Chapter 9 pricing understanding and capturing customer value

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Principles of Marketing

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Principles of Marketing

Global Edition

Philip Kotler Northwestern University

Gary Armstrong University of North Carolina

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15e

Credits and acknowledgments borrowed from other sources and reproduced, with permission, in this

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© Pearson Education Limited 2014, 2012

The rights of Philip Kotler and Gary Armstrong to be identified as authors of this work has been asserted by

them in accordance with the Copyright, Designs and Patents Act 1988.

Authorised adaptation from the United States edition, entitled Principles of Marketing, 15th Edition, ISBN 978-0-13-325541-6 by Philip Kotler and Gary Armstrong, published by Pearson Education © 2014.

All rights reserved. No part of this publication may be reproduced, stored in a retrieval system, or transmitted

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Dedication

To Kathy, Betty, Mandy, Matt, KC, Keri, Delaney, Molly, Macy, and Ben;

Nancy, Amy, Melissa, and Jessica

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About The Authors

Philip Kotler is S. C. Johnson & Son Distinguished Professor

of International Marketing at

the Kellogg School of Manage-

ment, Northwestern Univer-

sity. He received his master’s

degree from the University

of Chicago and his PhD from

M.I.T., both in economics. Dr.

Kotler is author of Marketing Management (Pearson Prentice Hall), now in its fourteenth

edition and the most widely

used marketing textbook in

graduate schools of business worldwide. He has authored doz-

ens of other successful books and has written more than 100

articles in leading journals. He is the only three-time winner of

the coveted Alpha Kappa Psi award for the best annual article

in the Journal of Marketing. Professor Kotler was named the first recipient of two ma-

jor awards: the Distinguished Marketing Educator of the Year

Award given by the American Marketing Association and the

Philip Kotler Award for Excellence in Health Care Marketing pre-

sented by the Academy for Health Care Services Marketing. His

numerous other major honors include the Sales and Marketing

Executives International Marketing Educator of the Year Award;

the European Association of Marketing Consultants and Trainers

Marketing Excellence Award; the Charles Coolidge Parlin Mar- keting Research Award; and the Paul D. Converse Award, given by the American Marketing Association to honor “outstanding

contributions to science in marketing.” A recent Forbes survey

ranks Professor Kotler in the top 10 of the world’s most influen-

tial business thinkers. In a recent Financial Times poll of 1,000 se- nior executives across the world, Professor Kotler was ranked

as the fourth “most influential business writer/guru” of the

twenty-first century. And he recently topped BusinessEducators

.com’s “Management A-List of Academics,” based on outstand-

ing achievements as well as Google global Web search interest.

Dr. Kotler has served as chairman of the College on Mar-

keting of the Institute of Management Sciences, a director of the

American Marketing Association, and a trustee of the Marketing

Science Institute. He has consulted with many major U.S. and

international companies in the areas of marketing strategy and

planning, marketing organization, and international marketing.

He has traveled and lectured extensively throughout Europe,

Asia, and South America, advising companies and governments

about global marketing practices and opportunities.

Gary Armstrong is Crist W. Blackwell Distinguished Profes-

sor Emeritus of Undergraduate

Education in the Kenan-Flagler

Business School at the Uni-

versity of North Carolina at

Chapel Hill. He holds under-

graduate and master’s degrees

in business from Wayne State

University in Detroit, and he

received his PhD in marketing

from Northwestern Univer-

sity. Dr. Armstrong has con-

tributed numerous articles to

leading business journals. As a consultant and researcher, he

has worked with many companies on marketing research, sales

management, and marketing strategy.

But Professor Armstrong’s first love has always been

teaching. His long-held Blackwell Distinguished Professor-

ship is the only permanently endowed professorship for dis-

tinguished undergraduate teaching at the University of North

Carolina (UNC) at Chapel Hill. He has been very active in the

teaching and administration of Kenan-Flagler’s undergradu-

ate program. His administrative posts have included Chair of

Marketing, Associate Director of the Undergraduate Business

Program, Director of the Business Honors Program, and many

others. Through the years, he has worked closely with business

student groups and has received several UNC campus-wide

and Business School teaching awards. He is the only repeat

recipient of the school’s highly regarded Award for Excellence

in Undergraduate Teaching, which he received three times.

Most recently, Professor Armstrong received the UNC Board of

Governors Award for Excellence in Teaching, the highest teach-

ing honor bestowed by the 16-campus University of North

Carolina system.

7

As a team, Philip Kotler and Gary Armstrong provide a blend of skills uniquely suited to writing

an introductory marketing text. Professor Kotler is

one of the world’s leading authorities on marketing.

Professor Armstrong is an award-winning teacher

of undergraduate business students. Together they

make the complex world of marketing practical,

approachable, and enjoyable.

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9

Preface 16

Part 1 Defining Marketing and the Marketing Process 24 1 Marketing: Creating and Capturing Customer Value 24

2 Company and Marketing Strategy: Partnering to Build Customer Relationships 60

Part 2 Understanding the Marketplace and Consumers 90 3 Analyzing the Marketing Environment 90

4 Managing Marketing Information to Gain Customer Insights 122

5 Consumer Markets and Consumer Buyer Behavior 156

6 Business Markets and Business Buyer Behavior 188

Part 3 Designing a Customer-Driven Strategy and Mix 212 7 Customer-Driven Marketing Strategy: Creating Value for Target Customers 212

8 Products, Services, and Brands: Building Customer Value 246

9 New-Product Development and Product Life-Cycle Strategies 282

10 Pricing: Understanding and Capturing Customer Value 310

11 Pricing Strategies: Additional Considerations 334

12 Marketing Channels: Delivering Customer Value 360

13 Retailing and Wholesaling 394

14 Communicating Customer Value: Integrated Marketing Communications Strategy 426

15 Advertising and Public Relations 454

16 Personal Selling and Sales Promotion 482

17 Direct and Online Marketing: Building Direct Customer Relationships 514

Part 4 Extending Marketing 546 18 Creating Competitive Advantage 546

19 The Global Marketplace 572

20 Sustainable Marketing: Social Responsibility and Ethics 602

Appendix 1 Marketing Plan 633

Appendix 2 Marketing by the Numbers 643

Appendix 3 Marketing Careers 661

Glossary 673

Index 683

Brief Contents

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Preface 16

Part 1: Defining Marketing and the Marketing Process 24

Marketing: Creating and Capturing Customer Value 24

What Is Marketing? 26

Marketing Defined 27 | The Marketing Process 27

Understanding the Marketplace and Customer Needs 28

Customer Needs, Wants, and Demands 28 | Market

Offerings—Products, Services, and Experiences 28 |

Customer Value and Satisfaction 29 | Exchanges and

Relationships 29 | Markets 29

Designing a Customer-Driven Marketing Strategy 30

Selecting Customers to Serve 31 | Choosing a Value

Proposition 31 | Marketing Management Orientations 31

Preparing an Integrated Marketing Plan and Program 34

Building Customer Relationships 34

Customer Relationship Management 34 | The Changing

Nature of Customer Relationships 38 | Partner Relationship

Management 41

Capturing Value from Customers 41

Creating Customer Loyalty and Retention 42 | Growing Share

of Customer 42 | Building Customer Equity 43

The Changing Marketing Landscape 44

The Changing Economic Environment 44 | The Digital

Age 45 | The Growth of Not-for-Profit Marketing 48 | Rapid

Globalization 48 | Sustainable Marketing—The Call for More

Social Responsibility 49

So, What Is Marketing? Pulling It All Together 50

Reviewing Objectives and Key Terms 51 | Objectives Review 51 |

Key Terms 53 | Discussion and Critical Thinking 53 |

Discussion Questions 53 | Critical Thinking Exercises 53 |

Applications and Cases 54 | Marketing Technology 54 |

Marketing Ethics 54 | Marketing by the Numbers 54 | Video Case:

Zappos 55 | Company Case: Abou Shakra Restaurant 55

1

Contents

Company and Marketing Strategy: Partnering to Build Customer Relationships 60

Company-Wide Strategic Planning: Defining Marketing’s

Role 63

Defining a Market-Oriented Mission 63 | Setting Company

Objectives and Goals 64 | Designing the Business Portfolio 65

Planning Marketing: Partnering to Build Customer

Relationships 70

Partnering with Other Company Departments 71 | Partnering

with Others in the Marketing System 72

Marketing Strategy and the Marketing Mix 72

Customer-Driven Marketing Strategy 73 | Developing an

Integrated Marketing Mix 76

Managing the Marketing Effort 77

Marketing Analysis 77 | Marketing Planning 78 | Marketing

Implementation 79 | Marketing Department Organization 80 |

Marketing Control 81

Measuring and Managing Return on Marketing Investment 81

Reviewing Objectives and Key Terms 61 | Objectives Review

83 | Key Terms 62 | Discussion and Critical Thinking 62 |

Discussion Questions 84 | Critical Thinking Exercises 63 |

Applications and Cases 63 | Marketing Technology 85 |

Marketing Ethics 63 | Marketing by the Numbers 85 |

Video Case: OXO 64 | Company Case: Trap-Ease America 86

Part 2: Understanding the Marketplace and Consumers 90

Analyzing the Marketing Environment 90

The Microenvironment 93

The Company 93 | Suppliers 93 | Marketing Intermediaries 94 |

Competitors 94 | Publics 95 | Customers 95

The Macroenvironment 96

The Demographic Environment 96 | The Economic

Environment 103 | The Natural Environment 104 |

2

3

Part 1: Defining Marketing and the Marketing Process (Chapters 1–2)

Part 2: Understanding the Marketplace and Consumers (Chapters 3–6)

Part 3: Designing a Customer-Driven Strategy and Mix (Chapters 7–17)

Part 4: Extending Marketing (Chapters 18–20)

