Which two variables rank as marketing's most important contributions to strategic management?

CHAPTER 8 • IMPLEMENT ING STRATEGIES: M A R K E T I N G , F INANCE/ACCOUNTING, R&D , A N D MIS ISSUES 253

net income increased to $12.9 billion from $10.5 billion when most firms experienced dramatic losses.

J&J's CEO, Bill Weldon, says, "Our Credo, laid out by Robert Wood Johnson in 1943, still governs J&J. Our Credo really sets our priorities. And our first priority is to the people who use our products—to make sure we're supplying them with quality products," he says. J&J appli- cants must read the credo before being hired, and Weldon says that anyone transitioning into a leadership position in the company spends two days wi th him, JSd's HR boss, and general counsel talking about how the credo "has shaped our organization and decisions" over 66 years.

If you get sick, you likely will begin using J8d products. The diversified giant operates in three segments through more than 250 operating companies located in some 60 countries. The J8d Pharmaceuticals division makes drugs (including schizophrenia medication Risperdal and psoriasis drug Remicade) for an array of ailments, such as neurolog- ical conditions, blood disorders, autoimmune diseases, and pain. JSd's Medical Devices and Diagnostics division offers surgical equipment, monitoring devices, orthopedic

products, and contact lenses, among other items. The consumer segment makes over-the-counter drugs and products for skin and hair care, oral care, first aid, and women's health.

In mid-2009, J&J agreed to acquire the small cancer drug-developer Cougar Biotechnology for about $894 million in cash. Cougar has an excellent drug for late stage prostate cancer. J&J's purchase price of $43 a share was a 16 percent premium over Cougar's closing stock price.

J&J reported second quarter 2009 net income of $3.21 billion and sales of $15.24 billion. During that quarter, sales of J&J's Remicade treatment for rheumatoid arthritis rose 24 percent to $1.1 billion. In July 2009, the company acquired a minority stake in Elan Corporation, which makes Alzheimer's drugs.

Source: Based on Geoff Colvin, "The World's Most Admired Companies," Fortune (March 16, 2009): 76-86; Jessica Shambora, "Most Admired Companies Know Their Values," CNN Money (March 5, 2009).

Countless marketing variables affect the success or failure of strategy implementation, and the scope of this text does not allow us to address all those issues. Some examples o f marketing decisions that may require poUcies are as follows:

1. To use exclusive dealerships or inultiple channels of distribution 2. To use heavy, Ught, or no T V advertising 3. To l imit (or not) the share of business done with a single customer 4. To be a price leader or a price follower 5. To offer a complete or l imited warranty 6. To reward salespeople based on straight salary, straight commission, or a

combination salary/commission 7. To advertise online or not

A marketing issue of increasing concern to consumers today is the extent to which companies can track individuals' movements on the Internet—and even be able to identify an individual by naine and e-mail address. Individuals ' wanderings on the Internet are no longer anonymous, as many persons s t i l l believe. Market ing companies such as Doublecl ick, Flycast, AdKnowledge, AdForce, and Real Media have sophisticated meth- ods to identify who you are and your particular interests.' I f you are especially concerned about being tracked, visit the www.networkadvertising.org Web site, which gives details about how marketers today are identifying you and your buying habits.

Market ing o f late has become more about bui ld ing a two-way relationship w i th consumers than just informing consumers about a product or service. Marketers today must get their customers involved in their company Web site and solici t suggestions f rom customers in terms o f product development, customer service, and ideas. The online community is much quicker, cheaper, and effective than traditional focus groups and surveys.

Companies and organizations should encourage theii" employees to create wikis—Web sites that allows users to add, delete, and edit content regarding frequently asked questions

254 PART 3 • S T R A T E G Y I M P L E M E N T A T I O N

A C o m p r e h e n s i v e S t ra teg i c-Management Mode l

Chapter 10: Business Ethics, Social Responsibility, and Environmental Sustalnability

r—r Perform

External Aud i t Chapter 3

Develop Vision and Mission statements Chapter 2

Establish Long-Term Objectives Chapter 5

Generate, Evaluate,

and Select Strategies Chapter 6

Implement S t ra teg ies-

Management Issues

Chapter 7

Implement Strategies- Marketing,

Finance, Accounting, R&D,

and MIS Issues Chapter 8 ,

Measure and Evaluate Performance

Chapter 9

Perform Internal Aud i t

Chapter 4

J

Chapter 11: Global/International Issues

Strategy Formulation

Strategy Implementation

Strategy Evaluation

Source: Fred R. Dav id , " H o w Companies Define The i r M i ss ion , " Long Range Planning 22, no. 3 (June 1988): 40.

and information across the tlrin's whole value chain of activities. The most common wik i is Wikipedia, but think of wikis as user-generated content. Know that anyone can change the content in a w i k i but the group and other editors can change the content or changes that you submit.

