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Case Study Marketing

respond to the following questions through a cohesive 1000 - 1500 word document:

1. View the two Motel 6 television ads. What are your thoughts about the television ad?

2. Access the website, Facebook, and Twitter pages for Motel 6. What are your thoughts about the information provided and the design of each site? How well integrated are all these resources? Provide specifics to support your answer.

3. Based on the resources you have viewed, describe who you think is the target market for Motel 6. Describe the target market in terms of demographics and psychographics.

4. Describe the strategy Motel 6’s parent, The Blackstone Group, employs in their international operations. What factors from Chapter 8 in the Kotler (2016) text appear to be the basis for the organization’s choice of international brands and markets?

5. What about business travelers? What type of business travelers would use Motel 6? Why?

I will upload the textbook to be able to see Chapter #8.

https://www.wsj.com/articles/SB10001424052702303610504577419893645663540

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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

Chapter 14 Designing and Managing Services 399

The Nature of Services 399 Service Industries Are Everywhere 399 Categories of Service Mix 400 Distinctive Characteristics of Services 402

The New Services Realities 406 A Shifting Customer Relationship 406

MarkEtING MEMO Lights! Cameras! Customer Service Disasters! 408

Achieving Excellence In Services Marketing 409

Marketing Excellence 409 Technology and Service

Delivery 410 Best Practices of Top Service

Companies 411 Differentiating Services 413

MarkEtING INSIGht Improving Company Call Centers 414

Managing Service Quality 417 Managing Customer Expectations 418

MarkEtING MEMO Recommendations for Improving Service Quality 419

Incorporating Self-Service Technologies (SSTS) 421

Managing Product-Support Services 422 Identifying and Satisfying Customer

Needs 422 Postsale Service Strategy 423

Summary 423 applications 424

MarkEtING ExCEllENCE The Ritz-Carlton 424

MarkEtING ExCEllENCE Mayo Clinic 426

Chapter 15 Introducing New Market Offerings 429

New-Product Options 429 Make or Buy 429 Types of New Products 430

xiii

Challenges in New-Product Development 431

The Innovation Imperative 432 New-Product Success 432 New-Product Failure 433

Organizational Arrangements 434 Budgeting for New-Product Development 434 Organizing New-Product Development 435

Managing the Development Process: Ideas 438 Generating Ideas 438

MarkEtING MEMO Ten Ways to Find Great New-Product Ideas 438

MarkEtING INSIGht P&G’S Connect + Develop Approach to Innovation 439

MarkEtING MEMO Seven Ways to Draw New Ideas from Your Customers 440

MarkEtING MEMO How to Run a Successful Brainstorming Session 442

Using Idea Screening 443 Managing the Development Process: Concept

to Strategy 445 Concept Development and Testing 445 Marketing Strategy Development 448 Business Analysis 448

Managing the Development Process: Development to Commercialization 450

Product Development 450 Market Testing 451 Commercialization 453

The Consumer-Adoption Process 454 Stages in the Adoption Process 454 Factors Influencing the Adoption

Process 454 Summary 456 applications 457

MarkEtING ExCEllENCE Apple 457

MarkEtING ExCEllENCE Salesforce.com 459

Chapter 16 Developing Pricing Strategies and Programs 461

Understanding Pricing 461 Pricing in a Digital World 462 A Changing Pricing Environment 462

MarkEtING INSIGht Giving It All Away 463

How Companies Price 464 Consumer Psychology and Pricing 465

Setting the Price 467 Step 1: Selecting the Pricing Objective 467

MarkEtING INSIGht Trading Up, Down, and Over 468

Step 2: Determining Demand 470 Step 3: Estimating Costs 472

MarkEtING MEMO How to Cut Costs 474

Step 4: Analyzing Competitors’ Costs, Prices, and Offers 474

Step 5: Selecting a Pricing Method 475 Step 6: Selecting the Final Price 480

MarkEtING INSIGht Stealth Price Increases 481

Adapting the Price 482 Geographical Pricing (Cash, Countertrade,

Barter) 482 Price Discounts and Allowances 482 Promotional Pricing 483 Differentiated Pricing 484

Initiating and Responding to Price Changes 485

Initiating Price Cuts 485 Initiating Price Increases 486 Anticipating Competitive Responses 486 Responding to Competitors’ Price

Changes 487 Summary 488 applications 488

MarkEtING ExCEllENCE eBay 489

MarkEtING ExCEllENCE Southwest Airlines 490

Part 6 Delivering Value 492

Chapter 17 Designing and Managing Integrated Marketing Channels 493

Marketing Channels and Value Networks 494

The Importance of Channels 494 Multichannel Marketing 494 Integrating Multichannel Marketing

Systems 495 Value Networks 497 The Digital Channels Revolution 498

The Role of Marketing Channels 499 Channel Functions and Flows 500 Channel Levels 501 Service Sector Channels 502

xiv

Channel-Design Decisions 503 Analyzing Customer Needs and Wants 503

MarkEtING INSIGht Understanding the Showrooming Phenomena 503

Establishing Objectives and Constraints 504 Identifying Major Channel Alternatives 505 Evaluating Major Channel

Alternatives 507 Channel-Management Decisions 508

Selecting Channel Members 508 Training and Motivating Channel

Members 508 Evaluating Channel Members 509 Modifying Channel Design and

Arrangements 510 Channel Modification Decisions 510 Global Channel Considerations 510

Channel Integration and Systems 512 Vertical Marketing Systems 512 Horizontal Marketing Systems 514

E-Commerce Marketing Practices 514 Pure-Click Companies 514 Brick-and-Click Companies 515

M-Commerce Marketing Practices 516 Changes in Customer and Company

Behavior 517 M-Commerce Marketing Practices 517 Privacy 518

Conflict, Cooperation, and Competition 518 Types of Conflict and Competition 519 Causes of Channel Conflict 519 Managing Channel Conflict 519 Dilution and Cannibalization 521 Legal and Ethical Issues in Channel

Relations 521 Summary 521 applications 522

MarkEtING ExCEllENCE Amazon.com 522

MarkEtING ExCEllENCE Costco 524

Chapter 18 Managing Retailing,Wholesaling, and Logistics 527

Retailing 527 Types of Retailers 528

MarkEtING MEMO Innovative Retail Organizations 529

The Modern Retail Marketing Environment 532

MarkEtING INSIGht The Growth of Shopper Marketing 534

Marketing Decisions 535

MarkEtING MEMO Helping Stores to Sell 540

Private Labels 541 Role of Private Labels 542 Private-Label Success Factors 542

MarkEtING INSIGht Manufacturer’s Response to the Private-Label Threat 543

Wholesaling 543 Trends in Wholesaling 545

Market Logistics 545 Integrated Logistics Systems 546 Market-Logistics Objectives 547 Market-Logistics Decisions 548

Summary 551 applications 552

MarkEtING ExCEllENCE Zara 552

MarkEtING ExCEllENCE Best Buy 554

Part 7 Communicating Value 556

Chapter 19 Designing and Managing Integrated Marketing Communications 557

The Role of Marketing Communications 558 The Changing Marketing Communications

Environment 558

MarkEtING INSIGht Don’t Touch That Remote 558

Marketing Communications Mix 559 How Do Marketing Communications

Work? 561 The Communications Process Models 562

Developing Effective Communications 564 Identify the Target Audience 564 Set the Communications Objectives 565 Design the Communications 565 Select the Communications

Channels 568

MarkEtING MEMO Celebrity Endorsements as a Message Strategy 569

MarkEtING INSIGht Playing Tricks to Build a Brand 571

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Establish the Total Marketing Communications Budget 572

Selecting the Marketing Communications Mix 573

Characteristics of the Marketing Communications Mix 574

Factors in Setting the Marketing Communications Mix 575

Measuring Communication Results 577 Managing the Integrated Marketing

Communications Process 577 Coordinating Media 579 Implementing IMC 579

MarkEtING MEMO How Integrated Is Your IMC Program? 579

Summary 580 applications 581

MarkEtING ExCEllENCE Red Bull 581

MarkEtING ExCEllENCE Target 582

Chapter 20 Managing Mass Communications: Advertising, Sales Promotions, Events and Experiences, and Public Relations 585

Developing and Managing an Advertising Program 586

Setting the Advertising Objectives 587 Deciding on the Advertising Budget 587 Developing the Advertising

Campaign 588

MarkEtING MEMO Print Ad Evaluation Criteria 590

MarkEtING INSIGht Off-Air Ad Battles 592

Choosing Media 593

MarkEtING INSIGht Playing Games with Brands 596

MarkEtING MEMO Winning The Super Bowl of Advertising 597

Evaluating Advertising Effectiveness 599 Sales Promotion 600

Advertising Versus Promotion 600 Major Decisions 601

Events and Experiences 604 Events Objectives 604 Major Sponsorship Decisions 605

MarkEtING MEMO Measuring High- Performance Sponsorship Programs 606

Creating Experiences 606 Public Relations 607

Marketing Public Relations 607 Major Decisions in Marketing PR 608

Summary 609 applications 610

MarkEtING ExCEllENCE Coca-Cola 610

MarkEtING ExCEllENCE Gillette 612

Chapter 21 Managing Digital Communications: Online, Social Media, and Mobile 615

Online Marketing 615 Advantages and Disadvantages of Online

Marketing Communications 616 Online Marketing Communication

Options 617

MarkEtING MEMO How to Maximize the Marketing Value of E-mails 620

Social Media 620 Social Media Platforms 621 Using Social Media 622

Word of Mouth 623 Forms of Word of Mouth 624 Creating Word-of-Mouth Buzz 624

MarkEtING MEMO How to Start a Buzz Fire 626

MarkEtING INSIGht Tracking Online Buzz 627

Measuring the Effects of Word of Mouth 628

Mobile Marketing 628 The Scope of Mobile Marketing 628 Developing Effective Mobile Marketing

Programs 629 Mobile Marketing across Markets 629

Summary 630 applications 631

MarkEtING ExCEllENCE Facebook 631

MarkEtING ExCEllENCE Unilever (Axe and Dove) 632

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Chapter 22 Managing Personal Communications: Direct and Database Marketing and Personal Selling 635

Direct Marketing 635 The Benefits of Direct Marketing 636 Direct Mail 637 Catalog Marketing 638 Telemarketing 638 Other Media for Direct-Response

Marketing 639 Public and Ethical Issues in Direct

Marketing 639 Customer Databases and Database

Marketing 640 Customer Databases 640 Data Warehouses and Data Mining 640 The Downside of Database Marketing 642

Designing the Sales Force 642 Sales Force Objectives and Strategy 644 Sales Force Structure 645

MarkEtING INSIGht Major Account Management 646

Sales Force Size 646 Sales Force Compensation 646

Managing the Sales Force 647 Recruiting and Selecting

Representatives 647 Training and Supervising Sales

Representatives 647 Sales Rep Productivity 648 Motivating Sales Representatives 648 Evaluating Sales Representatives 649

Principles of Personal Selling 651 The Six Steps 651 Relationship Marketing 652

Summary 653 applications 653

MarkEtING ExCEllENCE Progressive 654

MarkEtING ExCEllENCE Victoria’s Secret 655

Part 8 Conducting Marketing Responsibly for Long-Term Success 656

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

Trends in Marketing Practices 657 Internal Marketing 658

MarkEtING MEMO Characteristics of Company Departments That Are Truly Customer Driven 659

Organizing the Marketing Department 660 Relationships with Other Departments 662 Building a Creative Marketing

Organization 662

MarkEtING INSIGht The Marketing CEO 663

Socially Responsible Marketing 663 Corporate Social Responsibility 664

MarkEtING INSIGht The Rise of Organic 667

Socially Responsible Business Models 668

Cause-Related Marketing 668

MarkEtING MEMO Making a Difference: Top 10 Tips for Cause Branding 671

Social Marketing 672 Marketing Implementation and Control 675

Marketing Implementation 675 Marketing Control 675

The Future of Marketing 680

MarkEtING MEMO Major Marketing Weaknesses 681

Summary 683 applications 683

MarkEtING ExCEllENCE Starbucks 684

MarkEtING ExCEllENCE Virgin Group 685

appendix Tools for Marketing Control 687

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

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Preface What’s New in the 15th Edition The 15th edition of Marketing Management is a landmark entry in the long successful history of the market leader. With the 15th edition, great care was taken to provide an introductory guide to marketing management that truly reflects the modern realities of marketing. In doing so, classic concepts, guidelines, and examples were retained while new ones were added as appropriate. Three broad forces—globalization, technology, and social responsibility—were identified as critical to the success of modern marketing programs. These three topics are evident all through the text.

