360 degree marketing campaign ppt

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O.C. Ferrell Belmont University

Michael D. Hartline Florida State University

Marketing Strategy TEXT AND CASES

SEVENTH EDITION

Australia • Brazil • Mexico • Singapore • United Kingdom • United States

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Marketing Strategy: Text and Cases, Seventh Edition O.C. Ferrell and Michael D. Hartline

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To my wife, Linda

O.C. Ferrell

To my girls, Marsha, Meghan, Madison, and Mallory

Michael D. Hartline

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Brief Contents Preface xiii

About the Authors xvii

1 MARKETING IN TODAY’S ECONOMY 1 2 STRATEGIC MARKETING PLANNING 27 3 COLLECTING AND ANALYZING MARKETING INFORMATION 56 4 DEVELOPING COMPETITIVE ADVANTAGE AND STRATEGIC FOCUS 89 5 CUSTOMERS, SEGMENTATION, AND TARGET MARKETING 119 6 THE MARKETING PROGRAM 153 7 BRANDING AND POSITIONING 203 8 ETHICS AND SOCIAL RESPONSIBILITY IN MARKETING STRATEGY 230 9 MARKETING IMPLEMENTATION AND CONTROL 260 10 DEVELOPING AND MAINTAINING LONG-TERM CUSTOMER RELATIONSHIPS 289

CASES CASE 1 USA TODAY : INNOVATION IN AN EVOLVING INDUSTRY 318

CASE 2 CONSUMERS TAKE A SHINE TO APPLE, INC. 331

CASE 3 MONSANTO BALANCES THE INTERESTS OF MULTIPLE STAKEHOLDERS 342

CASE 4 NEW BELGIUM BREWING (A): SOCIAL RESPONSIBILITY AS COMPETITIVE ADVANTAGE 355

CASE 5 NEW BELGIUM BREWING (B): DEVELOPING A BRAND PERSONALITY 364

CASE 6 MATTEL CONFRONTS ITS MARKETING CHALLENGES 373

CASE 7 MISTINE: DIRECT SELLING IN THE THAI COSMETICS MARKET 384

CASE 8 BP STRUGGLES TO REPAIR ITS TARNISHED REPUTATION 396

CASE 9 CHEVROLET: A CENTURY OF PRODUCT INNOVATION 407

CASE 10 WYNDHAM WORLDWIDE ADOPTS A STAKEHOLDER ORIENTATION MARKETING STRATEGY 422

CASE 11 NASCAR: CAN’T KEEP A GOOD BRAND DOWN 431

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CASE 12 INDYCAR: SEEKING A RETURN TO MOTORSPORTS’ FAST LANE 443

CASE 13 ZAPPOS: DELIVERING HAPPINESS 454

CASE 14 NETFLIX FIGHTS TO STAY AHEAD OF A RAPIDLY CHANGING MARKET 465

CASE 15 GILLETTE: WHY INNOVATION MAY NOT BE ENOUGH 475

CASE 16 IKEA SLOWLY EXPANDS ITS U.S. MARKET PRESENCE 487

CASE 17 UBER: THE OPPORTUNITIES AND CHALLENGES OF MARKET DISRUPTION 496

CASE 18 SCENTSY, INC.: A SUCCESSFUL DIRECT SELLING BUSINESS MODEL 507

CASE 19 SIGMA MARKETING: STRATEGIC MARKETING ADAPTATION 515

CASE 20 BELLE MEADE PLANTATION: A SOCIAL ENTREPRENEURSHIP MARKETING STRATEGY 525

CASE 21 COCA-COLA: INTEGRATED MARKETING COMMUNICATIONS 534

Index 544

Brief Contents v

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Contents Preface xiii

About the Authors xvii

1 MARKETING IN TODAY’S ECONOMY 1 THE CHALLENGES AND OPPORTUNITIES OF MARKETING IN TODAY’S ECONOMY 2

Power Shift to Customers 3

Massive Increase in Product Selection 4

Audience and Media Fragmentation 4

Changing Value Propositions 4

Shifting Demand Patterns 5

Privacy, Security, and Ethical Concerns 5

Unclear Legal Jurisdiction 6

BASIC MARKETING CONCEPTS 7

What Is a Market? 8

What Is Exchange? 9

What Is a Product? 10

MAJOR MARKETING ACTIVITIES AND DECISIONS 13

Strategic Planning 15

Research and Analysis 15

Developing Competitive Advantage 16

Marketing Strategy Decisions 16

Social Responsibility and Ethics 19

Implementation and Control 20

Developing and Maintaining Customer Relationships 20

vi

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TAKING ON THE CHALLENGES OF MARKETING STRATEGY 21

LESSONS FROM CHAPTER 1 23

NOTES 24

2 STRATEGIC MARKETING PLANNING 27 THE STRATEGIC PLANNING PROCESS 29

Organizational Mission versus Organizational Vision 30

Corporate or Business-Unit Strategy 34

Functional Goals and Objectives 35

Functional Strategy 36

Implementation 36

Evaluation and Control 36

THE MARKETING PLAN 37

Marketing Plan Structure 37

Using the Marketing Plan Structure 43

Purposes and Significance of the Marketing Plan 44

Organizational Aspects of the Marketing Plan 45

MAINTAINING CUSTOMER FOCUS AND BALANCE IN STRATEGIC PLANNING 46

Customer-Focused Planning 46

Balanced Strategic Planning 49

LESSONS FROM CHAPTER 2 51

NOTES 53

3 COLLECTING AND ANALYZING MARKETING INFORMATION 56 CONDUCTING A SITUATION ANALYSIS 58

Analysis Alone Is Not a Solution 58

Data Are Not the Same as Information 59

The Benefits of Analysis Must Outweigh the Costs 59

Conducting a Situation Analysis Is a Challenging Exercise 59

THE INTERNAL ENVIRONMENT 61

Review of Current Objectives, Strategy, and Performance 61

Availability of Resources 62

Organizational Culture and Structure 63

THE CUSTOMER ENVIRONMENT 63

Who Are Our Current and Potential Customers? 65

What Do Customers Do with Our Products? 65

Where Do Customers Purchase Our Products? 66

When Do Customers Purchase Our Products? 66

Contents vii

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Why (and How) Do Customers Select Our Products? 68

