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Principles of Marketing Version 2.0

By John F. Tanner, Jr. and Mary Anne Raymond

687922

Principles of Marketing Version 2.0

John F. Tanner, Jr. and Mary Anne Raymond

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Flat World Knowledge, Inc. One Bridge Street Irvington, NY 10533

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Chapter 1 Chapter 2 Chapter 3 Chapter 4 Chapter 5 Chapter 6 Chapter 7 Chapter 8 Chapter 9 Chapter 10

Chapter 11 Chapter 12 Chapter 13 Chapter 14 Chapter 15 Chapter 16

Brief Contents

About the Authors Acknowledgments Preface

What Is Marketing? Strategic Planning Consumer Behavior: How People Make Buying Decisions Business Buying Behavior Market Segmenting, Targeting, and Positioning Creating Offerings Developing and Managing Offerings Using Marketing Channels to Create Value for Customers Using Supply Chains to Create Value for Customers Gathering and Using Information: Marketing Research and Market Intelligence Integrated Marketing Communications and the Changing Media Landscape Public Relations, Social Media, and Sponsorships Professional Selling Customer Satisfaction, Loyalty, and Empowerment Price, the Only Revenue Generator The Marketing Plan

Index

1

2

3

5Chapter 1

5 11 13 15 20 22

23Chapter 2

23 25 34 38 40 43 44

45Chapter 3

46 60

65 67

69Chapter 4

69 72 77 80 84 88 91 93

95Chapter 5

95 99

Contents

About the Authors

Acknowledgments

Preface

What Is Marketing?

Defining Marketing Who Does Marketing? Why Study Marketing? Themes and Organization of This Book Discussion Questions and Activities Endnotes

Strategic Planning

The Value Proposition Components of the Strategic Planning Process Developing Organizational Objectives and Formulating Strategies Where Strategic Planning Occurs within Firms Strategic Portfolio Planning Approaches Discussion Questions and Activities Endnotes

Consumer Behavior: How People Make Buying Decisions

Factors That Influence Consumers’ Buying Behavior Low-Involvement Versus High-Involvement Buying Decisions and the Consumer’s Decision-Making Process Discussion Questions and Activities Endnotes

Business Buying Behavior

The Characteristics of Business-to-Business (B2B) Markets Types of B2B Buyers Buying Centers Stages in the B2B Buying Process and B2B Buying Situations International B2B Markets and E-commerce Ethics in B2B Markets Discussion Questions and Activities Endnotes

Market Segmenting, Targeting, and Positioning

Targeted Marketing versus Mass Marketing How Markets Are Segmented

110 114 116 118

119Chapter 6

119 125 128 131 135 136

139Chapter 7

140 146 155 156

157Chapter 8

157 164 169 173 176 180 182

183Chapter 9

185 189 194 198 201 202

203Chapter 10

205 212 229 231

233Chapter 11

233 238

Selecting Target Markets and Target-Market Strategies Positioning and Repositioning Offerings Discussion Questions and Activities Endnotes

Creating Offerings

What Composes an Offering? Types of Consumer Offerings Types of Business-to-Business (B2B) Offerings Branding, Labeling, and Packaging Managing the Offering Discussion Questions and Activities

Developing and Managing Offerings

The New Offering Development Process Managing New Products: The Product Life Cycle Discussion Questions and Activities Endnotes

Using Marketing Channels to Create Value for Customers

Marketing Channels and Channel Partners Typical Marketing Channels Functions Performed by Channel Partners Marketing Channel Strategies Channel Dynamics Discussion Questions and Activities Endnotes

Using Supply Chains to Create Value for Customers

Sourcing and Procurement Demand Planning and Inventory Control Warehousing and Transportation Track and Trace Systems and Reverse Logistics Discussion Questions and Activities Endnotes

Gathering and Using Information: Marketing Research and Market Intelligence

Marketing Information Systems Steps in the Marketing Research Process Discussion Questions and Activities Endnotes

Integrated Marketing Communications and the Changing Media Landscape

Integrated Marketing Communications (IMC) The Promotion (Communication) Mix

240

243 245 252 254 259 260

261Chapter 12

262 267 269 270

271Chapter 13

271 277 282 287 290 295 298

299Chapter 14

299 304 310 315 320 321

323Chapter 15

323 326 330 337 338

339Chapter 16

339 341 350 355 358 359

Factors Influencing the Promotion Mix, Communication Process, and Message Problems Advertising and Direct Marketing Message Strategies The Promotion Budget Sales Promotions Discussion Questions and Activities Endnotes

Public Relations, Social Media, and Sponsorships

Public Relations Activities and Tools Social Media Discussion Questions and Activities Endnotes

Professional Selling

The Role Professional Salespeople Play Customer Relationships and Selling Strategies Sales Metrics (Measures) Ethics in Sales and Sales Management Integrating Sales and Marketing Outsourcing the Sales Function Discussion Questions and Activities

Customer Satisfaction, Loyalty, and Empowerment

Customer Communities Loyalty Management Customer Satisfaction Ethics, Laws, and Customer Empowerment Discussion Questions and Activities Endnotes

Price, the Only Revenue Generator

The Pricing Framework and a Firm’s Pricing Objectives Factors That Affect Pricing Decisions Pricing Strategies Discussion Questions and Activities Endnotes

The Marketing Plan

Marketing Planning Roles Functions of the Marketing Plan Forecasting Ongoing Marketing Planning and Evaluation Discussion Questions and Activities Endnotes

361Index

Source: Photo by Lilly Tanner, used with permission.

