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15

PhiliP Kotler Northwestern University

Kevin lane Keller Dartmouth College

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Marketing Management

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Library of Congress Cataloging-in-Publication Data Kotler, Philip. Marketing management/Philip Kotler, Kevin Lane Keller.—15e [edition]. pages cm ISBN 978-0-13-385646-0 (student edition) 1. Marketing—Management. I. Keller, Kevin Lane, 1956- II. Title. HF5415.13.K64 2016 658.8—dc23 2014023870

10 9 8 7 6 5 4 3 2 1

ISBN 10: 0-13-385646-1 ISBN 13: 978-0-13-385646-0

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This book is dedicated to my wife and best friend, Nancy, with love.

—PK

This book is dedicated to my wife, Punam, and my two daughters,

Carolyn and Allison, with much love and thanks.

—KLK

iv

Philip Kotler is one of the world’s leading authorities on marketing. He is the S. C. Johnson & Son Distinguished Professor of International Marketing at the Kellogg School of Management, Northwestern University. He received his master’s degree at the University of Chicago and his Ph.D. at MIT, both in economics. He did postdoctoral work in mathematics at Harvard University and in behav- ioral science at the University of Chicago.

Dr. Kotler is the coauthor of Principles of Marketing and Marketing: An Introduction. His Strategic Marketing for Nonprofit Organizations, now in its seventh edition, is the best seller in that specialized area.

Dr. Kotler’s other books include Marketing Models; The New Competition; Marketing Professional Services; Strategic Marketing for Educational Institutions; Marketing for Health Care Organizations; Marketing Congregations; High Visibility; Social Marketing; Marketing Places; The Marketing of Nations; Marketing for Hospitality and Tourism; Standing Room Only—Strategies for Marketing the Performing Arts; Museum Strategy and Marketing; Marketing Moves; Kotler on Marketing; Lateral Marketing; Winning at Innovation; Ten Deadly Marketing Sins; Chaotics; Marketing Your Way to Growth; Winning Global Markets; and Corporate Social Responsibility.

In addition, he has published more than 150 articles in leading journals, including the Harvard Business Review, Sloan Management Review, Business Horizons, California Management Review, the Journal of Marketing, the Journal of Marketing Research, Management Science, the Journal of Business Strategy, and Futurist. He is the only three-time winner of the coveted Alpha Kappa Psi award for the best annual article published in the Journal of Marketing.

Professor Kotler was the first recipient of the American Marketing Association’s (AMA) Distinguished Marketing Educator Award (1985). The European Association of Marketing Consultants and Sales Trainers awarded him their Prize for Marketing Excellence. He was chosen as the Leader in Marketing Thought by the Academic Members of the AMA in a 1975 survey. He also received the 1978 Paul Converse Award of the AMA, honoring his original contribution to marketing. In 1995, the Sales and Marketing Executives International (SMEI) named him Marketer of the Year. In 2002, Professor Kotler received the Distinguished Educator Award from the Academy of Marketing Science. In 2013, he received the William L. Wilkie “Marketing for a Better World” Award and subsequently received the Sheth Foundation Medal for Exceptional Contribution to Marketing Scholarship and Practice. In 2014, he was inducted in the Marketing Hall of Fame.

He has received honorary doctoral degrees from Stockholm University, the University of Zurich, Athens University of Economics and Business, DePaul University, the Cracow School of Business and Economics, Groupe H.E.C. in Paris, the Budapest School of Economic Science and Public Administration, the University of Economics and Business Administration in Vienna, and Plekhanov Russian Academy of Economics. Professor Kotler has been a consultant to many major U.S. and foreign companies, including IBM, General Electric, AT&T, Honeywell, Bank of America, Merck, SAS Airlines, Michelin, and others in the areas of marketing strategy and planning, marketing organization, and international marketing.

