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Marketing Management, Fifth Edition Dawn Iacobucci

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Preface x

About the author xii

Part 1 Marketing Strategy 1 Why is Marketing Management Important? 1

2 Customer Behavior 13

3 Segmentation 32

4 Targeting 51

5 Positioning 63

Part 2 Product Positioning 6 Products: Goods and Services 79

7 Brands 91

8 New Products and Innovation 109

Part 3 Positioning via Price, Place, and Promotion 9 Pricing 131

10 Channels of Distribution 161

11 Advertising Messages and Marketing Communications 185

12 Integrated Marketing Communications and Media Choices 205

13 Social Media 224

Part 4 Positioning: Assessment Through the Customer Lens 14 Customer Satisfaction and Customer Relationships 239

15 Marketing Research Tools 256

Part 5 Capstone 16 Marketing Strategy 275

17 Marketing Plans 293

Endnotes 312

Index 316

BRIEF CONTENTS

iii

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CONTENTS

Preface x

About the author xii

Part 1 Marketing Strategy

1 Why Is Marketing Management Important? 1 1-1 Defining Marketing 1 1-2 Marketing Is an Exchange Relationship 1

1-2a Marketing is Everywhere 2

1-3 Why Is Marketing Management Important? 2 1-3a Marketing and Customer Satisfaction is

Everyone’s Responsibility 4

1-4 The “Marketing Framework”: 5Cs, STP, and the 4Ps 5 1-4a Book Layout 7 1-4b Learning from the Marketing Framework 8 1-4c The Flow in Each Chapter: What? Why? How? 9

2 Customer Behavior 13 2-1 Three Phases of the Purchase Process 13 2-2 Different Kinds of Purchases 15 2-3 The Marketing Science of Customer Behavior 18

2-3a Sensation and Perception 18 2-3b Learning, Memory, and Emotions 20 2-3c Motivation 22 2-3d Attitudes and Decision Making 25 2-3e How Do Cultural Differences Affect

Consumers’ Behavior? 27

3 Segmentation 32 3-1 Why Segment? 32 3-2 What Are Market Segments? 33 3-3 What Information Serves as Bases for Segmentation? 35

3-3a Demographic 35 3-3b Geographic 36 3-3c Psychological 37 3-3d Behavioral 39 3-3e B2B 40 3-3f Concept in Action: Segmentation Variables 41

iv

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vContents

3-4 How Do Marketers Segment the Market? 42 3-4a How to Evaluate the

Segmentation Scheme 42

4 Targeting 51 4-1 What Is Targeting and Why

Do Marketers Do It? 51 4-2 How Do We Choose a Segment

to Target? 52 4-2a Profitability and Strategic Fit 52 4-2b Competitive Comparisons 54

4-3 Sizing Markets 56 4-3a Concept in Action: How Much of

My Consultative Advice Can I Sell? 58

5 Positioning 63 5-1 What Is Positioning and Why Is It Probably the Most Important

Aspect of Marketing? 63 5-1a Positioning via Perceptual Maps 64 5-1b The Positioning Matrix 66

5-2 Writing a Positioning Statement 74

Part 2 Product Positioning

6 Products: Goods and Services 79 6-1 What Do We mean by Product? 79

6-1a The Product in the Marketing Exchange 80

6-2 How Are Goods Different from Services? 81 6-2a Intangibility 81 6-2b Search, Experience, Credence 82 6-2c Perishability 83 6-2d Variability 83 6-2e To Infinity and Beyond Goods and Services 84

6-3 What Is the Firm’s Core Market Offering? 84 6-3a Dynamic Strategies 86 6-3b Product Lines: Breadth and Depth 87

7 Brands 91 7-1 What Is a Brand? 91

7-1a Brand Name 92 7-1b Logos and Color 92

7-2 Why Brand? 93 7-3 What Are Brand Associations? 95

7-3a Brand Personalities 97 7-3b Brand Communities 98

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vi Contents

7-4 What Are Branding Strategies? 98 7-4a Umbrella Brands vs. House of Brands 99 7-4b Brand-Extensions and Co-Branding 100 7-4c How are Brands Best Rolled Out Globally? 103 7-4d Store Brands 103

7-5 How Is Brand Equity Determined? 104

8 New Products and Innovation 109 8-1 Why Are New Products Important? 109 8-2 How Does Marketing Develop New Products for

Their Customers? 110 8-2a Philosophies of Product Development 110 8-2b Marketing 111 8-2c Idea Creation and Market Potential 112 8-2d Concept Testing and Design & Development 113 8-2e Beta-Testing 115 8-2f Launch 116