About the Authors

JEFF TANNER John F. (Jeff) Tanner, Jr., is professor of marketing at the Hankamer School of Business, Baylor University. He is an internationally recognized expert in sales and sales manage- ment. He is the author or coauthor of twelve books, including two best-selling text- books with McGraw-Hill—Selling: Building Partnerships and Business Marketing: Con- necting Strategy, Relationships and Learning. His books have been translated into sever- al languages and distributed in over thirty countries.

Dr. Tanner spent eight years in marketing and sales with Rockwell International and Xerox Corporation. In 1988, he earned his PhD from the University of Georgia and joined the faculty at Baylor University, where he currently serves as the research direct- or of the Center for Professional Selling.

In addition to writing and research, Dr. Tanner maintains an active consulting and training practice. Recent clients include IBM, Hillcrest Medical System, and others. He is the managing partner of Team Fulcrum, which conducts sales training and market- ing research, and he is a founder and research director of BPT Partners, the premier training and education company focused on advancing the skills and competency of professionals in the customer relationship management industry.

MARY ANNE RAYMOND Mary Anne Raymond is a professor and chair of marketing at Clemson University. Pri- or to joining the faculty at Clemson, she served on the faculty at American University in Washington, DC, and helped coordinate the graduate marketing program at Johns Hopkins University. Previously, she was an invited Fulbright Professor of Marketing at Seoul National University in Seoul, Korea.

Dr. Raymond received her PhD from the University of Georgia. She has extensive industry experience doing strategic planning and acquisition analysis, marketing re- search, and investment analysis for Holiday Inns, Inc.; Freeport Sulphur; and Howard, Weil, Labouisse, Friedrichs. Dr. Raymond also does consulting, seminars, and market- ing training for multinational companies, which have included organizations such as Merit Communications in Seoul, Korea; the Conference Center and Inn at Clemson University; and Sangyong Group.

Her research focuses on strategy in domestic and international markets, public policy issues, and social marketing. Dr. Raymond has published over one hundred pa- pers appearing in journals such as International Marketing Review, the Journal of Ad- vertising Research, the Journal of Marketing Education, the Journal of Personal Selling and Sales Management, and the Journal of Public Policy and Marketing, as well as nu- merous other journals and international conference proceedings. Dr. Raymond has also received numerous awards and recognition for her teaching and research. She received the Professor of the Year Award from Clemson University Panhellenic Association, the Undergraduate Teaching Excellence Award from the College of Business and Behavior- al Science at Clemson three times, the Eli Lilly Faculty Excellence Awards for Outstand- ing Research and Outstanding Teaching, and the Eli Lilly Partnership Awards, and re- cognition for Leadership in Student Development from the Dow Chemical Company.

Acknowledgments The authors would like to thank the following reviewers for their feedback, which helped shape the second edition:

< Stephen M. Berry, Anne Arundel Community College < Bob Conrad, Ph.D., APR, Conrad Communications, LLC. < Ted Lapekas, SUNY/Empire State College < Donald G. Purdy, University at Albany < Elizabeth F. Purinton, Marist College < Kelly Sell, Bucks County Community College < Richard L. Sharman, Lone Star College-Montgomery < Gary Tucker, Northwestern Oklahoma State University < Gregory R. Wood, Canisius College < Anne Zahradnik, Marist College

The authors would like to thank Camille Schuster for her input, examples, and feedback on the first edition chapters. The authors would also like to thank the following colleagues who have reviewed the first edition text and provided comprehensive feedback and suggestions for improving the material:

< Christie Amaot, University of North Carolina, Charlotte < Andrew Baker, Georgia State University < Jennifer Barr, The Richard Stockton College of New Jersey < George Bernard, Seminole Community College < Patrick Bishop, Ferris State University < Donna Crane, Northern Kentucky University < Lawrence Duke, Drexel University < Mary Ann Edwards, College of Mount St. Joseph < Paulette Faggiano, Southern New Hampshire University < Bob Farris, Mt. San Antonio College < Leisa Flynn, Florida State University < Renee Foster, Delta State University < Alfredo Gomez, Broward College < Jianwei Hou, Minnesota State University, Mankato < Craig Kelley, California State University, Sacramento < Marilyn Liebrenz-Himes, George Washington University < Alicia Lupinacci, Tarrant County College < John Miller, Pima Community College, Downtown < Melissa Moore, Mississippi State University < Kathy Rathbone, Tri-County Community College < Michelle Reiss, Spalding University < Tom Schmidt, Simpson College < Richard Sharman, Lonestar College < Karen Stewart, The Richard Stockton College of New Jersey < Victoria Szerko, Dominican College < Robert Winsor, Loyola Marymount University

Preface Principles of Marketing 2.0 by Tanner and Raymond teaches the experience and process of actually doing marketing—not just the vocabulary. It carries five dominant themes throughout in order to expose students to marketing in today’s environment:

1. Service-dominant logic—This textbook employs the term “offering” instead of the more traditional first P—product. That is because consumers don’t sacrifice value when alternating between a product and a service. They are evaluating the entire ex- perience, whether they interact with a product, a service, or a combination. So the fundamental focus is providing value throughout the value chain, whether that value chain encompasses a product, a service, or both.

