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Marketing real people real choices study guide

16/10/2021 Client: muhammad11 Deadline: 2 Day

Pricing In Marketing

realChoices People


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realChoices People






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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


Credits and acknowledgments borrowed from other sources and reproduced, with permission, in this textbook appear on appropriate page within text.

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Copyright © 2012, 2009, 2008, 2006, 2003 Pearson Education, Inc., publishing as Prentice Hall, One Lake Street, Upper Saddle River, New Jersey 07458. All rights reserved. Manufactured in the United States of America. This publication is protected by Copyright, and permission should be obtained from the publisher prior to any prohibited reproduction, storage in a retrieval system, or transmission in any form or by any means, electronic, mechanical, photocopying, recording, or likewise. To obtain permission(s) to use material from this work, please submit a written request to Pearson Education, Inc., Permissions Department, One Lake Street, Upper Saddle River, New Jersey 07458.

Many of the designations by manufacturers and seller to distinguish their products are claimed as trademarks. Where those designations appear in this book, and the publisher was aware of a trademark claim, the designations have been printed in initial caps or all caps.

10 9 8 7 6 5 4 3 2 1

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


To Patti and Justin


To Sonny, Patrick, Gabriela, and Marge


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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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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



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


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


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


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 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


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


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


x | C O N T E N T S


World Trade 69 Should We Go Global? 70


Initiatives in International Cooperation and Regulation 72 Economic Communities 72


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


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


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


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



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 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


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


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


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



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


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


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


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


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


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


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


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


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


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


What Packages Do 263 Design Effective Packaging 264 Labeling Regulations 265


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


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


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


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


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


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


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


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


Operating Ratios 340 INVENTORY TURNOVER RATE 340




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 Communication Model 352 The Traditional Promotion Mix 355


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


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


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


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


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


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

xiv | C O N T E N T S


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


Types of Sales Jobs 431 Two Approaches to Personal Selling 432


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


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


Supply Chain Management 449 DISTRIBUTION CHANNELS: GET IT THERE 450

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


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


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


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: 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


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


Direct Selling 493 Automatic Vending 494 B2C E-Commerce 495


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




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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

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.


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.

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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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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:


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


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


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.


>>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.


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.

A buzz-building strategy is very inexpensive, and if done well, it can create a large group of devoted followers almost overnight. On the other hand, a startup has to compete with the thousands of others that are trying to recruit fans, and it might be difficult to reach a mass audience as opposed to hard-core music lovers without any catchy advertising.

Sell the service to a large chain of record stores, a music magazine, or even a record label. Pandora could return to its roots as a music recommendation service for businesses. If a large company (like Virgin Records) could offer the service exclu- sively to its customers, almost instantly Pandora would have access to many thousands of music buyers. In the same way that

USA Today is able to claim a huge circulation (and thus attract a lot of adver- tising dollars) because it is distributed free to hotel guests across the coun- try, Pandora would inherit an impressive distribution network. However, this choice would entail giving up control of the unique Music Genome Project and its sophisticated database that the company had worked so hard to build. Hardcore music fans might accuse Pandora of “selling out,” and they might question how objective its recommendations were.

Now, put yourself in Joe’s shoes: Which option would you consider, and why?

You Choose

Which Option would you choose, and why?


Here’s my problem. . .





Things to remember

Pandora doesn’t charge people to use its service. It makes its money by attracting advertisers who want to reach users. In order for the company to entice companies to advertise, it has to offer them access to large numbers of consumers who are likely to tune in on the ads they will encounter on the site.

Part of Pandora’s unique product offering is the ability to customize music for each individual user. Everyone who registers can create their own “stations” that play songs with similar characteristics. This enables users to learn about artists they might not otherwise stumble upon, so potentially Pandora can create new audiences for independent musicians and for music labels.

Word of mouth is the least expensive way to attract large numbers of web surfers to Pandora’s site. However, it’s difficult to build buzz in an environment where many other products and services compete for the consumer’s scarce attention.

Real People, Real Choices

Welcome to Brand You Alex wakes up with a groan as Vampire Weekend belts out a song from the next bedroom. Why does her room- mate have to download these loud ringtones onto her cell phone and then leave it on so early in the morning? She throws back the Ralph Lauren sheets and rolls off her new Sleep Number mattress. As Alex stumbles across the room in her VS Signature pajamas from Victoria’s Secret, her senses are further assaulted as she catches wafts of Amanda’s trademark Juicy Couture perfume. She pours

herself a steaming cup of Starbucks Verona Blend coffee from the Capresso CoffeeTeam Luxe coffeemaker and stirs in a heaping mound of Splenda. As she starts to grab a Yoplait from the SubZero, she checks her iPhone and suddenly remembers: Big job interview with Sprout Networks today! Yeah for LinkedIn! Good thing she gChatted her friends last night to get advice about what to wear so she won’t have to think about it this morning. Alex does a quick scan of the New York Times on her Apple iPad, checks the forecast on Weather.com, and for one last time googles the executive who will be interviewing her. Hope- fully he won’t remember to check out her Facebook page; those photos she posted from her trip to Cancun don’t exactly communicate a professional im- age! Well, he’ll be more impressed by the volunteer work she’s doing with Sweatshopwatch.org to build a buzz about horrific labor conditions in devel- oping countries. Just in case, she glances down at her wrist to be sure she’s wearing her turquoise advocacy bracelet (which new cause was that for, anyway?).

Alex slips into her sleek new BCBG suit, slides on her Prada shoes, grabs her Coach briefcase that was a graduation present from her parents, and climbs into her Jeep Grand Cherokee. As she listens to the Coke ad blaring over the loudspeakers while she gasses up at the Exxon station, Alex finds herself look- ing forward to tomorrow. The pressure will be off, and she can throw on her Madewell dress, Ray-Ban Aviators, and of course those new Frye wedges. Then, it’ll be out to that hot new bar to look for Mr. Right—or maybe a few Mr. Wrongs. Oh yes, and perhaps a quick check on Craigslist for a new roommate.

Marketing is all around us. Indeed, some might say we live in a branded world. Like Alex, you have encounters with many marketers even before you leave for the day: ads, products, TV, the Web, charitable causes, podcasts.

What’s more, like Alex, you are a product. That may sound weird, but companies like LinkedIn couldn’t exist if you were not a product with value. We’re going to use that word a LOT in this book, so let’s define it now: Value refers to the benefits a customer receives from buying a good or service.