Why Do Potential Customers Not Purchase Our Products? 68

THE EXTERNAL ENVIRONMENT 69

Competition 71

Economic Growth and Stability 73

Political Trends 74

Legal and Regulatory Issues 74

Technological Advancements 75

Sociocultural Trends 76

COLLECTING MARKETING DATA AND INFORMATION 79

Secondary Information Sources 79

Primary Data Collection 82

Overcoming Problems in Data Collection 83

LESSONS FROM CHAPTER 3 84

NOTES 85

4 DEVELOPING COMPETITIVE ADVANTAGE AND STRATEGIC FOCUS 89 MAKING SWOT ANALYSIS PRODUCTIVE 91

Stay Focused 91

Search Extensively for Competitors 93

Collaborate with Other Functional Areas 93

Examine Issues from the Customers’ Perspective 93

Look for Causes, Not Characteristics 95

Separate Internal Issues from External Issues 96

SWOT-DRIVEN STRATEGIC PLANNING 97

Strengths and Weaknesses 97

Opportunities and Threats 97

The SWOT Matrix 99

DEVELOPING AND LEVERAGING COMPETITIVE ADVANTAGES 102

ESTABLISHING A STRATEGIC FOCUS 104

DEVELOPING MARKETING GOALS AND OBJECTIVES 109

Developing Marketing Goals 111

Developing Marketing Objectives 112

Moving beyond Goals and Objectives 115

LESSONS FROM CHAPTER 4 115

NOTES 117

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5 CUSTOMERS, SEGMENTATION, AND TARGET MARKETING 119 BUYER BEHAVIOR IN CONSUMER MARKETS 121

The Consumer Buying Process 121

Factors that Affect the Consumer Buying Process 127

BUYER BEHAVIOR IN BUSINESS MARKETS 129

Unique Characteristics of Business Markets 130

The Business Buying Process 132

MARKET SEGMENTATION 133

Traditional Market Segmentation Approaches 133

Individualized Segmentation Approaches 136

Criteria for Successful Segmentation 138

IDENTIFYING MARKET SEGMENTS 139

Segmenting Consumer Markets 139

Segmenting Business Markets 144

TARGET MARKETING STRATEGIES 145

LESSONS FROM CHAPTER 5 147

NOTES 151

6 THE MARKETING PROGRAM 153 PRODUCT STRATEGY 155

Strategic Issues in the Product Portfolio 155

The Challenges of Service Products 158

Developing New Products 160

PRICING STRATEGY 162

Key Issues in Pricing Strategy 162

Pricing Service Products 168

Base Pricing Strategies 170

Adjusting the Base Price 171

SUPPLY CHAIN STRATEGY 172

Strategic Supply Chain Issues 173

Trends in Supply Chain Strategy 178

INTEGRATED MARKETING COMMUNICATIONS 182

Strategic Issues in Integrated Marketing Communications 183

Advertising 185

Public Relations 187

Contents ix

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Personal Selling and Sales Management 189

Sales Promotion 191

LESSONS FROM CHAPTER 6 195

NOTES 200

7 BRANDING AND POSITIONING 203 STRATEGIC ISSUES IN BRANDING 206

Basic Branding Decisions 206

Strategic Brand Alliances 209

Brand Value 209

Packaging and Labeling 212

DIFFERENTIATION AND POSITIONING 213

Bases for Differentiation 215

Positioning Strategies 217

MANANGING BRANDS OVER TIME 218

Development Stage 220

Introduction Stage 221

Growth Stage 221

Maturity Stage 223

Decline Stage 224

LESSONS FROM CHAPTER 7 226

NOTES 228

8 ETHICS AND SOCIAL RESPONSIBILITY IN MARKETING STRATEGY 230 ETHICS AND SOCIAL RESPONSIBILITY IN MARKETING STRATEGY 231

Dimensions of Social Responsibility 232

Sustainability 235

Marketing Ethics and Strategy 237

The Challenges of Being Ethical and Socially Responsible 239

ETHICAL ISSUES IN THE MARKETING PROGRAM 241

Product-Related Ethical Issues 241

Pricing-Related Ethical Issues 243

Supply Chain–Related Ethical Issues 244

Promotion-Related Ethical Issues 245

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MANAGING AND CONTROLLING ETHICAL ISSUES 246

Regulating Marketing Ethics 246

Codes of Conduct 248

Ethical Leadership 249

RELATIONSHIP TO MARKETING AND FINANCIAL PERFORMANCE 250

Stakeholder Orientation 250

Marketing Financial Performance 251

INCORPORATING ETHICS AND SOCIAL RESPONSIBILITY INTO STRATEGIC PLANNING 251

LESSONS FROM CHAPTER 8 252

NOTES 255

9 MARKETING IMPLEMENTATION AND CONTROL 260 STRATEGIC ISSUES IN MARKETING IMPLEMENTATION 262

The Link Between Planning and Implementation 262

The Elements of Marketing Implementation 264

APPROACHES TO MARKETING IMPLEMENTATION 268

Implementation by Command 268

Implementation through Change 270

Implementation through Consensus 271

Implementation as Organizational Culture 271

INTERNAL MARKETING AND MARKETING IMPLEMENTATION 272

The Internal Marketing Approach 272

The Internal Marketing Process 274

EVALUATING AND CONTROLLING MARKETING ACTIVITIES 275

Formal Marketing Controls 276

Informal Marketing Controls 279

Scheduling Marketing Activities 281

LESSONS FROM CHAPTER 9 283

NOTES 286

10 DEVELOPING AND MAINTAINING LONG-TERM CUSTOMER RELATIONSHIPS 289 MANAGING CUSTOMER RELATIONSHIPS 290

Developing Relationships in Consumer Markets 292

Developing Relationships in Business Markets 294

Contents xi

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QUALITY AND VALUE: THE KEYS TO DEVELOPING CUSTOMER RELATIONSHIPS 296