2. Sustainability—Increasingly, companies are interested in their impact on their local community as well as on the overall en- vironment. This is often referred to as the “triple bottom line” of financial, social, and environment performance.

3. Ethics and social responsibility—Following on the sustainability notion is the broader importance of ethics and social re- sponsibility in creating successful organizations. The authors make consistent references to ethical situations throughout chapter coverage, and end-of-chapter material in many chapters will encompass ethical situations.

4. Global coverage—Whether it is today’s price of gasoline, the current U.S. presidential race, or midwestern U.S. farming, al- most every industry and company needs strong global awareness. And today’s marketing professionals must understand the world in which they and their companies operate. Examples of decisions relative to the global marketplace are discussed throughout the text.

5. Metrics—Firms today have the potential to gather more information than ever before about their current and potential cus- tomers. That information gathering can be costly, but it can also be very revealing. With the potential to capture so much more detail about micro transactions, firms should now be more able to answer, “Was this marketing strategy really worth it?” and “What is the marketing ROI?” and finally, “What is this customer or set of customers worth to us over their lifetime?”

In this second edition, you’ll also find more emphasis on omni-channel marketing, social media in marketing, and the other com- ponents of the digital media revolution that are changing marketing so rapidly. Examples, videos, illustrations, and more reflect the latest in how marketing gets done.

4 PRINCIPLES OF MARKETING VERSION 2.0

marketing

“The activity, set of institutions, and processes for creating, communicating, delivering, and exchanging offerings that have value for customers, clients, partners, and society at large.”

creating

In marketing, a term that involves collaboration with suppliers and customers in order to generate offerings of value to customers.

exchanging

The act of transacting value between a buyer and a seller.

C H A P T E R 1 What Is Marketing? What makes a business idea work? Does it only take money? Why are some products a huge success and similar

products a dismal failure? How was Apple, a computer company, able to create and launch the wildly successful

iPod, yet Microsoft’s first foray into MP3 players was a total disaster? If the size of the company and the money

behind a product’s launch were the difference, Microsoft would have won. But for Microsoft to have won, it would

have needed something it’s not had in a while—good marketing so it can produce and sell products that

consumers want.

So how does good marketing get done?

1. DEFINING MARKETING

L E A R N I N G O B J E C T I V E

1. Define marketing and outline its components.

Marketing is defined by the American Marketing Association as “the activity, set of institutions, and processes for creating, communicating, delivering, and exchanging offerings that have value for cus- tomers, clients, partners, and society at large.”[1] If you read the definition closely, you see that there are four activities, or components, of marketing:

1. Creating. The process of collaborating with suppliers and customers to create offerings that have value.

2. Communicating. Broadly, describing those offerings, as well as learning from customers. 3. Delivering. Getting those offerings to the consumer in a way that optimizes value. 4. Exchanging. Trading value for those offerings.

The traditional way of viewing the components of marketing is via the four Ps: 1. Product. Goods and services (creating offerings). 2. Promotion. Communication. 3. Place. Getting the product to a point at which the customer can purchase it (delivering). 4. Price. The monetary amount charged for the product (exchanging).

Introduced in the early 1950s, the four Ps were called the marketing mix, meaning that a marketing plan is a mix of these four components.

If the four Ps are the same as creating, communicating, delivering, and exchanging, you might be wondering why there was a change. The answer is that they are not exactly the same. Product, price, place, and promotion are nouns. As such, these words fail to capture all the activities of marketing. For example, exchanging requires mechanisms for a transaction, which consist of more than simply a price or place. Exchanging requires, among other things, the transfer of ownership. For example, when you buy a car, you sign documents that transfer the car’s title from the seller to you. That’s part of the ex- change process.

Even the term product, which seems pretty obvious, is limited. Does the product include services that come with your new car purchase (such as free maintenance for a certain period of time on some models)? Or does the product mean only the car itself?

Finally, none of the four Ps describes particularly well what marketing people do. However, one of the goals of this book is to focus on exactly what it is that marketing professionals do.

value

Total sum of benefits received that meet a buyer’s needs. See personal value equation.

personal value equation

The net benefit a consumer receives from a product less the price paid for it and the hassle or effort expended to acquire it.

marketing concept

A philosophy underlying all that marketers do, driven by satisfying customer wants and needs.

market oriented

The degree to which a company follows the marketing concept.

1.1 Value Value is at the center of everything marketing does (Figure 1.1). What does value mean?

F I G U R E 1 . 1

Marketing is composed of four activities centered on customer value: creating, communicating, delivering, and exchanging value.

When we use the term value, we mean the benefits buyers receive that meet their needs. In other words, value is what the customer gets by purchasing and consuming a company’s offering. So, al- though the offering is created by the company, the value is determined by the customer.

Furthermore, our goal as marketers is to create a profitable exchange for consumers. By profitable, we mean that the consumer’s personal value equation is positive. The personal value equation is

value = benefits received – [price + hassle]

Hassle is the time and effort the consumer puts into the shopping process. The equation is a personal one because how each consumer judges the benefits of a product will vary, as will the time and effort he or she puts into shopping. Value, then, varies for each consumer.

