Marketing management 5th edition by dawn iacobucci pdf

Marketing

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Marketing Management, Fifth Edition Dawn Iacobucci

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Preface x

About the author xii

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

2 Customer Behavior 13

3 Segmentation 32

4 Targeting 51

5 Positioning 63

Part 2 Product Positioning 6 Products: Goods and Services 79

7 Brands 91

8 New Products and Innovation 109

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

10 Channels of Distribution 161

11 Advertising Messages and Marketing Communications 185

12 Integrated Marketing Communications and Media Choices 205

13 Social Media 224

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

15 Marketing Research Tools 256

Part 5 Capstone 16 Marketing Strategy 275

17 Marketing Plans 293

Endnotes 312

Index 316

BRIEF CONTENTS

iii

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CONTENTS

Preface x

About the author xii

Part 1 Marketing Strategy

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

1-2a Marketing is Everywhere 2

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

Everyone’s Responsibility 4

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

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

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

Consumers’ Behavior? 27

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

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

iv

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vContents

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

Segmentation Scheme 42

4 Targeting 51 4-1 What Is Targeting and Why

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

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

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

My Consultative Advice Can I Sell? 58

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

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

5-2 Writing a Positioning Statement 74

Part 2 Product Positioning

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

6-1a The Product in the Marketing Exchange 80

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

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

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

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

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

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

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vi Contents

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

7-5 How Is Brand Equity Determined? 104

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

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

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

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

8-5 What Trends Should I Watch? 126

Part 3 Positioning via Price, Place, and Promotion

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

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

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

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

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

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

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

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viiContents

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

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

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

Selective? 165 10-2a Push and Pull 167

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

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

Campaigns? 188 11-4 Designing Advertising Messages to Meet

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

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

ad and A

brand 201

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

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

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

the Marketing Goals 218

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

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viii Contents

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

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

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

Part 4 Positioning: Assessment Through the Customer Lens

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

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

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

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

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

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

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

15-3a Attribute-Based 260

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

Switching 268 15-7 Surveys for Assessing Customer Satisfaction 270

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ixContents

Part 4 Capstone

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

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

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

16-4 Key Marketing Metrics to Facilitate Marketing Strategy 287

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

Endnotes 312

Index 316

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x

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

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

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

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

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

PREFACE

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xiPreface

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

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

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

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

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xii

ABOUT THE AUTHOR

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

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1

5Cs STP 4Ps

Product

Price

Place

Promotion

Segmentation

Targeting

Positioning

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

Customer

Company

Context

Collaborators

Competitors

Managerial Checklist

WHY IS MARKETING MANAGEMENT IMPORTANT?

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

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

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

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

1-2 MARKETING IS AN EXCHANGE RELATIONSHIP

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

1

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2 Part 1 Marketing Strategy

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

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

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

Figure 1.1 Marketing is an Exchange

C U S T O M E R

C O M P A N Y

offers bene�ts

seeks pro�tsseeks bene�ts

expects to pay

Marketing oversees the customer-brand exchange.

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

1-3 WHY IS MARKETING MANAGEMENT IMPORTANT?

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

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3Chapter 1 Why is Marketing Management Important?

Figure 1.2 What Can We “Market”?

Experiences Goods

Ideas Information Places

Companies Industries

Events People

Services

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4 Part 1 Marketing Strategy

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

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

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

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

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

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

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

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

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

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

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

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

CUSTOMERS’ PERSPECTIVE

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5Chapter 1 Why is Marketing Management Important?

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

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

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

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

Marketing speaks to customers wherever they are.

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6 Part 1 Marketing Strategy

STP stands for segmentation, targeting, and positioning. A company or a brand may want to be all things to all people, but most are not. It’s best to identify groups, or segments, of customers who share similar needs and wants. Once we understand the different seg- ments’ preferences, we’re in a position to identify the segment we should target with our marketing efforts. We then begin to develop a relationship with that target segment by positioning our product to them in the marketplace, via the 4Ps.

The 4Ps are product, price, promotion, and place. A marketer is responsible for creating a product (goods or services) that customers need or want, for setting the appropriate price for the product, for promoting the product via advertising and sales promotions to help customers understand the product’s benefits and value, and finally for making the product available for purchase in easily accessed places.2

Marketing management oversees the 5Cs, STP, and 4Ps with the goal of enhancing the marketing exchange (of goods, services, payment, ideas and information, etc.) between a customer base and a firm. It all sounds easy! Group your customers, and figure out which group to target. Then create a position in the marketplace by means of the features of the product, its price, communications and promotions, and distribution choices. Ah, but don’t dismiss marketing as only common sense; after all, consider how few companies do it well!