You have “market value” as a person—you have qualities that set you apart from others and abilities other people want and need. After you finish this course, you’ll have even more value because you’ll know about the field of marketing and how this field relates to you both as a future businessper- son and as a consumer. In addition to learning about how marketing influ- ences each of us, you’ll have a better understanding of what it means to be “Brand You”—and hopefully some ideas about what you can do to increase your value to employers and maybe even to society.

Chapter 1

6 PA RT O N E | M A K E M A R K E T I N G VA L U E D E C I S I O N S

Objective Outline 1. Understand who marketers are,

where they work, and marketing’s role in a firm.


2. Explain what marketing is and how it provides value to everyone involved in the marketing process.


3. Explain the evolution of the marketing concept.


4. Understand the range of services and goods that organizations market.


5. Understand value from the perspectives of customers, producers, and society.


6. Explain the basics of marketing planning and the marketing mix tools we use in the marketing process.


(pp. 30–32)

(pp. 21–29)

(pp. 18–21)

(pp. 13–18)

(pp. 8–12)

(pp. 6–8)

Check out chapter 1 Study Map on page 33


Understand who

marketers are, where

they work, and

marketing’s role in a

firm. (pp. 6–8)

value The benefits a customer receives from buying a good or service.

C H A P T E R 1 | W E L C O M E T O T H E W O R L D O F M A R K E T I N G : C R E AT E A N D D E L I V E R VA L U E 7

Although it may seem strange to think about the mar- keting of people, in reality we often talk about ourselves and others in marketing terms. It is common for us to speak of “positioning” ourselves for job interviews or to tell our friends not to “sell themselves short.” Some people who are cruising for potential mates even refer to them- selves as “being on the market.” In addition, many con- sumers hire personal image consultants to devise a “marketing strategy” for them, while others undergo plas- tic surgery or makeovers to improve their “product im- ages.” The desire to package and promote ourselves is the reason for personal goods and services markets ranging from cosmetics and exercise equipment to résumé special- ists and dating agencies.1

So the principles of marketing apply to people, just as they apply to coffee, convertibles, and computer processors. Sure, there are differences in how we go about marketing each of these, but the general idea remains the same: Marketing is a fundamental part of our lives both as consumers and as players in the business world. We’ll tell you why throughout this book. But first, we need to answer the basic questions of marketing: Who? Where? What? When? and Why? Let’s start with Who and Where.

The Who and Where of Marketing Marketers come from many different backgrounds. Although many have earned marketing degrees, others have backgrounds in areas such as engineering or agriculture. Retailers and fashion marketers may have training in merchandising or design. Advertising copywriters often have degrees in English. E-marketers who do business over the Internet may have studied computer science.

Marketers work in a variety of locations. They work in consumer goods companies such as General Mills or at service companies like The Philadelphia 76ers basketball team. You’ll see them in retail organizations like Sam’s Club and at companies that manufacture products for other companies to use like NCR. You’ll see them at philanthropic companies like Product (RED) and at cutting-edge advertising and social media agencies like Campfire and Pandora. We’ll get to know these and other companies better as we make our way through this book.

And, although you may assume that the typical marketing job is in a large, consumer- oriented company like Disney, marketers work in other types of organizations too. There are many exciting marketing careers in companies that sell to other businesses. In small organizations, one person (perhaps the owner) may handle all the marketing responsi- bilities. In large organizations, marketers work on different aspects of the marketing strategy.

No matter where they work, all marketers are real people who make choices that affect themselves, their companies, and very often thousands or even millions of consumers. At the beginning of each chapter, we’ll introduce you to marketing profes- sionals like Joe Kennedy of Pandora in a feature we call “Real People, Real Choices.” We’ll tell you about a decision the marketer had to make and give you the possible options he or she considered. Think about these options as you read through the chapter so you can build an argument for selecting an option. At the end of each chapter, we’ll tell you what option the marketer chose and why in a feature called “Real People, Real Choices: How It Worked Out.”

You are a product—hopefully a successful one!

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8 PA RT O N E | M A K E M A R K E T I N G VA L U E D E C I S I O N S

Marketing’s Role in the Firm: Cross-Functional Relationships What role do marketers play in a firm? The importance organizations assign to marketing activities varies a lot. Top management in some firms is very marketing-oriented (especially when the chief executive officer comes from the marketing ranks), whereas in other compa- nies marketing is an afterthought. However, analysts estimate that at least one-third of CEOs come from a marketing background—so stick with us!

Sometimes a company uses the term marketing when what it really means is sales or ad- vertising. In some organizations, particularly small, not-for-profit ones, there may be no one in the company specifically designated as “the marketing person.” In contrast, some firms realize that marketing applies to all aspects of the firm’s activities. As a result, there has been a trend toward integrating marketing with other business functions (such as management and accounting) instead of making it a separate function.

No matter what size the firm, a marketer’s decisions affect—and are affected by—the firm’s other operations. Marketing managers must work with financial and accounting officers to figure out whether products are profitable, to set marketing budgets, and to de- termine prices. They must work with people in manufacturing to be sure that products are produced on time and in the right quantities. Marketers also must work with research-and- development specialists to create products that meet consumers’ needs.

Where Do You Fit In? Careers in Marketing Marketing is an incredibly exciting, diverse discipline that brims with opportunities. There are many paths to a marketing career; we’ve tried to summarize the most typical ones here. Check out Table 1.1 to start thinking about which path might be best for you. Okay, now that you’ve gotten a glimpse of who marketers are and where they work, it’s time to dig into what marketing really is.

Marketing Creates Value Marketing. Lots of people talk about it, but what is it? When you ask people to define marketing, you get many answers. Some people say, “That’s what happens when a pushy salesman tries to sell me some- thing I don’t want.” Other people say, “Oh, that’s simple—TV commer- cials.” Students might answer, “That’s a course I have to take before I can get my business degree.” Each of these responses has a grain of truth in it, but the official definition of marketing the American Marketing Association adopted in late 2007 is as follows:

“Marketing is the activity, set of institutions, and processes for cre- ating, communicating, delivering, and exchanging offerings that have value for customers, clients, partners, and society at large.”2

The basic idea of this somewhat complicated definition is that marketing is all about delivering value to everyone who is affected by a transaction. Let’s take a closer look at some of the different ideas that relate to this definition.

Marketing Meets Needs One important part of our definition of marketing is that it meets the needs of diverse stake- holders. The term stakeholders here refers to buyers, sellers, or investors in a company, com- munity residents, and even citizens of the nations where goods and services are made or sold—in other words, any person or organization that has a “stake” in the outcome. Thus, marketing is about satisfying everyone involved in the marketing process.

marketing An organizational function and a set of processes for creating, communicating, and delivering value to customers and for managing customer relationships in ways that benefit the organization and its stakeholders.


