Marketing: The Core (ISE HED IRWIN MARKETING) [9 ed.] 1264832907, 9781264832903

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MARKETING: THE CORE Published by McGraw Hill LLC, 1325 Avenue of the Americas, New York, NY 10121. Copyright ©2022 by McGraw Hill LLC. All rights reserved. Printed in the United States of America. No part of this publication may be reproduced or distributed in any form or by any means, or stored in a database or retrieval system, without the prior written consent of McGraw Hill LLC, including, but not limited to, in any network or other electronic storage or transmission, or broadcast for distance learning. Some ancillaries, including electronic and print components, may not be available to customers outside the United States. This book is printed on acid-free paper. 1 2 3 4 5 6 7 8 9 LWI 26 25 24 23 22 21 ISBN 978-1-264-83290-3 MHID 1-264-83290-7 Cover Image: Glenn van der Knijff/Getty Images

All credits appearing on page or at the end of the book are considered to be an extension of the copyright page. The Internet addresses listed in the text were accurate at the time of publication. The inclusion of a website does not indicate an endorsement by the authors or McGraw Hill LLC, and McGraw Hill LLC does not guarantee the accuracy of the information presented at these sites.

mheducation.com/highered

WELCOME FROM THE AUTHORS!

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A recent survey of the market for marketers revealed an incredible variety of new job titles including brand ambassador, digital marketing manager, content strategist, event coordinator, marketing analytics manager, and social media manager. These new titles reflect the exciting changes occurring in the marketplace and the integral role marketing professionals will play in businesses, nonprofit organizations, government agencies, and all parts of our economic and social environment. We are excited to have the opportunity to participate in your journey as a student of marketing, and we hope that this textbook will help you discover your personal goals related to a career of compassion and purpose in marketing or any of the fields it will influence! The changes in the marketplace are the result of new technologies, new consumer interests, new social trends, and the recent COVID-19 pandemic. For example, artificial intelligence, consumer preference for environmentally friendly products, the growing movement toward a gender-neutral society, and the shift to online buying during the pandemic have dramatic implications for the future practice of marketing. To help you see the links with marketing actions we have included many current, interesting, and relevant examples such as Elon Musk’s mission to Mars and Neuralink businesses, Bombas’s efforts to help solve a social problem with its new business model, IBM’s “Let’s Put Smart To Work” strategy, and Toyota’s hydrogen fuel-cell vehicle, the Mirai. In addition, we have integrated many of the most popular marketing tools to measure marketing performance, including net promoter ratings, customer lifetime value, and customer engagement measures for social media. The dynamic nature of the marketing discipline necessitates equally dynamic learning resources. As a result, we have focused our time and energy on ensuring that our textbook provides the most insightful and comprehensive coverage of the marketplace today. The dramatic changes in student learning styles—from traditional observational styles to contemporary collaborative styles—are also reflected in our efforts as we have included many features to match these interests. Our approach to presenting the complexities of marketing and facilitating the changes in learning is based on three important dimensions: •

Engagement. As professors we have benefited from interactions with many exceptional students, managers, and instructors. Their insights have contributed to our approach to teaching and, subsequently, to our efforts as textbook authors. One of the essential elements of our approach is a commitment to active learning through engaging, integrated, and timely materials. In-class activities, an interactive blog, marketing plan exercises, and in-text links to online ads and web pages are just a few examples of the components of our engagement model.

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Leadership. Our approach is also based on a commitment to taking a leadership

role in the development and presentation of new ideas, principles, theories, and practices in marketing. This is more important now than ever before, as the pace of change in our discipline accelerates and influences almost every aspect of traditional marketing. We are certain that exposure to leading-edge material related to topics such as social media, data analytics, and marketing metrics can help students become leaders in their jobs and careers. •

Innovation. New educational technologies and innovative teaching tools have magnified the engagement and leadership aspects of our approach. Connect and SmartBook 2.0, for example, provide a digital and interactive platform that embraces the “anytime and anywhere” style of today’s students. In addition, we have provided new videos and increased the visual impact of the text and PowerPoint materials to facilitate multimedia approaches to learning.

