Marketing management strategies ferrell hartline pdf

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Marketing Strategy

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Marketing Strategy Text and Cases

SIXTH EDITION

O . C . F E RRE L L The University of New Mexico

M ICHAE L D . HART L I N E The Florida State University

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Marketing Strategy: Text and Cases, Sixth Edition

O.C. Ferrell and Michael D. Hartline

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To my wife, Linda O.C. Ferrell

To Huck and ReRe Michael D. Hartline

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Brief Contents

PART 1 Setting the Stage for Marketing Strategy

CHAPTER 1 Marketing in Today’s Economy 1

CHAPTER 2 Strategic Marketing Planning 27

PART 2 Discovering Market Opportunities

CHAPTER 3 Collecting and Analyzing Marketing Information 53

CHAPTER 4 Developing Competitive Advantage and Strategic Focus 85

PART 3 Developing Marketing Strategy

CHAPTER 5 Customers, Segmentation, and Target Marketing 115

CHAPTER 6 The Marketing Program 149

CHAPTER 7 Branding and Positioning 199

PART 4 Putting Strategy into Action

CHAPTER 8 Ethics and Social Responsibility in Marketing Strategy 227

CHAPTER 9 Marketing Implementation and Control 255

CHAPTER 10 Developing and Maintaining Long-Term Customer Relationships 283

PART 5 Cases

CASE 1 USA Today: Innovation in an Evolving Industry 313

CASE 2 Apple’s Winning Marketing Strategy 327

CASE 3 Monsanto Balances the Interests of Multiple Stakeholders 339

CASE 4 New Belgium Brewing (A): Gaining Competitive Advantage Through Socially Responsible Marketing 351

CASE 5 New Belgium Brewing (B): Developing a Brand Personality 361

CASE 6 Mattel Confronts Its Marketing Challenges 371

CASE 7 Mistine: Direct Selling in the Thai Cosmetics Market 381

CASE 8 BP Struggles to Repair Its Tarnished Reputation 393

CASE 9 Chevrolet: 100 Years of Product Innovation 405

v i i

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CASE 10 Wyndham Worldwide Adopts a Stakeholder Orientation Marketing Strategy 419

CASE 11 NASCAR: Can’t Keep a Good Brand Down 429

CASE 12 IndyCar: Seeking a Return to Motorsports’ Fast Lane 441

CASE 13 Zappos: Delivering Happiness 451

CASE 14 Sigma Marketing: Strategic Marketing Adaptation 461

CASE 15 Netflix Fights to Stay Ahead of a Rapidly Changing Market 471

CASE 16 Gillette: Why Innovation May Not Be Enough 481

CASE 17 IKEA Slowly Expands Its U.S. Market Presence 493

CASE 18 Sushilicious: Standing Out In A Crowded Field 501

CASE 19 Trouble Brews at Starbucks 517

CASE 20 Groupon 533

Appendix Marketing Plan Worksheets 547

Brands and Companies Index 557 Name Index 571 Subject Index 575

viii Brief Contents

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Contents

PART 1 Setting the Stage for Marketing Strategy

CHA P T E R 1

Marketing in Today’s Economy 1

Introduction 1

Beyond the Pages 1.1 Thriving in Commodity Hell 2

The Challenges and Opportunities of Marketing in Today’s Economy 3

Basic Marketing Concepts 7 What Is a Market? 8 What Is Exchange? 9 What Is a Product? 11

Major Marketing Activities and Decisions 14 Strategic Planning 14

Beyond the Pages 1.2 Innovative Marketing Strategies for a Tough Economy 15 Research and Analysis 16 Developing Competitive Advantage 16 Marketing Strategy Decisions 17

Beyond the Pages 1.3 Targeting Consumers via Online Social Networking 18

Social Responsibility and Ethics 20 Implementation and Control 20 Developing and Maintaining Customer Relationships 21

Taking On the Challenges of Marketing Strategy 22

Lessons from Chapter 1 24

Questions for Discussion 25

Exercises 25

CHA P T E R 2

Strategic Marketing Planning 27

Introduction 27

Beyond the Pages 2.1 Redbox’s Success Story 28

The Strategic Planning Process 29 Organizational Mission versus Organizational Vision 30 Corporate or Business-Unit Strategy 34 Functional Goals and Objectives 35 Functional Strategy 35 Implementation 36 Evaluation and Control 36

The Marketing Plan 36 Marketing Plan Structure 37

Beyond the Pages 2.2 Sell Below Cost, They Will Come 41

Using the Marketing Plan Structure 42

i x

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Purposes and Significance of the Marketing Plan 44 Organizational Aspects of the Marketing Plan 44

Maintaining Customer Focus and Balance in Strategic Planning 45 Customer-Focused Planning 46

Beyond the Pages 2.3 Amazon Is on Fire 47

Balanced Strategic Planning 48

Lessons from Chapter 2 50

Questions for Discussion 51

Exercises 51

PART 2 Discovering Market Opportunities

CHA P T E R 3

Collecting and Analyzing Marketing Information 53

Introduction 53

Beyond the Pages 3.1 Baby Boomers Deserve Careful Analysis 54

Conducting a Situation Analysis 55 Analysis Alone Is Not a Solution 55 Data Is Not the Same as Information 56 The Benefits of Analysis Must Outweigh the Costs 56 Conducting a Situation Analysis Is a Challenging Exercise 56

The Internal Environment 58 Review of Current Objectives, Strategy, and Performance 59 Availability of Resources 59 Organizational Culture and Structure 60

The Customer Environment 60 Who Are Our Current and Potential Customers? 62 What Do Customers Do with Our Products? 62 Where Do Customers Purchase Our Products? 63 When Do Customers Purchase Our Products? 63

