Lego com productfeedback lego friends

Discussion

Review Chapter 19: Designing and Managing Integrated Marketing Communications
Respond to the following prompt.
Pick a brand and go to its website. Locate as many forms of communication as you can find. Using the principles from Chapter 19, conduct an informal communications audit.
What did you notice?
How consistent are the different communications? Provide specific examples.

Marketing M a n a g e M e n t

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n this is a special edition of an established title widely used by colleges and universities throughout the world. Pearson published this exclusive edition for the benefit of students outside the United States and Canada. if you purchased this book within the United States or Canada, you should be aware that it has been imported without the approval of the Publisher or author.

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PhiliP Kotler Northwestern University

Kevin lane Keller Dartmouth College

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The rights of Philip Kotler and Kevin Lane Keller to be identified as the authors of this work have been asserted by them in accordance with the Copyright, Designs and Patents Act 1988.

Authorized adaptation from the United States edition, entitled Marketing Management, 15th edition, ISBN 978-0-13-385646-0, by Philip Kotler and Kevin Lane Keller, published by Pearson Education, Inc. © 2016.

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All trademarks used herein are the property of their respective owners. The use of any trademark in this text does not vest in the author or publisher any trademark ownership rights in such trademarks, nor does the use of such trademarks imply any affiliation with or endorsement of this book by such owners.

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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

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4

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

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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 17

Part 1 Understanding Marketing Management 24 Chapter 1 Defining Marketing for the New Realities 25 Chapter 2 Developing Marketing Strategies and Plans 57

Part 2 Capturing Marketing Insights 88 Chapter 3 Collecting Information and Forecasting Demand 89 Chapter 4 Conducting Marketing Research 121

Part 3 Connecting with Customers 148 Chapter 5 Creating Long-Term Loyalty Relationships 149 Chapter 6 Analyzing Consumer Markets 179 Chapter 7 Analyzing Business Markets 211 Chapter 8 Tapping into Global Markets 239

Part 4 Building Strong Brands 266 Chapter 9 Identifying Market Segments and Targets 267 Chapter 10 Crafting the Brand Positioning 297 Chapter 11 Creating Brand Equity 321 Chapter 12 Addressing Competition and Driving Growth 357

Part 5 Creating Value 388 Chapter 13 Setting Product Strategy 389 Chapter 14 Designing and Managing Services 421 Chapter 15 Introducing New Market Offerings 451 Chapter 16 Developing Pricing Strategies and Programs 483

Part 6 Delivering Value 514 Chapter 17 Designing and Managing Integrated Marketing Channels 515 Chapter 18 Managing Retailing, Wholesaling, and Logistics 549

Part 7 Communicating Value 578 Chapter 19 Designing and Managing Integrated Marketing Communications 579 Chapter 20 Managing Mass Communications: Advertising, Sales Promotions, Events

and Experiences, and Public Relations 607 Chapter 21 Managing Digital Communications: Online, Social Media, and Mobile 637 Chapter 22 Managing Personal Communications: Direct and Database Marketing and

Personal Selling 657

Part 8 Conducting Marketing Responsibly for Long-Term Success 678

Chapter 23 Managing a Holistic Marketing Organization for the Long Run 679

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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Contents Preface 17

Part 1 Understanding Marketing Management 24

Chapter 1 Defining Marketing for the New Realities 25

The Value of Marketing 25 Marketing Decision Making 25 Winning Marketing 26

The Scope of Marketing 27 What Is Marketing? 27 What Is Marketed? 27 Who Markets? 29

Core Marketing Concepts 31 Needs, Wants, and Demands 31 Target Markets, Positioning, and

Segmentation 31 Offerings and Brands 32 Marketing Channels 32 Paid, Owned, and Earned Media 32 Impressions and Engagement 32 Value and Satisfaction 33 Supply Chain 33 Competition 34 Marketing Environment 34

The New Marketing Realities 35 Technology 35 Globalization 36 Social Responsibility 36