Through the previous 8 U.S. editions—and 20 international editions in 12 languages—we have been gratified by the enthusiastic and valuable feedback we have received from students and instructors. We are very excited to have this opportunity to share our passion for this exciting discipline with you today. Welcome to the 9th edition of Marketing: The Core ! Roger A. Kerin Steven W. Hartley

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PREFACE Marketing: The Core utilizes a unique, innovative, and effective pedagogical approach developed by the authors through the integration of their combined classroom, college, and university experiences. The elements of this approach have been the foundation for each edition of Marketing: The Core and serve as the core of the text and its supplements as they evolve and adapt to changes in student learning styles, the growth of the marketing discipline, and the development of new instructional technologies. The distinctive features of the approach are illustrated below:

The goal of the 9th edition of Marketing: The Core is to create an exceptional experience for today’s students and instructors of marketing. The development of Marketing was based on a rigorous process of assessment, and the outcome of the

process is a text and package of learning tools that are based on engagement, leadership, and innovation in marketing education.

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ENGAGEMENT The author team has benefited from extraordinary experiences as instructors, researchers, and consultants, as well as the feedback of users of previous editions of Marketing: The Core —now more than 1 million students! The authors believe that success in marketing education in the future will require the highest levels of engagement. They ensure engagement by facilitating interaction between students and four learning partners—the instructor, other students, businesses, and the publisher. Some examples of the high-engagement elements of Marketing: The Core: In-Class Activities and Digital In-Class Activities. The in-class activities, located in the Instructor’s Manual, are designed to engage students in discussions with the instructor and among themselves. They involve surveys, online resources, out-ofclass assignments, and personal observations. Each activity illustrates a concept from the textbook and can be done individually or as a team. Examples include: Designing a Candy Bar, Marketing Yourself, Pepsi vs. Coke Taste Test, and What Makes a Memorable TV Commercial? In addition, digital in-class activities have been added to selected chapters. These activities, located in the Instructor Resources, focus on the use of Web resources and the marketing data they can provide students. Interactive Web Page and Blog ( www.kerinmarketing.com). Students can access recent articles about marketing and post comments for other students. The site also provides access to a Marketing Twitter feed! Building Your Marketing Plan. The Building Your Marketing Plan guides at the end of each chapter are based on the format of the marketing plan presented in Appendix A. On the basis of self-study or as part of a course assignment, students can use the activities to organize interactions with businesses to build a marketing plan. Students and employers often suggest that a well-written plan in a student’s portfolio is an asset in today’s competitive job market.

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LEADERSHIP The popularity of Marketing: The Core in the United States and around the globe is the result, in part, of the leadership role of the authors in developing and presenting new marketing content and pedagogies. For example, Marketing: The Core was the first text to meaningfully integrate ethics, interactive and social media marketing, and marketing metrics and dashboards. It was also the first text to develop custom-made videos to help illustrate marketing principles and practices and bring them to life for students as they read the text. The authors have also been leaders in developing new learning tools, such as a three-step learning process that includes learning objectives, learning reviews, and learning objectives reviews and new testing materials that are based on Bloom’s learning taxonomy. Other elements that show how Marketing: The Core is a leader in the discipline include: Chapter 17: Using Social Media and Mobile Marketing to Connect with Consumers. Marketing: The Core features a dedicated and up-to-date chapter for social media and mobile marketing. This new environment is rapidly changing and constantly growing. The authors cover the building blocks of social media and mobile marketing and provide thorough, relevant content and examples. The authors describe major social media platforms including Facebook, Instagram, Twitter, YouTube, Pinterest, and LinkedIn. They explain how managers and companies can use those platforms for marketing purposes, including influencer marketing. Chapter 17 also includes a new section titled Social Networks, Social Media, Influencer Marketing, and Social Shopping that describes the growing impact of influencer marketing, how to identify and recruit influencers, and how social commerce and social shopping are changing the customer journey. This chapter is an example of one of many ways Marketing: The Core is on the cutting edge of marketing practice. Applying Marketing Metrics. The Applying Marketing Metrics feature in the text delivers two important measurement elements in business and marketing management today—performance metrics and the dashboards to visualize them. The text includes 14 examples of proven marketing performance metrics, including their purpose, calculation, application, interpretation, and display in marketing dashboards. Some of the metrics included are: Net Promoter Score (NPS), customer lifetime value (CLV), New Product Vitality Index, category development index (CDI), brand development index (BDI), load factor (a capacity management metric), price premium, sales per square foot, same-store sales growth, promotion-to-sales ratio,