Understanding the Role of Quality 296

Delivering Superior Quality 298

Understanding the Role of Value 299

Competing on Value 303

CUSTOMER SATISFACTION: THE KEY TO CUSTOMER RETENTION 304

Understanding Customer Expectations 304

Satisfaction versus Quality versus Value 307

Customer Satisfaction and Customer Retention 310

Customer Satisfaction Measurement 312

LESSONS FROM CHAPTER 10 313

NOTES 317

CASES CASE 1 USA TODAY : INNOVATION IN AN EVOLVING INDUSTRY 318

CASE 2 CONSUMERS TAKE A SHINE TO APPLE, INC. 331

CASE 3 MONSANTO BALANCES THE INTERESTS OF MULTIPLE STAKEHOLDERS 342

CASE 4 NEW BELGIUM BREWING (A): SOCIAL RESPONSIBILITY AS COMPETITIVE ADVANTAGE 355

CASE 5 NEW BELGIUM BREWING (B): DEVELOPING A BRAND PERSONALITY 364

CASE 6 MATTEL CONFRONTS ITS MARKETING CHALLENGES 373

CASE 7 MISTINE: DIRECT SELLING IN THE THAI COSMETICS MARKET 384

CASE 8 BP STRUGGLES TO REPAIR ITS TARNISHED REPUTATION 396

CASE 9 CHEVROLET: A CENTURY OF PRODUCT INNOVATION 407

CASE 10 WYNDHAM WORLDWIDE ADOPTS A STAKEHOLDER ORIENTATION MARKETING STRATEGY 422

CASE 11 NASCAR: CAN’T KEEP A GOOD BRAND DOWN 431

CASE 12 INDYCAR: SEEKING A RETURN TO MOTORSPORTS’ FAST LANE 443

CASE 13 ZAPPOS: DELIVERING HAPPINESS 454

CASE 14 NETFLIX FIGHTS TO STAY AHEAD OF A RAPIDLY CHANGING MARKET 465

CASE 15 GILLETTE: WHY INNOVATION MAY NOT BE ENOUGH 475

CASE 16 IKEA SLOWLY EXPANDS ITS U.S. MARKET PRESENCE 487

CASE 17 UBER: THE OPPORTUNITIES AND CHALLENGES OF MARKET DISRUPTION 496

CASE 18 SCENTSY, INC.: A SUCCESSFUL DIRECT SELLING BUSINESS MODEL 507

CASE 19 SIGMA MARKETING: STRATEGIC MARKETING ADAPTATION 515

CASE 20 BELLE MEADE PLANTATION: A SOCIAL ENTREPRENEURSHIP MARKETING STRATEGY 525

CASE 21 COCA-COLA: INTEGRATED MARKETING COMMUNICATIONS 534

Index 544

xii Contents

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Preface Welcome to one of the most interesting, challenging, and important topics in your business education. What makes marketing strategy so interesting, challenging, and important you ask? To begin, marketing strategy is interesting because (1) it is inher- ently people-driven and (2) it is never stagnant. A distinct blend of both art and sci- ence, marketing strategy is about people (inside an organization) finding ways to deliver exceptional value by fulfilling the needs and wants of other people (custo- mers, shareholders, business partners, society at large), as well as the needs of the organization itself. Marketing strategy draws from psychology, sociology, and economics to better understand the basic needs and motivations of these people— whether they are the organization’s customers (typically considered the most critical), its employees, or its stakeholders. In short, marketing strategy is about peo- ple serving people.

For this reason, marketing strategy is interesting because it is never stagnant. The simple fact is that people change. A strategy that works today might not work tomorrow. Products that are popular today are forgotten next week. These truisms are important because truly understanding marketing strategy means accepting the fact that there are few concrete rules for developing and implementing marketing activities. Given the constant state of change in the marketing environment, it is vir- tually impossible to say that given “this customer need” and “these competitors” and “this level of government regulation” that Product A, Price B, Promotion C, and Distribution D will produce the best results. Marketing simply doesn’t work that way. The lack of concrete rules and the ever changing economic, sociocultural, competi- tive, technological, and political/legal landscapes make marketing strategy a terribly fascinating subject.

Now that you know why marketing strategy is so interesting, it should be easy to see why it is also challenging. A perfect marketing strategy that is executed flawlessly can still fail. Sometimes, organizations are lucky and have success despite having a terrible strategy and/or execution. The nature of marketing can make mar- keting planning quite frustrating.

Finally, the importance of marketing strategy is undeniable. No other business function focuses on developing relationships with customers—the lifeblood of all organizations (even non-profits). This statement does not diminish the importance of other business functions, as they all are necessary for an organization to be suc- cessful. In fact, coordination with other functions is critical to marketing success. However, without customers, and marketing programs in place to cultivate customer relationships, no organization can survive.

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OUR FOCUS Given this marketing landscape, Marketing Strategy: Text and Cases, 7th Edition provides a practical, straightforward approach to analyzing, planning, and imple- menting marketing strategies. Our focus is based on the creative process involved in applying the knowledge and concepts of marketing to the development and imple- mentation of marketing strategy. Our goal is to encourage students of marketing to think and act like a marketer. By discussing the key concepts and tools of marketing strategy, our emphasis on critical thinking, both analytical and creative, allows stu- dents to understand the essence of how marketing decisions fit together to create a coherent strategy.

Our approach in Marketing Strategy: Text and Cases, 7th Edition is also grounded in the development and execution of the marketing plan. Throughout the text, we provide a comprehensive planning framework based on conducting sound background research, developing market capabilities and competitive advantages, designing integrated marketing programs, and managing customer relationships for the long term. We also emphasize the need for integrity in the strategic planning pro- cess as well as the design of marketing programs that are both ethical and socially responsible. We also stress the integration and coordination of marketing decisions with other functional business decisions as the key to achieving an organization’s overall mission and vision. Throughout the text, we offer examples of successful planning and implementation to illustrate how firms face the challenges of marketing strategy in today’s economy.

PURPOSE We view strategic marketing planning not only as a process for achieving organiza- tional goals, but also as a means of building long-term relationships with customers. Creating a customer orientation takes imagination, vision, and courage, especially in today’s rapidly changing economic and technological environments. To help meet these challenges, our text approaches marketing strategy from both “traditional” and “cutting-edge” practices. We cover topics such as segmentation, creating a competi- tive advantage, marketing program development, and the implementation process with a solid grounding in traditional marketing, but also with an eye toward emerging practices. Lessons learned from the rise, fall, and reemergence of the dotcom sector, recent corporate scandals, and the most recent economic recession illustrate the importance of balancing the traditional and emerging practices of marketing strat- egy. Our text never loses sight of this balance.

Although our approach allows for the use of sophisticated research and decision-making processes, we have employed a practical perspective that permits marketing managers in any sized organization to develop and implement a marketing plan. We have avoided esoteric, abstract, and highly academic material that does not relate to typical marketing strategy decisions in most organizations. The marketing plan framework that we utilize throughout the text has been used by a number of organizations to successfully plan their marketing strategies. Many companies report great success in using our approach partially due to the ease of communicating the plan to all functional areas of the business.

TARGET AUDIENCE Our text is relevant for a number of educational environments, including undergrad- uate, graduate, and corporate training courses. At the undergraduate level, our text is appropriate for the capstone course or any upper-level integrating course such as

xiv Preface

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“Marketing Management,” “Marketing Strategy,” or “Marketing Policy.” At this level, the text provides an excellent framework to use with our included text-based cases, live-client cases, or a computer simulation. At the graduate level, our text is appropri- ate for courses addressing strategic marketing planning, competitive marketing strat- egies, or as a supplement for any simulation-based course. A growing segment of the market, corporate training, can utilize our text when educating business profes- sionals interested in developing marketing plans of their own, or interpreting and implementing the plans of others.