Beyond the Pages 3.2 The Ongoing Challenge of E-Waste 64

Why (and How) Do Customers Select Our Products? 65 Why Do Potential Customers Not Purchase Our Products? 65

The External Environment 66 Competition 66 Economic Growth and Stability 70 Political Trends 71 Legal and Regulatory Issues 71 Technological Advancements 72 Sociocultural Trends 73

Collecting Marketing Data and Information 76 Secondary Information Sources 76

Beyond the Pages 3.3 A Corporate Affairs Primer 77

Primary Data Collection 80 Overcoming Problems in Data Collection 81

Lessons from Chapter 3 82

Questions for Discussion 82

Exercises 83

x Contents

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CHA P T E R 4

Developing Competitive Advantage and Strategic Focus 85

Introduction 85

Beyond the Pages 4.1 Innovation: A Major Key to Success 86

Making SWOT Analysis Productive 87 Stay Focused 88 Search Extensively for Competitors 89 Collaborate with Other Functional Areas 89 Examine Issues from the Customers’ Perspective 90 Look for Causes, Not Characteristics 92 Separate Internal Issues from External Issues 92

SWOT-Driven Strategic Planning 93 Strengths and Weaknesses 93 Opportunities and Threats 95 The SWOT Matrix 96

Developing and Leveraging Competitive Advantages 98

Establishing a Strategic Focus 100

Beyond the Pages 4.2 Successful Product Leadership at 3M 101

Developing Marketing Goals and Objectives 105

Beyond the Pages 4.3 A Closer Look at Blue Ocean Strategy 106

Developing Marketing Goals 107 Developing Marketing Objectives 108 Moving Beyond Goals and Objectives 111

Lessons from Chapter 4 111

Questions for Discussion 112

Exercises 112

PART 3 Developing Marketing Strategy

CHA P T E R 5

Customers, Segmentation, and Target Marketing 115

Introduction 115

Beyond the Pages 5.1 Data Mining Allows Companies to Know Our Secrets 116

Buyer Behavior in Consumer Markets 117 The Consumer Buying Process 117 Factors That Affect the Consumer Buying Process 123

Buyer Behavior in Business Markets 125 Unique Characteristics of Business Markets 126 The Business Buying Process 128

Market Segmentation 129 Traditional Market Segmentation Approaches 129

Beyond the Pages 5.2 The Challenges and Opportunities of Population Diversity 130 Individualized Segmentation Approaches 132 Criteria for Successful Segmentation 134

Beyond the Pages 5.3 Shifting Strategies in the Cereal Market 135

Identifying Market Segments 135 Segmenting Consumer Markets 136 Segmenting Business Markets 141

Contents xi

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Target Marketing Strategies 142

Lessons from Chapter 5 143

Questions for Discussion 146

Exercises 146

CHA P T E R 6

The Marketing Program 149

Introduction 149

Beyond the Pages 6.1 Can Good Marketing Save Barnes & Noble? 150

Product Strategy 151 Strategic Issues in the Product Portfolio 151 The Challenges of Service Products 154 Developing New Products 156

Pricing Strategy 158 Key Issues in Pricing Strategy 159

Beyond the Pages 6.2 Pricing Around the World 160

Pricing Service Products 165 Base Pricing Strategies 166 Adjusting the Base Price 167

Supply Chain Strategy 169 Strategic Supply Chain Issues 170 Trends in Supply Chain Strategy 175

Beyond the Pages 6.3 Walmart’s Supply Chain Advantages 176

Integrated Marketing Communications 179

Beyond the Pages 6.4 Fragmentation Forever Changes Media Advertising 180

Strategic Issues in Integrated Marketing Communications 181 Advertising 182 Public Relations 184 Personal Selling and Sales Management 186 Sales Promotion 188

Lessons from Chapter 6 192

Questions for Discussion 195

Exercises 195

CHA P T E R 7

Branding and Positioning 199

Introduction 199

Beyond the Pages 7.1 Steinway: More Than a Piano 200

Strategic Issues in Branding 202 Basic Branding Decisions 204 Strategic Brand Alliances 206 Brand Value 206 Packaging and Labeling 209

Beyond the Pages 7.2 Tropicana’s Packaging Debacle 210

Differentiation and Positioning 210 Bases for Differentiation 212 Positioning Strategies 214

xii Contents

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Mananging Brands over Time 215 Development Stage 217 Introduction Stage 218 Growth Stage 219 Maturity Stage 220

Beyond the Pages 7.3 Nintendo’s Rebranding Strategy 222

Decline Stage 223

Lessons from Chapter 7 224

Questions for Discussion 225

Exercises 225

PART 4 Putting Strategy into Action

CHA P T E R 8

Ethics and Social Responsibility in Marketing Strategy 227

Introduction 227

Beyond the Pages 8.1 Salesforce.com Adopts a Stakeholder Orientation 228

Ethics and Social Responsibility in Marketing Strategy 229 Dimensions of Social Responsibility 229 Sustainability 232 Marketing Ethics and Strategy 233

Beyond the Pages 8.2 Finding the Real Green Products 234

The Challenges of Being Ethical and Socially Responsible 236

Ethical Issues in the Marketing Program 237 Product-Related Ethical Issues 238 Pricing-Related Ethical Issues 239 Supply Chain-Related Ethical Issues 240 Promotion-Related Ethical Issues 241

Managing and Controlling Ethical Issues 242 Regulating Marketing Ethics 242 Codes of Conduct 243

Beyond the Pages 8.3 The Consumer Financial Protection Bureau Aims to Build Trust in the Banking System 244

