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O.C. Ferrell Belmont University

Michael D. Hartline Florida State University

Marketing Strategy TEXT AND CASES

SEVENTH EDITION

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Marketing Strategy: Text and Cases, Seventh Edition O.C. Ferrell and Michael D. Hartline

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Printed in the United States of America Print Number: 01 Print Year: 2016

To my wife, Linda

O.C. Ferrell

To my girls, Marsha, Meghan, Madison, and Mallory

Michael D. Hartline

Brief Contents Preface xiii

About the Authors xvii

1 MARKETING IN TODAY’S ECONOMY 1 2 STRATEGIC MARKETING PLANNING 27 3 COLLECTING AND ANALYZING MARKETING INFORMATION 56 4 DEVELOPING COMPETITIVE ADVANTAGE AND STRATEGIC FOCUS 89 5 CUSTOMERS, SEGMENTATION, AND TARGET MARKETING 119 6 THE MARKETING PROGRAM 153 7 BRANDING AND POSITIONING 203 8 ETHICS AND SOCIAL RESPONSIBILITY IN MARKETING STRATEGY 230 9 MARKETING IMPLEMENTATION AND CONTROL 260 10 DEVELOPING AND MAINTAINING LONG-TERM CUSTOMER RELATIONSHIPS 289

CASES CASE 1 USA TODAY : INNOVATION IN AN EVOLVING INDUSTRY 318

CASE 2 CONSUMERS TAKE A SHINE TO APPLE, INC. 331

CASE 3 MONSANTO BALANCES THE INTERESTS OF MULTIPLE STAKEHOLDERS 342

CASE 4 NEW BELGIUM BREWING (A): SOCIAL RESPONSIBILITY AS COMPETITIVE ADVANTAGE 355

CASE 5 NEW BELGIUM BREWING (B): DEVELOPING A BRAND PERSONALITY 364

CASE 6 MATTEL CONFRONTS ITS MARKETING CHALLENGES 373

CASE 7 MISTINE: DIRECT SELLING IN THE THAI COSMETICS MARKET 384

CASE 8 BP STRUGGLES TO REPAIR ITS TARNISHED REPUTATION 396

CASE 9 CHEVROLET: A CENTURY OF PRODUCT INNOVATION 407

CASE 10 WYNDHAM WORLDWIDE ADOPTS A STAKEHOLDER ORIENTATION MARKETING STRATEGY 422

CASE 11 NASCAR: CAN’T KEEP A GOOD BRAND DOWN 431

CASE 12 INDYCAR: SEEKING A RETURN TO MOTORSPORTS’ FAST LANE 443

CASE 13 ZAPPOS: DELIVERING HAPPINESS 454

CASE 14 NETFLIX FIGHTS TO STAY AHEAD OF A RAPIDLY CHANGING MARKET 465

CASE 15 GILLETTE: WHY INNOVATION MAY NOT BE ENOUGH 475

CASE 16 IKEA SLOWLY EXPANDS ITS U.S. MARKET PRESENCE 487

CASE 17 UBER: THE OPPORTUNITIES AND CHALLENGES OF MARKET DISRUPTION 496

CASE 18 SCENTSY, INC.: A SUCCESSFUL DIRECT SELLING BUSINESS MODEL 507

CASE 19 SIGMA MARKETING: STRATEGIC MARKETING ADAPTATION 515

CASE 20 BELLE MEADE PLANTATION: A SOCIAL ENTREPRENEURSHIP MARKETING STRATEGY 525

CASE 21 COCA-COLA: INTEGRATED MARKETING COMMUNICATIONS 534

Index 544

Brief Contents v

Contents Preface xiii

About the Authors xvii

1 MARKETING IN TODAY’S ECONOMY 1 THE CHALLENGES AND OPPORTUNITIES OF MARKETING IN TODAY’S ECONOMY 2

Power Shift to Customers 3

Massive Increase in Product Selection 4

Audience and Media Fragmentation 4

Changing Value Propositions 4

Shifting Demand Patterns 5

Privacy, Security, and Ethical Concerns 5

Unclear Legal Jurisdiction 6

BASIC MARKETING CONCEPTS 7

What Is a Market? 8

What Is Exchange? 9

What Is a Product? 10

MAJOR MARKETING ACTIVITIES AND DECISIONS 13

Strategic Planning 15

Research and Analysis 15

Developing Competitive Advantage 16

Marketing Strategy Decisions 16

Social Responsibility and Ethics 19

Implementation and Control 20

Developing and Maintaining Customer Relationships 20

TAKING ON THE CHALLENGES OF MARKETING STRATEGY 21

LESSONS FROM CHAPTER 1 23

NOTES 24

2 STRATEGIC MARKETING PLANNING 27 THE STRATEGIC PLANNING PROCESS 29

Organizational Mission versus Organizational Vision 30

Corporate or Business-Unit Strategy 34

Functional Goals and Objectives 35

Functional Strategy 36

Implementation 36

Evaluation and Control 36

THE MARKETING PLAN 37

Marketing Plan Structure 37

Using the Marketing Plan Structure 43

Purposes and Significance of the Marketing Plan 44

Organizational Aspects of the Marketing Plan 45

MAINTAINING CUSTOMER FOCUS AND BALANCE IN STRATEGIC PLANNING 46

Customer-Focused Planning 46

Balanced Strategic Planning 49

LESSONS FROM CHAPTER 2 51

NOTES 53

3 COLLECTING AND ANALYZING MARKETING INFORMATION 56 CONDUCTING A SITUATION ANALYSIS 58

Analysis Alone Is Not a Solution 58

Data Are Not the Same as Information 59

The Benefits of Analysis Must Outweigh the Costs 59

Conducting a Situation Analysis Is a Challenging Exercise 59

THE INTERNAL ENVIRONMENT 61

Review of Current Objectives, Strategy, and Performance 61

Availability of Resources 62

Organizational Culture and Structure 63

THE CUSTOMER ENVIRONMENT 63

Who Are Our Current and Potential Customers? 65

What Do Customers Do with Our Products? 65

Where Do Customers Purchase Our Products? 66

When Do Customers Purchase Our Products? 66

Contents vii

Why (and How) Do Customers Select Our Products? 68

Why Do Potential Customers Not Purchase Our Products? 68

THE EXTERNAL ENVIRONMENT 69

Competition 71

Economic Growth and Stability 73

Political Trends 74

Legal and Regulatory Issues 74

Technological Advancements 75

Sociocultural Trends 76

COLLECTING MARKETING DATA AND INFORMATION 79

Secondary Information Sources 79

Primary Data Collection 82

Overcoming Problems in Data Collection 83

LESSONS FROM CHAPTER 3 84

NOTES 85

4 DEVELOPING COMPETITIVE ADVANTAGE AND STRATEGIC FOCUS 89 MAKING SWOT ANALYSIS PRODUCTIVE 91

Stay Focused 91

Search Extensively for Competitors 93

Collaborate with Other Functional Areas 93

Examine Issues from the Customers’ Perspective 93

Look for Causes, Not Characteristics 95

Separate Internal Issues from External Issues 96

SWOT-DRIVEN STRATEGIC PLANNING 97

Strengths and Weaknesses 97

Opportunities and Threats 97

The SWOT Matrix 99

DEVELOPING AND LEVERAGING COMPETITIVE ADVANTAGES 102

ESTABLISHING A STRATEGIC FOCUS 104

DEVELOPING MARKETING GOALS AND OBJECTIVES 109

Developing Marketing Goals 111

Developing Marketing Objectives 112

Moving beyond Goals and Objectives 115

LESSONS FROM CHAPTER 4 115

NOTES 117

viii Contents

5 CUSTOMERS, SEGMENTATION, AND TARGET MARKETING 119 BUYER BEHAVIOR IN CONSUMER MARKETS 121

The Consumer Buying Process 121

Factors that Affect the Consumer Buying Process 127

BUYER BEHAVIOR IN BUSINESS MARKETS 129

Unique Characteristics of Business Markets 130

The Business Buying Process 132

MARKET SEGMENTATION 133

Traditional Market Segmentation Approaches 133

Individualized Segmentation Approaches 136

Criteria for Successful Segmentation 138

IDENTIFYING MARKET SEGMENTS 139

Segmenting Consumer Markets 139

Segmenting Business Markets 144

TARGET MARKETING STRATEGIES 145

LESSONS FROM CHAPTER 5 147

NOTES 151

6 THE MARKETING PROGRAM 153 PRODUCT STRATEGY 155

Strategic Issues in the Product Portfolio 155

The Challenges of Service Products 158

Developing New Products 160

PRICING STRATEGY 162

Key Issues in Pricing Strategy 162

Pricing Service Products 168

Base Pricing Strategies 170

Adjusting the Base Price 171

SUPPLY CHAIN STRATEGY 172

Strategic Supply Chain Issues 173

Trends in Supply Chain Strategy 178

INTEGRATED MARKETING COMMUNICATIONS 182

Strategic Issues in Integrated Marketing Communications 183

Advertising 185

Public Relations 187

Contents ix

Personal Selling and Sales Management 189

Sales Promotion 191

LESSONS FROM CHAPTER 6 195

NOTES 200

7 BRANDING AND POSITIONING 203 STRATEGIC ISSUES IN BRANDING 206

Basic Branding Decisions 206

Strategic Brand Alliances 209

Brand Value 209

Packaging and Labeling 212

DIFFERENTIATION AND POSITIONING 213

Bases for Differentiation 215

Positioning Strategies 217

MANANGING BRANDS OVER TIME 218

Development Stage 220

Introduction Stage 221

Growth Stage 221

Maturity Stage 223

Decline Stage 224

LESSONS FROM CHAPTER 7 226

NOTES 228

8 ETHICS AND SOCIAL RESPONSIBILITY IN MARKETING STRATEGY 230 ETHICS AND SOCIAL RESPONSIBILITY IN MARKETING STRATEGY 231

Dimensions of Social Responsibility 232

Sustainability 235

Marketing Ethics and Strategy 237

The Challenges of Being Ethical and Socially Responsible 239

ETHICAL ISSUES IN THE MARKETING PROGRAM 241

Product-Related Ethical Issues 241

Pricing-Related Ethical Issues 243

Supply Chain–Related Ethical Issues 244

Promotion-Related Ethical Issues 245

x Contents

MANAGING AND CONTROLLING ETHICAL ISSUES 246

Regulating Marketing Ethics 246

Codes of Conduct 248

Ethical Leadership 249

RELATIONSHIP TO MARKETING AND FINANCIAL PERFORMANCE 250

Stakeholder Orientation 250

Marketing Financial Performance 251

INCORPORATING ETHICS AND SOCIAL RESPONSIBILITY INTO STRATEGIC PLANNING 251

LESSONS FROM CHAPTER 8 252

NOTES 255

9 MARKETING IMPLEMENTATION AND CONTROL 260 STRATEGIC ISSUES IN MARKETING IMPLEMENTATION 262

The Link Between Planning and Implementation 262

The Elements of Marketing Implementation 264

APPROACHES TO MARKETING IMPLEMENTATION 268

Implementation by Command 268

Implementation through Change 270

Implementation through Consensus 271

Implementation as Organizational Culture 271

INTERNAL MARKETING AND MARKETING IMPLEMENTATION 272

The Internal Marketing Approach 272

The Internal Marketing Process 274

EVALUATING AND CONTROLLING MARKETING ACTIVITIES 275

Formal Marketing Controls 276

Informal Marketing Controls 279

Scheduling Marketing Activities 281

LESSONS FROM CHAPTER 9 283

NOTES 286

10 DEVELOPING AND MAINTAINING LONG-TERM CUSTOMER RELATIONSHIPS 289 MANAGING CUSTOMER RELATIONSHIPS 290

Developing Relationships in Consumer Markets 292

Developing Relationships in Business Markets 294

Contents xi

QUALITY AND VALUE: THE KEYS TO DEVELOPING CUSTOMER RELATIONSHIPS 296

Understanding the Role of Quality 296

Delivering Superior Quality 298

Understanding the Role of Value 299

Competing on Value 303

CUSTOMER SATISFACTION: THE KEY TO CUSTOMER RETENTION 304

Understanding Customer Expectations 304

Satisfaction versus Quality versus Value 307

Customer Satisfaction and Customer Retention 310

Customer Satisfaction Measurement 312

LESSONS FROM CHAPTER 10 313

NOTES 317

CASES CASE 1 USA TODAY : INNOVATION IN AN EVOLVING INDUSTRY 318

CASE 2 CONSUMERS TAKE A SHINE TO APPLE, INC. 331

CASE 3 MONSANTO BALANCES THE INTERESTS OF MULTIPLE STAKEHOLDERS 342

CASE 4 NEW BELGIUM BREWING (A): SOCIAL RESPONSIBILITY AS COMPETITIVE ADVANTAGE 355

CASE 5 NEW BELGIUM BREWING (B): DEVELOPING A BRAND PERSONALITY 364

CASE 6 MATTEL CONFRONTS ITS MARKETING CHALLENGES 373

CASE 7 MISTINE: DIRECT SELLING IN THE THAI COSMETICS MARKET 384

CASE 8 BP STRUGGLES TO REPAIR ITS TARNISHED REPUTATION 396

CASE 9 CHEVROLET: A CENTURY OF PRODUCT INNOVATION 407

CASE 10 WYNDHAM WORLDWIDE ADOPTS A STAKEHOLDER ORIENTATION MARKETING STRATEGY 422

CASE 11 NASCAR: CAN’T KEEP A GOOD BRAND DOWN 431

CASE 12 INDYCAR: SEEKING A RETURN TO MOTORSPORTS’ FAST LANE 443

CASE 13 ZAPPOS: DELIVERING HAPPINESS 454

CASE 14 NETFLIX FIGHTS TO STAY AHEAD OF A RAPIDLY CHANGING MARKET 465

