional allowances, 307
Promotional campaign, 344
Promotional strategies, 343
Prosocial marketing, 7
Prospecting, 388
Prospector, 66
Psychographic segmentation, 194–195
Psychological pricing, 303
Public relations (PR)
AIDA, 348
crisis management, 383–384
defined, 343
event sponsorships, 383
global markets, 41
product publicity/buzz, 383
pros/cons, 346
responsibility of PR department, 382
Publicity, 382
Pull strategy, 328, 346, 347
Purchase decision. See Business market purchase decision process;
Consumer decision-making process
Purchase event characteristics, 160
Purchasing agents, 168
Purchasing departments, 168
Purpose marketing, 7
Push strategy, 328, 346, 347
1087
Q
Qualitative research, 101
Qualitative research techniques, 101
Quality, 38
Quantitative research, 101
Quantitative research techniques, 101
Quantity discount, 307
Question format, 102
Question Marks, 62
QuickBooks, 55
R
Race and ethnicity, 95
African Americans, 191
Hispanics/Latinos, 192
market segmentation, 191–192
Race and ethnicity segmentation, 191–192
Radio advertising, 379
Razors, 190
Reach, 378
Reactor, 66
“Real, Real Life” marketing campaign, 191
“Real Beauty Sketches” campaign (Dove Beauty Bar), 364
Real state, 156
Rebates, 381
Recommendation system, 129
Red, 160
Reducing transactions, 322
Reference group, 153–154
Reference pricing, 302
1088
Referent power, 326
Regional Comprehensive Economic Partnership, 32
Regional market zones, 29–32
ASEAN, 32
European Union (EU), 30–31
MERCOSUR, 31–32
NAFTA, 31
underlying forces, 30
Regional organization, 36
Relationship orientation, 12
Relative power of other stakeholders, 69
Reliability
product discrimination, 218, 220
service quality, 283
vendor selection, 175
Remote workdays, 395
Repairability, 219, 220
Repeat purchases, 233
Replacement purchases, 233
Reposition existing products, 228
Repositioning, 203
Request for proposal (RFP), 173
Research-based advertising, 378
Research design
information content, 102
nature of data, 100–101
nature of data collection, 101–102
sampling plan, 102–103
type of research, 99–100
Research problem, 99
Research report, 105
Resellers, 170–171
1089
Residence Inn, 300
Response rate, 108
Responsiveness, 283
Retail analytics (in-store), 128
Retailer, 320, 322
Retailer cooperative, 325
Retailing, 331–334
Retargeting, 353
Retrenchment, 64
Return on brand investment (ROBI), 132
Return on customer investment (ROCI), 116, 132
Return on marketing investment (ROMI), 132–133
Return on promotion investment (ROPI), 132
Return on social investment (ROSI), 133
Revenue, 233
Reverse auction, 304
Reverse logistics, 328
Review sites, 365
Reward power, 326
Rewards, 395–397
Rexona, 253
RFP. See Request for proposal (RFP)
Rio All Suite Hotel and Casino, 272
Rise and Fall of Strategic Planning (Mintzberg), 73
Risk-taking, 323
Ritz-Carlton Hotels, 300
Rivalry among existing firms, 68, 81
ROBI. See Return on brand investment (ROBI)
Robinson-Patman Act, 309
ROCI. See Return on customer investment (ROCI)
Rogue One: A Star Wars Story, 256
Rolex watches, 250
1090
ROMI. See Return on marketing investment (ROMI)
ROMI hurdle rate, 132
ROPI. See Return on promotion investment (ROPI)
ROSI. See Return on social investment (ROSI)
Run-flat tires, 220
Rural-urban migration, 95, 96
S
Salary, 396, 397
Sales contests, 397
Sales information system, 93
Sales orientation, 9
Sales presentation, 389, 390
Sales promotion
AIDA, 348
channel members, 382
consumer markets, 380–381
defined, 343
global markets, 41
influencing factors (exhibit 13.4), 345
pros/cons, 346
Sales proposals, 174
Sales skill levels, 395
Sales training, 396
Salespeople, 391–397. See also Personal selling
company sales or independent agents, 391–392
compensation and rewards, 396, 397
customer orientation, 393
evaluating salesperson performance, 396–397
geographic organization, 392
job satisfaction, 395
1091
market segmentation, 393
motivation, 395
outsourcing, 391–392
performance, 394–395
product organization, 392–393
recruitment/selection, 395
role perceptions, 394–395
sales aptitude, 395
sales skills, 395
training, 396
Same-sex marriage, 191
Sample, 102–103
Sampling, 103, 106, 108–109
SanDisk Cruzer flash drive, 258
SAS, 107
SBU. See Strategic business unit (SBU)
SBU-level strategic plan, 60
Scanner-based pricing, 310
ScanTrack, 103
Scatter plots, 126
Search ads, 353
Search attributes, 275–276
Search engine optimization (SEO), 357–358
Seasonal discount, 307
Secondary data, 101, 107–108
Secondary group, 154
Secondary sources of information, 103–104
Secondary target markets, 199
Securities and Exchange Commission
anti-trust actions, 97
reporting requirements, 108
I-20
1092
Security of personal data, 333
Seeding strategy, 363, 364
Segment-level personalization, 129–130
Segmentation, 185–187. See also Market segmentation
Selective awareness, 146
Selective distortion, 146
Selective distribution, 327
Selective retention, 147
Semi-structured data, 122
Sensitive customer information, 118
Sentiment analysis, 128