Each of the 21 cases included in our text describes the strategic situations of real-world, identifiable organizations. Because these cases feature real situations, instructors have the option of using the case material as published, or they may give students the opportunity to update the cases by conducting research to find the latest information. Many additional resources for students and instructors can be found at our text’s companion website, www.cengagebrain.com.

ACKNOWLEDGMENTS Throughout the development of this text, several extraordinary individuals pro- vided their talent and expertise to make important contributions. A number of indi- viduals have made many useful comments and recommendations as reviewers of this text.

We also deeply appreciate the assistance of several individuals who played a major role in developing cases or other materials. Specifically, we thank the follow- ing individuals:

Joe Alexander, Belmont University

Noushin Laila Ansari, University of New Mexico

Timothy W. Aurand, Northern Illinois University

Harper Baird, University of New Mexico

Chandani Bhasin, University of New Mexico

Christin Copeland, Florida State University

Linda Ferrell, Belmont University

John Fraedrich, Southern Illinois University – Carbondale

Bernadette Gallegos, University of New Mexico

Sederick Hood, University of New Mexico

Jennifer Jackson, University of New Mexico

Danielle Jolley, University of New Mexico

Kimberly Judson, Illinois State University

Robert P. Lambert, Belmont University

Cassondra Lopez, University of New Mexico

Julian Mathias, University of New Mexico

Kevin Mihaly, Florida State University

Christian Otto, University of New Mexico

Greg Owsley, New Belgium Brewing Company

Kelsey Reddick, Florida State University

Preface xv

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Don Roy, Middle Tennessee State University

Mike Sapit, Sigma Marketing

Jennifer Sawayda, University of New Mexico

Beau Shelton, University of New Mexico

Bryan Simpson, New Belgium Brewing Company

Debbie Thorne, Texas State University

Jacqueline Trent, University of New Mexico

Robyn Watson, Florida State University

Lecia Weber, University of New Mexico

Celeste Wood, Florida State University

We greatly appreciate the efforts of Jennifer Sawayda, University of New Mexico, for coordinating much of the new case development in this edition. The editorial, production, and marketing staff at Cengage cannot be thanked enough. With a deep sense of appreciation, we thank Mike Roche and Zach Fleischer.

Finally, we express appreciation for the support and encouragement of our families and friends, and our colleagues at Belmont University, Florida State University, and the University of New Mexico.

xvi Preface

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About the Authors O.C. FERRELL, PH.D. Belmont University

O.C. Ferrell (Ph.D., Louisiana State University) is University Distinguished Chair of Business Ethics at Belmont University. He recently served 9 years as University Dis- tinguished Professor of Marketing at the Anderson School of Management, Univer- sity of New Mexico. He also served at the University of Wyoming and was Chair of the Marketing Department at Colorado State University. Prior to his arrival at CSU, Dr. Ferrell was the Distinguished Professor of Marketing and Business Ethics at the University of Memphis. He has also served as a professor at the University of Tampa, Texas A&M University, Illinois State University, and Southern Illinois University. His MBA and BA degrees are from Florida State University.

Dr. Ferrell is past president of the Academic Council of the American Marketing Association and former chair of the American Marketing Association Ethics Commit- tee. Under his leadership, the committee developed the AMA Code of Ethics and the AMA Code of Ethics for Marketing on the Internet. He is a Society for Marketing Advances Fellow and the Vice President of Publications for the Academy of Market- ing Science. He is a former member of the Board of Governors as a Distinguished Fellow for the Academy of Marketing Science. He received the Cutco Vector Distin- guished Marketing Educator Award from the Academy of Marketing Science. In addi- tion, he received the first Innovative Educator award from the Marketing Management Association.

Dr. Ferrell has taught a wide variety of courses, including marketing strategy, principles of marketing, marketing ethics, international marketing, as well as most undergraduate courses in marketing. For 16 years he taught a graduate course in competitive marketing strategies at Thammasat University in Bangkok, Thailand. He has also been a visiting professor at University of Wisconsin, University of Michigan–Ann Arbor, and University of Hanover, Germany.

Dr. Ferrell is the co-author of over 20 books and more than 100 articles. His research is published in the Journal of Marketing Research, the Journal of Market- ing, the Journal of Business Ethics, the Journal of Business Research, the Journal of the Academy of Marketing Science, as well as other journals. His Marketing: Con- cepts and Strategies text, co-authored with Bill Pride, is one of the most widely adopted principles of marketing texts in the world. Furthermore, his Business Ethics: Decision Making and Cases is the leading business ethics text.

Dr. Ferrell has served as an expert witness in many high-profile civil litigation cases related to marketing ethics. More recently he has assisted international cor- porations and worked with state regulatory agencies in modifying marketing pro- grams to maintain compliance with both ethical and legal requirements. Currently,

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he is working with the National Association of State Boards of Accountancy to develop an ethical leadership certification for students. He has appeared on the NBC Today show and he has been quoted in national papers such as USA Today.

Dr. Ferrell and his wife Linda (also a faculty member at Belmont University) live in Nashville, Tennessee. He continues to help coordinate the Daniels Fund Ethics Ini- tiative at the University of New Mexico. He enjoys golf, skiing, reading, and travel.

MICHAEL D. HARTLINE, PH.D. Florida State University

Michael D. Hartline (Ph.D., University of Memphis) is Interim Dean and Charles A. Bruning Professor of Business Administration in the College of Business at Florida State University. Previously, he served as Associate Dean for Strategic Initiatives and Chair of the Department of Marketing. Prior to joining the FSU faculty in 2001, Dr. Hartline served on faculty at the University of Arkansas at Little Rock, Louisiana State University, and Samford University. His MBA and B.S. degrees are from Jacksonville State University in Alabama.

Dr. Hartline primarily teaches graduate courses in Marketing Strategy and undergraduate courses in Services Marketing. He has won many teaching and research awards and made many presentations to industry and academic audiences. Dr. Hartline has also served as a consultant to several for-profit and nonprofit orga- nizations in the areas of marketing plan development, market feasibility analysis, customer satisfaction measurement, customer service training, and pricing policy. He currently serves on the Academic Advisory Council of the Direct Selling Educa- tion Foundation and on the board of the Knight Creative Communities Initiative in Tallahassee, Florida. He has previously served on the executive committee of the Academy of Marketing Science, co-chaired two international conferences for the American Marketing Association, and has served on the editorial review boards of a number of leading marketing journals.