11

2

12 Contents

The Technological Environment 106 | The Political and Social

Environment 107 | The Cultural Environment 110

Responding to the Marketing Environment 113

Reviewing Objectives and Key Terms 93 | Objectives Review

115 | Key Terms 94 | Discussion and Critical Thinking 94 |

Discussion Questions 116 | Critical Thinking Exercises 95 |

Applications and Cases 95 | Marketing Technology 117 |

Marketing Ethics 95 | Marketing by the Numbers 96 |

Video Case: Ecoist 96 | Company Case: Xerox 118

Managing Marketing Information to Gain Customer Insights 122

Marketing Information and Customer Insights 124

Assessing Marketing Information Needs 125

Developing Marketing Information 126

Internal Data 126 | Competitive Marketing Intelligence 127

Marketing Research 128

Defining the Problem and Research Objectives 129 |

Developing the Research Plan 129 | Gathering Secondary

Data 130 | Primary Data Collection 131 | Implementing the

Research Plan 140 | Interpreting and Reporting the Findings 141

Analyzing and Using Marketing Information 141

Customer Relationship Management 141 | Distributing and

Using Marketing Information 142

Other Marketing Information Considerations 144

Marketing Research in Small Businesses and Nonprofit

Organizations 145 | International Marketing Research 146 |

Public Policy and Ethics in Marketing Research 147

Reviewing Objectives and Key Terms 126 | Objectives Review

148 | Key Terms 149 | Discussion and Critical Thinking 128 |

Discussion Questions 128 | Critical Thinking Exercises 128 |

Applications and Cases 128 | Marketing Technology 150 |

Marketing Ethics 129 | Marketing by the Numbers 129 | Video

Case: Domino’s 151 | Company Case: Meredith 152

Consumer Markets and Consumer Buyer Behavior 156

Model of Consumer Behavior 158

Characteristics Affecting Consumer Behavior 159

Cultural Factors 159 | Social Factors 162 | Personal

Factors 167 | Psychological Factors 171

Types of Buying Decision Behavior 174

Complex Buying Behavior 174 | Dissonance-Reducing Buying

Behavior 175 | Habitual Buying Behavior 175 | Variety-Seeking

Buying Behavior 175

The Buyer Decision Process 176

Need Recognition 176 | Information Search 176 | Evaluation

of Alternatives 177 | Purchase Decision 177 | Postpurchase

Behavior 178

4

5

The Buyer Decision Process for New Products 178

Stages in the Adoption Process 179 | Individual Differences in

Innovativeness 179 | Influence of Product Characteristics on

Rate of Adoption 180

Reviewing Objectives and Key Terms 159 | Objectives Review

181 | Key Terms 160 | Discussion and Critical Thinking 160 |

Discussion Questions 160 | Critical Thinking Exercises 182 |

Applications and Cases 161 | Marketing Technology 161 |

Marketing Ethics 161 | Marketing by the Numbers 183 | Video

Case: Goodwill Industries 162 | Company Case: Porsche 184

Business Markets and Business Buyer Behavior 188

Business Markets 190

Market Structure and Demand 191 | Nature of the Buying Unit 191

Business Buyer Behavior 193

Major Types of Buying Situations 193 | Participants in

the Business Buying Process 194 | Major Influences on

Business Buyers 194 | The Business Buying Process 197 |

E-Procurement: Buying on the Internet 199

Institutional and Government Markets 200

Institutional Markets 202 | Government Markets 203

Reviewing Objectives and Key Terms 183 | Objectives

Review 205 | Key Terms 184 | Discussion and Critical Thinking

184 | Discussion Questions 206 | Critical Thinking Exercises

185 | Applications and Cases 185 | Marketing Technology 185 |

Marketing Ethics 207 | Marketing by the Numbers 186 | Video

Case: Eaton 186 | Company Case: Cisco Systems 208

Part 3: Designing a Customer-Driven Strategy and Mix 212

Customer-Driven Marketing Strategy: Creating Value for Target Customers 212

Market Segmentation 215

Segmenting Consumer Markets 215 | Segmenting Business

Markets 222 | Segmenting International Markets 223 |

Requirements for Effective Segmentation 224

Market Targeting 224

Evaluating Market Segments 224 | Selecting Target Market

Segments 225

Differentiation and Positioning 232

Positioning Maps 232 | Choosing a Differentiation and

Positioning Strategy 233 | Communicating and Delivering the

Chosen Position 238

Reviewing Objectives and Key Terms 217 | Objectives Review

217 | Key Terms 240 | Discussion and Critical Thinking 218 |

Discussion Questions 218 | Critical Thinking Exercises 240 |

Applications and Cases 219 | Marketing Technology 219 |

Marketing Ethics 241 | Marketing by the Numbers 219 | Video

Case: Boston Harbor Cruises 241 | Company Case: Bentley

Motors 242

6

7

Contents 13

Products, Services, and Brands: Building Customer Value 246

What Is a Product? 248

Products, Services, and Experiences 249 | Levels of

Product and Services 249 | Product and Service

Classifications 250

Product and Service Decisions 253

Individual Product and Service Decisions 253 | Product Line

Decisions 258 | Product Mix Decisions 258

Services Marketing 259

The Nature and Characteristics of a Service 260 | Marketing

Strategies for Service Firms 261

Branding Strategy: Building Strong Brands 266

Brand Equity 266

Building Strong Brands 267 | Managing Brands 274

Reviewing Objectives and Key Terms 253 | Objectives Review

275 | Key Terms 254 | Discussion and Critical Thinking 254 |

Discussion Questions 254 | Critical Thinking Exercise 276 |

Applications and Cases 255 | Marketing Technology 255 |

Marketing Ethics 255 | Marketing by the Numbers 255 | Video

Case: Life Is Good 277 | Company Case: Mavi Jeans 278

New-Product Development and Product Life-Cycle Strategies 282

New-Product Development Strategy 284

The New-Product Development Process 285

Idea Generation 285 | Idea Screening 287 | Concept

Development and Testing 289 | Marketing Strategy

Development 290 | Business Analysis 291 | Product

Development 291 | Test Marketing 292 |

Commercialization 293

Managing New-Product Development 293

Customer-Centered New-Product Development 293 | Team-

Based New-Product Development 294 | Systematic New-

Product Development 294 | New-Product Development in

Turbulent Times 295

Product Life-Cycle Strategies 295

Introduction Stage 297 | Growth Stage 298 | Maturity Stage

298 | Decline Stage 299

Additional Product and Service Considerations 301

Product Decisions and Social Responsibility 301 |

International Product and Services Marketing 303

Reviewing Objectives and Key Terms 282 | Objectives Review

282 | Key Terms 283 | Discussion and Critical Thinking 283 |

Discussion Questions 283 | Critical Thinking Exercises 305 |

Applications and Cases 284 | Marketing Technology 284 |

Marketing Ethics 284 | Marketing by the Numbers 306 | Video

Case: Subaru 285 | Company Case: Google 307

8

9

Pricing: Understanding and Capturing Customer Value 310

What Is a Price? 312

Major Pricing Strategies 313

Customer Value-Based Pricing 313 | Cost-Based Pricing 317 |

Competition-Based Pricing 321

Other Internal and External Considerations Affecting Price

Decisions 321

Overall Marketing Strategy, Objectives, and Mix 321 |

Organizational Considerations 324 | The Market and

Demand 324 | The Economy 327 | Other External Factors 327

Reviewing Objectives and Key Terms 306 | Objectives

Review 328 | Key Terms 307 | Discussion and Critical

Thinking 307 | Discussion Questions 307 | Critical Thinking

Exercises 329 | Applications and Cases 308 | Marketing

Technology 308 | Marketing Ethics 308 | Marketing by the

Numbers 330 | Video Case: Smashburger 309 | Company Case:

Cath Kidston 331

Pricing Strategies: Additional Considerations 334

New-Product Pricing Strategies 336

Market-Skimming Pricing 336 | Market-Penetration

Pricing 337

Product Mix Pricing Strategies 337

Product Line Pricing 338 | Optional Product Pricing 338 |

Captive Product Pricing 338 | By-Product Pricing 339 |

Product Bundle Pricing 339

Price Adjustment Strategies 339

Discount and Allowance Pricing 340 | Segmented Pricing 340 |

Psychological Pricing 341 | Promotional Pricing 343 |

Geographical Pricing 344 | Dynamic and Internet Pricing 345 |

International Pricing 346

Price Changes 347

Initiating Price Changes 347 | Responding to Price

Changes 350

Public Policy and Pricing 351

Pricing within Channel Levels 352 | Pricing across Channel

Levels 352

Reviewing Objectives and Key Terms 331 | Objectives

Review 353 | Key Terms 332 | Discussion and Critical

Thinking 333 | Discussion Questions 333 | Critical Thinking

Exercises 333 | Applications and Cases 333 | Marketing

Technology 355 | Marketing Ethics 334 | Marketing by the

Numbers 334 | Video Case: Hammerpress 356 | Company Case:

Amazon vs. Walmart 357

10

11

14 Contents

Marketing Channels: Delivering Customer Value 360

Supply Chains and the Value Delivery Network 362

The Nature and Importance of Marketing Channels 363

How Channel Members Add Value 364 | Number of Channel

Levels 365

Channel Behavior and Organization 366

Channel Behavior 366 | Vertical Marketing Systems 367 |

Horizontal Marketing Systems 369 | Multichannel Distribution

Systems 370 | Changing Channel Organization 370

Channel Design Decisions 371

Analyzing Consumer Needs 372 | Setting Channel Objectives 372

Identifying Major Alternatives 373 | Evaluating the Major

Alternatives 374 | Designing International Distribution Channels 374

Channel Management Decisions 375

Selecting Channel Members 375 | Managing and Motivating

Channel Members 376 | Evaluating Channel Members 376

Public Policy and Distribution Decisions 376

Marketing Logistics and Supply Chain Management 379

Nature and Importance of Marketing Logistics 379 | Goals of

the Logistics System 380 | Major Logistics Functions 381 |

Integrated Logistics Management 383

Reviewing Objectives and Key Terms 365 | Objectives Review

387 | Key Terms 366 | Discussion and Critical Thinking 367 |

Discussion Questions 367 | Critical Thinking Exercises 367 |

Applications and Cases 367 | Marketing Technology 389 |

Marketing Ethics 368 | Marketing by the Numbers 368 | Video

Case: Gaviña Gourmet Coffee 368 | Company Case: Pandora 390

Retailing and Wholesaling 394

Retailing 374

Types of Retailers 397 | Retailer Marketing Decisions 402 |

Retailing Trends and Developments 408

Wholesaling 414

Types of Wholesalers 415 | Wholesaler Marketing

Decisions 415 | Trends in Wholesaling 418

Reviewing Objectives and Key Terms 397 | Objectives

Review 419 | Key Terms 398 | Discussion and Critical

Thinking 398 | Discussion Questions 420 | Critical Thinking

Exercises 399 | Applications and Cases 399 | Marketing

Technology 399 | Marketing Ethics 421 | Marketing by the

Numbers 400 | Video Case: Home Shopping Network 400 |

Company Case: Leader Price 422

Communicating Customer Value: Integrated Marketing Communications Strategy 426

The Promotion Mix 428

Integrated Marketing Communications 429

12

13

14

The New Marketing Communications Model 429 | The Need

for Integrated Marketing Communications 431

A View of the Communication Process 434

Steps in Developing Effective Marketing Communication 435

Identifying the Target Audience 436 | Determining the

Communication Objectives 436 | Designing a Message 437 |

Choosing Media 438 | Selecting the Message Source 439 |

Collecting Feedback 440

Setting the Total Promotion Budget and Mix 440

Setting the Total Promotion Budget 440 | Shaping the Overall

Promotion Mix 443 | Integrating the Promotion Mix 445

Socially Responsible Marketing Communication 446

Advertising and Sales Promotion 446 | Personal Selling 446

Reviewing Objectives and Key Terms 425 | Objectives Review

447 | Key Terms 426 | Discussion and Critical Thinking 426 |

Discussion Questions 448 | Critical Thinking Exercises 427 |

Applications and Cases 427 | Marketing Technology 427 |

Marketing Ethics 449 | Marketing by the Numbers 428 | Video

Case: OXO 428 | Company Case: Red Bull 450

Advertising and Public Relations 454

Advertising 456

Setting Advertising Objectives 457 | Setting the Advertising

Budget 459 | Developing Advertising Strategy 459 | Evaluating

Advertising Effectiveness and the Return on Advertising

Investment 469 | Other Advertising Considerations 470

Public Relations 472

The Role and Impact of PR 472 | Major Public Relations

Tools 473

Reviewing Objectives and Key Terms 453 | Objectives Review 475 |

Key Terms 454 | Discussion and Critical Thinking 454 | Discussion

Questions 476 | Critical Thinking Exercise 455 | Applications and

Cases 455 | Marketing Technology 455 | Marketing Ethics 477 | Marketing by the Numbers 456 | Video Case: E*trade 456 | Company