Ethical Leadership 245

Relationship to Marketing and Financial Performance 246 Stakeholder Orientation 247 Marketing Financial Performance 247

Incorporating Ethics and Social Responsibility into Strategic Planning 249

Lessons from Chapter 8 250

Questions for Discussion 251

Exercises 251

CHA P T E R 9

Marketing Implementation and Control 255

Introduction 255

Beyond the Pages 9.1 Green Mountain Coffee Gets It Done 256

Strategic Issues in Marketing Implementation 257 The Link Between Planning and Implementation 257 The Elements of Marketing Implementation 259

Contents xiii

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Approaches to Marketing Implementation 263 Implementation by Command 263 Implementation Through Change 263

Beyond the Pages 9.2 The New Rules of CEO Leadership 264

Implementation Through Consensus 265 Implementation as Organizational Culture 266

Internal Marketing and Marketing Implementation 268 The Internal Marketing Approach 268 The Internal Marketing Process 269

Evaluating and Controlling Marketing Activities 270 Formal Marketing Controls 271 Informal Marketing Controls 275 Scheduling Marketing Activities 276

Beyond the Pages 9.3 Managing Risk Through Culture 277

Lessons from Chapter 9 279

Questions for Discussion 280

Exercises 280

CHA P T E R 1 0

Developing and Maintaining Long-Term Customer Relationships 283

Introduction 283

Beyond the Pages 10.1 1-800-Flowers.com Focuses on Customers 284

Managing Customer Relationships 284 Developing Relationships in Consumer Markets 286 Developing Relationships in Business Markets 288

Quality and Value: The Keys to Developing Customer Relationships 290 Understanding the Role of Quality 290 Delivering Superior Quality 293

Beyond the Pages 10.2 Customer Service versus Efficiency 294

Understanding the Role of Value 295 Competing on Value 298

Customer Satisfaction: The Key to Customer Retention 299 Understanding Customer Expectations 299

Beyond the Pages 10.3 Satisfied, But Not Loyal 302

Satisfaction versus Quality versus Value 303 Customer Satisfaction and Customer Retention 304 Customer Satisfaction Measurement 306

Lessons from Chapter 10 308

Questions for Discussion 310

Exercises 310

PART 5 Cases

CASE 1 USA Today: Innovation in an Evolving Industry 313

CASE 2 Apple’s Winning Marketing Strategy 327

CASE 3 Monsanto Balances the Interests of Multiple Stakeholders 339

xiv Contents

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CASE 4 New Belgium Brewing (A): Gaining Competitive Advantage Through Socially Responsible Marketing 351

CASE 5 New Belgium Brewing (B): Developing a Brand Personality 361

CASE 6 Mattel Confronts Its Marketing Challenges 371

CASE 7 Mistine: Direct Selling in the Thai Cosmetics Market 381

CASE 8 BP Struggles to Repair Its Tarnished Reputation 393

CASE 9 Chevrolet: 100 Years of Product Innovation 405

CASE 10 Wyndham Worldwide Adopts a Stakeholder Orientation Marketing Strategy 419

CASE 11 NASCAR: Can’t Keep a Good Brand Down 429

CASE 12 IndyCar: Seeking a Return to Motorsports’ Fast Lane 441

CASE 13 Zappos: Delivering Happiness 451

CASE 14 Sigma Marketing: Strategic Marketing Adaptation 461

CASE 15 Netflix Fights to Stay Ahead of a Rapidly Changing Market 471

CASE 16 Gillette: Why Innovation May Not Be Enough 481

CASE 17 IKEA Slowly Expands Its U.S. Market Presence 493

CASE 18 Sushilicious: Standing Out In A Crowded Field 501

CASE 19 Trouble Brews at Starbucks 517

CASE 20 Groupon 533

Appendix Marketing Plan Worksheets 547

Brands and Companies Index 557 Name Index 571 Subject Index 575

Contents xv

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Preface

Welcome to one of the most interesting, challenging, and important topics in your busi- ness education. What makes marketing strategy so interesting, challenging, and impor- tant you ask? To begin, marketing strategy is interesting because (1) it is inherently people-driven and (2) it is never stagnant. A distinct blend of both art and science, mar- keting strategy is about people (inside an organization) finding ways to deliver excep- tional value by fulfilling the needs and wants of other people (customers, shareholders, business partners, society at large), as well as the needs of the organization itself. Market- ing strategy draws from psychology, sociology, and economics to better understand the basic needs and motivations of these people—whether they are the organization’s custo- mers (typically considered the most critical), its employees, or its stakeholders. In short, marketing strategy is about people serving people.

For this reason, marketing strategy is interesting because it is never stagnant. The simple fact is that people change. A strategy that works today might not work tomorrow. Products that are popular today are forgotten next week. These truisms are important because truly understanding marketing strategy means accepting the fact that there are few concrete rules for developing and implementing marketing activities. Given the con- stant state of change in the marketing environment, it is virtually impossible to say that given “this customer need” and “these competitors” and “this level of government regu- lation” that Product A, Price B, Promotion C, and Distribution D will produce the best results. Marketing simply doesn’t work that way. The lack of concrete rules and the ever changing economic, sociocultural, competitive, technological, and political/legal land- scapes make marketing strategy a terribly fascinating subject.

Now that you know why marketing strategy is so interesting, it should be easy to see why it is also challenging. A perfect marketing strategy that is executed flawlessly can still fail. Sometimes, organizations are lucky and have success despite having a terrible strategy and/or execution. The nature of marketing can make marketing planning quite frustrating.