Firms should provide incentives to consumers to share their thoughts, opinions, and experiences on the company Web site. Encourage consumers to network among them- selves on topics of their choosing on the company Web site. So the compairy Web site must not be all about the coinpany—it must be all about the customer too. Perhaps offer points or discounts for customers who provide ideas and suggestions. This practice w i l l not only encourage participation but w i l l allow both the company and other customers to interact with "experts."

IMsMf PriiiiicBples o f Marketing Today a business or organization's Web site must provide clear and simple instructions for customers to set up a blog and/or contribute to a w i k i . Customers trust each others' opin- ions more than a company's marketing pitch, and the more they talk freely, the more the f i rm can learn how to improve its product, service, and marketing. Marketers today

1 e ( a s b te B c l ch hu so de Fa, inc

WOi

T A I

1. 2. 3. 4. j

5. J

6. f (-

7. E

Source in a W

CHAPTER 8 • IMPLEMENT ING STRATEGIES: M A R K E T I N G , F INANCE/ACCOUNTING, R&D, A N D MIS ISSUES 255

monitor blogs daily to determine, evaluate, and iniluence opinions being formed by cus- tomers. Customers must not feel like they are a captive audience for advertising at a firm's Web site. Table 8-1 provides new principles of marketing according to Parise, Guinan, and Weinberg.'

Wells Fargo and Bank of America in 2009 began to iweet customers, memiing they posted messages o f 140 characters or less on Twitter.com to describe features of bank products. Some banks are placing marketing videos on YouTube. Discover Financial, American Express, and Cit igroup all now have Facebook or MySpace pages. U M B Financial o f Kansas City, Missouri , tweets about everything from the bank's financial stability to the industry's prospects. Steve Furman, Discover's director of e-commerce, says the appeal of social networking is that i t provides "pure, instant" communication with customers.^

When the big three U.S. automakers were asking lawmakers for bailout funding, al l three firms launched extensive internet marketing campaigns to garner support for their requests and plans for the future. Ford's online marketing campaign was anchored by the Web site www.TheFordStory .com. In addi t ion to a new Web site o f its own, Chrysler launched a new marketing YouTube Channel named Grab Democracy and also posted ad informat ion to its b log. G M employed s imilar marketing tactics to drive visitors to its main Web site. Once any controversial topic arises in a company or indus- try, mil l ions o f people are out there googling, yahooing, aoling, youtubing, facebook- ing, and myspacing to find out more information in order to form their own opinions and preferences.

Al though the exponential increase in social networking and business online has created huge opportunities for marketers, it also has produced some severe threats. Perhaps the greatest threat is that any king of negative publicity travels fast online. For example, D r Pepper recently suffered immensely when an attorney for the rock band Guns N ' Roses accused the company of not fo l lowing through on giving every American a soft drink i f they released their album Chinese Democracy. Other examples abound, such as M o t r i n ads that l ightheartedly talked about M o m ' s back pain from hold ing babies in slings, and Burger King's Whopper Virgin campaign, which featured a taste test of a Whopper versus a McDonald's B ig Mac in remote areas o f the world . Even Taco Bel l suffered from its ads that featured asking 50 Cent (aka Curtis Jackson) i f he would change his name to 79 Cent or 89 Cent for a day in exchange for a $10,000 donation to charity. Seemingly minor ethical and questionable actions can catapult these days into huge public relations problems for companies as a result o f the monumental online social and business communications. For example, Domino's , the nation's largest pizza delivery chain, spent a month in 2009 t ry ing to dispel the video on YouTube and Facebook showing two of its employees doing gross things to a Domino's sub sandwich, including passing gas on salami.^

In increasing numbers, people l iv ing in underdeveloped and poor nations around the world have cell phones but no computers, so the Internet is rapidly moving to cell phone

The N e w Pr inciples of Marke t ing

1. Don't just talk at consumers—work with them throughout the marketing process.

2. Give consumers a reason to participate.

3. Listen to—and join—the conversation outside your company's Web site.

4. Resist the temptation to sell, sell. sell. Instead attract, attract, atu-act.

5. Don't control online conversations; let it flow freely.

6. Find a "inarketing technologist," a person who has three excellent skill sets (marketing, technology, and social interaction).