Explain what

marketing is and

how it provides value

to everyone involved

in the marketing

process. (pp. 8–12)

stakeholders Buyers, sellers, or investors in a company, community residents, and even citizens of the nations where goods and services are made or sold—in other words, any person or organization that has a “stake” in the outcome.

Table 1.1 | Careers in Marketing Marketing Field Where Can I Work?

What Entry-Level Position Can I Get? What Course Work Do I Need?

Advertising Advertising agency: Media, research, and creative departments; account work

Large corporation: Advertising department: brand/product management

Media: Magazine, newspaper, radio, and television selling; management consulting; marketing research

Account coordinator (traffic department); assistant account executive; assistant media buyer; research assistant; assistant brand manager

Undergraduate business degree

Brand Management

Any size corporation: Coordinate the activities of specialists in production, sales, advertising, promotion, R&D, marketing research, purchasing, distribution, package development, and finance

Associate brand manager M.B.A. preferred, but a few com- panies recruit undergraduates. Expect a sales training program in the field from one to four months and in-house classes and seminars.

Business-to- Business Marketing

Any size corporation: Only a few companies recruit on campus, so be prepared to search out job opportunities on your own, as well as interview on campus.

Sales representative; market research administrator; product manager; pricing administrator; product administrator; assistant marketing manager; sales administrator; assistant sales manager; sales service administrator

Undergraduate business degree. A broad background of subjects is generally better than concentrating on just one area. A technical degree may be important or even required in high-technology areas. Courses in industrial marketing and marketing strategy are very helpful.

Direct–Response Marketing

Any size corporation: Marketing-oriented firms, including those offering consumer goods, industrial products, financial institutions, and other types of service establishments. Entrepreneurs seeking to enter business for themselves.

Direct-response marketing is expanding rapidly and includes direct mail; print and broadcast media, telephone marketing, catalogues, in- home presentations, and door-to- door marketing.

Seek counsel from officers and directors of the Direct Marketing Association and the Direct Selling Association.

Undergraduate business degree. Supplemental work in communications, psychology, and/or computer systems recommended.

Supply-Channel Management

Any size corporation, including transportation corporations: The analysis, planning, and control of activities concerned with the procurement and distribution of goods. The activities include transportation, warehousing, forecasting, order processing, inventory control, production planning, site selection, and customer service.

Physical distribution manager; supply chain manager; inventory-control manager; traffic manager; distribution-center manager; distribution-planning analyst; customer service manager; transportation marketing and operations manager

Undergraduate business degree and M.B.A. Broad background in the core functional areas of business, with particular emphasis in distribution related topics such as logistics, transportation, purchasing, and negotiation.

International Marketing

Large corporations: Marketing Department at corporate headquarters

Domestic sales position with an international firm may be the best first step toward international opportunities.

M.B.A. A broad background in marketing is recommended, with some emphasis on sales management and market research.

Marketing Models and Systems Analysis

Large corporations: Consult with managers who are having difficulty with marketing problems.

Undergraduate: Few positions available unless you have prior work experience. Graduate: market analyst, market research specialist, and management scientist.

M.B.A. Preparation in statistics, mathematics, and the behavioral sciences.


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One important stakeholder is YOU. A consumer is the ultimate user of a good or service. Consumers can be individuals or organizations, whether a company, govern- ment, sorority, or charity. We like to say that the consumer is king (or queen), but it’s im- portant not to lose sight of the fact that the seller also has needs—to make a profit, to remain in business, and even to take pride in selling the highest-quality products possi- ble. Products are sold to satisfy both consumers’ and marketers’ needs—it’s a two-way street. When you strip away the big words, try this as a bumper sticker: Marketers do it to satisfy needs.

Needs, Wants, and Benefits

Most successful firms today practice the marketing concept—that is, marketers first iden- tify consumer needs and then provide products that satisfy those needs, ensuring the firm’s long-term profitability. A need is the difference between a consumer’s actual state and some ideal or desired state. When the difference is big enough, the consumer is motivated to take

consumer The ultimate user of a good or service.

marketing concept A management orientation that focuses on identifying and satisfying consumer needs to ensure the organization’s long-term profitability.

need The recognition of any difference between a consumer’s actual state and some ideal or desired state.

Table 1.1 | Careers in Marketing Marketing Field Where Can I Work?

What Entry-Level Position Can I Get? What Course Work Do I Need?

Marketing Research

Any size corporation: Provide management with information about consumers, the marketing environment, and the competition

Assistant market analyst or assistant product analyst level.

M.B.A. or an M.S. in Marketing Research although prior experience and training may improve an undergraduate’s chances.

New Product Planning

Any size corporation: Marketing of consumer products, consumer industries, advertising agencies, consulting firms, public agencies, medical agencies, retailing management

Assistant manager or director of product planning or new product development.


Retail Management

Retail corporations Assistant buyer positions; department manager positions

Undergraduate business degree

Sales and Sales Management

Profit and nonprofit organizations: Financial, insurance, consulting, and government

Trade sales representative who sells to a wholesaler or retailer; missionary sales representative in manufacturing who sells to retailers or decision makers (e.g., pharmaceutical representative); technical sales representative who sells to specified accounts within a designated geographic area.

Undergraduate business degree; M.B.A.; Helpful courses: consumer behavior, psychology, sociology, economics, anthropology, cost accounting, computer science, statistical analysis, communications, drama, creative writing. Language courses, if you’re interested in international marketing; engineering or physical science courses if you’re interested in technical selling.

Services Marketing

Any size corporation: Banking and financial service institutions, health care organizations, leisure- oriented businesses, and in various other service settings.

Assistant brand manager; assistant sales manager

Undergraduate business degree; M.B.A.; Additional course work in management policy, research, advertising and promotion, quantitative analysis, consumer behavior, and the behavioral sciences should prove useful.

Source: This information was based on an excellent compilation prepared by the marketing faculty of the Marshall School of Business, University of Southern California at http://www.marshall.usc.edu/marketing/resources/resources-overview.htm (accessed June 11, 2010). For average salaries broken down by job type and state consult the Aquent/AMA Survey of Marketing Professionals at http://www.marketingsalaries.com/aquent/Home.form or commercial websites such as payscale.com and rileyguide.com.


action to satisfy the need. When you’re hungry, you buy a snack. If you’re not happy with your hair, you get a new hairstyle. When you need a job (or perhaps just get mad at your boss), you check out LinkedIn.