Finally, the importance of marketing strategy is undeniable. No other business func- tion focuses on developing relationships with customers—the lifeblood of all organiza- tions (even non-profits). This statement does not diminish the importance of other business functions, as they all are necessary for an organization to be successful. In fact, coordination with other functions is critical to marketing success. However, without cus- tomers, and marketing programs in place to cultivate customer relationships, no organi- zation can survive.

Our Focus Given this marketing landscape, Marketing Strategy: Text and Cases, 6th Edition provides a practical, straightforward approach to analyzing, planning, and implementing market- ing strategies. Our focus is based on the creative process involved in applying the knowl- edge and concepts of marketing to the development and implementation of marketing strategy. Our goal is to encourage students of marketing to think and act like a marketer. By discussing the key concepts and tools of marketing strategy, our emphasis on critical thinking, both analytical and creative, allows students to understand the essence of how marketing decisions fit together to create a coherent strategy.

xv i i

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Our approach in Marketing Strategy: Text and Cases, 6th Edition is also grounded in the development and execution of the marketing plan. Throughout the text, we provide a comprehensive planning framework based on conducting sound background research, developing market capabilities and competitive advantages, designing integrated market- ing programs, and managing customer relationships for the long term. We also empha- size the need for integrity in the strategic planning process, as well as the design of marketing programs that are both ethical and socially responsible. We also stress the in- tegration and coordination of marketing decisions with other functional business deci- sions as the key to achieving an organization’s overall mission and vision. Throughout the text, we offer examples of successful planning and implementation to illustrate how firms face the challenges of marketing strategy in today’s economy.

Purpose We view strategic marketing planning not only as a process for achieving organizational goals, but also as a means of building long-term relationships with customers. Creating a customer orientation takes imagination, vision, and courage, especially in today’s rapidly changing economic and technological environments. To help meet these challenges, our text approaches marketing strategy from both “traditional” and “cutting-edge” practices. We cover topics such as segmentation, creating a competitive advantage, marketing pro- gram development, and the implementation process with a solid grounding in traditional marketing, but also with an eye toward emerging practices. Lessons learned from the rise, fall, and reemergence of the dotcom sector, recent corporate scandals, and the most recent economic recession illustrate the importance of balancing the traditional and emerging practices of marketing strategy. Our text never loses sight of this balance.

Although our approach allows for the use of sophisticated research and decision- making processes, we have employed a practical perspective that permits marketing man- agers in any size organization to develop and implement a marketing plan. We have avoided esoteric, abstract, and highly academic material that does not relate to typical marketing strategy decisions in most organizations. The marketing plan framework that we utilize throughout the text has been used by a number of organizations to successfully plan their marketing strategies. Many companies report great success in using our approach partially due to the ease of communicating the plan to all functional areas of the business.

Target Audience Our text is relevant for a number of educational environments, including undergraduate, graduate, and corporate training courses. At the undergraduate level, our text is appro- priate for the capstone course or any upper-level integrating course such as “Marketing Management,” “Marketing Strategy,” or “Marketing Policy.” At this level, the text pro- vides an excellent framework to use with our included text-based cases, live-client cases, or a computer simulation. At the graduate level, our text is appropriate for courses ad- dressing strategic marketing planning, competitive marketing strategies, or as a supple- ment for any simulation-based course. A growing segment of the market, corporate training, can utilize our text when educating business professionals interested in develop- ing marketing plans of their own, or interpreting and implementing the plans of others.

Each of the twenty cases included in our text describes the strategic situations of real-world, identifiable organizations. Because these cases feature real situations, instruc- tors have the option of using the case material as published, or they may give students the opportunity to update the cases by conducting research to find the latest informa- tion. Many additional resources for students and instructors can be found at our text’s companion website, www.cengagebrain.com.

xviii Preface

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Key Features of the 6th Edition The key features of Marketing Strategy: Text and Cases, 6th Edition include:

• Revised and expanded coverage throughout the text of recent events in marketing practice by well-known global companies.

• A focus on the integration of the traditional marketing mix elements (product, price, distribution, and promotion) into a consistent marketing program. Consequently, the four separate marketing mix chapters have been condensed into a single chapter.

• A new chapter on Branding and Positioning (Chapter 7) that adds increased empha- sis on using every element of the marketing program to achieve branding and posi- tioning success.

• Five new cases written specifically for our text:

• Case 2, “Apple’s Winning Marketing Strategy,” focuses on Apple’s phenomenal rise to prominence through the use of masterful marketing, an entrepreneurial spirit, and “cool” branding.

• Case 9, “Chevrolet: 100 Years of Product Innovation,” looks at Chevrolet’s use of product innovation and branding to create practical, sporty, and affordable auto- motive products that compete with strong domestic and foreign manufacturers.

• Case 10, “Wyndham Worldwide Adopts a Stakeholder Orientation Marketing Strategy,” examines how Wyndham’s focus on stakeholder orientation has posi- tioned the company as a global brand that is synonymous with quality, ethical leadership, customer satisfaction, and sustainability.

• Case 13, “Zappos: Delivering Happiness,” explores the company’s unique busi- ness model and corporate culture, and how they influence its relationships with customers, employees, the environment, and its communities.

• Case 15, “Netflix Fights to Stay Ahead of a Rapidly Changing Market,” looks at how the dominant rent-by-mail and video streaming company bested its chief rival, Blockbuster, and how the company must prepare for an uncertain future as the DVD rental sector approaches the end of its life cycle.

• A complete revision of the twelve cases that have been carried over from the 5th edition of our text:

• Case 1, “USA Today: Innovation in an Evolving Industry,” explores how the na- tion’s largest daily newspaper has used continuous innovation to stay ahead of the technological and sociocultural shifts that threaten the very existence of the news- paper industry.