If marketing is an exchange, then, just like an interaction between two people, a compa- ny has its best chance at keeping its customers happy if it is in close communication with them. The company that does its marketing research and really listens to its customers will be able to deliver goods and services that delight those customers. The best marketers put themselves in the place of their customers: What are they like? What do they want? How can we play a role in their lives? In this book, we’ll elaborate on these themes. If you get overloaded while reading this book, you can step back and remember this: You’ll always be a step ahead of your competition if you simply think about your customers! All marketing strategy derives from that.

To elaborate on marketing strategy and develop a particular marketing plan, start with a situation analysis, and sketch answers to the following questions:

• Customers: Who are they? What are they like? Do we want to draw different customers?

• Company: What are our strengths and weaknesses? What customer benefits can we provide?

• Context: What is happening in our industry that might reshape our future business? • Collaborators: Can we address our customers’ needs while strengthening our

business-to-business (B2B) partnerships? • Competitors: Who are the competitors we must consider? What are their likely

actions and reactions?

5Cs STP 4Ps

Product

Price

Place

Promotion

Segmentation

Targeting

Positioning

Customer

Company

Context

Collaborators

Competitors

Figure 1.3 Marketing Management Framework: 5Cs, STP, 4Ps

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7Chapter 1 Why is Marketing Management Important?

With that background analysis, proceed to strategic marketing planning via STP: • Segmentation: Customers aren’t all the same; find out their various preferences,

needs, and resources. • Targeting: Pursue the group of customers that makes the most sense for our company. • Positioning: Communicate our product’s benefits clearly to the intended target

customers. Similarly, marketing tactics to execute the intended positioning derive from a customer focus:

• Product: Will customers want what our company is prepared to produce? • Price: Will customers pay what we’d like to charge? • Place: Where and how will customers purchase our market offering? • Promotion: What can we tell our customers or do for them to entice them to

purchase? That doesn’t sound too difficult, right? But customers’

preferences change. And the competition is also dynamic; who they are changes as well as what they offer your cus- tomers. Factors that are out of your control change as well. For example, as marketing manager or CMO, you won’t have control over whether your company is merged with another whose image seems inconsistent with your brand, but you’ll have to deal with it. Further, the legal environ- ment in this country is different from that in another’s, and each is always in flux. Many such contingencies call for modifying marketing plans. So the inputs keep changing. (But if marketing weren’t challenging, it wouldn’t be as fun!)

As Figure 1.3 indicates, if we keep an ongoing read on the 5Cs, it will make us better informed as we approach the STP task. These background indicators will apprise us of which qualities of a customer base are likely to be relevant as we identify segments. The P of po- sitioning in STP is done via all 4Ps. Thus the 5Cs, STP, and 4Ps operate interdependently. Optimal business solutions (in real life or in class case discussions) should reflect a working knowledge of all of these elements, and their connections; as a contextual factor changes, what is the predicted impact on distribution channels? As a collaborator shifts its demands, what will that do to our pricing structure? As our company sells off a nonperforming func- tion, what impact might that have on our positioning and customer satisfaction? The plot thickens!

1-4a Book Layout Marketing is involved in designing products that customers will enjoy, pricing them ap- propriately, making them available for purchase at easy points of access in the marketplace, and advertising the products’ benefits to customers. Throughout this book, we’ll assume that we’re talking about customers all over the world. This internationalism is already true for most big firms, and it will be true even for small entrepreneurs via the Internet or once they succeed and grow. We’ll also assume the omnipresence of the Internet and always consider it a factor in data intake or in customer channels of interactions with the company. In addition to aiming for global citizenship and recognizing the Internet as essential as air, we will offer fresh, fun examples throughout the book, such as Vegas and Ferrari, instead of laundry detergent.

Good marketing makes any company better!

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8 Part 1 Marketing Strategy

This book will train you to think like a marketer. You’ll see that great marketing is not a soft discipline, it’s not an art, nor is it simply intuitive. Great marketing is based on sound, logical—economic and psychological—laws of human and organizational behavior. You will learn the scientific and rigorous way to think about marketing issues, so that, in the future, when your situation looks nothing like the ones you’ve talked about in school, you’ll know how to proceed in finding your optimal solution. (Hint: Keep the framework close at hand!)