As has been the case for a number of editions now, the overriding goal of the revision for the 15th edition of Marketing Management was to create as comprehensive, current, and engaging a MBA marketing textbook as possible. Where appropriate, new material was added, old material was updated, and no longer relevant or necessary material was deleted.

Even though marketing is changing in many significant ways these days, many core elements remain, and we feel strongly that a balanced approach of classic and contemporary approaches and perspectives is the way to go. Marketing Management, 15th edition, allows those instructors who have used the 14th edition to build on what they have learned and done while at the same time offering a text that is unsurpassed in breadth, depth, and relevance for students experiencing Marketing Management for the first time.

The successful across-chapter reorganization into eight parts that began with the 12th edition of Marketing Management has largely been preserved, although several adjustments have been made to improve student understanding, as described below. Many of the favorably received within-chapter features that have been introduced through the years, such as topical chapter openers, in-text boxes highlighting noteworthy compa- nies or issues, and the Marketing Insight and Marketing Memo boxes that provide in-depth conceptual and practical commentary, have been retained.

Significant changes to the 15th edition include:

• Brand-new opening vignettes for each chapter set the stage for the chapter material to follow. By covering topical brands or companies, the vignettes are great classroom discussion starters.

• Almost half of the in-text boxes are new. These boxes provide vivid illustrations of chapter concepts using actual companies and situations. The boxes cover a variety of products, services, and markets, and many have accompanying illustrations in the form of ads or product shots.

• Each end-of-chapter section now includes two expanded Marketing Excellence mini-cases highlighting innovative, insightful marketing accomplishments by leading organizations. Each case includes questions that promote classroom discussion and student analysis.

• The global chapter (8, previously Chapter 21) has been moved into Part 3 on Connecting with Customers and the new products chapter (15, previously Chapter 20) has been moved into Part 5 on Creating Value. The positioning and brand chapters (10 and 11) have been switched to allow for the conventional STP sequencing. These moves permit richer coverage of the topics and better align with many instructors’ teaching strategy.

• A new chapter (21) titled Managing Digital Communications: Online, Social Media, and Mobile has been added to better highlight that important topic. Significant attention is paid throughout the text to what a new section in Chapter 1 calls “the digital revolution.”

• The concluding chapter (23) has been retitled “Managing a Holistic Marketing Organization for the Long Run” and addresses corporate social responsibility, business ethics, and sustainability, among other topics.

• Chapter 12 (previously Chapter 11) has been retitled “Addressing Competition and Driving Growth” to acknowledge the importance of growth to an organization.

What Is Marketing Management All About? Marketing Management is the leading marketing text because its content and organization consistently reflect changes in marketing theory and practice. The very first edition of Marketing Management, published in 1967, introduced the concept that companies must be customer and market driven. But there was little mention of

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what have now become fundamental topics such as segmentation, targeting, and positioning. Concepts such as brand equity, customer value analysis, database marketing, e-commerce, value networks, hybrid channels, supply chain management, and integrated marketing communications were not even part of the marketing vocabulary then. Marketing Management continues to reflect the changes in the marketing discipline over the past almost 50 years.

Firms now sell goods and services through a variety of direct and indirect channels. Mass advertis- ing is not nearly as effective as it was, so marketers are exploring new forms of communication, such as experiential, entertainment, and viral marketing. Customers are telling companies what types of product or services they want and when, where, and how they want to buy them. They are increasingly reporting to other consumers what they think of specific companies and products—using e-mail, blogs, podcasts, and other digital media to do so. Company messages are becoming a smaller fraction of the total “conversation” about products and services.

In response, companies have shifted gears from managing product portfolios to managing customer portfolios, compiling databases on individual customers so they can understand them better and construct individualized offerings and messages. They are doing less product and service standardization and more niching and customization. They are replacing monologues with customer dialogues. They are improving their methods of measuring customer profitability and customer lifetime value. They are intent on measur- ing the return on their marketing investment and its impact on shareholder value. They are also concerned with the ethical and social implications of their marketing decisions.

As companies change, so does their marketing organization. Marketing is no longer a company depart- ment charged with a limited number of tasks—it is a company-wide undertaking. It drives the company’s vision, mission, and strategic planning. Marketing includes decisions like whom the company wants as its customers, which of their needs to satisfy, what products and services to offer, what prices to set, what communications to send and receive, what channels of distribution to use, and what partnerships to develop. Marketing succeeds only when all departments work together to achieve goals: when engineering designs the right products; finance furnishes the required funds; purchasing buys high-quality materials; produc- tion makes high-quality products on time; and accounting measures the profitability of different customers, products, and areas.

To address all these different shifts, good marketers are practicing holistic marketing. Holistic marketing is the development, design, and implementation of marketing programs, processes, and activities that recog- nize the breadth and interdependencies of today’s marketing environment. Four key dimensions of holistic marketing are:

1. Internal marketing—ensuring everyone in the organization embraces appropriate marketing principles, especially senior management.

2. Integrated marketing—ensuring that multiple means of creating, delivering, and communicating value are employed and combined in the best way.

3. Relationship marketing—having rich, multifaceted relationships with customers, channel members, and other marketing partners.

4. Performance marketing—understanding returns to the business from marketing activities and programs, as well as addressing broader concerns and their legal, ethical, social, and environmental effects.

These four dimensions are woven throughout the book and at times spelled out explicitly. The text is organized to specifically address the following eight tasks that constitute modern marketing management in the 21st century:

1. Developing marketing strategies and plans 2. Capturing marketing insights 3. Connecting with customers 4. Building strong brands 5. Creating value 6. Delivering value 7. Communicating value 8. Conducting marketing responsibly for long-term success

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What Makes Marketing Management the Marketing Leader? Marketing is of interest to everyone, whether they are marketing goods, services, properties, persons, places, events, information, ideas, or organizations. As it has maintained its respected position among students, educators, and businesspeople, Marketing Management has kept up to date and contemporary. Students (and instructors) feel that the book is talking directly to them in terms of both content and delivery.

Marketing Management owes its marketplace success to its ability to maximize three dimensions that characterize the best marketing texts—depth, breadth, and relevance—as measured by the following criteria:

• Depth. Does the book have solid academic grounding? Does it contain important theoretical concepts, models, and frameworks? Does it provide conceptual guidance to solve practical problems?

• Breadth. Does the book cover all the right topics? Does it provide the proper amount of emphasis on those topics?

• Relevance. Does the book engage the reader? Is it interesting to read? Does it have lots of compelling examples?

The 15th edition builds on the fundamental strengths of past editions that collectively distinguish it from all other marketing management texts:

• Managerial orientation. The book focuses on the major decisions that marketing managers and top management face in their efforts to harmonize the organization’s objectives, capabilities, and resources with marketplace needs and opportunities.

• Analytical approach. Marketing Management presents conceptual tools and frameworks for analyz- ing recurring problems in marketing management. Cases and examples illustrate effective marketing principles, strategies, and practices.

• Multidisciplinary perspective. The book draws on the rich findings of various scientific disciplines— economics, behavioral science, management theory, and mathematics—for fundamental concepts and tools directly applicable to marketing challenges.

• Universal applications. The book applies strategic thinking to the complete spectrum of marketing: products, services, persons, places, information, ideas, and causes; consumer and business markets; profit and nonprofit organizations; domestic and foreign companies; small and large firms; manufacturing and intermediary businesses; and low- and high-tech industries.

• Comprehensive and balanced coverage. Marketing Management covers all the topics an informed marketing manager needs to understand to execute strategic, tactical, and administrative marketing.

Instructor Resources At the Instructor Resource Center, www.pearsonhighered.com/irc, instructors can easily register to gain access to a variety of instructor resources available with this text in downloadable format. If assistance is needed, our dedicated technical support team is ready to help with the media supplements that accompany this text. Visit http://247.pearsoned.com for answers to frequently asked questions and toll-free user support phone numbers.

The following supplements are available with this text:

• Instructor’s Resource Manual • Test Bank • TestGen® Computerized Test Bank • PowerPoint Presentation • Instructor Video Library • Image Library

http://www.pearsonhighered.com/irc
http://247.pearsoned.com
xx

acknowledgments the 15th edition bears the imprint of many people. From Phil Kotler: My colleagues and associates at the Kellogg School of Management at Northwestern University continue to have an important impact on my thinking: Nidhi Agrawal, Eric T. Anderson, James C. Anderson, Robert C. Blattberg, Miguel C. Brendl, Bobby J. Calder, Gregory S. Carpenter, Alex Chernev, Anne T. Coughlan, David Gal, Kent Grayson, Karsten Hansen, Dipak C. Jain, Lakshman Krishnamurti, Angela Lee, Vincent Nijs, Yi Qian, Mohanbir S. Sawhney, Louis W. Stern, Brian Sternthal, Alice M. Tybout, and Andris A. Zoltners. I also want to thank the S. C. Johnson Family for the generous support of my chair at the Kellogg School. Completing the Northwestern team are my former Deans, Donald P. Jacobs and Dipak Jain and my current Dean, Sally Blount, for provid- ing generous support for my research and writing.

Several former faculty members of the marketing department had a great influence on my think- ing: Steuart Henderson Britt, Richard M. Clewett, Ralph Westfall, Harper W. Boyd, Sidney J. Levy, John Sherry, and John Hauser. I also want to acknowledge Gary Armstrong for our work on Principles of Marketing.

I am indebted to the following coauthors of international editions of Marketing Management and Principles of Marketing who have taught me a great deal as we worked together to adapt marketing manage- ment thinking to the problems of different nations:

• Swee-Hoon Ang and Siew-Meng Leong, National University of Singapore • Chin-Tiong Tan, Singapore Management University • Friedhelm W. Bliemel, Universitat Kaiserslautern (Germany) • Linden Brown; Stewart Adam, Deakin University; Suzan Burton: Macquarie Graduate School of

Management, and Sara Denize, University of Western Sydney (Australia) • Bernard Dubois, Groupe HEC School of Management (France) and Delphine Manceau, ESCP-EAP

European School of Management • John Saunders, Loughborough University and Veronica Wong, Warwick University (United Kingdom) • Jacob Hornick, Tel Aviv University (Israel) • Walter Giorgio Scott, Universita Cattolica del Sacro Cuore (Italy) • Peggy Cunningham, Queen’s University (Canada)

I also want to acknowledge how much I have learned from working with coauthors on more special- ized marketing subjects: Alan Andreasen, Christer Asplund, Paul N. Bloom, John Bowen, Roberta C. Clarke, Karen Fox, David Gertner, Michael Hamlin, Thomas Hayes, Donald Haider, Hooi Den Hua, Dipak Jain, Somkid Jatusripitak, Hermawan Kartajaya, Milton Kotler, Neil Kotler, Nancy Lee, Sandra Liu, Suvit Maesincee, James Maken, Waldemar Pfoertsch, Gustave Rath, Irving Rein, Eduardo Roberto, Joanne Scheff, Norman Shawchuck, Joel Shalowitz, Ben Shields, Francois Simon, Robert Stevens, Martin Stoller, Fernando Trias de Bes, Bruce Wrenn, and David Young.

My overriding debt continues to be to my lovely wife, Nancy, who provided me with the time, support, and inspiration needed to prepare this edition. It is truly our book.