One way to think of value is to think of a meal in a restaurant. If you and three friends go to a res- taurant and order the same dish, each of you will like it more or less depending on your own personal tastes. Yet the dish was exactly the same, priced the same, and served exactly the same way. Because your tastes varied, the benefits you received varied. Therefore the value varied for each of you. That’s why we call it a personal value equation.

Value varies from customer to customer based on each customer’s needs. The marketing concept, a philosophy underlying all that marketers do, requires that marketers seek to satisfy custom- er wants and needs. Firms operating with that philosophy are said to be market oriented. At the same time, market-oriented firms recognize that exchange must be profitable for the company to be success- ful. A marketing orientation is not an excuse to fail to make profit.

6 PRINCIPLES OF MARKETING VERSION 2.0

production orientation

A belief that the way to compete is a function of product innovation and reducing production costs, as good products appropriately priced sell themselves.

production era

A period beginning with the Industrial Revolution and concluding in the 1920s in which production-orientation thinking dominated the way in which firms competed.

selling orientation

A philosophy that products must be pushed through selling and advertising in order for a firm to compete successfully.

selling era

A period running from the 1920s to until after World War II in which the selling orientation dominated the way firms competed.

product orientation

A philosophy that focuses on competing through product innovation.

marketing era

From 1950 to at least 1990 (see service-dominant logic era, value era, and one-to-one era), the dominant philosophy among businesses is the marketing concept.

value era

From the 1990s to the present, some argue that firms moved into the value era, competing on the basis of value; others contend that the value era is simply an extension of the marketing era and is not a separate era.

one-to-one era

From the 1990s to the present, the idea of competing by building relationships with customers one at a time and seeking to serve each customer’s needs individually.

Firms don’t always embrace the marketing concept and a market orientation. Beginning with the Industrial Revolution in the late 1800s, companies were production orientation. They believed that the best way to compete was by reducing production costs. In other words, companies thought that good products would sell themselves. Perhaps the best example of such a product was Henry Ford’s Model A automobile, the first product of his production line innovation. Ford’s production line made the automobile cheap and affordable for just about everyone. The production era lasted until the 1920s, when production-capacity growth began to outpace demand growth and new strategies were called for. There are, however, companies that still focus on production as the way to compete.

From the 1920s until after World War II, companies tended to be selling orientation, meaning they believed it was necessary to push their products by heavily emphasizing advertising and selling. Consumers during the Great Depression and World War II did not have as much money, so the com- petition for their available dollars was stiff. The result was this push approach during the selling era. Companies like the Fuller Brush Company and Hoover Vacuum began selling door-to-door and the vacuum-cleaner salesman (they were always men) was created. Just as with production, some compan- ies still operate with a push focus.

In the post–World War II environment, demand for goods increased as the economy soared. Some products, limited in supply during World War II, were now plentiful to the point of surplus. Companies believed that a way to compete was to create products different from the competition, so many focused on product innovation. This focus on product innovation is called the product orient- ation. Companies like Procter & Gamble created many products that served the same basic function but with a slight twist or difference in order to appeal to a different consumer, and as a result products proliferated. But as consumers had many choices available to them, companies had to find new ways to compete. Which products were best to create? Why create them? The answer was to create what cus- tomers wanted, leading to the development of the marketing concept. During this time, the marketing concept was developed, and from about 1950 to 1990, businesses operated in the marketing era.

So what era would you say we’re in now? Some call it the value era: a time when companies em- phasize creating value for customers. Is that really different from the marketing era, in which the em- phasis was on fulfilling the marketing concept? Maybe not. Others call today’s business environment the one-to-one era, meaning that the way to compete is to build relationships with customers one at a time and seek to serve each customer’s needs individually. For example, the longer you are customer of Amazon, the more detail they gain in your purchasing habits and the better they can target you with offers of new products. With the advent of social media and the empowerment of consumers through ubiquitous information that includes consumer reviews, there is clearly greater emphasis on meeting customer needs. Yet is that substantially different from the marketing concept?

CHAPTER 1 WHAT IS MARKETING? 7

service-dominant logic

An approach to business that recognizes that customers do not distinguish between the tangible and the intangible aspects of a good or service, but rather see a product in terms of its total value.

service-dominant logic era

The period from 1990 to the present in which some believe that the philosophy of service-dominant logic dominates the way firms compete.

offering

The entire bundle of a tangible good, intangible service, and price that composes what a company offers to customers.

communicating

In marketing, a broad term meaning describing the offering and its value to potential customers, as well as learning from customers.

Still others argue that this is the time of service-dominant logic and that we are in the service- dominant logic era. Service-dominant logic is an approach to business that recognizes that con- sumers want value no matter how it is delivered, whether it’s via a product, a service, or a combination of the two. Although there is merit in this belief, there is also merit to the value approach and the one- to-one approach. As you will see throughout this book, all three are intertwined. Perhaps, then, the name for this era has yet to be devised.

Whatever era we’re in now, most historians would agree that defining and labeling it is difficult. Value and one-to-one are both natural extensions of the marketing concept, so we may still be in the marketing era. To make matters more confusing, not all companies adopt the philosophy of the era. For example, in the 1800s Singer and National Cash Register adopted strategies rooted in sales, so they operated in the selling era forty years before it existed. Some companies are still in the selling era. Re- cently, many considered automobile manufacturers to be in the trouble they were in because they work too hard to sell or push product and not hard enough on delivering value.