SEO. See Search engine optimization (SEO)
Service, 267
Service agreements, 261
Service as core offering, 266–290
characteristics of service, 269–271
continuum from pure goods to pure services, 275, 276
credence attributes, 276
customer satisfaction and loyalty, 273–274
customization of services, 270
employees, 272
example marketing plan, 84
experience attributes, 276
gap analysis, 277–280
importance of service, 267
internal service quality, 271–272
line of visibility, 285
revenue and profit growth, 274–275
search attributes, 275–276
service as differentiator, 267
service attributes, 275–277
service blueprint, 285
1093
service-dominant logic of marketing, 268
service-profit chain, 271–275
service quality, 277–284
service recovery/failure, 279
SERVQUAL, 283–284
underpromise and overdeliver, 273
variable pricing, 303
Service attributes, 275–277
Service blueprint, 285
Service companies. See Service as core offering
Service-dominant logic of marketing, 268
Service economy, 267
Service encounter, 277
Service failure, 279
Service leadership, 203
Service-profit chain, 271–275
Service quality, 277–284
Service recovery, 279
Service recovery strategies, 177
Service review sites, 365
Service sector, 267
SERVQUAL, 283–284
7 Big Problems in Marketing, 8
7 Cs of customer website interface, 355–357
Shelf fee, 328
Sherman Antitrust Act, 309, 330
Shoplifting, 257
Shopping goods, 216, 327
Short message service (SMS), 359
Short-term memory, 147
SIC codes. See Standard Industrial Classification (SIC)
Signal, 253
1094
Silent Generation, 189
Silver Singles, 200
Simply Venus, 190
Single-parent households, 151
Situation analysis, 66–70, 80–82
Six Cs of channel strategy, 40
SKU. See Stock-keeping unit (SKU)
Sky Team, 34
Slice of life advertising, 378
Slotting allowance, 328
Small Business Administration, 171
Small-business organizations, 171
SMS. See Short message service (SMS)
Snapchat, 363
Social class, 151–152
Social class segmentation, 193
Social media
Big Data, 123
marketing analytics, 128
Social media marketing. See Digital and social media marketing
Social network ads, 354
Social networking platforms, 361–363
Social networks, 360–363
Social status, 152
Societal marketing, 7
Sociocultural environment, 67, 81
Soft-Sheen Carson, 150
Solution seller, 387
Sorting, 321–322
Souplicity soups, 221
Specialty goods, 216
Specific warranties, 261
1095
Sports teams, 154
SpringHill Suites, 300
SPSS, 107
Stability pricing, 297
Stability strategy, 64
Stakeholders, 6–7, 46
Stand-alone brands, 253
Standard Industrial Classification (SIC), 169
Star Alliance, 34
Stars, 62
State of mind, 160
Statistical software, 107
Stealth pricing fraud schemes, 310
Stock-keeping unit (SKU), 214
Stock-out, 329
Stop-to-market mistake, 231
Store brand, 256
Store colors, 160
Straight rebuy, 166, 174
Strategic alliance, 35–36
Strategic business unit (SBU), 60
Strategic marketing, 15
Strategic planning, 60
Strategic type, 65, 66
Strategic vision, 63
Strategy, 64
Strategy implementation, 71
Strivers, 195
Structured data, 120–121
Style, 219, 220
Subculture, 149–150
Subliminal message, 147
1096
Subliminal stimuli, 147
Subscription bundle business, 301
Substitute products, 68, 81
Sunglasses, 252
Sunsilk, 253
Super Size Me (film), 383
Supplier choice, 175–176
Supplier search websites, 174
Supply chain, 164, 317
Supply chain management
defined, 317
distribution channels. See Marketing channels
example marketing plan, 84
legal issues, 330–331
legislation, 330
logistics. See Physical distribution
Supporting activities, 57
Surge pricing, 312–313
Survey, 101, 102, 104
Survey Monkey, 101
Survivors, 195
Sustainability, 7, 46–47, 68
Sustainable competitive advantage, 65
Sustaining innovation, 228
Swiss Army knife, 261
Switching behavior, 273
SWOT analysis, 69–70, 82
Symbolic performance, 162
T
Tactical marketing, 16
1097
Tangibility, 215
Tangibles, 282–283
Target market, 236
Target marketing
analyzing market segments, 198–199
concentrated, 201
continuum of target marketing approaches, 199
customized (one-to-one), 201
defined, 185
differentiated, 200–201
example marketing plan, 83–84
market profiles, 199
product life cycle, 226
steps in process, 198
undifferentiated, 200
Target return on investment (ROI), 296
Target return pricing, 306
Tariffs, 42
TCA. See Transaction cost analysis (TCA)
Technical selling, 387
Technological environment, 67, 81
Technology transformations, 96
Telemarketing, 388
Telemarketing companies, 97
Telephone survey, 102
Television advertising, 129, 379
Tertiary target markets, 199
Testing the market, 234–236
Text messaging, 359
Theme parks, 128, 141
Theraflu Daytime, 147
Thinkers, 195
1098
Third-party logistics (3PL), 324
Thomas Global Register, 174
Threat of new entrants, 68, 81
Timberland boots, 218
Time
Americans/Western Europeans, 149
involvement, 154
Latin Americans/Asians, 149
product choice decision, 160
situation factor in consumer choices, as, 150
Time utility, 55
I-21
Tommy Hilfiger brand, 248
TownePlace Suites, 300