From Kevin Lane Keller: I continually benefit from the wisdom of my marketing colleagues at Tuck— Punam Keller, Scott Neslin, Kusum Ailawadi, Praveen Kopalle, Peter Golder, Ellie Kyung, Yaniv Dover, Eesha Sharma, Fred Webster, Gert Assmus, and John Farley—as well as the leadership of Dean Paul Danos. I also gratefully acknowledge the invaluable research and teaching contributions from my faculty colleagues and collaborators through the years. I owe a considerable debt of gratitude to Duke University’s Jim Bettman and Rick Staelin for helping to get my academic career started and serving as positive role models to this day. I am also appreciative of all that I have learned from working with many industry executives who have generously shared their insights and experiences. With this 15th edition, I received some extremely help- ful research assistance from a talented group of Dartmouth undergraduate RAs—Caroline Buck, James Carlson, Ryan Galloway, Jack Heise, Jeff Keller, Jill Lyon, Richard Newsome-White, Rahul Raina, and Cameron Woodworth, —who were as accurate, thorough, dependable, and cheerful as you could possibly imagine. Alison Pearson provided superb administrative support. Finally, I give special thanks to Punam, my wife, and Carolyn and Allison, my daughters, who make it all happen and make it all worthwhile.

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We are indebted to the following colleagues at other universities who reviewed this new edition:

• Jennifer Barr, Richard Stockton College • Lawrence Kenneth Duke, Drexel University LeBow College of Business • Barbara S. Faries, Mission College, Santa Clara, CA • William E. Fillner, Hiram College • Frank J. Franzak,Virginia Commonwealth University • Robert Galka, De Paul University • Albert N. Greco, Fordham University • John A. Hobbs, University of Oklahoma • Brian Larson,Widener University • Anthony Racka, Oakland Community College, Auburn • Hills, MI • Jamie Ressler, Palm Beach Atlantic University • James E. Shapiro, University of New Haven • George David Shows, Louisiana Tech University

We would also like to thank colleagues who have reviewed previous editions of Marketing Management:

Homero Aguirre, TAMIU Alan Au, University of Hong Kong Hiram Barksdale, University of Georgia Boris Becker, Oregon State University Sandy Becker, Rutgers University Parimal Bhagat, Indiana University of Pennsylvania Sunil Bhatla, Case Western Reserve University Michael Bruce, Anderson University Frederic Brunel, Boston University John Burnett, University of Denver Lisa Cain, University of California at Berkeley and Mills

College Surjit Chhabra, DePaul University Yun Chu, Frostburg State University Dennis Clayson, University of Northern Iowa Bob Cline, University of Iowa Brent Cunningham, Jacksonville State University Hugh Daubek, Purdue University John Deighton, University of Chicago Kathleen Dominick, Rider University Tad Duffy, Golden Gate University Mohan Dutta, Purdue University Barbara Dyer, University of North Carolina at Greensboro Jackkie Eastman,Valdosta State University Steve Edison, University of Arkansas–Little Rock

Alton Erdem, University of Houston at Clear Lake Elizabeth Evans, Concordia University Barb Finer, Suffolk University Chic Fojtik, Pepperdine University Renee Foster, Delta State University Ralph Gaedeke, California State University, Sacramento Robert Galka, De Paul University Betsy Gelb, University of Houston at Clear Lake Dennis Gensch, University of Wisconsin, Milwaukee David Georgoff, Florida Atlantic University Rashi Glazer, University of California, Berkeley Bill Gray, Keller Graduate School of Management Barbara Gross, California State University at Northridge Lewis Hershey, Fayetteville State University Thomas Hewett, Kaplan University Mary Higby, University of Detroit–Mercy Arun Jain, State University of New York, Buffalo Michelle Kunz, Morehead State University Eric Langer, Johns Hopkins University Even Lanseng, Norwegian School of Management Ron Lennon, Barry University Michael Lodato, California Lutheran University Henry Loehr, Pfeiffer University–Charlotte Bart Macchiette, Plymouth University Susan Mann, Bluefield State College Charles Martin,Wichita State University H. Lee Matthews, Ohio State University

xxii

Paul McDevitt, University of Illinois at Springfield Mary Ann McGrath, Loyola University, Chicago John McKeever, University of Houston Kenneth P. Mead, Central Connecticut State University Henry Metzner, University of Missouri, Rolla Robert Mika, Monmouth University Mark Mitchell, Coastal Carolina University Francis Mulhern, Northwestern University Pat Murphy, University of Notre Dame Jim Murrow, Drury College Zhou Nan, University of Hong Kong Nicholas Nugent, Boston College Nnamdi Osakwe, Bryant & Stratton College Donald Outland, University of Texas, Austin Albert Page, University of Illinois, Chicago Young-Hoon Park, Cornell University Koen Pauwels, Dartmouth College Lisa Klein Pearo, Cornell University Keith Penney, Webster University Patricia Perry, University of Alabama Mike Powell, North Georgia College and State University Hank Pruden, Golden Gate University Christopher Puto, Arizona State University Abe Qstin, Lakeland University Lopo Rego, University of Iowa Richard Rexeisen, University of St. Thomas

William Rice, California State University–Fresno Scott D. Roberts, Northern Arizona University Bill Robinson, Purdue University Robert Roe, University of Wyoming Jan Napoleon Saykiewicz, Duquesne University Larry Schramm, Oakland University Alex Sharland, Hofstra University Dean Siewers, Rochester Institute of Technology Anusorn Singhapakdi, Old Dominion University Jim Skertich, Upper Iowa University Allen Smith, Florida Atlantic University Joe Spencer, Anderson University Mark Spriggs, University of St. Thomas Nancy Stephens, Arizona State University Michael Swenso, Brigham Young University, Marriott

School Thomas Tellefsen, The College of Staten Island–CUNY Daniel Turner, University of Washington Sean Valentine, University of Wyoming Ann Veeck, West Michigan University R.Venkatesh, University of Pittsburgh Edward Volchok, Stevens Institute of Management D. J. Wasmer, St. Mary-of-the-Woods College Zac Williams, Mississippi State University Greg Wood, Canisius College Kevin Zeng Zhou, University of Hong Kong

A warm welcome and many thanks to the following people who contributed to the global case studies developed for the 14th edition:

Mairead Brady, Trinity College John R. Brooks, Jr., Houston Baptist University Sylvain Charlebois, University of Regina Geoffrey da Silva, Temasek Business School

Malcolm Goodman, Durham University Torben Hansen, Copenhagen Business School Abraham Koshy, Sanjeev Tripathi, and Abhishek, Indian

Institute of Management Ahmedabad Peter Ling, Edith Cowan University Marianne Marando, Seneca College Lu Taihong, Sun Yat-Sen University

The talented staff at Pearson deserves praise for their role in shaping the 15th edition. We want to thank our editor, Mark Gaffney, for his contribution to this revision, as well as our program manager, Jennifer M. Collins. We also want to thank our project manager, Becca Groves, for making sure everything was moving along and falling into place in such a personable way, both with regard to the book and supple- ments. We benefited greatly from the superb editorial help of Elisa Adams, who lent her considerable talents as a development editor to this edition. We also thank our marketing managers, Anne Fahlgren and Lenny Ann Raper. Certainly, we are grateful for the editorial support provided by Daniel Petrino. Lastly, we’d like to thank the following MyLab contributors: Susan C. Schanne, School of Management, Eastern Michigan University, and Barbara S. Faries, MBA, Mission College, Santa Clara.

Philip Kotler S. C. Johnson Distinguished Professor of International Marketing,

Kellogg School of Management, Northwestern University,

Evanston, Illinois

Kevin Lane Keller E. B. Osborn Professor of Marketing,

Tuck School of Business, Dartmouth College,

Hanover, New Hampshire

2

In This Chapter, We Will Address the Following Questions

1. Why is marketing important? (p. 3)

2. What is the scope of marketing? (p. 5)

3. What are some core marketing concepts? (p. 9)

4. What forces are defining the new marketing realities? (p. 13)

5. What new capabilities have these forces given consumers and companies? (p. 16)

6. What does a holistic marketing philosophy include? (p. 20)

7. What tasks are necessary for successful marketing management? (p. 27)

Understanding Marketing ManagementPart 1

Unilever is fundamentally changing how it is doing its marketing, including putting more emphasis on developing markets.

Source: Bloomberg via Getty Images

Chapter 1 Defining Marketing for the New Realities Chapter 2 Developing Marketing Strategies and Plans

Improve Your Grade! Over 10 million students improved their results using the Pearson MyLabs. Visit mymktlab.com for simulations, tutorials, and end-of-chapter problems.

MyMarketingLab™

3

The Value of Marketing Finance, operations, accounting, and other business functions won’t really matter without sufficient demand for products and services so the firm can make a profit. In other words, there must be a top line for there to be a bottom line. Thus, financial success often depends on marketing ability. Marketing’s value extends to society as a whole. It has helped introduce new or enhanced products that ease or enrich people’s lives. Successful marketing builds demand for products and services, which, in turn, creates jobs. By contributing to the bottom line, success- ful marketing also allows firms to more fully engage in socially responsible activities.2

MarketInG DecIsIon MakInG CEOs recognize that marketing builds strong brands and a loyal customer base, intangible assets that contrib- ute heavily to the value of a firm.3 Many firms, even service and nonprofit, now have a chief marketing officer (CMO) to put marketing on a more equal footing with other C-level executives such as the chief financial officer (CFO) or chief information officer (CIO).4

Good marketing is no accident. It is both an art and a science, and it results from careful planning and execution using state-of-the-art tools and techniques. In this book, we describe how skillful marketers are updating classic practices and inventing new ones to find creative, practical solutions to new marketing realities. In the first chapter, we lay our foundation by reviewing important marketing concepts, tools, frameworks, and issues.

Formally and informally, people and organizations engage in a vast number of activities we can call marketing. In the face of a digital revolution and other major changes in the business environment, good marketing today is both increasingly vital and radically new. Consider Unilever.1

Under the leadership of ex-P&G marketing executive Paul Polman and marketing whiz Keith Weed, Unilever is steering in an aggressive new direction. Its new marketing model “Crafting Brands for Life” establishes social, economic, and product missions for each brand, including Dove, Ben & Jerry’s, Lifebuoy, and Knorr. Polman states, “I have a vision of all of our brands being a force for good, with each having over a billion fans or more to help drive change.” One part of

the mission, for instance, is sustainability—specifically, to halve its ecological footprint while doubling revenues. To improve advertising and marketing communications, it aims to strike a balance between “magic” and “logic,” doubling marketing training expenditures and emphasizing ad research. To better understand the digital world, CMO Weed took 26 top marketing executives to Silicon Valley to visit Google, Facebook, and Hulu and led a similar group to visit Hollywood executives at Disney and Universal. Unile- ver has set its sights on developing and emerging (D&E) markets, hoping to grow 15 percent to 20 percent annually in China and to draw 70 percent to 75 percent of business from D&E markets by 2020. The company has also adopted “reverse innovation” by apply- ing branding and packaging innovations from developing markets to recession-hit developed markets. In Spain, it now sells Surf deter- gent in five-wash packs. In Greece, it offers mashed potatoes and mayonnaise in small packages.

Defining Marketing for the New Realities

1

4 PART 1 | UndeRsTAnding MARkeTing MAnAgeMenT

In an Internet-fueled environment where consumers, competition, technology, and economic forces change rapidly and consequences quickly multiply, marketers must choose features, prices, and markets and decide how much to spend on advertising, sales, and online and mobile marketing. Meanwhile, the economic downturn that began globally in 2008 and the sluggish recovery since have brought budget cuts and intense pressure to make every marketing dollar count.

There is little margin for error in marketing. Just a short time ago, MySpace, Yahoo!, Blockbuster, and Barnes & Noble were admired leaders in their industries. What a difference a few years can make! Each of these brands has been completely overtaken by an upstart challenger—Facebook, Google, Netflix, and Amazon—and they now struggle, sometimes unsuccessfully, for mere survival. Firms must constantly move forward. At greatest risk are those that fail to carefully monitor their customers and competitors, continuously improve their value offerings and marketing strategies, or satisfy their employees, stockholders, suppliers, and channel partners in the process.