MarkEtING INSIGht Getting to Marketing 3.0 37

A Dramatically Changed Marketplace 38 New Consumer Capabilities 38 New Company Capabilities 39 Changing Channels 41 Heightened Competition 41

Marketing in Practice 41 Marketing Balance 41

MarkEtING MEMO Reinventing Marketing at Coca-Cola 42

Marketing Accountability 42 Marketing in the Organization 42

Company Orientation toward the Marketplace 42

The Production Concept 42 The Product Concept 43

The Selling Concept 43 The Marketing Concept 43 The Holistic Marketing Concept 43

Updating the Four Ps 47

MarkEtING INSIGht Understanding the 4 As of Marketing 48

Marketing Management Tasks 49 Developing Marketing Strategies and

Plans 49 Capturing Marketing Insights 50 Connecting with Customers 50 Building Strong Brands 50

MarkEtING MEMO Marketers’ Frequently Asked Questions 50

Creating Value 51 Delivering Value 51 Communicating Value 51 Conducting Marketing Responsibly for

Long-Term Success 51 Summary 51 applications 52

MarkEtING ExCEllENCE Nike 52

MarkEtING ExCEllENCE Google 54

Chapter 2 Developing Marketing Strategies and Plans 57

Marketing and Customer Value 57 The Value Delivery Process 57 The Value Chain 58 Core Competencies 58 The Central Role of Strategic Planning 59

Corporate and Division Strategic Planning 60

MarkEtING MEMO What Does It Take to Be a Successful CMO? 61

Defining the Corporate Mission 61 Establishing Strategic Business Units 64 Assigning Resources to Each SBU 64 Assessing Growth Opportunities 64 Organization and Organizational Culture 68 Marketing Innovation 69

MarkEtING INSIGht Creating Innovative Marketing 69

Business Unit Strategic Planning 70 The Business Mission 71 SWOT Analysis 71

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MarkEtING MEMO Checklist for Evaluating Strengths/Weaknesses Analysis 73

Goal Formulation 74 Strategic Formulation 74 Program Formulation and

Implementation 75

MarkEtING INSIGht Businesses Charting a New Direction 76

Feedback and Control 77 The Nature and Contents of a Marketing

Plan 77

MarkEtING MEMO Marketing Plan Criteria 77

The Role of Research 78 The Role of Relationships 78 From Marketing Plan to Marketing

Action 79 Summary 79 applications 80

MarkEtING ExCEllENCE Electrolux 80

MarkEtING ExCEllENCE Emirates 81 Sample Marketing Plan: Pegasus Sports

International 83

Part 2 Capturing Marketing Insights 88

Chapter 3 Collecting Information and Forecasting Demand 89

Components of a Modern Marketing Information System 89

Internal Records 91 The Order-to-Payment Cycle 91 Sales Information Systems 91 Databases, Data Warehousing, and Data

Mining 91

MarkEtING INSIGht Digging Into Big Data 92

Marketing Intelligence 92 The Marketing Intelligence System 92 Collecting Marketing Intelligence on the

Internet 94 Communicating and Acting on Marketing

Intelligence 94 Analyzing the Macroenvironment 94

Needs and Trends 95 Identifying the Major Forces 95 The Demographic Environment 96

MarkEtING MEMO Finding Gold at the Bottom of the Pyramid 97

The Economic Environment 99 The Sociocultural Environment 100 The Natural Environment 101

MarkEtING INSIGht The Green Marketing Revolution 103

The Technological Environment 104 The Political-Legal Environment 105

MarkEtING INSIGht Watching Out for Big Brother 107

Forecasting and Demand Measurement 107 The Measures of Market Demand 108 A Vocabulary for Demand Measurement 109 Estimating Current Demand 111 Estimating Future Demand 113

Summary 115 applications 116

MarkEtING ExCEllENCE Microsoft 116

MarkEtING ExCEllENCE Ferrero 117

Chapter 4 Conducting Marketing Research 121

The Scope of Marketing Research 121 Importance of Marketing Insights 121 Who Does Marketing Research? 122 Overcoming Barriers to the Use of Marketing