TPL. See Triple bottom line (TPL)
Trade associations, 108
Trade discount, 307
Trade servicer, 387
Trade show, 172, 236, 382
Traffic counters, 102
Transaction cost analysis (TCA), 392
Transfer pricing, 42
Transportation and storage, 322
Transportation management, 330
Transportation modes (exhibit 12.7), 330
Treaty of Rome, 30
Trial purchase, 237
Triple bottom line (TPL), 46–47
overview (exhibit 2.14), 47
people, 46–47
planet, 47
profit, 47
1099
Turnstiles, 102
Twitter, 362–363
2%/10, Net/40, 307
Tying contract, 331
Tylenol Cold Relief, 150
U
Ultra Sheen, 191
Underpositioning, 204
Underpromise and overdeliver, 273
Undifferentiated target marketing, 200
Uniform delivery pricing, 308
Unilever products, 253, 254
Unilever Sustainable Living Plan, 7
Unit sales, 233
United Airlines involuntary de-boarding situation, 279–280, 281
United Kingdom. See Great Britain
United States
coverage of consumer market, 40
cultural values, 144
data accessibility, 108
data-rich market environment, 107
family, 149
garbage, 161
GDP, 28
global positioning system (GPS) devices, 108
growth-oriented business culture, 64
marketing research costs, 107
open information culture, 108
population projections, 152
salesperson-customer relationship, 41
1100
social class strata, 193
subcultures, 150
time, 149, 150
top 20 U.S. SMSAs, 187
values, 148
workplace/fellow workers as reference group, 192
Universal Orlando Resort, 128, 141
Unsought goods, 216
Unstructured data, 121
“Up & Up,” 256
Upgrades or modifications to existing products, 228
Urbanspoon, 365
U.S. Army, 58
U.S. Bureau of Labor Statistics, 124
U.S. Census Bureau, 103, 108, 187, 192
U.S. Chamber of Commerce, 108
U.S. New Best Car for the Money 2017 Awards, 55
Usage-based segmentation, 196
Use/nonuse, 161
User review sites, 365
Users, 167
USS Gerald R. Ford aircraft carrier, 171
Utility, 55
V
Vacation ownership companies, 269
VALS (Values and Lifestyles), 195
Value, 7, 55, 268
Value chain, 56–58, 317
Value co-creation, 318
Value-creating activities, 57
1101
Value network, 317–318
Value pricing, 297–299
Value proposition, 55
Values and beliefs, 144–145
Vanish, 198
Variability, 270
Variable pricing, 303
Vaseline, 253
Vendor selection, 175–176
Venus Bikini, 190
Venus Comfortable, 190
Venus Embrace, 190
Venus Original, 190
Venus Swirl, 190
Vertical integration, 324
Vertical marketing system (VMS), 324–325
Vertical price-fixing, 309
Viral marketing, 363–364
Virtual communities, 333
Virtual focus group, 106
Virtual organization, 318
VMS. See Vertical marketing system (VMS)
W
Walmart Neighborhood Market, 304
Warehousing and materials handling, 329
Warranties, 261
Water (as a resource), 96
Water in a Box, 258
Web analytics, 128
Web-related activity, 122
1102
Web traffic monitoring, 91
Websites. See Internet
Well Yes soups, 221
Wholesaler, 320, 322
Wholesaler cooperative, 325
Wiersema’s six market realities, 13
Window OS, 253, 255
Winner’s Circle, 194
Word-of-mouth communication, 383
Working memory, 147
World Trade Organization (WTO), 31
X
XML files. See Extensible Markup Language (XML) files
Y
Yemen, 29
Z
Zone of affection, 274, 275
Zone of defection, 274
Zone of indifference, 274
Zone pricing, 308
1103
目录
Title 2
Copyright 3
Dedication 5
About the Authors 6
Preface 9
Brief Table of Contents 29
Detailed Contents 32
Part One: Discover Marketing Management 49
Chapter 1: Marketing in Today’s Business Milieu 50
Welcome to Marketing Management 51
Marketing Misconceptions 51
Behind the Misconceptions 52
Beyond the Misconceptions and Toward the Reality of
Modern Marketing
57
Defining Marketing 58
Value and Exchange Are Core Marketing Concepts 61
A New Agenda for Marketing 62
Marketing’s Roots and Evolution 63
Pre-Industrial Revolution 64
Focus on Production and Products 64
Focus on Selling 65
Advent of the Marketing Concept 66
Post-Marketing Concept Approaches 69
Change Drivers Impacting the Future of Marketing 72
Shift to Product Glut and Customer Shortage 73
Shift in Information Power from Marketer to Customer 74
Shift in Generational Values and Preferences 76
Shift to Distinguishing Marketing (Big M) from marketing
(little m)
77
Shift to Justifying the Relevance and Payback of the
Marketing Investment
81
Your Marketing Management Journey Begins 83
1104
Summary 84
Key Terms 84
Application Questions 85
Management Decision Case: From Clydesdales to Talking
Frogs: Budweiser’s Strategic Adaptability Keeps It a Winner
87
Notes 90
Chapter 2: Marketing Foundations: Global, Ethical, Sustainable 98
Marketing is not Limited by Borders 99
The Global Experience Learning Curve 100
Companies with No Foreign Marketing 102
Companies with Foreign Marketing 102
International Marketing 105
Global Marketing 105
Essential Information 106
Emerging Markets 109
Multinational Regional Market Zones 110
Select the Global Market 115
Identify Selection Criteria 115
Company Review 116
Develop Global Market Strategies 117
Market Entry Strategies 117
Organizational Structure 123
Product 125