He has been Chairman of the College of Marketing of the Institute of Management Sciences, a Director of the American Marketing Association, a Trustee of the Marketing Science Institute, a Director of the MAC Group, a member of the Yankelovich Advisory Board, and a member of the Copernicus Advisory Board. He was a member of the Board of Governors of the School of the Art Institute of Chicago and a member of the Advisory Board of the Drucker Foundation. He has traveled extensively throughout Europe, Asia, and South America, advising and lecturing to many companies about global marketing opportunities.

about the authors

P hi

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Kevin Lane Keller is the E. B. Osborn Professor of Marketing at the Tuck School of Business at Dartmouth College. Professor Keller has degrees from Cornell, Carnegie-Mellon, and Duke universities. At Dartmouth, he teaches MBA courses on mar- keting management and strategic brand management and lectures in executive programs on those topics.

Previously, Professor Keller was on the faculty at Stanford University, where he also served as the head of the marketing group. Additionally, he has been on the faculty at the University of California at Berkeley and the University of North Carolina at Chapel Hill, has been a visiting professor at Duke University and the Australian

Graduate School of Management, and has two years of industry experience as Marketing Consultant for Bank of America.

Professor Keller’s general area of expertise lies in marketing strategy and planning and branding. His specific research interest is in how understanding theories and concepts related to consumer behavior can improve marketing strategies. His research has been published in three of the major marketing journals: the Journal of Marketing, the Journal of Marketing Research, and the Journal of Consumer Research. He also has served on the Editorial Review Boards of those journals. With more than 90 pub- lished papers, his research has been widely cited and has received numerous awards.

Actively involved with industry, he has worked on a host of different types of marketing projects. He has served as a long-term consultant and advisor to marketers for some of the world’s most successful brands, including Accenture, American Express, Disney, Ford, Intel, Levi Strauss, Procter & Gamble, and Samsung. Additional brand consulting activities have been with other top companies such as Allstate, Beiersdorf (Nivea), BlueCross BlueShield, Campbell, Colgate, Eli Lilly, ExxonMobil, General Mills, GfK, Goodyear, Hasbro, Intuit, Johnson & Johnson, Kodak, L.L.Bean, Mayo Clinic, MTV, Nordstrom, Ocean Spray, Red Hat, SAB Miller, Shell Oil, Starbucks, Unilever, and Young & Rubicam. He has also served as an academic trustee for the Marketing Science Institute and served as their Executive Director from July 1, 2013, to July 1, 2015.

A popular and highly sought-after speaker, he has made speeches and conducted marketing semi- nars to top executives in a variety of forums. Some of his senior management and marketing training clients have included include such diverse business organizations as Cisco, Coca-Cola, Deutsche Telekom, ExxonMobil, GE, Google, IBM, Macy’s, Microsoft, Nestle, Novartis, Pepsico, SC Johnson and Wyeth. He has lectured all over the world, from Seoul to Johannesburg, from Sydney to Stockholm, and from Sao Paulo to Mumbai. He has served as keynote speaker at conferences with hundreds to thousands of participants.

Professor Keller is currently conducting a variety of studies that address strategies to build, mea- sure, and manage brand equity. His textbook on those subjects, Strategic Brand Management, in its fourth edition, has been adopted at top business schools and leading firms around the world and has been heralded as the “bible of branding.”

An avid sports, music, and film enthusiast, in his so-called spare time, he has helped to manage and market, as well as serve as executive producer for, one of Australia’s great rock-and-roll treasures, The Church, as well as American power-pop legends Tommy Keene and Dwight Twilley. He also serves on the Board of Directors for The Doug Flutie, Jr. Foundation for Autism, the Lebanon Opera House, and the Montshire Museum of Science. Professor Keller lives in Etna, NH, with his wife, Punam (also a Tuck marketing professor), and his two daughters, Carolyn and Allison.

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Brief Contents Preface xvii

Part 1 Understanding Marketing Management 2 Chapter 1 Defining Marketing for the New Realities 3 Chapter 2 Developing Marketing Strategies and Plans 35

Part 2 Capturing Marketing Insights 66 Chapter 3 Collecting Information and Forecasting Demand 67 Chapter 4 Conducting Marketing Research 99

Part 3 Connecting with Customers 126 Chapter 5 Creating Long-Term Loyalty Relationships 127 Chapter 6 Analyzing Consumer Markets 157 Chapter 7 Analyzing Business Markets 189 Chapter 8 Tapping into Global Markets 217