8-3 What Is the Product Life Cycle? 118 8-3a Diffusion of Innovation 120

8-4 How Do New Products and Brand Extensions Fit in Marketing Strategy? 124 8-4a Strategic Thinking about Growth 125

8-5 What Trends Should I Watch? 126

Part 3 Positioning via Price, Place, and Promotion

9 Pricing 131 9-1 Why Is Pricing so Important? 131 9-2 Background: Supply and Demand 131 9-3 Low Prices 136

9-3a Concept in Action: Break-Even for a Good 137 9-3b Concept in Action: Break-Even for a Service 139

9-4 High Prices 142 9-4a Using Scanner Data 142 9-4b Using Survey Data 144 9-4c Conjoint Analysis 144

9-5 Units or Revenue; Volume or Profits 145 9-6 Customers and the Psychology of Pricing 147

9-6a Price Discrimination, a.k.a. Segmentation Pricing 150 9-6b Quantity Discounts 151 9-6c Yield or Demand Management 152

9-7 Non-Linear Pricing 152 9-8 Changes in Cha-Ching 154

9-8a Pricing and the Product Life Cycle 154 9-8b Price Fluctuations 155 9-8c Coupons 155

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viiContents

9-8d Competitive Strategy and Game Theory 155 9-8e Auctions 156

10 Channels of Distribution 161 10-1 What Are Distribution Channels, Supply Chain Logistics, and

Why Do We Use Them? 162 10-2 How to Design Smart Distribution Systems: Intensive or

Selective? 165 10-2a Push and Pull 167

10-3 Power and Conflict in Channel Relationships 168 10-3a Revenue Sharing 170 10-3b Integration 173 10-3c Retailing 175 10-3d Franchising 178 10-3e E-Commerce 179 10-3f Catalog Sales 180 10-3g Sales Force 181 10-3h Integrated Marketing Channels 182

11 Advertising Messages and Marketing Communications 185 11-1 What Is Advertising? 187 11-2 Why Is Advertising Important? 187 11-3 What Marketing Goals Are sought from Advertising

Campaigns? 188 11-4 Designing Advertising Messages to Meet

Marketing and Corporate Goals 190 11-4a Cognitive Ads 191 11-4b Emotional Ads 193 11-4c Image Ads 195 11-4d Endorsements 196

11-5 How Is Advertising Evaluated? 198 11-5a A

ad and A

brand 201

12 Integrated Marketing Communications and Media Choices 205 12-1 What Media Decisions Are Made in Advertising Promotional

Campaigns? 205 12-1a Reach and Frequency and GRPs 207 12-1b Media Planning and Scheduling 209

12-2 Integrated Marketing Communications Across Media 210 12-2a Media Comparisons 212 12-2b Beyond Advertising 214 12-2c Choice Between Advertising and a Sales Force 215 12-2d The IMC Choices Depend on

the Marketing Goals 218

12-3 How Is the Effectiveness of Advertising Media Measured? 220

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viii Contents

13 Social Media 224 13-1 What Are Social Media? 224

13-1a Types of Social Media 225 13-1b Word-of-mouth 226

13-2 What Are Social Networks? 227 13-2a Identifying Influentials 227 13-2b Recommendation Systems 228 13-2c Social Media ROI, KPIs, and Web Analytics 230 13-2d Pre-purchase: Awareness 230 13-2e Pre-purchase: Brand Consideration 231 13-2f Purchase or Behavioral Engagement 232 13-2g Post-purchase 233 13-2h How to Proceed? 234

Part 4 Positioning: Assessment Through the Customer Lens

14 Customer Satisfaction and Customer Relationships 239 14-1 What Are Customer Evaluations, and Why Do We Care? 239 14-2 How Do Consumers Evaluate Products? 240

14-2a Sources of Expectations 241 14-2b Expectation and Experience 243

14-3 How Do Marketers Measure Quality and Customer Satisfaction? 245

14-4 Loyalty and Customer Relationship Management (CRM) 248 14-4a Recency, Frequency, and

Monetary Value (RFM) 249 14-4b Customer Lifetime Value (CLV) 251

15 Marketing Research Tools 256 15-1 Why Is Marketing Research

so Important? 256 15-2 Cluster Analysis for Segmentation 258 15-3 Perceptual Mapping for Positioning 260

15-3a Attribute-Based 260

15-4 Focus Groups for Concept Testing 264 15-5 Conjoint for Testing Attributes 265 15-6 Scanner Data for Pricing and Coupon Experiments and Brand