Dr. Hartline’s research addresses marketing implementation issues in service firms. Specifically, his work examines the role of customer-contact employees and workgroups in the effective delivery of quality service to customers. Dr. Hartline’s research appears in the Journal of Marketing, the Journal of Service Research, the Journal of Business Research, the Journal of Relationship Marketing, the Journal of Services Marketing, the Cornell Quarterly, the Journal of Strategic Marketing, the Journal of Business Ethics, and the Marketing Science Institute Working Paper Series.

Dr. Hartline and his wife Marsha live in Tallahassee with their three daughters Meghan, Madison, and Mallory. They have two dogs, Bella and Chief (both Japanese Chins), and two cats, Snickers and Sammie. Dr. Hartline is a self-professed electron- ics and gadget enthusiast who enjoys music, reading, computers, travel, college football (Go Seminoles!), and being a dad.

xviii About the Authors

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Marketing in Today’s Economy

INTRODUCTION As noted in the opening Beyond the Pages 1.1 story, competing in today’s economy means finding ways to break out of commodity status to meet customers’ needs bet- ter than competing firms. All organizations—both for-profit and nonprofit—require effective planning and a sound marketing strategy to do this effectively. Without these efforts, organizations would not be able to satisfy customers or meet the needs of other stakeholders. For example, having an effective marketing strategy allows Apple to develop popular products, such as the iPhone, iPad, iWatch, and its MacBook line of computers. Further, effective planning and strategy allows Cola- Cola to continue its leadership in soft drinks, make key acquisitions, and continue its expansion into the lucrative Chinese market. These and other organizations use sound marketing strategy to leverage their strengths and capitalize on opportunities that exist in the market. Every organization—from your favorite local restaurant to giant multinational corporations; from city, state, and federal governments, to chari- ties such as Habitat for Humanity and the American Red Cross—develops and imple- ments marketing strategies.

How organizations plan, develop, and implement marketing strategies is the focus of this book. To achieve this focus, we provide a systematic process for devel- oping customer-oriented marketing strategies and marketing plans that match an organization to its internal and external environments. Our approach focuses on real-world applications and practical methods of marketing planning, including the process of developing a marketing plan. The chapters of this book focus on the steps of this process. Our goal is to give the reader a deeper understanding of mar- keting planning, the ability to organize the vast amount of information needed to complete the planning process, and an actual feel for the development of marketing plans.

In this first chapter, we review some of the major challenges and opportunities that exist in planning marketing strategy in today’s economy. We also review the nature and scope of major marketing activities and decisions that occur throughout the planning process. Finally, we look at some of the major challenges involved in developing marketing strategy.

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THE CHALLENGES AND OPPORTUNITIES OF MARKETING IN TODAY’S ECONOMY Traditional ideas about marketing strategy began to change forever during the mid- 1990s. Advances in computer, communication, and information technology forever

BEYOND THE PAGES 1.1

Thriving in Commodity Hell1

Have you noticed that regardless of the industry, most goods and services offered by competing companies are eerily the same? Most household appliances, such as refrigerators, washing machines, and stoves, offer the same basic features and come in white, beige, black, or stain- less steel. Virtually all Android-based smartphones offer the same features at similar prices. Even air- line flights from New York to Los Angeles are essentially the same. Everywhere you look, most companies offer the same basic products to the same customer groups at roughly the same prices. This situation is referred to as “commodity hell” and it’s a tough situation for most companies. Commoditization is everywhere and is the result of mature markets where goods and services lack any real means of differentiation. Unfortunately for companies, when customers begin to see all competing products as offering roughly the same benefits, price is the only thing that matters.

Commoditization is a consequence of mature industries where slowing innovation, extensive product assortment, excess supply, and frugal consumers force margins to the floor. Since firms have few competitive differences, they are unable to increase margins. They must also spend a great deal on promotion to attract new custo- mers. This situation makes firms more vulnerable to the entry of new competitors. Consider the air- line industry. Notwithstanding a few minor differ- ences, most air travelers see all airlines as being roughly the same. They all get passengers from Point A to Point B while offering the same basic customer services. This makes price the driving force in consumer decision-making and allows discount airlines such as Southwest and Jet Blue to steal customers away from traditional full- service carriers. This same precarious situation exists in a broad range of industries including telephone service, hotels, packaged goods, auto- mobiles, household appliances, and retailing.

As you might expect, low price leaders can do quite well in commoditized markets. South- west, for example, was profitable for over 33 years until the economic recession hit the

industry hard in 2008. To counteract the down- turn, Southwest expanded routes by acquiring rival companies such as AirTran. The company also stands apart from others with its innovative “No Bag Fees” policy. Other firms, however, avoid commodity status through the most basic of marketing tactics: brand building. Here, firms break free from commodity status by developing a distinctive brand position that separates them and their products from the competition. Firms that come to mind are Apple, Coca-Cola, and Chick-fil-A. By offering compelling reasons for consumers to buy products, brand building allows firms to increase margins. Apple, in partic- ular, enjoys the highest profit margins of any firm in the technology sector.

Starbucks is another case in point. Starbucks clearly sells one of the most commoditized, ubiq- uitous products of all time: coffee. Starbucks Chairman Howard Schultz, however, does not accept that his firm is in the coffee business. Instead, Schultz sees Starbucks as a “third place” to hang out (with home and work being number 1 and number 2, respectively). Through this mental- ity, Starbucks offers its customers much more than coffee, including wireless Internet access, music, food, and relaxation. Starbucks has contin- ued its brand-building activities by introducing breakfast combos, Via instant coffee, and the con- tinued push of its Seattle’s Best brand into restau- rants, offices, hospitals, and vending machines.

Getting out of commodity hell is not an easy feat. To do so, firms must give consumers a com- pelling reason to buy their products over compet- ing products. Ultimately, winning the commodity game is all about innovation. Consider the firms that top Fast Company’s list of the World’s Most Innovative Companies for 2014 (in order): Goo- gle, Bloomberg Philanthropies, Xiaomi, Dropbox, Netflix, Airbnb, Nike, and ZipDial. Each of these companies offers innovative products, processes, or experiences that stand apart from the compe- tition; yet each competes in mature industries known for commoditization. These companies prove that innovation and good marketing strat- egy are the antidotes for commodity hell.

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changed the world and the ways that marketers reach potential customers. The col- lapse of the dot-com bubble in the late 1990s was followed by a historic collapse of the worldwide economy in 2008. The powerhouse companies of the past have weak- ened and lost relevance in an economy marked by constant change and consumer skepticism. Consider the following fundamental changes to marketing and business practice, as well as our own personal buying behavior.

