Marketing real people real choices pdf

Pricing In Marketing

MARKETING 7E

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realChoices People

MARKETING 7E

Michael R. SOLOMON SAINT JOSEPH’S UNIVERSITY

Greg W. MARSHALL ROLLINS COLLEGE

Elnora W. STUART THE UNIVERSITY OF SOUTH CAROLINA

UPSTATE

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Library of Congress Cataloging-in-Publication Data

Solomon, Michael R. Marketing : real people, real choices / Michael R. Solomon, Greg W. Marshall, Elnora W. Stuart. – 7th ed.

p. cm. ISBN-13: 978-0-13-217684-2 ISBN-10: 0-13-217684-X 1. Marketing--Vocational guidance. I. Marshall, Greg W. II. Stuart, Elnora W. III. Title. HF5415.35.S65 2011 658.8--dc22

2010051148

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ISBN 10: 0-13-217684-X ISBN 13: 978-0-13-217684-2

To Gail, Amanda, Zachary, Alex, Orly, Rose, and Munchy—my favorite market segment

—M.S.

To Patti and Justin

—G.M.

To Sonny, Patrick, Gabriela, and Marge

—E.S.

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Brief Contents Preface xvii

PART ONE Make Marketing Value Decisions 2

CHAPTER 1 Welcome to the World of Marketing: Create and Deliver Value 4

CHAPTER 2 Strategic Market Planning: Take the Big Picture 38

CHAPTER 3 Thrive in the Marketing Environment: The World Is Flat 66

PART TWO Understand Consumers’ Value Needs 98

CHAPTER 4 Marketing Research: Gather, Analyze, and Use Information 100

CHAPTER 5 Consumer Behavior: How and Why We Buy 128

CHAPTER 6 Business-to-Business Markets: How and Why Organizations Buy 156

CHAPTER 7 Sharpen the Focus: Target Marketing Strategies and Customer Relationship Management 182

PART THREE Create the Value Proposition 214

CHAPTER 8 Create the Product 216

CHAPTER 9 Manage the Product 244

CHAPTER 10 Services and Other Intangibles: Marketing the Product That Isn’t There 272

CHAPTER 11 Price the Product 296

PART FOUR Communicate the Value Proposition 346

CHAPTER 12 One-to-One to Many-to-Many: Traditional and New Media 348

CHAPTER 13 One-to-Many: Advertising, Public Relations, and Consumer Sales Promotion 378

CHAPTER 14 One-to-One: Trade Promotion, Direct Marketing, and Personal Selling 418

PART FIVE Deliver the Value Proposition 444

CHAPTER 15 Deliver Value through Supply Chain Management, Channels of Distribution, and Logistics 446

CHAPTER 16 Retailing: Bricks and Clicks 478

Appendix Marketing Plan: The S&S Smoothie Company 510

Notes 523

Glossary 540

Index 556

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ix

Contents Preface xvii

PART ONE Make Marketing Value Decisions 2

CHAPTER 1: Welcome to the World of Marketing: Create and Deliver Value....................4

Real People, Real Choices: Here’s my problem. . . 5

WELCOME TO BRAND YOU 6

THE WHO AND WHERE OF MARKETING 7

Marketing’s Role in the Firm: Cross-Functional Relationships 8

Where Do You Fit In? Careers in Marketing 8 MARKETING CREATES VALUE 8

Marketing Meets Needs 8 Marketing Creates Utility 11 Marketing and Exchange 12

WHEN DID MARKETING BEGIN? THE EVOLUTION OF A CONCEPT 13

The Production Era 13 The Sales Era 13 The Relationship Era 15 The Triple Bottom Line Orientation 15

WHAT CAN WE MARKET? 18

Lasers to Lady Gaga 18 Consumer Goods and Services 19 Business-to-Business Goods and Services 19 Not-for-Profit Marketing 20 Idea, Place, and People Marketing 20

RIPPED FROM THE HEADLINES: Ethical/Sustainable Decisions in the Real World 20 THE VALUE OF MARKETING AND THE MARKETING OF VALUE 21

Value from the Customer’s Perspective 22 Value from the Seller’s Perspective 22 Provide Value Through Competitive Advantage 23 Add Value Through the Value Chain 24 How Do We Know What’s Valuable? 25 Consumer-Generated Value: From Audience

to Community 25 Value from Society’s Perspective 27 Is Marketing Evil? 28 The Dark Side of Marketing 28

MARKETING AS A PROCESS 30

Marketing Planning 30 Marketing’s Tools: The Marketing Mix 31

Real People, Real Choices: Here’s my choice... 33

Study Map 33

Objective Summary 33

Key Terms 33

Chapter Questions and Activities 36

Marketing in Action Case: Real Choices at Colgate-Palmolive 37

CHAPTER 2: Strategic Market Planning: Take the Big Picture ..........................................38

Real People, Real Choices: Here’s my problem. . . 39

BUSINESS PLANNING: COMPOSE THE BIG PICTURE 40

Ethics Is Up Front in Marketing Planning 41 RIPPED FROM THE HEADLINES: Ethical/Sustainable Decisions in the Real World 42 STRATEGIC PLANNING: FRAME THE PICTURE 46

Step 1: Define the Mission 46 Step 2: Evaluate the Internal and External Environment 47 Step 3: Set Organizational or SBU Objectives 48 Step 4: Establish the Business Portfolio 49 Step 5: Develop Growth Strategies 51

MARKETING PLANNING: SELECT THE CAMERA SETTING 53

Step 1: Perform a Situation Analysis 53 Step 2: Set Marketing Objectives 54 Step 3: Develop Marketing Strategies 54 Step 4: Implement and Control the Marketing Plan 55 Action Plans 58 Make Your Life Easier! Use the Marketing Planning

Template 60 Operational Planning: Day-to-Day Execution of Marketing

Plans 60

Real People, Real Choices: Here’s my choice. . . 61

Study Map 62

Objective Summary 62

Key Terms 62

Chapter Questions and Activities 63

Marketing in Action Case: Real Choices for the Apple iPhone 64

CHAPTER 3: Thrive in the Marketing Environment: The World Is Flat ..........................66

Real People, Real Choices: Here’s my problem. . . 67

DECISIONS, DECISIONS 68

x | C O N T E N T S

TAKE A BOW: MARKETING ON THE GLOBAL STAGE 68

World Trade 69 Should We Go Global? 70

UNDERSTAND INTERNATIONAL, REGIONAL, AND COUNTRY REGULATIONS 71

Initiatives in International Cooperation and Regulation 72 Economic Communities 72

ANALYZE THE MARKETING ENVIRONMENT 73

The Economic Environment 74 The Competitive Environment 77 The Technological Environment 79 The Political and Legal Environment 79 The Sociocultural Environment 83