Consumers 126
Market Channels 129
Marketing Communications 132
Pricing 133
Ethics: At the Core of Successful Marketing Management 136
Ethics and the Value Proposition 137
Ethics and the Elements of the Marketing Mix 138
Code of Marketing (Business) Ethics 141
Sustainability: Not Just the Right Thing to Do But a Good
Marketing Strategy
142
Triple Bottom Line: The Link between Doing Well and
Doing Good
143
1105
Summary 146
Key Terms 147
Application Questions 148
Management Decision Case: Selling to the Bottom of the
Pyramid: Marketing Unilever Products in Rural Villages
Around the World
149
Notes 152
Chapter 3: Elements of Marketing Strategy, Planning, and
Competition
159
Value is at the Core of Marketing 160
The Value Chain 164
Planning for the Value Offering 167
Marketing Planning is Both Strategic and Tactical 167
Elements of Marketing Planning 170
Connecting the Marketing Plan to the Firm’s Business Plan 171
Organizational Mission, Vision, Goals, and Objectives 176
Organizational Strategies 178
Situation Analysis 185
Additional Aspects of Marketing Planning 193
Tips for Successful Marketing Planning 198
Visit the Appendix for a Marketing Plan Example 200
Summary 200
Key Terms 201
Application Questions 202
Management Decision Case: Marketing Planning Helps
Dunkin’ Donuts Score Big in Coffee Customer Loyalty
203
Marketing Plan Exercises 207
Notes 208
Appendix: CloudCab Small Jet Taxi Service Abbreviated
Example Marketing Plan
216
Part Two: Use Information to Drive Marketing Decisions 233
Chapter 4: Market Research Essentials 235
Making Good Marketing Decisions—The Need to Know 236
Market Information System 238
The Nature of a Market Information System 238
1106
Internal Sources—Collecting Information Inside the
Company
242
External Sources—Collecting Information Outside the
Company
247
Market Research Systems 255
The Importance of Market Research to Managers 255
The Market Research Process 257
Market Research Technology 273
Market Research Challenges in Global Markets 277
Summary 281
Key Terms 281
Application Questions 282
Management Decision Case: BMW’s Road to Higher
Customer Satisfaction: Just Tell Me What You Think!
283
Marketing Plan Exercise 287
Notes 287
Chapter 5: CRM, Big Data, and Marketing Analytics 292
Objectives and Capabilities Of CRM 293
The CRM Process Cycle 296
Knowledge Discovery 296
Marketing Planning 298
Customer Interaction 298
Analysis and Refinement 298
More on Customer Touchpoints 299
CRM, Touchpoints, and Customer Trust 299
CRM Facilitates a Customer-Centric Culture 301
Big Data and Marketing Decision Making 304
Categories of Big Data: Structured and Unstructured 306
Big Data Sources and Implications 309
Marketing Analytics 315
Marketing Analytic Approaches 316
Capabilities of Marketing Analytics Supported by Big Data 324
The Marketing Dashboard 328
Goals and Elements of a Marketing Dashboard 330
Potential Pitfalls in Marketing Dashboards 331
1107
Return on Marketing Investment (ROMI) 332
Cautions about Overreliance on ROMI 333
Proceed with Caution 334
Summary 336
Key Terms 337
Application Questions 338
Management Decision Case: Outline India: Enabling the
Jump from Data to Decisions
340
Marketing Plan Exercises 343
Notes 344
Chapter 6: Understand Consumer and Business Markets 351
The Power of the Consumer 353
Internal Forces Affect Consumer Choices 354
Personal Characteristics 354
Psychological Attributes 359
External Factors Shape Consumer Choices 368
Cultural Factors 369
Situational Factors 372
Social Factors 373
The Level of Involvement Influences the Process 381
Decision Making with High Involvement 382
Decision Making with Limited Involvement 383
The Consumer Decision-Making Process 384
Problem Recognition 385
Search for Information 386
Evaluation of Alternatives 391
Product Choice Decision 393
Post-Purchase Assessment 395
Organizational Buying: Marketing to a Business 399
Differences Between Business and Consumer Markets 400
Relationship with Customers 401
Number and Size of Customers 403
Geographic Concentration 403
Complexity of the Buying Process 404
Complexity of the Supply Chain 404
1108
Demand for Products and Services Is Different in a
Business Market
404
Buying Situations 407
Straight Rebuy 408
Modified Rebuy 409
New Purchase 409
Buying Centers 410
Members of the Buying Center 410
Pursuing the Buying Center 413
The Players in Business-to-Business Markets 414
The North American Industrial Classification System
(NAICS)
415
Manufacturers 415
Resellers 417
Government 418
Institutions 418
The Business Market Purchase Decision Process 419
Problem Recognition 420
Define the Need and Product Specifications 421
Search for Suppliers 424
Seek Sales Proposals in Response to RFP 424
Make the Purchase Decision 425
Post-Purchase Evaluation of Product and Supplier 430
The Role of Technology in business Markets 431
E-Procurement 431
Summary 432
Key Terms 433
Application Questions 436
Management Decision Case: Taking the Nike Experience
Direct to Consumers