WInnInG MarketInG Skillful marketing is a never-ending pursuit, but some businesses are adapting and thriving in these changing times. Consider American Express. 5

AMericAn exPress: sMALL Business sAturdAy Launched in 2010 via radio and TV ads, social media, and PR, American Express’s Small Business Saturday program encouraged people to shop at smaller, local retailers on the Saturday after Thanksgiving. Among businesses that participated, sales rose 28 percent. In 2012, American Express provided social media marketing kits, e-mail templates, and signage to help spread the word. More than 350 small business organizations supported the initiative, more than 3 million users “liked” the Small Business Saturday Facebook page, and 213,000 related tweets were posted on Twitter. President Obama tweeted, “Today, sup- port small businesses in your community by shopping at your favorite store” and took his daughters to local bookstores. American Express cardholders got a $25 rebate for shopping at local, independent stores on Small Business Saturday. The company reported a roughly 21 percent increase in transactions for both 2011 and 2012 due to the program.

Other top marketers are following suit. Using a Web-only campaign, BMW claimed a $110 million revenue gain for its 1-series. More than 3 million people saw a five-video teaser campaign, and 20,000 gave their contact details. BMW also targeted influential bloggers and used feedback from social media as input to styling and sales forecasts.6

Even business-to-business firms are getting into the action. Corning has struggled transcending its reputa- tion as sellers of Pyrex cookware—a business it sold more than a decade ago—to its current status as makers of highly engineered specialty glass and ceramic products. To expand the vision on Wall Street as a company with a rich portfolio, Corning created a YouTube video, “A Day Made of Glass . . . Made Possible by Corning.” Unconventionally long but beautifully put together, within three weeks it attracted more than a million views. Much of the social conversation it created revolved around themes of glass, product toughness, and hope for the future—exactly what Corning wanted.7

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American Express’ Small Business Saturday has struck a chord with consumers, including TV celebrity Katie Couric.

defining MARkeTing foR The new ReAliTies | chapter 1 5

The Scope of Marketing To be a marketer, you need to understand what marketing is, how it works, who does it, and what is marketed.

What Is MarketInG? Marketing is about identifying and meeting human and social needs. One of the shortest good definitions of marketing is “meeting needs profitably.” When Google recognized that people needed to more effectively and efficiently access information on the Internet, it created a powerful search engine that organized and prioritized queries. When IKEA noticed that people wanted good furnishings at substantially lower prices, it created knock- down furniture. These two firms demonstrated marketing savvy and turned a private or social need into a profit- able business opportunity.

The American Marketing Association offers the following formal definition: Marketing is the activity, set of institutions, and processes for creating, communicating, delivering, and exchanging offerings that have value for customers, clients, partners, and society at large.8 Coping with these exchange processes calls for a considerable amount of work and skill. Marketing management takes place when at least one party to a potential exchange thinks about the means of achieving desired responses from other parties. Thus, we see marketing management as the art and science of choosing target markets and getting, keeping, and growing customers through creating, delivering, and communicating superior customer value.

We can distinguish between a social and a managerial definition of marketing. A social definition shows the role marketing plays in society; for example, one marketer has said that marketing’s role is to “deliver a higher standard of living.” Here is a social definition that serves our purpose: Marketing is a societal process by which individuals and groups obtain what they need and want through creating, offering, and freely exchanging products and services of value with others. Cocreation of value among consumers and with businesses and the importance of value creation and sharing have become important themes in the development of modern marketing thought.9

Managers sometimes think of marketing as “the art of selling products,” but many people are surprised when they hear that selling is not the most important part of marketing! Selling is only the tip of the marketing iceberg. Peter Drucker, famed management theorist, put it this way:10

There will always, one can assume, be need for some selling. But the aim of marketing is to make selling superfluous. The aim of marketing is to know and understand the customer so well that the product or service fits him and sells itself. Ideally, marketing should result in a customer who is ready to buy. All that should be needed then is to make the product or service available.

When Nintendo designed its Wii game system, when Apple launched its iPad tablet computer, and when Toyota introduced its Prius hybrid automobile, these manufacturers were swamped with orders because they had designed the right product, based on careful marketing homework about consumers, competition, and all the external fac- tors that affect cost and demand.

What Is MarketeD? Marketers market 10 main types of entities: goods, services, events, experiences, persons, places, properties, orga- nizations, information, and ideas. Let’s take a quick look at these categories.

Goods Physical goods constitute the bulk of most countries’ production and marketing efforts. Each year, U.S. companies market billions of fresh, canned, bagged, and frozen food products and millions of cars, refrigerators, televisions, machines, and other mainstays of a modern economy.

services As economies advance, a growing proportion of their activities focuses on the production of services. The U.S. economy today produces a services-to-goods mix of roughly two-thirds to one-third.11 Services include the work of airlines, hotels, car rental firms, barbers and beauticians, maintenance and repair people, and accountants, bankers, lawyers, engineers, doctors, software programmers, and management consultants. Many market offerings mix goods and services, such as a fast-food meal.

events Marketers promote time-based events, such as major trade shows, artistic performances, and company anniversaries. Global sporting events such as the Olympics and the World Cup are promoted aggressively to companies and fans. Local events include craft fairs, bookstore readings, and farmer’s markets.

experiences By orchestrating several services and goods, a firm can create, stage, and market experiences. Walt Disney World’s Magic Kingdom lets customers visit a fairy kingdom, a pirate ship, or a haunted house.

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Customized experiences include a week at a baseball camp with retired baseball greats, a four-day rock and roll fantasy camp, and a climb up Mount Everest.

persons Artists, musicians, CEOs, physicians, high-profile lawyers and financiers, and other professionals often get help from marketers.12 Many athletes and entertainers have done a masterful job of marketing themselves—NFL quarterback Peyton Manning, talk show veteran Oprah Winfrey, and rock and roll legends The Rolling Stones. Management consultant Tom Peters, himself a master at self-branding, has advised each person to become a “brand.”

places Cities, states, regions, and whole nations compete to attract tourists, residents, factories, and company headquarters.13 Place marketers include economic development specialists, real estate agents, commercial banks, local business associations, and advertising and public relations agencies. The Las Vegas Convention & Visitors Authority has met with much success with its provocative ad campaign “What Happens Here, Stays Here,” portraying Las Vegas as “an adult playground.”

properties Properties are intangible rights of ownership to either real property (real estate) or financial property (stocks and bonds). They are bought and sold, and these exchanges require marketing. Real estate agents work for property owners or sellers, or they buy and sell residential or commercial real estate. Investment companies and banks market securities to both institutional and individual investors.

orGanizations Museums, performing arts organizations, corporations, and nonprofits all use marketing to boost their public images and compete for audiences and funds. Some universities have created chief marketing officer (CMO) positions to better manage their school identity and image, via everything from admission brochures and Twitter feeds to brand strategy.14

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The pageantry of the Olympics, shown here in Sochi, Russia, adds to its marketability.

Oprah Winfrey has built a personal brand worth billions which she has used across many lines of business.

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information Information is essentially what books, schools, and universities produce, market, and distribute at a price to parents, students, and communities. Firms make business decisions using information supplied by organizations like Thomson Reuters: “We combine industry expertise with innovative technology to deliver critical information to leading decision makers in the financial, legal, tax and accounting, healthcare, science and media markets, powered by the world’s most trusted news organization.”15

ideas Every market offering includes a basic idea. Charles Revson of Revlon once observed: “In the factory we make cosmetics; in the drugstore we sell hope.” Products and services are platforms for delivering some idea or benefit. Social marketers promote such ideas as “Friends Don’t Let Friends Drive Drunk” and “A Mind Is a Terrible Thing to Waste.”

Who Markets?

marketers and prospects A marketer is someone who seeks a response—attention, a purchase, a vote, a donation—from another party, called the prospect. If two parties are seeking to sell something to each other, we call them both marketers.

Marketers are skilled at stimulating demand for their products, but that’s a limited view of what they do. They also seek to influence the level, timing, and composition of demand to meet the organization’s objectives. Eight demand states are possible:

1. Negative demand—Consumers dislike the product and may even pay to avoid it. 2. Nonexistent demand—Consumers may be unaware of or uninterested in the product. 3. Latent demand—Consumers may share a strong need that cannot be satisfied by an existing product. 4. Declining demand—Consumers begin to buy the product less frequently or not at all. 5. Irregular demand—Consumer purchases vary on a seasonal, monthly, weekly, daily, or even hourly basis. 6. Full demand—Consumers are adequately buying all products put into the marketplace. 7. Overfull demand—More consumers would like to buy the product than can be satisfied. 8. Unwholesome demand—Consumers may be attracted to products that have undesirable social consequences.

In each case, marketers must identify the underlying cause(s) of the demand state and determine a plan of action to shift demand to a more desired state.

markets Traditionally, a “market” was a physical place where buyers and sellers gathered to buy and sell goods. Economists describe a market as a collection of buyers and sellers who transact over a particular product or product class (such as the housing market or the grain market).

Five basic markets and their connecting flows are shown in Figure 1.1. Manufacturers go to resource markets (raw material markets, labor markets, money markets), buy resources and turn them into goods and services, and sell finished products to intermediaries, who sell them to consumers. Consumers sell their labor and receive money with which they pay for goods and services. The government collects tax revenues to buy goods from resource,

Taxes, goods

Services, money

Services, money

Money

Goods and services

Money

Goods and services

Services, money Taxes

Taxes, goods Services

Taxes, goods

Resources

Money

Resources

Money Resource markets

Consumer markets

Manufacturer markets

Intermediary markets

Government markets

| Fig. 1.1 |

Structure of Flows in a Modern Exchange Economy

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manufacturer, and intermediary markets and uses these goods and services to provide public services. Each nation’s economy, and the global economy, consists of interacting sets of markets linked through exchange processes.

Marketers view sellers as the industry and use the term market to describe customer groups. They talk about need markets (the diet-seeking market), product markets (the shoe market), demographic markets (the “millennium” youth market), geographic markets (the Chinese market), or voter markets, labor markets, and donor markets.

Figure 1.2 shows how sellers and buyers are connected by four flows. Sellers send goods and services and com- munications such as ads and direct mail to the market; in return they receive money and information such as cus- tomer attitudes and sales data. The inner loop shows an exchange of money for goods and services; the outer loop shows an exchange of information.

key customer markets Consider the following key customer markets: consumer, business, global, and nonprofit.

Consumer Markets Companies selling mass consumer goods and services such as juices, cosmetics, athletic shoes, and air travel establish a strong brand image by developing a superior product or service, ensuring its availability, and backing it with engaging communications and reliable performance.

Business Markets Companies selling business goods and services often face well-informed professional buyers skilled at evaluating competitive offerings. Advertising and Web sites can play a role, but the sales force, the price, and the seller’s reputation may play a greater one.

Global Markets Companies in the global marketplace navigate cultural, language, legal, and political differences while deciding which countries to enter, how to enter each (as exporter, licenser, joint venture partner, contract manufacturer, or solo manufacturer), how to adapt product and service features to each country, how to set prices, and how to communicate in different cultures.

Nonprofit and Governmental Markets Companies selling to nonprofit organizations with limited purchasing power such as churches, universities, charitable organizations, and government agencies need to price carefully. Much government purchasing requires bids; buyers often focus on practical solutions and favor the lowest bid, other things equal.16

Money

Information

Goods/services

Communication

Market (a collection of buyers)

Industry (a collection of sellers)

| Fig. 1.2 |

A Simple Marketing System

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Governments are a key customer market for many companies.

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Core Marketing Concepts To understand the marketing function, we need to understand the following core set of concepts (see Table 1.1).

neeDs, Wants, anD DeManDs Needs are the basic human requirements such as for air, food, water, clothing, and shelter. Humans also have strong needs for recreation, education, and entertainment. These needs become wants when directed to specific objects that might satisfy the need. A U.S. consumer needs food but may want a Chicago-style “deep-dish” pizza and a craft beer. A person in Afghanistan needs food but may want rice, lamb, and carrots. Our wants are shaped by our society.

Demands are wants for specific products backed by an ability to pay. Many people want a Mercedes; only a few can buy one. Companies must measure not only how many people want their product, but also how many are will- ing and able to buy it.