CASE 15 GILLETTE: WHY INNOVATION MAY NOT BE ENOUGH 475

CASE 16 IKEA SLOWLY EXPANDS ITS U.S. MARKET PRESENCE 487

CASE 17 UBER: THE OPPORTUNITIES AND CHALLENGES OF MARKET DISRUPTION 496

CASE 18 SCENTSY, INC.: A SUCCESSFUL DIRECT SELLING BUSINESS MODEL 507

CASE 19 SIGMA MARKETING: STRATEGIC MARKETING ADAPTATION 515

CASE 20 BELLE MEADE PLANTATION: A SOCIAL ENTREPRENEURSHIP MARKETING STRATEGY 525

CASE 21 COCA-COLA: INTEGRATED MARKETING COMMUNICATIONS 534

Index 544

xii Contents

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

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

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

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

xiii

OUR FOCUS Given this marketing landscape, Marketing Strategy: Text and Cases, 7th Edition provides a practical, straightforward approach to analyzing, planning, and implementing marketing strategies. Our focus is based on the creative process involved in applying the knowledge and concepts of marketing to the development and implementation of marketing strategy. Our goal is to encourage students of marketing to think and act like a marketer. By discussing the key concepts and tools of marketing strategy, our emphasis on critical thinking, both analytical and creative, allows students to understand the essence of how marketing decisions fit together to create a coherent strategy.

Our approach in Marketing Strategy: Text and Cases, 7th Edition is also grounded in the development and execution of the marketing plan. Throughout the text, we provide a comprehensive planning framework based on conducting sound background research, developing market capabilities and competitive advantages, designing integrated marketing programs, and managing customer relationships for the long term. We also emphasize the need for integrity in the strategic planning process as well as the design of marketing programs that are both ethical and socially responsible. We also stress the integration and coordination of marketing decisions with other functional business decisions as the key to achieving an organization’s overall mission and vision. Throughout the text, we offer examples of successful planning and implementation to illustrate how firms face the challenges of marketing strategy in today’s economy.

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

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

TARGET AUDIENCE Our text is relevant for a number of educational environments, including undergraduate, graduate, and corporate training courses. At the undergraduate level, our text is appropriate for the capstone course or any upper-level integrating course such as

xiv Preface

“Marketing Management,” “Marketing Strategy,” or “Marketing Policy.” At this level, the text provides an excellent framework to use with our included text-based cases, live-client cases, or a computer simulation. At the graduate level, our text is appropriate for courses addressing strategic marketing planning, competitive marketing strategies, or as a supplement for any simulation-based course. A growing segment of the market, corporate training, can utilize our text when educating business profes- sionals interested in developing marketing plans of their own, or interpreting and implementing the plans of others.

Each of the 21 cases included in our text describes the strategic situations of real-world, identifiable organizations. Because these cases feature real situations, instructors have the option of using the case material as published, or they may give students the opportunity to update the cases by conducting research to find the latest information. Many additional resources for students and instructors can be found at our text’s companion website, www.cengagebrain.com.

ACKNOWLEDGMENTS Throughout the development of this text, several extraordinary individuals provided their talent and expertise to make important contributions. A number of individuals have made many useful comments and recommendations as reviewers of this text.

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

Joe Alexander, Belmont University

Noushin Laila Ansari, University of New Mexico

Timothy W. Aurand, Northern Illinois University

Harper Baird, University of New Mexico

Chandani Bhasin, University of New Mexico

Christin Copeland, Florida State University

Linda Ferrell, Belmont University

John Fraedrich, Southern Illinois University – Carbondale

Bernadette Gallegos, University of New Mexico

Sederick Hood, University of New Mexico

Jennifer Jackson, University of New Mexico

Danielle Jolley, University of New Mexico

Kimberly Judson, Illinois State University

Robert P. Lambert, Belmont University

Cassondra Lopez, University of New Mexico

Julian Mathias, University of New Mexico

Kevin Mihaly, Florida State University

Christian Otto, University of New Mexico

Greg Owsley, New Belgium Brewing Company

Kelsey Reddick, Florida State University

Preface xv

Don Roy, Middle Tennessee State University

Mike Sapit, Sigma Marketing

Jennifer Sawayda, University of New Mexico

Beau Shelton, University of New Mexico

Bryan Simpson, New Belgium Brewing Company

Debbie Thorne, Texas State University

Jacqueline Trent, University of New Mexico

Robyn Watson, Florida State University

Lecia Weber, University of New Mexico

Celeste Wood, Florida State University

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

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

xvi Preface

About the Authors O.C. FERRELL, PH.D. Belmont University

O.C. Ferrell (Ph.D., Louisiana State University) is University Distinguished Chair of Business Ethics at Belmont University. He recently served 9 years as University Dis- tinguished Professor of Marketing at the Anderson School of Management, Univer- sity of New Mexico. He also served at the University of Wyoming and was Chair of the Marketing Department at Colorado State University. Prior to his arrival at CSU, Dr. Ferrell was the Distinguished Professor of Marketing and Business Ethics at the University of Memphis. He has also served as a professor at the University of Tampa, Texas A&M University, Illinois State University, and Southern Illinois University. His MBA and BA degrees are from Florida State University.

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

Dr. Ferrell has taught a wide variety of courses, including marketing strategy, principles of marketing, marketing ethics, international marketing, as well as most undergraduate courses in marketing. For 16 years he taught a graduate course in competitive marketing strategies at Thammasat University in Bangkok, Thailand. He has also been a visiting professor at University of Wisconsin, University of Michigan–Ann Arbor, and University of Hanover, Germany.

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

Dr. Ferrell has served as an expert witness in many high-profile civil litigation cases related to marketing ethics. More recently he has assisted international corporations and worked with state regulatory agencies in modifying marketing programs to maintain compliance with both ethical and legal requirements. Currently,

xvii

he is working with the National Association of State Boards of Accountancy to develop an ethical leadership certification for students. He has appeared on the NBC Today show and he has been quoted in national papers such as USA Today.

Dr. Ferrell and his wife Linda (also a faculty member at Belmont University) live in Nashville, Tennessee. He continues to help coordinate the Daniels Fund Ethics Ini- tiative at the University of New Mexico. He enjoys golf, skiing, reading, and travel.

MICHAEL D. HARTLINE, PH.D. Florida State University

Michael D. Hartline (Ph.D., University of Memphis) is Interim Dean and Charles A. Bruning Professor of Business Administration in the College of Business at Florida State University. Previously, he served as Associate Dean for Strategic Initiatives and Chair of the Department of Marketing. Prior to joining the FSU faculty in 2001, Dr. Hartline served on faculty at the University of Arkansas at Little Rock, Louisiana State University, and Samford University. His MBA and B.S. degrees are from Jacksonville State University in Alabama.

Dr. Hartline primarily teaches graduate courses in Marketing Strategy and undergraduate courses in Services Marketing. He has won many teaching and research awards and made many presentations to industry and academic audiences. Dr. Hartline has also served as a consultant to several for-profit and nonprofit organizations in the areas of marketing plan development, market feasibility analysis, customer satisfaction measurement, customer service training, and pricing policy. He currently serves on the Academic Advisory Council of the Direct Selling Educa- tion Foundation and on the board of the Knight Creative Communities Initiative in Tallahassee, Florida. He has previously served on the executive committee of the Academy of Marketing Science, co-chaired two international conferences for the American Marketing Association, and has served on the editorial review boards of a number of leading marketing journals.

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

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

xviii About the Authors

Marketing in Today’s Economy

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

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

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

CHAPTER

THE CHALLENGES AND OPPORTUNITIES OF MARKETING IN TODAY’S ECONOMY Traditional ideas about marketing strategy began to change forever during the mid- 1990s. Advances in computer, communication, and information technology forever

BEYOND THE PAGES 1.1

Thriving in Commodity Hell1

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

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

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

industry hard in 2008. To counteract the downturn, Southwest expanded routes by acquiring rival companies such as AirTran. The company also stands apart from others with its innovative “No Bag Fees” policy. Other firms, however, avoid commodity status through the most basic of marketing tactics: brand building. Here, firms break free from commodity status by developing a distinctive brand position that separates them and their products from the competition. Firms that come to mind are Apple, Coca-Cola, and Chick-fil-A. By offering compelling reasons for consumers to buy products, brand building allows firms to increase margins. Apple, in particular, enjoys the highest profit margins of any firm in the technology sector.