Needs relate to physical functions (such as eating) or to psychological ones (such as social acceptance). Levi Strauss & Company is one company that tries to meet the psychological needs of consumers to look good (as well as their basic need to be clothed). The company’s research indicates that people wear Levi’s jeans to say important things about themselves and their desired image. From time to time, the company even receives a beat-up, handed-down pair in the mail, with a letter from the owner requesting that the jeans be given a proper burial—that’s a pretty “deep-seated” attachment to a pair of pants!3 The specific way a person sat- isfies a need depends on his or her unique history, learning experiences, and cul- tural environment. That explains why Nestlé’s Kit Kat is the No. 1 candy brand in Japan—but the flavors you buy there include green tea, soy sauce, yubari melon, and sweet potato.4

A want is a desire for a particular product we use to satisfy a need in specific ways that are culturally and socially influenced. For example, two classmates’ stomachs rumble during a lunchtime lecture, and both need food. However, each of the two may satisfy this need in quite a different way. The first student may be a health nut who fantasizes about gulping down a big handful of trail mix, while the second person may lust for a greasy cheeseburger and fries. The first student’s want is trail mix, whereas the second student’s want is fast food (and some antacid for dessert).

A product delivers a benefit when it satisfies a need or want. For marketers to be successful, they must develop products that provide one or more benefits that are impor- tant to consumers. The challenge is to identify what benefits people look for and then de- velop a product that delivers those benefits while also convincing consumers that their product is better than a competitor’s product—making the choice of which product to buy obvious. As the late management guru Peter Drucker observed, “The aim of marketing is to make selling superfluous.”5

Everyone can want your product, but that doesn’t ensure sales unless consumers have the means to obtain it. When you couple desire with the buying power or resources to sat- isfy a want, the result is demand. So the potential customers looking for a snappy red BMW convertible are the people who want the car minus those who can’t afford to buy or lease one (no, stealing the car doesn’t count). A market consists of all the consumers who share a common need that can be satisfied by a specific product and who have the resources, will- ingness, and authority to make the purchase.

A marketplace used to be a location where buying and selling occurs face to face. In today’s “wired” world, however, buyers and sellers might not even see each other. The modern marketplace may take the form of a glitzy shopping mall, a mail-order catalog, a television shopping network, an eBay auction, or an e-commerce Web site. In developing countries, the marketplace may be a street corner or an open-air market where people sell fruits and vegetables much as they did thousands of years ago. Indeed, a marketplace may not even exist in the physical world—as players of online games will tell you. Residents of cyberworlds like Second Life and Habbo Hotel buy and sell virtual real estate, home furnish- ings, and bling for their digital avatars; in 2010 alone they bought about $1.6 billion worth of virtual goods that exist only on a computer server.

Marketing Creates Utility Marketing transactions create utility, which refers to the sum of the benefits we receive when we use a good or service. When it ensures that people have the type of product they want, where and when they want it, the marketing system makes our lives easier. Utility is what

Marketers create value for society when they help to promote worthy causes.

want The desire to satisfy needs in specific ways that are culturally and socially influenced.

benefit The outcome sought by a customer that motivates buying behavior—that satisfies a need or want.

demand Customers’ desires for products coupled with the resources needed to obtain them.

market All the customers and potential customers who share a common need that can be satisfied by a specific product, who have the resources to exchange for it, who are willing to make the exchange, and who have the authority to make the exchange.

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Joe needs to understand the potential demand for Pandora’s services so he can develop a plan to maximize the number of these consumers who actually visit the site on a regular basis.

Joe Kennedy

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creates value. Marketing processes create several different kinds of utility to provide value to consumers:

• Form utility is the benefit marketing provides by transforming raw materials into finished products, as when a dress manufacturer combines silk, thread, and zippers to create a bridesmaid’s gown.

• Place utility is the benefit marketing provides by making products available where customers want them. The most sophisticated evening gown sewn in New York’s garment district is of little use to a bridesmaid in Kansas City if it isn’t shipped to her in time.

• Time utility is the benefit marketing provides by storing products until they are needed. Some women rent their wedding gowns instead of buying them and wearing them only once (they hope!).

• Possession utility is the benefit marketing provides by allowing the consumer to own, use, and enjoy the product. The bridal store provides access to a range of styles and colors that would not be available to a woman outfitting a bridal party on her own.

As we’ve seen, marketers provide utility in many ways. Now, let’s see how customers “take delivery” of this added value.

Marketing and Exchange At the heart of every marketing act—big or small—is something we refer to as an “exchange relationship.” An exchange occurs when a person gives something and gets something else in return. The buyer receives an object, service, or idea that satisfies a need, and the seller receives something he or she feels is of equivalent value. A product is a good, a service, an idea, a place, a person—whatever is offered for sale in the exchange.

For an exchange to occur, at least two people or organizations must be willing to make a trade, and each must have something the other wants. Both parties must agree on the value of the exchange and how it will be carried out. Each party also must be free to accept or reject the other’s terms for the exchange. Under these conditions, a gun-wielding robber’s offer to “ex- change” your money for your life does not constitute a valid exchange. In contrast, although someone may complain that a store’s prices are “highway robbery,” an exchange occurs if he still forks over the money to buy some- thing there—even if he still grumbles about it weeks later.

To complicate things a bit more, everyone does not always agree on the terms of the exchange. Think, for example, about music piracy, which is a huge headache for music labels. On the one hand, they claim that they lose billions of dollars a year when consumers download songs without paying for them. On the other hand, a lot of people who engage in this practice don’t feel that they participate in an unfair exchange that deprives manufacturers of the value of their products. They argue that music piracy is the fault of record companies that charge way too much for new songs. What do you think?

The debate over music downloading reminds us that an agreed upon transfer of value must occur for an exchange to take place. A politician can agree to work toward certain goals in exchange for your vote, or a minister can offer you salvation in return for your faith. Today, most exchanges occur as a monetary transaction in which currency (in the form of cash, check, or credit card) is surrendered in return for a good or a service.

exchange The process by which some transfer of value occurs between a buyer and a seller.

product A tangible good, service, idea, or some combination of these that satisfies consumer or business customer needs through the exchange process; a bundle of attributes including features, functions, benefits, and uses.

Rent the Runway is a new service started by two recent business school grads. It rents high-end dresses from designers like Diane Von Furstenberg, for about one-tenth of the cost of buying the same garment in a store. A woman can rent a dress for four nights; it’s shipped directly to her doorstep much like a Netflix video. The customer returns the dress in a prepaid envelope and the rental price includes the cost of dry cleaning. Place utility at work!6

virtual goods Digital products consumers buy for use in online contexts.

utility The usefulness or benefit consumers receive from a product.

marketplace Any location or medium used to conduct an exchange.