These distinctions shed light on the criticism that “marketers get people to buy things they don’t want.” Marketers do not create needs: Needs pre-exist marketers. Marketers might promote the idea that a Mercedes satis- fies a person’s need for social status. They do not, however, create the need for social status.

Some customers have needs of which they are not fully conscious or cannot articulate. What does the customer mean in asking for a “powerful” lawn mower or a “peaceful” hotel? The marketer must probe further. We can distin- guish five types of needs:

1. Stated needs (The customer wants an inexpensive car.) 2. Real needs (The customer wants a car whose operating cost, not initial price, is low.) 3. Unstated needs (The customer expects good service from the dealer.) 4. Delight needs (The customer would like the dealer to include an onboard GPS system.) 5. Secret needs (The customer wants friends to see him or her as a savvy consumer.)

Responding only to the stated need may shortchange the customer.17 Consumers did not know much about tablet computers when they were first introduced, but Apple worked hard to shape consumer perceptions of them. To gain an edge, companies must help customers learn what they want.

tarGet Markets, PosItIonInG, anD seGMentatIon Not everyone likes the same cereal, restaurant, university, or movie. Marketers therefore identify distinct segments of buyers by identifying demographic, psychographic, and behavioral differences between them. They then decide which segment(s) present the greatest opportunities. For each of these target markets, the firm develops a market

table 1.1 Core Marketing Concepts

Needs, Wants, and Demands

Target Markets, Positioning, and Segmentation

Offerings and Brands

Marketing Channels

Paid, Owned, and Earned Media

Impressions and Engagement

Value and Satisfaction

Supply Chain

Competition

Marketing Environment

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offering that it positions in target buyers’ minds as delivering some key benefit(s). Volvo develops its cars for the buyer to whom safety is a major concern, positioning them as the safest a customer can buy. Porsche targets buyers who seek pleasure and excitement in driving and want to make a statement about their wheels.

offerInGs anD BranDs Companies address customer needs by putting forth a value proposition, a set of benefits that satisfy those needs. The intangible value proposition is made physical by an offering, which can be a combination of products, services, information, and experiences.

A brand is an offering from a known source. A brand name such as Apple carries many different kinds of associations in people’s minds that make up its image: creative, innovative, easy-to-use, fun, cool, iPod, iPhone, and iPad to name just a few. All companies strive to build a brand image with as many strong, favorable, and unique brand associations as possible.

MarketInG channels To reach a target market, the marketer uses three kinds of marketing channels. Communication channels deliver and receive messages from target buyers and include newspapers, magazines, radio, television, mail, telephone, smart phone, billboards, posters, fliers, CDs, audiotapes, and the Internet. Beyond these, firms communicate through the look of their retail stores and Web sites and other media, adding dialogue channels such as e-mail, blogs, text messages, and URLs to familiar monologue channels such as ads.

Distribution channels help display, sell, or deliver the physical product or service(s) to the buyer or user. These channels may be direct via the Internet, mail, or mobile phone or telephone or indirect with distributors, wholesal- ers, retailers, and agents as intermediaries.

To carry out transactions with potential buyers, the marketer also uses service channels that include warehouses, transportation companies, banks, and insurance companies. Marketers clearly face a design challenge in choosing the best mix of communication, distribution, and service channels for their offerings.

PaID, oWneD, anD earneD MeDIa The rise of digital media gives marketers a host of new ways to interact with consumers and customers. We can group communication options into three categories.18 Paid media include TV, magazine and display ads, paid search, and sponsorships, all of which allow marketers to show their ad or brand for a fee. Owned media are communication channels marketers actually own, like a company or brand brochure, Web site, blog, Facebook page, or Twitter account. Earned media are streams in which consumers, the press, or other outsid- ers voluntarily communicate something about the brand via word of mouth, buzz, or viral marketing meth- ods. The emergence of earned media has allowed some companies, such as Chipotle, to reduce paid media expenditures.19

chiPOtLe One of the fastest-growing restaurant chains over the last decade, Chipotle is commit- ted to fresh food. The company supports family farms and sources sustainable ingredients from local growers who behave responsibly toward animals and the environment. It has over 1,600 stores and over 1.7 million social media fans–yet spends next to nothing on traditional paid media. Instead Chipotle engages customers through Facebook, Twitter, and other social media via its grassroots “Food With Integrity” digital strategy which puts the focus on what it sells and where it comes from. As CMO Mark Crumpacker notes, “Typically, fast-food marketing is a game of trying to obscure the truth. The more people know about most fast-food companies, the less likely they’d want to be a customer.” YouTube videos with country legend Willie Nelson and indie rocker Karen O from the Yeah Yeah Yeahs musically made Chipotle’s case against processed foods and the industrialization of family farms.

IMPressIons anD enGaGeMent Marketers now think of three “screens” or means to reach consumers: TV, Internet, and mobile. Surprisingly, the rise of digital options did not initially depress the amount of TV viewing, in part because, as one Nielsen study found, three of five consumers use two screens at once.20

defining MARkeTing foR The new ReAliTies | chapter 1 11

Impressions, which occur when consumers view a communication, are a useful metric for tracking the scope or breadth of a communication’s reach that can also be compared across all communication types. The downside is that impressions don’t provide any insight into the results of viewing the communication.

Engagement is the extent of a customer’s attention and active involvement with a communication. It reflects a much more active response than a mere impression and is more likely to create value for the firm. Some online measures of engagements are Facebook “likes,” Twitter tweets, comments on a blog or Web site, and sharing of video or other content. Engagement can extend to personal experiences that augment or transform a firm’s products and services.

Value anD satIsfactIon The buyer chooses the offerings he or she perceives to deliver the most value, the sum of the tangible and intangible benefits and costs. Value, a central marketing concept, is primarily a combination of quality, service, and price (qsp), called the customer value triad. Value perceptions increase with quality and service but decrease with price.

We can think of marketing as the identification, creation, communication, delivery, and monitoring of customer value. Satisfaction reflects a person’s judgment of a product’s perceived performance in relationship to expectations. If performance falls short of expectations, the customer is disappointed. If it matches expectations, the customer is satis- fied. If it exceeds them, the customer is delighted.

suPPlY chaIn The supply chain is a channel stretching from raw materials to components to finished products carried to final buyers. As Figure 1.3 shows, the supply chain for coffee may start with Ethiopian farmers who plant, tend, and pick the coffee beans and sell their harvest. If sold through a Fair Trade cooperative, the coffee is washed, dried, and packaged for shipment by an Alternative Trading Organization (ATO) that pays a minimum of $1.26 a pound. The ATO transports the coffee to the developed world where it can sell it directly or via retail channels. Each company in the chain captures only a certain percentage of the total value generated by the supply chain’s value delivery system. When a company acquires competitors or expands upstream or downstream, its aim is to capture a higher percentage of supply chain value.

Problems with a supply chain can be damaging or even fatal for a business. When Johnson & Johnson ran into manufacturing problems with its consumer products unit (which makes Tylenol and other prod- ucts), it hired away from Bayer AG a top executive known for her skill at fixing consumer and supply chain problems.21

Chipotle found marketplace success with little paid media, focusing on social media to tell its story of “Food With Integrity.”

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coMPetItIon Competition includes all the actual and potential rival offerings and substitutes a buyer might consider. An automobile manufacturer can buy steel from U.S. Steel in the United States, from a foreign firm in Japan or Korea, or from a mini-mill such as Nucor at a cost savings, or it can buy aluminum parts from Alcoa to reduce the car’s weight or engineered plastics from Saudi Basic Industries Corporation (SABIC) instead of steel. Clearly, U.S. Steel is more likely to be hurt by substitute products than by other integrated steel companies and would be defining its competition too narrowly if it didn’t recognize this.

MarketInG enVIronMent The marketing environment consists of the task environment and the broad environment. The task environ- ment includes the actors engaged in producing, distributing, and promoting the offering. These are the company, suppliers, distributors, dealers, and target customers. In the supplier group are material suppliers and service suppliers, such as marketing research agencies, advertising agencies, banking and insurance companies, transpor- tation companies, and telecommunications companies. Distributors and dealers include agents, brokers, manufac- turer representatives, and others who facilitate finding and selling to customers.

The broad environment consists of six components: demographic environment, economic environment, social-cultural environment, natural environment, technological environment, and political-legal environ- ment. Marketers must pay close attention to the trends and developments in these and adjust their marketing strategies as needed. New opportunities are constantly emerging that await the right marketing savvy and ingenuity. Consider Pinterest.22

Pinterest One of the fastest-growing social media sites ever–its surpassed 10 million monthly unique U.S. visitors in January 2012 and doubled that just four months later–Pinterest is a visual bookmarking tool that lets users collect and share images of projects or products on digital scrapbooks or “pinboards.” Especially popular with women planning weddings, saving recipes, and designing kitchen upgrades, Pinterest has driven more traffic to websites in a month than Twitter, Google+, LinkedIn, and YouTube combined. Part of its appeal is its unique customizable grid of images. Pinterest’s sweet spot is that users are often in a shopping mindset; one study showed almost 70% of online purchasers who found a product via Pinterest went on to buy, compared to 40% for Facebook. Brands from Dell and Mercedes-Benz to Peanut Butter & Co. and Zombie SAK are integrat- ing the site into their social media strategies. Nevertheless, Pinterest is still exploring how to best monetize its business venture.

Coffee is sold directly or via retail channels

Ethiopian farmers grow and harvest

coffee beans

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cooperative

Coffee is washed, dried, and

packaged for shipment

Alternative Trading Organization

transports beans to developed world

| Fig. 1.3 |

The Supply Chain for Coffee

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The New Marketing Realities The marketplace is dramatically different from even 10 years ago, with new marketing behaviors, opportunities, and challenges emerging. In this book we focus on three transformative forces: technology, globalization, and social responsibility.

technoloGY The pace of change and the scale of technological achievement can be staggering. The number of mobile phones in India recently exceeded 500 million, Facebook’s monthly users passed 1 billion, and more than half of African urban residents were able to access the Internet monthly.23

With the rapid rise of e-commerce, the mobile Internet, and Web penetration in emerging markets, the Boston Consulting Group believes brand marketers must enhance their “digital balance sheets.” 24 Massive amounts of information and data about almost everything are now available to consumers and marketers. In fact, technology research specialists Gartner predicts that by 2017, CMOs will spend more time on information technology (IT) than chief information officers (CIOs). Aetna’s CMO and CIO have already collaborated suc- cessfully for years, launching new products and services including iTriage, a popular health app for the iPhone. With iTriage, users can research ailments, find nearby physicians, and learn about prescribed medicines.25

Procter & Gamble (P&G) is determined to stay ahead of technology trends.26

P&G P&G uses the latest Web-based tools in all 80 countries where it sells products: ubiquitous high-speed networking, data visualization, and high-speed analysis of multiple information streams. In 40 locations worldwide, a mas- sive business sphere can display real-time market share, profits, and prices by country, region, brand, and product. Tide laundry detergent has a dedicated “news desk” that monitors social media chatter and joins in when relevant. When Tide was used to clean up a nasty fuel spill in a NASCAR race, the brand ran social media ads with real news footage within 72 hours. P&G looks at a wide range of technology applications. One pilot study showed that field salespeople increased revenue 1.5 percent merely by using iPads to show store customers the layouts of different floor displays.

Pinterest has tapped into consumer desire to collect and share personally relevant images online.

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The old credo “information is power” is giving way to the new idea that “sharing information is power.”27 Software giant SAP’s online community numbers more than 2 million customers, partners, and others. Once a year, 100 are chosen to contribute ideas to product development.28

At the other end of the size spectrum, by running Facebook ads offering a free cut, shampoo, and hot towel treatment to new customers in exchange for name, phone number, e-mail address, and preferred social network, The Gent’s Place barbershop in Frisco, TX, has picked up 5,000 clients. Its average marketing cost for each was $10.13, which it quickly recoups from repeat purchases.29

Even traditional marketing activities are profoundly affected by technology. To improve sales force effectiveness, drug maker Roche decided to issues iPads to its entire sales team. Though the company had a sophisticated cus- tomer relationship management (CRM) software system before, it still depended on sales reps to accurately input data in a timely fashion, which unfortunately did not always happen. With iPads, however, sales teams can do real-time data entry, improving the quality of the data entered while freeing up time for other tasks.30

GloBalIzatIon The world has become a smaller place. New transportation, shipping, and communication technologies have made it easier for us to know the rest of the world, to travel, to buy and sell anywhere. By 2025, annual consumption in emerging markets will total $30 trillion and contribute more than 70 percent of global GDP growth.31 A staggering 56 percent of global financial services consumption is forecast to come from emerging markets by 2050, up from 18 percent in 2010.