Research 123 The Marketing Research Process 124

Step 1: Define the Problem, the Decision Alternatives, and the Research Objectives 124

Step 2: Develop the Research Plan 125

MarkEtING MEMO Conducting Informative Focus Groups 127

MarkEtING MEMO Marketing Questionnaire Dos And Don’ts 130

MarkEtING INSIGht Getting into the Heads of Consumers 131

MarkEtING INSIGht Understanding Brain Science 133

Step 3: Collect the Information 135 Step 4: Analyze the Information 135 Step 5: Present the Findings 135

MarkEtING INSIGht Bringing Marketing Research to Life with Personas 136

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Step 6: Make the Decision 136 Measuring Marketing Productivity 137

Marketing Metrics 137

MarkEtING MEMO Measuring Social Media ROI 139

Marketing-Mix Modeling 140 Marketing Dashboards 140

MarkEtING MEMO Designing Effective Marketing Dashboards 141

Summary 143 applications 143

MarkEtING ExCEllENCE IDEO 144

MarkEtING ExCEllENCE Intuit 146

Part 3 Connecting with Customers 148

Chapter 5 Creating Long-Term Loyalty Relationships 149

Building Customer Value, Satisfaction, and Loyalty 149

Customer-Perceived Value 150 Total Customer Satisfaction 153 Monitoring Satisfaction 155 Product and Service Quality 156

MarkEtING INSIGht Net Promoter and Customer Satisfaction 157

Maximizing Customer Lifetime Value 158 Customer Profitability 159 Measuring Customer Lifetime

Value 160 Attracting and Retaining Customers 160

MarkEtING MEMO Calculating Customer Lifetime Value 161

Building Loyalty 164 Brand Communities 165 Win-Backs 168

Cultivating Customer Relationships 168 Customer Relationship Management 168

MarkEtING INSIGht The Behavioral Targeting Controversy 169

Summary 174 applications 174

MarkEtING ExCEllENCE Audi 175

MarkEtING ExCEllENCE Harley-Davidson 176

Chapter 6 Analyzing Consumer Markets 179

What Influences Consumer Behavior? 179 Cultural Factors 179 Social Factors 181 Personal Factors 183

MarkEtING MEMO The Average U.S. Consumer Quiz 184

Key Psychological Processes 187 Motivation 187 Perception 189

MarkEtING MEMO The Power of Sensory Marketing 189

Learning 191 Emotions 192 Memory 193

The Buying Decision Process: The Five-Stage Model 194

Problem Recognition 195 Information Search 196 Evaluation of Alternatives 197 Purchase Decision 198 Postpurchase Behavior 200 Moderating Effects on Consumer Decision

Making 202 Behavioral Decision Theory and Behavioral

Economics 202 Decision Heuristics 203 Framing 204

Summary 205 applications 205

MarkEtING ExCEllENCE Disney 206

MarkEtING ExCEllENCE IKEA 207

Chapter 7 Analyzing Business Markets 211

What is Organizational Buying? 211 The Business Market versus the Consumer

Market 211 Buying Situations 214

Participants in the Business Buying Process 215

The Buying Center 216 Buying Center Influences 216 Targeting Firms and Buying Centers 217

MarkEtING INSIGht Big Sales to Small Businesses 218

The Purchasing/Procurement Process 219 Stages in the Buying Process 220

Problem Recognition 220

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General Need Description and Product Specification 221