cost per thousand (CPM) impressions, and customer engagement with social media. The feature is designed to encourage readers to learn, practice, display, and apply marketing metrics in a meaningful manner for decision-making purposes. Color-Coded Graphs and Tables. The use of color in the graphs and tables enhances their readability and adds a visual level of learning to the textbook for readers. In addition, these color highlights increase student comprehension by linking the text discussion to colored elements in the graphs and tables. New Video Cases. Each chapter ends with a case that is supported by a video to illustrate the topics addressed in the chapter. New cases, such as Bombas, Mary Kay China, Poshmark, Fallon Worldwide, and Cascade Maverik, and recent cases, such as IBM, Toyota, Justin’s, and Body Glove, provide current and relevant examples that are familiar to students.

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INNOVATION In today’s fast-paced and demanding educational environment, innovation is essential to effective learning. To maintain Marketing: The Core ’s leadership position in the marketplace, the author team consistently creates innovative pedagogical tools that match contemporary students’ learning styles and interests. The authors keep their fingers on the pulse of technology to bring real innovation to their text and package. Innovations such as in-text links, a Twitter feed, hyperlinked PowerPoint slides, and an online blog augment the McGraw Hill Education online innovations such as Connect and SmartBook 2.0. In-Text Links. You can see Internet links in magazine ads; on television programming; as part of catalogs, in-store displays, and product packaging; and throughout Marketing: The Core ! These links bring the text to life with ads and videos about products and companies that are discussed in the text. The videos also keep the text even more current. While each link in the text has a caption, the links are updated to reflect new campaigns and market changes. In addition, the links allow readers to stream the video cases at the end of each chapter. You can simply click on the links in the digital book or use your smartphone or computer to follow the links. Twitter Feed and Online Blog. Visit www.kerinmarketing.com to participate in Marketing: The Core ’s online blog discussion and to see Twitter feed updates. You can also subscribe to the Twitter feed to receive the Marketing Question of the Day and respond with the #QotD hashtag. Connect and SmartBook 2.0 Integration. These McGraw Hill Education products provide a comprehensive package of online resources to enable students to learn faster, study more efficiently, and increase knowledge retention. The products represent the gold standard in online, interactive, and adaptive learning tools and have received accolades from industry experts for their Library and Study Center elements, filtering and reporting functions, and immediate student feedback capabilities. In addition, the authors have developed book-specific interactive assignments, including (a) auto-graded applications based on the marketing plan exercises, and (b) activities based on the Applying Marketing Metrics boxes and marketing metrics presented in the text. Innovative Test Bank. Containing more than 5,000 multiple-choice and essay questions, the Marketing: The Core Test Bank reflects more than two decades of

innovations. The Test Bank also includes “visual test questions” in each chapter to reward students who made an effort to understand key graphs, tables, and images in the chapter.

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Asset Alignment Taxonomy

with

Bloom's

Principles of Marketing We Take Students Higher As a learning science company, we create content that supports higher order thinking skills. Within McGraw Hill Connect ® , we tag content accordingly so you can filter your search, assign it, and receive reporting on it. These content asset types can be associated with one or more levels of Bloom’s. The chart below shows a few of the key assignable marketing assets with Connect aligned with Bloom’s Taxonomy. Take your students higher by assigning a variety of applications, moving them from simple memorization to concept application.

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SmartBook 2.0 SmartBook 2.0 personalizes learning to individual student needs, continually adapting to pinpoint knowledge gaps and focus learning on concepts requiring additional study. Click & Drags These activities help make the connection between theory and application through matching, ranking, or grouping activities. iSeeit! Video Cases Short, contemporary videos provide engaging, animated introductions to key course concepts. Available at the topic level. Perfect for launching lectures and assigning pre- or postlecture. Video Cases & Case Analyses Video cases and case analyses, featuring real companies, are assignable with corresponding comprehension questions that help students analyze and apply key marketing concepts.