IS THE WORLD FLAT OR NOT? HOW “GLOBAL” SHOULD A GLOBAL MARKETING STRATEGY BE? 87

Company-Level Decisions: The Market Entry Strategy 87 RIPPED FROM THE HEADLINES: Ethical/Sustainable Decisions in the Real World 87

Product-Level Decisions: The Marketing Mix Strategy 90

Real People, Real Choices: Here’s my choice. . . 93

Study Map 93

Objective Summary 93

Key Terms 93

Chapter Questions and Activities 96

Marketing in Action Case: Real Choices at Mattel 97

PART TWO Understand Consumers’ Value Needs 98

CHAPTER 4: Marketing Research: Gather, Analyze, and Use Information ..........................100

Real People, Real Choices: Here’s my problem. . . 101

KNOWLEDGE IS POWER 102

The Marketing Information System 102 RIPPED FROM THE HEADLINES: Ethical/Sustainable Decisions in the Real World 103

The Marketing Decision Support System 106 SEARCHING FOR GOLD: DATA MINING 107

STEPS IN THE MARKETING RESEARCH PROCESS 108

Step 1: Define the Research Problem 108 Step 2: Determine the Research Design 109 Step 3: Choose the Method to Collect Primary Data 113 Step 4: Design the Sample 119 Step 5: Collect the Data 120 Step 6: Analyze and Interpret the Data 121 Step 7: Prepare the Research Report 122

Real People, Real Choices: Here’s my choice. . . 123

Study Map 124

Objective Summary 124

Key Terms 124

Chapter Questions and Activities 126

Marketing in Action Case: Real Choices at IMMI 127

CHAPTER 5: Consumer Behavior: How and Why We Buy ....................................................128

Real People, Real Choices: Here’s my problem. . . 129

DECISIONS, DECISIONS 130

THE CONSUMER DECISION-MAKING PROCESS 130

Not All Decisions Are the Same 131 Step 1: Problem Recognition 133 Step 2: Information Search 134 Step 3: Evaluation of Alternatives 135 Step 4: Product Choice 136

RIPPED FROM THE HEADLINES: Ethical/Sustainable Decisions in the Real World 136

Step 5: Postpurchase Evaluation 137 INTERNAL INFLUENCES ON CONSUMERS’ DECISIONS 138

Perception 138 Motivation 140 Learning 140 Attitudes 142 Personality and the Self: Are You What You Buy? 143 Age 143 Lifestyle 144

SITUATIONAL AND SOCIAL INFLUENCES ON CONSUMERS’ DECISIONS 145

Situational Influences 145 Social Influences on Consumers’ Decisions 146

Real People, Real Choices: Here’s my choice. . . 150

Study Map 151

Objective Summary 151

Key Terms 151

Chapter Questions and Activities 153

Marketing in Action Case: Real Choices at Lexus 155

CHAPTER 6: Business-to-Business Markets: How and Why Organizations Buy ....156

Real People, Real Choices: Here’s my problem. . . 157

BUSINESS MARKETS: BUYING AND SELLING WHEN THE CUSTOMER IS ANOTHER FIRM 158

Factors That Make a Difference in Business Markets 159 Size of Purchases 161 B2B Demand 161 Types of Business-to-Business Customers 163

C O N T E N T S | xi

BUSINESS-TO-BUSINESS E-COMMERCE AND SOCIAL MEDIA 165

Intranets, Extranets, and Private Exchanges 165 The Dark Side of B2B E-Commerce 166 B2B and Social Media 166

BUSINESS BUYING SITUATIONS AND THE BUSINESS BUYING DECISION PROCESS 168

The Buyclass Framework 168 Professional Buyers and Buying Centers 170 The Business Buying Decision Process 171

RIPPED FROM THE HEADLINES: Ethical/Sustainable Decisions in the Real World 174

Real People, Real Choices: Here’s my choice. . . 177

Study Map 178

Objective Summary 178

Key Terms 178

Chapter Questions and Activities 179

Marketing in Action Case: Real Choices at The Filter 180

CHAPTER 7: Sharpen the Focus: Target Marketing Strategies and Customer Relationship Management....................................................182

Real People, Real Choices: Here’s my problem. . . 183

TARGET MARKETING STRATEGY: SELECT AND ENTER A MARKET 184

STEP 1: SEGMENTATION 185

Segment Consumer Markets 185 Segment by Psychographics 194 Segment by Behavior 196 Segment Business-to-Business Markets 197

STEP 2: TARGETING 198

Targeting in Three Steps 198 STEP 3: POSITIONING 201

RIPPED FROM THE HEADLINES: Ethical/Sustainable Decisions in the Real World 201

Steps in Positioning 202 Bring a Product to Life: The Brand Personality 203

CUSTOMER RELATIONSHIP MANAGEMENT (CRM): TOWARD A SEGMENT OF ONE 204

CRM: A New Perspective on an Old Problem 205 Characteristics of CRM 206

Real People, Real Choices: Here’s my choice. . . 209

Study Map 210

Objective Summary 210

Key Terms 210

Chapter Questions and Activities 212

Choices: What Do You Think? 212

Marketing in Action Case: Real Choices at Subaru 213

PART THREE Create the Value Proposition 214

CHAPTER 8: Create the Product ............216 Real People, Real Choices: Here’s my problem. . . 217

BUILD A BETTER MOUSETRAP—AND ADD VALUE 218

Layers of the Product Concept 219 HOW MARKETERS CLASSIFY PRODUCTS 221

How Long Do Products Last? 221 How Do Consumers Buy Products? 222 How Do Businesses Buy Products? 224

“NEW AND IMPROVED!” THE PROCESS OF INNOVATION 225

Types of Innovations 225 Continuous Innovations 226 Dynamically Continuous Innovations 226 Discontinuous Innovations 227 How Do We Measure Innovation? 227

NEW PRODUCT DEVELOPMENT 228

Phase 1: Idea Generation 228 Phase 2: Product Concept Development

and Screening 228 Phase 3: Marketing Strategy Development 229 Phase 4: Business Analysis 229 Phase 5: Technical Development 230 Phase 6: Test Marketing 231 Phase 7: Commercialization 232

ADOPTION AND DIFFUSION OF NEW PRODUCTS 233

RIPPED FROM THE HEADLINES: Ethical/Sustainable Decisions in the Real World 233

Stages in Consumers’ Adoption of a New Product 234 Innovator Categories 236 Product Factors That Affect the Rate of Adoption 238

Real People, Real Choices: Here’s my choice. . . 239

Study Map 240

Objective Summary 240

Key Terms 240

Chapter Questions and Activities 242

Marketing in Action Case: Real Choices at KFC 243

CHAPTER 9: Manage the Product ..........244 Real People, Real Choices: Here’s my problem. . . 245