Supplier Search 221 Proposal Solicitation 223 Supplier Selection 223

MarkEtING MEMO Developing Compelling Customer Value Propositions 224

Order-Routine Specification 226 Performance Review 226

Developing Effective Business-to-Business Marketing Programs 226

Communication and Branding Activities 226 Systems Buying and Selling 228

MarkEtING MEMO Spreading the Word with Customer Reference Programs 229

Role of Services 229 Managing Business-to-Business Customer

Relationships 230 The Benefits of Vertical Coordination 230

MarkEtING INSIGht Establishing Corporate Trust, Credibility, and Reputation 231

Risks and Opportunism in Business Relationships 231

Institutional and Government Markets 233 Summary 234 applications 235

MarkEtING ExCEllENCE Accenture 235

MarkEtING ExCEllENCE GE 236

Chapter 8 Tapping into Global Markets 239

Competing on a Global Basis 239 Deciding Whether to Go Abroad 241 Deciding Which Markets to Enter 242

How Many Markets to Enter 242 Evaluating Potential Markets 243 Succeeding in Developing

Markets 243 Deciding How to Enter the Market 248

Indirect and Direct Export 249 Licensing 249 Joint Ventures 250 Direct Investment 250 Acquisition 250

Deciding on the Marketing Program 251 Global Similarities and Differences 252 Marketing Adaptation 253 Global Product Strategies 254

Global Communication Strategies 257 Global Pricing Strategies 257 Global Distribution Strategies 259

Country-of-Origin Effects 260 Building Country Images 260 Consumer Perceptions of Country of

Origin 261 Summary 262 applications 263

MarkEtING ExCEllENCE Twitter 263

MarkEtING ExCEllENCE L’Oréal 264

Part 4 Building Strong Brands 266

Chapter 9 Identifying Market Segments and Targets 267

Bases for Segmenting Consumer Markets 268

Geographic Segmentation 268 Demographic Segmentation 271 Psychographic Segmentation 280 Behavioral Segmentation 281

How Should Business Markets Be Segmented? 283

Market Targeting 284 Effective Segmentation Criteria 285

Evaluating and Selecting the Market Segments 286

MarkEtING INSIGht Chasing the Long Tail 289

MarkEtING MEMO Protecting Kids Online 291

Summary 291 applications 292

MarkEtING ExCEllENCE HSBC 292

MarkEtING ExCEllENCE BMW 294

Chapter 10 Crafting the Brand Positioning 297

Developing a Brand Positioning 297 Understanding Positioning and Value

Propositions 297 Choosing a Competitive Frame of

Reference 298 Identifying Potential Points-of-Difference

and Points-of-Parity 300

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Choosing Specific POPs and PODs 304 Brand Mantras 307

Establishing a Brand Positioning 309

MarkEtING MEMO Constructing a Brand Positioning Bull’s-eye 309

Alternative Approaches to Positioning 313 Brand Narratives and Storytelling 313 Cultural Branding 314

Positioning and Branding for A Small Business 314

Summary 317 applications 317

MarkEtING ExCEllENCE Nespresso 318

MarkEtING ExCEllENCE Philips 319

Chapter 11 Creating Brand Equity 321

How Does Branding Work? 321 The Role of Brands 322 The Scope of Branding 323

Defining Brand Equity 324 Brand Equity Models 326

MarkEtING INSIGht Brand Bubble Trouble 328

Building Brand Equity 331

MarkEtING MEMO The Marketing Magic of Characters 332

Designing Holistic Marketing Activities 332 Leveraging Secondary Associations 334 Internal Branding 336

Measuring Brand Equity 337

MarkEtING INSIGht The Brand Value Chain 337

MarkEtING INSIGht What Is a Brand Worth? 339

Managing Brand Equity 340 Brand Reinforcement 340 Brand Revitalization 341

Devising a Branding Strategy 343 Branding Decisions 344 Brand Portfolios 345 Brand Extensions 347

Customer Equity 350

MarkEtING MEMO Twenty-First-Century Branding 351

Summary 352 applications 352

MarkEtING ExCEllENCE McDonald’s 353

MarkEtING ExCEllENCE Procter & Gamble 354

Chapter 12 Addressing Competition and Driving Growth 357

Growth 357 Growth Strategies 357 Growing the Core 358

Competitive Strategies for Market Leaders 359

Expanding Total Market Demand 360 Protecting Market Share 361 Increasing Market Share 363