Case: The Super Bowl 478

Personal Selling and Sales Promotion 482

Personal Selling 484

The Nature of Personal Selling 484 | The Role of the Sales

Force 485

Managing the Sales Force 486

Designing the Sales Force Strategy and Structure 487 |

Recruiting and Selecting Salespeople 490 | Training

Salespeople 491 | Compensating Salespeople 492 |

Supervising and Motivating Salespeople 492 |

Evaluating Salespeople and Sales Force Performance 496

The Personal Selling Process 497

Steps in the Selling Process 497 | Personal Selling

and Managing Customer Relationships 499

15

16

Contents 15

Sales Promotion 501

The Rapid Growth of Sales Promotion 502 | Sales Promotion

Objectives 502 | Major Sales Promotion Tools 503 |

Developing the Sales Promotion Program 506

Reviewing Objectives and Key Terms 485 | Objectives Review

507 | Key Terms 486 | Discussion and Critical Thinking 486 |

Discussion Questions 486 | Critical Thinking Exercise 508 |

Applications and Cases 487 | Marketing Technology 487 |

Marketing Ethics 487 | Marketing by the Numbers 509 | Video

Case: MedTronic 488 | Company Case: Salesforce.com 510

Direct and Online Marketing: Building Direct Customer Relationships 514

The New Direct Marketing Model 516

Growth and Benefits of Direct Marketing 517

Benefits to Buyers 517 | Benefits to Sellers 518

Customer Databases and Direct Marketing 518

Forms of Direct Marketing 521

Direct-Mail Marketing 521 | Catalog Marketing 522 |

Telemarketing 523 | Direct-Response Television Marketing 523 |

Kiosk Marketing 524

Online Marketing 525

Marketing and the Internet 525 | Online Marketing Domains

526 | Setting Up an Online Marketing Presence 528

Public Policy Issues in Direct Marketing 536

Irritation, Unfairness, Deception, and Fraud 536 | Consumer

Privacy 537 | A Need for Action 537

Reviewing Objectives and Key Terms 517 | Objectives Review

539 | Key Terms 518 | Discussion and Critical Thinking 518 |

Discussion Questions 518 | Critical Thinking Exercises 540 |

Applications and Cases 519 | Marketing Technology 519 |

Marketing Ethics 519 | Marketing by the Numbers 541 | Video

Case: Home Shopping Network 520 | Company Case: EBay 542

Part 4: Extending Marketing 546

Creating Competitive Advantage 546

Competitor Analysis 548

Identifying Competitors 549 | Assessing Competitors 551 |

Selecting Competitors to Attack and Avoid 553 | Designing a

Competitive Intelligence System 555

Competitive Strategies 555

Approaches to Marketing Strategy 555 | Basic Competitive

Strategies 557 | Competitive Positions 558 | Market Leader

Strategies 560 | Market Challenger Strategies 563 | Market

Follower Strategies 564 | Market Nicher Strategies 564

Balancing Customer and Competitor Orientations 565

Reviewing Objectives and Key Terms 544 | Objectives Review 566 |

Key Terms 545 | Discussion and Critical Thinking 545 | Discussing

the Concepts 545 | Critical Thinking Exercises 567 | Applications

17

18

and Cases 546 | Marketing Technology 546 | Marketing Ethics 546 |

Marketing by the Numbers 546 | Video Case: Umpqua Bank 568 |

Company Case: Ford 569

The Global Marketplace 572

Global Marketing Today 574

Looking at the Global Marketing Environment 576

The International Trade System 576 | Economic Environment 578 |

Political-Legal Environment 580 | Cultural Environment 581

Deciding Whether to Go Global 583

Deciding Which Markets to Enter 584

Deciding How to Enter the Market 585

Exporting 585 | Joint Venturing 586 | Direct Investment 587

Deciding on the Global Marketing Program 588

Product 590 | Promotion 592 | Price 593 | Distribution

Channels 593

Deciding on the Global Marketing Organization 594

Reviewing Objectives and Key Terms 573 | Objectives Review

595 | Key Terms 574 | Discussion and Critical Thinking 574 |

Discussion Questions 596 | Critical Thinking Exercises 575 |

Applications and Cases 575 | Marketing Technology 575 |

Marketing Ethics 575 | Marketing by the Numbers 597 | Video

Case: The U.S. Film Industry 576 | Company Case: Buick 598

Sustainable Marketing: Social Responsibility and Ethics 602

Sustainable Marketing 604

Social Criticisms of Marketing 606

Marketing’s Impact on Individual Consumers 606 | Marketing’s

Impact on Society as a Whole 610 | Marketing’s Impact on

Other Businesses 612

Consumer Actions to Promote Sustainable Marketing 613

Consumerism 613 | Environmentalism 614 | Public Actions to

Regulate Marketing 618

Business Actions Toward Sustainable Marketing 618

Sustainable Marketing Principles 619 | Marketing Ethics 623 |

The Sustainable Company 625

Reviewing Objectives and Key Terms 604 | Objectives Review

626 | Key Terms 605 | Discussion and Critical Thinking 605 |

Discussion Questions 605 | Critical Thinking Exercises 605 |

Applications and Cases 605 | Marketing Technology 627 |

Marketing Ethics 606 | Marketing by the Numbers 606 | Video

Case: Life Is Good 606 | Company Case: International Paper 628

Appendix 1: Marketing Plan 633

Appendix 2: Marketing by the Numbers 643

Appendix 3: Marketing Careers 661

Glossary 673

Index 683

19

20

The Fifteenth Edition of Principles of Marketing

Students across six continents, more than 40 countries, and 24 languages rely on Kotler/

Armstrong’s Principles of Marketing

Principles of Marketing remains the

and Relationships

Principles of Marketing

Creating value for customers in order to capture value from customers in return. Today’s creating customer value and managing customer relationships

creates customer captures

Preface

16

Preface 17

deep focus on brands, anchored by the Chapter 30 section “Branding Strategy: Building

Strong Brands.”

3. Harnessing new marketing technologies. New digital and other high-tech marketing de- velopments are dramatically changing how consumers and marketers relate to one

another. No other force is having more impact than technology on marketing strategy

and practice. The fifteenth edition thoroughly explores the new technologies impacting

marketing, from digital relationship-building tools in Chapter 1 to new digital market-

ing and online technologies in Chapters 15 and 17 to the exploding use of online social

networks and consumer-generated marketing in Chapters 1, 5, 14, 15, 17—and just

about everywhere else in the text.

4. Measuring and managing return on marketing. Especially in uncertain economic times, marketing managers must ensure that their marketing dollars are being well spent.

In the past, many marketers spent freely on big, expensive marketing programs, often

without thinking carefully about the financial returns on their spending. But all that

has changed rapidly. “Marketing accountability”—measuring and managing return

on marketing investments—has now become an important part of strategic marketing

decision making. This emphasis on marketing accountability is addressed throughout

the fifteenth edition.

5. Sustainable marketing around the globe. As technological developments make the world an increasingly smaller and more fragile place, marketers must be skilled at marketing

their brands globally and in sustainable ways. New material throughout the fifteenth

edition emphasizes the concepts of global marketing and sustainable marketing—

meeting the present needs of consumers and businesses while also preserving or

enhancing the ability of future generations to meet their needs. The fifteenth edition

integrates global marketing and sustainability topics throughout the text. It then pro-

vides focused coverage of each topic in Chapters 41 and 42, respectively.

New in the Fifteenth Edition We’ve thoroughly revised the fifteenth edition of Principles of Marketing to reflect the major trends and forces impacting marketing in this high-tech era of customer value and relation-

ships. Here are just some of the major and continuing changes you’ll find in this edition:

now affecting the ways in which marketers and customers learn about and relate to

each other. In recent years, nothing has had greater impact than technology on consum-

ers and the marketers who serve them. Every chapter of the fifteenth edition features

new, revised, and expanded discussions of the explosive impact of the exciting new marketing technologies shaping marketing strategy and practice—from online social networks and brand communities discussed in Chapters 1, 5, 14, 15, and 17; to “online

listening” and Webnology research tools in Chapter 4, neuromarketing in Chapter 5,

Create value for customers and build customer relationships

Capture value from customers in return

Capture value from customers to create profits and customer equity

Build profitable relationships and create customer

delight

Construct an integrated

marketing program that delivers

superior value

Design a customer-driven

marketing strategy

Understand the marketplace and customer needs

and wants

Marketing: Creating and Capturing Customer Value

FIGURE | 1.1 A Simple Model of the Marketing Process

18 Preface

and location-based marketing in Chapter 7; to the use of social networks in business-to-

business marketing and sales in Chapters 6 and 16; to Internet and mobile marketing

and other new communications technologies in Chapters 1, 14, 15, 17, and throughout.

The fifteenth edition is packed with new stories and examples illustrating how com-

panies employ technology to gain competitive advantage—from traditional marketing

all-stars such as P&G, McDonald’s, and Nike to new-age digital competitors such as

Apple, Google, Amazon.com, and Facebook.

customer-value framework from previous editions. The customer-value model presented in the first chapter is fully integrated throughout the remainder of the book. No other marketing

text presents such a clear and compelling customer-value approach.

changing nature of customer relationships with companies and brands. Today’s marketers are creating deep consumer involvement and a sense of customer community surrounding

their brands—making brands a meaningful part of consumers’ conversations and lives.

Today’s new relationship-building tools include everything from Web sites, blogs, in-

person events, and video sharing to online communities and social networks such as

Facebook, YouTube, Pinterest, Twitter, or a company’s own social networking sites. For

just a few examples, see Chapter 1 (the section “The Changing Nature of Customer Re-

lationships”); Chapter 4 (qualitative approaches to gaining deeper customer insights);

Chapter 5 (managing online influence and marketing through social networks); Chap-

ter 9 (customer-driven new-product development and co-creation); Chapters 14 and

15 (the shift toward more personalized, interactive communications); and Chapter 39

(online social networks, customer communities, and direct digital media).

-

ward two-way interactions between customers and brands, including such topics as

customer-managed relationships, consumer empowerment, crowdsourcing, customer co-creation, and consumer-generated marketing. Today’s more empowered customers are giving as much as they get in the form of two-way relationships (Chapter 1), a more

active role in providing customer insights (Chapter 4), crowdsourcing and co-creating new

products (Chapter 8), consumer-generated marketing content (Chapters 1 and 15), devel-

oping or passing along brand messages (Chapters 1, 5, 8, 14, and 15), interacting in cus-

tomer communities (Chapters 5, 15, and 17), and other developments.