1-4b Learning from the Marketing Framework There are two key features to how the material is organized in this book. First, MBA and executive students learning marketing management typically want to see a framework depicting how all the marketing pieces come together to form the whole picture. To give you the big picture as well as to provide you with the in-depth details, Figure 1.3 kicks off every chapter with a Managerial Checklist of questions and issues that the reader can expect to understand better at the close of the chapter. Those questions are revisited at the end of the chapter in a list format called Managerial Recap. The chapters are mapped onto the framework as depicted in Figure 1.4.

You’ll become very familiar with this marketing management framework. You will see the 5Cs, STP, and 4Ps over and over again, so you’ll pick them up nearly by osmosis.

We want to make great marketing part of your DNA. You’ll know that any marketing strategy and planning must begin with the 5Cs assessment and then a strategic look at STP, before turning to the strategies and tactics of the 4Ps.

When you’re . . . • Working on a case for class, • Or trying to answer an interviewer intelligently, • Or trying to impress your boss at work, • Or trying to launch your own business.

Ethics: Have a Heart It is a good thought exercise to consider any dilemma from 2 perspectives:

1) Outcomes a) An outcome orientation is called consequentialism or teleological ethics (fancy words to impress an interviewer). b) This perspective believes that “the end justifies the means.” c) As a manager, you’d ask, “What should I do to produce the most good (or the least harm)?”

2) Processes a) An orientation toward fair process is called deontological ethics. b) The idea is that the process must be fair, regardless of the outcome that might results. c) Managers suggest an action as the right one to take according to a principle, such as human rights (e.g.,

fair pay) or environmental sustenance (e.g., green packaging).

Throughout the book, we’ll encounter several classes of ethical issues: don’t price discriminate, don’t target uninformed groups, don’t advertise deceptively, etc.

If you want an additional challenge, assess a scenario from multiple viewpoints. For example, deonto- logically, we might say, “We never price discriminate!” Teleologically, we might say, “To maximize value to our shareholders, we should charge different prices to different customer segments.” See? The plot thickens!

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9Chapter 1 Why is Marketing Management Important?

You’ll see the framework in your head. It will remind you of everything that needs to be addressed and how all the pieces fit together. The framework will make you process these marketing questions very thoughtfully and systematically.

1-4c The Flow in Each Chapter: What? Why? How? The presentation scheme we’ve adopted in this book is that each chapter covers the What, Why, and How. Specifically,

• What is the topic in this chapter? • Why does it matter? • How do I do this? Show me what to do so that I can be successful!

Between the marketing framework and the practical flow of the chapters, you’ll gain a strong, clear knowledge of marketing both at the strategic, conceptual level and at the tactical, hands-on level. Both levels of insight will help ensure your success throughout your career, whether you’re a marketer, a brand manager, an advertising exec, a CMO, or a well-informed financial analyst, CEO, or world guru.

5Cs STP 4Ps

Product

Price

Place

Promotion

Segmentation

Targeting

Positioning

Customer

Company

Context

Collaborators

Competitors

Ch. 4

Chs. 6,7,8

Ch. 3

Chs.15, 16 Chs.10,16

Chs.15,16

Chs.1, 2,14

Chs.11,12,13

Ch.10

Ch. 9 Chs.16,17

Ch. 5

Figure 1.4 Chapters Mapped to Marketing Framework

MANAGERIAL RECAP Marketing can make customers happier and therefore companies more profitable. Marketing will enhance your career, and marketing can make the world a better place. Honest!

• Marketing is about trying to find out what customers would like, providing it to them, and doing so profitably.

• Ideally, marketing facilitates a relationship between customers and a company.

• Just about anything can be marketed.

• The overarching marketing management framework—5Cs, STP, 4Ps—will structure the book and help you to think methodically about the big picture of marketing.

• Don’t forget! Stay focused on your customer! If you can remain customer-centric, you’ll be five steps ahead of the competition.

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10 Part 1 Marketing Strategy

Chapter Outline in Key Terms and Concepts

1. Defining marketing

2. Marketing is an exchange relationship

a. Marketing is everywhere

3. Why is marketing management important?

a. Marketing and customer satisfaction is everyone’s responsibility

4. The marketing framework: 5Cs, STP, and the 4Ps

a. Book layout

b. Learning from the marketing framework

c. The flow in each chapter: What? Why? How?