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When Did Marketing Begin? The Evolution of a Concept Now that we have an idea of how the marketing process works, let’s take a step back and see how this process worked (or didn’t work) in “the old days.” Although it just sounds like common sense to us, be- lieve it or not, the notion that businesses and other organizations succeed when they satisfy customers’ needs actually is a pretty recent idea. Before the 1950s, marketing was basically a means of making

production more efficient. Let’s take a quick look at how the marketing discipline has developed. Table 1.2 tells us about some of the more recent events in this marketing history.

The Production Era Many people say that Henry Ford’s Model T changed America forever. Even from the start in 1908, when the “Tin Lizzie,” or “flivver” as the T was known, sold for $825, Henry Ford continued to make improvements in production. By 1912, Ford got so efficient that the car sold for $575, a price even the Ford employees who made the car could afford.7

As the price continued to drop, Ford sold even more flivvers. By 1921, the Model T Ford had 60 percent of the new-car market. In 1924, the ten millionth Model T rolled off the assembly line. The Model T story is perhaps the most well-known and most successful example of an organization that focuses on the most efficient production and distribution of products.

Ford’s focus illustrates a production orientation, which works best in a seller’s market when demand is greater than supply because it focuses on the most efficient ways to pro- duce and distribute products. Essentially, consumers have to take whatever is available— there weren’t a whole lot of other Tin Lizzies competing for drivers in the 1920s. Under these conditions, marketing plays a relatively insignificant role—the goods literally sell them- selves because people have no other choices. In the former Soviet Union, the centralized government set production quotas, and weary shoppers lined up (often for hours) to pur- chase whatever happened to be on a store’s shelves at the time.

Firms that focus on a production orientation tend to view the market as a homogeneous group that will be satisfied with the basic function of a product. Sometimes this view is too narrow. For example, Procter & Gamble’s Ivory soap has been in decline for some time be- cause the company viewed the brand as plain old soap, not as a cleansing product that could provide other benefits as well. Ivory soap lost business to newer deodorant and “beauty” soaps containing cold cream that “cleaned up” in this market.8

The Sales Era When product availability exceeds demand in a buyer’s market, businesses may engage in the “hard sell” in which salespeople aggressively push their wares. During the Great Depression in the 1930s, when money was scarce for most people, firms shifted their focus from a product orientation to moving their goods in any way they could.

This selling orientation means that management views marketing as a sales function, or a way to move products out of warehouses so that inventories don’t pile up. The selling orientation gained in popularity after World War II. During the war, the United States dra- matically increased its industrial capacity to manufacture tanks, combat boots, parachutes, and countless other wartime goods. After the war, this industrial capacity was converted to producing consumer goods.

Consumers eagerly bought all the things they couldn’t get during the war years, but once they satisfied these initial needs and wants they got more selective. The race for consumers’

production orientation A management philosophy that emphasizes the most efficient ways to produce and distribute products.


Explain the evolution

of the marketing

concept. (pp. 13–18)

selling orientation A managerial view of marketing as a sales function, or a way to move products out of warehouses to reduce inventory.

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Table 1.2 | Marketing History Year Marketing Event

1955 Ray Kroc opens his first McDonald’s.

1956 Lever Brothers launches Wisk, America’s first liquid laundry detergent.

1957 Ford rolls out Edsel, loses more than $250 million in two years.

1959 Mattel introduces Barbie.

1960 The FDA approves Searle’s Enovid as the first oral contraceptive.

1961 Procter & Gamble launches Pampers.

1962 Walmart, Kmart, Target, and Woolco open their doors.

1963 The Pepsi Generation kicks off the cola wars.

1964 Blue Ribbon Sports (now known as Nike) ships its first shoes.

1965 Donald Fisher opens The Gap, a jeans-only store in San Francisco.

1971 Cigarette advertising is banned on radio and television.

1973 Federal Express begins overnight delivery services.

1976 Sol Price opens the first warehouse club store in San Diego.

1980 Ted Turner creates CNN.

1981 MTV begins.

1982 Gannett launches USA Today.

1983 Chrysler introduces minivans.

1984 Apple Computer introduces the Macintosh.

1985 New Coke is launched; Old Coke is brought back 79 days later.

1990 Saturn, GM’s first new car division since 1919, rolls out its first car.

1993 Phillip Morris reduces price of Marlboros by 40 cents a pack and loses $13.4 billion in stock market value in one day.

1994 In the largest switch in ad history, IBM yanks its business from scores of agencies worldwide and hands its entire account to Ogilvy & Mather.

1995 eBay goes online as an experimental auction service.

1997 McDonald’s gives away Teenie Beanie Babies with Happy Meals. Consumer response is so overwhelming that McDonald’s is forced to take out ads apologizing for its inability to meet demand. Nearly 100 million Happy Meals are sold during the promotion.a

1998 Germany’s Daimler-Benz acquires America’s Chrysler Corporation for more than $38 billion in stock to create a new global automaking giant called Daimler-Chrysler.b

2003 Amazon debuts its “Search Inside the Book” feature that allows you to search the full text of more than 33 million pages from over 120,000 printed books.

2004 Online sales in the United States top $100 billion.c

2007 About 30 open source companies were purchased for more than $1 billion.d

2008 MySpace boasts over 225 million members worldwide.d

2010 Apple launches the iPad; sells 300,000 of the tablets on the first day and one million iPads in 28 days —less than half of the 74 days it took to sell one million iPhones. Consumers watch more than 30 billion videos online per month.e

Sources: Patricia Sellers, “To Avoid Trampling, Get Ahead of the Mass,” Fortune, 1994, 201–2 except as noted. a Tod Taylor, “The Beanie Factor,” Brandweek, June 16, 1997, 22–27. b Jennifer Laabs, “Daimler-Benz and Chrysler: A Merger of Global HR Proportions,” Workforce, July 1998, 13. c Keith Regan, “Report: Online Sales Top $100 Billion,” E-Commerce Times, June 1, 2004, www.ecommercetimes.com/story/34148.html. d Frank Rose, “Wired Business Trends 2008,” Wired http://www.wired.com/techbiz/it/ magazine/16-04/bz_opensource, December 2007. e Eliot Van Buskirk, “Apple iPad Reaches ‘1 Million Sold’ Twice as Fast as iPhone” (May 3, 2010), Wired, http://www .wired.com/epicenter/2010/05/apple-ipad-reaches-one-million-sold-twice-as-fast-as-iphone/#ixzz0qBrfv3tj, accessed June 7, 2010; Mashable.com (April 5, 2010), http://mashable.com/2010/04/05/ipad-stats-300000-sold/, accessed June 7, 2010; “30 Billion Videos Watched Online in April” (June 11, 2010), Center for Media Research, http://www.mediapost.com/publications/?fa�Articles.showArticle&art_aid�129561, accessed June 11, 2010.