• Case 3, “Monsanto Balances the Interests of Multiple Stakeholders,” focuses on Monsanto’s shift from a chemical company to one focused on biotechnology, and the resulting stakeholder concerns about safety and the environment that come with such a change.

• Case 4, “New Belgium Brewing (A): Gaining Competitive Advantage Through Socially Responsible Marketing,” shows how a firm can use social responsibility and customer intimacy as key competitive advantages in the highly competitive craft beer market.

• Case 5, “New Belgium Brewing (B): Developing a Brand Personality,” explains how New Belgium expanded its branding and communication strategy after the development of its “Brand Manifesto.”

• Case 6, “Mattel Confronts Its Marketing Challenges,” looks at the threats that Mattel faces in its ongoing global operations, including changing customer pre- ferences, competition, product liability, and declining sales.

Preface xix

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• Case 7, “Mistine: Direct Selling in the Thai Cosmetics Market,” explores how Mistine’s value-based positioning moved the company to the top of the direct selling cosmetics market in Thailand.

• Case 8, “BP Struggles to Repair Its Tarnished Reputation” considers how BP’s growing reputation for sustainability was tarnished by the Gulf oil spill disaster.

• Case 11, “NASCAR: Can’t Keep a Good Brand Down,” looks at NASCAR’s marketing and branding successes and its newfound struggles to remain on top of the motorsports market and the #1 spectator sport in the U.S.

• Case 12, “IndyCar: Seeking a Return to Motorsports’ Fast Lane,” is an excellent companion to the NASCAR case. The case examines the reunification of U.S. open wheel racing and how the new IRL must reconnect with fans to improve its standing in the U.S. motorsports market.

• Case 14, “Sigma Marketing: Strategic Marketing Adaptation,” explores the in- novation and market adaptation of this small, family-owned business as it grew from a regional printing company to a global specialty advertising firm.

• Case 16, “Gillette: Why Innovation May Not Be Enough,” examines Gillette’s history of product and marketing innovation, and how past success may not be enough to maintain supremacy in the global razor market.

• Case 17, “IKEA Slowly Expands Its U.S. Market Presence,” discusses how IKEA’s strategy of operational excellence may stand in the way of further expansion into the U.S. furniture and home furnishings market.

• The inclusion of three new outside cases from the Ivey School of Business at the University of Western Ontario:

• Case 18, “Sushilicious: Standing Out in a Crowded Field,” examines the use of social media in the marketing campaign for a California sushi restaurant.

• Case 19, “Trouble Brews at Starbucks,” looks at how the company’s rapid expansion actually worked against its long-term brand positioning and equity.

• Case 20, “Groupon,” explores the rapid growth of the online coupon company, its business model, and whether its future growth could depend on finding a business partner to bring needed resources and capabilities to the table.

• Our complete case package provides up-to-date coverage of topics that are important and relevant to marketing practice in the 21st century. These topics include innova- tion, social responsibility, sustainability, global sourcing, technology, corporate affairs, and entrepreneurship.

• An updated set of Marketing Plan Worksheets, provided in the Appendix. The work- sheets reflect a concise approach to marketing plan development. However, the work- sheets are comprehensive in scope to help ensure that students and/or managers do not omit important issues in developing strategic marketing plans.

• A continued user-friendly writing style that covers essential points without heavy use of jargon. The text has also been reduced from 12 chapters to 10 chapters without a loss in coverage.

Instructor Resources The Instructor Resource materials for the 6th edition have been updated to match the new organization of the text. These materials are available via an Instructor’s Resource CD-ROM or online at the password-protected instructor’s resource website.

xx Preface

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These materials include:

• A revised PowerPoint® package, which incorporates lecture outlines and summary of key points, as well as select figures and tables from the text.

• An updated Instructor’s Manual, which includes the following:

• Chapter lecture outlines—These outlines for each chapter may be used to quickly review chapter content before class or to gain an overview of the entire text. The outlines can also be used by instructors to add their own personal notes and examples before class.

• Case teaching notes—Our teaching notes use a consistent format to help in- structors evaluate cases before use, or to assist instructors in leading case analy- sis and class discussion. Although there are many different approaches to using cases, our notes will help instructors identify key issues and alternatives as they relate to the content of the case and corresponding text chapters.

• An updated Test Bank. These examination materials include a variety of multiple choice, true/false, and discussion questions. The Test Bank questions vary in levels of difficulty, and meet a full range of tagging requirements, so that instructors can tailor their testing to meet their specific needs.

The updated instructor’s resource website supports the text and cases. In addition to the instructor resources already mentioned, instructors will find lecture outlines, case teaching notes, and sample syllabi for use in their classes.

Student Resources Our primary student resource is contained within the text. The Appendix includes a de- tailed set of marketing plan worksheets that assist students in developing marketing plans. The remaining student resources can be found online at our website:

• A downloadable Microsoft Word version of the Marketing Plan Worksheets found in the Appendix. The worksheets are designed so students can fill-in material and edit the worksheets outside of class.

• Example marketing plans to help illustrate the format and writing style used in cre- ating an actual marketing plan document.

• A downloadable Microsoft Word version of the Lessons from each chapter. This doc- ument provides a complete outline of each chapter so that students may add to and edit the lessons outside of class. Alternatively, the file can be used during class as a way to organize note taking.

• Online exercises for each chapter. These exercises allow students to practice the con- cepts learned in class.

• Online quizzes for each chapter. These quizzes help students prepare for course exams. • A tutorial on how to perform a case analysis. The tutorial provides a suggested way to

conduct cases analyses. Instructors may use this tutorial or provide one of their own.