Creating Offerings That Have Value

Marketing creates those goods and services that the company offers at a price to its customers or cli- ents. That entire bundle consisting of the tangible good, the intangible service, and the price is the company’s offering. When you compare one car to another, for example, you can evaluate each of these dimensions—the tangible, the intangible, and the price—separately. However, you can’t buy one manufacturer’s car, another manufacturer’s service, and a third manufacturer’s price when you actually make a choice. Together, the three make up a single firm’s offer.

Marketing people do not create the offering alone. For example, when the iPad was created, Apple’s engineers were also involved in its design. Apple’s financial personnel had to review the costs of producing the offering and provide input on how it should be priced. Apple’s operations group needed to evaluate the manufacturing requirements the iPad would need. The company’s logistics managers had to evaluate the cost and timing of getting the offering to retailers and consumers. Apple’s dealers also likely provided input regarding the iPad’s service policies and warranty structure. Market- ing, however, has the biggest responsibility because it is marketing’s responsibility to ensure that the new product delivers value.

Communicating Offerings

Communicating is a broad term in marketing that means describing the offering and its value to your potential and current customers, as well as learning from customers what it is they want and like. Sometimes communicating means educating potential customers about the value of an offering, and sometimes it means simply making customers aware of where they can find a product. Communicating also means that customers get a chance to tell the company what they think. Today companies are find- ing that to be successful, they need a more interactive dialogue with their customers. For example, Comcast customer service representatives monitor Twitter. When they observe consumers tweeting problems with Comcast, the customer service reps will post resolutions to their problems. Similarly, JCPenney has created consumer groups that talk among themselves on JCPenney-monitored Web sites. The company might post questions, send samples, or engage in other activities designed to solicit feedback from customers.

Mobile devices, like iPads and Droid smartphones, make mobile marketing possible too. For ex- ample, if consumers check-in at a shopping mall on Foursquare or Facebook, stores in the mall can send coupons and other offers directly to their phones and pad computers.

8 PRINCIPLES OF MARKETING VERSION 2.0

F I G U R E 1 . 2

A BMW X5 costs much more than a Honda CRV, but why is it worth more? What makes up the complete offering that creates such value?

Source: Wikimedia Commons.

F I G U R E 1 . 3

Social media sites like Foursquare and Facebook have a location feature that allows consumers to post their location. Retailers can then use this to send coupons and other special offers to the consumer’s phone or pad for immediate use.

Source: Flickr.

Companies use many forms of communication, including advertising on the Web or television, on bill- boards or in magazines, through product placements in movies, and through salespeople. Other forms of communication include attempting to have news media cover the company’s actions (part of public relations [PR]), participating in special events such as the annual International Consumer Electronics Show in which Apple and other companies introduce their newest gadgets, and sponsoring special events like the Susan G. Komen Race for the Cure.

CHAPTER 1 WHAT IS MARKETING? 9

delivering

In marketing, as in delivering value, a broad term that means getting the product to the consumer and making sure that the user gets the most out of the product and service.

supply chain

All of the organizations that participate in the production, promotion, and delivery of a product or service from the producer to the end consumer.

logistics

The physical flow of materials in the supply chain.

exchange

The transaction of value, usually economic, between a buyer and seller.

Delivering Offerings

Marketing can’t just promise value, it also has to deliver value. Delivering an offering that has value is much more than simply getting the product into the hands of the user; it is also making sure that the user understands how to get the most out of the product and is taken care of if he or she requires ser- vice later. Value is delivered in part through a company’s supply chain. The supply chain includes a number of organizations and functions that mine, make, assemble, or deliver materials and products from a manufacturer to consumers. The actual group of organizations can vary greatly from industry to industry, and include wholesalers, transportation companies, and retailers. Logistics, or the actual transportation and storage of materials and products, is the primary component of supply chain man- agement, but there are other aspects of supply chain management that we will discuss later.

Exchanging Offerings

In addition to creating an offering, communicating its benefits to consumers, and delivering the offer- ing, there is the actual transaction, or exchange, that has to occur. In most instances, we consider the exchange to be cash for products and services. However, if you were to fly to Louisville, Kentucky, for the Kentucky Derby, you could “pay” for your airline tickets using frequent-flier miles. You could also use Hilton Honors points to “pay” for your hotel, and cash back points on your Discover card to pay for meals. None of these transactions would actually require cash. Other exchanges, such as informa- tion about your preferences gathered through surveys, might not involve cash.

When consumers acquire, consume (use), and dispose of products and services, exchange occurs, including during the consumption phase. For example, via Apple’s “One-to-One” program, you can pay a yearly fee in exchange for additional periodic product training sessions with an Apple profession- al. So each time a training session occurs, another transaction takes place. A transaction also occurs when you are finished with a product. For example, you might sell your old iPhone to a friend, trade in a car, or ask the Salvation Army to pick up your old refrigerator.

Disposing of products has become an important ecological issue. Batteries and other components of cell phones, computers, and high-tech appliances can be very harmful to the environment, and many consumers don’t know how to dispose of these products properly. Some companies, such as Office De- pot, have created recycling centers to which customers can take their old electronics.

Apple has a Web page where consumers can fill out a form, print it, and ship it along with their old cell phones and MP3 players to Apple. Apple then pulls out the materials that are recyclable and prop- erly disposes of those that aren’t. By lessening the hassle associated with disposing of products, Office Depot and Apple add value to their product offerings.