7. Embrace instant messaging and chatting. I I

Source: Based on Salvalore Parise, Patricia Guinan, and Bruce Weinberg, "The Secrets o f Market ing in a Web 2.0 Wor ld , " Wall Street Journal (December 15, 2008): R l .

256 PART 3 • S T R A T E G Y I M P L E M E N T A T I O N

platforms. This is opening up even larger markets to online marketing. People in remote parts of Indonesia, Egypt, and Russia represent the fastest growing customer base for Opera Software A S A , a Norwegian maker o f Internet browsers for mobile devices. Actual ly , persons who cannot afford computers live everywhere in every counti7, and many of these persons w i l l soon be on the Internet on their cell phones. Cell phones are rapidly becoming used for data transfer, not just for phone calls. Companies such as Nokia, A T & T , Purple Labs SA of France, Japan's Access, Vodafone Group PLC, Siemens A G , Research in M o t i o n , and Apple are spurring this transition by developing new and improved Web-capable mobile products eveiy day.^

Advertising Media Recent research by Forrester Research reveals that people ages 18 to 27 spend more time weekly on the Internet than watching television, listening to the radio, or watching DVDs or VHS tapes. Table 8-2 reveals why companies are rapidly coming to the realization that social networking sites and video sites are better means of reaching their customers than spending so many marketing dollars on traditional yellow pages or television, magazine, radio, or newspaper ads. Note the time that people spend on the Internet. And i t is not just the time. Television viewers are passive viewers of ads, whereas Internet users take an active role in choosing what to look at—so customers on the Internet are tougher for marketers to reach.^

New companies such as Autonet M o b i l e based in San Francisco are selling new technology equipment for cars so the front passenger may conduct an iChat video con- ference whi le persons in the back each have a laptop and watch a YouTube video or download music or wirelessly transfer pictures from a digital camera. Everyone in the vehicle can be online except, o f course, the driver. This technology is now available for installation in nearly all cars and is accelerating the movement from hard media to Web- based media. Wi th this technology also, when the vehicle drives into a new location, you may instandy download information on shows, museuais, hotels, and other attractions around you.

Growth of Internet advertising is expected to decline from a 16 percent increase in 2008 to a 5 percent increase in 2009. Wi th this slowdown, companies are changing the restrictions they previously imposed on the categories and formats o f advertising. For example, marketers are more and more allowed to create bigger, more intrusive ads that take up more space on the Web page. And Web sites are al lowing lengthier ads to run before short video clips play. And blogs are creating more content that doubles also as an ad. Companies are also waiving minimum ad purchases. Companies are redesigning their Web sites to be much more interactive and are building new sponsorship programs and

Ave rage A m o u n t of T ime Tha t 18- to 27-Year-Olds Spend Week l y on Var ious Med ia (in hours )

Media Hours On the Intemet High-13.0

Watching television

On their cell phone

Listening to the Radio

Watching DVDs or VHSs

Mediiini-7,0

Playing video games

Reading magazines Low-1.0

Source: Based on El len By ron , "A New Odd Couple: Google, P & G Swap Workers to Spur Innovat ion, " Wall Street Journal (November 19, 2008): A t .

CHAPTER 8 • IMPLEMENT ING STRATEGIES: M A R K E T I N G , F INANCE/ACCOUNTING, R&D, A N D MIS ISSUES 257

Other enticements on their sites. Editorial content and advertising content are increasingly being mixed on blogs.

i n 2009-2011, consumers w i l l act rationally. JC Penney CEO Mike Ul lman says, "Consumers now shop for what they 'need' and less for what they 'want.' And they don't need much." Essentials, such as food, health-care products, and beauty aids are selling, but even in those industries, consumers are shift ing to less costly brands and stores. There is a need for marketers to convince consumers that their brand w i l l make life eas- ier or better. Consumers now often wait until prices are slashed 75 percent or more to buy. Consumers today are very cautious about how they spend their money. Gone are the days when retailers could convince consumers to buy something they do not need.

JC Penney is among many firms that today have revamped their marketing to be more digital related. Penney's is segmenting its e-mail databases according to customers' shop- ping behaviors and then sending out relevant messages. Penney's corporate director o f brand communications recently said, "Tailoring the e-mail insures that our customers are receiving timely, relevant information."