-

sumers are dealing with marketing in an uncertain economy in the lingering after- math of the recent Great Recession. Starting with a section and feature in Chapter 1

and continuing with new sections, discussions, and examples integrated throughout

the text, the fifteenth edition shows how now, even as the economy recovers, marketers

must focus on creating customer value and sharpening their value propositions in this

era of more sensible consumption.

sustainable marketing. The discussion begins in Chapter 1 and ends in Chapter 20, which pulls marketing concepts together under a sustainable marketing framework. In

between, frequent discussions and examples show how sustainable marketing calls for

socially and environmentally responsible actions that meet both the immediate and the

future needs of customers, companies, and society as a whole.

global mar- keting. As the world becomes a smaller, more competitive place, markets face new global marketing challenges and opportunities, especially in fast-growing emerging markets

such as China, India, Brazil, Africa, and others. You’ll find much new coverage of global

marketing throughout the text, starting in Chapter 1 and discussed fully in Chapter 19.

in the fast-changing areas of integrated marketing communications and direct and online marketing. It tells how marketers are blending the new digital and direct technologies—everything from Internet and mobile marketing to blogs, viral videos,

and online social networks—with traditional media to create more targeted, personal,

and interactive customer relationships. Marketers are no longer simply creating inte-

grated promotion programs, they are practicing marketing content management in paid, owned, earned, and shared media. No other text provides more current or encompass-

ing coverage of these exciting developments.

Preface 19

measuring and managing return on marketing, including many new end-of-chapter financial and quantitative marketing exercises that let students apply analytical thinking to relevant concepts in each chap-

ter and link chapter concepts to the text’s innovative and comprehensive Appendix 2:

Marketing by the Numbers.

innovative learning design. The text’s active and integrative presentation includes learning enhancements such as

annotated chapter-opening stories, a chapter-opening objective outline, and ex-

planatory author comments on major chapter figures. The chapter-opening layout

helps to preview and position the chapter and its key concepts. Figures annotated

with author comments help students to simplify and organize chapter material.

End-of-chapter features help to summarize important chapter concepts and high-

light important themes, such as marketing technology, ethics, and financial market-

ing analysis. This innovative learning design facilitates student understanding and

eases learning.

which students can apply what they learn to actual company situations. The fifteenth

edition also features many new video cases, with brief end-of-chapter summaries and

discussion questions. A newly revised Appendix 1: Marketing Plan presents a brand new marketing plan by which students can apply text concepts to a hypothetical brand

and situation. Finally, all of the chapter-opening stories and Real Marketing highlights

in the fifteenth edition are either new or revised for currency.

An Emphasis on Real Marketing Principles of Marketing, fifteenth edition, takes a practical marketing-management approach, providing countless in-depth, real-life examples and stories that show concepts in action

and reveal the drama of modern marketing. In the fifteenth edition, every chapter-opening

vignette and Real Marketing highlight is new or revised, providing fresh insights into real

marketing practices. Learn how:

made it the world’s leading online retailer.

and profitable online marketers—but it’s just getting started.

even a dominant marketing leader—fails to adapt to its changing environment.

listening to customers and using the insights gained to develop better products and

marketing.

that has produced stunning sales and profit results.

showrooms to scope out merchandise.

-

pany as “socially responsible”—doing good is ingrained in everything the company

does.

-

chant, are fighting it out online on price.

expressive lifestyle brand befitting current times.

some honey.”

-

ers asking: “Who needs face-to-face selling anymore?”

same time reducing its impact on the planet.

20 Preface

Beyond these features, each chapter is packed with countless real, relevant, and timely

examples that reinforce key concepts. No other text brings marketing to life like the fifteenth

edition of Principles of Marketing.

Learning Aids That Create More Value for You A wealth of chapter-opening, within-chapter, and end-of-chapter learning devices help you

to learn, link, and apply major concepts:

Integrated chapter-opening preview sections. The active and integrative chapter-opening spread in each chapter starts with a Chapter Preview, which briefly previews chapter concepts, links them with previous chapter concepts, and introduces the chapter-

opening story. This leads to a chapter-opening vignette—an engaging, deeply devel-

oped, illustrated, and annotated marketing story that introduces the chapter material

and sparks your interest. Finally, an Objective Outline provides a helpful preview of chapter contents and learning objectives, complete with page numbers.

Real Marketing highlights. Each chapter contains two carefully developed highlight features that provide an in-depth look at real marketing practices of large and small

companies.

Author figure annotations. Each figure contains author comments that aid your under- standing and help organize major text sections.

Reviewing Objectives and Key Terms. A summary at the end of each chapter reviews ma- jor chapter concepts, chapter objectives, and key terms.

Discussion and Critical Thinking Questions and Exercises. Sections at the end of each chap- ter help you to keep track of and apply what you’ve learned in the chapter.

Applications and Cases. Brief Marketing Technology, Marketing Ethics, and Marketing by the Numbers sections at the end of each chapter provide short application cases that facilitate discussion of current issues and company situations in areas such as market-

ing technology, ethics, and financial marketing analysis. A Video Case section contains short vignettes with discussion questions to be used with a set of mostly new four- to

seven-minute videos that accompany the fifteenth edition. End-of-chapter Company Case sections provide all-new or revised company cases that help you to apply major marketing concepts to real company and brand situations.

Marketing Plan appendix. Appendix 1 contains a brand new sample marketing plan that helps you to apply important marketing planning concepts.

Marketing by the Numbers appendix. An innovative Appendix 2 provides you with a comprehensive introduction to the marketing financial analysis that helps to guide,

assess, and support marketing decisions. An exercise at the end of each chapter lets

you apply analytical and financial thinking to relevant chapter concepts and links the

chapter to the Marketing by the Numbers appendix.

More than ever before, the fifteenth edition of Principles of Marketing creates value for you— it gives you all you need to know about marketing in an effective and enjoyable total learn-

ing package!

Supplements for Instructors The following supplements are available to adopting instructors at the Pearson Instructor

Resource Center, http://www.pearsonglobaleditions.com/kotler.

Instructor’s Manual: provides the following for every chapter in the book: overview, outline, end-of-chapter solutions, additional projects, and examples and Web resources.

Test Bank: includes 3,000 questions, consisting of multiple-choice, true/false, short- answer, and essay questions.

Image Library: access many of the images, ads, and illustrations from the text. PowerPoint slides: includes basic chapter outlines, key points from each chapter, ad- vertisements and art from the text, and discussion questions.

No book is the work only of its authors. We greatly appreciate the valuable contributions of

several people who helped make this new edition possible. As always, we owe very special

thanks to Keri Jean Miksza for her dedicated and valuable help in all phases of the project, and to her husband Pete and little daughters Lucy and Mary for all the support they pro-

vide Keri during this often-hectic project.

We owe substantial thanks to Andy Norman of Drake University, for his valuable revi-

sion advice and skillful contributions in developing chapter vignettes and highlights, com-

pany and video cases, the Marketing Plan appendix, and selected marketing stories. This

edition has benefited greatly from Andy’s assistance. We also thank Laurie Babin of the Uni-

versity of Louisiana at Monroe for her dedicated efforts in preparing end-of-chapter materi-

als and keeping our Marketing by the Numbers appendix fresh. Additional thanks also go

to Dr. Andrew Lingwall of the Clarion University of Pennsylvania for revising the Instruc-

tor’s Manual, to Mary Albrecht of Maryville University for revising the PowerPoint sets,

and to the team at ANSR Source Group for revising the Test Bank for the fifteenth edition.

Many reviewers at other colleges and universities provided valuable comments and

suggestions for this and previous editions. We are indebted to the following colleagues for

their thoughtful input:

Acknowledgments

Fifteenth Edition Reviewers Greg Black, Metropolitan State University of Denver

Rod Carveth, Naugatuck Valley Community College

Linda Morable, Richland College

Randy Moser, Elon University

David Murphy, Madisonville Community College

Donna Waldron, Manchester Community College

Douglas Witt, Brigham Young University

Fourteenth Edition Reviewers Rod Carveth, Naugatuck Valley Community College

Anindja Chatterjee, Slippery Rock University of Pennsylvania

Mary Conran, Temple University

Eloise Coupey, Virginia Tech

Alan Dick, University of Buffalo

Karen Gore, Ivy Tech Community College, Evansville Campus

Charles Lee, Chestnut Hill College

Samuel McNeely, Murray State University

Chip Miller, Drake University

David Murphy, Madisonville Community College

Esther Page-Wood, Western Michigan University

Tim Reisenwitz, Valdosta State University

Mary Ellen Rosetti, Hudson Valley Community College

William Ryan, University of Connecticut

Roberta Schultz, Western Michigan University

J. Alexander Smith, Oklahoma City University

Deb Utter, Boston University

Donna Waldron, Manchester Community College

Wendel Weaver, Oklahoma Wesleyan University

21

22 Acknowledgments

We also owe a great deal to the people at Pearson who helped develop this book. Se-

nior Acquisitions Editor Erin Gardner provided fresh ideas and support throughout the

revision. Project Manager Meeta Pendharkar provided valuable assistance in managing

the many facets of this complex revision project. Senior Art Director Janet Slowik devel-

oped the fifteenth edition’s exciting design, and Senior Production Project Manager Karalyn

Holland helped guide the book through the complex production process. We’d also like to

thank Stephanie Wall, Anne Fahlgren, Judy Leale, and Jacob Garber for their contributions.

We are proud to be associated with the fine professionals at Pearson Education. We also owe

a mighty debt of gratitude to Project Editor Roxanne Klaas and the fine team at S4Carlisle

Publishing Services.

Finally, we owe many thanks to our families for all of their support and

encouragement—Kathy, Betty, Mandy, Matt, KC, Keri, Delaney, Molly, Macy, and Ben

from the Armstrong clan and Nancy, Amy, Melissa, and Jessica from the Kotler family.

To them, we dedicate this book.

Gary Armstrong Philip Kotler

Global Edition Reviewers

Global Edition Contributors

Dr. Moh’d A Al-hawari, Business College, University of

Sharjah, UAE.

Assoc. Prof. Dr. Serap Atakan, Department of Business

Administration, Istanbul Bilgi University, Turkey.

Professor Alan Au, Associate Dean, Lee Shau Kee School of

Business and Administration, The Open University of

Hong Kong, Hong Kong.

Nadia Azzam, Department of Marketing, Lebanese American

University, Beirut, Lebanon.

Dr. Jeanne Sørensen Bentzen, Department of Business and

Management, Aalborg University, Denmark.

Prof. Erinc Boge, Faculty of Economics and Administrative

Sciences, Baskent University Ankara, Turkey.

Dina Ashmawy, School of Business, The American University

in Cairo, Egypt

Rania Deeb, Business Consultant, United Arab Emirates.

Randa Fadly, School of Business, The American University in

Cairo, Egypt.

Dr. ‘Tunji Gbadamosi, Royal Docks Business School,

University of East London, UK.

Ali El Hallak, Digital Marketing Strategist.

Dr. Hamed M. Shamma, School of Business, The American

University in Cairo, Egypt.

Tanja Dmitrović , Faculty of Economics, University of

Ljubljana, Slovenia.

Prof. Dr. Michael A. Grund, Head Center for Marketing, HWZ

University of Applied Sciences in Business Administration

Zurich, Switzerland.

Li Sean Lum, Wawasan Open University, Malaysia.

Daisy Lee Suet Mui, Department of Marketing, City

University of Hong Kong.

Caroline Rosie Jeffrey Nasah, Labuan School of International

Business and Finance, Universiti Malaysia Sabah, Malaysia.

Andrew Ng, Faculty of Engineering, National University of

Singapore.

Dr. Frederick Yim, Hong Kong Baptist University.

Dr. Ronan de Kervenoael, School of Management, Sabanci

University, Turkey, and Aston Business School, UK.