Demographic trends favor developing markets such as India, Pakistan, and Egypt, with populations whose median age is below 25. In terms of growth of the middle class, defined as earning more than $3,000 per year, the Philippines, China, and Peru are the three fastest-growing countries.32

Globalization has made countries increasingly multicultural. U.S. minorities have much economic clout, and their buying power is growing faster than that of the general population. According to the University of Georgia’s Terry College of Business minority buying report, the combined buying power of U.S. racial minorities (African Americans, Asians, and Native Americans) is projected to rise from $1.6 trillion in 2010 to $2.1 trillion in 2015, accounting for 15 percent of the nation’s total. The buying power of U.S. Hispanics will rise from $1 trillion in 2010 to $1.5 trillion in 2015, nearly 11 percent of the nation’s total. One survey found that 87 percent of companies planned to increase or maintain multicultural media budgets.33

Globalization changes innovation and product development as companies take ideas and lessons from one country and apply them to another. After years of little success with its premium ultrasound scanners in the Chinese market, GE successfully developed a portable, ultra-low-cost version that addressed the country’s unique market needs. Later, it began to successfully sell the product throughout the developed world for use in ambu- lances and operating rooms where existing models were too big.34

socIal resPonsIBIlItY Poverty, pollution, water shortages, climate change, wars, and wealth concentration demand our attention. The private sector is taking some responsibility for improving living conditions, and firms all over the world have elevated the role of corporate social responsibility.

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When Tide was used to clean a fuel spill at a NASCAR, P&G quickly spread the word on social media.

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Because marketing’s effects extend to society as a whole, marketers must consider the ethical, environmen- tal, legal, and social context of their activities.35 “Marketing Insight: Getting to Marketing 3.0” describes how companies need to change to do that.

The organization’s task is thus to determine the needs, wants, and interests of target markets and satisfy them more effectively and efficiently than competitors while preserving or enhancing consumers’ and society’s long- term well-being.

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Product introduced into developing markets, such as GE’s portable ultrasound scanner, are finding success in developed markets too.

Getting to Marketing 3.0 Philip Kotler, Hermawan Kartayaya, and Iwan Setiawan believe today’s customers want marketers to treat them as whole human beings and acknowledge that their needs extend beyond pure con- sumerism. Successful marketing is thus distinguished by its human or emotional element. A third wave of thinking, values-driven and heralded as “Marketing 3.0,” has moved us beyond the product- centric and consumer-centric models of the past, these authors say. Its three central trends are increased consumer participation and collaborative marketing, globalization, and and the rise of a creative society.

• We live with sustained technological development—low-cost Internet, cheap computers and mobile phones, open source services and systems. Expressive and collaborative social media, such as Facebook and Wikipedia, have changed the way market- ers operate and interact with consumers.

• Culturally relevant brands can have far-reaching effects. A cultural brand might position itself as a national or local alternative to a global brand with poor environmental standards, for instance.

• Creative people are increasingly the backbone of developed economies. Marketing can now help companies tap into creativity and spirituality by instilling marketing values in corporate culture, vision, and mission.

These authors believe the future of marketing will be horizontal: consumer-to-consumer. They feel the recent economic downturn has not fostered trust in the marketplace and that customers now increas- ingly turn to one another for credible advice and information when selecting products.

Sources: Philip Kotler, Hermawan Kartajaya, and Iwan Setiawan, Marketing 3.0: From Products to Customers to the Human Spirit (Hoboken, NJ: Wiley, 2010); Michael Krauss, “Evolution of an Academic: Kotler on Marketing 3.0,” Marketing News, January 30, 2011; Vivek Kaul, “Beyond Advertising: Philip Kotler Remains One of the Most Influential Marketing Thinkers,” The Economic Times, February 29, 2012. For more stimulating related ideas, see also Jim Stengel, Grow: How Ideals Power Growth and Profit at the World’s Greatest Companies (New York: Crown, 2011).

marketing insight

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As goods become more commoditized and consumers grow more socially conscious, some companies—including The Body Shop, Timberland, and Patagonia—incorporate social responsibility as a way to differentiate themselves from competitors, build consumer preference, and achieve notable sales and profit gains.36

A Dramatically Changed Marketplace These three forces—technology, globalization, and social responsibility—have dramatically changed the mar- ketplace, bringing consumers and companies new capabilities. The marketplace is also being transformed by changes in channel structure and heightened competition.

neW consuMer caPaBIlItIes Social media is an explosive worldwide phenomenon. In Germany, the percentage of consumers over 65 accessing the Internet increased from 24 percent to 33 percent from 2011 to 2012; most belonged to a social media service. The number of Germans browsing the Web wirelessly increased to 29 million in 2012 and was expected to hit 60 million in 2016. More than 10 percent of Germans were using tablets to access the Internet in 2012. Almost two- thirds of German companies surveyed in 2012 reported positive payback to their social media activities (Facebook, Twitter, social media newsrooms, customer feedback communities).37

Empowerment is not just about technology, though. Consumers are willing to move to another brand if they think they are not being treated right or do not like what they are seeing, as Progressive Insurance found out.38

PrOGressiVe insurAnce Kate Fisher, a Progressive customer, was killed by an underinsured driver who ran a red light. Her family felt they had to sue the driver for negligence to prompt Progressive to make up what the driver could not pay. Matt Fisher, Kate’s brother, was furious when Progressive actively participated in the negligent driver’s legal defense. His Tumblr post, “My Sister Paid Progressive Insurance to Defend Her Killer in Court,” was picked up by media outlets and sparked public outrage on Progressive’s Facebook and Twitter pages. More than 1,000 customers reported dropping Progressive, and many more said they would not do business with the company. Although Progressive felt it had defensible business reasons for its actions, critics were enraged by its awkward responses, like: “We fully investigated this claim and relevant background and feel we properly handled the claim within our contractual obligations.” After a few tumultuous days, Progressive reportedly settled with the Fishers for tens of thousands of dollars more than the $76,000 they had sought.

Expanded information, communication, and mobility enable customers to make better choices and share their preferences and opinions with others around the world. Table 1.2 summarizes some of the new consumer capabili- ties we outline next.

• Consumers can use the Internet as a powerful information and purchasing aid. From the home, office, or mobile phone, they can compare product prices and features, consult user reviews, and order goods online

table 1.2 New Consumer Capabilities

Can use the Internet as a powerful information and purchasing aid

Can search, communicate, and purchase on the move

Can tap into social media to share opinions and express loyalty

Can actively interact with companies

Can reject marketing they find inappropriate

defining MARkeTing foR The new ReAliTies | chapter 1 17

from anywhere in the world 24 hours a day, seven days a week, bypassing limited local offerings and real- izing significant price savings. They can also engage in “showrooming”: comparing products in stores but buying online.39 Because consumers and other constituents can in fact track down virtually any kind of company information, firms now realize that transparency in corporate words and actions is of paramount importance.

• Consumers can search, communicate, and purchase on the move. Consumers increasingly integrate smart phones and tablets into their daily lives. One study found the majority of European smart phone own- ers use their devices to research products and make purchases.40 There is one cell phone for every two people on the planet—and 10 times more cell phones are produced globally each day than babies are born. Telecommunications is one of the world’s trillion-dollar industries, along with tourism, military, food, and automobiles.41

• Consumers can tap into social media to share opinions and express loyalty. Personal connections and user- generated content thrive on social media such as Facebook, Flickr, Wikipedia, and YouTube. Sites like Dogster for dog lovers, TripAdvisor for travelers, and Moterus for bikers bring together consumers with a common interest. At CarSpace.com, auto enthusiasts talk about chrome rims, the latest BMW model, and where to find a great local mechanic.

• Consumers can actively interact with companies. Consumers see their favorite companies as work- shops from which to draw out the offerings they want. By opting in or out of lists, they can receive marketing and sales-related communications, discounts, coupons, and other special deals. With smart phones, they can scan barcodes and QR (Quick Response) codes to access a brand’s Web site and other information.42

• Consumers can reject marketing they find inappropriate. Some customers today may see fewer product differences and feel less brand loyal. Others may become more price- and quality-sensitive in their search for value. Almost two-thirds of consumers in one survey reported that they disliked advertising.43 For these and other reasons, consumers can be less tolerant about undesired marketing. They can choose to screen out online messages, skip commercials with their DVRs, and avoid marketing appeals through the mail or over the phone.

neW coMPanY caPaBIlItIes At the same time, globalization, social responsibility, and technology have also generated a new set of capabilities to help companies cope and respond (see Table 1.3).

• Companies can use the Internet as a powerful information and sales channel, including for individually dif- ferentiated goods. A Web site can list products and services, history, business philosophy, job opportunities, and other information of interest to consumers worldwide. Solo Cup marketers note that linking their store- fronts to their Web site and Facebook page makes it easier for consumers to buy Solo paper cups and plates while engaging with the brand online.44 Thanks to advances in factory customization, computer technology, and database marketing software, companies can allow customers to buy M&M candies with their names on

table 1.3 New Company Capabilities

Can use the Internet as a powerful information and sales channel, including for individually differentiated goods

Can collect fuller and richer information about markets, customers, prospects, and competitors

Can reach customers quickly and efficiently via social media and mobile marketing, sending targeted ads, coupons, and information

Can improve purchasing, recruiting, training, and internal and external communications

Can improve cost efficiency

18 PART 1 | UndeRsTAnding MARkeTing MAnAgeMenT

them, Wheaties boxes or Jones soda cans with their picture on the front, and Heinz ketchup bottles with cus- tomized messages.45

• Companies can collect fuller and richer information about markets, customers, prospects, and competitors. Marketers can conduct fresh marketing research by using the Internet to arrange focus groups, send out questionnaires, and gather primary data in several other ways. They can assemble information about individual customers’ purchases, preferences, demographics, and profitability. The drugstore chain CVS uses loyalty-card data to better understand what consumers purchase, the frequency of store visits, and other buying preferences. Its ExtraCare program supports 69 million shoppers in more than 7,300 stores. Eighty-two percent of CVS’s front store (non-pharmacy) sales go through the ExtraCare program.46

• Companies can reach consumers quickly and efficiently via social media and mobile marketing, sending tar- geted ads, coupons, and information. GPS technology can pinpoint consumers’ exact location, letting marketers send them messages at the mall with wish-list reminders and coupons or offers good only that day. Location- based advertising is attractive because it reaches consumers closer to the point of sale. Social media and buzz are also powerful. Over a two-year period, Dell took in more than $2 million in U.S. revenue from coupons provided through Twitter and another $1 million from people who started at Twitter and bought a new computer on Dell’s Web site. By mid-2012, the @DellOutlet Twitter account had more than 1.6 million followers.47 Word-of-mouth marketing agency BzzAgent recruited 600,000 consumers who voluntarily join promotional programs for products and services they deem worth talking about.

• Companies can improve purchasing, recruiting, training, and internal and external communications. Firms can recruit new employees online, and many have Internet training products for their employees, dealers, and agents. Blogging has waned as companies embrace social media. “We want to be where our customers are,” said Bank of America after dropping its blog in favor of Facebook and Twitter.48 Farmers Insurance uses specialized software to help its 15,000 agents nationwide maintain their own Facebook pages.49 Via intranets and databases, employees can query one another, seek advice, and exchange informa- tion. Seeking a single online employee portal that transcended business units, General Motors launched a platform called mySocrates in 2006 to carry announcements, news, links, and historical information. GM credits the portal with $17.4 million in cost savings to date.50 Popular hybrid Twitter/Facebook-type prod- ucts designed especially for business employees have been introduced by Salesforce.com, IBM, and several start-ups.51

• Companies can improve their cost efficiency. Corporate buyers can achieve substantial savings by using the Internet to compare sellers’ prices and purchase materials at auction or by posting their own terms in reverse auctions. Companies can improve logistics and operations to reap substantial cost savings while improving accuracy and service quality. Small businesses can especially unleash the power of the Internet. Physicians operating a small practice can use Facebook-like services such as Doximity to connect with referring physicians and specialists.52

Many different products, such as M&Ms, can now be customized by consumers.

defining MARkeTing foR The new ReAliTies | chapter 1 19

chanGInG channels One of the reasons consumers have more choices is that channels of distribution have changed as a result of retail transformation and disintermediation.