PRODUCT PLANNING: USE PRODUCT OBJECTIVES TO DECIDE ON A PRODUCT STRATEGY 246

Objectives and Strategies for Individual Products 247 Objectives and Strategies for Multiple Products 248 Product Mix Strategies 249

xii | C O N T E N T S

Quality as a Product Objective: The Science of TQM 250 Quality Guidelines 250

MARKETING THROUGHOUT THE PRODUCT LIFE CYCLE 252

The Introduction Stage 252 The Growth Stage 254 The Maturity Stage 254 The Decline Stage 254

CREATE PRODUCT IDENTITY: BRANDING DECISIONS 255

What’s in a Name (or a Symbol)? 255 Why Brands Matter 257 Branding Strategies 259 Individual Brands versus Family Brands 260 National and Store Brands 260 Generic Brands 261 Licensing 261 Cobranding 261 Brand Metrics 262

CREATE PRODUCT IDENTITY: THE PACKAGE AND LABEL 262

What Packages Do 263 Design Effective Packaging 264 Labeling Regulations 265

RIPPED FROM THE HEADLINES: Ethical/Sustainable Decisions in the Real World 265 ORGANIZE FOR EFFECTIVE PRODUCT MANAGEMENT 266

Manage Existing Products 266 Brand Managers 266 Product Category Managers 266 Market Managers 267 Organize for New-Product Development 267

Real People, Real Choices: Here’s my choice. . . 267

Study Map 268

Objective Summary 268

Key Terms 268

Chapter Questions and Activities 270

Marketing in Action Case: Real Choices at Starbucks 271

CHAPTER 10: Services and Other Intangibles: Marketing the Product That Isn’t There ..............................................................272

Real People, Real Choices: Here’s my problem. . . 273

MARKETING WHAT ISN’T THERE 274

What Is a Service? 274 Characteristics of Services 274 The Service Encounter 277 How We Classify Services? 278 Core and Augmented Services 279

Physical Elements of the Service Encounter: Servicescapes and Other Tangibles 280

RIPPED FROM THE HEADLINES: Ethical/Sustainable Decisions in the Real World 280 HOW WE PROVIDE QUALITY SERVICE 281

Service Quality Attributes 282 How We Measure Service Quality 283 Strategic Issues When We Deliver Service

Quality 285 MARKETING PEOPLE, PLACES, AND IDEAS 286

Marketing People 286 Marketing Places 288 Marketing Ideas 289 The Future of Services 289

Real People, Real Choices: Here’s my choice. . . 291

Study Map 292

Objective Summary 292

Key Terms 292

Chapter Questions and Activities 294

Marketing in Action Case: Real Choices at Clear & SIMPLE™ 295

CHAPTER 11: Price the Product ............296 Real People, Real Choices: Here’s My problem. . . 297

“YES, BUT WHAT DOES IT COST?” 298

What Is Price? 298 Step 1: Develop Pricing Objectives 300

COSTS, DEMAND, REVENUE, AND THE PRICING ENVIRONMENT 302

Step 2: Estimate Demand 302 Step 3: Determine Costs 307 Step 4: Evaluate the Pricing Environment 312

PRICING THE PRODUCT: ESTABLISHING STRATEGIES AND TACTICS 316

Step 5: Choose a Pricing Strategy 316 Step 6: Develop Pricing Tactics 320

PRICING AND ELECTRONIC COMMERCE 323

Dynamic Pricing Strategies 323 Online Auctions 323 Freenomics: What If We Just Give It Away? 323 Pricing Advantages for Online Shoppers 324

PSYCHOLOGICAL, LEGAL, AND ETHICAL ASPECTS OF PRICING 325

Psychological Issues in Setting Prices 325 Psychological Pricing Strategies 326 Legal and Ethical Considerations in B2C Pricing 327 Legal Issues in B2B Pricing 328

RIPPED FROM THE HEADLINES: Ethical/Sustainable Decisions in the Real World 329

C O N T E N T S | xiii

Real People, Real Choices: Here’s my choice. . . 330

Study Map 331

Objective Summary 331

Key Terms 331

Chapter Questions and Activities 334

Marketing in Action Case: Real Choices at Amazon 335

Marketing Math ..................................................................336 INCOME STATEMENT AND BALANCE SHEET 336

IMPORTANT FINANCIAL PERFORMANCE RATIOS 339

Operating Ratios 340 INVENTORY TURNOVER RATE 340

RETURN ON INVESTMENT 341

PRICE ELASTICITY 342

COST-PLUS PRICING 343

Markup on Cost 343 Markup on Selling Price 343

PART FOUR Communicate the Value Proposition 346

CHAPTER 12: One-to-One to Many-to- Many: Traditional and New Media....................348

Real People, Real Choices: Here’s My problem. . . 349

THE TRADITIONAL COMMUNICATION MODEL: ONE-TO-MANY 350

The Communication Model 352 The Traditional Promotion Mix 355

THE UPDATED COMMUNICATION MODEL: MANY-TO-MANY 358

Buzz Building 359 RIPPED FROM THE HEADLINES: Ethical/Sustainable Decisions in the Real World 360

New Social Media 362 PROMOTIONAL PLANNING IN A WEB 2.0 WORLD 366

Step 1. Identify the Target Audience(s) 366 Step 2. Establish the Communication Objectives 367 Step 3: Determine and Allocate the Marketing

Communication Budget 368 Step 4: Design the Promotion Mix 371 Step 5: Evaluate the Effectiveness of the Communication

Program 372 Multichannel Promotional Strategies 372

Real People, Real Choices: Here’s my choice... 373

Study Map 374 Objective Summary 374 Key Terms 374 Chapter Questions and Activities 376 Marketing in Action Case: Real Choices American Express 377

CHAPTER 13: One-to-Many: Advertising, Public Relations, and Consumer Sales Promotion ........................................................378

Real People, Real Choices: Here is My problem. . . 379

ADVERTISING: THE IMAGE OF MARKETING 380

Types of Advertising 381 Who Creates Advertising? 382 User-Generated Advertising Content: Do-it-Yourself

Advertising, and Crowdsourcing 383 Ethical Issues in Advertising 384

RIPPED FROM THE HEADLINES: Ethical/Sustainable Decisions in the Real World 385 DEVELOP THE ADVERTISING CAMPAIGN 386

Step 1: Understand the Target Audience 386 Step 2: Establish Message and Budget Objectives 387 Step 3: Create the Ads 387 Step 4: Pretest What the Ads Will Say 391 Step 5: Choose the Media Type(s) and Media Schedule 392 Step 6: Evaluate the Advertising 401

PUBLIC RELATIONS 402

Plan a Public Relations Campaign 403 Public Relations Objectives 404 Public Relations Tactics 406