Power Shift to Customers Perhaps the single most important change during the last two decades is the shift in power from marketers to consumers. Rather than businesses having the ability to manipulate customers via technology, customers often manipulate businesses because of their access to information, the ability to comparison shop, and the con- trol they have over spending. Individual consumers and business customers can compare prices and product specifications in a matter of minutes. Using a smart- phone and the Amazon app, customers can walk Target’s aisles, scan bar codes to check prices on Amazon, and order items for 2-day delivery while in the store. This fact is the reason that Target, and other retailers like Best Buy, now price matches Amazon and other online competitors. In other cases, customers are able to set their own prices, such as purchasing airline tickets at Priceline.com. Customers can now interact with one another, as merchants such as Amazon and eBay allow custo- mers to share opinions on product quality and supplier reliability. As power con- tinues to shift to customers, marketers have little choice but to ensure that their products are unique and of high quality, thereby giving customers a reason to pur- chase their products and remain loyal to them.

Da ni el

Ko eb e/ Fa nc y/ Co rb is

Consumers can instantly find competitors’ prices while in the store.

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Massive Increase in Product Selection The variety and assortment of goods and services offered for sale on the Internet and in traditional stores is staggering. In grocery stores alone, customers are faced with countless options in most aisles, such as in cereal and soft drinks. The growth in online retailing now allows customers to purchase a car from CarsDirect, handmade gifts from over 1.2 million shops on Etsy, or a case of their favorite wine from Wine.com. Increased transaction efficiency (e.g., 24/7 access, delivery to home or office even on weekends) allows customers to fulfill their needs more easily and con- veniently than ever before. Furthermore, the vast amounts of information available online has changed the way we communicate, read the news, and entertain our- selves. Customers can now have the news delivered to them automatically via smart- phone apps, such as Flipboard, that pull from hundreds of sources. This radical increase in product selection and availability has exposed marketers to inroads by competitors from every corner of the globe.

Audience andMedia Fragmentation Changes in media usage and the availability of new media outlets have forced mar- keters to rethink the way they communicate with potential customers. Since the advent of cable television in the 1970s, mass media audiences have become increas- ingly fragmented. Television audiences, for example, shifted from the big three net- works (ABC, CBS, NBC) and began watching programming on ESPN, HGTV, Nickelodeon, and the Discovery Channel. When the growth of the Internet, satellite radio, and mobile communication is added to this mix, it becomes increasingly diffi- cult for marketers to reach a true mass audience. Media audiences have become fragmented due to (1) the sheer number of media choices we have available today, and (2) the limited time we have to devote to any one medium. Today, customers increasingly get information and news from Facebook and Twitter rather than the New York Times or CBS. They spend a growing amount of time interacting with handheld devices than they do reading magazines, listening to the radio, or watching television. As shown in Exhibit 1.1, consumer usage of traditional media is declining, while the usage of mobile media is on the rise. However, despite the challenge of reaching mass audiences today, media fragmentation does have a big advantage: It is easier to reach small, highly targeted audiences who are more receptive to specific marketing messages.

Changing Value Propositions Even before “The Great Recession” began in 2008, consumers and business buyers were already facing increasing costs associated with energy, food, building

EXHIBIT 1.1 Change in Daily Media Usage by U.S. Adults, 2010–2014.

Percent Change (%) Television 3.7 Desktop Online −13.6 Tablets 676.2 Smartphones 235.0 Radio −15.5 Newspapers −9.4 Magazines −34.9

SOURCE: Statista, “Average Daily Media Use in the United States from 2010 to 2014,” Statista, http://www.statista.com/ statistics/270781/average-daily-media-use-in-the-us/, accessed February 18, 2015.

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materials, and other essentials. Then, as the economy weakened, buyers were forced to tighten their belts and look for other ways to lower expenses. This trend actually began after the dot-com collapse as consumers saw for the first time that they could bypass some types of firms and do things for themselves. For example, travel agents and real estate agents have been hit hard by e-commerce. Many customers now turn to Travelocity and Expedia, rather than travel agents, for assistance in booking air- line tickets, cruises, or hotel stays. A similar change has taken place in the real estate industry as buyers are moving their house hunting online, while sellers are increas- ingly taking the “for sale by owner” route. Consequently, many marketers learned a tough lesson: In situations where customers see goods and services as commodities, they will turn to the most convenient, least-expensive alternative.

Today, many of these same consumers face pay cuts or losing their jobs in addi- tion to increased expenses. These and other economic hardships have forced con- sumer and business buyers to rethink value propositions and focus on the importance of frugality. The effects on business have been dramatic. For example, Radio Shack filed for Chapter 11 bankruptcy in early 2015 in the face of a highly commoditized market and stiff competition from other electronics retailers, particu- larly Amazon.2 A similar shakeout is happening in the book retailing segment. Bor- ders, for instance, closed its doors after fierce competition from Barnes & Noble, Amazon, Walmart, and Target lured its shoppers away. Likewise, e-book readers, like Amazon’s Kindle, have had a profound impact on traditional book publishing. Because books have become highly commoditized, consumers typically search for the lowest prices rather than the fringe benefits offered by traditional bookstores. E-book readers add to that by being more ecologically advantageous. This is the essence of being frugal, as customers look for ways to cut spending on unnecessary parts of their lives.

Shifting Demand Patterns In some cases, changes in technology have shifted customer demand for certain product categories. News is one well-known example, where traditional newspapers are slowly disappearing while online and mobile news continues to grow. Now, many newspaper companies have folded, some are on the brink of folding, while others have cut publication to only a few days per week. Another example is the explosive growth in the digital distribution of music and video. The success of Apple’s iTunes, YouTube, Spotify, and Netflix, along with the continuing integration of television and computers, has dramatically shifted demand for the music and movie industries. Hol- lywood film studios are grappling with soft demand in theaters and the declining popularity of DVDs as customers increasingly look for online movie options, or for other forms of entertainment such as video games. This trend ultimately led to the demise of industry pioneer Blockbuster video in 2011.