Switching 268 15-7 Surveys for Assessing Customer Satisfaction 270

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ixContents

Part 4 Capstone

16 MARKETING STRATEGY 275 16-1 Types of Business and Marketing Goals 275 16-2 Marketing Strategy 278

16-2a Ansoff’s Product-Market Growth Matrix 278 16-2b The BCG Matrix 279 16-2c The General Electric Model 280 16-2d Porter and Strategies 281 16-2e Treacy and Wiersema Strategies 282

16-3 How to “Do” Strategy 283 16-3a SWOT’s S&W 284 16-3b SWOT’s O&T 285

16-4 Key Marketing Metrics to Facilitate Marketing Strategy 287

17 Marketing Plans 293 17-1 How Do We Put it All Together? 293 17-2 Situation Analysis: The 5Cs 294 17-3 STP 298 17-4 The 4Ps 300 17-5 Spending Time and Money 304

Endnotes 312

Index 316

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x

There are several really good marketing management texts, yet this text was created because the Cengage sales force recognized an opportunity. Existing texts present numerous lists of factors to consider in a marketing decision but offer little guidance on how the factors, lists and multiple decisions all fit together.

In this book, an overarching Marketing Framework, used in every chapter, shows how all the pieces fit together. So, for example, when facing a decision about pricing, readers must consider how pricing will impact a strategic element like positioning or a customer reaction like loyalty and word of mouth. This book is practical, no-nonsense, and relatively short, to further heighten its utility. Everyone is busy these days, so it’s refreshing when a writer gets to the point. After this relatively quick read, MBAs and EMBAs should be able to speak sensibly about marketing issues and contribute to their organizations.

Chapter Organization The form of each chapter is very straightforward: The chapter’s concept is introduced by describing what it is and why marketers do it, and the rest of the chapter shows how to do it well. This what-why-and-how structure is intended to be extremely useful to MBA and EMBA students, who will quickly understand the basic concepts, e.g., what is segmenta- tion and why is it useful in marketing and business? The details are in the execution, so the how is the focus of the body of the chapter.

Key Features Each chapter opens with a managerial checklist of questions that MBA and EMBA stu- dents will be able to answer after reading the chapter. Throughout each chapter, boxes present brief illustrations of concepts in action in the real world or elaborations on concepts raised in the text, also drawing examples from the real business world. Chapters close with a Managerial Recap that highlights the main points of the chapter and reviews the opening checklist of questions. Chapters are also summarized in outline form, including the key terms introduced throughout the chapter. There are discussion questions to ponder, as well as video resources to serve as points for still further discussion. Each chapter contains a Mini-Case that succinctly illustrates key concepts.

MindTap The 5th edition of Marketing Management offers two exciting alternative teaching for- mats. Instructors can choose between either a hybrid print and digital offering or a version that provides completely integrated online delivery through a platform called MindTap. MindTap is a fully online, highly personalized learning experience built upon authoritative

PREFACE

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xiPreface

content. By combining readings, multimedia, activities, and assessments into a singular Learning Path, MindTap guides students through their course with ease while promoting engagement. Instructors personalize the Learning Path by customizing Cengage Learning resources and adding their own content via apps that integrate into the MindTap frame- work seamlessly. Instructors are also able to incorporate the online component of Consumer Behavior into a traditional Learning Management System (e.g. Blackboard, Canvas, D2L, etc.) providing a way to manage assignments, quizzes and tests throughout the semester

Instructor Resources Web resources for the book at www.cengagebrain.com provide the latest information in marketing management. The Instructor’s Manual, Test Bank authored in Cognero, and PowerPoint slides can be found there.

Acknowledgments Cengage Learning’s people are the best! Special thanks to John Sarantakis (Content Developer), Mike Roche (Senior Product Manager), Heather Mooney (Product Manager) Jenny Ziegler (Senior Content Project Manager), Diane Garrity (Intellectual Property An- alyst), Sarah Shainwald (Intellectual Property Project Manager) Laura Cheu (Copyeditor), Ezhilsolai Periasamy (Project Manager), Manjula Devi Subramanian (Text Researcher), Abdul Khader (Image Reasearcher), and Pushpa V. Giri (Proofreader).

As always, special thanks to the Cengage sales force. I will forever be grateful for your notes of encouragement as we began this project. I hope you like Marketing Management 5.