Part 4 Building Strong Brands 244 Chapter 9 Identifying Market Segments and Targets 245 Chapter 10 Crafting the Brand Positioning 275 Chapter 11 Creating Brand Equity 299 Chapter 12 Addressing Competition and Driving Growth 335

Part 5 Creating Value 366 Chapter 13 Setting Product Strategy 367 Chapter 14 Designing and Managing Services 399 Chapter 15 Introducing New Market Offerings 429 Chapter 16 Developing Pricing Strategies and Programs 461

Part 6 Delivering Value 492 Chapter 17 Designing and Managing Integrated Marketing Channels 493 Chapter 18 Managing Retailing, Wholesaling, and Logistics 527

Part 7 Communicating Value 556 Chapter 19 Designing and Managing Integrated Marketing Communications 557 Chapter 20 Managing Mass Communications: Advertising, Sales Promotions, Events

and Experiences, and Public Relations 585 Chapter 21 Managing Digital Communications: Online, Social Media, and Mobile 615 Chapter 22 Managing Personal Communications: Direct and Database Marketing and

Personal Selling 635

Part 8 Conducting Marketing Responsibly for Long-Term Success 656

Chapter 23 Managing a Holistic Marketing Organization for the Long Run 657

appendix: Sonic Marketing Plan and Exercises a1 Endnotes E1 Glossary G1 Name Index I1 Company, Brand, and Organization Index I5 Subject Index I18

vii

Contents Preface xvii

Part 1 Understanding Marketing Management 2

Chapter 1 Defining Marketing for the New Realities 3

The Value of Marketing 3 Marketing Decision Making 3 Winning Marketing 4

The Scope of Marketing 5 What Is Marketing? 5 What Is Marketed? 5 Who Markets? 7

Core Marketing Concepts 9 Needs, Wants, and Demands 9 Target Markets, Positioning, and

Segmentation 9 Offerings and Brands 10 Marketing Channels 10 Paid, Owned, and Earned Media 10 Impressions and Engagement 10 Value and Satisfaction 11 Supply Chain 11 Competition 12 Marketing Environment 12

The New Marketing Realities 13 Technology 13 Globalization 14 Social Responsibility 14

MarkEtING INSIGht Getting to Marketing 3.0 15

A Dramatically Changed Marketplace 16 New Consumer Capabilities 16 New Company Capabilities 17 Changing Channels 19 Heightened Competition 19

Marketing in Practice 19 Marketing Balance 19

MarkEtING MEMO Reinventing Marketing at Coca-Cola 20

Marketing Accountability 20 Marketing in the Organization 20

Company Orientation toward the Marketplace 20

The Production Concept 20 The Product Concept 21

The Selling Concept 21 The Marketing Concept 21 The Holistic Marketing Concept 21

Updating the Four Ps 25

MarkEtING INSIGht Understanding the 4 As of Marketing 26

Marketing Management Tasks 27 Developing Marketing Strategies and

Plans 27 Capturing Marketing Insights 28 Connecting with Customers 28 Building Strong Brands 28

MarkEtING MEMO Marketers’ Frequently Asked Questions 28

Creating Value 29 Delivering Value 29 Communicating Value 29 Conducting Marketing Responsibly for

Long-Term Success 29 Summary 29 applications 30

MarkEtING ExCEllENCE Nike 30

MarkEtING ExCEllENCE Google 32

Chapter 2 Developing Marketing Strategies and Plans 35

Marketing and Customer Value 35 The Value Delivery Process 35 The Value Chain 36 Core Competencies 36 The Central Role of Strategic Planning 37

Corporate and Division Strategic Planning 38

MarkEtING MEMO What Does It Take to Be a Successful CMO? 39

Defining the Corporate Mission 39 Establishing Strategic Business Units 42 Assigning Resources to Each SBU 42 Assessing Growth Opportunities 42 Organization and Organizational Culture 46 Marketing Innovation 47