Jie Liu, Department of Business and Management Studies,

Manchester Metropolitan University, UK.

Lora Saleh, School of Business, The American University in

Cairo, Egypt.

Serdar Sayman, Business Administration Department, Koç

University, Istanbul, Turkey

Sophie Yang, Department of Strategy & Applied Management,

Coventry Business School, Coventry University.

Principles of Marketing

Amazon.com’s deep-down passion for

creating customer value and relationships has made it the world’s leading online retailer. Amazon has become the model

for companies that are obsessively and successfully focused on delivering customer value.

Part 1: Defining Marketing and the Marketing Process (Chapters 1–2)

Part 2: Understanding the Marketplace and Consumers (Chapters 3–6)

Part 3: Designing a Customer-Driven Strategy and Mix (Chapters 7–17)

Part 4: Extending Marketing (Chapters 18–20)

Bezos puts it in three simple words: “Obsess over customers.”

To its core, the company is relentlessly customer driven. “The

thing that drives everything is creating genuine value for cus-

tomers,” says Bezos. Amazon believes that if it does what’s good

for customers, profits will follow. So the company starts with

the customer and works backward. Rather than asking what it

can do with its current capabilities, Amazon first asks Who are

our customers? What do they need? Then, it develops whatever

capabilities are required to meet those customer needs.

At Amazon, such words are more than just “customer-

speak.” Every decision is made with an eye toward improving

the Amazon.com customer experience. In fact, at many Amazon

meetings, the most influential figure in the room is “the empty

W hen you think of shopping online, chances are

good that you think first of Amazon. The online

pioneer first opened its virtual doors in 1995,

selling books out of founder Jeff Bezos’s garage

in suburban Seattle. Amazon still sells books—lots and lots of

books. But it now sells just about everything else as well, from

music, electronics, tools, housewares, apparel, and groceries to

loose diamonds and Maine lobsters.

From the start, Amazon has grown explosively. Its annual

sales have rocketed from a modest $150 million in 1997 to more

than $48 billion today. During the past two years alone, despite

a shaky economy, Amazon’s revenues and profits both nearly

doubled, growing by 40 percent annually. This past holiday sea-

son, at one point, Amazon.com’s more than 173 million active

customers worldwide were purchasing 110 items

per second. Analysts predict that by 2015,

Amazon will become the youngest

company in history to hit $100 bil-

lion in revenues (it took Walmart 34

years). That would make it the na-

tion’s second largest retailer, trailing

only Walmart.

What has made Amazon such an

amazing success story? Founder and CEO

Amazon.com: Obsessed with Creating Customer Value and Relationships

Understanding these basic concepts and forming your own ideas

about what they really mean to you will provide a solid foundation

for all that follows.

Let’s start with a good story about marketing in action at

Amazon.com, by far the world’s leading online marketer. The se-

cret to Amazon’s success? It’s really no secret at all. Amazon is

flat-out customer obsessed. It has a deep-down passion for creat-

ing customer value and relationships. In return, customers reward

Amazon with their buying dollars and loyalty. You’ll see this theme

of creating customer value in order to capture value in return re-

peated throughout this chapter and the remainder of the text.

Chapter Preview This chapter introduces you to

the basic concepts of market-

ing. We start with the question: What is marketing? Simply put,

marketing is managing profitable customer relationships. The aim

of marketing is to create value for customers in order to capture

value from customers in return. Next we discuss the five steps

in the marketing process—from understanding customer needs,

to designing customer-driven marketing strategies and integrated

marketing programs, to building customer relationships and cap-

turing value for the firm. Finally, we discuss the major trends and

forces affecting marketing in this age of customer relationships.

Marketing Creating and Capturing Customer Value1

Chapter 1 | Marketing: Creating and Capturing Customer Value 25 chair”—literally an empty chair at the table that represents the

important customer. At times, the empty chair isn’t empty,

but is occupied by a “Customer Experience Bar Raiser,” an em

ployee who is specially trained to represent customers’ interests.

To give the empty chair a loud, clear voice, Amazon relentlessly

related goals.

Amazon’s obsession with serving the needs of its custom

ers drives the company to take risks and innovate in ways that

ever original product. The Kindle took more than four years and

the company’s number one selling product, and Amazon.com

bined. What’s more, the company’s new Kindle Fire tablet now

started as an effort to improve the customer experience now

gives Amazon a powerful presence in the burgeoning world of

music, videos, and apps sold by Amazon, it makes interacting

with the online giant easier than ever.

Perhaps more important than what Amazon sells is how it sells. Amazon wants to deliver a special experience to every cus

tomer. Most Amazon.com regulars feel a surprisingly strong rela

tionship with the company, especially given the almost complete

lack of actual human interaction. Amazon obsesses over making

each customer’s experience uniquely personal. For example, the

Amazon.com site greets customers with their very own person

alized home pages, and its “Recommendations for You” feature

offers personalized product recommendations. Amazon was the

sifts through each customer’s past purchases and the purchas

personalized site content. Amazon wants to personalize the shop

ping experience for each individual customer. If it has 173 million

customers, it reasons, it should have 173 million stores.

huge selection, good value, low prices, and convenience. But it’s

the “discovery” factor that makes the buying experience really

special. Once on the Amazon.com site, you’re compelled to stay

for a while—looking, learning, and discovering. Amazon .com

has become a kind of online community in which customers

can browse for products, research purchase alternatives, share

opinions and reviews with other visitors, and chat online with

authors and experts. In this way, Amazon does much more than

just sell goods online. It creates direct, personalized customer

relationships and satisfying online experiences. Year after year,

Amazon places at or near the top of almost every customer sat

isfaction ranking, regardless of industry.

To create even greater selection and discovery for custom

ers, Amazon long ago began allowing competing retailers—

stores—to offer their products on Amazon.com, creating a vir

tual shopping mall of incredible proportions. It even encourages

customers to sell used items on the site. And with the recent

business and industrial customers with products ranging from

Amazon.com does

much more than just sell

goods online. It creates

satisfying online customer

experiences. “The thing

that drives everything is

creating genuine value for

customers,” says Amazon

founder and CEO Bezos,

shown above.

Contour by Getty Images

tors and industrial cutting tools.

The broader selection attracts more

“We are becoming increasingly im

portant in the lives of our custom

ers,” says an Amazon marketing

executive.

Based on its powerful growth,

many analysts have speculated

that Amazon.com will become the

Walmart of the Web. In fact, some

argue, it already is. Although Walmart’s total sales of $444 bil

lion dwarf Amazon’s $48 billion in sales, Amazon’s Internet

chasing Amazon on the Web. Put another way, Walmart wants

to become the Amazon.com of the Web, not the other way

around. However, despite its mammoth proportions, to catch

Amazon online, Walmart will have to match the superb Ama

zon customer experience, and that won’t be easy.

Whatever the eventual outcome, Amazon has become the

poster child for companies that are obsessively and successfully

focused on delivering customer value. Jeff Bezos has known from

the very start that if Amazon creates superior value for customers,

it will earn their business in return, and if it earns their business, 1

26 Part 1 | Defining Marketing and the Marketing Process

Objective Outline

Objective 1 Defi ne marketing and outline the steps in the marketing process.

What Is Marketing? (pp 26–28)

Objective 2 Explain the importance of understanding the marketplace and customers and identify the fi ve core marketplace concepts.

Understanding the Marketplace and Customer Needs (pp 28–30)

Objective 3 management orientations that guide marketing strategy.

(pp 30–33)

Preparing an Integrated Marketing Plan and Program (p 34)

Objective 4 Discuss customer relationship management and identify strategies for creating value for customers and capturing value from customers in return.

Building Customer Relationships (pp 34–41)

Capturing Value from Customers (pp 41–44)

Objective 5 Describe the major trends and forces that are changing the marketing landscape in this age of relationships.

The Changing Marketing Landscape (pp 44–51)

Today’s successful Amazon, they are strongly customer focused and heavily committed to marketing. These companies

markets. They motivate everyone in the organization to help build lasting customer rela

tionships based on creating value.

Customer relationships and value are especially important today. Facing dramatic techno

logical changes and deep economic, social, and environmental challenges, today’s customers

are spending more carefully and reassessing their relationships with brands. In turn, it’s more

important than ever to build strong customer relationships based on real and enduring value.

What Is Marketing? Marketing, more than any other business function, deals with customers. Although we will

Marketing is managing profitable customer relationships. The twofold goal of marketing is to attract new customers by promising superior value and to keep and grow current cus

tomers by delivering satisfaction.

Objective 1 Defi ne marketing and outline the

steps in the marketing process.

Chapter 1 | Marketing: Creating and Capturing Customer Value 27

favorite place and way to eat” the world over, giving it nearly as much market share as its

nearest four competitors combined. Walmart has become the world’s largest retailer—and 2

and even churches.

You already know a lot about marketing—it’s all around you. Marketing comes to

stuff your mailbox. But in recent years, marketers have assembled a host of new marketing

approaches, everything from imaginative Web sites and smartphone apps to online social

networks and blogs. These new approaches do more than just blast out messages to the

masses. They reach you directly and personally. Today’s marketers want to become a part

of your life and enrich your experiences with their brands—to help you live their brands. At home, at school, where you work, and where you play, you see marketing in almost

everything you do. Yet, there is much more to marketing than meets the consumer’s casual eye.

Behind it all is a massive network of people and activities competing for your attention and pur

chases. This book will give you a complete introduction to the basic concepts and practices of

Marketing Defi ned What is marketing? Many people think of marketing as only selling and advertising. We

However, selling and advertising are only the tip of the marketing iceberg.

Today, marketing must be understood not in the old sense of making a sale—“telling

and selling”—but in the new sense of satisfying customer needs. If the marketer understands consumer needs; develops products that provide superior customer value; and prices, dis

tributes, and promotes them effectively, these products will sell easily. In fact, according to

management guru Peter Drucker, “The aim of marketing is to make selling unnecessary.”3

marketing mix—a set of marketing tools that work together to satisfy customer needs and build customer relationships.

and organizations obtain what they need and want through creating and exchanging value

marketing as the process

by which companies create value for customers and build strong customer relationships in

order to capture value from customers in return.4

The Marketing Process Figure 1.1

steps, companies work to understand consumers, create customer value, and build strong

customer value. By creating value for consumers, they in turn capture value from consumers

In this chapter and the next, we will examine the steps of this simple model of mar

keting. In this chapter, we review each step but focus more on the customer relationship

Marketing

The process by which companies create

value for customers and build strong

customer relationships in order to capture

value from customers in return.

for customers from customers

This important figure shows marketing in

mers, marketers capture value from

process forms the marketing framework for the rest of the chapter and the remainder of the text.

FIGURE | 1.1

A Simple Model of the Marketing Process

28 Part 1 | Defining Marketing and the Marketing Process steps—understanding customers, building customer relationships, and capturing value

from customers. In Chapter 2, we look more deeply into the second and third steps—

designing marketing strategies and constructing marketing programs.

Understanding the Marketplace and Customer Needs

(1) needs, wants, and demands; (2) market offerings (products, services, and experiences); (3) value and satisfaction; (4) exchanges and relationships; and (5) markets.