437
Marketing Plan Exercise 440
Notes 441
Chapter 7: Segmentation, Target Marketing, and Positioning 450
Fulfilling Consumer Needs and Wants 451
What is Segmentation? 453
1109
Effective Segmentation 454
Segmenting Consumer Markets 456
Geographic Segmentation 457
Demographic Segmentation 459
Psychographic Segmentation 474
Behavioral Segmentation 477
Firms Use Multiple Segmentation Approaches
Simultaneously
479
Segmenting Business Markets 480
Target Marketing 482
Analyze Market Segments 483
Develop Profiles of Each Potential Target Market 484
Select a Target Marketing Approach 485
Positioning 489
Perceptual Maps 491
Sources of Differentiation 493
Positioning Errors 495
Summary 497
Key Terms 497
Application Questions 498
Management Decision Case: Crafty Credit Card Competitor
“Chases” Amex for Share of Millennials’ Wallets
500
Marketing Plan Exercises 503
Notes 504
Part Three: Develop the Value Offering– The Product
Experience
514
Chapter 8: Product Strategy and New Product Development 515
Product: The Heart of Marketing 516
Product Characteristics 518
Product Classifications 521
Product Discrimination: Create a Point of Differentiation 525
Product Plan: Moving from One Product to Many Products 532
Product Decisions Affect Other Marketing Mix Elements 534
The Life of the Product: Building the Product Experience 536
Product Life Cycle Sales Revenue and Profitability 538
1110
Product Life Cycle Timeline 539
Product Life Cycle Caveats 540
New Products—Creating Long-Term Success 543
“New” Defined 544
Reasons for New Product Success or Failure 546
New Product Development Process 547
Identify Product Opportunities 547
Define the Product Opportunity 552
Develop the Product Opportunity 556
Consumer Adoption and Diffusion Process 562
Consumer Product Adoption Process 563
The Diffusion of Innovations 564
Summary 565
Key Terms 566
Application Questions 567
Management Decision Case: Reaching Millennials through
New Product Innovation at Campbell’s Soup
569
Marketing Plan Exercise 572
Notes 573
Chapter 9: Build the Brand 581
Brand: The Fundamental Character of a Product 582
Brands Play Many Roles 583
The Boundaries of Branding 585
Brand Equity—Owning a Brand 587
Defining Brand Equity 588
Benefits of Brand Equity 590
Branding Decisions 595
Stand-Alone or Family Branding 595
National or Store Branding 596
Licensing 599
Co-Branding 600
Packaging and Labeling: Essential Brand Elements 601
Package Objectives 601
Effective Packaging 605
Labeling 607
1111
Warranties and Service Agreements: Building Customer
Confidence
609
Warranties Help Define the Brand 609
Summary 611
Key Terms 611
Application Questions 612
Management Decision Case: Virgin Group Brand Extensions:
Lots of Hits and a Few Misses
613
Marketing Plan Exercise 616
Notes 616
Chapter 10: Service as the Core Offering 623
Why Service is Important 624
Service as a Differentiator 625
Service is the Dominant Logic of Marketing 626
Characteristics of Services 628
Intangibility 629
Inseparability 630
Variability 631
Perishability 632
The Service-Profit Chain 633
Internal Service Quality 633
Satisfied, Productive, and Loyal Employees 635
Greater Service Value for External Customers 636
Customer Satisfaction and Loyalty 637
Revenue and Profit Growth 640
Service Attributes 641
Search Attributes 641
Experience Attributes 642
Credence Attributes 643
Importance of Understanding Service Attributes 644
Service Quality 645
Gap Analysis 646
Servqual: A Multiple-Item Scale to Measure Service
Quality
656
The Servqual Instrument 658
1112
Service Blueprints 661
Summary 662
Key Terms 663
Application Questions 664
Management Decision Case: Amazon Dash: More Than Just
a Dash of Service
666
Marketing Plan Exercise 669
Notes 670
Part Four: Price and Deliver the Value Offering 676
Chapter 11: Manage Pricing Decisions 677
Price is a Core Component Of Value 678
Establish Pricing Objectives and Related Strategies 681
Penetration Pricing 682
Price Skimming 683
Profit Maximization and Target ROI 685
Competitor-Based Pricing 687
Value Pricing 689
Select Pricing Tactics 692
Product Line Pricing 693
Captive Pricing 696
Price Bundling 697
Reference Pricing 698
Prestige Pricing 699
Odd/Even Pricing 701
One-Price Strategy and Variable Pricing 702
Everyday Low Pricing (EDLP) and High/Low Pricing 703
Auction Pricing 704
Set the Exact Price 705
Cost-Plus Pricing/Markup on Cost 705
Markup on Sales Price 706
Average-Cost Pricing 706
Target Return Pricing 707
Determine Channel Discounts and Allowances 708
Cash Discounts 709
Trade Discounts 709
1113
Quantity Discounts 710
Seasonal Discounts 710
Promotional Allowances 710
Geographic Aspects of Pricing 711
Execute Price Changes 711
Understand Legal Considerations in Pricing 714
Price-Fixing 714
Price Discrimination 715
Deceptive Pricing 715
Predatory Pricing 716
Fair Trade and Minimum Markup Laws 716
Summary 717
Key Terms 717
Application Questions 719
Management Decision Case: Surge Pricing: But Is It a Surge
of Customer Value?