Starbucks is another case in point. Starbucks clearly sells one of the most commoditized, ubiq- uitous products of all time: coffee. Starbucks Chairman Howard Schultz, however, does not accept that his firm is in the coffee business. Instead, Schultz sees Starbucks as a “third place” to hang out (with home and work being number 1 and number 2, respectively). Through this mental- ity, Starbucks offers its customers much more than coffee, including wireless Internet access, music, food, and relaxation. Starbucks has contin- ued its brand-building activities by introducing breakfast combos, Via instant coffee, and the con- tinued push of its Seattle’s Best brand into restaurants, offices, hospitals, and vending machines.

Getting out of commodity hell is not an easy feat. To do so, firms must give consumers a compelling reason to buy their products over competing products. Ultimately, winning the commodity game is all about innovation. Consider the firms that top Fast Company’s list of the World’s Most Innovative Companies for 2014 (in order): Goo- gle, Bloomberg Philanthropies, Xiaomi, Dropbox, Netflix, Airbnb, Nike, and ZipDial. Each of these companies offers innovative products, processes, or experiences that stand apart from the competition; yet each competes in mature industries known for commoditization. These companies prove that innovation and good marketing strategy are the antidotes for commodity hell.

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changed the world and the ways that marketers reach potential customers. The collapse of the dot-com bubble in the late 1990s was followed by a historic collapse of the worldwide economy in 2008. The powerhouse companies of the past have weakened and lost relevance in an economy marked by constant change and consumer skepticism. Consider the following fundamental changes to marketing and business practice, as well as our own personal buying behavior.

Power Shift to Customers Perhaps the single most important change during the last two decades is the shift in power from marketers to consumers. Rather than businesses having the ability to manipulate customers via technology, customers often manipulate businesses because of their access to information, the ability to comparison shop, and the control they have over spending. Individual consumers and business customers can compare prices and product specifications in a matter of minutes. Using a smart- phone and the Amazon app, customers can walk Target’s aisles, scan bar codes to check prices on Amazon, and order items for 2-day delivery while in the store. This fact is the reason that Target, and other retailers like Best Buy, now price matches Amazon and other online competitors. In other cases, customers are able to set their own prices, such as purchasing airline tickets at Priceline.com. Customers can now interact with one another, as merchants such as Amazon and eBay allow customers to share opinions on product quality and supplier reliability. As power continues to shift to customers, marketers have little choice but to ensure that their products are unique and of high quality, thereby giving customers a reason to purchase their products and remain loyal to them.

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

Chapter 1 • Marketing in Today’s Economy 3

Massive Increase in Product Selection The variety and assortment of goods and services offered for sale on the Internet and in traditional stores is staggering. In grocery stores alone, customers are faced with countless options in most aisles, such as in cereal and soft drinks. The growth in online retailing now allows customers to purchase a car from CarsDirect, handmade gifts from over 1.2 million shops on Etsy, or a case of their favorite wine from Wine.com. Increased transaction efficiency (e.g., 24/7 access, delivery to home or office even on weekends) allows customers to fulfill their needs more easily and con- veniently than ever before. Furthermore, the vast amounts of information available online has changed the way we communicate, read the news, and entertain our- selves. Customers can now have the news delivered to them automatically via smart- phone apps, such as Flipboard, that pull from hundreds of sources. This radical increase in product selection and availability has exposed marketers to inroads by competitors from every corner of the globe.

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

Changing Value Propositions Even before “The Great Recession” began in 2008, consumers and business buyers were already facing increasing costs associated with energy, food, building

EXHIBIT 1.1 Change in Daily Media Usage by U.S. Adults, 2010–2014.

Percent Change (%) Television 3.7 Desktop Online −13.6 Tablets 676.2 Smartphones 235.0 Radio −15.5 Newspapers −9.4 Magazines −34.9

SOURCE: Statista, “Average Daily Media Use in the United States from 2010 to 2014,” Statista, http://www.statista.com/ statistics/270781/average-daily-media-use-in-the-us/, accessed February 18, 2015.

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materials, and other essentials. Then, as the economy weakened, buyers were forced to tighten their belts and look for other ways to lower expenses. This trend actually began after the dot-com collapse as consumers saw for the first time that they could bypass some types of firms and do things for themselves. For example, travel agents and real estate agents have been hit hard by e-commerce. Many customers now turn to Travelocity and Expedia, rather than travel agents, for assistance in booking airline tickets, cruises, or hotel stays. A similar change has taken place in the real estate industry as buyers are moving their house hunting online, while sellers are increasingly taking the “for sale by owner” route. Consequently, many marketers learned a tough lesson: In situations where customers see goods and services as commodities, they will turn to the most convenient, least-expensive alternative.

Today, many of these same consumers face pay cuts or losing their jobs in addition to increased expenses. These and other economic hardships have forced consumer and business buyers to rethink value propositions and focus on the importance of frugality. The effects on business have been dramatic. For example, Radio Shack filed for Chapter 11 bankruptcy in early 2015 in the face of a highly commoditized market and stiff competition from other electronics retailers, particularly Amazon.2 A similar shakeout is happening in the book retailing segment. Bor- ders, for instance, closed its doors after fierce competition from Barnes & Noble, Amazon, Walmart, and Target lured its shoppers away. Likewise, e-book readers, like Amazon’s Kindle, have had a profound impact on traditional book publishing. Because books have become highly commoditized, consumers typically search for the lowest prices rather than the fringe benefits offered by traditional bookstores. E-book readers add to that by being more ecologically advantageous. This is the essence of being frugal, as customers look for ways to cut spending on unnecessary parts of their lives.

Shifting Demand Patterns In some cases, changes in technology have shifted customer demand for certain product categories. News is one well-known example, where traditional newspapers are slowly disappearing while online and mobile news continues to grow. Now, many newspaper companies have folded, some are on the brink of folding, while others have cut publication to only a few days per week. Another example is the explosive growth in the digital distribution of music and video. The success of Apple’s iTunes, YouTube, Spotify, and Netflix, along with the continuing integration of television and computers, has dramatically shifted demand for the music and movie industries. Hol- lywood film studios are grappling with soft demand in theaters and the declining popularity of DVDs as customers increasingly look for online movie options, or for other forms of entertainment such as video games. This trend ultimately led to the demise of industry pioneer Blockbuster video in 2011.

Privacy, Security, and Ethical Concerns Changes in technology have made our society much more open than in the past. As a result, these changes have forced marketers to address real concerns about security and privacy, both online and offline. The fallout from the massive data breach at Tar- get in 2013 is still being felt today. The estimated loss to Target from thieves hacking into its systems is roughly $148 million, not to mention the losses incurred by Target’s customers.3 Further, businesses have always collected routine information about their customers. Now, customers are much more attuned to these efforts and the purposes for which the information will be used. Though customers appreciate the convenience of e-commerce and mobile access to information, they want assurances that their information is safe and confidential. Concerns over privacy and security are especially acute with respect to online businesses such as Facebook, Google, mobile banking,

Chapter 1 • Marketing in Today’s Economy 5

and mobile devices that can potentially track every move we make, literally. These same concerns are also keen with respect to children. For example, many well- known and respected companies, including Mrs. Fields Cookies, Sony BMG, and Her- shey Foods, have been fined for violating the standards of the Children’s Online Pri- vacy Protection Act (COPPA). For example, Playdom, Inc., an online gaming company owned by Disney, paid a $3 million fine to the Federal Trade Commission for collecting, using, and disclosing personal information from children under the age of 13 without their parents’ permission. This was the largest civil penalty ever lev- ied for a violation of COPPA, which is overviewed in Exhibit 1.2.4

Unclear Legal Jurisdiction When a company does business in more than one country (as many Internet-based firms do), that company often faces a dilemma with respect to differing legal systems. Today, this difference is especially keen for firms that do business in both the United States and China. Google, for example, faces a difficult situation in dealing with the Chinese government’s censorship demands. Though Google is a U.S. firm, it must comply with the Chinese request by operating a completely separate search service that censors information considered sensitive by the Chinese government.5

Doing business in China is also an issue with respect to protection of intellectual property rights, where Chinese laws do not offer the same protections found in the United States. For example, the U.S. International Trade Commission estimates that Chinese piracy costs the U.S. economy in excess of $48 billion each year. Most of this is in the information sector, with high-tech and manufacturing also showing sizable losses due to infringements of intellectual property rights by Chinese firms.6

Another important legal issue involves the collection of sales tax for online transactions. In the early days of e-commerce, most online merchants did not collect sales taxes for online transactions—giving them a big advantage against store-based merchants. In fact, a 1992 U.S. Supreme Court decision exempted out-of-state retailers from collecting sales taxes in states where they had no physical presence. States countered that they were losing millions in yearly tax revenue, but were poorly organized to mount a collection effort. In 2003, major retailers—including

EXHIBIT 1.2 The Children’s Online Privacy Protection Act (COPPA).

The Children’s Online Privacy Protection Act applies to operators of commercial websites and online services that attempt to collect personal information from children under the age of 13. The law explains what must be included in the firm’s privacy policy, when and how to seek verifiable consent from a parent or guardian, and the firm’s responsibilities to protect children’s privacy and safety. Firms cannot evade the law’s provisions by claiming that children under 13 cannot visit their sites, nor can they make information optional or ask the visitor’s age.

In implementing the provisions of COPPA, the FTC issued the Children’s Online Privacy Protection Rule, which is designed to give parents control over the information that is collected from their children. The rule requires website operators to:

1. Determine if their company is a website or online service that collects personal information from kids under 13.

2. Post a privacy policy that complies with COPPA. 3. Notify parents directly before collecting personal information from their kids. 4. Get parents’ verifiable consent before collecting information from their kids. 5. Honor parents’ ongoing rights with respect to information collected from their kids. 6. Implement reasonable procedures to protect the security of kids’ personal information.

SOURCE: United States Federal Trade Commission, Bureau of Consumer Protection, http://www.ftc.gov/tips-advice/ business-center/guidance/childrens-online-privacy-protection-rule-six-step-compliance, accessed February 18, 2015.

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Walmart, Target, and Toys “R” Us—in an agreement with a consortium of 38 states and the District of Columbia, agreed to collect online sales taxes. However, many online merchants still did not charge sales taxes. Today, states—much more organized than before—estimate that they lose a collective $23 billion per year in lost tax revenue. Amazon, for example, still collects sales tax from only 74 percent of U.S. consumers.7

Although the full effect of these challenges will not be recognized for some time, circumstances have forced businesses to move ahead by adjusting their marketing activities at both the strategic and tactical levels. As we review the major marketing concepts and activities in this chapter, we will look at how today’s challenges have affected strategic planning in these areas.