Customer Needs, Wants, and Demands The most basic concept underlying marketing is that of human needs. Human needs are

states of felt deprivation. They include basic physical needs for food, clothing, warmth, and safety; social needs for belonging and affection; and individual expression. Marketers did not create these needs; they are a basic part of the human makeup.

Wants are the form human needs take as they are shaped by culture and individual

personality. An American needs food but wants a Big Mac, french fries, and a soft drink. A person in Papua, New Guinea, needs food but wants taro, rice, yams, and pork. Wants are shaped by one’s society and are described in terms of objects that will satisfy those needs.

When backed by buying power, wants become demands. Given their wants and resources,

Outstanding marketing companies go to great lengths to learn about and under

stand their customers’ needs, wants, and demands. They conduct consumer research

and analyze mountains of customer data. Their people at all levels—including top

management—stay close to customers. For example, Kroger chairman and CEO David

Dillon regularly dons blue jeans and roams the aisles of local Kroger supermarkets,

blending in with and talking to other shoppers. He wants to see his stores through cus

to customers, successful Ford CEO Alan Mulally has been known to spend time selling

cars at Ford dealerships.5

Market Offerings—

and Experiences

through market offerings—some com

bination of products, services, informa

tion, or experiences offered to a market

to satisfy a need or a want. Market offer

ings are not limited to physical products. They also include services— activities

sentially intangible and do not result in

the ownership of anything. Examples

include banking, airline, hotel, retailing,

and home repair services.

More broadly, market offerings also

include other entities, such as persons, places, organizations, information, and ideas.

For example, the “Pure Michigan”

campaign markets the state of Michigan as

a tourism destination that “lets unspoiled

nature and authentic character revive

lic service campaign, jointly sponsored by

Needs

States of felt deprivation.

Wants

The form human needs take as they

are shaped by culture and individual

personality.

Demands

Human wants that are backed by buying

power.

Market offerings

Some combination of products, services,

information, or experiences offered to a

market to satisfy a need or want.

Marketing offerings are not limited to physical products. The Pure Michigan campaign

markets the idea of Michigan as a tourism destination that “lets unspoiled nature and

authentic character revive your spirits.”

The Michigan Economic Development Corporation

Objective 2 Explain the importance of

understanding the marketplace

and customers and identify the

fi ve core marketplace concepts.

Chapter 1 | Marketing: Creating and Capturing Customer Value 29 the U.S. Department of Agriculture and the U.S. Department of Health & Human Services,

markets the idea of reducing childhood obesity by urging kids and their families to make

healthier food choices and increase their physical activity. One ad promotes “Family Fun Fri-

day: Dance. Play. Go for a walk in the park. Make every Friday the day you and your family

get moving.”6

Many sellers make the mistake of paying more attention to the specific products they

offer than to the benefits and experiences produced by these products. These sellers suffer

from marketing myopia. They are so taken with their products that they focus only on

existing wants and lose sight of underlying customer needs.7 They forget that a product

is only a tool to solve a consumer problem. A manufacturer of quarter-inch drill bits may

think that the customer needs a drill bit. But what the customer really needs is a quarter- inch hole. These sellers will have trouble if a new product comes along that serves the

customer’s need better or less expensively. The customer will have the same need but will want the new product.

Smart marketers look beyond the attributes of the products and services they sell. By

orchestrating several services and products, they create brand experiences for consumers. For example, you don’t just visit Walt Disney World Resort; you immerse yourself and your

family in a world of wonder, a world where dreams come true and things still work the way

they should. You’re “in the heart of the magic!” says Disney.

Even a seemingly functional product becomes an experience. HP recognizes that a per-

sonal computer is much more than just a cold collection of wires and electrical components.

It’s an intensely personal user experience. As noted in one HP ad, “There is hardly anything

that you own that is more personal. Your personal computer is your backup brain. It’s your life. . . . It’s your astonishing strategy, staggering proposal, dazzling calculation.” It’s your

connection to the world around you. HP’s ads don’t talk much about technical specifica-

tions. Instead, they celebrate how HP’s technologies help create seamless connections in

today’s “instant-on world.”8

Customer Value and Satisfaction Consumers usually face a broad array of products and services that might satisfy a given

need. How do they choose among these many market offerings? Customers form expecta-

tions about the value and satisfaction that various market offerings will deliver and buy

accordingly. Satisfied customers buy again and tell others about their good experiences.

Dissatisfied customers often switch to competitors and disparage the product to others.

Marketers must be careful to set the right level of expectations. If they set expectations

too low, they may satisfy those who buy but fail to attract enough buyers. If they set expec-

tations too high, buyers will be disappointed. Customer value and customer satisfaction are

key building blocks for developing and managing customer relationships. We will revisit

these core concepts later in the chapter.

Exchanges and Relationships Marketing occurs when people decide to satisfy their needs and wants through exchange

relationships. Exchange is the act of obtaining a desired object from someone by offering

something in return. In the broadest sense, the marketer tries to bring about a response to

some market offering. The response may be more than simply buying or trading products

and services. A political candidate, for instance, wants votes; a church wants membership;

an orchestra wants an audience; and a social action group wants idea acceptance.

Marketing consists of actions taken to create, maintain, and grow desirable exchange

relationships with target audiences involving a product, service, idea, or other object. Com- panies want to build strong relationships by consistently delivering superior customer

value. We will expand on the important concept of managing customer relationships later

in the chapter.

Markets The concepts of exchange and relationships lead to the concept of a market. A market is the

set of actual and potential buyers of a product or service. These buyers share a particular

need or want that can be satisfied through exchange relationships.

Marketing myopia

The mistake of paying more attention to

the specific products a company offers

than to the benefits and experiences

produced by these products.

Exchange

The act of obtaining a desired object from

someone by offering something in return.

Market

The set of all actual and potential buyers

of a product or service.

30 Part 1 | Defining Marketing and the Marketing Process

their needs, design good market offerings, set prices for them, promote them, and store and

deliver them. Activities such as consumer research, product development, communication,

distribution, pricing, and service are core marketing activities.

Although we normally think of marketing as being carried out by sellers, buyers also

carry out marketing. Consumers market when they search for products, interact with

companies to obtain information, and make their purchases. In fact, today’s digital tech

nologies, from Web sites and online social networks to smartphones, have empowered

consumers and made marketing a truly interactive affair. Thus, in addition to customer

relationship management, today’s marketers must also deal effectively with managed relationships. Marketers are no longer asking only “How can we reach our custom ers?” but also “How should our customers reach us?” and even “How can our customers

reach each other?”

Figure 1.2 shows the main elements in a marketing system. Marketing involves

petitors research the market and interact with consumers to understand their needs. Then

they create and send their market offerings and messages to consumers, either directly

or through marketing intermediaries. Each party in the system is affected by major envi

ronmental forces (demographic, economic, natural, technological, political, and social/

cultural).

Each party in the system adds value for the next level. The arrows represent rela

tionships that must be developed and managed. Thus, a company’s success at building

low prices unless its suppliers provide merchandise at low costs. And Ford cannot deliver

service.

Once it fully understands consumers and the marketplace, marketing management can de

marketing management as the art

delivering, and communicating superior customer value.

To design a winning marketing strategy, the marketing manager must answer two

What customers will we serve (what’s our target market)? and How can we serve these customers best (what’s our value proposition)? We will discuss these market ing strategy concepts briefly here and then look at them in more detail in Chapters 2

and 7.

Arrows represent relationships that must be developed and managed to create customer value and profitable customer relationships.

Each party in the system adds value. Walmart cannot fulfill its promise of low prices unless its suppliers provide low costs.

its dealers provide outstanding service.

FIGURE | 1.2

A Modern Marketing System

Objective 3 Identify the key elements of

strategy and discuss the

marketing management

orientations that guide marketing

strategy.

Marketing management

The art and science of choosing

target markets and building profitable

relationships with them.

Chapter 1 | Marketing: Creating and Capturing Customer Value 31

whom it will serve. It does this by dividing the market into segments of customers (market segmentation) and selecting which segments it will go after (target marketing ers as possible and increasing demand. But marketing managers know that they cannot

serve all customers in every way. By trying to serve all customers, they may not serve any

customers well. Instead, the company wants to select only customers that it can serve well

Ultimately, marketing managers must decide which customers they want to target and

customer management and demand management.

Choosing a Value Proposition The company must also decide how it will serve targeted customers—how it will differ entiate and position itself in the marketplace. A brand’s value proposition is the set of ben

you “connect and share with the people in your life,” whereas YouTube “provides a

place for people to connect, inform, and inspire others across the globe.” BMW promises

“Open your mind to the car that challenges the status quo.” New Balance’s Minimus

shoes are “like barefoot only better”;

and with Vibram FiveFingers shoes,

“You are the technology.”

ate one brand from another. They an

swer the customer ’s question, “Why

should I buy your brand rather than a

competitor ’s?” Companies must de

sign strong value propositions that give

them the greatest advantage in their

target markets. For example, Vibram

FiveFingers shoes promise the best of

two worlds—running with shoes and

without. “You get all the health and per

combined with a Vibram sole that pro

tects you from elements and obstacles

in your path. With Vibram FiveFingers

shoes “The more it looks like a foot, the

more it acts like a foot.”

Marketing Management Orientations

with target consumers. But what philosophy should guide these marketing strategies? What weight should be given to the interests of customers, the organization, and society? Very

production, product, selling, marketing, and societal marketing concepts.

The Production Concept The production concept holds that consumers will favor products that are available and

highly affordable. Therefore, management should focus on improving production and dis

The production concept is still a useful philosophy in some situations. For example,

Value propositions: With Vibram FiveFingers shoes, “You are the technology.”

Vibram USA, Inc.

Production concept

The idea that consumers will favor

products that are available and highly

affordable; therefore, the organization

should focus on improving production

and distribution efficiency.

32 Part 1 | Defining Marketing and the Marketing Process

tion concept can lead to marketing myopia. Companies adopting this orientation run a

major risk of focusing too narrowly on their own operations and losing sight of the real

objective—satisfying customer needs and building customer relationships.

The Product Concept The product concept holds that consumers will favor products that offer the most in

quality, performance, and innovative features. Under this concept, marketing strategy fo

cuses on making continuous product improvements.

Product quality and improvement are important parts of most marketing strategies.

However, focusing only on the company’s products can also lead to marketing myopia. For example, some manufacturers believe that if they can “build a better mousetrap, the world

will beat a path to their doors.” But they are often rudely shocked. Buyers may be looking

for a better solution to a mouse problem but not necessarily for a better mousetrap. The bet

ter solution might be a chemical spray, an exterminating service, a house cat, or something

else that suits their needs even better than a mousetrap. Furthermore, a better mousetrap

will not sell unless the manufacturer designs, packages, and prices it attractively; places it

in convenient distribution channels; brings it to the attention of people who need it; and

convinces buyers that it is a better product.

Many companies follow the selling concept, which holds that consumers will not buy

fort. The selling concept is typically practiced with unsought goods—those that buyers do

not normally think of buying, such as insurance or blood donations. These industries must

sell what the company makes rather than making what the market wants. It assumes that cus

tomers who are coaxed into buying the product will like it. Or, if they don’t like it, they will pos

sibly forget their disappointment and buy it again later. These are usually poor assumptions.