Marketing Analytics These auto-graded, marketing analytics activities challenge students to make decisions using metrics commonly seen across marketing professions. The goal of these activities is to give students practice analyzing and using marketing data to make decisions. Marketing Plan Prep Exercises These exercises use guided activities and examples to help students understand and differentiate the various elements of a marketing plan. Application-Based Activities Highly interactive, application-based activities immerse students in real-world business environments. Placed in the role of a marketing manager or business professional, students are challenged to make data-informed decisions and apply multiple concepts while seeing the impact of their decisions immediately. Writing Assignment Plus Writing Assignment Plus delivers a learning experience that helps students improve their written communication skills and conceptual understanding. Faculty can assign, monitor, grade, and provide feedback on writing projects efficiently. Built-in grammar and writing review helps students improve writing quality while an originality check helps students correct potential plagiarism before submission. End result? Improved workplace writing and critical thinking skills.

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NEW AND REVISED CONTENT Chapter 1: New Bombas chapter opener and video case, new showstopper analysis, and new material on “shared” value and Patagonia. Chapter 1 now begins with a discussion of Bombas and its founders David Heath and Randy Goldberg. The company’s social mission to give away millions of socks to homeless shelters and its buy-one-give-one model are presented. Discussion of Elon Musk’s new businesses such as the mission to Mars, Neuralink, and The Boring Company have been added to the Marketing and Your Career section. New-product examples such as smart glasses, stevia-sweetened soft drinks, and snack subscription services have been added t o t he discussi o n of potential “s howst opper s” for new-product l aunches. Newdiscussion of Face book’ s ef fort s t o reduce f ake news, the concept of “shared” value, and Patagonia’s Worn Wear initiative have also been added. The chapter ends with a new video case about Bombas and its marketing program. Chapter 2: Updated chapter opening example, addition of a new example of social entrepreneurship, an updated application of business portfolio analysis, new extended coverage of the Organizational Foundation section, and a new section, Pulling It All Together. The Chapter 2 opening example has been updated to discuss Ben & Jerry’s familiar motto “Peace, Love, and Ice Cream.” In addition, the elimination of single-use plastic and the addition of nondairy flavors made with almond milk have been added to the discussion of creative marketing strategies used by the company. The addition of FreeWill to Forbes ’s annual list of 30 Under 30: Social Entrepreneurs is discussed in the Making Responsible Decisions box. The discussion of organizational foundation now includes a definition of organizational purpose and describes the organizational purpose of Facebook and Apple by their CEOs. The discussion of business definitions and business models now describes how Uber has added Uber Jump to its portfolio of offerings. The application of the Boston Consulting Group business portfolio model to Apple’s product line has been updated to include changes related to the Apple Card, the iPhone, and the iPad/iPad mini tablet devices. Extended coverage of consumer value propositions includes criteria for their selection and a description of IKEA’s consumer value proposition, which is central to it becoming the world’s largest retailer. A new section, Pulling It All Together, summarizes the strategic marketing process and provides Figure 2–11 to illustrate specific actions in each phase of the process. Chapter 3: Update of Facebook’s response to the changing marketing

e gender-neutral marketing actions. The chapter opening example is updated to reflect the dramatic environmental changes Facebook is facing. The discussion of new trends, such as the growing popularity of personalized marketing, and the new emphasis on the reuse rather than disposal of products and resources, has been expanded. An update of Generation Z value formation has been added to the discussion of generational cohorts. In addition, the examples of gender neutral marketing actions have been updated. A discussion of new trends in technology, such as the growth of facial recognition technology, blockchain, artificial intelligence, and wearable technology, has also been added. Chapter 4: Updated consumer lifestyle discussion, a new Applying Marketing Metrics box featuring Net Promoter Scores TM , and an expanded descrip tion of situational effects on buyer behavior. The section describing consumer lifestyle and the VALS framework has been expanded to reflect the latest research and marketing practices. The growing emphasis on consumer advocacy is highlighted with a new Applying Marketing Metrics box describing the calculation, application, interpretation, and display of Net Promoter Scores in a consumer advocacy context. The discussion of situation effects on the purchase process has been expanded to highlight impulse buying online and during natural disasters such the COVID-19 pandemic. page 13