Other Competitive Strategies 364 Market-Challenger Strategies 364 Market-Follower Strategies 366

MarkEtING INSIGht The Costs and Benefits of Fast Fashion 367

Market-Nicher Strategies 368

MarkEtING MEMO Niche Specialist Roles 370

Product Life-Cycle Marketing Strategies 370 Product Life Cycles 370 Style, Fashion, and Fad Life Cycles 371 Marketing Strategies: Introduction Stage and

the Pioneer Advantage 373

MarkEtING INSIGht Understanding Double Jeopardy 374

Marketing Strategies: Growth Stage 375 Marketing Strategies: Maturity Stage 376 Marketing Strategies: Decline Stage 377

MarkEtING MEMO Managing a Marketing Crisis 378

Evidence for the Product Life-Cycle Concept 380

Critique of the Product Life-Cycle Concept 381

Market Evolution 381 Marketing in a Slow-Growth Economy 381

Explore the Upside of Increasing Investment 381

Get Closer to Customers 382 Review Budget Allocations 382 Put Forth the Most Compelling Value

Proposition 382 Fine-Tune Brand and Product Offerings 383

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Summary 384 applications 384

MarkEtING ExCEllENCE Samsung 385

MarkEtING ExCEllENCE SABIC 386

Part 5 Creating Value 388

Chapter 13 Setting Product Strategy 389

Product Characteristics and Classifications 389

Product Levels: The Customer-Value Hierarchy 389

Product Classifications 391 Differentiation 392

Product Differentiation 393 Services Differentiation 394

Design 396 Design Leaders 396 Power of Design 397 Approaches to Design 397

Luxury Products 398 Characterizing Luxury Brands 398 Growing Luxury Brands 398 Marketing Luxury Brands 399

Environmental Issues 400

MarkEtING MEMO A Sip or A Gulp: Environmental Concerns in the Water Industry 401

Product and Brand Relationships 401 The Product Hierarchy 402 Product Systems and Mixes 402 Product Line Analysis 403 Product Line Length 404

MarkEtING INSIGht When Less Is More 405

Product Mix Pricing 408 Co-Branding and Ingredient

Branding 409

MarkEtING MEMO Product-Bundle Pricing Considerations 410

Packaging, Labeling, Warranties, and Guarantees 412

Packaging 412 Labeling 414 Warranties and Guarantees 415

Summary 415 applications 416

MarkEtING ExCEllENCE Nivea 416

MarkEtING ExCEllENCE Toyota 418

Chapter 14 Designing and Managing Services 421

The Nature of Services 421 Service Industries Are Everywhere 421 Categories of Service Mix 422 Distinctive Characteristics of Services 424

The New Services Realities 428 A Shifting Customer Relationship 428

MarkEtING MEMO Lights! Cameras! Customer Service Disasters! 430

Achieving Excellence In Services Marketing 431

Marketing Excellence 431 Technology and Service

Delivery 432 Best Practices of Top Service

Companies 433 Differentiating Services 435

MarkEtING INSIGht Improving Company Call Centers 436

Managing Service Quality 439 Managing Customer Expectations 440

MarkEtING MEMO Recommendations for Improving Service Quality 441

Incorporating Self-Service Technologies (SSTS) 443

Managing Product-Support Services 444 Identifying and Satisfying Customer

Needs 444 Postsale Service Strategy 445

Summary 445 applications 446

MarkEtING ExCEllENCE Club Med 446

MarkEtING ExCEllENCE Parkway Group Hotels 448

Chapter 15 Introducing New Market Offerings 451

New-Product Options 451 Make or Buy 451 Types of New Products 452

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Challenges in New-Product Development 453

The Innovation Imperative 454 New-Product Success 454 New-Product Failure 455

Organizational Arrangements 456 Budgeting for New-Product Development 456 Organizing New-Product Development 457