The Marketing Concept The marketing concept holds that achieving organizational goals depends on knowing

the needs and wants of target markets and delivering the desired satisfactions better than

competitors do. Under the marketing concept, customer focus and value are the paths to make and sell philosophy, the marketing con

sense and respond

Figure 1.3 contrasts the selling concept and the marketing concept. The selling

concept takes an perspective. It starts with the factory, focuses on the company’s

who buys or why.

In contrast, the marketing concept takes an perspective. As Herb Kelleher,

Product concept

The idea that consumers will favor

products that offer the most quality,

performance, and features; therefore,

the organization should devote its

energy to making continuous product

improvements.

The idea that consumers will not buy

enough of the firm’s products unless the

promotion effort.

Marketing concept

A philosophy in which achieving

organizational goals depends on knowing

the needs and wants of target markets

and delivering the desired satisfactions

better than competitors do.

selling

marketing

The selling concept takes an

The marketing concept

FIGURE | 1.3

The Selling and Marketing

Concepts Contrasted

Chapter 1 | Marketing: Creating and Capturing Customer Value 33 market, focuses on customer needs, and integrates all the marketing activities that affect

on customer value and satisfaction.

Implementing the marketing concept often means more than simply responding to

customers’ stated desires and obvious needs. companies research custom

ers deeply to learn about their desires, gather new product ideas, and test product improve

when customers know what they want.

In many cases, however, customers don’t know what they want or even what is possi ble. As Henry Ford once remarked, “If I’d asked people what they wanted, they would have

said faster horses.”9 For example, even 20 years ago, how many consumers would have

for marketing—understanding customer needs even better than customers

themselves do and creating products and services that meet both existing and latent needs,

now and in the future. As an executive at 3M put it, “Our goal is to lead customers where

they want to go before they know where they want to go.”

The societal marketing concept questions whether the pure marketing concept over

and consumer Is

best for its consumers in the long run? The societal marketing concept holds that marketing

strategy should deliver value to customers in a way that maintains or improves both the

consumer’s and society’s sustainable marketing, socially and environ mentally responsible marketing that meets the present needs of consumers and businesses

while also preserving or enhancing the ability of future generations to meet their needs.

Even more broadly, many leading business and marketing thinkers are now preaching

the concept of shared value, which recognizes that societal needs, not just economic needs, 10

The concept of shared value focuses on creating economic value in a way that also creates value

ready embarked on important efforts to create shared economic and societal value by rethinking

the intersection between society and corporate performance. They are concerned not just with

the communities in which they produce and sell. One prominent marketer calls this Marketing 3.0.

ral, where values amount to caring about the state of the world.”

As Figure 1.4 shows, companies should balance three

and society’s interests. this well.11

pronged corporate sustainability mission stresses economic prosper ity social responsibility

environ mental stewardship ment). Whether it involves greening up its operations or urging

United campaign to improve the education, income, and health

and acting responsibly, it can “meet the needs of the enterprise . . .

while protecting and enhancing the human and natural resources

good for the planet,” says the company. “It’s good for business.”

The idea that a company’s marketing

decisions should consider consumers’

wants, the company’s requirements,

responsibility “isn’t just good for the planet. It’s good for business.”

Cheryl Gerber/AP Photo

34 Part 1 | Defining Marketing and the Marketing Process

Preparing an Integrated Marketing Plan and Program The company’s marketing strategy outlines which customers it will serve and how it will

create value for these customers. Next, the marketer develops an integrated marketing pro

gram that will actually deliver the intended value to target customers. The marketing pro

gram builds customer relationships by transforming the marketing strategy into action. It

marketing mix marketing strategy.

four Ps

how much it will charge for the offering (price) and how it will make the offering available

to target consumers (place). Finally, it must communicate with target customers about the

mix tool into a comprehensive integrated marketing program that communicates and deliv ers the intended value to chosen customers. We will explore marketing programs and the

marketing mix in much more detail in later chapters.

Building Customer Relationships

Customer Relationship Management Customer relationship management is perhaps the most important concept of modern marketing.

CRM tomers and carefully managing customer touchpoints to maximize customer loyalty. We will discuss this narrower CRM activity in Chapter 4, when dealing with marketing information.

Most marketers, however, give the concept of customer relationship management a

broader meaning. In this broader sense, customer relationship management is the

superior customer value and satisfaction. It deals with all aspects of acquiring, keeping, and

growing customers.

Relationship Building Blocks:

The key to building lasting customer relationships is to create superior customer value and

a larger share of their business.

Consumers Company

Society

UPS knows that doing what’s right benefits both consumers and the company. Social responsibility “isn’t just good for the planet,” says the company. “It’s good for business.”

FIGURE | 1.4

The Considerations Underlying

the Societal Marketing Concept

Objective 4 Discuss customer relationship

management and identify

strategies for creating value for

customers and capturing value

from customers in return.

Customer relationship management

The overall process of building and

maintaining profitable customer

relationships by delivering superior

customer value and satisfaction.

Chapter 1 | Marketing: Creating and Capturing Customer Value 35 Customer Value. often face a bewildering array of products and services from which to choose. A customer

—the customer’s

relative to those of competing offers. Importantly, customers often do not judge values and

costs “accurately” or “objectively.” They act on perceived value. To some consumers, value might mean sensible products at affordable prices. To other

exclusive features, and stunning looks.” However, Weber’s marketing also suggests that

the grill is a real value, even at the premium price. For the money, you get practical features

price compared to less expensive grills? To many consumers, the answer is no. But to the 12

Customer Satisfaction. Customer satisfaction depends on the product’s perceived performance relative to a buyer’s expectations. If the product’s performance falls short of

delighted.

Outstanding marketing companies go out of their way to keep important custom

customer loyalty, which in turn results in better company per

ising only what they can deliver and then delivering more

than they promise. Delighted customers not only make repeat

purchases but also become willing marketing partners and

“customer evangelists” who spread the word about their good

experiences to others.

For companies interested in delighting customers, excep

tional value and service become part of the overall company

culture. For example, year after year, JetBlue ranks at or near

the top of the airline industry in terms of customer satisfaction.

customers that they are at the heart of the company’s strategy 13

satisfying experiences. At JetBlue, customer care starts with

basic amenities that exceed customer expectations, especially

free premium snacks, free satellite TV. But it’s the human touch that really makes JetBlue special. JetBlue employees not only

know the company’s core values—safety, integrity, caring, pas sion, and fun—they live outstanding customer experiences, making JetBlue customers

In fact, JetBlue often lets its customers do the talking. For

person testimonials from devoted fans. And in a former advertis

ing

ees. For

attendant dashed from the plane just before takeoff to retrieve

Darien, Connecticut, told how they arrived late at night for a

family vacation in Florida with their three very tired small chil

dren only to learn that their

The customer’s evaluation of the

difference between all the benefits and all

the costs of a marketing offer relative to

those of competing offers.

Customer satisfaction

The extent to which a product’s perceived

performance matches a buyer’s

expectations.

ALL—tells customers that they are at the very heart of JetBlue’s

strategy and culture.

JetBlue Airways

36 Part 1 | Defining Marketing and the Marketing Process hotel wouldn’t take them in. “Out of nowhere we heard a voice from behind us, go ahead, take my

bringing humanity back to air travel,” says JetBlue’s senior VP of marketing.

Other companies that have become legendary for their service heroics include Zappos

Marketing 1.1). However, a

satisfaction “has a lot more to do with how well companies deliver on their basic, even

expert. “To win [customers’] loyalty, forget the bells and whistles and just solve their

problems.”14

relative to competitors, it does not attempt to maximize customer satisfaction. A com pany can always increase customer satisfaction by lowering its prices or increasing

its services. But this may result in lower profits. Thus, the purpose of marketing is to

must continue to generate more customer value and satisfaction but not “give away

the house.”

Customer Relationship Levels and Tools Companies can build customer relationships at many levels, depending on the nature

seek to develop basic relationships with them. For example, Nike does not phone or call on all of its consumers to get to know them personally. Instead, Nike creates relationships

apps. At the other extreme, in markets with few customers and high margins, sellers want

to create full partnerships with key customers. For example, Nike sales representatives

large retailers. In between these two extremes, other levels of customer relationships are

appropriate.

marketing tools to develop stronger bonds with customers. For example, many compa

nies offer frequency marketing programs that reward customers who buy

hotels give room upgrades to frequent guests, and supermarkets give

patronage discounts to “very important customers.” These days almost

every brand has a loyalty rewards program.

restaurant Panera has a MyPanera loyalty program that surprises fre

clusive tastings and demonstrations, and invitations to special events.

Almost half of all Panera purchases are logged onto MyPanera cards.

The program not only lets Panera track individual customer purchases,

it also lets the company build unique relationships with each MyPanera

member.15

Other companies sponsor club marketing programs that offer mem

Apple encourages customers to form local Apple user groups. More

than 800 registered Apple user groups worldwide offer monthly meet

ings, a newsletter, advice on technical issues, training classes, product

Weber Nation—“the site for real people who love their Weber grills.”

Membership gets you exclusive access to online grilling classes, an in

teractive recipe box, grilling tips and 24/7 telephone support, audio and

fanatics, and even a chance to star in a Weber TV commercial. “Become a

Relationship marketing tools: The MyPanera loyalty

rewards program not only lets Panera track individual

customer purchases, it also lets the company build

unique relationships with each MyPanera member.

Photo courtesy of Gary Armstrong

Chapter 1 | Marketing: Creating and Capturing Customer Value 37

Toyota Japan is renowned for its marvellous

customer service. The popular automobile

manufacturer aims to provide its customers

with the best service and make their experi

ences with the brand memorable. Toyota

has always been ranked among the top car

brands for customer service despite its re

call of cars over the past years. As a matter

of fact, the way Toyota has handled the re

call has made some customers satisfied with

Toyota’s customer service.

Toyota has carried out its business activ

ity based on the concept of “The customer

always comes first.” This concept was estab

lished in 1935 and has become the Toyota

Group’s guiding philosophy to ensure that

its customers are always provided the finest

service possible. Toyota ensures that this

philosophy is also followed by its dealers,

because the dealers importantly portray the

image of the company itself.

To ensure that high customer services is

maintained, Toyota initiated a program whereby

its representatives randomly visit customers pur

chasing from its domestic dealer in each region

of Japan, so as to check the quality of service

that is being offered to customers. The main aim

behind this is to assure that the

concept is being applied correctly.

Toyota expends great effort in gathering

information and seeking feedback from its

customers about their experiences with the

tions with customers in which they discuss the

complete Toyota experience. Toyota attends

to the opinions of its customers and constantly

works on improvement. All recommendations

posed by customers are given serious con

sideration, and any complaints are closely

analyzed in attempt to find the source of the

customer’s dissatisfaction and avoid its future

recurrence with other customers.

Information is also gathered from deal

ers, and questionnaires are given to purchas

ers of new cars to ensure that their dealers

are providing them with service of the highest

quality. This information is analyzed carefully

to identify any weak areas and develop meth

ods to improve them. Customer comments

and recommendations play a vital role in the

customer service department at Toyota. The

following are some of Toyota’s customer de

light stories:

was travelling to a funeral and heard some

unknown sounds coming from his Toyota.