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xii

ABOUT THE AUTHOR

DAWN IACOBUCCI is the Ingram Professor of Marketing at the Owen Graduate School of Management, Vanderbilt University (since 2007). She has been Senior Associate Dean at Vanderbilt (2008-2010), and a professor of marketing at Kellogg (Northwestern University, 1987-2004), Arizona (2001-2002), and Wharton (Pennsylvania, 2004 to 2007). She received her M.S. in Statistics, and M.A. and Ph.D. in Quantitative Psychology from the University of Illinois at Urbana-Champaign. Her research focuses on modeling social networks and geeky high-dimensional analyses. She has published in Journal of Marketing, Journal of Marketing Research, Harvard Business Review, Journal of Consumer Psychology, International Journal of Research in Marketing, Marketing Science, Journal of Service Research, Psychometrika, Psychological Bulletin, and Social Networks. Iacobucci teaches Marketing Management and Marketing Models to Executives, MBA and undergraduate students and multivariate statistics and methodological topics to Ph.D. students. She has been editor of both Journal of Consumer Research and Journal of Consumer Psychology. She edited Kellogg on Marketing, she is author of Mediation Analysis, and co-author on Gilbert Churchill’s leading text, Marketing Research.

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1

5Cs STP 4Ps

Product

Price

Place

Promotion

Segmentation

Targeting

Positioning

What are the three phases of the buying process? What kinds of purchases are there? How do consumers make purchase decisions—and how can marketers use this information?

Customer

Company

Context

Collaborators

Competitors

Managerial Checklist

WHY IS MARKETING MANAGEMENT IMPORTANT?

1-1 DEFINING MARKETING Ask the average person, “What is marketing?” and they might say:

• “Marketing is sales and advertising.” • “Marketers make people buy stuff they don’t need and can’t afford.” • “Marketers are the people who call you while you’re trying to eat dinner.”

Unfortunately those comments are probably all deserved. The marketing profession, like any other, has its issues. But in this book we’ll take a more enlightened view.

This chapter begins with an overview of marketing concepts and terms. We’ll see the importance of marketing in today’s corporation. We’ll then present the Marketing Frame- work that structures the book and gives you a systematic way to think about marketing, and we’ll define all the terms in the framework: 5Cs, STP, and 4Ps.

1-2 MARKETING IS AN EXCHANGE RELATIONSHIP

Marketing is defined as an exchange between a firm and its customers.1 Figure 1.1 shows the customer wants something from the firm, and the firm wants something from the customer. Marketers try to figure out what customers want and how to provide it profitably.

1

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2 Part 1 Marketing Strategy

Ideally, this can be a nice, symbiotic relationship. Customers don’t mind paying for their purchases—and sometimes they pay a lot—if they really want what they’re about to buy. Companies like taking in profits, of course, but great companies really do care about their customers. If we’re lucky, the exchange depicted in Figure 1.1 is an ongoing exchange be-

tween the customer and the company, strengthening the tie between them.

As a lifelong customer, you are already somewhat famil- iar with marketing from the consumer side. But on the job, you’ll need to understand marketing from the firm’s point of view. Throughout this book, you’ll see both perspectives. In particular, you’ll see all the issues that marketers deal with as they try to deliver something of value to their cus- tomers, while trying to derive value from them.

Figure 1.1 Marketing is an Exchange

C U S T O M E R

C O M P A N Y

offers bene�ts

seeks pro�tsseeks bene�ts

expects to pay

Marketing oversees the customer-brand exchange.

1-2a Marketing is Everywhere Figure 1.2 illustrates that you can market just about anything. Marketing managers sell simple, tangible goods such as soap or shampoo, as well as high-end luxury goods such as Chanel handbags. Other marketing managers work in services, such as haircuts, airlines, hotels, or department stores. Marketers oversee experiences like theme parks or events like theater and concerts. Marketers help entertainers, athletes, politicians, and other celebrities with their images in their respective “marketplaces” (fans, agents, intelligentsia, opinion). Tourist bureaus have marketers who advertise the selling points of their city’s or country’s unique features. Information providers use marketing because they want customers to think they’re the best (and thereby maximize their ad revenue). Marketers at nonprofits and gov- ernment agencies work on “causes” (e.g., encouraging organ donation or drinking respon- sibly). Industries market themselves (think of the beef or milk ads). Naturally, companies use marketing for their brands and themselves. And you can market yourself, e.g., to a job interviewer or potential amour. These goals may look different, but marketing can be used beneficially in all these situations.

1-3 WHY IS MARKETING MANAGEMENT IMPORTANT?

Marketers have evolved beyond being merely product or production focused, where the company mind-set is, “Let’s build a better mouse trap.” We know that approach doesn’t work. There’s no point in just cranking out better gadgets unless the customers want them

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3Chapter 1 Why is Marketing Management Important?

Figure 1.2 What Can We “Market”?

Experiences Goods

Ideas Information Places

Companies Industries

Events People

Services

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4 Part 1 Marketing Strategy

because the gadgets won’t sell. However, there are still pockets of marketing naïveté in a number of industries. For example, some museums believe they don’t need marketing. They think people should appreciate their exhibits, and, if they don’t, it’s because the public is ignorant. Perhaps the general public is in- deed relatively unsophisticated culturally, but marketing can be used to educate the public.