Managing the Development Process: Ideas 460 Generating Ideas 460

MarkEtING MEMO Ten Ways to Find Great New-Product Ideas 460

MarkEtING INSIGht P&G’S Connect + Develop Approach to Innovation 461

MarkEtING MEMO Seven Ways to Draw New Ideas from Your Customers 462

MarkEtING MEMO How to Run a Successful Brainstorming Session 464

Using Idea Screening 465 Managing the Development Process: Concept

to Strategy 467 Concept Development and Testing 467 Marketing Strategy Development 470 Business Analysis 470

Managing the Development Process: Development to Commercialization 472

Product Development 472 Market Testing 473 Commercialization 475

The Consumer-Adoption Process 476 Stages in the Adoption Process 476 Factors Influencing the Adoption

Process 476 Summary 478 applications 479

MarkEtING ExCEllENCE Apple 479

MarkEtING ExCEllENCE Salesforce.com 481

Chapter 16 Developing Pricing Strategies and Programs 483

Understanding Pricing 483 Pricing in a Digital World 484 A Changing Pricing Environment 484

MarkEtING INSIGht Giving It All Away 485

How Companies Price 486 Consumer Psychology and Pricing 487

Setting the Price 489 Step 1: Selecting the Pricing Objective 489

MarkEtING INSIGht Trading Up, Down, and Over 490

Step 2: Determining Demand 492 Step 3: Estimating Costs 494

MarkEtING MEMO How to Cut Costs 496

Step 4: Analyzing Competitors’ Costs, Prices, and Offers 496

Step 5: Selecting a Pricing Method 497 Step 6: Selecting the Final Price 502

MarkEtING INSIGht Stealth Price Increases 503

Adapting the Price 504 Geographical Pricing (Cash, Countertrade,

Barter) 504 Price Discounts and Allowances 504 Promotional Pricing 505 Differentiated Pricing 506

Initiating and Responding to Price Changes 507

Initiating Price Cuts 507 Initiating Price Increases 508 Anticipating Competitive Responses 508 Responding to Competitors’ Price

Changes 509 Summary 510 applications 510

MarkEtING ExCEllENCE eBay 511

MarkEtING ExCEllENCE Air Arabia 512

Part 6 Delivering Value 514

Chapter 17 Designing and Managing Integrated Marketing Channels 515

Marketing Channels and Value Networks 516

The Importance of Channels 516 Multichannel Marketing 516 Integrating Multichannel Marketing

Systems 517 Value Networks 519 The Digital Channels Revolution 520

The Role of Marketing Channels 521 Channel Functions and Flows 522 Channel Levels 523 Service Sector Channels 524

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Channel-Design Decisions 525 Analyzing Customer Needs and Wants 525

MarkEtING INSIGht Understanding the Showrooming Phenomena 525

Establishing Objectives and Constraints 526 Identifying Major Channel Alternatives 527 Evaluating Major Channel

Alternatives 529 Channel-Management Decisions 530

Selecting Channel Members 530 Training and Motivating Channel

Members 530 Evaluating Channel Members 531 Modifying Channel Design and

Arrangements 532 Channel Modification Decisions 532 Global Channel Considerations 532

Channel Integration and Systems 534 Vertical Marketing Systems 534 Horizontal Marketing Systems 536

E-Commerce Marketing Practices 536 Pure-Click Companies 536 Brick-and-Click Companies 537

M-Commerce Marketing Practices 538 Changes in Customer and Company

Behavior 539 M-Commerce Marketing Practices 539 Privacy 540

Conflict, Cooperation, and Competition 540 Types of Conflict and Competition 541 Causes of Channel Conflict 541 Managing Channel Conflict 541 Dilution and Cannibalization 543 Legal and Ethical Issues in Channel