K E Y T A K E A W A Y

The focus of marketing has changed from emphasizing the product, price, place, and promotion mix to one that emphasizes creating, communicating, delivering, and exchanging value. Value is a function of the be- nefits an individual receives and consists of the price the consumer paid and the time and effort the person expended making the purchase.

R E V I E W Q U E S T I O N S

1. What is the marketing mix?

2. How has marketing changed from the four Ps approach to the more current value-based perspective?

3. What is the personal value equation?

We want to hear your feedback

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10 PRINCIPLES OF MARKETING VERSION 2.0

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nonprofit marketing

Marketing activities conducted to meet the goals of nonprofit organizations.

2. WHO DOES MARKETING?

L E A R N I N G O B J E C T I V E

1. Describe how the various institutions and entities that engage in marketing use marketing to deliver value.

The short answer to the question of who does marketing is “everybody!” But that answer is a bit glib and not too useful. Let’s take a moment and consider how different types of organizations engage in marketing.

2.1 For-Profit Companies The obvious answer to the question, “Who does marketing?” is for-profit companies like McDonald’s, Procter & Gamble (the makers of Tide detergent and Crest toothpaste), and Walmart. For example, McDonald’s creates a new breakfast chicken sandwich for $1.99 (the offering), launches a television campaign (communicating), makes the sandwiches available on certain dates (delivering), and then sells them in its stores (exchanging). When Procter & Gamble (or P&G for short) creates a new Crest tartar control toothpaste, it launches a direct mail campaign in which it sends information and samples to dentists to offer to their patients. P&G then sells the toothpaste through retailers like Walmart, which has a panel of consumers sample the product and provide feedback through an online com- munity. These are all examples of marketing activities.

For-profit companies can be defined by the nature of their customers. A B2C (business-to-con- sumer) company like P&G sells products to be used by consumers like you, while a B2B (business-to- business) company sells products to be used within another company’s operations, as well as by gov- ernment agencies and entities. To be sure, P&G sells toothpaste to other companies like Walmart (and probably to the army, prisons, and other government agencies), but the end user is an individual person.

Other ways to categorize companies that engage in marketing is by the functions they fulfill. P&G is a manufacturer, Walmart is a retailer, and Grocery Supply Company (http://www.grocerysupply.com) is a wholesaler of grocery items and buys from companies like P&G in order to sell to small convenience store chains. Though they have different functions, all these types of for-profit companies engage in marketing activities. Walmart, for example, advertises to consumers. Grocery Supply Company salespeople will call on convenience store owners and take orders, as well as build in-store displays. P&G might help Walmart or Grocery Supply Company with templates for ad- vertising or special cartons to use in an in-store display, but all the companies are using marketing to help sell P&G’s toothpaste.

Similarly, all the companies engage in dialogues with their customers in order to understand what to sell. For Walmart and Grocery Supply, the dialogue may result in changing what they buy and sell; for P&G, such customer feedback may yield a new product or a change in pricing strategy.

2.2 Nonprofit Organizations Nonprofit organizations also engage in marketing. When the American Heart Association (AHA) cre- ated a heart-healthy diet for people with high blood pressure, it bound the diet into a small book, along with access to a special Web site that people can use to plan their meals and record their health-related activities. The AHA then sent copies of the diet to doctors to give to patients. When does an exchange take place, you might be wondering? And what does the AHA get out of the transaction?

From a monetary standpoint, the AHA does not directly benefit. Nonetheless, the organization is meeting its mission, or purpose, of getting people to live heart-healthy lives and considers the cam- paign a success when doctors give the books to their patients. The point is that the AHA is engaged in the marketing activities of creating, communicating, delivering, and exchanging. This won’t involve the same kind of exchange as a for-profit company, but it is marketing. When a nonprofit organization en- gages in marketing activities, this is called nonprofit marketing. Some schools offer specific courses in nonprofit marketing, and many marketing majors begin their careers with nonprofit organizations.

Government entities also engage in marketing activities. For example, when the U.S. Army advert- ises to parents of prospective recruits, sends brochures to high schools, or brings a Bradley Fighting Vehicle to a state fair, the army is engaging in marketing. The U.S. Army also listens to its constituen- cies, as evidenced by recent research aimed at understanding how to serve military families more

CHAPTER 1 WHAT IS MARKETING? 11

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social marketing

Marketing conducted in an effort to achieve social change.

effectively. One result was advertising aimed at parents and improving their response to their children’s interest in joining the army; another was a program aimed at encouraging spouses of military person- nel to access counseling services when their spouse is serving overseas.

Similarly, the Environmental Protection Agency (EPA) runs a number of advertising campaigns designed to promote environmentally friendly activities. One such campaign promoted the responsible disposal of motor oil instead of simply pouring it on the ground or into a storm sewer.

There is a difference between these two types of activities. When the army is promoting the be- nefits of enlisting, it hopes young men and women will join the army. By contrast, when the EPA runs commercials about how to properly dispose of motor oil, it hopes to change people’s attitudes and be- haviors so that social change occurs. Marketing conducted in an effort to achieve certain social object- ives can be done by government agencies, nonprofit institutions, religious organizations, and others and is called social marketing. Convincing people that global warming is a real threat via advertise- ments and commercials is social marketing, as is the example regarding the EPA’s campaign to pro- mote responsible disposal of motor oil.