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hearts and pocketbooks was on. The selling orientation prevailed well into the 1950s. But con- sumers as a rule don’t like to be pushed, and the hard sell gave marketing a bad image.

Companies that still follow a selling orientation tend to be more successful at making one-time sales rather than at building repeat business. We are most likely to find this focus among companies that sell unsought goods—products that people don’t tend to buy without some prodding. For example, most of us aren’t exactly “dying” to shop for cemetery plots, so some encouragement may be necessary to splurge on a final resting place.

The Relationship Era At Direct Tire Sales in Watertown, Massachusetts, customers discover an unusual sight: The customer lounge is clean, there is free coffee with fresh cream and croissants, employ- ees wear ties, and the company will even pay your cab fare home if your car isn’t ready on time. People don’t mind paying 10 to 15 percent more for these extra services.9 Direct Tire Sales has found that it pays to have a consumer orientation that satisfies customers’ needs and wants.

As the world’s most successful firms began to adopt a consumer orientation, marketers had a way to outdo the competition—and marketing’s importance was also elevated in the firm. Marketers did research to understand the needs of different consumers, assisted in tai- loring products to the needs of these various groups, and did an even better job of design- ing marketing messages than in the days of the selling orientation.

The marketing world was humming along nicely, but then inflation in the 1970s and re- cession in the 1980s took their toll on company profits. The marketing concept needed a boost. Firms had to do more than meet consumers’ needs—they had to do this better than the competition and do it repeatedly. They increasingly concentrated on improving the qual- ity of their products. By the early 1990s, many in the marketing community followed an ap- proach termed Total Quality Management (TQM). The TQM perspective takes many forms, but essentially it’s a management philosophy that involves all employees from the assembly line onward in continuous product quality improvement.

Indeed, rapid improvements in manufacturing processes give forward- thinking firms—even small ones—a huge edge in the marketplace because they are more nimble and thus able to create products consumers want when they want them and at the price they want. One way they do is to manufac- ture on demand—this means that they don’t actually produce a product until a customer orders it. The Japanese pioneered this idea with their just-in-time model that we’ll learn more about in Chapter 15.

Today, however, even small mom and pop companies can compete in this space. Technology is creating a new class of business person that we call an instapreneur. All you need is a design; even amateurs can produce jewelry, T-shirts, furniture, and indeed almost anything we can imagine. They don’t have to pay to store their inventory in huge warehouses and they don’t need any money down. For example, the German firm Spread- shirt hosts 500,000 individual T-shirt shops. You see a design you like, place an order, and bam—it gets produced and sent to your door.10

Spreadshirt even partnered with Stardoll, a Swedish virtual world that lets girls create fashion designs and see what they look like on virtual celebrities. Now, they can actually transfer their own designs to the real world.

The Triple Bottom Line Orientation Over time, many forward-thinking organizations began to see their commit- ment to quality even more intensely than “just” satisfying consumers’ needs during a single transaction. A few realized that making monetary profit is

consumer orientation A business approach that prioritizes the satisfaction of customers’ needs and wants.

Total Quality Management (TQM) A management philosophy that focuses on satisfying customers through empowering employees to be an active part of continuous quality improvement.

Marketing messages like this Romanian one for the World Wildlife Fund focus on the environmental bottom line.

instapreneur A businessperson who only produces a product when it is ordered.

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important—but there’s more to think about than just the financial bottom line. Instead, they began to focus on a triple bottom line orientation that meant building long-term bonds with customers rather than merely selling them stuff today.11 This new way of looking at business emphasizes the need to maximize three components:

1. The financial bottom line: Financial profits to stakeholders

2. The social bottom line: Contributing to the communities in which the company operates

3. The environmental bottom line: Creating sustainable business practices that minimize damage to the environment or that even improve it

Is it possible to contribute in a positive way to society and the earth and still contribute to your paycheck? Walmart, the nation’s largest retailer, seems to think so. The huge com- pany announced in 2010 its goal to cut 20 million metric tons of greenhouse gas emissions from its supply chain by the end of 2015—the equivalent of removing more than 3.8 million cars from the road for a year. It’s asking suppliers to take a hard look at the carbon their products emit. Walmart will work with its vendors to make their manufacturing processes more efficient—and hopefully pass cost savings on to customers. The chain has introduced more modest initiatives already; for example, it’s working to change the labels on clothing it sells to indicate the products can be washed in cold water (therefore lowering customers’ electricity bills) and in partnership with 20th Century Fox Home Entertainment it elimi- nated the plastic knob in the center of CD cases to cut greenhouse gas emissions.12

One outgrowth of this new way of thinking was the concept of customer relationship management (CRM), which involves systematically tracking consumers’ preferences and behaviors over time in order to tailor the value proposition as closely as possible to each indi- vidual’s unique wants and needs. With the advent of the Internet, a CRM approach got a lot easier to implement as more and more firms started to rely heavily on the Web to connect with consumers. The Internet provides the ultimate opportunity for implementation of the market- ing concept because it allows a firm to personalize its messages and products to better meet the needs of each individual consumer. More on this in Chapter 12.

Although dot-com companies took a beating in the marketplace during the first “bubble” in the early 1990s, many analysts believe that this was just a preliminary shakeout—the heyday of the Internet is yet to come. More recent success stories like Google, Twitter, Facebook, and Flickr seem to be proving analysts right. Indeed, some marketing analysts suggest that the Internet creates a paradigm shift for business. This means that companies must adhere to a new model to profit in a wired world. They argue that we live in an attention economy, one in which a company’s success will be measured by its share of mind rather than share of market, where companies make money when they attract eyeballs rather than just dollars. For example, Google sells advertising to many other companies, so the more consumers it can persuade to “google” rather than “bing” or “yahoo,” the more it can charge to place ads on search pages.

This means that companies must find new and innovative ways to stand out from the crowd and become an integral part of consumers’ lives rather than just being a dry company that makes and sells products. For ex- ample, major consumer packaged foods companies are drawing many more customers to their Web sites than in the past. More important, the sites are “sticky,” meaning that they tend to keep visitors long enough to make a last- ing impression on them and motivate people to come back for more.