• Retail transformation. Store-based retailers face competition from catalog houses; direct-mail firms; newspaper, magazine, and TV direct-to-customer ads; home shopping TV; and e-commerce. In response, entrepreneurial retailers are building entertainment into their stores with coffee bars, demonstrations, and performances, marketing an “experience” rather than a product assortment.

• Disintermediation. Early dot-coms such as Amazon.com, E*TRADE, and others successfully created dis- intermediation in the delivery of products and services by intervening in the traditional flow of goods. In response, traditional companies engaged in reintermediation and became “brick-and-click” retailers, adding online services to their offerings. Some with plentiful resources and established brand names became stronger contenders than pure-click firms.

heIGhteneD coMPetItIon While globalization has created intense competition among domestic and foreign brands, the rise of private labels and mega-brands and a trend toward deregulation and privatization have also increased competition.

• Private labels. Brand manufacturers are further buffeted by powerful retailers that market their own store brands, increasingly indistinguishable from any other type of brand.

• Mega-brands. Many strong brands have become mega-brands and extended into related product categories, including new opportunities at the intersection of two or more industries. Computing, telecommunications, and consumer electronics are converging, with Apple and Samsung releasing a stream of state-of-the-art devices from MP3 players to LCD TVs to fully loaded smart phones.

• Deregulation. Many countries have deregulated industries to create greater competition and growth oppor- tunities. In the United States, laws restricting financial services, telecommunications, and electric utilities have all been loosened in the spirit of greater competition.

• Privatization. Many countries have converted public companies to private ownership and management to increase their efficiency. The telecommuni- cations industry has seen much privatization in countries such as Australia, France, Germany, Italy, Turkey, and Japan.53

Marketing in Practice Given the new marketing realities, organizations are challenging their marketers to find the best balance of old and new and to provide demonstrable evidence of success. “Marketing Memo: Reinventing Marketing at Coca-Cola” describes some of the many different ways that that top marketing organization has changed.

MarketInG Balance Companies must always move forward, innovating products and services, staying in touch with customer needs, and seeking new advantages rather than relying on past strengths. India’s Hindustan Unilever asks all staff members— not just marketers—to obtain a “consumer license” to work on its brands, which requires spending 50 hours of face time with shoppers. As one senior executive noted, “Our consumers are moving faster than marketers do; whether in terms of rural or urban changes or the way they consume media and entertainment.”54

Moving forward especially means incorporating the Internet and digital efforts into marketing plans. Marketers must balance increased spending on search advertising, social media, e-mails, and text messages with appropriate spend- ing on traditional marketing communications. But they must do so in tough economic times, when accountability has become a top priority and returns on investment are expected from every marketing activity. The ideal is retaining win- ning practices from the past while adding fresh approaches that reflect the new marketing realities.55

So ur

ce : A

ss oc

ia te

d Pr

es s

Coca-Cola reinforces its message of happiness with special promotional “Hug Me” vending machines which dispense free product.

20 PART 1 | UndeRsTAnding MARkeTing MAnAgeMenT

MarketInG accountaBIlItY Marketers are increasingly asked to justify their investments in financial and profitability terms, as well as in terms of building the brand and growing the customer base. Organizations recognize that much of their market value comes from intangible assets, particularly brands, customer base, employees, distributor and supplier relations, and intellectual capital. They are thus applying more metrics—brand equity, customer lifetime value, return on marketing investment (ROMI)—to understand and measure their marketing and business performance and a broader variety of financial measures to assess the direct and indirect value their marketing efforts create.

MarketInG In the orGanIzatIon As the late David Packard of Hewlett-Packard observed, “Marketing is far too important to leave to the marketing department.” Increasingly, marketing is not done only by the marketing department; every employee has an impact on the customer. Marketers now must properly manage all possible touch points: store layouts, package designs, product functions, employee training, and shipping and logistics. To create a strong marketing organization, mar- keters must think like executives in other departments, and executives in other departments must think more like marketers. Interdepartmental teamwork that includes marketers is needed to manage key processes like production innovation, new-business development, customer acquisition and retention, and order fulfillment.

Company Orientation toward the Marketplace Given these new marketing realities, what philosophy should guide a company’s marketing efforts? Let’s first re- view the evolution of marketing philosophies.

the ProDuctIon concePt The production concept is one of the oldest concepts in business. It holds that consumers prefer products that are widely available and inexpensive. Managers of production-oriented businesses concentrate on achieving high pro- duction efficiency, low costs, and mass distribution. This orientation has made sense in developing countries such

Coca-Cola is fundamentally changing the way it does marketing, primarily by adding a strong digital component to its traditional marketing tools. The new model is based on moving consumers from impressions to expressions to conversations to transactions.

Coca-Cola defines consumer expressions as any level of engagement with brand content: a comment, “like,” or share on Facebook, a Tweet, or an uploaded photo or video. Coca-Cola strives to put strongly sharable pieces of communications online that will generate impressions but also lead to expres- sions from consumers who join or extend the communication storyline and ultimately buy the product.

These communications focus on the core themes of “happiness” and “optimism” that define the brand’s positioning. One successful application is the video of the “Hug Me” vending machine in Singapore that dispensed cans of Coke when people put their arms around it and hugged it. Within in a week, the video generated 112 million impressions.

Coca-Cola actively experiments, allocating 70 percent of its budget to activities it knows will work, 20 percent to improving those activities, and 10 percent to experimentation. The company accepts that experiments can fail but believes in taking chances to learn and develop better solutions. Even in its traditional advertising and promotion, it looks for innovation.

For instance, Coca-Cola places much importance on cultural leadership and causes that benefit others. The mission of its Artic Home project is to protect the habitat of polar bears—who have starred in animated form in its holiday ads for years. Committing $3 million to the World Wildlife Fund, Coca-Cola drew attention to the project by turning its traditional red cans white.

Sources: Joe Tripodi, “Coca-Cola Marketing Shifts from Impressions to Expressions,” Harvard Business Review, HBR Blog Network, April 27, 2011; Tim Nudd, “Coca-Cola Joins the Revolution in World Where the Mob Rules,” Adweek, June 19, 2012; Surajeet Das Gupta and Vivea Susan Pinto, “Q&A: Joseph Tripodi,” Business Standard, November 3, 2011; “Coca-Cola Sets Facebook Record,” www.warc.com, September 6, 2012.

Reinventing Marketing at Coca-Colamarketing memo

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defining MARkeTing foR The new ReAliTies | chapter 1 21

as China, where the largest PC manufacturer, Legend (principal owner of Lenovo Group), and domestic appli- ances giant Haier have taken advantage of the country’s huge and inexpensive labor pool to dominate the market. Marketers also use the production concept when they want to expand the market.

the ProDuct concePt The product concept proposes that consumers favor products offering the most quality, performance, or innovative features. However, managers are sometimes caught in a love affair with their products. They might commit the “better- mousetrap” fallacy, believing a better product will by itself lead people to beat a path to their door. As many start-ups have learned the hard way, a new or improved product will not necessarily be successful unless it’s priced, distributed, advertised, and sold properly.

the sellInG concePt The selling concept holds that consumers and businesses, if left alone, won’t buy enough of the organization’s products. It is practiced most aggressively with unsought goods—goods buyers don’t normally think of buying such as insurance and cemetery plots—and when firms with overcapacity aim to sell what they make, rather than make what the market wants. Marketing based on hard selling is risky. It assumes customers coaxed into buying a product not only won’t return or bad-mouth it or complain to consumer organizations but might even buy it again.

the MarketInG concePt The marketing concept emerged in the mid-1950s as a customer-centered, sense-and-respond philosophy. The job is to find not the right customers for your products, but the right products for your customers. Dell doesn’t pre- pare a PC or laptop for its target market. Rather, it provides product platforms on which each person customizes the features he or she desires in the machine.

The marketing concept holds that the key to achieving organizational goals is being more effective than com- petitors in creating, delivering, and communicating superior customer value to your target markets. Harvard’s Theodore Levitt drew a perceptive contrast between the selling and marketing concepts: 56

Selling focuses on the needs of the seller; marketing on the needs of the buyer. Selling is preoccupied with the seller’s need to convert his product into cash; marketing with the idea of satisfying the needs of the customer by means of the product and the whole cluster of things associated with creating, delivering, and finally consuming it.

the holIstIc MarketInG concePt Without question, the trends and forces that have defined the new marketing realities in the first years of the 21st century are leading business firms to embrace a new set of beliefs and practices. The holistic marketing concept is based on the development, design, and implementation of marketing programs, processes, and activities that recognize their breadth and interdependencies. Holistic marketing acknowledges that everything matters in mar- keting—and that a broad, integrated perspective is often necessary.

Holistic marketing thus recognizes and reconciles the scope and complexities of marketing activities. Figure 1.4 provides a schematic overview of four broad components characterizing holistic marketing: relationship market- ing, integrated marketing, internal marketing, and performance marketing. We’ll examine these major themes throughout this book.

relationship marketinG Increasingly, a key goal of marketing is to develop deep, enduring relationships with people and organizations that directly or indirectly affect the success of the firm’s marketing activities. Relationship marketing aims to build mutually satisfying long-term relationships with key constituents in order to earn and retain their business.

Four key constituents for relationship marketing are customers, employees, marketing partners (channels, sup- pliers, distributors, dealers, agencies), and members of the financial community (shareholders, investors, analysts). Marketers must create prosperity among all these constituents and balance the returns to all key stakeholders. To develop strong relationships with them requires understanding their capabilities and resources, needs, goals, and desires.

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The ultimate outcome of relationship marketing is a unique company asset called a marketing network, con- sisting of the company and its supporting stakeholders—customers, employees, suppliers, distributors, retailers, and others—with whom it has built mutually profitable business relationships. The operating principle is simple: build an effective network of relationships with key stakeholders, and profits will follow. Thus more companies are choosing to own brands rather than physical assets, and they are subcontracting activities to firms that can do them better and more cheaply while retaining core activities at home.

Companies are also shaping separate offers, services, and messages to individual customers, based on infor- mation about their past transactions, demographics, psychographics, and media and distribution preferences. By focusing on their most profitable customers, products, and channels, these firms hope to achieve profitable growth, capturing a larger share of each customer’s expenditures by building high customer loyalty. They estimate individual customer lifetime value and design their market offerings and prices to make a profit over the cus- tomer’s lifetime.

Marketing must skillfully conduct not only customer relationship management (CRM), but partner relation- ship management (PRM) as well. Companies are deepening their partnering arrangements with key suppliers and distributors, seeing them as partners in delivering value to final customers so everybody benefits. IBM is a business-to-business powerhouse that has learned the value of strong customer bonds.57

iBM Having celebrated its 100th corporate anniversary in 2011, IBM is a remarkable survivor that has main- tained market leadership for decades in the challenging technology industry. The company has managed to success- fully evolve its business and seamlessly update the focus of its products and services numerous times in its history— from mainframes to PCs to its current emphasis on cloud computing, “big data,” and IT services. Part of the reason is that IBM’s well-trained sales force and service organization offer real value to customers by staying close to them and fully understanding their requirements. IBM often even cocreates products with customers; with the state of New York it developed a method for detecting tax evasion that reportedly saved taxpayers $1.6 billion over a seven-year period. As famed Harvard Business School professor Rosabeth Moss Kanter has noted, “IBM is not a technology company but a company solving problems using technology.”

inteGrated marketinG Integrated marketing occurs when the marketer devises marketing activities and assembles marketing programs to create, communicate, and deliver value for consumers such that “the whole is greater than the sum of its parts.” Two key themes are that (1) many different marketing activities can create, communicate, and deliver value and (2) marketers should design and implement any one marketing activity with all other activities in mind. When a hospital buys an MRI machine from General Electric’s

Financial communityCustomers

PartnersEmployees

Products & services Channels

PriceCommunications

Senior management Other

departments Marketing

department

SocialEthics

Integrated marketing

Holistic marketing

LegalEnvironment

Internal marketing

Relationship marketing

Performance marketing

Brand & customer equity

Sales revenue

| Fig. 1.4 |

Holistic Marketing Dimensions

defining MARkeTing foR The new ReAliTies | chapter 1 23

Medical Systems division, for instance, it expects good installation, maintenance, and training services to go with the purchase.