2.3 Individuals If you create a résumé, are you using marketing to communicate the value you have to offer prospective employers? If you sell yourself in an interview, is that marketing? When you work for a wage, you are delivering value in exchange for pay. Is this marketing, too?

Some people argue that these are not marketing activities and that individuals do not necessarily engage in marketing. (Some people also argue that social marketing really isn’t marketing either.) Can individuals market themselves and their ideas?

In some respects, the question is a rhetorical one, designed for academics to argue about in class. Our point is that in the end, it may not matter. If, as a result of completing this book, you can learn how to more effectively create value, communicate and deliver that value to the receiver, and receive something in exchange, then we’ve achieved our purpose.

K E Y T A K E A W A Y

Marketing can be thought of as a set of business practices that for-profit organizations, nonprofit organiza- tions, government entities, and individuals can utilize. When a nonprofit organization engages in marketing activities, this is called nonprofit marketing. Marketing conducted in an effort to achieve certain social object- ives is called social marketing.

R E V I E W Q U E S T I O N S

1. What types of companies engage in marketing?

2. What is the difference between nonprofit marketing and social marketing?

3. What can individuals do for themselves that would be considered marketing?

We want to hear your feedback

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12 PRINCIPLES OF MARKETING VERSION 2.0

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3. WHY STUDY MARKETING?

L E A R N I N G O B J E C T I V E

1. Explain the role marketing plays in individual firms and society as a whole.

3.1 Marketing Enables Profitable Transactions to Occur Products don’t, contrary to popular belief, sell themselves. Generally, the “build it and they will come” philosophy doesn’t work. Good marketing educates customers so that they can find the products they want, make better choices about those products, and extract the most value from them. In this way, marketing helps facilitate exchanges between buyers and sellers for the mutual benefit of both parties. Likewise, good social marketing provides people with information and helps them make healthier de- cisions for themselves and for others.

Of course, all business students should understand all functional areas of the firm, including mar- keting. There is more to marketing, however, than simply understanding its role in the business. Mar- keting has tremendous impact on society.

3.2 Marketing Delivers Value Not only does marketing deliver value to customers, but also that value translates into the value of the firm as it develops a reliable customer base and increases its sales and profitability. So when we say that marketing delivers value, marketing delivers value to both the customer and the company. Franklin D. Roosevelt, the U.S. president with perhaps the greatest influence on our economic system, once said, “If I were starting life over again, I am inclined to think that I would go into the advertising business in preference to almost any other. The general raising of the standards of modern civilization among all groups of people during the past half century would have been impossible without the spreading of the knowledge of higher standards by means of advertising.”[2] Roosevelt referred to advertising, but ad- vertising alone is insufficient for delivering value. Marketing finishes the job by ensuring that what is delivered is valuable.

3.3 Marketing Benefits Society Marketing benefits society in general by improving people’s lives in two ways. First, as we mentioned, it facilitates trade. As you have learned, or will learn, in economics, being able to trade makes people’s lives better. Otherwise people wouldn’t do it. (Imagine what an awful life you would lead if you had to live a Robinson Crusoe–like existence as did Tom Hanks’s character in the movie Castaway.) In addi- tion, because better marketing means more successful companies, jobs are created. This generates wealth for people, who are then able to make purchases, which, in turn, creates more jobs.

The second way in which marketing improves the quality of life is based on the value delivery function of marketing, but in a broader sense. When you add all the marketers together who are trying to deliver offerings of greater value to consumers and are effectively communicating that value, con- sumers are able to make more informed decisions about a wider array of choices. From an economic perspective, more choices and smarter consumers are indicative of a higher quality of life.

3.4 Marketing Costs Money Marketing can sometimes be the largest expense associated with producing a product. In the soft drink business, marketing expenses account for about one-third of a product’s price—about the same as the ingredients used to make the soft drink itself. At the bottling and retailing level, the expenses involved in marketing a drink to consumers like you and me make up the largest cost of the product.

Some people argue that society does not benefit from marketing when it represents such a huge chunk of a product’s final price. In some cases, that argument is justified. Yet when marketing results in more informed consumers receiving a greater amount of value, then the cost is justified.

CHAPTER 1 WHAT IS MARKETING? 13

3.5 Marketing Offers People Career Opportunities Marketing is the interface between producers and consumers. In other words, it is the one function in the organization in which the entire business comes together. Being responsible for both making money for your company and delivering satisfaction to your customers makes marketing a great career. In addition, because marketing can be such an expensive part of a business and is so critical to its suc- cess, companies actively seek good marketing people. At the beginning of each chapter in this book, we profile a person in the marketing profession and let that person describe for you what he or she does. As you will learn, there’s a great variety of jobs available in the marketing profession. These positions represent only a few of the opportunities available in marketing.

< Marketing research. Personnel in marketing research are responsible for studying markets and customers in order to understand what strategies or tactics might work best for firms.

< Merchandising. In retailing, merchandisers are responsible for developing strategies regarding what products wholesalers should carry to sell to retailers such as Target and Walmart.

< Sales. Salespeople meet with customers, determine their needs, propose offerings, and make sure that the customer is satisfied. Sales departments can also include sales support teams who work on creating the offering.