BASIC MARKETING CONCEPTS Marketing is many different things. Many people, especially those not employed in marketing, see marketing as a function of business. From this perspective, marketing parallels other business functions such as production/operations, research, management, human resources, and accounting. As a business function, the goal of marketing is to connect the organization to its customers. Other individuals, particularly those working in marketing jobs, tend to see marketing as a process of managing the flow of products from the point of conception to the point of consumption. The field’s major trade organization, the American Marketing Association, has changed the definition of marketing over time to reflect changes in the economic and business environments. From 1985 until 2005, the AMA defined marketing this way:

Marketing is the process of planning and executing the conception, pricing, promotion, and distribution of ideas, goods, and services to create exchanges that satisfy individual and organizational objectives.8

Note how this definition focuses on the four Ps, or the marketing mix (product, price, place, and promotion). In 2005, the AMA changed the definition to better reflect the realities of competing in the marketplace:

Marketing is 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.9

This definition shifts the focus away from the marketing mix and toward value creation for customers. In 2007, the AMA changed the definition of marketing again:

Marketing is 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.10

Notice that the changes in the definition are not merely cosmetic in nature. The older definitions focused on the process of marketing to deliver value and manage customer relationships. The most recent definition shifts from “value” to “offerings that have value.” Also, the notion of stakeholders is made more explicit. Why would the AMA make these changes? One reason has to do with commoditization as discussed in Beyond the Pages 1.1. Breaking free from commodity status means finding ways to differentiate the offering. The new definition recognizes that differentiation can come from any part of the offering, whereas older conceptualizations of marketing placed the burden of differentiation on the product itself. The second reason has to do with marketing’s broader role in today’s corporation. Firms don’t just sell products; they sell the firm as a whole. Corporate relationships with partners, media, government, investors, employees, and society are every bit as important as relationships with customers. These types of relationships—which grow and thrive on

Chapter 1 • Marketing in Today’s Economy 7

exceptional value—are an absolute necessity in the commodity-driven status of many product markets. While the older definitions of marketing had a decidedly transactional focus, the new definition emphasizes long-term relationships that provide value for both the firm and its stakeholders.

A final way to think about marketing relates to meeting human and social needs. This broad view links marketing with our standard of living, not only in terms of enhanced consumption and prosperity, but also in terms of society’s well-being. Through marketing activities, consumers can buy cars from South Korea and wines from South Africa; and organizations can earn a viable profit, making both employees and shareholders happy. However, marketing must also bear responsibility for any negative effects it may generate. This view demands that marketers consider the social and ethical implications of their actions, and whether they practice good citizenship by giving back to their communities. As exemplified in the New Belgium Brewing case associated with this text, firms can successfully meet human and social needs through socially responsible marketing and business practices.

Let’s take a closer look at several basic marketing concepts. As we will see, ongoing changes in today’s economy have forever altered our way of thinking about these foundational aspects of marketing.

What Is a Market? At its most basic level, a market is a collection of buyers and sellers. We tend to think of a market as a group of individuals or institutions that have similar needs that can be met by a particular product. For example, the housing market is a collection of buyers and sellers of residential real estate, while the automobile market includes buyers and sellers of automotive transportation. Marketers or sellers tend to use the word “market” to describe only the buyers. This basic understanding of a market has not changed in a very long time. What has changed, however, is not so much the “what” but the “where” of a market; that is, the location of the buyers and sellers. In both consumer markets (like housing and automobiles) and business markets (like replacement parts and raw materials), the answer to the “where” question is quickly becoming “anywhere” as markets become less defined by geography.

Until recently, marketers have considered a market to be a physical location where buyers and sellers meet to conduct transactions. Although those venues (e.g., grocery stores, malls, flea markets) still exist, technology mediates some of the fastest growing markets. Early in the beginning of the dot-com era, the term marketspace was coined to describe these electronic marketplaces unbound by time or space.11 Today, we refer to these electronic marketplaces as online markets or e-commerce. In e-commerce, physical goods, services, and information are exchanged through the Internet. Some of the largest marketspaces, such as Amazon, eBay, and Monster, are now household names. In fact, Amazon has become the e-commerce equivalent of a shopping mall as the company now sells shoes, apparel, jewelry, beauty aids, and sporting goods in addition to its traditional offerings of books and electronics. E-commerce also exists in the business-to-business realm. The shift from physical to electronic marketplaces has significant ramifications for marketers. The fact that customers can shop, place orders, and exchange information 24/7 means that these businesses must be capable of operating in that same time frame. In effect, online markets never take a break at closing time—they never close. It also means that firms lose some control over the information that is dissem- inated about their company or products. Through blogs, discussion forums, or even Twitter, customers can exchange information about an online merchant outside the merchant’s own website. Furthermore, the substitution of technology for human interaction can be both a blessing and a curse. Some sites, like CarsDirect, are successful because they eliminate the hassle of dealing with another human in the buying process. Many customers, however, have been slow to embrace electronic

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markets because they lack the human element. In these cases, the design and implementation of the online experience is a serious challenge for online firms. Finally, the wealth of information available through e-commerce not only makes customers more educated than ever before, but also gives customers increased power through comparison shopping and price negotiation.

Another interesting shift related to markets is the advent of metamarkets and metamediaries. A metamarket is a cluster of closely related goods and services that center around a specific consumption activity. A metamediary provides a single access point where buyers can locate and contact many different sellers in the metamarket.12 Assume for example that you are engaged to be married. How many different buying decisions will you and your fiancé have to make in the coming months? How many newspaper ads, websites, and magazines will you explore? Although the businesses and decisions are diverse, they all converge on the single theme of wedding planning. This is the driving principle behind a metamarket. Exhibit 1.3 shows examples of common metamarkets and metamediaries. Although customers don’t use these terms, they fully understand the concept of finding information and solutions in one place. For example, Parenting.com has become the Internet’s preeminent metamediary for information and advice related to parenting, pregnancy, and children. Similarly, Edmunds.com is a popular site devoted to all things related to buying and owning a vehicle. Metamediaries like these fulfill a vital need by offering quick access and one-stop shopping to a wide variety of information, goods, and services.

What Is Exchange? Closely related to the concept of a market, our ideas about exchange have changed in recent years. Exchange is traditionally defined as the process of obtaining something of value from someone by offering something in return; this usually entails obtaining products for money. For exchange to occur, five conditions must be met:

1. There must be at least two parties to the exchange. Although this has always been the case, the exchange process today can potentially include an unlimited number of participants. Online auctions provide a good example. Customers who bid on an item at eBay may be one of many participants to the

EXHIBIT 1.3 Common Metamarkets and Participants.

Metamarkets Automotive Home Ownership Parenting

Metamediaries www.edmunds.com www.carsdirect.com www.kbb.com

www.realtor.com www.zillow.com www.bhg.com

www.parenting.com www.babycenter.com newparent.com

Metamarket Participants Buyers Manufacturers Car dealerships Banks Credit unions Credit reporting services Insurance firms Rating services Magazines Television programs Aftermarket parts/accessories Repair services Car rental firms Auction houses

Homeowners Builders Real estate agents Mortgage companies Insurance companies Home inspectors and appraisers Pest control services Magazines Television programs Retailers

Parents Doctors Retailers Baby supply manufacturers Insurance firms Financial planners Educational providers Toy manufacturers Television programs Movies

Chapter 1 • Marketing in Today’s Economy 9

exchange process. Each participant changes the process for the others, as well as the ultimate outcome for the winning bidder. Some auctions include multiple quantities of an item, so the potential exists for multiple transactions within a single auction process.

2. Each party has something of value to the other party. Exchange would be possible, but not very likely, without this basic requirement. The Internet has exposed us to a vast array of goods and services that we did not know existed previously. Today, not only can we buy a television or stereo receiver from a local merchant; we also have access to hundreds of online merchants. Further- more, the ability to comparison shop products and their prices allows customers to seek out the best value.

3. Each party must be capable of communication and delivery. The advantages of today’s communication and distribution infrastructure are amazing. We can find and communicate with potential exchange partners anywhere and any- time via telephone, computers, interactive television, and smartphones. We can also conduct arm’s-length transactions in real time, with delivery of exchanged items occurring in a matter of hours if necessary. For example, you can text message an order to Pizza Hut on your way home from work.

4. Each party must be free to accept or reject the exchange. In the online world, this condition of exchange becomes a bit more complicated. Customers have grown accustomed to the ease with which they can return items to local merchants. Easy return policies are among the major strengths of traditional offline merchants. Returning items is more difficult with online transactions. In some cases, the ability to reject an exchange is not allowed in online transactions. Ordering airline tickets on Priceline.com and winning a bid on an item at eBay are contractually binding acts for the customer. Apple has a no refunds policy in its App Store. In other words, once the actual purchasing process has started, the customer is not free to reject the exchange.

5. Each party believes it is desirable to exchange with the other party. Cus- tomers typically have a great deal of information about, or even a history with, offline merchants. In online exchange, customers often know nothing about the other party. To help resolve this issue, a number of third-party firms have stepped in to provide ratings and opinions about online merchants. Services such as BizRate and Epinions not only provide these ratings, but also provide product ratings and serve as shopping portals. eBay and Amazon go one step further by allowing buyers and sellers to rate each other. This gives both parties to the exchange process some assurance that reputable individuals or organizations exist on the other side of the transaction.

The bottom line is that exchange has become all too easy in today’s economy. Opportunities for exchange bombard us virtually everywhere we go. Customers don’t even have to trouble themselves with giving credit cards or completing forms for ship- ping information. Most onlinemerchants will remember this information for us if we let them. For example, Amazon’s 1-Click® ordering feature allows customers to purchase products with a single mouse click.13 The ease with which exchange can occur today presents a problem in that individuals who do not have the authority to exchange can still complete transactions. This is especially true for underage customers.

What Is a Product? It should come as no surprise that the primary focus of marketing is the customer and how the organization can design and deliver products that meet customers’ needs. Organizations create essentially all marketing activities as a means toward this end; this includes product design, pricing, promotion, and distribution. In short, an organization would have no reason to exist without customers and a product to offer them.

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But what exactly is a product? A very simple definition is that a product is something that can be acquired via exchange to satisfy a need or a want. This definition permits us to classify a broad number of “things” as products:

• Goods. Goods are tangible items ranging from canned food to fighter jets, from sports memorabilia to used clothing. The marketing of tangible goods is arguably one of the most widely recognizable business activities in the world.

• Services. Services are intangible products consisting of acts or deeds directed toward people or their possessions. Banks, hospitals, lawyers, package delivery companies, airlines, hotels, repair technicians, nannies, housekeepers, consul- tants, and taxi drivers all offer services. Services, rather than tangible goods, dominate modern economies like the U.S. economy.

• Ideas. Ideas include issues aimed at promoting a benefit for the customer. Examples include cause-related or charitable organizations such as the Red Cross, the American Cancer Society, Mothers Against Drunk Drivers, or the American Legacy Foundation’s campaign against smoking.14

• Information. Marketers of information include websites, magazine and book publishers, schools and universities, research firms, churches, and charitable organizations. Examples include Khan Academy, Wikipedia, and the popular TED Talks. In the digital age, the production and distribution of information has become a vital part of our economy.