Privacy, Security, and Ethical Concerns Changes in technology have made our society much more open than in the past. As a result, these changes have forced marketers to address real concerns about security and privacy, both online and offline. The fallout from the massive data breach at Tar- get in 2013 is still being felt today. The estimated loss to Target from thieves hacking into its systems is roughly $148 million, not to mention the losses incurred by Target’s customers.3 Further, businesses have always collected routine information about their customers. Now, customers are much more attuned to these efforts and the purposes for which the information will be used. Though customers appreciate the convenience of e-commerce and mobile access to information, they want assurances that their information is safe and confidential. Concerns over privacy and security are especially acute with respect to online businesses such as Facebook, Google, mobile banking,

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and mobile devices that can potentially track every move we make, literally. These same concerns are also keen with respect to children. For example, many well- known and respected companies, including Mrs. Fields Cookies, Sony BMG, and Her- shey Foods, have been fined for violating the standards of the Children’s Online Pri- vacy Protection Act (COPPA). For example, Playdom, Inc., an online gaming company owned by Disney, paid a $3 million fine to the Federal Trade Commission for collecting, using, and disclosing personal information from children under the age of 13 without their parents’ permission. This was the largest civil penalty ever lev- ied for a violation of COPPA, which is overviewed in Exhibit 1.2.4

Unclear Legal Jurisdiction When a company does business in more than one country (as many Internet-based firms do), that company often faces a dilemma with respect to differing legal sys- tems. Today, this difference is especially keen for firms that do business in both the United States and China. Google, for example, faces a difficult situation in dealing with the Chinese government’s censorship demands. Though Google is a U.S. firm, it must comply with the Chinese request by operating a completely separate search service that censors information considered sensitive by the Chinese government.5

Doing business in China is also an issue with respect to protection of intellectual property rights, where Chinese laws do not offer the same protections found in the United States. For example, the U.S. International Trade Commission estimates that Chinese piracy costs the U.S. economy in excess of $48 billion each year. Most of this is in the information sector, with high-tech and manufacturing also showing sizable losses due to infringements of intellectual property rights by Chinese firms.6

Another important legal issue involves the collection of sales tax for online transactions. In the early days of e-commerce, most online merchants did not collect sales taxes for online transactions—giving them a big advantage against store-based merchants. In fact, a 1992 U.S. Supreme Court decision exempted out-of-state retai- lers from collecting sales taxes in states where they had no physical presence. States countered that they were losing millions in yearly tax revenue, but were poorly organized to mount a collection effort. In 2003, major retailers—including

EXHIBIT 1.2 The Children’s Online Privacy Protection Act (COPPA).

The Children’s Online Privacy Protection Act applies to operators of commercial websites and online services that attempt to collect personal information from children under the age of 13. The law explains what must be included in the firm’s privacy policy, when and how to seek verifiable consent from a parent or guardian, and the firm’s responsibilities to protect children’s privacy and safety. Firms cannot evade the law’s provisions by claiming that chil- dren under 13 cannot visit their sites, nor can they make information optional or ask the visitor’s age.

In implementing the provisions of COPPA, the FTC issued the Children’s Online Privacy Protection Rule, which is designed to give parents control over the information that is col- lected from their children. The rule requires website operators to:

1. Determine if their company is a website or online service that collects personal informa- tion from kids under 13.

2. Post a privacy policy that complies with COPPA. 3. Notify parents directly before collecting personal information from their kids. 4. Get parents’ verifiable consent before collecting information from their kids. 5. Honor parents’ ongoing rights with respect to information collected from their kids. 6. Implement reasonable procedures to protect the security of kids’ personal information.

SOURCE: United States Federal Trade Commission, Bureau of Consumer Protection, http://www.ftc.gov/tips-advice/ business-center/guidance/childrens-online-privacy-protection-rule-six-step-compliance, accessed February 18, 2015.

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Walmart, Target, and Toys “R” Us—in an agreement with a consortium of 38 states and the District of Columbia, agreed to collect online sales taxes. However, many online merchants still did not charge sales taxes. Today, states—much more orga- nized than before—estimate that they lose a collective $23 billion per year in lost tax revenue. Amazon, for example, still collects sales tax from only 74 percent of U.S. consumers.7

Although the full effect of these challenges will not be recognized for some time, circumstances have forced businesses to move ahead by adjusting their marketing activities at both the strategic and tactical levels. As we review the major marketing concepts and activities in this chapter, we will look at how today’s challenges have affected strategic planning in these areas.

BASIC MARKETING CONCEPTS Marketing is many different things. Many people, especially those not employed in marketing, see marketing as a function of business. From this perspective, marketing parallels other business functions such as production/operations, research, manage- ment, human resources, and accounting. As a business function, the goal of market- ing is to connect the organization to its customers. Other individuals, particularly those working in marketing jobs, tend to see marketing as a process of managing the flow of products from the point of conception to the point of consumption. The field’s major trade organization, the American Marketing Association, has changed the definition of marketing over time to reflect changes in the economic and busi- ness environments. From 1985 until 2005, the AMA defined marketing this way:

Marketing is the process of planning and executing the conception, pric- ing, promotion, and distribution of ideas, goods, and services to create exchanges that satisfy individual and organizational objectives.8

Note how this definition focuses on the four Ps, or the marketing mix (product, price, place, and promotion). In 2005, the AMA changed the definition to better reflect the realities of competing in the marketplace:

Marketing is an organizational function and a set of processes for creat- ing, communicating, and delivering value to customers and for manag- ing customer relationships in ways that benefit the organization and its stakeholders.9

This definition shifts the focus away from the marketing mix and toward value creation for customers. In 2007, the AMA changed the definition of marketing again:

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.10

Notice that the changes in the definition are not merely cosmetic in nature. The older definitions focused on the process of marketing to deliver value and manage customer relationships. The most recent definition shifts from “value” to “offerings that have value.” Also, the notion of stakeholders is made more explicit. Why would the AMA make these changes? One reason has to do with commoditization as dis- cussed in Beyond the Pages 1.1. Breaking free from commodity status means finding ways to differentiate the offering. The new definition recognizes that differentiation can come from any part of the offering, whereas older conceptualizations of market- ing placed the burden of differentiation on the product itself. The second reason has to do with marketing’s broader role in today’s corporation. Firms don’t just sell pro- ducts; they sell the firm as a whole. Corporate relationships with partners, media, government, investors, employees, and society are every bit as important as relation- ships with customers. These types of relationships—which grow and thrive on

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exceptional value—are an absolute necessity in the commodity-driven status of many product markets. While the older definitions of marketing had a decidedly transactional focus, the new definition emphasizes long-term relationships that pro- vide value for both the firm and its stakeholders.

A final way to think about marketing relates to meeting human and social needs. This broad view links marketing with our standard of living, not only in terms of enhanced consumption and prosperity, but also in terms of society’s well-being. Through marketing activities, consumers can buy cars from South Korea and wines from South Africa; and organizations can earn a viable profit, making both employ- ees and shareholders happy. However, marketing must also bear responsibility for any negative effects it may generate. This view demands that marketers consider the social and ethical implications of their actions, and whether they practice good citizenship by giving back to their communities. As exemplified in the New Belgium Brewing case associated with this text, firms can successfully meet human and social needs through socially responsible marketing and business practices.

Let’s take a closer look at several basic marketing concepts. As we will see, ongoing changes in today’s economy have forever altered our way of thinking about these foundational aspects of marketing.