Relations 543 Summary 543 applications 544

MarkEtING ExCEllENCE Amazon.com 544

MarkEtING ExCEllENCE Tesco 546

Chapter 18 Managing Retailing,Wholesaling, and Logistics 549

Retailing 549 Types of Retailers 550

MarkEtING MEMO Innovative Retail Organizations 551

The Modern Retail Marketing Environment 554

MarkEtING INSIGht The Growth of Shopper Marketing 556

Marketing Decisions 557

MarkEtING MEMO Helping Stores to Sell 562

Private Labels 563 Role of Private Labels 564 Private-Label Success Factors 564

MarkEtING INSIGht Manufacturer’s Response to the Private-Label Threat 565

Wholesaling 565 Trends in Wholesaling 567

Market Logistics 567 Integrated Logistics Systems 568 Market-Logistics Objectives 569 Market-Logistics Decisions 570

Summary 573 applications 574

MarkEtING ExCEllENCE Zara 574

MarkEtING ExCEllENCE Best Buy 576

Part 7 Communicating Value 578

Chapter 19 Designing and Managing Integrated Marketing Communications 579

The Role of Marketing Communications 580 The Changing Marketing Communications

Environment 580

MarkEtING INSIGht Don’t Touch That Remote 580

Marketing Communications Mix 581 How Do Marketing Communications

Work? 583 The Communications Process Models 584

Developing Effective Communications 586 Identify the Target Audience 586 Set the Communications Objectives 587 Design the Communications 587 Select the Communications

Channels 590

MarkEtING MEMO Celebrity Endorsements as a Message Strategy 591

MarkEtING INSIGht Playing Tricks to Build a Brand 593

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Establish the Total Marketing Communications Budget 594

Selecting the Marketing Communications Mix 595

Characteristics of the Marketing Communications Mix 596

Factors in Setting the Marketing Communications Mix 597

Measuring Communication Results 599 Managing the Integrated Marketing

Communications Process 599 Coordinating Media 601 Implementing IMC 601

MarkEtING MEMO How Integrated Is Your IMC Program? 601

Summary 602 applications 603

MarkEtING ExCEllENCE Red Bull 603

MarkEtING ExCEllENCE L’Oreal 604

Chapter 20 Managing Mass Communications: Advertising, Sales Promotions, Events and Experiences, and Public Relations 607

Developing and Managing an Advertising Program 608

Setting the Advertising Objectives 609 Deciding on the Advertising Budget 609 Developing the Advertising

Campaign 610

MarkEtING MEMO Print Ad Evaluation Criteria 612

MarkEtING INSIGht Off-Air Ad Battles 614

Choosing Media 615

MarkEtING INSIGht Playing Games with Brands 618

MarkEtING MEMO Winning The Super Bowl of Advertising 619

Evaluating Advertising Effectiveness 621 Sales Promotion 622

Advertising Versus Promotion 622 Major Decisions 623

Events and Experiences 626 Events Objectives 626 Major Sponsorship Decisions 627

MarkEtING MEMO Measuring High- Performance Sponsorship Programs 628

Creating Experiences 628 Public Relations 629

Marketing Public Relations 629 Major Decisions in Marketing PR 630

Summary 631 applications 632

MarkEtING ExCEllENCE Evian 632

MarkEtING ExCEllENCE Gillette 634

Chapter 21 Managing Digital Communications: Online, Social Media, and Mobile 637

Online Marketing 637 Advantages and Disadvantages of Online

Marketing Communications 638 Online Marketing Communication

Options 639

MarkEtING MEMO How to Maximize the Marketing Value of E-mails 642

Social Media 642 Social Media Platforms 643 Using Social Media 644

Word of Mouth 645 Forms of Word of Mouth 646 Creating Word-of-Mouth Buzz 646

MarkEtING MEMO How to Start a Buzz Fire 648

MarkEtING INSIGht Tracking Online Buzz 649

Measuring the Effects of Word of Mouth 650

Mobile Marketing 650 The Scope of Mobile Marketing 650 Developing Effective Mobile Marketing

Programs 651 Mobile Marketing across Markets 651

Summary 652 applications 653

MarkEtING ExCEllENCE Facebook 653

MarkEtING ExCEllENCE Unilever (Axe and Dove) 654

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Chapter 22 Managing Personal Communications: Direct and Database Marketing and Personal Selling 657