MarkEtING INSIGht Creating Innovative Marketing 47

Business Unit Strategic Planning 48 The Business Mission 49 SWOT Analysis 49

viii

MarkEtING MEMO Checklist for Evaluating Strengths/Weaknesses Analysis 51

Goal Formulation 52 Strategic Formulation 52 Program Formulation and

Implementation 53

MarkEtING INSIGht Businesses Charting a New Direction 54

Feedback and Control 55 The Nature and Contents of a Marketing

Plan 55

MarkEtING MEMO Marketing Plan Criteria 55

The Role of Research 56 The Role of Relationships 56 From Marketing Plan to Marketing

Action 57 Summary 57 applications 58 Sample Marketing Plan: Pegasus Sports

International 61

MarkEtING ExCEllENCE Cisco 58

MarkEtING ExCEllENCE Intel 59

Part 2 Capturing Marketing Insights 66

Chapter 3 Collecting Information and Forecasting Demand 67

Components of a Modern Marketing Information System 67

Internal Records 69 The Order-to-Payment Cycle 69 Sales Information Systems 69 Databases, Data Warehousing, and Data

Mining 69

MarkEtING INSIGht Digging into Big Data 70

Marketing Intelligence 70 The Marketing Intelligence System 70 Collecting Marketing Intelligence on the

Internet 72 Communicating and Acting on Marketing

Intelligence 72 Analyzing the Macroenvironment 72

Needs and Trends 73 Identifying the Major Forces 73 The Demographic Environment 74

MarkEtING MEMO Finding Gold at the Bottom of the Pyramid 75

The Economic Environment 77 The Sociocultural Environment 78 The Natural Environment 79

MarkEtING INSIGht The Green Marketing Revolution 81

The Technological Environment 82 The Political-Legal Environment 83

MarkEtING INSIGht Watching Out for Big Brother 85

Forecasting and Demand Measurement 85 The Measures of Market Demand 86 A Vocabulary for Demand Measurement 87 Estimating Current Demand 89 Estimating Future Demand 91

Summary 93 applications 94

MarkEtING ExCEllENCE Microsoft 94

MarkEtING ExCEllENCE Walmart 95

Chapter 4 Conducting Marketing Research 99

The Scope of Marketing Research 99 Importance of Marketing Insights 99 Who Does Marketing Research? 100 Overcoming Barriers to the Use of Marketing

Research 101 The Marketing Research Process 102

Step 1: Define the Problem, the Decision Alternatives, and the Research Objectives 102

Step 2: Develop the Research Plan 103

MarkEtING MEMO Conducting Informative Focus Groups 105

MarkEtING MEMO Marketing Questionnaire Dos And Don’ts 108

MarkEtING INSIGht Getting into the Heads of Consumers 109

MarkEtING INSIGht Understanding Brain Science 111

Step 3: Collect the Information 113 Step 4: Analyze the Information 113 Step 5: Present the Findings 113

MarkEtING INSIGht Bringing Marketing Research to Life with Personas 114

ix

Step 6: Make the Decision 114 Measuring Marketing Productivity 115

Marketing Metrics 115

MarkEtING MEMO Measuring Social Media ROI 117

Marketing-Mix Modeling 118 Marketing Dashboards 118

MarkEtING MEMO Designing Effective Marketing Dashboards 119

Summary 121 applications 121

MarkEtING ExCEllENCE IDEO 122

MarkEtING ExCEllENCE Intuit 124

Part 3 Connecting with Customers 126

Chapter 5 Creating Long-Term Loyalty Relationships 127

Building Customer Value, Satisfaction, and Loyalty 127

Customer-Perceived Value 128 Total Customer Satisfaction 131 Monitoring Satisfaction 133 Product and Service Quality 134

MarkEtING INSIGht Net Promoter and Customer Satisfaction 135

Maximizing Customer Lifetime Value 136 Customer Profitability 137 Measuring Customer Lifetime

Value 138 Attracting and Retaining Customers 138

MarkEtING MEMO Calculating Customer Lifetime Value 139

Building Loyalty 142 Brand Communities 143 Win-Backs 146

Cultivating Customer Relationships 146 Customer Relationship Management 146

MarkEtING INSIGht The Behavioral Targeting Controversy 147

Summary 152 applications 152

MarkEtING ExCEllENCE Nordstrom 153

MarkEtING ExCEllENCE Tesco 154

Chapter 6 Analyzing Consumer Markets 157

What Influences Consumer Behavior? 157 Cultural Factors 157 Social Factors 159 Personal Factors 161