720
Marketing Plan Exercise 723
Notes 724
Chapter 12: Manage Marketing Channels, Logistics, and Supply
Chain
732
The Value Chain and Value Netwrks 733
Channels and Intermediaries 738
Functions of Channel Intermediaries 742
Physical Distribution Functions 743
Transaction and Communication Functions 745
Facilitating Functions 745
Disintermediation and E-Channels 747
Vertical Marketing Systems 748
Corporate Systems 749
Contractual Systems 749
Administered Systems 750
Channel Behavior: Conflict and Power 751
Selecting Channel Approaches 753
Distribution Intensity 754
Channel Control and Adaptability 756
1114
Prioritization of Channel Functions—Push versus Pull
Strategy
756
Logistics Aspects of Supply Chain Management 757
Order Processing 758
Warehousing and Materials Handling 759
Inventory Management 760
Transportation 762
Legal Issues in Supply Chain Management 762
Exclusive Dealing 762
Exclusive Territories 763
Tying Contracts 764
Retailing and Electronic Commerce 764
Business-to-Consumer Electronic Commerce 766
B2B E-commerce 769
Summary 770
Key Terms 771
Application Questions 773
Management Decision Case: Restoration Hardware—Using
the Brick-and-Mortar Store as a “3D Catalog”
775
Marketing Plan Exercise 778
Notes 778
Part Five: Communicate the Value Offering 789
Chapter 13: Promotion Essentials: Digital and Social Media
Marketing
790
Essentials of Promotion 791
The Marketing Manager’s Role in Promotional Strategy 795
Push and Pull Strategies 799
Internal Marketing 800
Hierarchy of Effects (AIDA) Model 801
Attention 802
Interest 804
Desire 805
Action 805
The Role of Digital Marketing in Communicating Value 807
Digital Advertising 811
1115
E-Mail 817
Organizational Website 817
Search Engine Optimization (SEO) 823
Mobile Marketing 824
Managing Social Media Marketing: Now the Customer is
Involved in the Dialogue
828
Types of Social Media 830
Assessing the Value of Social Media Marketing 839
Summary 840
Key Terms 842
Application Questions 843
Management Decision Case: How Oreo Uses Social Media to
Market Milk’s Favorite Cookie
846
Marketing Plan Exercise 850
Notes 850
Chapter 14: Promotion Essentials: Legacy Approaches 855
Advertising 857
Types of Advertising 859
Advertising Execution and Media Types 862
The Role of the Creative Agency 868
Sales Promotion 869
Sales Promotion to Consumers 870
Sales Promotion to Channel Members 873
Public Relations (PR) 874
Gaining Product Publicity and Buzz 875
Securing Event Sponsorships 876
Crisis Management 877
Personal Selling—The Most Personal form of
Communication
878
Activities in Personal Selling 880
Sales in B2C versus B2B Markets 883
Classifying Sales Positions 884
The Personal Selling Process 886
Organizing the Sales Force 895
Managing the Sales Force 899
1116
Summary 907
Key Terms 908
Application Questions 909
Management Decision Case: Intel Uses Storytelling to “Let
the Inside Out”
910
Marketing Plan Exercise 914
Notes 915
Glossary 924
Indexes (Name and Subject) 974
1117
Title
Copyright
Dedication
About the Authors
Preface
Brief Table of Contents
Detailed Contents
Part One: Discover Marketing Management
Chapter 1: Marketing in Today’s Business Milieu
Welcome to Marketing Management
Marketing Misconceptions
Behind the Misconceptions
Beyond the Misconceptions and Toward the Reality of Modern Marketing
Defining Marketing
Value and Exchange Are Core Marketing Concepts
A New Agenda for Marketing
Marketing’s Roots and Evolution
Pre-Industrial Revolution
Focus on Production and Products
Focus on Selling
Advent of the Marketing Concept
Post-Marketing Concept Approaches
Change Drivers Impacting the Future of Marketing
Shift to Product Glut and Customer Shortage
Shift in Information Power from Marketer to Customer
Shift in Generational Values and Preferences
Shift to Distinguishing Marketing (Big M) from marketing (little m)
Shift to Justifying the Relevance and Payback of the Marketing Investment
Your Marketing Management Journey Begins
Summary
Key Terms
Application Questions
Management Decision Case: From Clydesdales to Talking Frogs: Budweiser’s Strategic Adaptability Keeps It a Winner
Notes
Chapter 2: Marketing Foundations: Global, Ethical, Sustainable
Marketing is not Limited by Borders
The Global Experience Learning Curve
Companies with No Foreign Marketing
Companies with Foreign Marketing
International Marketing
Global Marketing
Essential Information
Emerging Markets
Multinational Regional Market Zones
Select the Global Market
Identify Selection Criteria
Company Review
Develop Global Market Strategies
Market Entry Strategies
Organizational Structure
Product
Consumers
Market Channels
Marketing Communications
Pricing
Ethics: At the Core of Successful Marketing Management
Ethics and the Value Proposition
Ethics and the Elements of the Marketing Mix
Code of Marketing (Business) Ethics
Sustainability: Not Just the Right Thing to Do But a Good Marketing Strategy
Triple Bottom Line: The Link between Doing Well and Doing Good
Summary
Key Terms
Application Questions
Management Decision Case: Selling to the Bottom of the Pyramid: Marketing Unilever Products in Rural Villages Around the World
Notes
Chapter 3: Elements of Marketing Strategy, Planning, and Competition
Value is at the Core of Marketing
The Value Chain
Planning for the Value Offering
Marketing Planning is Both Strategic and Tactical
Elements of Marketing Planning
Connecting the Marketing Plan to the Firm’s Business Plan
Organizational Mission, Vision, Goals, and Objectives
Organizational Strategies
Situation Analysis
Additional Aspects of Marketing Planning
Tips for Successful Marketing Planning
Visit the Appendix for a Marketing Plan Example
Summary
Key Terms
Application Questions
Management Decision Case: Marketing Planning Helps Dunkin’ Donuts Score Big in Coffee Customer Loyalty
Marketing Plan Exercises
Notes
Appendix: CloudCab Small Jet Taxi Service Abbreviated Example Marketing Plan
Part Two: Use Information to Drive Marketing Decisions
Chapter 4: Market Research Essentials
Making Good Marketing Decisions—The Need to Know
Market Information System
The Nature of a Market Information System
Internal Sources—Collecting Information Inside the Company
External Sources—Collecting Information Outside the Company
Market Research Systems
The Importance of Market Research to Managers
The Market Research Process
Market Research Technology
Market Research Challenges in Global Markets
Summary
Key Terms
Application Questions
Management Decision Case: BMW’s Road to Higher Customer Satisfaction: Just Tell Me What You Think!