We’re also more advanced than the old sales-oriented days when the action in the marketplace was, “Let’s make a deal.” This mentality still exists in plac- es like drug companies, which push their sales forces to impress physicians. But usually sales dynamics occur where the product is perceived to be a commodity. In contrast, marketers should be good at communicating product distinctions. As much as direct-to-consumer pharma ads annoy physicians, they attest to the power of marketing. The ads result in patients asking their doctors for particular brand names.

These days we live in a truly customer-oriented and customer-empowered marketing world. Marketing is even said to be evidence of evolved markets—that an industry or country has moved beyond production and sales and seeks true re- lationships with its customers. Marketers seek to identify their customers’ needs

and wants, and they try to formulate attractive solutions. Marketing can make customers happier, thereby making companies more profitable. Throughout the book, you’ll see how.

1-3a Marketing and Customer Satisfaction is Everyone’s Responsibility

Many management gurus believe that marketing has succeeded so well that it isn’t just a “function” in an organization anymore. Marketing is more of a philosophy—a way to think about business. The marketing orientation should permeate the organization.

• Accounting and finance need to acknowledge the importance of marketing. Why? Because their CEOs do. Thinking about customers is unimportant only if you’re a monopoly, and even then, you won’t be one for long.

• Salespeople understand marketing immediately. They’re the front line, interfacing with the customer. They want to push their firm’s stuff, but they’re thrilled when their company actually makes stuff that customers want. Then their jobs are so much easier.

• R&D people tend to understand the marketing spirit, too. They’re hired because they’re technically sophisticated, but they get jazzed when their inventions become popular. It doesn’t take much marketing research to test concepts or prototypes and to veer an R&D path one way or another.

One of the factors stressing marketers these days is the pressure to show results. It’s fair to hold any part of the corporation accountable, and results may be measured for a number of marketing activities. The Chief Financial Officer (CFO) who wants to see that a recent coupon promotion lifted sales can get reasonably good estimates from the Chief Marketing Officer (CMO) about effectiveness, e.g., the percentage sales increase attributable to the coupon introduction. The Chief Operating Officer (COO) can also get good estimates of whether a recent direct mail campaign to target customers has been effective in encourag- ing frequent buyers to go directly to the Web for purchasing.

However, it’s important not to go overboard in the effort to quantify. For example, how does one assess the value of a good segmentation study? If segments are poorly defined, any

Marketing can seem intuitive because we’re all consumers. But we’re not always the target customer for the brands we’re building. As a Brand Manager or CEO, don’t forget to put yourself in the shoes of your customers every once in a while, to see your brand from their perspective. When you do, you’ll understand their wants and needs better. That alone will give you an advantage over your competitors!

CUSTOMERS’ PERSPECTIVE

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5Chapter 1 Why is Marketing Management Important?

subsequent marketing efforts would be completely off, so a good segmentation scheme is invaluable. Advertising is also a little tricky. Non-marketers have the misconception that advertising is supposed to bump up sales. It can, and that bump is easily measured. But really great advertising isn’t intended for a short-term effect on sales. Great advertising is intended to enhance brand image, a goal that is relatively longer term and thus more difficult to measure.

In addition to quantifying the effectiveness of marketing programs, marketers are motivated to translate their efforts into dollars for another reason: to have a “seat at the table.” Marketers want to make sure that the CMO carries as much weight in the firm as the CEO or CFO or COO. They all speak finance, so the marketer is frequently mo- tivated to translate progress into financial terms. Fortunately, technology and data are increasingly enabling more opportunities for the marketer to make such assessments. For example, a good customer relationship management (CRM) program allows mar- keters to run a field study to assess the impact of a new promotion, and tracking Web data allows marketers to determine the product combinations that are most attractive to customers.

1-4 THE “MARKETING FRAMEWORK”: 5CS, STP, AND THE 4PS

Figure 1.3 provides the marketing management framework. Marketing is captured by the 5Cs, STP, and the 4Ps. The 5Cs are customer, company, context, collaborators, and competitors. The 5Cs force a businessperson to systematically frame the general analysis of the entire business situation. Figure 1.1 shows that the customer and company are the central players in the marketing exchange. The context includes the backdrop of macro- environmental factors: How is our economy and that of our suppliers doing? What legal constraints do we face, and are these changing? What cultural differences do our global segments manifest? The collaborators and competitors are the companies and people we work with vs. those we compete against (though drawing the line is sometimes difficult in to- day’s interconnected world).