MarkEtING MEMO The Average U.S. Consumer Quiz 162

Key Psychological Processes 165 Motivation 165 Perception 167

MarkEtING MEMO The Power of Sensory Marketing 167

Learning 169 Emotions 170 Memory 171

The Buying Decision Process: The Five-Stage Model 172

Problem Recognition 173 Information Search 174 Evaluation of Alternatives 175 Purchase Decision 176 Postpurchase Behavior 178 Moderating Effects on Consumer Decision

Making 180 Behavioral Decision Theory and Behavioral

Economics 180 Decision Heuristics 181 Framing 182

Summary 183 applications 183

MarkEtING ExCEllENCE Disney 184

MarkEtING ExCEllENCE IKEA 185

Chapter 7 Analyzing Business Markets 189

What Is Organizational Buying? 189 The Business Market versus the Consumer

Market 189 Buying Situations 192

Participants in the Business Buying Process 193

The Buying Center 194 Buying Center Influences 194 Targeting Firms and Buying Centers 195

MarkEtING INSIGht Big Sales to Small Businesses 196

The Purchasing/Procurement Process 197 Stages in the Buying Process 198

Problem Recognition 198

x

General Need Description and Product Specification 199

Supplier Search 199 Proposal Solicitation 201 Supplier Selection 201

MarkEtING MEMO Developing Compelling Customer Value Propositions 202

Order-Routine Specification 204 Performance Review 204

Developing Effective Business-to-Business Marketing Programs 204

Communication and Branding Activities 204 Systems Buying and Selling 206

MarkEtING MEMO Spreading the Word with Customer Reference Programs 207

Role of Services 207 Managing Business-to-Business Customer

Relationships 208 The Benefits of Vertical Coordination 208

MarkEtING INSIGht Establishing Corporate Trust, Credibility, and Reputation 209

Risks and Opportunism in Business Relationships 209

Institutional and Government Markets 211 Summary 212 applications 213

MarkEtING ExCEllENCE Accenture 213

MarkEtING ExCEllENCE GE 214

Chapter 8 Tapping into Global Markets 217

Competing on a Global Basis 217 Deciding Whether to Go Abroad 219 Deciding Which Markets to Enter 220

How Many Markets to Enter 220 Evaluating Potential Markets 221 Succeeding in Developing

Markets 221 Deciding How to Enter the Market 226

Indirect and Direct Export 227 Licensing 227 Joint Ventures 228 Direct Investment 228 Acquisition 228

Deciding on the Marketing Program 229 Global Similarities and Differences 230 Marketing Adaptation 231 Global Product Strategies 232

Global Communication Strategies 235 Global Pricing Strategies 235 Global Distribution Strategies 237

Country-of-Origin Effects 238 Building Country Images 238 Consumer Perceptions of Country of

Origin 239 Summary 240 applications 241

MarkEtING ExCEllENCE Twitter 241

MarkEtING ExCEllENCE L’Oréal 242

Part 4 Building Strong Brands 244

Chapter 9 Identifying Market Segments and Targets 245

Bases for Segmenting Consumer Markets 246

Geographic Segmentation 246 Demographic Segmentation 249 Psychographic Segmentation 258 Behavioral Segmentation 259

How Should Business Markets Be Segmented? 261

Market Targeting 262 Effective Segmentation Criteria 263

Evaluating and Selecting the Market Segments 264

MarkEtING INSIGht Chasing the Long Tail 267

MarkEtING MEMO Protecting Kids Online 269

Summary 269 applications 270

MarkEtING ExCEllENCE HSBC 270

MarkEtING ExCEllENCE BMW 272

Chapter 10 Crafting the Brand Positioning 275

Developing a Brand Positioning 275 Understanding Positioning and Value

Propositions 275 Choosing a Competitive Frame of

Reference 276 Identifying Potential Points-of-Difference

and Points-of-Parity 278

xi

Choosing Specific POPs and PODs 282 Brand Mantras 285

Establishing a Brand Positioning 287

MarkEtING MEMO Constructing a Brand Positioning Bull’s eye 287

Alternative Approaches to Positioning 291 Brand Narratives and Storytelling 291 Cultural Branding 292