Marketing Plan Exercise
Notes
Chapter 5: CRM, Big Data, and Marketing Analytics
Objectives and Capabilities Of CRM
The CRM Process Cycle
Knowledge Discovery
Marketing Planning
Customer Interaction
Analysis and Refinement
More on Customer Touchpoints
CRM, Touchpoints, and Customer Trust
CRM Facilitates a Customer-Centric Culture
Big Data and Marketing Decision Making
Categories of Big Data: Structured and Unstructured
Big Data Sources and Implications
Marketing Analytics
Marketing Analytic Approaches
Capabilities of Marketing Analytics Supported by Big Data
The Marketing Dashboard
Goals and Elements of a Marketing Dashboard
Potential Pitfalls in Marketing Dashboards
Return on Marketing Investment (ROMI)
Cautions about Overreliance on ROMI
Proceed with Caution
Summary
Key Terms
Application Questions
Management Decision Case: Outline India: Enabling the Jump from Data to Decisions
Marketing Plan Exercises
Notes
Chapter 6: Understand Consumer and Business Markets
The Power of the Consumer
Internal Forces Affect Consumer Choices
Personal Characteristics
Psychological Attributes
External Factors Shape Consumer Choices
Cultural Factors
Situational Factors
Social Factors
The Level of Involvement Influences the Process
Decision Making with High Involvement
Decision Making with Limited Involvement
The Consumer Decision-Making Process
Problem Recognition
Search for Information
Evaluation of Alternatives
Product Choice Decision
Post-Purchase Assessment
Organizational Buying: Marketing to a Business
Differences Between Business and Consumer Markets
Relationship with Customers
Number and Size of Customers
Geographic Concentration
Complexity of the Buying Process
Complexity of the Supply Chain
Demand for Products and Services Is Different in a Business Market
Buying Situations
Straight Rebuy
Modified Rebuy
New Purchase
Buying Centers
Members of the Buying Center
Pursuing the Buying Center
The Players in Business-to-Business Markets
The North American Industrial Classification System (NAICS)
Manufacturers
Resellers
Government
Institutions
The Business Market Purchase Decision Process
Problem Recognition
Define the Need and Product Specifications
Search for Suppliers
Seek Sales Proposals in Response to RFP
Make the Purchase Decision
Post-Purchase Evaluation of Product and Supplier
The Role of Technology in business Markets
E-Procurement
Summary
Key Terms
Application Questions
Management Decision Case: Taking the Nike Experience Direct to Consumers
Marketing Plan Exercise
Notes
Chapter 7: Segmentation, Target Marketing, and Positioning
Fulfilling Consumer Needs and Wants
What is Segmentation?
Effective Segmentation
Segmenting Consumer Markets
Geographic Segmentation
Demographic Segmentation
Psychographic Segmentation
Behavioral Segmentation
Firms Use Multiple Segmentation Approaches Simultaneously
Segmenting Business Markets
Target Marketing
Analyze Market Segments
Develop Profiles of Each Potential Target Market
Select a Target Marketing Approach
Positioning
Perceptual Maps
Sources of Differentiation
Positioning Errors
Summary
Key Terms
Application Questions
Management Decision Case: Crafty Credit Card Competitor “Chases” Amex for Share of Millennials’ Wallets
Marketing Plan Exercises
Notes
Part Three: Develop the Value Offering– The Product Experience
Chapter 8: Product Strategy and New Product Development
Product: The Heart of Marketing
Product Characteristics
Product Classifications
Product Discrimination: Create a Point of Differentiation
Product Plan: Moving from One Product to Many Products
Product Decisions Affect Other Marketing Mix Elements
The Life of the Product: Building the Product Experience
Product Life Cycle Sales Revenue and Profitability
Product Life Cycle Timeline
Product Life Cycle Caveats
New Products—Creating Long-Term Success
“New” Defined
Reasons for New Product Success or Failure
New Product Development Process
Identify Product Opportunities
Define the Product Opportunity
Develop the Product Opportunity
Consumer Adoption and Diffusion Process
Consumer Product Adoption Process
The Diffusion of Innovations
Summary
Key Terms
Application Questions
Management Decision Case: Reaching Millennials through New Product Innovation at Campbell’s Soup
Marketing Plan Exercise
Notes
Chapter 9: Build the Brand
Brand: The Fundamental Character of a Product
Brands Play Many Roles
The Boundaries of Branding
Brand Equity—Owning a Brand
Defining Brand Equity
Benefits of Brand Equity
Branding Decisions
Stand-Alone or Family Branding
National or Store Branding
Licensing
Co-Branding
Packaging and Labeling: Essential Brand Elements
Package Objectives
Effective Packaging
Labeling
Warranties and Service Agreements: Building Customer Confidence