Another result of this new way of long-term thinking is the social marketing concept, which maintains that marketers must satisfy customers’ needs in ways that also benefit society while still delivering a profit to the firm. This perspective is even more important since the terrorist attacks of

triple bottom line orientation A business orientation that looks at financial profits, the community in which the organization operates, and creating sustainable business practices.

customer relationship management (CRM) A systematic tracking of consumers’ preferences and behaviors over time in order to tailor the value proposition as closely as possible to each individual’s unique wants and needs. CRM allows firms to talk to individual customers and to adjust elements of their marketing programs in light of how each customer reacts.

attention economy A company’s success is measured by its share of mind rather than share of market, where companies make money when they attract eyeballs rather than just dollars.

social marketing concept A management philosophy that marketers must satisfy customers’ needs in ways that also benefit society and also deliver profit to the firm.

Green Mountain Coffee uses sustainable business practices.

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2001, which led many people and firms to reexamine their values and redouble their commitments to community and country.

Many big and small firms alike practice this philosophy. Their efforts include satisfying society’s environmental and so- cial needs for a cleaner, safer environment by developing recy- clable packaging, adding extra safety features such as car air bags, voluntarily modifying a manufacturing process to reduce pollution, and sponsoring campaigns to address social prob- lems. Servus Credit Union, a Canadian bank, even handed out $200,000 in $10 increments to finance small good deeds.13

A very important trend now is for companies to think of ways to design and manufacture products with a focus on sustainability, which we define as “meeting present needs without compromising the ability of future generations to meet their needs.”14 Some refer to this philosophy as “cradle to cradle”; this term describes the ideal condition where a product is made from natural materials and is fully reusable, recy- clable, or biodegradable so the net depletion of resources a company needs to make it is zero. When players in the 2010 World Cup ran onto the field, many wore Nike jerseys made from plastic bottles the company retrieved from landfills in Japan and Taiwan. Walmart is a leader in sustainability practices. The giant retail chain makes and sells photo frames from plastic waste products it creates and recycles materials left over from manufacturing its private la- bel diapers into building materials when it constructs new stores. Sustainability is good business because it reduces costs while conserving resources; Walmart estimates savings of $100 million in one year when it switched to a recyclable variety of cardboard it uses to ship goods to its stores. Consumers love it too: In the United States alone we spend more than $500 billion per year on sustainable products.15

Sustainability applies to many aspects of doing business, including social and eco- nomic practices (e.g., humane working conditions and diplomacy to prevent wars that de- plete food supplies, atmospheric quality, and of course lives). One other crucial pillar of sustainability is the environmental impact of the product. Green marketing, the develop- ment of marketing strategies that support environmental stewardship by creating an en- vironmentally founded differential benefit in the minds of consumers, is being practiced by most forward-thinking firms today. Green marketing is one aspect of a firm’s overall commitment to sustainability. A recent study on the impact of green marketing uncovered some interesting results:

• About half the companies reported that they are consciously taking steps to become more green.

• More than 80 percent of respondents indicated they expect to spend more on green mar- keting in the future.

• Companies with smaller marketing budgets tend to spend more on green marketing and also think green marketing is more effective than larger companies do.

• By far the most popular medium for green marketing was the Internet, with 74.2 percent of respondents having spent money online.

• Marketers that track marketing spending and its relation to sales believe people will pay more for green products.

• Marketers tend to lead green initiatives; 50 percent of firm managers surveyed agree that control of the green (sustainability) program is in the hands of marketers.16

In addition to building long-term relationships and focusing on social responsibility, triple bottom line firms place a much greater focus on accountability—measuring just how

sustainability A product design focus that seeks to create products that meet present consumer needs without compromising the ability of future generations to meet their needs.

Game sites like Candystand are “sticky” (this one is built around candy, after all) so many advertisers find these media outlets an attractive place to advertise.

green marketing A marketing strategy that supports environmental stewardship, thus creating a differential benefit in the minds of consumers.

© Fu

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18 PA RT O N E | M A K E M A R K E T I N G VA L U E D E C I S I O N S

return on investment (ROI) The direct financial impact of a firm’s expenditure of a resource such as time or money.

much value marketing activities create. This means that marketers at these organizations ask hard questions about the true value of their efforts and their impact on the bottom line. These questions all boil down to the simple acronym of ROI (return on investment). Marketers now realize that if they want to assess just how much value they create for the firm, they need to know exactly what they are spending and what the concrete results of their actions are.

However, it’s not always so easy to assess the value of marketing ac- tivities. Many times managers state their marketing objectives using vague phrases like “increase awareness of our product” or “encourage people to eat healthier snacks.” These goals are important, but their lack of specificity makes it pretty much impossible for senior management to de- termine marketing’s true impact. Because management may view these ef- forts as costs rather than investments, marketing activities often are among the first to be cut out of a firm’s budget. To win continued support for what they do (and sometimes to keep their jobs), marketers in triple bottom line firms do their best to prove to management that they are gen- erating measurable value by aligning marketing activities with the firm’s overall business objectives.17

What Can We Market? Marketers’ creations surround us. It seems that everywhere we turn we get bombarded by advertisements, stores, and products that compete fiercely and loudly for our attention and our dollars. Mar- keters filter much of what we learn about the world, such as when we see images of rich or beautiful people on television commercials or magazines. Ads show us how we should act and what we should own. Marketing’s influence extends from “serious” goods and serv- ices such as health care to “fun” things such as extreme skateboard-

ing equipment and hip-hop music (though many people take these products as seriously as their health).

Lasers to Lady Gaga Popular culture consists of the music, movies, sports, books, celebrities, and other forms of entertainment that the mass market consumes. The relationship between marketing and popular culture is a two-way street. The goods and services that are popular at any time often mirror changes in the larger society. Consider, for example, some U.S. products that reflected underlying cultural changes at the time they were introduced:

• The TV dinner signaled changes in family structure, such as a movement away from the traditional family dinner hour filled with conversation about the day’s events.

• Cosmetics made of natural materials and not tested on animals reflected social concerns about pollution and animal rights.

• Condoms marketed in pastel carrying cases intended for female buyers signaled chang- ing attitudes toward sexual responsibility.

Marketing messages often communicate myths, stories containing symbolic ele- ments that express the shared emotions and ideals of a culture. Consider, for example,

popular culture The music, movies, sports, books, celebrities, and other forms of entertainment consumed by the mass market.

Green marketing in action.

myths Stories containing symbolic elements that express the shared emotions and ideals of a culture.