Positioning and Branding for A Small Business 292

Summary 295 applications 295

MarkEtING ExCEllENCE Louis Vuitton 296

MarkEtING ExCEllENCE American Express 296

Chapter 11 Creating Brand Equity 299

How Does Branding Work? 299 The Role of Brands 300 The Scope of Branding 301

Defining Brand Equity 302 Brand Equity Models 304

MarkEtING INSIGht Brand Bubble Trouble 306

Building Brand Equity 309

MarkEtING MEMO The Marketing Magic of Characters 310

Designing Holistic Marketing Activities 310 Leveraging Secondary Associations 312 Internal Branding 314

Measuring Brand Equity 315

MarkEtING INSIGht The Brand Value Chain 315

MarkEtING INSIGht What Is a Brand Worth? 317

Managing Brand Equity 318 Brand Reinforcement 318 Brand Revitalization 319

Devising a Branding Strategy 321 Branding Decisions 322 Brand Portfolios 323 Brand Extensions 325

Customer Equity 328

MarkEtING MEMO Twenty-First-Century Branding 329

Summary 330 applications 330

MarkEtING ExCEllENCE McDonald’s 331

MarkEtING ExCEllENCE Procter & Gamble 332

Chapter 12 Addressing Competition and Driving Growth 335

Growth 335 Growth Strategies 335 Growing the Core 336

Competitive Strategies for Market Leaders 337

Expanding Total Market Demand 338 Protecting Market Share 339 Increasing Market Share 341

Other Competitive Strategies 342 Market-Challenger Strategies 342 Market-Follower Strategies 344

MarkEtING INSIGht The Costs and Benefits of Fast Fashion 345

Market-Nicher Strategies 346

MarkEtING MEMO Niche Specialist Roles 348

Product Life-Cycle Marketing Strategies 348 Product Life Cycles 348 Style, Fashion, and Fad Life Cycles 349 Marketing Strategies: Introduction Stage and

the Pioneer Advantage 351

MarkEtING INSIGht Understanding Double Jeopardy 352

Marketing Strategies: Growth Stage 353 Marketing Strategies: Maturity Stage 354 Marketing Strategies: Decline Stage 355

MarkEtING MEMO Managing a Marketing Crisis 356

Evidence for the Product Life-Cycle Concept 358

Critique of the Product Life-Cycle Concept 359

Market Evolution 359 Marketing in a Slow-Growth Economy 359

Explore the Upside of Increasing Investment 359

Get Closer to Customers 360 Review Budget Allocations 360 Put Forth the Most Compelling Value

Proposition 360 Fine-Tune Brand and Product Offerings 361

xii

Summary 362 applications 362

MarkEtING ExCEllENCE Samsung 363

MarkEtING ExCEllENCE IBM 364

Part 5 Creating Value 366

Chapter 13 Setting Product Strategy 367

Product Characteristics and Classifications 367

Product Levels: The Customer-Value Hierarchy 367

Product Classifications 369 Differentiation 370

Product Differentiation 371 Services Differentiation 372

Design 374 Design Leaders 374 Power of Design 375 Approaches to Design 375

Luxury Products 376 Characterizing Luxury Brands 376 Growing Luxury Brands 376 Marketing Luxury Brands 377

Environmental Issues 378

MarkEtING MEMO A Sip or A Gulp: Environmental Concerns in the Water Industry 379

Product and Brand Relationships 379 The Product Hierarchy 380 Product Systems and Mixes 380 Product Line Analysis 381 Product Line Length 382

MarkEtING INSIGht When Less Is More 383

Product Mix Pricing 386 Co-Branding and Ingredient

Branding 387

MarkEtING MEMO Product-Bundle Pricing Considerations 388

Packaging, Labeling, Warranties, and Guarantees 390

Packaging 390 Labeling 392 Warranties and Guarantees 393

Summary 393 applications 394

MarkEtING ExCEllENCE Caterpillar 394

MarkEtING ExCEllENCE Toyota 396