What Is a Market? At its most basic level, a market is a collection of buyers and sellers. We tend to think of a market as a group of individuals or institutions that have similar needs that can be met by a particular product. For example, the housing market is a collection of buyers and sellers of residential real estate, while the automobile market includes buyers and sellers of automotive transportation. Marketers or sellers tend to use the word “market” to describe only the buyers. This basic understanding of a market has not changed in a very long time. What has changed, however, is not so much the “what” but the “where” of a market; that is, the location of the buyers and sellers. In both consumer markets (like housing and automobiles) and business markets (like replacement parts and raw materials), the answer to the “where” question is quickly becoming “anywhere” as markets become less defined by geography.

Until recently, marketers have considered a market to be a physical location where buyers and sellers meet to conduct transactions. Although those venues (e.g., grocery stores, malls, flea markets) still exist, technology mediates some of the fastest growing markets. Early in the beginning of the dot-com era, the term marketspace was coined to describe these electronic marketplaces unbound by time or space.11 Today, we refer to these electronic marketplaces as online markets or e-commerce. In e-commerce, physical goods, services, and information are exchanged through the Internet. Some of the largest marketspaces, such as Amazon, eBay, and Monster, are now household names. In fact, Amazon has become the e-commerce equivalent of a shopping mall as the company now sells shoes, apparel, jewelry, beauty aids, and sporting goods in addition to its traditional offerings of books and electronics. E-commerce also exists in the business-to-business realm. The shift from physical to electronic marketplaces has significant ramifications for marketers. The fact that customers can shop, place orders, and exchange informa- tion 24/7 means that these businesses must be capable of operating in that same time frame. In effect, online markets never take a break at closing time—they never close. It also means that firms lose some control over the information that is dissem- inated about their company or products. Through blogs, discussion forums, or even Twitter, customers can exchange information about an online merchant outside the merchant’s own website. Furthermore, the substitution of technology for human interaction can be both a blessing and a curse. Some sites, like CarsDirect, are suc- cessful because they eliminate the hassle of dealing with another human in the buying process. Many customers, however, have been slow to embrace electronic

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markets because they lack the human element. In these cases, the design and imple- mentation of the online experience is a serious challenge for online firms. Finally, the wealth of information available through e-commerce not only makes customers more educated than ever before, but also gives customers increased power through comparison shopping and price negotiation.

Another interesting shift related to markets is the advent of metamarkets and metamediaries. A metamarket is a cluster of closely related goods and services that center around a specific consumption activity. A metamediary provides a single access point where buyers can locate and contact many different sellers in the metamar- ket.12 Assume for example that you are engaged to be married. How many different buying decisions will you and your fiancé have to make in the coming months? How many newspaper ads, websites, and magazines will you explore? Although the busi- nesses and decisions are diverse, they all converge on the single theme of wedding planning. This is the driving principle behind a metamarket. Exhibit 1.3 shows exam- ples of common metamarkets and metamediaries. Although customers don’t use these terms, they fully understand the concept of finding information and solutions in one place. For example, Parenting.com has become the Internet’s preeminent metamediary for information and advice related to parenting, pregnancy, and chil- dren. Similarly, Edmunds.com is a popular site devoted to all things related to buying and owning a vehicle. Metamediaries like these fulfill a vital need by offering quick access and one-stop shopping to a wide variety of information, goods, and services.

What Is Exchange? Closely related to the concept of a market, our ideas about exchange have changed in recent years. Exchange is traditionally defined as the process of obtaining some- thing of value from someone by offering something in return; this usually entails obtaining products for money. For exchange to occur, five conditions must be met:

1. There must be at least two parties to the exchange. Although this has always been the case, the exchange process today can potentially include an unlimited number of participants. Online auctions provide a good example. Customers who bid on an item at eBay may be one of many participants to the

EXHIBIT 1.3 Common Metamarkets and Participants.

Metamarkets Automotive Home Ownership Parenting

Metamediaries www.edmunds.com www.carsdirect.com www.kbb.com

www.realtor.com www.zillow.com www.bhg.com

www.parenting.com www.babycenter.com newparent.com

Metamarket Participants Buyers Manufacturers Car dealerships Banks Credit unions Credit reporting services Insurance firms Rating services Magazines Television programs Aftermarket parts/accessories Repair services Car rental firms Auction houses

Homeowners Builders Real estate agents Mortgage companies Insurance companies Home inspectors and appraisers Pest control services Magazines Television programs Retailers

Parents Doctors Retailers Baby supply manufacturers Insurance firms Financial planners Educational providers Toy manufacturers Television programs Movies

Chapter 1 • Marketing in Today’s Economy 9

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exchange process. Each participant changes the process for the others, as well as the ultimate outcome for the winning bidder. Some auctions include multiple quantities of an item, so the potential exists for multiple transactions within a single auction process.

2. Each party has something of value to the other party. Exchange would be possible, but not very likely, without this basic requirement. The Internet has exposed us to a vast array of goods and services that we did not know existed previously. Today, not only can we buy a television or stereo receiver from a local merchant; we also have access to hundreds of online merchants. Further- more, the ability to comparison shop products and their prices allows customers to seek out the best value.

3. Each party must be capable of communication and delivery. The advan- tages of today’s communication and distribution infrastructure are amazing. We can find and communicate with potential exchange partners anywhere and any- time via telephone, computers, interactive television, and smartphones. We can also conduct arm’s-length transactions in real time, with delivery of exchanged items occurring in a matter of hours if necessary. For example, you can text mes- sage an order to Pizza Hut on your way home from work.

4. Each party must be free to accept or reject the exchange. In the online world, this condition of exchange becomes a bit more complicated. Customers have grown accustomed to the ease with which they can return items to local merchants. Easy return policies are among the major strengths of traditional off- line merchants. Returning items is more difficult with online transactions. In some cases, the ability to reject an exchange is not allowed in online transac- tions. Ordering airline tickets on Priceline.com and winning a bid on an item at eBay are contractually binding acts for the customer. Apple has a no refunds policy in its App Store. In other words, once the actual purchasing process has started, the customer is not free to reject the exchange.

5. Each party believes it is desirable to exchange with the other party. Cus- tomers typically have a great deal of information about, or even a history with, offline merchants. In online exchange, customers often know nothing about the other party. To help resolve this issue, a number of third-party firms have stepped in to provide ratings and opinions about online merchants. Services such as BizRate and Epinions not only provide these ratings, but also provide product ratings and serve as shopping portals. eBay and Amazon go one step fur- ther by allowing buyers and sellers to rate each other. This gives both parties to the exchange process some assurance that reputable individuals or organiza- tions exist on the other side of the transaction.