< Advertising. Whether it’s for an advertising agency or inside a company, some marketing personnel work on advertising. Television commercials and print ads are only part of the advertising mix. Many people who work in advertising spend all their time creating advertising for electronic media, such as Web sites and their pop-up ads, podcasts, and the like.

< Product development. People in product development are responsible for identifying and creating features that meet the needs of a firm’s customers. They often work with engineers or other technical personnel to ensure that value is created.

< Direct marketing. Professionals in direct marketing communicate directly with customers about a company’s product offerings via channels such as e-mail, chat lines, telephone, or direct mail.

< Digital media. Digital media professionals combine advertising, direct marketing, and other areas of marketing to communicate directly with customers via social media, the Web, and mobile media (including texts). They also work with statisticians in order to determine which consumers receive which message and with IT professionals to create the right look and feel of digital media.

< Event marketing. Some marketing personnel plan special events, orchestrating face-to-face conversations with potential and current customers in a special setting.

< Nonprofit marketing. Nonprofit marketers often don’t get to do everything listed previously as nonprofits typically have smaller budgets. But their work is always very important as they try to change behaviors without having a product to sell.

A career in marketing can begin in a number of different ways. Entry-level positions for new college graduates are available in many of the positions previously mentioned. A growing number of CEOs are people with marketing backgrounds. Some legendary CEOs like Ross Perot and Mary Kay Ash got their start in marketing. More recently, CEOs like Mark Hurd, CEO of Oracle, and Jeffrey Immelt at GE are showing how marketing careers can lead to the highest pinnacles of the organization.

Criticisms of Marketing

Marketing is not without its critics. We already mentioned that one reason to study marketing is be- cause it is costly, and business leaders need to understand the cost/benefit ratio of marketing in order to make wise investments. Yet that cost is precisely why some criticize marketing. If that money could be put into research and development of new products, perhaps the consumers would be better sat- isfied. Or, some critics argue, prices could be lowered. Marketing executives, though, are always on the lookout for less expensive ways to have the same performance, and do not intentionally waste money on marketing.

Another criticism is that marketing creates wants among consumers for products and services that aren’t really needed. For example, fashion marketing creates demand for high-dollar jeans when much less expensive jeans can fulfill the same basic function. Taken to the extreme, consumers may take on significant credit card debt to satisfy wants created by marketing, with serious negative consequences. When marketers target their messages carefully so an audience that can afford such products is the only group reached, such extreme consequences can be avoided.

14 PRINCIPLES OF MARKETING VERSION 2.0

K E Y T A K E A W A Y

By facilitating transactions, marketing delivers value to both consumers and firms. At the broader level, this process creates jobs and improves the quality of life in a society. Marketing can be costly, so firms need to hire good people to manage their marketing activities. Being responsible for both making money for your com- pany and delivering satisfaction to your customers makes marketing a great career.

R E V I E W Q U E S T I O N S

1. Why study marketing?

2. How does marketing provide value?

3. Why does marketing cost so much? Is marketing worth it?

We want to hear your feedback

At Flat World Knowledge, we always want to improve our books. Have a comment or suggestion? Send it along! http://bit.ly/wUJmef

4. THEMES AND ORGANIZATION OF THIS BOOK

L E A R N I N G O B J E C T I V E

1. Understand and outline the elements of a marketing plan as a planning process.

4.1 Marketing’s Role in the Organization We previously discussed marketing as a set of activities that anyone can do. Marketing is also a func- tional area in companies, just like operations and accounting are. Within a company, marketing might be the title of a department, but some marketing functions, such as sales, might be handled by another department. Marketing activities do not occur separately from the rest of the company, however.

As we have explained, pricing an offering, for example, will involve a company’s finance and ac- counting departments in addition to the marketing department. Similarly, a marketing strategy is not created solely by a firm’s marketing personnel. Instead, it flows from the company’s overall strategy. We’ll discuss strategy much more completely in Chapter 2.

4.2 Everything Starts with Customers Most organizations start with an idea of how to serve customers better. Apple’s engineers began work- ing on the iPod by looking at the available technology and thinking about how customers would like to have their music more available, as well as more affordable, through downloading.

Many companies think about potential markets and customers when they start. John Deere, for ex- ample, founded his company on the principle of serving customers. When admonished for making constant improvements to his products even though farmers would take whatever they could get, Deere reportedly replied, “They haven’t got to take what we make and somebody else will beat us, and we will lose our trade.”[3] He recognized that if his company failed to meet customers’ needs, someone else would. The mission of the company then became the one shown in Figure 1.4.

CHAPTER 1 WHAT IS MARKETING? 15

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F I G U R E 1 . 4 Mission Statement of Deere and Company

Source: Deere and Company, used with permission.

Here are a few mission statements from other companies. Note that they all refer to their customers, either directly or by making references to relationships with them. Note also how these are written to inspire employees and others who interact with the company and may read the mission statement.

IBM

IBM will be driven by these values:

< Dedication to every client’s success. < Innovation that matters, for our company and for the world. < Trust and personal responsibility in all relationships.[4]

Coca-Cola

Everything we do is inspired by our enduring mission:

< To refresh the world…in body, mind, and spirit. < To inspire moments of optimism…through our brands and our actions. < To create value and make a difference…everywhere we engage.[5]

McDonald’s