5. Managerial recap

Chapter Discussion Questions

1. Before reading this chapter or beginning class, what did you expect marketing to be? Ask a family member, classmate, or coworker what they think marketing is. See whether you can persuade them that marketing enhances a mutually beneficial exchange between a customer and a company.

2. What are examples of brands and companies you like? Why do you think you like them? What is a brand you can’t stand? Why not?

3. Think about a recent time when you bought some- thing or tried to do so and you were treated poorly

as a customer. What was the essential problem? If you ran the company, what would you do to ensure happier and more loyal customers?

4. List three brands you’re loyal to. List three things you tend to buy on sale. How are the product categories represented on these two lists different for you?

5. What social problem do you think is the world’s biggest? Wars? Global warming? Resource imbal- ances? How could you start to solve a big social problem through marketing?

Video Exercise: Southwest Airlines (13:55)

The Southwest Airlines brand is that of a low-fare carrier with the highest level of customer service—and with fun added into the flying experience. Southwest Airlines strives to provide

its customers with a total product experience that includes check-in, boarding, flying, and bag- gage claim experiences. In providing this total product experience, the airline strives to fully meet

the needs, wants, and desires of its customers. Southwest regularly surveys its customers regarding all compo- nents of the product experience in order to foster continuous improvement. Southwest also conducts exten- sive quantitative and qualitative research to better understand customers’ needs, as well as to explore possible product experiences that the company might offer in the future. Southwest operates on the premise that having new products is what makes a company successful over time. Thus, while maintaining its commitment to low fares, excellent customer service, and fun, Southwest seeks to identify product experiences that different market segments would like to have. The company then builds those experiences into the ticket price structure rather than charging customers with numerous add-ons. Taking this approach enables Southwest Airlines to better tailor its total product experience to the wants, needs, and desires of its different market segments.

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11Chapter 1 Why is Marketing Management Important?

MINI-CASE

How to Design an Attractive Wearable

A large electronics manufacturer wishes to issue a new “wearable.” The company wants to design it such that it will make money with the purchase of the unit, of course, but that it will also make money as its customers use it. In addition, the company would like to capture data about the customers’ profiles, in terms of their activities, spending patterns, etc.

Wearables vary in many ways, and initially, the brand management team proposed to issue a design that looked like a small smartphone, to be worn on the user’s wrist. Given the still relative novelty of such units, they thought they’d charge on the high end, about $100, maybe even instituting a small annual fee. To get supplementary data, they thought they’d issue periodic surveys, about once a quarter, via the unit or via e-mail.

The youngest marketer, newest to the team asked, “Well, that’s good for us, but how is it attractive to our cus- tomers? Why would they want this unit—when there are plenty of others out there?” One old manager shot out a withering look. Well, that’ll teach the young person to speak up in the meeting. But the senior-most manager spoke up and said, “Well, you’re right, we’re only looking at it from our point of view. What would this wearable look like that our customers would want—and that can be profitable to us?”

What would help these marketers? What steps could they take to design a wearable that would be both opti- mally appealing to its customers (and perhaps attract new customers), as well as optimally profitable?

A wearable could vary on many parameters, such as whether it would be worn on the wrist like a watch, or as an earbud like music headphones or smartphone speakers, or as an add-on unit to glasses. Early prototypes suggested that while earbuds or eyeglass designs were good at capturing GPS, they weren’t as versatile in sup- porting multiple apps, and they weren’t as precise as exercise (step) counters (for example, the head didn’t move as distinctly as the user’s wrist while walking). That is what led the brand managers to ask the designers to create a wrist-wearable.

Even so, there were many possibilities: Should the unit look like a small smartphone or like a nice classic wrist- watch in design? Should the apps be accessed by touch only or should the apps also be voice-activated? Should there be an annual licensing fee? Should they allow co-branding with affiliations (e.g., a professional sports team or one’s college alma mater)? Which features should be recommended as the unit is designed?

This electronics firm has little experience in marketing research as well, so the older managers were uncertain as to how to proceed. One mentioned a focus group, another suggested an ethnography, and a third mentioned surveys. The information that is sought, as well as the method by which the information would be obtained, are both to be determined. Naturally, the company wants to roll out the new wearable as soon as possible, so while the research project could be well-funded, they would face time pressure and would have to be judicious in their choice of research avenues.