• Digital Products. Digital products such as software, music, and movies are among the most profitable in our economy. Advancements in technology have also wreaked havoc in these industries because pirates can easily copy and redistribute digital products in violation of copyright law. Digital products are interesting because content producers grant customers a license to use them, rather than outright ownership.15

• People. The individual promotion of people, such as athletes or celebrities, is a huge business around the world. The exchange and trading of professional athletes takes place in a complex system of drafts, contracts, and free agency. Other professions, such as politicians, actors, professional speakers, and news repor- ters, also engage in people marketing.

• Places. When we think of the marketing of a place, we usually think of vacation destinations like Rome or Orlando. However, the marketing of places is quite diverse. Cities, states, and nations all market themselves to tourists, businesses, and potential residents. The state of Alabama, for example, has done quite well in attracting direct investment by foreign firms. Over the last 20 years, Alabama has landed assembly plants from Mercedes, Honda, and Hyundai, as well as many different parts plants and related firms. It’s no wonder that some people think of Alabama as the new Detroit.16

• Experiences and Events. Marketers can bring together a combination of goods, services, ideas, information, or people to create one-of-a-kind experiences or single events. Examples include theme parks such as Disney World and Universal Studios, sporting events like the Daytona 500 or the Super Bowl, or stage and musical performances like The Phantom of the Opera or a concert by Rihanna.

• Real or Financial Property. The exchange of stocks, bonds, and real estate, once marketed completely offline via real estate agents and investment companies, now occurs increasingly online. For example, Realtor.com is the nation’s largest real estate listing service, with almost 4 million searchable listings. Like- wise, Schwab.com is the world’s largest and top-rated online brokerage.

• Organizations. Virtually all organizations strive to create favorable images with the public—not only to increase sales or inquiries, but also to generate customer goodwill. In this sense, General Electric is no different than the United

Chapter 1 • Marketing in Today’s Economy 11

Way: Both seek to enhance their images in order to attract more people (customers, volunteers, and clients) and money (sales, profit, and donations).

We should note that the products in this list are not mutually exclusive. For example, firms that sell tangible goods almost always sell services to supplement their offerings, and vice versa. Charitable organizations simultaneously market themselves, their ideas, and the information that they provide. Finally, special events like the Daytona 500 combine people (drivers), a place (Daytona), an event (the race), organizations (sponsors), and goods (souvenirs) to create a memorable and unique experience for race fans.

To effectively meet the needs of their customers and fulfill organizational objectives, marketers must be astute in creating products and combining them in ways that make them unique from other offerings. A customer’s decision to purchase one product or group of products over another is primarily a function of how well that choice will fulfill their needs and satisfy their wants. Economists use the term utility to describe the ability of a product to satisfy a customer’s desires. Customers usually seek out exchanges with marketers who offer products that are high in one or more of these five types of utility:

• Form Utility. Products high in form utility have attributes or features that set them apart from the competition. Often these differences result from the use of high-quality raw materials, ingredients, or components, or from the use of highly efficient production processes. For example, Ruth’s Chris Steakhouse, considered by many to be one of the nation’s top chain restaurants, provides higher form utility than other national chains because of the quality of beef they use. Papa John’s Pizza even stresses form utility in its slogan “Better Ingredients. Bet- ter Pizza.” In many product categories, higher priced product lines offer more form utility because they have more features or bells-and-whistles. Luxury cars are a good example.

• Time Utility. Products high in time utility are available when customers want them. Typically, this means that products are available now rather than later. Grocery stores, restaurants, and other retailers that are open around the clock provide exceptional time utility. Often the most successful restaurants around college campuses are those that are open 24/7. Many customers are also willing to pay more for products available in a shorter time frame (such as overnight delivery via FedEx) or for products available at the most convenient times (such as midmorning airline flights).

• Place Utility. Products high in place utility are available where customers want them, which is typically wherever the customer happens to be at that moment (such as grocery delivery to a home) or where the product needs to be at that moment (such as florist delivery to a work place). Home delivery of any product, convenience stores, vending machines, and e-commerce are examples of good place utility. Products that are high in both time and place utility are exception- ally valuable to customers because they provide the utmost in convenience.

• Possession Utility. Possession utility deals with the transfer of ownership or title from marketer to customer. Products higher in possession utility are more satisfying because marketers make them easier to acquire. Marketers often combine supplemental services with tangible goods to increase possession utility. For example, furniture stores that offer easy credit terms and home delivery enhance the possession utility of their goods. In fact, any merchant that accepts credit cards enhances possession utility for customers that do not carry cash or checks. Expensive products, like a home or a new factory, require acceptable financing arrangements to complete the exchange process.

• Psychological Utility. Products high in psychological utility deliver positive experiential or psychological attributes that customers find satisfying. Sporting

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events often fall into this category, especially when the competition is based on an intense rivalry. The atmosphere, energy, and excitement associated with being at the game can all create psychological benefits for customers. Con- versely, a product might offer exceptional psychological utility because it lacks negative experiential or psychological attributes. For example, a vacation to the beach or the mountains might offer more psychological utility to some customers because it is seen as less stressful than a vacation to Disney World.

The strategic and tactical planning of marketing activities involves the important basic concepts we have explored in this section. Marketers often struggle with finding and reaching the appropriate markets for their products. In other cases, the market is easily accessible, but the product is wrong or does not offer customers a compelling reason to purchase it. The ability to match markets and products in a way that satisfies both customer and organizational objectives is truly an art and a science. As described in Beyond the Pages 1.2, doing so in an environment of never-ending change creates both opportunities and challenges for even the stron- gest and most respected organizations.

The process of planning marketing activities to achieve these ends is the focus of this book. As we turn our attention to an overview of major marketing activities and decisions, we also want to lay out the structure of the text. The chapters roughly coincide with the major activities involved in developing marketing strategy and writing a marketing plan. Although our approach is orderly and straightforward, it provides a holistic representation of the marketing planning process from one period to the next. As we will see, marketing planning is an evolving process that has no definite beginning or ending point.

MAJOR MARKETING ACTIVITIES AND DECISIONS Organizations must deal with a number of activities and decisions in marketing their products to customers. These activities vary in both complexity and scope. Whether the issue is a local restaurant’s change in copy for a newspaper ad or a large

Vi si on s of

Am er ic a/ Ge

tty Im ag es

Sporting events deliver psychological utility that goes beyond the actual competition.

Chapter 1 • Marketing in Today’s Economy 13

BEYOND THE PAGES 1.2

Innovative Marketing Strategies for a Rebounding Economy17

Innovation has long been considered the lifeblood of business, especially in terms of growth and new market opportunities. Unfortunately, our economy’s most recent struggles have made it difficult for companies to maintain innovation when they must also cut costs and maintain market standing. The same is true for consumers as they have reigned in spending due to the economy. Still, some companies managed to maintain their creativity and innovation even in a hesitant economy. They do so by looking for the new opportunities that come along with changing customer spending patterns. Here are three cases in point:

Walmart When customers have fewer dollars to spend, they try to make those dollars go further. In the grocery business, this translates into stronger sales for store brands (private labels). Many of Walmart’s store brands are well known: Great Value, Sam’s Choice, Faded Glory, Home- Trends, Ol’ Roy, and Equate. To further take advantage of changing shopping patterns, Wal- mart decided to reinvigorate Great Value—its top-selling private label brand. To do this, Wal- mart improved the quality of roughly 750 food and grocery products, updated the Great Value logo, and freshened the packaging. In one bold move, Walmart pulled Hefty brand storage bags from its shelves in favor of their lower-priced Great Value brand. The company later returned Hefty to the shelves, but only after Hefty agreed to make the Great Value brand for Walmart. Other chains, such as CVS, Walgreens, Kroger, and Target, have copied Walmart’s strategy. Today, many of these store brands are among Consumer Reports highest rated brands in terms of quality and value.

Procter & Gamble One result of a weakened economy is that customers forgo buying new cars and instead begin taking better care of the cars they currently own. P&G decided to capitalize on this trend by launching a national chain of franchised car washes under its Mr. Clean brand. Since the car wash industry did not have a dominant national brand, P&G hoped that its Mr. Clean units would capture a good share of the

$35 billion industry. To begin, P&G acquired Carnett’s—a small car wash chain. Next, P&G took advantage of lower real estate prices to find suitable locations, and rising unemploy- ment to find talented employees. The result, a 12-unit chain of Mr. Clean Car Wash franchisees (most are in the Atlanta area), has been a success. Buoyed by this success, P&G now plans to launch 150 Tide-branded dry cleaners over the next four years. One major benefit of the Tide concept is the lower franchise fee. It costs $950,000 to open a Tide Dry Cleaner, but up to $5 million to open a Mr. Clean Car Wash.

Hulu When customers have less money to spend on entertainment, they tend to entertain themselves more at home. Hulu.com is perfectly poised to take advantage of this trend. A joint venture between Disney-ABC, NBCUniversal, and Fox Entertainment, Hulu is an advertising- supported, online video streaming service that offers prime-time television programming via the Internet and mobile apps. Hulu’s growth comes from a growing trend of watching full- length programming via the Internet instead of network or cable television. The trend is especially prevalent among the prized 18- to 44-year-old demographic—a statistic that has advertisers buzzing. Hulu users spend an average of 256 minutes per month watching videos—each one embedded with advertising from mainstream companies like Best Buy, Bank of America, and Nissan. Customers can also subscribe to Hulu Plus for roughly $8 per month. In only 7 years, Hulu has become one of the top Internet video websites and generates over $1 billion in revenue each year. Hulu’s next push is with original programming, including programs such as Battleground and Misfits. The company spends over $500 million each year on programming.

What do these three stories teach us? First, companies can still be innovative in a weakened economy. The key is to conduct research to closely follow changing customer prefer- ences and spending. Second, it’s not enough to do the research. Good innovation must be accu- rately timed to the market. Third, to be creative, companies will often have to step outside their comfort zones. P&G is a great example. Who would have thought that a packaged goods company could become a service provider?

14 Chapter 1 • Marketing in Today’s Economy

multinational firm launching a new product in a foreign market, all marketing activities have one thing in common: They aim to give customers a reason to buy the organization’s product. In this section, we briefly introduce the activities and decisions that will be the focus of the remaining chapters of this book.

Strategic Planning If an organization is to have any chance of reaching its goals and objectives, it must have a game plan or road map for getting there. A strategy, in effect, outlines the organization’s game plan for success. Effective marketing requires sound strategic planning at a number of levels in an organization. At the top levels of the organization, planners concern themselves with macro issues such as the corporate mission, management of the mix of strategic business units, resource acquisition and assignments, and corporate policy decisions. Planners at the middle levels, typically a division or strategic business unit, concern themselves with similar issues, but focus on those that pertain to their particular product/market. Strategic planning at the lower levels of an organization is much more tactical in nature. Here, planners concern themselves with the development of marketing plans—more specific game plans for con- necting products and markets in ways that satisfy both organizational and customer objectives.

Although this book is essentially about strategic planning, it focuses on tactical planning and the development of the marketing plan. Tactical planning addresses specific markets or market segments and the development of marketing programs that will fulfill the needs of customers in those markets. The marketing plan provides the out- line for how the organization will combine product, pricing, distribution, and promotion decisions to create an offering that customers will find attractive. The marketing plan also addresses the implementation, control, and refinement of these decisions.