SALES PROMOTION 408

Sales Promotion Directed toward Consumers 408

Real People, Real Choices: Here’s my choice. . . 412

Study Map 412

Objective Summary 412

Key Terms 412

Chapter Questions and Activities 415

Marketing in Action Case: Real Choices at JetBlue 417

CHAPTER 14: One-to-One: Trade Promotion, Direct Marketing, and Personal Selling..............................................................418

Real People, Real Choices: Here’s My problem. . . 419

TRADE SALES PROMOTION: TARGETING THE B2B CUSTOMER 420

Discount Promotions 421 Sales Promotion Designed to Increase Industry

Visibility 422 DIRECT MARKETING 423

Mail Order 423 Direct Mail 424 Telemarketing 425 Direct-Response Advertising 425 M-Commerce 426

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RIPPED FROM THE HEADLINES: Ethical/Sustainable Decisions in the Real World 426 PERSONAL SELLING: ADDING THE PERSONAL TOUCH TO THE PROMOTION MIX 427

The Role of Personal Selling in the Marketing Mix 427 Technology and Personal Selling 429

THE LANDSCAPE OF MODERN PERSONAL SELLING 431

Types of Sales Jobs 431 Two Approaches to Personal Selling 432

THE CREATIVE SELLING PROCESS 433

Step 1: Prospect and Qualify 433 Step 2: Preapproach 434 Step 3: Approach 435 Step 4: Sales Presentation 435 Step 5: Handle Objections 435 Step 6: Close the Sale 435 Step 7: Follow-up 436

SALES MANAGEMENT 436

Set Sales Force Objectives 436 Create a Sales Force Strategy 437 Recruit, Train, and Reward the Sales Force 437 Evaluate the Sales Force 438

Real People, Real Choices: Here’s my choice. . . 439

Study Map 440

Objective Summary 440

Key Terms 440

Chapter Questions and Activities 442

Marketing in Action Case: Real Choices at Frito-Lay 443

PART FIVE Deliver the Value Proposition 444

CHAPTER 15: Deliver Value through Supply Chain Management, Channels of Distribution, and Logistics ..................................................446

Real People, Real Choices: Here’s my problem . . . 447

PLACE: THE FINAL FRONTIER 448

Supply Chain Management 449 DISTRIBUTION CHANNELS: GET IT THERE 450

Functions of Distribution Channels 451 The Internet in the Distribution Channel 452

WHOLESALING INTERMEDIARIES 453

Independent Intermediaries 454 Merchandise Agents or Brokers 456 Manufacturer-Owned Intermediaries 456

TYPES OF DISTRIBUTION CHANNELS 457

Consumer Channels 457 B2B Channels 460 Dual and Hybrid Distribution Systems 460 Distribution Channels and the Marketing Mix 460 Ethics in the Distribution Channel 461

PLAN A CHANNEL STRATEGY 461

Step 1: Develop Distribution Objectives 462 Step 2: Evaluate Internal and External Environmental

Influences 462 Step 3: Choose a Distribution Strategy 462 Intensive, Exclusive, or Selective Distribution? 464 Step 4: Develop Distribution Tactics 465

RIPPED FROM THE HEADLINES: Ethical/Sustainable Decisions in the Real World 466 LOGISTICS: IMPLEMENT THE SUPPLY CHAIN 467

The Lowdown on Logistics 468 Inventory Control: JIT, RFID, and Fast Fashion 471 Supply Chain Metrics 472

Real People, Real Choices: Here’s my choice. . . 473

Study Map 474

Objective Summary 474

Key Terms 474

Chapter Questions and Activities 476

Marketing in Action Case: Real Choices at Walmart 477

CHAPTER 16: Retailing: Bricks and Clicks........................................................478

Real People, Real Choices: Here’s my problem. . . 479

RETAILING: SPECIAL DELIVERY 480

Retailing: A Mixed (Shopping) Bag 480 The Evolution of Retailing 481 The Evolution Continues: What’s “In Store”

for the Future? 484 Ethical Problems in Retailing 486

FROM MOM-AND-POP TO SUPER WALMART: HOW MARKETERS CLASSIFY RETAIL STORES 487

Classify Retailers by What They Sell 487 RIPPED FROM THE HEADLINES: Ethical/Sustainable Decisions in the Real World 487

Classify Retailers by Level of Service 488 Classify Retailers by Merchandise Selection 488 Major Types of Retailers 489

NONSTORE RETAILING 493

Direct Selling 493 Automatic Vending 494 B2C E-Commerce 495

DEVELOP A STORE POSITIONING STRATEGY: RETAILING AS THEATER 498

Store Image 499 Build the Theater: Store Location 502

Real People, Real Choices: Here’s my choice. . . 504

Study Map 505

Objective Summary 505

Key Terms 505

C O N T E N T S | xv

Chapter Questions and Activities 507

Marketing in Action Case: Real Choices at IKEA 509

Appendix Marketing Plan: The S&S Smoothie Company ..........................................................................510

NOTES 523

GLOSSARY 540

INDEX 556

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xvii

Preface WHAT’S NEW IN THE 7TH EDITION? What’s new in the 7th edition is what’s new in marketing; more on metrics, a rethinking of advertising and promotions, and even stronger links to the real world of marketing by showing how concepts are linked with marketing planning.

Here’s just a sample of what we changed.

Greater focus on marketing metrics: • Specific exercises in every chapter and revised pedagogical material that includes fo-

cused in-class and homework activities and research that encourage improved critical thinking and decision-making skills.

Rethinking how companies are approaching advertising and promotion: • Major revision and recasting of the entire promotion/marketing communication series of

chapters (13, 14, 15) around messaging-to-many versus messaging-to-one models. In- cludes heightened attention to social networking as a marketing communication option of increasing importance. Covers emerging topics such as geospatial platforms, user- generated content (UCG), augmented reality, owned/earned/paid media, multichannel strategies.

Linking marketing planning with concepts: • The addition of Part Openers that add value in two ways: (1) provide you with a brief

overview of the key learning to come within the part chapters, and (2) link those learn- ing elements to application in a threaded example marketing plan, with the suggestion “You can do it too”—leading readers to mymarketinglab and the opportunity to develop a semester marketing plan project assignment.

Marketing Executive Advisory Panel: • We pride ourselves on our inclusion of cutting-edge, industry-relevant material in

each new edition. In the 7th edition we’ve taken the extra step of reaching out to ac- tual executives to be sure we’re covering what you need to learn. Our Marketing Ex- ecutive Advisory Panel is composed of industry leaders who have a handle on what the practice of marketing will probably look like when you graduate in a few years. We’ve asked these individuals to tell us what they believe students need to know— and to share with us what frustrates them about what current college graduates or new hires don’t know. Our panel’s feedback helped to shape the new content you will see in this edition.