Video Discussion Questions

1. Describe the marketing exchange relationship between Southwest Airlines and its customers.

2. Describe the 5Cs of the marketing framework as they pertain to Southwest Airlines.

3. How does Southwest Airlines’ approach to providing a total product experience capture the marketing framework elements of STP (segmentation, targeting, and positioning) and the 4Ps (product, price, place, and promotion)?

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12 Part 1 Marketing Strategy

Case Discussion Questions

1. Are the old managers right? A lot of other wearables focus on counting steps or enabling apps. Is that what this group should design, so as to be seen as a legitimate competitor and not confuse customers, or should they design something different to be seen as innovative?

2. Are the people in the room a good proxy for their customers? Are the young managers a better proxy than the older managers?

3. What additional information would be helpful to strengthen a recommendation?

4. How would that information best be obtained?

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13

CUSTOMER BEHAVIOR

There is some subjectivity in marketing (and in business generally), but there are also many known, reliable patterns that comprise the science of consumer behavior. Most of this chapter talks about these effects and how managers can use this knowledge wisely. To pre- pare, we first consider the three major phases that consumers go through when making any purchase. Next, we’ll see the different kinds of purchases that consumers make. Then we’ll drill down and see what makes consumers tick.

2-1 THREE PHASES OF THE PURCHASE PROCESS

Customers go through predictable stages in making a purchase. In the pre-purchase phase, the customer identifies that something is lacking—there is a need or a desire to be satisfied. Crit- ics sometimes say that marketers create desires in people that they didn’t already have. There is some truth in that (e.g., “Is your breath fresh?” “Do you own the coolest running shoes?”), but even without marketers, people really do need and want all kinds of things. Then the hunt begins. Buyers search for information about products and brands that may be suitable.

For example, a newly minted MBA student has multiple wants: new clothes, a car, a condo and furnishings, a list of restaurants in a new city to take clients or visiting friends, a new dentist, a drycleaner, etc. Such consumers might search for alternative solutions by going online or asking friends. They might evaluate alternatives by reading Consumer Reports or going to BizRate.com. By comparison, a newly promoted business executive might want a corporate jet. Possible vendors would need to be investigated, and alternatives

5Cs STP 4Ps

Product

Price

Place

Promotion

Segmentation

Targeting

Positioning

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

Customer

Company

Context

Collaborators

Competitors

Managerial Checklist

2

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14 Part 1 Marketing Strategy

could be evaluated by soliciting and entertaining bids. While the objects and details of these two purchases may look different, they both entail a variety of pre-purchase activities.

During the purchase phase itself, the consumer is creating a consideration set that includes all the brands that are deemed potential candidates for purchase and that excludes the brands that have been rejected.1 The MBA student may limit the car search to include only hybrids. The condos considered would be only those within a certain price range. The restaurants select- ed might be only those with menus that can be previewed online. Analogous considerations factor into the executive’s jet quandary: What attributes are important? What attributes must I have or not have? What attributes don’t I care about and therefore will not pay high prices for?

The final stage is the customer evaluation post-purchase. Buyers assess their purchase and the purchase process, posing such questions as: Am I satisfied as a customer? Will I buy this brand again? Will I tell my friends what a great brand I’ve found? Figure 2.1 shows the complete process, from seeing that there is a need, to choosing and buying something expected to be a solution to the need, and finally, to assessing one’s satisfaction with that purchase. For example, imagine running to an interview and the strap on your messenger bag breaks. You’re able to grasp the bag before it hits the ground and possibly shakes up your tablet. However, obviously you realize you need a new messenger bag. You go online and order a new bag. When it arrives, you like the looks, the protective inner sleeve for your tablet, it has a few new features you like, and you had thought the price was pretty reason- able. You’re pleased that the bag achieved its mission.

B2B Buying Center Roles In B2B, big, expensive, purchases can be complicated because it’s not just one person making the decision. Each purchase involves a half dozen or so roles in a buying center:

The Initiator: An administrative assistant who notices that one of the printers in the office is frequently breaking down.

The User: Every staff member who tries to use that printer. The Influencer: The IT guy who says, “Well, Brand X is cheaper, but Brand Y is cooler.” The Buyer: The head administrative person whose responsibilities are to facilitate supplies but

also to answer to . . . The Gatekeeper: A conservative accountant type whose job it is to tighten purse strings.