© So

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Understand the range

of services and goods

that organizations

market. (pp. 18–21)

C H A P T E R 1 | W E L C O M E T O T H E W O R L D O F M A R K E T I N G : C R E AT E A N D D E L I V E R VA L U E 19

how McDonald’s takes on mythical qualities. To some, the golden arches are virtually synonymous with American culture.18 These familiar structures offer sanctuary to Americans in foreign lands who are grateful to know ex- actly what to expect once they enter. Basic struggles of good versus evil play out in the fantasy world of McDon- ald’s advertising, as when Ronald McDonald confounds the Hamburglar. McDonald’s even runs Hamburger University, where fast-food majors learn how to make the perfect burger.

Is there any limit to what marketers can market? Marketing applies to more than just canned peas or cola drinks. Some of the best marketers come from the ranks of services companies such as American Express or not- for-profit organizations such as Greenpeace. Politicians, athletes, and performers use marketing to their advantage (just think about that $30 T-shirt you may have bought at a baseball game or rock concert). Ideas such as political systems (democracy, totalitarianism), religion (Christianity, Islam), and art (realism, abstract) also compete for acceptance in a “marketplace.” In this book, we’ll refer to any good, service, or idea that can be marketed as a product, even though what you’re buying may not take a physical form.

Consumer Goods and Services Consumer goods are the tangible products that individual consumers purchase for personal or family use. Services are intangible products that we pay for and use but never own. Service transactions contribute on average more than 60 percent to the gross national product of all industrialized nations. Marketers need to understand the special challenges that arise when marketing an intangible service rather than a tangible good.19

In both cases, though, keep in mind that the consumer looks to obtain some underlying value, such as convenience, security, or status, from a mar- keting exchange. That value can come from a variety of competing goods and services, even those that don’t resemble one another on the surface. For exam- ple, a new CD and a ticket to a local concert may cost about the same, and each may provide the benefit of musical enjoyment, so consumers often have to choose among competing alternatives if they can’t afford (or don’t want) to buy them all.

Business-to-Business Goods and Services Business-to-business marketing is the marketing of goods and services from one organization to another. Although we usually relate marketing to the thousands of consumer goods begging for our dollars every day, the reality is that busi- nesses and other organizations buy a lot more goods than consumers do. They purchase these industrial goods for further processing or to use in their own business operations. For example, automakers buy tons of steel to use in the manufacturing process, and they buy computer systems to track manufacturing costs and other information essential to operations.

Similarly, there is a lot of buzz about e-commerce and the buying and selling of products— books, CDs, cars, and so forth—on the Internet. However, just like in the off-line world, much of the real online action is in the area of business-to-business marketing.

Marketing messages sometimes refer to familiar cultural stories, like this ad from Chile that borrows imagery from Little Red Riding Hood.

consumer goods The goods individual consumers purchase for personal or family use.

Marketing an intangible service like the assistance this British realtor offers poses unique challenges.

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services Intangible products that are exchanged directly between the producer and the customer.

business-to-business marketing The marketing of goods and services from one organization to another.

20 PA RT O N E | M A K E M A R K E T I N G VA L U E D E C I S I O N S


Someone steals from a store every five seconds. Shrinkage is the industry term for inventory and cash losses from shoplifting and employee theft. As we’ll see in Chapter 16, this is a massive problem for businesses that they in turn pass on to consumers in the form of higher prices. Analysts attribute about 40 percent of the losses to employees rather than shoppers.


Some types of destructive consumer behavior are anticonsumption, when people deliber- ately deface products. This practice ranges from relatively mild acts like spray-painting graffiti on buildings and subways, to serious incidences of product tampering or even the release of computer viruses that can bring large corporations to their knees.

Not-for-Profit Marketing As we noted earlier, you don’t have to be a businessperson to use marketing principles. Many not-for-profit organizations, including museums, zoos, and even churches, practice the marketing concept. Local governments are adopting marketing techniques to create more effective taxpayer services and to attract new businesses and industries to their coun- ties and cities. Even states are getting into the act: We’ve known for a long time that I ♥ NY, but recently Kentucky and Oregon hired advertising agencies to develop statewide branding campaigns (the official state motto of Oregon is now “Oregon. We love dream- ers.”).22 The intense competition for support of civic and charitable activities means that only the not-for-profits that meet the needs of their constituents and donors will survive.

Idea, Place, and People Marketing Marketing principles also encourage people to endorse ideas or to change their behaviors in positive ways. Many organizations work hard to convince consumers to use seat belts, not to litter our highways, to engage in safe sex, or to believe that one political system is prefer- able to another. In addition to ideas, places and people also are marketable. We are all famil- iar with tourism marketing that promotes exotic resorts like Club Med (“the antidote for civilization”). For many developing countries like Thailand, tourism provides an important opportunity for economic growth.

You may have heard the expression, “Stars are made, not born.” There’s a lot of truth to that. Lady Gaga may have a killer voice and Ryan Howard may have a red-hot baseball

anticonsumption The deliberate defacement of products.

Ripped from the Headlines!

Ethical/Sustainable Decisions in the Real World Back in the day, the “typical” marijuana smoker (or at least the stereotype) was a bearded, bell-bottomed hippie who zoned out in front of the TV watching re- runs on Nick at Night and eating Oreos by the bagful.Today, there’s a good chance a user is a senior citizen or a suburban housewife who smokes joints to fight the negative effects of glaucoma or chemotherapy. Pot is going mainstream.The drug is legal with a prescription in 14 states including California, Colorado, and New

Jersey, and some feel it’s only a matter of time be- fore American voters decide in favor of full-scale legalization.

Some businesspeople smell opportunity through the smoke. One consulting firm called CannBe (advocates prefer the term cannabis to marijuana) offers seminars to budding marketers

(pun intended) who want to learn about the best techniques to merchandise the drug and related paraphernalia in a cleaned-up context. The firm’s president ob- serves, “If we can’t demonstrate professionalism and legitimacy, we’re never going to gain the trust of our citizens.” Taking a page from marketers like General Motors and General Mills, the firm is diversifying its product line as it offers a weaker ver- sion of weed to attract first-time potheads. California dispensaries (there are more in the state than there are Starbucks outlets) offer regular promotions including coupons and even free parking to lure customers.20 At the Harborside Health Cen- ter in Oakland, customers can check out different strains on display under a glass counter with brand names like Blue Dreams, Super Diesel, and Original Purple. Shoppers who enjoy reading detailed wine reviews will feel at home with write-ups of recommended varieties like this one: “. . . lush and spicy . . . reminiscent of Cali mist yet fatter and more body. The high is up and giggly and long lived as well. I was baked for four hours after smoking some.”21

ETHICS CHECK: Find out what other students taking this course would do and why on www .mypearsonmarketinglab .com

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