Direct Marketing 657 The Benefits of Direct Marketing 658 Direct Mail 659 Catalog Marketing 660 Telemarketing 660 Other Media for Direct-Response

Marketing 661 Public and Ethical Issues in Direct

Marketing 661 Customer Databases and Database

Marketing 662 Customer Databases 662 Data Warehouses and Data Mining 662 The Downside of Database Marketing 664

Designing the Sales Force 664 Sales Force Objectives and Strategy 666 Sales Force Structure 667

MarkEtING INSIGht Major Account Management 668

Sales Force Size 668 Sales Force Compensation 668

Managing the Sales Force 669 Recruiting and Selecting

Representatives 669 Training and Supervising Sales

Representatives 669 Sales Rep Productivity 670 Motivating Sales Representatives 670 Evaluating Sales Representatives 671

Principles of Personal Selling 673 The Six Steps 673 Relationship Marketing 674

Summary 675 applications 675

MarkEtING ExCEllENCE Progressive 676

MarkEtING ExCEllENCE Victoria’s Secret 677

Part 8 Conducting Marketing Responsibly for Long-term Success 678

Chapter 23 Managing a Holistic Marketing Organization for the Long Run 679

Trends in Marketing Practices 679 Internal Marketing 680

MarkEtING MEMO Characteristics of Company Departments That Are Truly Customer Driven 681

Organizing the Marketing Department 682 Relationships with Other Departments 684 Building a Creative Marketing

Organization 684

MarkEtING INSIGht The Marketing CEO 685

Socially Responsible Marketing 685 Corporate Social Responsibility 686

MarkEtING INSIGht The Rise of Organic 689

Socially Responsible Business Models 690

Cause-Related Marketing 690

MarkEtING MEMO Making a Difference: Top 10 Tips for Cause Branding 693

Social Marketing 694 Marketing Implementation and Control 697

Marketing Implementation 697 Marketing Control 697

The Future of Marketing 702

MarkEtING MEMO Major Marketing Weaknesses 703

Summary 705 applications 705

MarkEtING ExCEllENCE Starbucks 706

MarkEtING ExCEllENCE Virgin Group 707

appendix Tools for Marketing Control 709

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.pearsonglobaleditions.com/kotler, 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 • Image Library

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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

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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

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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

23

Pearson would like to thank and acknowledge the following people for their work on the Global Edition:

Contributors Andrea Rumler, Berlin School of Economics and Law,

Germany Abderrahman Hassi, Al Akhawayn University, Morocco Afifa Bouguerra, University of Toulouse, France Bouchra Hamelin, Al Akhawayn University, Morocco Abdelhamid Bennani Bouchiba, Al Akhawayn University,

Morocco Muneeza Shoaib, Middlesex University Dubai, UAE

Reviewers Naila Aaijaz, International Professors Project Frances Ekwulungo, University of Westminster, UK Michael Gründ, Zurich University of Applied Sciences in

Business Administration, Switzerland Mohamed Dahlan Ibrahim, Universiti Malaysia Kelantan,

Malaysia Jawahitha Sarabdeen, University of Wollongong in Dubai,

UAE

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In This Chapter, We Will Address the Following Questions

1. Why is marketing important? (p. 25)

2. What is the scope of marketing? (p. 27)

3. What are some core marketing concepts? (p. 31)

4. What forces are defining the new marketing realities? (p. 35)

5. What new capabilities have these forces given consumers and companies? (p. 38)

6. What does a holistic marketing philosophy include? (p. 42)

7. What tasks are necessary for successful marketing management? (p. 49)

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™

M01_KOTL2621_15_GE_C01.indd 24 03/03/15 1:59 PM

mymktlab.com
25

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

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26 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.

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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

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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

Farmers sell the beans to Fair Trade

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).

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38 PART 1 | UndeRsTAnding MARkeTing MAnAgeMenT

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