A decision to buy a new printer is complicated by the fact that each of these roles seeks slightly different attributes. Some care only about price, others want great features, and still others may appreciate wiggle room in negotiating delivery dates or follow-up customer service.

Figure 2.1 The Purchase Process

Pre-purchase Purchase Post-purchase

Identify need or want Search possible solutions Build consideration set

Narrow “consideration set” Decide on retail channel

Customer satisfaction Likelihood to repeat Generate word of mouth

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15Chapter 2 Customer Behavior

The buying process is consistent whether the buyer is a consumer or a business. Con- sumer buying is easy to relate to. It involves people buying something for themselves or their households, and we are those people. A business customer is an agent buying some- thing on behalf of an organization. The agent can be an administrative assistant deciding to use UPS or FedEx, or the agent can be a group of people, representing different aspects of the organization (accounting, operations, etc.), comprising a collective buying center. All purchases, business-to-consumer (B2C) or business-to-business (B2B), go through the three stages, but the amount of time spent in any stage depends in part on what is being bought. For example, sometimes the pre-purchase phase is extensive, and sometimes it is very quick. So let’s consider some classes of purchases.2

2-2 DIFFERENT KINDS OF PURCHASES Marketers distinguish between types of purchases. For consumers, a convenience item is a fairly mindless purchase of “staples” (standard, frequently-consumed goods, such as bread or gas) or an impulse purchase (such as candy or magazines that are available near grocery checkouts). There are also shopping purchases, which require some thought or planning, as when using OpenTable to find a restaurant before heading out of town. Finally, there are specialty purchases such as a car or new laptop. These purchases are occasional, they are of- ten more expensive than other types of purchases, and as a result they require more thought.

For B2B customers, the terms are different from consumer buying, but the ideas are analogous. A purchase can be a straight rebuy, such as when the office copier needs toner and the office manager buys the usual brand. Another purchase may be a modified rebuy, such as when the copier lease comes up and there is a desire to consider a different vendor. Last, there is the new buy. For example, perhaps the company is considering buying tele- conferencing equipment for the first time, and it is not yet well-understood what attributes to consider.

As Figure 2.2 indicates, what differentiates these purchases is not the product itself. The distinction is more in the minds of the customers and in their involvement with the brand and product category. For example, the purchase of the same product—an energy drink— can be convenience when shoppers mindlessly put their usual brand in their grocery cart; it can be a shopping purchase when customers see a new offering that they consider trying; and it can be a specialty purchase when customers see an expensive brand that promises antioxidants, which they choose to read up on before making a purchase.

Figure 2.2 Types of Purchases in B2C & B2B Is a Matter of Customer Involvement

B2C

B2B

Action “Add to Cart”

or “Click to buy”

Convenience

Straight rebuy

Shopping

Modi�ed rebuy

Needs some thought

Specialty

New buy

Needs research and serious thought

HighMediumLow

Customer Involvement

Consumers purchase convenience items—or business customers a straight rebuy—in a fairly mindless manner. It’s the proverbial no-brainer. Buyers won’t spend much time

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16 Part 1 Marketing Strategy

thinking about brands or attributes because they just don’t care enough to do so. The chal- lenge for marketers is to break that thought pattern (not that it’s very thoughtful!)—to shake up the consumer with news of their brand and break through that white noise clutter.

For items that customers care more about, they’ll expend some time and effort prior to the purchase, seeking out more information to be a smart shopper and to obtain good value. For even higher customer involvement, as in specialty purchases or new buys, the customers are more engaged. A great deal of effort is put into researching the best brands, quality, and price. The marketer’s challenge is to convince the buyer that their brand is the best choice.

Types of B2B Customers B2B customers are often classified according to what they sell:

Installations (e.g., equipment for new factories) Accessories (e.g., computers to help run the office) Raw materials (e.g., lumber, plastics) Components (processed items that are components in a later finished product) Business services (e.g., insurance, legal, consulting)

Ultimately, the most important classification is how much the buying business cares about the purchase. Then we’ll know whether they care primarily about quality or price.

The category that a brand and target segment is in will suggest the appropriate marketing activities that we’ll select from in the chapters that follow. For example, for lower- involvement purchases, we can expect customers to be somewhat more price sensitive. They’ll pay more when they buy things they really like or want (e.g., a cool laptop) or that they expect to be of high quality (e.g., a great restaurant) or that is important to them (e.g., health care for their parents).