And more! • New boxed features on The Cutting Edge trends in technology in every chapter. • Completely updated and integrated “figures” program for every chapter, with the fig-

ures tied to specific chapter objectives as a way to visually illustrate the main takeaways from each chapter. For your convenience, figures are labeled as either Snapshot or

Process, and the icons you see here appear in the text references to the figures.

Features of the 7th Edition of Real People, Real Choices Meet Real Marketers Many of the “Real People, Real Choices” vignettes are new to this edition, featuring a vari- ety of decision makers, from CEOs to brand managers. Here is just a sample of the marketers we feature:

• Joe Kennedy, Pandora

• Jay Minkoff, First Flavor

• Ryan Garton, Discover

• Jim Multari, Sprout Networks

• David Clark, General Mills

• Mike Monello, Campfire

• Mark Brownstein, Brownstein Group

• Heather Mayo, Sam’s Club

• Stan Clark, Eskimo Joe’s

Ethics and Sustainability in Marketing Because the role of ethics and sustainability in business and in marketing is so important, we focus on these topics not just in a single chapter but in EVERY CHAPTER of the book. These “Ripped from the Headlines” boxes feature real-life examples of ethical and sustain- able decisions marketers are faced with on a day-to-day basis.

Cutting-Edge Technology With technology evolving at a rapid-fire pace, it’s now more important than ever for today’s marketers to stay on the cutting edge of the latest technological developments. Viral mar- keting campaigns are just the tip of the iceberg! From Cargoshell’s innovative sustainable shipping containers to virtual worlds accessed via a pair of Adidas sneakers, “The Cutting Edge” boxes feature the most current technological advances and explain how companies are using them to creatively get their messages out to consumers.

An Easy-to-Follow Marketing Plan Template Marketing: Real People, Real Choices, 7th edition includes a tear-out template of a marketing plan you can use as you make your way through the book. The template provides a frame- work that will enable you to organize marketing concepts by chapter and create a solid mar- keting plan of your own. On the back of the template is a contemporary world map as a reminder that all marketing today is global. We encourage you to keep this tear-out as a handy reference after the class.

Learning How to Market Yourself: Brand You Products aren’t alone in benefiting from branding—people can benefit, too. Branding strate- gies help professionals get noticed and position them for exciting new career opportunities. Prepared by Kim Richmond of Saint Joseph’s University, the Brand You handbook gives you concrete advice on how to thrive in a competitive marketplace and provides a hands-on ap- proach to achieving career success. This separate Brand You supplement can be purchased at www.mypearsonstore.com.

xviii | P R E FA C E

www.mypearsonstore.com
P R E FA C E | xix

End-of-chapter Study Map Each chapter now has an integrative study map for students that includes an Objective Sum- mary, Key Terms, and student assessment opportunities of several types: Concepts: Test Your Knowledge; Activities: Apply What You’ve Learned; Marketing Metrics Exercise; (more on this one below); Choices: What Do You Think?, and Miniproject: Learn By Doing. By com- pleting these assessments students and instructors achieve maximum assurance of learning.

Measuring the Value of Marketing through Marketing Metrics Just how do marketers add value to a company, and can that value be quantified? More and more, businesses demand accountability, and marketers respond as they develop a variety of “scorecards” that show how specific marketing activities directly affect their company’s ROI—return on investment. And on the job, the decisions that marketers make increasingly come from data and calculations and less from instinct. Each end-of-chapter includes exer- cises that provide real-world examples of the measures marketers use to help them make good decisions.

All New and Updated End-of-Chapter Cases in This Edition Each chapter concludes with an exciting “Marketing in Action” mini-case about a real firm facing real marketing challenges. Questions at the end let you make the call to get the com- pany on the right track.

Student Resources

mymarketinglab gives you the opportunity to test yourself on key concepts and skills, track your own progress through the course, and use the personalized study plan activities—all to help you achieve success in the classroom.

Features include:

• Personalized study plans—Pre- and post-tests with remediation activities directed to help you understand and apply the concepts where you need the most help.

• Interactive elements—A wealth of hands-on activities and exercises let you experience and learn firsthand, whether it is with the online etext where you can search for specific keywords or page numbers, highlight specific sections, enter notes right on the etext page, and print reading assignments with notes for later review, or with other materi- als including Real People, Real Choices Video Cases, online end-of-chapter Study Map as- sessments, Active Flashcards, and much more.

• Mini-simulations—Move beyond the basics with interactive simulations that place you in a realistic marketing situation and let you make decisions based on marketing concepts.

www.mypearsonmarketinglab.com

Real People, Real Choices Videos Featuring interviews with some of the real marketers from the text, these videos transport you from the abstract environment of the classroom to the exciting, dynamic world of real- life contemporary marketing practice. The marketers share their experiences as they discuss the challenges they face and decisions they make every day.

www.mypearsonmarketinglab.com
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Marketing from Oklahoma State University. Professor Marshall’s research interests include sales force selection, performance, and evaluation; decision making by marketing managers; and intraor- ganizational relationships. He is editor of the Journal of Marketing Theory and Practice and former editor of the Journal of Personal Sell- ing & Sales Management, and currently serves on the editorial boards of the Journal of the Academy of Marketing Science, Journal of Business Research, and Industrial Marketing Management. Professor Marshall is a Distinguished Fellow and President of the Academy of Market- ing Science, Past-President of the American Marketing Association Academic Division, and a Fellow and Past-President of the Society for Marketing Advances. His industry experience prior to entering academe includes product management, field sales management, and retail management positions with firms such as Warner- Lambert, the Mennen Company, and Target Corporation.

Elnora W. Stuart

ELNORA W. STUART, Ph.D., is Professor of Marketing at the University of South Carolina Upstate. Prior to

joining USC Upstate in 2008, she was Professor of Marketing and the BP Egypt Oil Professor of Management Studies at the American University in Cairo, Professor of Marketing at Winthrop University in Rock Hill, South Carolina, and on the faculty of the University of South Carolina. She is also a regular visiting professor at Instituto de Empresa in Madrid, Spain. She earned a BA in Theatre/Speech from the University of North Carolina at Greensboro and both a Master of Arts in Journalism and Mass Communication, and a Ph.D. in Marketing from the University of South Carolina. Profes- sor Stuart’s research has been published in major academic journals including the Journal of Consumer Research, Journal of Advertising, Journal of Business Research, and Journal of Public Policy and Marketing. For over 25 years she has served as a consultant for nu- merous businesses and not-for-profit organizations in the United States and in Egypt.