He pulled into the first Toyota outlet he

encountered and requested for the car to

have a safety check. Although there were

several cars booked to have a service be

fore his car, the attendees serviced his car

first after hearing he was in a rush to attend

a funeral. The employees were very friendly

and helpful; they checked the car and did

not charge the client.

ful service at Toyota. He expresses that

the employees are always welcoming and

friendly. His service manager always gives

him a price quote and an estimation of the

time the service will take, and the time taken

never exceeds the estimation. He notes

that employees are patient, polite, and al

ways prepared to answer any questions he

has. He says that this is the best customer

service he has ever received.

rience of purchasing a Toyota. She was at

first anxious and confused, but the employ

ees at the Toyota dealership made her entire

experience relaxed and enjoyable. They pro

vided her with exceptional service and treat

ment, and she expressed the hope that all

nate as her to have such a fine experience.

Toyota launched Customer First training

centers around the world in July 2010. These

training centers instruct employees on how

to treat the customers, that the rule of “The

customer always comes first” should be ap

plied at all times and that there is no excep

tion, no matter what the situation is. These

centers were established to ensure that

Toyota’s global associates provide all cus

tomers with outstanding service, just as the

main branch in Japan does. Although these

training centers have only recently been es

tablished, the philosophy behind them has

been fundamental in Toyota since the com

pany was founded.

Toyota is training its employees in spe

cific workplace and customer service skills to

enable them to provide their customers with

all necessary information. It is important for

the employees to be able to explain the key

benefits that Toyota has to offer to potential

customers, and equally important to look

Real Marketing 1.1 Toyota Japan: The Customer Always Comes First

Toyota Japan is well known for going beyond the call of duty when it comes

to customer service and uses feedback to constantly improve the services

it offers.

Naiyyer/Shutterstock.com

38 Part 1 | Defining Marketing and the Marketing Process

tive. Therefore, the provision of training for its

employees ensures tremendous benefit to

Toyota.

The company specifically established

nizations with the aim of directly addressing

customer concerns after the purchase of a

portant component because it demonstrates

that Toyota will continue to provide its custom

ers with the same quality of service that they

received when purchasing their vehicles, and

has led to increased customer satisfaction.

The Toyota Customer Assistance Cen

ter, as well as the Lexus Information Desk

devoted to the Lexus brand models, provides

24 hours a day, in Japan. The center aims to

improve convenience for customers, and em

ployees are prepared to respond to opinions

and complaints at any time of the day. Toyota

thus indicates to its customers how much

they are valued by having dedicated employ

ees waiting for their calls 24 hours a day.

In addition to providing information about

Toyota vehicles, the Customer Assistance

Center provides customers with informa

tion regarding various other concerns. For

example, after the recent East Japan earth

quake, customers were primarily concerned

with where to get fuel, which service stations

were operating, and how to deal with vehicles

damaged in the earthquake. When employ

ees were faced with such questions, they an

swered them politely and in the same manner

as they would answer any question concern

ing the company, providing stability and reas

surance in troubled times and highlighting the

company’s focus on the customer.

Sources:

.com/company/toyota_traditions/philosphy, accessed November 5, 2012; “Relations with Customers: Ensuring

High Quality,” www.toyota.co.jp/en/environment, accessed November 5, 2012; and “Relations with Customers:

Toyota’s Customer First Policy,” www.toyota.co.jp/en/environmental_rep, accessed November 5, 2012.

The Changing Nature of Customer Relationships

terday’s companies focused on mass marketing to all customers at arm’s length. Today’s

companies are building deeper, more direct, and lasting relationships with more carefully

selected customers. Here are some important trends in the way companies and customers

are relating to one another.

customer who comes along. Today, most marketers realize that they don’t want relation

serve than to lose.”17

customers and target winning ones for pampering. One approach is to preemptively screen

prospective customers a series of screening questions to determine if they are right for the

18

just the ones who ask for more than they give.” Adds another marketer, “Firing the custom

ers you can’t possibly please gives you the bandwidth and resources to coddle the ones

that truly deserve your attention and repay you with referrals, applause, and loyalty.”19

ily customers, not employees. For about a year, the

Marketers don’t want relationships

with every possible customer. In

fact, a company might want to “fi re”

customers that cost more to serve

than to lose.

Chapter 1 | Marketing: Creating and Capturing Customer Value 39

Marketing relationships in which

customers, empowered by today’s

new digital technologies, interact with

companies and with each other to shape

their relationships with brands.

were calling customer care hundreds of times a month . . . on the same issues, even after we felt

those issues had been resolved.” Ultimately, the company determined it could not meet the needs

of this subset of subscribers and, therefore, waived their termination fees and cut off their service.

approaches and technologies have made it easier to focus on retaining the right customers and,

by extension, showing problem customers the door.

Relating More Deeply and Interactively Beyond choosing customers more selectively, companies are now relating with chosen

messages only, today’s marketers are incorporating new, interactive approaches that help

Interactive Customer Relationships. New technologies have profoundly changed the ways in which people relate to one another. New tools for relating include everything from

networks, such as Facebook, YouTube, Pinterest, and Twitter.

This changing communications environment also affects how companies and brands re

late to customers. The new communications approaches let marketers create deeper customer

involvement and a sense of community surrounding a brand—to make the brand a mean

ingful part of consumers’ conversations and lives. “Becoming part of the conversation be

advertising,” says one marketing expert. It’s no longer about “just pushing messages out,”

says another. “It’s allowing the individual, the person, to really feel like they’re part of your

brand in a unique way.”20

for marketers, however, they also create challenges. They give consumers greater power

and control. Today’s consumers have more information about brands than ever before, and

they have a wealth of platforms for airing and sharing their brand views with other con

sumers. Thus, the marketing world is now embracing not only customer relationship man

agement, but also .

Greater consumer control means that companies can no longer rely on marketing by

trusion. Instead, marketers must practice marketing by attraction—creating market offerings and messages that involve consumers rather than interrupt them. Hence, most marketers

For example, many brands are creating dialogues with consumers via their own or

existing online social networks. To supplement their traditional marketing campaigns, com

sites. They join social networks. Or they launch their own blogs, online communities, or

personal, interactive level.

Take Twitter, for example. Organizations ranging from Dell, JetBlue Airways, and

have created Twitter pages and promotions. They use “tweets” to start conversations with

Twitter’s more than 300 million registered users, address customer service issues, research

consumers involved with and talking about a brand.

21

40 Part 1 | Defining Marketing and the Marketing Process

views with the company and fellow ice cream lovers, and learn

both customer relationships and sales. In response to a recent

printed more than 500,000 coupons in just three weeks, redeem

the company’s advertising budget is now dedicated to nontra

ditional activities like social media.

Most marketers are still learning how to use social media

effectively. Using such media approaches calls for caution.

Because consumers have so much control, even the seem

example, McDonald’s recently launched a Twitter campaign

was hijacked by Twitter users, who turned the hashtag into

pulled the campaign within only two hours, but the hashtag

was still churning weeks later. “You’re going into the consum

cooker,” says another. “The hundreds of thousands, or millions, of people out there are

weak or stupid in it.”22

making relevant and genuine contributions to consumer conversations. “Nobody wants to

be friends with a brand,” says an online marketing executive. “Your job [as a brand] is to be

part of other friends’ conversations.”23

A growing part of the new customer dialogue is , by which consumers themselves are playing

a bigger role in shaping their own brand experiences and those of others. This might

sites, and other digital forums. But increasingly, companies are inviting consumers to play a more active role in shaping products and brand messages.

to hear it.” The site invites customer to share their ideas, vote on and discuss the ideas of 24

Other companies are inviting customers to play an active role in shaping ads. For ex

Davidson,

have been aired on national television. For the past several years, PepsiCo’s Doritos brand

has held a “Crash the

USA Today’s two separate AdMeter rankings, earning each of their creators a cool $1 million cash prize from PepsiCo. A spot called “Man’s Best Friend,” featuring a dog that bribes a

tional AdMeter ratings by people watching the big game. That ad cost all of $20 to make.

Brand exchanges created by consumers

themselves—both invited and uninvited—

by which consumers are playing an

increasing role in shaping their own

brand experiences and those of other

consumers.

social media to engage customers on a more personal, interactive

an ice cream social.

Kahala Corp. Facebook is a trademark of Facebook, Inc.

Chapter 1 | Marketing: Creating and Capturing Customer Value 41 yard to nab a bag of Doritos from a taunting kid, grabbed

USA Today/ Facebook social media AdMeter.25

nies may find it difficult to glean even a little gold from

all the garbage. For example, when Heinz invited

consumers to submit homemade ads for its ketchup

on its YouTube page, it ended up sifting through more

of the amateur ads were very good—entertaining and

best, and others were downright dreadful. In one ad,

a contestant chugged ketchup straight from the bottle.

washed his hair, and shaved his face with Heinz’s

product.

eos, reviews, blogs, and Web sites, consumers are play

ing an increasing role in shaping their own brand experiences. Beyond creating brand

conversations, customers are having an increasing say about everything from product

design, usage, and packaging to pricing and distribution. Brands need to accept and em

as either consumers or couch potatoes, are now creators and thought leaders, passive

no more.”27

Partner Relationship Management When it comes to creating customer value and building strong customer relationships,

today’s marketers know that they can’t go it alone. They must work closely with a variety

of marketing partners. In addition to being good at customer relationship management, mar keters must also be good at partner relationship management—working closely with

others inside and outside the company to jointly bring more value to customers.

Traditionally, marketers have been charged with understanding customers and rep

resenting customer needs to different company departments. However, in today’s more

connected world, every functional area in the organization can interact with customers.

The new thinking is that—no matter what your job is in a company—you must understand

marketing and be customer focused. Rather than letting each department go its own way,

Marketers must also partner with suppliers, channel partners, and others outside the

company. Marketing channels consist of distributors, retailers, and others who connect the

company to its buyers. The supply chain describes a longer channel, stretching from raw supply

chain management, companies today are strengthening their connections with partners all along the supply chain. They know that their fortunes rest on more than just how well they

performs against competitors’ supply chains.

Capturing Value from Customers

share of customer, and customer equity.

consumers to submit homemade ads for its ketchup brand on YouTube,

or even downright dreadful.

AJ Mast/The New York Times/Redux Pictures

Partner relationship management

Working closely with partners in other

company departments and outside the

company to jointly bring greater value to

customers.

42 Part 1 | Defining Marketing and the Marketing Process Creating Customer Loyalty and Retention

customers remain loyal and talk favorably to others about the company and its products.

an enormous drop in loyalty. Thus, the aim of customer relationship management is to cre

ate not only customer satisfaction but also customer delight.

The recent Great Recession and the economic uncertainty that followed it put strong

pressures on customer loyalty. It created a new sensibility in consumer spending that will

last well into the future. Recent studies show that, even in an improved economy, 55 per

50 percent of consumers now purchase store brands “all the time” as part of their regular

will now shop at a different store with lower prices even if it’s less convenient. Research

Thus, companies today must shape their value propositions even more carefully and treat 28

stream of purchases that the customer would make over a lifetime of patronage. For ex

ample, here is a classic illustration of customer lifetime value 29

Why? Because his average customer spends about $100 a week, shops 50 weeks a year, and re

mains in the area for about 10 years. If this customer has an unhappy experience and switches to

greater if the disappointed customer shares the bad experience with other customers and causes

them to defect.