Expectations for total U.S. advertising spending in 2009 may decline anywhere from 6.2 percent to 3 percent to about $160 billion as the fallout from global financial crises continues to cut into ad spending.^ Global ad spending is expected to dechne about 0.5 percent. One bright spot, however, is online advertising expenditures that are expected to increase 5 percent in 2009 following a 16 percent increase in 2008, Companies are shifting ad dollars from newspaper, magazine, and radio to online media.

Pyrpose-Based MaftkMing The global marketing chief at Procter & Gamble, Jim Stengel, recently started his own L L C business to try to persuade companies that the best way to sell in a weak economy is to "show customers how they can improve their l ives" wi th your product or service. Stengel calls this "purpose-based marketing," and hundreds of firms have now adopted this approach successfully. He says there is need in an ad to build trust and an emotional connection to the customer in order to differentiate your product or service.^

[n a weak economy when consumers are more interested in buying cheaper brands, Stengel acknowledges that ads must promote price, but he says ads must also show the intrinsic value of the product or service to be cost effective. Stengel contends that ads should do both: promote low price and build emotional equity through "purpose-based appeal."

The Coca-Cola Company is leading the way to another new k ind of sell ing in a weak economy. CEO Muhtar Kent at Coke says marketing today must "employ opti- mism." That is why Coca-Cola launched a new global ad campaign in 2009 appealing to consLimers' longing for comfort and optimism. The new campaign features the new slo- gan "Open Happiness," which replaced Coke's prior popular slogan o f three years, "The Coke Side o f L i f e . " The Coke CEO says marketers must use feel-good messages to counter the fallout from the economic crisis. Firms must today project to customers that their products or services offer a beacon of comfort and optimism. Coke's cola volume declined 4.0 percent in the United States in 2008. Coke Classic's U.S. volume fell about 16 percent f rom 1998 through 2007 as customers switched to bottled water, enhanced teas, and other alternative d r inks . ' °

Market Segmentation Two variables are of central importance to strategy implementation: market segmentation and product positioning. Market segmentation and product positioning rank as marketing's most important contributions to strategic management.

Market segmentation is widely used in implementing strategies, especially for small and specialized firms. Market segmentation can be defined as the subdividing of a market into distinct subsets of customers according to needs and buying habits.

258 PART 3 • STRATEGY I M P L E M E N T A T I O N

The Marke t ing Mix C o m p o n e n t Var iab les

Product Place Promotion Price

Quality

Features and options

Style

Brand name

Packaging

Product line

Warranty

Service level

Other services

Source: From E. Jerome McCarthy, Basic Marketing: A Managerial Approach, 9th ed. (Homewood, XL: Richard D. I rw in , Inc., 1987): 37-44. Used w i th permission.

Market segmentation is an important variable in strategy implementation for at least three major reasons. First, strategies such as market development, product devel- opment, market penetration, and diversification require increased sales through new markets and products. To implement these strategies successfully, new or improved market-segmentation approaches are requiixd. Second, market segmentation allows a firm to operate wi th l imi ted resources because mass production, mass distribution, and mass advei'tising are not required. Market segmentation enables a small f irm to com- pete successfully w i th a large f i rm by max imiz ing per-unit profits and pei-segment sales. Finally, market segmentation decisions directly affect marketing mix variables: product, place, p romot ion , and price, as indicated in Table 8-3. For example, SnackWells, a pioneer in reduced-fat snacks, has shifted its advertising emphasis from low-fat to great taste as part o f its new market-segmentation strategy.

Perhaps the most dramatic new market-segmentation strategy is the targeting o f regional tastes. Firms from McDonald 's to General Motors are increasingly modifying their products to ineet different regional preferences within the United States. Campbell's has a spicier version of its nacho cheese soup for the Southwest, and Burger K i n g offers breakfast burritos in New Mexico but not in South Carolina. Geographic and demo- graphic bases for segmenting markets are the most commonly employed, as illustrated in Table 8-4.

Evaluating potential market segments requires strategists to determine the characteris- tics and needs of consumers, to analyze consumer siinilarities and differences, and to develop consumer group profiles. Segmenting consumer markets is generally much simpler and easier than segmenting industrial markets, because industrial products, such as electronic circuits and forklifts, have multiple applications and appeal to diverse customer groups.