Michael R. Solomon

MICHAEL R. SOLOMON, Ph.D., joined the Haub School of Business at Saint Joseph’s University in

Philadelphia as Professor of Marketing in 2006, where he also serves as Director of the Center for Consumer Research. From 1995 to 2006, he was the Human Sciences Professor of Consumer Behavior at Auburn University. Prior to joining Auburn in 1995, he was Chairman of the Department of Marketing in the School of Business at Rutgers University, New Brunswick, New Jersey. Professor Solomon’s primary research interests include consumer behavior and lifestyle issues; branding strategy; the symbolic as- pects of products; the psychology of fashion, decoration, and im- age; services marketing; and the development of visually oriented online research methodologies. He currently sits on the editorial boards of the Journal of Consumer Behaviour, the European Business Review, and the Journal of Retailing, and he recently completed a six-year term on the Board of Governors of the Academy of Mar- keting Science. In addition to other books, he is also the author of Prentice Hall’s text Consumer Behavior: Buying, Having, and Being, which is widely used in universities throughout the world. Pro- fessor Solomon frequently appears on television and radio shows such as The Today Show, Good Morning America, Channel One, the Wall Street Journal Radio Network, and National Public Radio to comment on consumer behavior and marketing issues.

Greg W. Marshall

GREG W. MARSHALL, Ph.D., is the Charles Harwood Professor of Marketing and Strategy in the Crummer

Graduate School of Business at Rollins College, Winter Park, Florida. For three years he also served as Vice President for Strate- gic Marketing for Rollins. Prior to joining Rollins, he served on the faculties of Oklahoma State University, the University of South Florida, and Texas Christian University. He earned a BSBA in Mar- keting and an MBA from the University of Tulsa, and a Ph.D. in

About the

Michael R. Solomon, Elnora W. Stuart, Greg W. Marshall

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Acknowledgments

REVIEWERS Camille Abbruscato, Stony Brook University Lydia Anderson, Fresno City College Gregory Spencer Black, Metropolitan State College of Denver Koren Borges, University of North Florida Charles R. Canedy, University of Hartford Laura Dwyer, Rochester Institute of Technology Mary Patricia Galitz, Southeast Community College Debbie Gaspard, Southeast Community College Michael Goldberg, Berkeley College Karen Welte Gore, Ivy Tech Community College John Hardjimarcou, University of Texas, El Paso Debra Laverie, Texas Tech University David Lehman, Kansas State University Anne Weidemanis Magi, University of South Florida Mohan K. Menon, University of South Alabama Mark A. Neckes, Johnson & Wales University John Edward Robbins, Winthrop University Carlos M. Rodriguez, Delaware State University Ann Renee Root, Florida Atlantic University Charles Jay Schafer, Johnson & Wales University Scott Thorne, Southeast Missouri State University Casey Wilhelm, North Idaho University

EXECUTIVES In addition to our reviewers and focus group participants, we want to extend our gratitude to the busy executives who gave generously of their time for the “Real People, Real Choices” features.

Executives Featured in “Real People, Real Choices” Vignettes Chapter 1: Joe Kennedy, Pandora Chapter 2: Jay Minkoff, First Flavor Chapter 3: Robert Chatwani, eBay Chapter 4: Ryan Garton, Discover Financial Chapter 5: Julie Cordua, (RED)

Chapter 6: Brad Tracy, NCR Corporation Chapter 7: Jim Multari, Sprout Network Chapter 8: Palo Hawken, Bossa Nova Beverages Chapter 9: David Clark, General Mills Chapter 10: Lara Price, Philadelphia 76ers Chapter 11: Danielle Blugrind, Taco Bell Chapter 12: Mike Monello, Campfire Chapter 13: Marc Brownstein, Brownstein Group Chapter 14: Jeffery Brechman, Woodtronics Chapter 15: Heather Mayo, Sam’s Club Chapter 16: Stan Clark, Eskimo Joe’s

Executive Panel Joe Barstys, Subaru of North America Monique Brinson, Darden Restaurants Michele R. Butler Joe Chernov, BzzAgent Rebecca Church, Massey Services Peter Cornish Laurie Demeritt, The Hartman Group John Feehan, Virgin Mobile Todd Fisher, Disney Corporation Tisa Ford, General Mills Marc Gobé, Desgrippes Gobé Group Ric Hendee, Cotton, Inc. Marlene M. Jones Bharat Kapoor, Disney Corporation Brian Kurtz, Boardroom Reports Nat Martin, Darden Restaurants Steve McCallion, Ziba Design Jim Multari, Sprout Networks Mary Lou Quinlan, Just Ask a Woman Chad W. Russell Jordan Stanley, Stanley Marketing Jim Wilhelm, Baxter Healthcare Mary Kay Williams, Medtronic Jan Zlotnick, The Zlotnick Group

We feature many talented marketers and successful companies in this book. In developing it, we also were fortunate to work with a team of exceptionally talented and creative people at Prentice Hall. Melissa Sabella, Executive Editor, was instrumental in helping us solidify the vision for the 7th edition, and her assistance with decisions about content, organization, features, and supplements was in- valuable. Anne Fahlgren also contributed great ideas from a marketing perspective. Kudos to Kierra Bloom for managing the project with great efficiency and patience. Becca Richter did yeoman work to smoothly integrate all the pieces of this project into one book.

A special note of appreciation goes to Tony Cooper of the Crummer Graduate School of Business at Rollins College for all his great work in helping assemble chapter materials to ensure this edition is as fresh and timely as possible.

Thank you to Leroy Robinson of the University of Houston who updated the Marketing in Action cases for this edition. No book is complete without a solid supplements package. We extend our thanks to our dedicated supplement authors who de-

voted their time and shared their teaching ideas. Finally, our utmost thanks and appreciation go to our families for their continued support and encouragement. Without them this

project would not be possible. Many people worked to make this 7th edition a reality. The guidance and recommendations of the following professors and focus

group participants helped us update and improve the chapters and the supplements:

xxiii

Marilyn Liebrenz-Himes, George Washington University Cesar Maloles, California State University–East Bay Norton Marks, California State University–San Bernardino Kelly Duggan Martin, Washington State University Carolyn Massiah, University of Central Florida Laura M. Milner, University of Alaska Timothy R Mittan, Southeast Community College Jakki Mohr, University of Montana Linda Morable, Richland College Michael Munro, Florida International University Jeff B. Murray, University of Arkansas Linda Newell, Saddleback College Eric Newman, California State University-San Bernardino David Oliver, Edison College Beng Ong, California State University- Fresno A.J. Otjen, Montana State University-Billings Lucille Pointer, University of Houston- Downtown Mohammed Rawwas, University of Northern Iowa John E. Robbins, Winthrop University Bruce Robertson, San Francisco State University Leroy Robinson, University of Houston-Clear Lake Barbara Rosenthal, Miami Dade Community College-Kendall