To stand a reasonable chance for success, marketing plans should be developed with a keen appreciation of how they fit into the strategic plans of the middle and upper levels of the firm. In Chapter 2, we discuss the connection among corporate, business-unit, and marketing planning, as well as how marketing plans must be integrated with the plans of other functions in the organization (financial plans, production plans, etc.). We also discuss the structure of the marketing plan and some of the challenges involved in creating one.

Research and Analysis Strategic planning depends heavily on the availability and interpretation of information. Without this lifeblood, strategic planning would be a mindless exercise and a waste of time. Thankfully, today’s planners are blessed with an abundance of information due to improving technology and the Internet. However, the challenge of finding and analyzing the right information remains. As many marketing planners have found, having the right information is just as important as having the right product.

Marketers are accustomed to conducting and analyzing research, particularly with respect to the needs, opinions, and attitudes of their customers. Although customer analysis is vital to the success of the marketing plan, the organization must also have access to three other types of information and analysis: internal analysis, competitive analysis, and environmental analysis. Internal analysis involves the objec- tive review of internal information pertaining to the firm’s current strategy and performance, as well as the current and future availability of resources. Analysis of the competitive environment, increasingly known as competitive intelligence, involves analyzing the capabilities, vulnerabilities, and intentions of competing businesses. Anal- ysis of the external environment, also known as environmental scanning, involves the analysis of economic, political, legal, technological, and cultural events and trends that may affect the future of the organization and its marketing efforts. Some

Chapter 1 • Marketing in Today’s Economy 15

marketing planners use the term situation analysis to refer to the overall process of collecting and interpreting internal, competitive, and environmental information.

The development of a sound marketing plan requires the analysis of information on all fronts. In Chapter 3, we address the collection and analysis of internal, customer, competitive, and environmental information. We also discuss the challenges involved in finding the right information from an overwhelming supply of available information. The uncertainty and continual change in the external environment also create challenges for marketers (as the Internet boom and bust have shown us). As we will see, this type of research and analysis is perhaps the most difficult aspect of developing a marketing plan.

Developing Competitive Advantage To be successful, a firm must possess one or more competitive advantages that it can leverage in the market in order to meet its objectives. A competitive advantage is something that the firm does better than its competitors that gives it an edge in serving customers’ needs and/or maintaining mutually satisfying relationships with important stakeholders. Competitive advantages are critical because they set the tone, or strategic focus, of the entire marketing program. When these advantages are tied to market opportunities, the firm can offer customers a compelling reason to buy their products. Without a competitive advantage, the firm and its products are likely to be just one more offering among a sea of commoditized products. Apple, for example, has been quite successful in leveraging innovation and the customer experience to maintain a sizable competitive advantage in computers, smartphones, and music and movie distribution. A typical Mac computer costs substantially more than a comparable PC running Windows. However, Apple bun- dles multimedia software and a top-rated user experience into the mix. As a result, Apple computers continue to command a price premium, where most PC manufacturers engage in price wars.

In Chapter 4, we discuss the process of developing competitive advantages and establishing a strategic focus for the marketing program. We also address the role of SWOT analysis as a means of tying the firm’s strengths or internal capabilities to market opportunities. Further, we discuss the importance of developing goals and objectives. Having good goals and objectives is vital because these become the basis for measuring the success of the entire marketing program. For example, Hampton Inn has a goal of 100 percent customer satisfaction. Customers do not have to pay for their stay if they are not completely satisfied.18 Goals like these are not only useful in setting milestones for evaluating marketing performance; they also motivate managers and employees. This can be especially true when marketing goals or objectives help to drive employee evaluation and compensation programs.

Marketing Strategy Decisions An organization’s marketing strategy describes how the firm will fulfill the needs and wants of its customers. It can also include activities associated with maintaining relationships with other stakeholders, such as employees, shareholders, or supply chain partners. Stated another way, marketing strategy is a plan for how the organization will use its strengths and capabilities to match the needs and requirements of the market. A marketing strategy can be composed of one or more marketing programs; each program consists of two elements—a target market or markets and a marketing mix (sometimes known as the four Ps of product, price, place, and promotion). To develop a marketing strategy, an organization must select the right combination of target market(s) and marketing mix(es) in order to create distinct competitive advantages over its rivals.

16 Chapter 1 • Marketing in Today’s Economy

Market Segmentation and Target Marketing The identification and selection of one or more target markets is the result of the market segmentation process. Marketers engage in market segmentation when they divide the total market into smaller, relatively homogeneous groups or segments that share similar needs, wants, or characteristics. When a marketer selects one or more target markets, they identify one or more segments of individuals, businesses, or institutions toward which the firm’s marketing efforts will be directed. As described in Beyond the Pages 1.3, marketers increasingly use online social networking as a way to target specific markets.

Advances in technology have created some interesting changes in the ways that organizations segment and target markets. Marketers can now analyze customer-buying patterns in real time via point-of-purchase data collected from sales transactions and credit card usage, as well as by analyzing clickstream data in

BEYOND THE PAGES 1.3

Targeting Consumers via Online Social Networking19

Social networking has proven to be very popular with both users and advertisers. Sites like Facebook, Instagram, Google Plus, LinkedIn, Pinterest, and Twitter allow users to share information, find old friends, or network with like-minded individuals. Most users are teens and young adults who use the sites to trade messages, photos, music, and blogs. The largest of these sites currently is Facebook, which boasts over 1.2 billion active users worldwide. Instagram has over 300 million active users, while Twitter has over 232 million active users. Other sites are also growing rapidly.

While social networks are very popular, they have attracted a fair amount of criticism. Many argue that these sites make it easier for predators to reach teens and children through the use of their online profiles. Business experts have been skeptical of the long-term success of social networking as a business model. They argue that younger audiences are fickle and will leave these sites for the next hot thing on the Internet. For example, analysts estimate that Twitter has over 651 million abandoned accounts—almost four times the number of active Twitter users.

Despite these criticisms, online social networking appears to have legs for the long- term—forcing media companies and advertisers to take notice. The reason is simple: The demographic profile of the social networking audience is extremely lucrative. Facebook’s fastest growing age segment is the 25 and over

crowd. LinkedIn has a different profile of over 347 million registered members with an older, more professional demographic. However, LinkedIn’s profile has been shifting as more students and recent college graduates join the network. Powerful segmentation like this has forced an increasing number of advertisers to consider social networking as a viable media strategy.

In addition to the demographic fortune, social networking also allows firms to carefully target promotions to the right audience and collect a striking amount of information about users. For example, Nike used Facebook Places to target consumers in Portland, Oregon with free athletic jackets for individuals who checked in to a specified location in the city. Vitamin Water used a Facebook campaign ask- ing users to help them choose the next flavor of the popular drink. Domino’s also used Face- book to distribute promotional codes to fans of its page. American Airlines and IBM have had similar success using Twitter to reach potential customers.

Social networking sites have become so successful that they are now the entry point to the Internet for most users. In essence, social networking sites have become one-stop shops for communication, information, and commerce. Consumers can buy products without having to leave these sites, and marketers are paying attention. For example, when Facebook added the ability to rent movies and buy music directly from its site, competitors such as Amazon, Netflix, and Apple were forced to take notice.

Chapter 1 • Marketing in Today’s Economy 17

online transactions. This allows organizations to target specific segments with product offers or promotional messages. Furthermore, technology now gives marketers the ability to target individual customers through direct mail and e-mail campaigns. This saves considerable time and expense by not wasting efforts on potential customers who may not be interested in the organization’s product offering. How- ever, these new opportunities for marketers come at a price: Many potential buyers resent the ability of marketers to reach them individually. Consequently, customers and governmental authorities have raised major concerns over privacy and confidentiality.

Chapter 5 discusses the issues and strategies associated with market segmentation and target marketing. In that discussion, we will examine different approaches to market segmentation and look at target marketing in both consumer and business markets. Effective segmentation and target marketing sets the stage for the development of the product offering and the design of a marketing program that can effectively deliver the offering to targeted customers.

Marketing Program Decisions As we will address in Chapter 6, successful marketing programs depend on a carefully crafted blend of the four major marketing mix elements (i.e., product, price, distribution, and promotion). Earlier in the chapter, we discussed the many different types of products that can be offered to customers. Since the product and its attributes fulfill the basic needs and wants of the customer, it is no surprise that the product and the decisions that surround it are among the most important parts of the marketing program. This importance hinges on the connection between the product and the customers’ needs. Even large corporations fail to make this connection at times. McDonald’s, for example, spent over $100 million in 1996 to launch the Arch Deluxe—a hamburger designed for adult tastes. Considered the fourth worst product failure in history, the Arch Deluxe failed miserably because it was designed for older customers (who are not McDonald’s core market), was expensive, and had a very high calorie content. McDonald’s customers avoided the Arch Deluxe and the sand- wich was eventually discontinued.20 As this example illustrates, marketing is unlikely to be effective unless there is a solid linkage between a product’s benefits and customers’ needs.

Pricing decisions are important for several reasons. First, price is the only element of the marketing mix that leads to revenue and profit. All other elements of the marketing mix, such as product development and promotion, represent expenses. Second, price typically has a direct connection with customer demand. This connection makes pricing the most overmanipulated element of the marketing mix. Marketers routinely adjust the price of their products in an effort to stimulate or curb demand. Third, pricing is the easiest element of the marketing program to change. There are very few other aspects of marketing that can be altered in real time. This is a huge plus for marketers who need to adjust prices to reflect local market conditions, or for online merchants who want to charge different prices for different customers based on total sales or customer loyalty. Finally, pricing is a major quality cue for customers. In the absence of other information, customers tend to equate higher prices with higher quality.

Distribution and supply chain issues are among the least apparent decisions made in marketing, particularly with customers. The goal of distribution and supply chain management is essentially to get the product to the right place, at the right time, in the right quantities, at the lowest possible cost. Supply chain decisions involve a long line of activities—from the sourcing of raw materials, through the production of fin- ished products, to ultimate delivery to final customers. Most of these activities, which customers take for granted, take place behind the scenes. Few customers, for example, contemplate how their favorite cereal ends up on their grocer’s shelf

18 Chapter 1 • Marketing in Today’s Economy

or how Dell can have a made-to-order computer at your door in days. Customers just expect these things to happen. In fact, most customers never consider these issues until something goes wrong. Suddenly, when the grocer is out of an item or an assembly line runs low on component parts, distribution and supply chain factors become quite noticeable.

Modern marketing has replaced the term promotion with the concept of integrated marketing communication (IMC), or the coordination of all promotional activities (media advertising, social media, direct mail, personal selling, sales promotion, public relations, packaging, store displays, website design, personnel) to produce a unified, customer-focused message. Here, the term “customers” not only refers to customers in the traditional sense, but also includes employees, business partners, shareholders, the government, the media, and society in general. IMC rose to promi- nence in the 1990s as businesses realized that traditional audiences for promotional efforts had become more diverse and fragmented. IMC can also reduce promotional expenses by eliminating the duplication of effort among separate departments (marketing, sales, advertising, public affairs, and information technology) and by increasing efficiencies and economies of scale.