Acknowledgements Throughout the development of this text, several extraordinary individuals provided their talent and expertise to make important contributions. A number of individuals have made many useful comments and recommendations as reviewers of this text. We appreciate the generous help of these reviewers:

Lynn Allendorf, University of Iowa

Dr. Fazal Ahmed, University of Pennsylvania

Preface xxi

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Julia Cronin-Gilmore, Bellevue University

A. Cemal Ekin, Providence College

Steven McClung, Mercer University

Joseph Ouellette, Bryant University

Jeffry Overby, Belmont University

Norman Alan Ross, Northern Arizona University

Kim Saxton, Indiana University

Herbert Sherman, Long Island University—Brooklyn Campus

George David Shows, Louisiana Tech University

Ziad Swaidan, University of Houston—Victoria

Uday Tate, Marshall University

Linda Wright, Longwood University

We also deeply appreciate the assistance of several individuals who played a major role in developing cases or other materials. Specifically, we thank the following individuals:

Timothy W. Aurand, Northern Illinois University

Harper Baird, University of New Mexico

Chandani Bhasin, University of New Mexico

Christin Copeland, Florida State University

Linda Ferrell, University of New Mexico

John Fraedrich, Southern Illinois University - Carbondale

Bernadette Gallegos, University of New Mexico

Jennifer Jackson, University of New Mexico

Kimberly Judson, Illinois State University

Cassondra Lopez, University of New Mexico

Kevin Mihaly, Florida State University

Kelsey Reddick, Florida State University

Don Roy, Middle Tennessee State University

Mike Sapit, Sigma Marketing

Jennifer Sawayda, University of New Mexico

Beau Shelton, University of New Mexico

Bryan Simpson, New Belgium Brewing Company

Debbie Thorne, Texas State University

Jacqueline Trent, University of New Mexico

Robyn Watson, Florida State University

Celeste Wood, Florida State University

xxii Preface

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We greatly appreciate the efforts of Jennifer Sawayda, University of New Mexico, for coordinating much of the new case development in this edition. The editorial, produc- tion, and marketing staff at Cengage cannot be thanked enough. With a deep since of appreciation, we thank Mike Roche and Sarah Blasco.

Finally, we express appreciation for the support and encouragement of our families, friends, and our colleagues at The University of New Mexico and The Florida State University.

Preface xxiii

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About the Authors

O.C. Ferrell, Ph.D.

The University of New Mexico

O.C. Ferrell (Ph.D., Louisiana State University) is University Distinguished Professor of Marketing and Bill Daniels Professor of Business Ethics at the Anderson School of Management at the University of New Mexico. He served as the Bill Daniels Distinguished Professor of Business Ethics at the University of Wyoming and was Chair of the Marketing Department at Colorado State University. Prior to his arrival at CSU, Dr. Ferrell was the Distinguished Professor of Marketing and Business Ethics at the University of Memphis. He has also served as a professor at the University of Tampa, Texas A&M University, Illi- nois State University, and Southern Illinois University. His MBA and BA degrees are from Florida State University.

Dr. Ferrell is past president of the Academic Council of the American Market- ing Association and former chair of the American Marketing Association Ethics Committee. Under his leadership, the committee developed the AMA Code of Ethics and the AMA Code of Ethics for Marketing on the Internet. He is a Society for Marketing Advances Fellow and the Vice President of Publications for the Academy of Marketing Science. He is a former member of the Board of Governors as a Distinguished Fellow for the Academy of Marketing Science. In addition, he received the first Innovative Educator award from the Marketing Management Association.

Dr. Ferrell has taught a wide variety of courses, including marketing strategy, principles of marketing, marketing ethics, international marketing, as well as most undergraduate courses in marketing. Annually, Dr. Ferrell teaches a graduate course in competitive marketing strategies at Thammasat University in Bangkok, Thailand.

Dr. Ferrell is the co-author of 20 books and more than 100 articles. His research is published in the Journal of Marketing Research, the Journal of Marketing, the Journal of Business Ethics, the Journal of Business Research, the Journal of the Academy of Market- ing Science, as well as other journals. His Marketing: Concepts and Strategies text, co-authored with Bill Pride, is one of the most widely adopted principles of marketing texts in the world. Furthermore, his Business Ethics: Decision Making and Cases text is the leading business ethics text.

Dr. Ferrell has served as an expert witness in many high-profile civil litigation cases related to marketing ethics. More recently he has assisted international corporations and worked with state regulatory agencies in modifying marketing programs to maintain compliance with both ethical and legal requirements. Currently, he is working with the National Association of State Boards of Accountancy to develop an ethical leadership certification for students. He has appeared on the NBC Today show and he has been quoted in national papers such as USA Today.

Dr. Ferrell and his wife Linda (also a faculty member at the University of New Mexico) live in Albuquerque. He enjoys golf, skiing, reading, and travel.

xxv

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Michael D. Hartline, Ph.D.

The Florida State University

Michael D. Hartline (Ph.D., The University of Memphis) is Associate Dean for Strategic Initiatives and Charles A. Bruning Professor of Business Administration in the College of Business at Florida State University, where he is responsible for external relations, exec- utive education, and strategic programs. Prior to joining the FSU faculty in 2001, Dr. Hartline was on faculty at the University of Arkansas at Little Rock, Louisiana State University, and Samford University. His MBA and B.S. degrees are from Jacksonville State University in Alabama.

Dr. Hartline primarily teaches graduate courses in Marketing Strategy and Corpo- rate Affairs Management, as well as undergraduate courses in Services Marketing. He has won many teaching and research awards and made many presentations to industry and academic audiences. Dr. Hartline has also served as a consultant to several for-profit and non-profit organizations in the areas of marketing plan development, market feasi- bility analysis, customer satisfaction measurement, customer service training, and pricing policy. He has also served on the executive committee of the Academy of Marketing Sci- ence, co-chaired two international conferences for the American Marketing Association, and has served on the editorial review boards of a number of leading marketing journals.