Campus Behrooz Saghafi, Chicago State University Ritesh Saini, George Mason University Marcianne Schusler, Prairie State College Susan Silverstone, National University Samuel A. Spralls III, Central Michigan University Melissa St. James, California State University-Dominguez Hills Frank Svestka, Loyola University of Chicago James Swartz, California State Polytechnic University-Pomona Kim Taylor, Florida International University-Park Campus Steven Taylor, Illinois State University Susan L. Taylor, Belmont University John Thanopoulos, University of Piraeus, Greece Jane Boyd Thomas, Winthrop University Judee A. Timm, Monterey Peninsula College Sue Umashankar, University of Arizona Sal Veas, Santa Monica College D. Roger Waller, San Joaquin Delta College Leatha Ware, Waubonsee Community College Steve Wedwick, Heartland Community College Kathleen Williamson, University of Houston-Clear Lake Mary Wolfinbarger, California State University-Long Beach Kim Wong, Albuquerque TVI Community College Steve Wong, Rock Valley College Richard Wozniak, Northern Illinois University Brent M. Wren, University of Alabama in Hunstville Merv Yeagle, University of Maryland at College Park Mark Young, Winona State University Marybeth Zipperer, Montgomery College

REVIEWERS OF PREVIOUS EDITIONS The following individuals were of immense help in reviewing all or part of previous editions of this book and the supplement package:

Roy Adler, Pepperdine University Gerald Athaide, Loyola College Carole S. Arnone, Frostburg State University Christopher Anicich, California State University–Fullerton Nathan Austin, Morgan State University Xenia Balabkins, Middlesex County College Fred Beasley, Northern Kentucky University Jas Bhangal, Chabot College Silvia Borges, Miami Dade CC–Wolfson Campus Deborah Boyce, State University of New York Institute of

Technology, Utica, New York Tom Boyd, California State University–Fullerton Henry C. Boyd III, University of Maryland–College Park Val Calvert, San Antonio College Richard Celsi, California State University–Long Beach Swee-Lim Chia, LaSalle University Paul Cohen, Florida Atlantic University Brian Connett, California State University–Northridge Ruth Clottey, Barry University Robert M. Cosenza, University of Mississippi Brent Cunningham, Jacksonville State University Patricia Doney, Florida Atlantic University Rita Dynan, LaSalle University Jill S. Dybus, Oakton Community College Joyce Fairchild, Northern Virginia Community College Elizabeth Ferrell, Southwestern Oklahoma State University Joanne Frazier, Montgomery College Jon Freiden, Florida State University Mike Gates, South Hills School of Business and Technology Kimberly D. Grantham, University of Georgia David Hansen, Texas Southern University Manoj Hastak, American University John Heinemann, Keller Graduate School of Management Dorothy Hetmer-Hinds, Trinity Valley Community College Mark B. Houston, Texas Christian University Gary Hunter, Case Western Reserve University Annette Jajko, Triton College Janice M. Karlen, LaGuardia Community College/

City University of New York Jack E. Kant, San Juan College Gail Kirby, Santa Clara University David Knuff, Oregon State University–Cascades Kathleen Krentler, San Diego State University Sandra J. Lakin, Hesser College Linda N. LaMarca, Tarleton State University Debra A. Laverie, Texas Tech University Freddy Lee, California State University–Sacramento Ron Lennon, Barry University

xxiv | A C K N O W L E D G M E N T S

realChoices People

MARKETING 7E

Part One

Welcome to the first set of chapters in Marketing: Real People, Real Choices! The book is divided into five major sections called

“Parts.” Each of these Parts focuses on a key element of market- ing as a value-adding element to any organization’s success. Each Part Opener (like this one) provides you with a brief overview of the learning opportunities within that Part. Then, through a ficti- tious company called S&S Smoothie (which is published in its en- tirety in the book’s Appendix), you will learn how the pieces of a marketing plan come together so that “You Can Do It Too!”

Whether or not you are assigned a marketing plan as a class project, you will find the Part Openers worth reading because link- ing each Part’s content to the bigger picture of marketing planning will help you understand the “five W’s and an H”—who, what,

when, where, why, and how—related to the way the particular material in that Part fits into the big picture of marketing. Don’t be concerned right now if the notion of a marketing plan is brand- new to you. In Chapter 2 we’ll focus on them and bring you up to speed on what marketing planning is all about. There we include a useful tear-out that serves as a roadmap for how each chapter’s content fits into the process of developing a marketing plan.

Part One offers three chapters that kick off your study of marketing, with an overall focus on making marketing value de- cisions. In Chapter 1 you will learn what value is, as well as pick up a lot of great insights on the contemporary field of marketing to pique your interest in the course. You will notice right away that this book is about people doing marketing, as opposed to merely being a narrative about products, firms, and other inan-

Make Marketing Value Decisions Part One Overview

2

Make marketing value decisions (Part One)

Understand consumers’ value needs (Part Two)

Create the value proposition (Part Three)

Communicate the value proposition (Part Four)

Deliver the value proposition (Part Five)

P ro

ce ss

You are here

imate objects. The Real People, Real Choices vignettes that begin each chapter help you connect marketing to actual people mak- ing decisions. As such, marketing truly comes alive! As men- tioned, Chapter 2 takes you through the entire process of marketing planning. Finally, Chapter 3 addresses the fact that to- day all marketing is global. You’ll get to see the various elements of the external environment that impact marketers’ ability to do successful planning in both domestic and global markets.

Marketing Plan Connection: Tricks of the Trade As mentioned earlier, the Appendix at the end of the book pro- vides you with an abbreviated marketing plan example for the fictitious S&S Smoothie Company. That plan is flagged to indi- cate what elements from the plan correspond to each of the Parts within the book. In addition, in Chapter 2 you will find a tear- out guide called “Build a Marketing Plan,” which can be used as a template for marketing planning. It is also cross-referenced to chapters by section of the marketing plan.

In the chapters within Part One, there are major learning ele- ments that guide you in developing four initial parts of a market- ing plan: internal environmental analysis, external environmental analysis, SWOT analysis, and setting marketing objectives. Let’s take a look at each of these elements.

Internal Environmental Analysis Chapter 2 provides an overview of marketing planning from the perspective of a marketing firm. It might surprise you to learn that accomplishing a useful internal environmental analysis is of- ten more challenging than is the analysis of the external environ- ment. It’s like the old saying, “We have found the enemy and it is us!” Some firms do not have a culture that supports honest self- reflection, and instead they tend to just sweep problems under the rug. This is, of course, very dangerous, since future market- ing planning depends on a realistic assessment of the firm and its internal capabilities.

When you review the case of S&S Smoothie, take special note of their mission, how the firm is set up and who the key players are, the nature of their organizational culture, and how they are currently deploying the 4 Ps of the marketing mix. What is evidently working well for them already? What likely could be improved through marketing planning?