Branding and Positioning When you think about a company like Southwest Airlines, what comes to mind? Most people will likely say low fares and no bag fees. Others may think of limited routes and destinations. As we will see in Chapter 7, what customers think about a company and its offerings is the focus of branding and positioning strategy. In order to understand branding, the marketer must have a clear understanding of how the elements of the marketing program work together to create the brand. While product decisions (such as design, style, and features) play a prominent role in branding, so do other program elements such as price/value, availability/exclusivity, and image/reputation of both the firm and its offerings. Marketers must also make decisions regard- ing package design, trademarks, and warranties or guarantees. Product positioning involves establishing a mental image, or position, of the product offering relative to competing offerings in the minds of target buyers. The goal of positioning is to distin- guish or differentiate the firm’s product offering from those of competitors by making the offering stand out among the crowd. As Southwest has shown us, even something as simple as “no bag fees” can be very successful in setting the firm apart from the competition. Another example is the battle between Walmart and Target. The mental image that most customers have of Walmart is associated with everyday low prices. Target has a slightly different position, one that emphasizes value with a stronger sense of style and quality.

Social Responsibility and Ethics The role of social responsibility and ethics in marketing strategy has come to the forefront of important business issues in today’s economy. Our society still reverbe- rates from the effects of corporate scandals at Enron, WorldCom, and ImClone, among others. Although these scandals make for interesting reading, many innocent individuals have suffered the consequences from these companies’ unethical behavior. Social responsibility refers to an organization’s obligation to maximize its positive impact on society, while minimizing its negative impact. In terms of marketing strategy, social responsibility addresses the total effect of an organization’s marketing activities on society. A major part of this responsibility is marketing ethics, or the principles and standards that define acceptable conduct in marketing activities. Ethical marketing can build trust and commitment and is a crucial ingredient in building long-term relationships with all stakeholders. Another major component of any firm’s impact on society is the degree to which it engages in philanthropic activities. Many firms now make philanthropy a key strategic activity.

Chapter 1 • Marketing in Today’s Economy 19

In Chapter 8, we discuss the economic, legal, ethical, and philanthropic dimensions of social responsibility, along with the strategic management of corporate integrity in the marketing planning process. Although there are occasional lapses, most firms understand their economic and legal responsibilities. However, social and ethical responsibilities, by their nature, are not so clearly understood. Many firms see social responsibility not only as a way to be a good corporate citizen, but also as a good way to build their brands. For example, the Red brand—created by Bono in 2006—has been marketed successfully by firms such as Starbucks, Bank of America, Apple, Beats, SAP, and Coca-Cola. These and other companies market Red brand versions of their products with the aim to donate up to 50 percent of their profits to the Global Fund to fight AIDS in Africa.21

Implementation and Control Once a marketing strategy has been selected and the elements of the marketing mix are in place, the marketer must put the plan into action. Marketing implementation, the process of executing the marketing strategy, is the “how” of marketing planning. Rather than being an add-on at the end of the marketing strategy and marketing plan, implementation is actually a part of planning itself. That is, when planning a marketing strategy, the organization must always consider how the strategy will be executed. Sometimes, the organization must revisit the strategy or plan to make revi- sions during the strategy’s execution. This is where marketing control comes into play. Adequate control of marketing activities is essential to ensure that the strategy stays on course and focused on achieving its goals and objectives.

The implementation phase of marketing strategy calls into play the fifth “P” of the marketing program: people. As we will learn in Chapter 9, many of the problems that occur in implementing marketing activities are “people problems” associated with the managers and employees on the frontline of the organization who have responsibility for executing the marketing strategy. Many organizations understand the vital link between people and implementation by treating their employees as indispensable assets. AFLAC, for example, has been named 16 consecutive years by Fortunemagazine to its list of the “100 Best Companies to Work for in America.” The Georgia-based company has developed a corporate culture that focuses on caring for employees and providing for their needs.22 Other companies cited as having good relationships with their employees include Google, SAS, Edward Jones, Wegmans Food Markets, and The Container Store.

Developing andMaintaining Customer Relationships Over the last two decades, marketers have come to the realization that they can learn more about their customers, and earn higher profits, if they develop long-term relationships with them. This requires that markers shift away from transactional marketing and embrace a relationship marketing approach. The goal of transactional marketing is to complete a large number of discrete exchanges with individual customers. The focus is on acquiring customers and making the sale, not necessarily on attending to customers’ needs and wants. In relationship marketing, the goal is to develop and maintain long-term, mutually satisfying arrangements where both buyer and seller focus on the value obtained from the relationship. As long as this value stays the same or increases, the relationship is likely to deepen and grow stronger over time. Exhibit 1.4 illustrates the basic characteristics of transactional versus relationship marketing. Relationship marketing promotes customer trust and confidence in the marketer, who can then develop a deeper understanding of customers’ needs and wants. This puts the marketer in a position to respond more effectively to customer’s needs, thereby increasing the value of the relationship for both parties.

20 Chapter 1 • Marketing in Today’s Economy

The principles and advantages of relationship marketing are the same in both business-to-business and consumer markets. Relationship marketing activities also extend beyond customers to include relationships with employees and supply chain partners. In Chapter 10, we discuss these and other aspects of relationship marketing in greater depth. Long-term relationships with important stakeholders will not mate- rialize unless these relationships create value for each participant. This is especially true for customers faced with many different alternatives among firms competing for their business. Since the quality and value of a marketer’s product offering typically determine customer value and satisfaction, Chapter 10 will also discuss the role of quality, value, and satisfaction in developing and maintaining customer relationships. Issues associated with quality, value, and satisfaction cut across all elements of the marketing program. Hence, we discuss these issues in our final chapter as a means of tying all of the marketing program elements together.

TAKING ON THE CHALLENGES OF MARKETING STRATEGY One of the greatest frustrations and opportunities in marketing is change— customers change, competitors change, and even the marketing organization changes. Strategies that are highly successful today will not work tomorrow. Custo- mers will buy products today that they will have no interest in tomorrow. These are truisms in marketing. Although frustrating, challenges like these also make marketing extremely interesting and rewarding. Life as a marketer is never dull.

Another fact about marketing strategy is that it is inherently people-driven. Marketing strategy is about people (inside an organization) trying to find ways to deliver exceptional value by fulfilling the needs andwants of other people (customers, shareholders, business partners, society at large), as well as the needs of the organization itself. Marketing strategy draws from psychology, sociology, and economics to better understand the basic needs and motivations of these people—whether they are the organization’s customers (typically considered the most critical), its employees, or its stakeholders. In short, marketing strategy is about people serving people.

The combination of continual change and the people-driven nature of marketing makes developing and implementing marketing strategy a challenging task. A perfect strategy that is executed perfectly can still fail. This happens because there are very few rules for how to domarketing in specific situations. In other words, it is impossible to say that given “this customer need” and these “competitors” and this “level of government regulation” that Product A, Price B, Promotion C, and Distribution D should be used. Marketing simply doesn’t work that way. Sometimes, an organization can get

EXHIBIT 1.4 Major Characteristics of Transactional and Relationship Marketing.

Transactional Marketing Relationship Marketing Marketing Focus Customer Acquisition Customer Retention Time Orientation Short-Term Long-Term Marketing Goal Make the Sale Mutual Satisfaction Relationship Focus Create Exchanges Create Value Customer Service Priority Low High Customer Contact Low to Moderate Frequent Commitment to Customers Low High Characteristics of the Interaction Adversarial, Manipulation, Conflict

Resolution Cooperation, Trust, Mutual Respect, Confidence

Source of Competitive Advantage Production, Marketing Relationship Commitment

Chapter 1 • Marketing in Today’s Economy 21

lucky and be successful despite having a terrible strategy and/or execution. The lack of rules and the ever-changing economic, sociocultural, competitive, technological, and political/legal landscapes make marketing strategy a terribly fascinating subject.

Most of the changes that marketers have faced over the past 20 years deal with the basic evolution of marketing and business practice in our society. One of the most basic shifts involves the increasing demands of customers. Today, customers have very high expectations about basic issues such as quality, performance, price, and availability. American customers in particular have a passion for instant gratifi- cation that marketers struggle to fulfill. Some evidence suggests that marketers have not met this challenge. The American Customer Satisfaction Index, computed by the National Quality Research Center at the University of Michigan, indicates that customer satisfaction has recovered since the Center first computed the index in 1994. As shown in Exhibit 1.5, the airline industry has suffered large declines in customer satisfaction. Satisfaction in other industries, such as the automotive industry and soft drinks, has remained fairly high and stable.

The decline in satisfaction can be attributed to several reasons. For one, customers have become much less brand loyal than in previous generations. Today’s customers are very price sensitive, especially in commoditized markets where products lack any real means of differentiation (such as airlines). Consequently, customers constantly seek the best value and thrive on their ability to compare prices among competing alternatives. Customers are also quite cynical about business in general and are not that trusting of marketers. In short, today’s customers not only have more power; they also have more attitude. This combination makes them a formida- ble force in the development of contemporary marketing strategy.

Marketers have also been forced to adapt to shifts in markets and competition. In terms of their life cycles, most products compete today in very mature markets. Many firms also compete in markets where product offerings have become commoditized by a lack of differentiation (e.g., customers perceive competing offerings as essentially the same). Some examples include airlines, wireless phone service, department stores, laundry supplies, and household appliances. Product

EXHIBIT 1.5 American Customer Satisfaction Index.

19 94

19 95

19 96

19 97

19 98

19 99

20 00

20 01

20 02

20 03

20 04

20 05

20 06

20 07

20 08

20 09

20 10

20 11

20 12

20 13

20 14

Overall

Airlines

Automobiles

PCs

Soft Drinks

Life Insurance

SOURCE: American Customer Satisfaction Index and the University of Michigan Business School, http://www.theacsi.org, 2012.

22 Chapter 1 • Marketing in Today’s Economy

commoditization pushes margins lower and reduces brand loyalty even further. To meet this challenge, U.S. firms have moved aggressively into foreign markets in an effort to increase sales and find new growth opportunities. At the same time, however, foreign firms have moved into U.S. markets to meet the challenges of maturing markets in their own countries.

In the face of increasing competition and maturing markets, businesses have been forced to cut expenses in order to remain competitive. Some businesses do this by eliminating products or product lines. General Motors, for example, dropped its Saturn division—a move similar to its dropping of Oldsmobile and the Hummer H1. Others have maintained their product mix, but have aggressively sought ways to lower their distribution costs. The growth in direct distribution (manufacturer to end user) is a result of these efforts. Still other firms have been forced to take drastic measures, such as downsizing and laying off employees to trim expenses.

Needless to say, developing a viable and effective marketing strategy has become extremely challenging. Even the most admired marketers in the world like McDonald’s, Procter & Gamble, Anheuser-Busch, and Toyota occasionally have problems meeting the demands of the strategic planning process and developing the “right” marketing strategy. Our goal in this book is not to teach you to develop the “right” strategy. Rather, our approach will give you a framework for organizing the planning process, and the ability to see how all of the pieces fit together. Think of it as a mindset or way to think about marketing strategy. The remainder of this text dedicates itself to these goals.