Dr. Hartline’s research addresses marketing implementation issues in service firms. Specifically, his work examines the role of customer-contact employees and workgroups in the effective delivery of quality service to customers. Dr. Hartline’s research appears in the Journal of Marketing, the Journal of Service Research, the Journal of Business Re- search, the Journal of Relationship Marketing, the Journal of Services Marketing, the Cor- nell Quarterly, the Journal of Strategic Marketing, the Journal of Business Ethics, and the Marketing Science Institute Working Paper Series.

Dr. Hartline and his wife Marsha live in Tallahassee with their daughters, Meghan, Madison, and Mallory. They have two dogs, Bella and Chief (both Japanese Chins), and a cat, Snickers. Dr. Hartline is a self-professed electronics and gadget enthusiast who en- joys music, reading, computers, travel, college football (Go Seminoles!), and being a dad.

xxvi About the Authors

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Marketing Strategy

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CHA P T E R 1 Marketing in Today’s Economy

Introduction As noted in the opening Beyond the Pages 1.1 story, competing in today’s economy means finding ways to break out of commodity status to meet customers’ needs better than competing firms. All organizations—both for-profit and nonprofit—require effective planning and a sound marketing strategy to do this effectively. Without these efforts, organizations would not be able to satisfy customers or meet the needs of other stakeholders. For example, having an effective marketing strategy allows Apple to develop popular products, such as the iPhone, iPad, and its MacBook line of notebook computers. Further, effective planning and strategy allows Cola-Cola to continue its leadership in soft drinks, make a key acquisition in its purchase of the Vitamin Water brand, all the while continuing its expansion into the lucrative Chinese market. These and other organizations use sound marketing strategy to leverage their strengths and capitalize on opportunities that exist in the market. Every organization—from your favorite local restaurant to giant multinational corporations; from city, state, and federal governments, to charities such as Habitat for Humanity and the American Red Cross—develops and implements marketing strategies.

How organizations plan, develop, and implement marketing strategies is the focus of this book. To achieve this focus, we provide a systematic process for developing customer-oriented marketing strategies and marketing plans that match an organization to its internal and external environments. Our approach focuses on real-world applications and practical methods of marketing planning, including the process of developing a marketing plan. The chapters of this book focus on the steps of this process. Our goal is to give the reader a deeper understanding of marketing planning, the ability to organize the vast amount of information needed to complete the planning process, and an actual feel for the development of marketing plans.

In this first chapter, we review some of the major challenges and opportunities that exist in planning marketing strategy in today’s economy. We also review the nature and scope of major marketing activities and decisions that occur throughout the planning process. Finally, we look at some of the major challenges involved in developing marketing strategy.

1

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B e y o n d t h e P a g e s 1 . 1

Thriving in Commodity Hell1

Have you noticed that regardless of the industry, most goods and services offered by competing com- panies are eerily the same? Most household appli- ances, such as refrigerators, washing machines, and stoves, offer the same basic features and come in white, beige, black, or stainless steel. Virtually all Android-based smartphones offer the same features at similar prices. Even airline flights from New York to Los Angeles are essentially the same. Everywhere you look, most companies offer the same basic pro- ducts to the same customer groups at roughly the same prices. This situation is referred to as “com- modity hell” and it’s a tough situation for most com- panies. Commoditization is everywhere and is the result of mature markets where goods and services lack any real means of differentiation. Unfortunately for companies, when customers begin to see all com- peting products as offering roughly the same bene- fits, price is the only thing that matters.

Commoditization is a consequence of mature industries where slowing innovation, extensive prod- uct assortment, excess supply, and frugal consumers force margins to the floor. Since firms have few com- petitive differences, they are unable to increase mar- gins. They must also spend a great deal on promotion to attract new customers. This situation makes firms more vulnerable to the entry of new competitors. Consider the airline industry. Notwithstanding a few minor differences, most air travelers see all airlines as being roughly the same. They all get passengers from Point A to Point B while offering the same basic customer services. This makes price the driving force in consumer decision-making and allows dis- count airlines such as Southwest and Jet Blue to steal customers away from traditional full-service car- riers. This same precarious situation exists in a broad range of industries including telephone service, hotels, packaged goods, automobiles, household appliances, and retailing.

As you might expect, low price leaders can do quite well in commoditized markets. Southwest, for example, was profitable for over 33 years until the economic recession hit the industry hard in 2008.

Today, Southwest is expanding routes by acquiring rival companies (such as AirTran). The company also stands apart from others with its innovative “No Bag Fees” promotional campaign. Other firms, however, avoid commodity status through the most basic of marketing tactics: brand building. Here, firms break free from commodity status by developing a distinc- tive brand position that separates them and their pro- ducts from the competition. Firms that come to mind are Apple, Coca-Cola, and Chick-fil-A. By offering compelling reasons for consumers to buy products, brand building allows firms to increase margins. Apple, in particular, enjoys the highest profit margins of any firm in the technology sector.

Starbucks is another case in point. Starbucks clearly sells one of the most commoditized, ubiqui- tous products of all time: coffee. Starbucks Chair- man Howard Schultz, however, does not accept that his firm is in the coffee business. Instead, Schultz sees Starbucks as a “third place” to hang out (with home and work being number 1 and num- ber 2, respectively). Through this mentality, Star- bucks offers its customers much more than coffee, including wireless Internet access, music, food, and relaxation. Starbucks has continued its brand- building activities by introducing breakfast combos, an instant coffee (Via), and the continued push of its Seattle’s Best brand into restaurants, offices, hospi- tals, and vending machines.