Warranties Help Define the Brand
Summary
Key Terms
Application Questions
Management Decision Case: Virgin Group Brand Extensions: Lots of Hits and a Few Misses
Marketing Plan Exercise
Notes
Chapter 10: Service as the Core Offering
Why Service is Important
Service as a Differentiator
Service is the Dominant Logic of Marketing
Characteristics of Services
Intangibility
Inseparability
Variability
Perishability
The Service-Profit Chain
Internal Service Quality
Satisfied, Productive, and Loyal Employees
Greater Service Value for External Customers
Customer Satisfaction and Loyalty
Revenue and Profit Growth
Service Attributes
Search Attributes
Experience Attributes
Credence Attributes
Importance of Understanding Service Attributes
Service Quality
Gap Analysis
Servqual: A Multiple-Item Scale to Measure Service Quality
The Servqual Instrument
Service Blueprints
Summary
Key Terms
Application Questions
Management Decision Case: Amazon Dash: More Than Just a Dash of Service
Marketing Plan Exercise
Notes
Part Four: Price and Deliver the Value Offering
Chapter 11: Manage Pricing Decisions
Price is a Core Component Of Value
Establish Pricing Objectives and Related Strategies
Penetration Pricing
Price Skimming
Profit Maximization and Target ROI
Competitor-Based Pricing
Value Pricing
Select Pricing Tactics
Product Line Pricing
Captive Pricing
Price Bundling
Reference Pricing
Prestige Pricing
Odd/Even Pricing
One-Price Strategy and Variable Pricing
Everyday Low Pricing (EDLP) and High/Low Pricing
Auction Pricing
Set the Exact Price
Cost-Plus Pricing/Markup on Cost
Markup on Sales Price
Average-Cost Pricing
Target Return Pricing
Determine Channel Discounts and Allowances
Cash Discounts
Trade Discounts
Quantity Discounts
Seasonal Discounts
Promotional Allowances
Geographic Aspects of Pricing
Execute Price Changes
Understand Legal Considerations in Pricing
Price-Fixing
Price Discrimination
Deceptive Pricing
Predatory Pricing
Fair Trade and Minimum Markup Laws
Summary
Key Terms
Application Questions
Management Decision Case: Surge Pricing: But Is It a Surge of Customer Value?
Marketing Plan Exercise
Notes
Chapter 12: Manage Marketing Channels, Logistics, and Supply Chain
The Value Chain and Value Netwrks
Channels and Intermediaries
Functions of Channel Intermediaries
Physical Distribution Functions
Transaction and Communication Functions
Facilitating Functions
Disintermediation and E-Channels
Vertical Marketing Systems
Corporate Systems
Contractual Systems
Administered Systems
Channel Behavior: Conflict and Power
Selecting Channel Approaches
Distribution Intensity
Channel Control and Adaptability
Prioritization of Channel Functions—Push versus Pull Strategy
Logistics Aspects of Supply Chain Management
Order Processing
Warehousing and Materials Handling
Inventory Management
Transportation
Legal Issues in Supply Chain Management
Exclusive Dealing
Exclusive Territories
Tying Contracts
Retailing and Electronic Commerce
Business-to-Consumer Electronic Commerce
B2B E-commerce
Summary
Key Terms
Application Questions
Management Decision Case: Restoration Hardware—Using the Brick-and-Mortar Store as a “3D Catalog”
Marketing Plan Exercise
Notes
Part Five: Communicate the Value Offering
Chapter 13: Promotion Essentials: Digital and Social Media Marketing
Essentials of Promotion
The Marketing Manager’s Role in Promotional Strategy
Push and Pull Strategies
Internal Marketing
Hierarchy of Effects (AIDA) Model
Attention
Interest
Desire
Action
The Role of Digital Marketing in Communicating Value
Digital Advertising
E-Mail
Organizational Website
Search Engine Optimization (SEO)
Mobile Marketing
Managing Social Media Marketing: Now the Customer is Involved in the Dialogue
Types of Social Media
Assessing the Value of Social Media Marketing
Summary
Key Terms
Application Questions
Management Decision Case: How Oreo Uses Social Media to Market Milk’s Favorite Cookie
Marketing Plan Exercise
Notes
Chapter 14: Promotion Essentials: Legacy Approaches
Advertising
Types of Advertising
Advertising Execution and Media Types
The Role of the Creative Agency
Sales Promotion
Sales Promotion to Consumers
Sales Promotion to Channel Members
Public Relations (PR)
Gaining Product Publicity and Buzz
Securing Event Sponsorships
Crisis Management
Personal Selling—The Most Personal form of Communication
Activities in Personal Selling
Sales in B2C versus B2B Markets
Classifying Sales Positions
The Personal Selling Process
Organizing the Sales Force
Managing the Sales Force
Summary
Key Terms
Application Questions
Management Decision Case: Intel Uses Storytelling to “Let the Inside Out”
Marketing Plan Exercise
Notes
Glossary
Indexes (Name and Subject)