LESSONS FROM CHAPTER 1

Marketing challenges and opportunities in the new economy include:

• a shift in power to customers caused by increased access to information. • a massive increase in product selection due to line extensions and global

sourcing. • greater audience and media fragmentation as customers spend more time with

interactive media and less time with traditional media. • changing customer perceptions of value and frugality. • shifting demand patterns for certain product categories, especially those deliv-

ered digitally. • increasing concerns over privacy, security, and ethics. • unclear legal jurisdictions, especially in global markets.

Marketing:

• is parallel to other business functions such as production, research, management, human resources, and accounting. The goal of marketing is to connect the organization to its customers.

• is defined as 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.

• has changed in focus over the past 20 years. Today, marketing stresses value and customer relationships, including relationships with all potential stakeholders.

• is linked with our standard of living, not only in terms of enhanced consumption and prosperity, but also in terms of society’s well-being.

Basic marketing concepts include:

• market—a collection of buyers and sellers. • marketplace—a physical location where buyers and sellers meet to conduct

transactions.

Chapter 1 • Marketing in Today’s Economy 23

• marketspace (or online market)—an electronic marketplace not bound by time or space.

• metamarket—a cluster of closely related goods and services that centers on a specific consumption activity.

• metamediary—a single access point where buyers can locate and contact many different sellers in the metamarket.

• exchange—the process of obtaining something of value from someone by offering something in return; this usually involves obtaining products for money. There are five conditions of exchange: 1. There must be at least two parties to the exchange. 2. Each party has something of value to the other party. 3. Each party must be capable of communication and delivery. 4. Each party must be free to accept or reject the exchange. 5. Each party believes it is desirable to exchange with the other party.

• product—something that can be acquired via exchange to satisfy a need or a want.

• utility—the ability of a product to satisfy a customer’s needs and wants. The five types of utility provided through marketing exchanges are form utility, time utility, place utility, possession utility, and psychological utility.

Major marketing activities and decisions include:

• strategic and tactical planning. • research and analysis. • developing competitive advantages and a strategic focus for the marketing

program. • marketing strategy decisions, including decisions related to market segmenta-

tion and target marketing, as well as the marketing program (i.e., product, pricing, distribution, and promotion) and branding/positioning.

• social responsibility and ethics. • implementing and controlling marketing activities. • developing and maintaining long-term customer relationships, including a shift

from transactional marketing to relationship marketing.

Some of the challenges involved in developing marketing strategy include:

• unending change—customers change, competitors change, and even the marketing organization changes.

• the fact that marketing is inherently people-driven. • the lack of rules for choosing appropriate marketing activities. • the basic evolution of marketing and business practice in our society. • the increasing demands of customers. • an overall decline in brand loyalty and an increase in price sensitivity among

customers. • increasing customer cynicism about business and marketing activities. • competing in mature markets with increasing commoditization and little real dif-

ferentiation among product offerings. • increasing expansion into foreign markets by U.S. and foreign firms. • aggressive cost-cutting measures in order to increase competitiveness.

NOTES 1. These facts are from Justin Bachman, Mary Schlangenstein, and John Hughes,

“Southwest Charts a New Flight Plan,” BusinessWeek Online, September 29, 2010 (http://www.businessweek.com/magazine/content/10_41/b4198022740823.htm); “Best Buy: How to Break Out of Commodity Hell,” BusinessWeek Online, March 27, 2006

24 Chapter 1 • Marketing in Today’s Economy

(http://www.businessweek.com/magazine/content/06_13/b3977007.htm); Leslie Patton, “Starbucks Targets Folks Who Shun Starbucks,” BusinessWeek Online, April 21, 2011 (http://www.businessweek.com/magazine/content/11_18/b4226026215941.htm); and Robert Safian, “The World’s Most Innovative Companies 2014,” Fast Company Online, (http://www.fastcompany.com/most-innovative-companies/2014/), accessed February 17, 2015.

2. Rebecca R. Ruiz and Michael J. De La Merced, “RadioShack Files for Chapter 11 Bankruptcy After a Deal with Sprint,”New York Times, February 5, 2015 (http://dealbook. nytimes.com/2015/02/05/radio-shack-files-for-chapter-11-bankrutpcy/?_r=0).

3. Rachel Abrams, “Target Puts Data Breach Costs at $148 Million, and Forecasts Profit Drop,” New York Times, August 5, 2014 (http://www.nytimes.com/2014/08/06/business/ target-puts-data-breach-costs-at-148-million.html).

4. William B. Baker, “Sony Pays Record Civil Penalty to Settle COPPA Violations,” Privacy in Focus, January 2009 (http://www.wileyrein.com/publication.cfm? publication_id=14098); and Kevin Khurana, “COPPA Violations? Cop a Settlement for $3 Million,” Proskauer.com, May 18, 2011 (http://privacylaw.proskauer.com/2011/05/ articles/childrens-online-privacy-prote/coppa-violations-cop-a-settlement-for-3-million/).

5. Dan Levin, “China Escalating Attack on Google,” New York Times, June 2, 2014 (http:// www.nytimes.com/2014/06/03/business/chinas-battle-against-google-heats-up.html).

6. “U.S. ITC Report on China Piracy Shows Billions in Losses: Senators Demand Action,” Intellectual Property Watch, May 18, 2011 (http://www.ip-watch.org/2011/05/18/us-itc- report-on-china-piracy-shows-billions-in-losses-senators-demand-action/).

7. Sandra Block, “Momentum Growing for Sales Taxes on Online Purchases, USA Today Online, February 8, 2012 (http://www.usatoday.com/money/perfi/taxes/story/2012-02- 08/online-sales-taxes/53015142/1); and Matt Lindner, “Amazon will soon collect sales tax from 74% of U.S. consumers,” Internet Retailer, January 26, 2015.

8. American Marketing Association, http://www.ama.org. 9. American Marketing Association, http://www.ama.org.

10. American Marketing Association, http://www.ama.org. 11. Jeffrey F. Rayport and Bernard J. Jaworski, e-Commerce (Boston: McGraw-Hill/Irwin,

2001), p. 3. 12. Mohanbir Sawhney, “Making New Markets,” Business 2.0, May 1999, 116–121. 13. http://www.amazon.com 14. http://www.legacyforhealth.org 15. Scott D. Roberts and Kathleen S. Micken (2015), “Marketing Digital Offerings Is

Different: Strategies for Teaching about Digital Offerings in the Classroom,” Journal of Education for Business, 90(2), 96–102.

16. “Automotive Hub of the South,” Amazing Alabama, July 21, 2014 (http://www. amazingalabama.com/key-industry-targets-automotive.html), accessed February 18, 2015.

17. These facts are from Ellen Byron, “Mr. Clean Takes Car-Wash Gig,” Wall Street Journal Online, February 5, 2009 (http://online.wsj.com/article/SB123379252641549893.html); Andria Cheng, “Retailers Try New Tricks Amid Global Downturn,” MarketWatch, March 23, 2009, (http://www.marketwatch.com/news/story/wal-marts-great-value- signals-coming/story.aspx?guid={81136A47-8D95-4FB9-92A4-F98A8F7B1E6A}); Lauren Coleman-Lochner and Mark Clothier, “P&G Looks to Franchise Tide Dry Cleaning,” BusinessWeek Online, September 2, 2010, (http://www.businessweek.com/magazine/ content/10_37/b4194020958182.htm); Andy Fixmer, “Hulu Plans to Raise Money to Fund Expansion into Original Shows,” BusinessWeek Online, January 18, 2012 (http:// www.businessweek.com/news/2012-01-18/hulu-plans-to-raise-money-to-fund-expansion- into-original-shows.html); Mr. Clean Car Wash website (http://mrcleancarwash.com), accessed February 19, 2015; Reena Jana, “P&G’s Trickle-Up Success: Sweet as Honey,” BusinessWeek Online, March 31, 2009 (http://www.businessweek.com/innovate/content/ mar2009/id20090331_127029.htm?chan=innovation_innovation+%2B+design_ innovation+strategy); Parija Kavilanz, “Dumped! Brand Names Fight to Stay in Stores,” Fortune, February 16, 2010 (http://money.cnn.com/2010/02/15/news/ companies/walmart_dropping_brands/index.htm); Jeneanne Rae, “Innovative Ways to Grow During the Downturn,” BusinessWeek Online, April 15, 2009 (http://www. businessweek.com/innovate/content/apr2009/id20090415_238678.htm); and Lucas Shaw, “Hulu Passes $1B in Revenue, Has 5M Hulu Plus Subscribers,” The Wrap,

Chapter 1 • Marketing in Today’s Economy 25

December 18, 2013 (http://www.thewrap.com/hulu-passes-1b-revenue-5m-hulu-plus- subscribers/).

18. Hampton Inn’s Satisfaction Guarantee (http://hamptoninn3.hilton.com/en/about/ satisfaction.html), accessed February 19, 2015.

19. These facts are from Joe Brown, “You Can Rent Movies on Facebook Now,” Gizmodo, August 19, 2011 (http://gizmodo.com/5832713/you-can-rent-movies-on-facebook); Jim Edwards, “Twitter’s ‘Dark Pool’: IPO Doesn’t Mention 651 Million Users Who Abandoned Twitter,” Business Insider, November 6, 2013 (http://www.businessinsider.com/twitter- total-registered-users-v-monthly-active-users-2013-11); Linked In website (https://press. linkedin.com/about-linkedin), accessed February 19, 2015; Matt McKinley, “8 Cool Marketing Campaigns Using Facebook Places,” AdWeek, August 2, 2011 (http://www. adweek.com/socialtimes/8-cool-marketing-campaigns-using-facebook-places/356266); Graeme McMillan, “How Many People Actually Use Twitter? Good Question,” Time Online, August 29, 2011 (http://techland.time.com/2011/08/29/how-many-people- actually-use-twitter-good-question/); “Need Facebook Marketing Inspiration? 20 of the Most Innovative Campaigns,” SimplyZesty.com, February 7, 2011 (http://www. allfacebook.com/8-cool-marketing-campaigns-using-facebook-places-2011-08); and Jeffrey F. Rayport, “Social Networks Are the NewWeb Portals,” BusinessWeek Online, January 21, 2009 (http://www.businessweek.com/technology/content/jan2009/ tc20090121_557202.htm).

20. These facts are from Mark Kassof & Company, “McDonald’s Arch McFlop,” Research Insights: Lessons from Marketing Flops, Summer 1997.

21. These facts are from http://www.joinred.com, accessed February 20, 2015. 22. These facts are from the Aflac corporate website (http://www.aflac.com/aboutaflac/

pressroom/pressreleasestory.aspx?rid=623), accessed February 20, 2015 and “The 100 Best Companies to Work For 2014,” Fortune (http://www.greatplacetowork.com/best- companies/100-best-companies-to-work-for), accessed February 20, 2015.

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