Getting out of commodity hell is not an easy feat. To do so, firms must give consumers a compelling reason to buy their products over competing pro- ducts. Ultimately, winning the commodity game is all about innovation. Consider the firms that top BusinessWeek’s list of the World’s Most Innovative Companies for 2011 (in order): Apple, Twitter, Facebook, Nissan, Groupon, and Google. Each of these companies offers innovative products, processes, or experiences that stand apart from the competition; yet each competes in mature industries known for commoditiza- tion. These companies prove that innovation and good marketing strategy are the antidotes for commodity hell.

2 Part 1: Setting the Stage for Marketing Strategy

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The Challenges and Opportunities of Marketing in Today’s Economy Traditional ideas about marketing strategy began to change forever during the mid 1990s. Advances in computer, communication, and information technology forever changed the world and the ways that marketers reach potential customers. The collapse of the dot-com bubble in the late 1990s was followed by a historic collapse of the world- wide economy in 2008. The powerhouse companies of the past have weakened and lost relevance in an economy marked by constant change and consumer skepticism. Consider these fundamental changes to marketing and business practice, as well as our own per- sonal buying behavior:

• Power Shift to Customers. Perhaps the single most important change during the last two decades is the shift in power from marketers to consumers. Rather than businesses having the ability to manipulate customers via technology, customers often manipulate businesses because of their access to information, the ability to comparison shop, and the control they have over spending. Individual consumers and business customers can compare prices and product specifications in a matter of minutes. Using a smartphone and the Amazon app, customers can walk Target’s aisles, scan bar codes to check prices on Amazon, and order items for two-day delivery while in the store. In other cases, customers are able to set their own prices, such as purchasing airline tickets at Priceline.com. Customers can now interact with one another, as merchants such as Amazon and eBay allow customers to share opinions on product quality and supplier reliability. As power continues to shift to customers, marketers have little choice but to ensure that their products are unique and of high quality, thereby giving customers a reason to purchase their products and remain loyal to them.

• Massive Increase in Product Selection. The variety and assortment of goods and services offered for sale on the Internet and in traditional stores is staggering. In grocery stores alone, customers are faced with countless options in the cereal and soft drink aisles. The growth in online retailing now allows customers to purchase a car from CarsDirect, handmade, exotic gifts from Mojo Tree (www.mojotree.co.uk), or a

Consumers can instantly find competitors’ prices while in the store.

© Om

ni Te rra

Im ag es

Chapter 1: Marketing in Today’s Economy 3

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http://www.mojotree.co.uk
case of their favorite wine from Wine.com. Increased transaction efficiency (e.g., 24/7 access, delivery to home or office) allows customers to fulfill their needs more easily and conveniently than ever before. Furthermore, the vast amounts of information available online has changed the way we communicate, read the news, and entertain ourselves. Customers can now have the news delivered to them automatically via smartphone apps, such as Flipboard, that pull from hundreds of sources. This radical increase in product selection and availability has exposed marketers to inroads by competitors from every corner of the globe.

• Audience and Media Fragmentation. Changes in media usage and the availability of new media outlets have forced marketers to rethink the way they communicate with potential customers. Since the advent of cable television in the 1970s, mass media audiences have become increasingly fragmented. Television audiences, for example, shifted from the big three networks (ABC, CBS, NBC) and began watching programming on ESPN, HGTV, Nickelodeon, and the Discovery Channel. When the growth of the Internet, satellite radio, and mobile communication is added to this mix, it becomes increasingly difficult for marketers to reach a true mass audience. Media audiences have become fragmented due to (1) the sheer number of media choices we have available today, and (2) the limited time we have to devote to any one medium. Today, customers increasingly get information and news from Facebook and Twitter rather than the New York Times or CBS. They spend a growing amount of time online or interacting with handheld devices than they do reading magazines or watching television. As shown in Exhibit 1.1, consumer usage of traditional media is declining, while the usage of Internet and mobile media is on the rise. However, despite the challenge of reaching mass audiences today, media fragmentation does have a big advantage: It is easier to reach small, highly targeted audiences who are more receptive to specific marketing messages.

• Changing Value Propositions. Even before “The Great Recession” began in 2008, consumers and business buyers were already facing increasing costs associated with energy, gasoline, food, and other essentials. Then, as the economy weakened, buyers were forced to tighten their belts and look for other ways to lower expenses. This trend actually began after the dot-com collapse as consumers saw for the first time that they could bypass some types of firms and do things for themselves. For example, travel agents and real estate agents have been hit hard by e-commerce. Many customers now turn to Travelocity and Expedia, rather than travel agents, for

EXH I B I T 1 . 1 Change in Daily Media Usage by U.S. Adults, 2008–2011

Percent Change (%)

Television and Video 7.9

Internet 21.9

Radio -7.8

Mobile 103.1

Newspapers -31.8

Magazines -28.0

Other 0.0

Source: Media Literacy Clearinghouse, “Media Use Statistics,” http://www.frankwbaker.com/mediause.htm, accessed July 18, 2012.

4 Part 1: Setting the Stage for Marketing Strategy

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http://www.frankwbaker.com/mediause.htm
assistance in booking airline tickets, cruises, or hotel stays. A similar change has taken place in the real estate industry as buyers are moving their house hunting online, while sellers are increasingly taking the “for sale by owner” route. Consequently, many marketers learned a tough lesson: In situations where customers see goods and services as commodities, they will turn to the most convenient, least-expensive alternative.