External Environmental Analysis In Chapter 3 you will gain solid knowledge of the global envi- ronment in which marketers today do business. In contrast to the internal environment, the external environment consists of elements that are largely outside the direct control of a firm and its managers. The company operates within the context of its ex- ternal environment, but in most instances it can do little directly to shape and form that environment. Because of this, it becomes incredibly important that firms accurately identify the external

factors that are likely to have the greatest impact on success and then work to develop approaches to proactively take these fac- tors into account when developing plans and forecasts.

Key elements in the external environment include the following:

• Competitive environment—Who do you compete with and how?

• Economic environment—In what ways do economic forces impact the marketing success of the firm?

• Technological environment—What is the role of advancing technology on the business?

• Political and legal environment—How do these elements im- pact decisions the firm makes about products and markets?

• Sociocultural environment—What is the impact of changing societal tastes and values on the marketplace? One of the most challenging aspects of doing external envi-

ronmental analysis is that the information gathered is not static. It is constantly changing! This means that marketers need to continually scan the elements of the external environment for trends and (hopefully) make changes to their marketing plans before the trends get away from them. As you review S&S Smoothie’s marketing plan, try to imagine which of the external environmental elements identified are most likely to change in the near future, and how the changes would impact their plan.

SWOT Analysis A SWOT analysis (for Strengths, Weaknesses, Opportunities, and Threats) is a convenient way of summarizing your situation analysis. You will note that the S&S Smoothie example has a very succinct set of 3–4 bulleted items under each of the SWOT subheadings. This is what you should strive for in a SWOT—a succinct prioritization of the main internal and external situa- tional factors that you believe, based on your analysis, are most important to future planning for the firm.

Marketing Objectives An objective is something that you set out to accomplish. You will learn in Chapter 2 that for objectives to be useful they must meet several important criteria in the way they are written. A well-stated objective is specific, measurable, and realistically at- tainable. Objectives are not very useful to marketers for plan- ning purposes if they are vague, if you don’t know what metrics tell you that you’ve succeeded, or if they are impossible to ac- complish. S&S Smoothie has identified four important market- ing objectives. See if you think they meet these criteria.

3

>>You Can Do It Too! Now, if you are working on a marketing plan as part of your course, you can go to mymarketinglab to apply what you learn in Part One to your own marketing plan project.

4

Chapter | 1

Welcome to the World of Marketing Create and Deliver Value

Real People Profiles

A Decision Maker at Pandora Joe Kennedy is chief executive officer and president of Pandora, the Internet radio company that more than 65 million people use to create personalized radio stations that they can listen to from their comput- ers, phones, TVs, and cars. Just type the name of one of your favorite songs or artists into Pandora and it will instantly generate a station with music pulled from

its collection of more than 800,000 songs. Enter Rihanna and connect to similar artists like Loer Velocity and The Cab. Is Ludacris more your speed? Discover 112 or Sensational.

How does Pandora customize stations to each individual listener? It all has to do with the Music Genome Project; Pandora describes it as the most comprehensive analysis of music ever undertaken. Over the last decade the MGP’s team of musician- analysts has classified each song based on up to 400 distinct musical characteristics. It takes an analyst 20–30 minutes to analyze a song and record the details that de- fine it, such as melody, harmony, instrumentation, rhythm, vocals, and lyrics. Artists receive royalties from Pandora every time one of their songs is played on a station.

Joe Kennedy joined Pandora in 2004 following a five-year stint at E-LOAN, where he was president and chief operating officer. From 1995 to 1999, he was the vice president of sales, service and marketing for Saturn Corporation, which he grew to more than $4 billion in revenue and established as the top brand for customer satisfaction in the auto industry. Joe joined the initial startup team at Saturn, four months after it was founded, as a marketing manager and held positions of increas- ing marketing responsibility over the course of his 11-year tenure there.

Joe has an MBA from Harvard Business School and a BS degree in electrical en- gineering and computer science from Princeton University, where he dabbled in mu- sic theory and learned to compose his own Gregorian chants. According to his bio on the Pandora site, he is Pandora’s resident pop music junkie. Joe has also been playing the piano for more than 30 years, spending a majority of that time attempt- ing to master Gershwin’s “Rhapsody in Blue.”

Joe’s Info

What do I do when I’m not working? A) Working on my tennis game, trying to finally reach that elusive top 10 national ranking in my age group.

Business book I’m reading now? A) Checklist Manifesto by Atul Gawande.

My hero? A) Skip LeFauve, the president of Saturn from 1986 to 1995.

What drives me? A) I love to bring about game-changing innovation in categories consumers are passionate about.

My management style? A) Hire senior, experienced, self-motivated leaders who know more about their functional areas than I do and let them do their thing.

My pet peeve? A) People who are always running late. It’s a clear sign of self- centeredness when someone always keeps other people waiting.

Profile Info

Joe Kennedy

+

The company was founded in January 2000 by Tim Westergren, a pianist who played in rock and jazz

bands for 10 years before he became a film composer. As he analyzed mu- sic to decide what film directors would like, he got the idea of creating a technology that would reflect people’s tastes and deliver music that fit those tastes. Tim raised $1.5 million and started Savage Beast Technologies, which

sold music recommendations services to companies like Best Buy. But the company struggled as the dot-com boom of the late 1990s burst. Tim and his employees worked on an unpaid basis for several years before they got more financial backing in 2004 (af- ter Tim made 347 unsuccessful pitches to in- vestors!). Tim paid his employees, switched the company’s name to Pandora, and changed its focus to consumers instead of businesses. To lead this strategic shift the newly christened Pandora hired Joe Kennedy, who had solid experience building consumer products. The company knew it was on to something when it first released Pandora in a beta version for family and friends. Within a week, 5,000 people had used the service to discover new music.

That was encouraging, but a 5,000-user base isn’t nearly enough to entice advertisers to buy space on the site. Pandora needed to make money by attracting enough people to capture the interest of potential advertising clients; these companies in turn would pay to place ads that would reach Pandora’s users. The challenge was to avoid the fate of many other Internet startups that offered cool fea- tures but never grew to the scale where they could turn a profit. Joe needed to build a solid customer base so he could develop a firm business model for Pandora. He knew that if he could just make music lovers aware of the value Pandora offered, he would be able to turn the fledgling service into a marketing success.

Joe considered his Options 1 • 2 • 3 Launch an advertising campaign on radio stations, in music magazines, and at record stores. Advertising is a great way to create awareness of a new product or service, but it takes a lot of money to cut through the clutter of competing messages. To afford advertising, Pandora would have had to convince financial backers that a substantial up-front invest-

ment would pay off as droves of users flocked to the site once they heard or read about it.

See what option Joe chose on page 33

Build a buzz about Pandora through word of mouth. Put Tim Westergen, the company’s founder, in front of groups of mu- sic lovers to tell the unique story of Pandora and how the Music Genome Project makes it work. Cultivate a dedicated fan base by reaching out to social networks on Twitter and Facebook, and then rely on these converts to spread the word to their friends.