The company must develop an integrated channel strategy. It should assess each channel option for its direct effect on product sales and brand equity, as well as its indirect effect through interactions with other channel options.

All company communications also must be integrated so communication options reinforce and complement each other. A marketer might selectively employ television, radio, and print advertising, public relations and events, and PR and Web site communications so each contributes on its own and improves the effectiveness of the others. Each must also deliver a consistent brand message at every contact. Consider this award-winning campaign for Iceland.58

iceLAnd Already reeling from some of the biggest losses in the global financial crisis in 2008, Iceland faced more misfortune when dormant volcano Eyjafjallajökull unexpectedly erupted in April 2010. Its enormous plumes of ash created the largest air-travel disruption since World War II, resulting in a wave of negative press and bad feelings throughout Europe and elsewhere. With tourism generating around 20 percent of the country’s foreign exchange and bookings plummeting, government and tourism officials decided to launch “Inspired by Iceland.” This campaign was based on the insight that 80 percent of visitors to Iceland recommend the destination to friends and family. The coun- try’s own citizens were recruited to tell their stories and encourage others to join in via a Web site or Twitter, Facebook, and Vimeo. Celebrities such as Yoko Ono and Eric Clapton shared their experiences, and live concerts generated PR. Real-time Web cams across the country showed that the country was not ash-covered but green. The campaign was wildly successful—22.5 million stories were created by people all over the world—and ensuing bookings were dra- matically above forecasts.

internal marketinG Internal marketing, an element of holistic marketing, is the task of hiring, training, and motivating able employees who want to serve customers well. Smart marketers recognize that marketing activities within the company can be as important—or even more important—than those directed outside the company. It makes no sense to promise excellent service before the company’s staff is ready to provide it.

Marketing succeeds only when all departments work together to achieve customer goals (see Table 1.4): when engineering designs the right products, finance furnishes the right amount of funding, purchasing buys the right materials, production makes the right products in the right time horizon, and accounting measures profitability

Iceland’s fully integrated modern tourism campaign helped to halt a slide in visitors to the country.

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table 1.4 Assessing Which Company Departments Are Customer-Minded

R&D

• They spend time meeting customers and listening to their problems. • They welcome the involvement of marketing, manufacturing, and other departments to each new project. • They benchmark competitors’ products and seek “best of class” solutions. • They solicit customer reactions and suggestions as the project progresses. • They continuously improve and refine the product on the basis of market feedback.

Purchasing

• They proactively search for the best suppliers. • They build long-term relationships with fewer but more reliable, high-quality suppliers. • They don’t compromise quality for price savings.

Manufacturing

• They invite customers to visit and tour their plants. • They visit customer plants. • They willingly work overtime to meet promised delivery schedules. • They continuously search for ways to produce goods faster and/or at lower cost. • They continuously improve product quality, aiming for zero defects. • They meet customer requirements for “customization” where possible.

Marketing

• They study customer needs and wants in well-defined market segments. • They allocate marketing effort in relation to the long-run profit potential of the targeted segments. • They develop winning offers for each target segment. • They measure company image and customer satisfaction on a continuous basis. • They continuously gather and evaluate ideas for new products, product improvements, and services. • They urge all company departments and employees to be customer centered.

Sales

• They have specialized knowledge of the customer’s industry. • They strive to give the customer “the best solution.” • They make only promises that they can keep. • They feed back customers’ needs and ideas to those in charge of product development. • They serve the same customers for a long period of time.

Logistics

• They set a high standard for service delivery time and meet this standard consistently. • They operate a knowledgeable and friendly customer service department that can answer questions, handle complaints, and resolve prob-

lems in a satisfactory and timely manner.

Accounting

• They prepare periodic “profitability” reports by product, market segment, geographic areas (regions, sales territories), order sizes, channels, and individual customers.

• They prepare invoices tailored to customer needs and answer customer queries courteously and quickly.

Finance

• They understand and support marketing expenditures (e.g., image advertising) that produce long-term customer preference and loyalty. • They tailor the financial package to the customer’s financial requirements. • They make quick decisions on customer creditworthiness.

Public Relations

• They send out favorable news about the company and “damage control” unfavorable news. • They act as an internal customer and public advocate for better company policies and practices.

Source: © Philip Kotler, Kotler on Marketing (New York: Free Press, 1999), pp. 21–22. Reprinted with permission of The Free Press, a Division of Simon & Schuster Adult Publishing Group. Copyright © 1999 by Philip Kotler. All rights reserved.

defining MARkeTing foR The new ReAliTies | chapter 1 25

in the right ways. Such interdepartmental harmony can only truly coalesce, however, when senior management clearly communicates a vision of how the company’s marketing orientation and philosophy serve customers. The following example highlights some of the potential challenge in integrating marketing:

The marketing vice president of a major European airline wants to increase the airline’s traffic share. His strategy is to build up customer satisfaction by providing better food, cleaner cabins, better-trained cabin crews, and lower fares, yet he has no authority in these matters. The catering department chooses food that keeps food costs down; the maintenance department uses inexpensive cleaning services; the human resources department hires people without regard to whether they are naturally friendly; the finance de- partment sets the fares. Because these departments generally take a cost or production point of view, the vice president of marketing is stymied in his efforts to create an integrated marketing program.

Internal marketing requires vertical alignment with senior management and horizontal alignment with other departments so everyone understands, appreciates, and supports the marketing effort.

performance marketinG Performance marketing requires understanding the financial and nonfinancial returns to business and society from marketing activities and programs. As noted previously, top marketers are increasingly going beyond sales revenue to examine the marketing scorecard and interpret what is happening to market share, customer loss rate, customer satisfaction, product quality, and other measures. They are also considering the legal, ethical, social, and environmental effects of marketing activities and programs.

When they founded Ben & Jerry’s, Ben Cohen and Jerry Greenfield embraced the performance marketing concept by dividing the traditional financial bottom line into a “double bottom line” that also measured the envi- ronmental impact of their products and processes. That later expanded into a “triple bottom line” to represent the social impacts, negative and positive, of the firm’s entire range of business activities.

Many firms have failed to live up to their legal and ethical responsibilites, and consumers are demanding more responsible behavior.59 One research study reported that at least one-third of consumers around the world believed that banks, insurance providers, and packaged-food companies should be subject to stricter regulation.60

Updating the Four Ps Many years ago, McCarthy classified various marketing activities into marketing-mix tools of four broad kinds, which he called the four Ps of marketing: product, price, place, and promotion.61 The marketing variables under each P are shown in Figure 1.5.

A complementary view of the four Ps can be found in Marketing Insight: Understanding the 4 As of Marketing,”

Given the breadth, complexity, and richness of marketing, however—as exemplified by holistic marketing— clearly these four Ps are not the whole story anymore. If we update them to reflect the holistic marketing

Marketing mix

PLACE

Channels Coverage Assortments Locations Inventory Transport

PROMOTION

Sales promotion Advertising Sales force Public relations Direct marketing

PRICE

List price Discounts Allowances Payment period Credit terms

PRODUCT

Product variety Quality Design Features Brand name Packaging Sizes Services Warranties Returns

| Fig. 1.5 |

The Four P Components of the Marketing Mix

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concept, we arrive at a more representative set that encompasses modern marketing realities: people, processes, programs, and performance, as in Figure 1.6.

People reflects, in part, internal marketing and the fact that employees are critical to marketing success. Marketing will only be as good as the people inside the organization. It also reflects the fact that marketers must view consumers as people to understand their lives more broadly, and not just as shoppers who consume products and services.

Processes reflects all the creativity, discipline, and structure brought to marketing management. Marketers must avoid ad hoc planning and decision making and ensure that state-of-the-art marketing ideas and concepts play an

Marketing Mix

Four Ps

Product

Place

Promotion

Price

Modern Marketing Management

Four Ps

People

Processes

Programs

Performance

| Fig. 1.6 |

The Evolution of Marketing Management

Accessibility Accessibility, the extent to which customers are able to readily acquire the product, has two dimensions: availability and convenience. Successful companies develop innovative ways to deliver both, as on- line shoe retailer Zappos does with excellent customer service and return policies and its tracking of up-to-the-minute information about warehouse stock, brands, and styles.

Awareness Awareness is the extent to which customers are informed regarding the product’s characteristics, persuaded to try it, and reminded to repurchase. It has two dimensions: brand awareness and product knowledge. Sheth and Sisodia say awareness is ripest for improve- ment because most companies are either ineffectual or inefficient at developing it. For instance, properly done advertising can be incred- ibly powerful, but word-of-mouth marketing and co-marketing can more effectively reach potential customers.

Sheth and Sisodia base the 4 As framework on the four distinctive roles a consumer plays in the marketplace—seeker, buyer, payer, and user. A fifth consumer role—evangelizer—captures the fact that consumers often recommend products to others and are increasingly critical with the advent of the Internet and social media platforms.

Note that we can easily relate the 4 As to the traditional 4 Ps. Marketers set the product (which mainly influences acceptability), the price (which mainly influences affordability), the place (which mainly influences accessibility), and promotion (which mainly influences awareness).

Sources: Jagdish N. Sheth and Rajendra Sisodia, The 4 A’s of Marketing: Creating Value for Customer, Company and Society (New York: Routledge, 2012); “New Rules: Jagdish Sheth Outlines 4A’s of Marketing,” The Financial Express, April 6, 2004; “Industry Leaders Discuss Marketing for Not for Profit Organizations @ BIMTECH Marketing Summit,” www.mbauniverse.com, May 1, 2012.

marketing insight

Understanding the 4 As of Marketing According to Jagdish Sheth and Rajendra Sisodia, poor management as a consequence of not knowing what drives consumers is behind the majority of marketing failures. The authors make the case that consumer knowledge is a much more reliable route to success. Their customer-centric marketing management framework emphasizes what they believe are the most important consumer values—acceptability, affordability, accessibility, and awareness—which they dub the four As.

Acceptability Acceptability is the extent to which a firm’s total product offer- ing exceeds customer expectations. The authors assert that Ac- ceptability is the dominant component in the framework and that design, in turn, is at the root of acceptability. Functional aspects of design can be boosted by, for instance, enhancing the core benefit or increasing reliability of the product; psychological acceptability can be improved with changes to brand image, packing and de- sign, and positioning.

Affordability Affordability is the extent to which customers in the target market are able and willing to pay the product’s price. It has two dimensions: economic (ability to pay) and psychological (willingness to pay). Acceptability combined with affordability determines the product’s value proposition. When Peachtree Software lowered the price of its accounting software from $5000 to $199 and started charging for customer support, sales demand increased enormously.

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appropriate role in all they do, including creating mutually beneficial long-term relationships and imaginatively generating insights and breakthrough products, services, and marketing activities.

Programs reflects all the firm’s consumer-directed activities. It encompasses the old four Ps as well as a range of other marketing activities that might not fit as neatly into the old view of marketing. Regardless of whether they are online or offline, traditional or nontraditional, these activities must be integrated such that their whole is greater than the sum of their parts and they accomplish multiple objectives for the firm.

We define performance as in holistic marketing, to capture the range of possible outcome measures that have financial and nonfinancial implications (profitability as well as brand and customer equity) and implications beyond the company itself (social responsibility, legal, ethical, and the environment).