Consider the implications for loyalty programs. The marketer can create such programs regardless of the level of customer engagement, but they’d take different forms, e.g., price discounts for low-involvement purchases vs. brand communities and events for high-in- volvement products and brands. Customer satisfaction can be fine for low-involvement purchases, but customers won’t generate word of mouth; they don’t care enough. In contrast, for high-involvement purchases, strong followers and satisfied customers can be zealots and brand ambassadors.

Consider the implications for channels of distribution. Low-involvement products need to be widely available so that the customer can pick them up without thinking. High-

involvement products will be sought out by more customer activity.

Finally, consider the implications for promotions. For low-involvement products, the marketer just hopes to cut through the noise and clutter—getting customers’ attention only long enough to register the brand name in the mind of the customer for sheer familiarity. With high-involvement purchases, customers are hungry for information, and mar- keters can provide much more.

Marketing satisfies (and creates) consumers’ needs and wants.

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© Cengage Learnin g 2013

Anatomy of a Grocery Store

Copyright 2018 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part. WCN 02-200-203

18 Part 1 Marketing Strategy

So how do customers learn about brands and make choices? In the rest of the chapter, we’ll look at how customers think and how marketing can have an impact on their deci- sions and choices.

2-3 THE MARKETING SCIENCE OF CUSTOMER BEHAVIOR

Consumers are human beings and, as such, are sometimes simple and predictable, but often rather complex. In this section, we’ll delve into consumer psychology, examining sensation and perception, learning and memory, motivation, attitudes, and decision making.

2-3a Sensation and Perception When marketers formulate positioning statements or produce perceptual maps, they presuppose a complicated system through which consumers sense and perceive their environment. An enormous wave of sensory stimulation washes over and through us every day. We are selective in our attention, choosing to consider certain stimuli and effectively screening out others. For example, if we are in the market for a car, we’ll watch TV ads for cars. If we’re not in the market for a car, we barely “see” the TV ads for cars. We know that consumer involvement creates a state of heightened motivation to learn more about a pur- chase or to pay attention to advertisement. The human organism is very efficient at adapting to the multitude of stimuli, helping us focus and block out what we deem to be irrelevant.

Let’s consider how marketers can use information through each of the senses. Visual stimuli are obviously important to marketers. Ads show products, product design, print information, imagery visualization to facilitate desirable lifestyles, etc. Even simple colors imbue brand associations and can be integral to some brand identities:

• Toothpaste packaging is dominated by whites and blues, implying freshness, clean- liness, water, etc.

• Tiffany’s aqua blue boxes have saved many a marriage. • Dell’s blue is deeper and darker than Tiffany’s, and also trademarked.

Marketers frequently use color to convey information. There are color wheels to guide the brand manager considering a new logo or packaging. For example, blue seems to con- note dependability and is used widely (American Express, Ford, Intel). Red tends to imply passion, as in the excitement of breaking news (CNN) or sporting events (ESPN). Green often implies environmental sustainability (although judge for yourself whether that ap- plies to the green in BP, or whether it’s relevant to H&R Block).

The symbolism of colors also varies across cultures, so it is important for a brand manager responsible for a global multinational brand to test the color’s meaning in its major mar- kets. In the U.S., brides wear white because it symbolizes purity (like newly fallen snow). In India, red conveys purity. In the U.S., red conveys danger and passion; a bride in red would be . . . unusual. In Western civilizations, purple has traditionally denoted royalty; but in Thailand, it’s the color of mourning. Mourners in Egypt wear yellow, yet yellow implies courage in Japan and the opposite, cowardice, in the U.S. There are a zillion colors and many cultures. Imagine the challenge for a brand manager in selecting packaging or logo designs for global multinational brands.

Copyright 2018 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part. WCN 02-200-203

19Chapter 2 Customer Behavior

Hearing is also important to marketers. Research shows that when retailers play back- ground music that is energetic, with a quick tempo, customers spend more. There are other aural brand associations:

• iPhone vs. Samsung vs. T-Mobile vs. AT&T ringtones • United Airlines’ frequent use of Gershwin’s Rhapsody in Blue in their ads • Fancy Feast television commercials feature a high-pitched “ding, ding” (a fork

clinking against fine crystal) implying that the food is special, and therefore worth its higher price.