Chapter 5: Updated examples of IBM and Boeing procurement and a new reverse auction example. The descriptions of organizational buying at IBM and Boeing have been updated. A description of Nike’s use of bids from advertising agencies for the company’s multimillion-dollar media program has been added to the reverse auction discussion. Chapter 6: Inclusion of a new video case featuring the recent brand building program by Mary Kay, Inc. in China. Updated discussion of global trade, including the passage of the United States–Mexico– Canada Agreement (USMCA) and Great Britain’s exit from the European Union. The discussion on global trade has been updated to feature recent developments pertaining to economic protectionism, economic nationalism, and trade wars between nations. Their effect on world trade is described. The passage of the USMCA, which renegotiated the North American Free Trade Agreement (NAFTA), and Great Britain’s formal exit from the European Union are highlighted in this regard. The end-of-chapter Mary Kay, Inc. case focuses on the launch of the Pink Young brand in China. Chapter 7: Updated chapter opening example, an update of Nielsen television program rankings, and an updated example of forecasting sales for a new

running shoe. The chapter opening example has been updated to reflect the use of marketing research in Hollywood, and its potential influence on movies such as Avengers: Endgame and Atomic Blonde. The discussion of national TV ratings data collected by Nielsen, as an example of a mechanical method of data collection, has been updated. In addition, the discussion of direct forecasting has been updated to include the New Balance Zante Pursuit as an example. Chapter 8: Update of Zappos’s use of segmentation and its training center, new examples, new section on customer lifetime value, and a new Applying Marketing Metrics box. The chapter opening example has been updated to describe how Zappos uses behavioral segmentation, and how the company training center, Zappos Insights, allows other companies to learn the techniques. The When and How to Segment Markets section offers an updated discussion of Ford’s shift in strategy to reduce its product line by focusing on pickups, SUVs, and electric cars. The discussion of mass customization now includes the Nike By You service as an example. In addition, a new section titled The Financial Relevance of Customer Patronage: Customer Lifetime Value has been added. Also, a new Applying Marketing Metrics box has been added featuring the calculation, application, and interpretation of the lifetime value of a McDonald’s, Burger King, and Wendy’s customer using actual company data. Chapter 9: New example of open innovation, a new section on new-product performance, and a new marketing metric—the New Product Vitality Index. The discussion on open innovation now includes Pepsi’s entrepreneurial group, called “The Hive,” which is contrasted with Apple’s Industrial Design Group. A new section titled Tracking New-Product Performance has been added. In addition, the New Product Vitality Index, used by many large companies, is described, calculated, interpreted, and displayed in a new Applying Marketing Metrics box. Updates on Flamin’ Hot Cheetos, the Google Glass Enterprise 2, and new-product successes at General Mills have also been added to the discussion. Chapter 10: Description of the latest brand extensions for Gatorade, an expanded example of the adoption cycle for all-electric-powered cars, and new material on brand purpose in brand equity development. The Chapter 10 discussion of Gatorade in the chapter opener now highlights Gatorade Bolt24, a 24hour hydration beverage, and Gatorade Bolt24 Energize, the first caffeinated beverage to also deliver hydration. An expanded discussion of the adoption cycle for all-electric vehicles is included to explain the slow adoption of these cars in the U.S. The latest thinking on the role of brand purpose in brand equity development is introduced and illustrated by Nike and Patagonia. page 14

Chapter 11: Updated example of final price calculation, updated oddeven pricing example, updated Applying Marketing Metrics box, and a new example of price setting to achieve a market share objective. The example of the calculation of a final price for a Bugatti Chiron, with a Mini-Cooper trade-in, has been updated. The updated odd-even pricing example now includes Lowe’s offer of a DeWalt radial saw. The Applying Marketing Metrics box about above-, at-, or belowmarket pricing in the energy drink market has been updated. An example of the use of price by P&G and Kimberly-Clark to achieve a market share objective has been added. Chapter 12: New emphasis on digital marketing channels, new section on direct to consumer mar keting and the role of BOPUS and BORIS multi channel marketing practices, new Starbucks example of a strategic channel alliance, and an explanation of the “bullwhip effect” that caused product shortages during the COVID-19 pandemic in the U.S. A new section highlights the popularity of direct to consumer marketing and the application of BOPUS (b uy o nline and p ick u p at a s tore) and BORIS (b uy o nline and r eturn a purchase i n s tore) that leverage the value-adding capabilities of retail stores in implementing multichannel practices. Starbucks’s use of PepsiCo’s distribution network has been added as an example of a strategic channel alliance. In addition, the concept of the “bullwhip effect” is introduced to illustrate the miscalculation of product demand and supply during the COVID-19 pandemic. Chapter 13: New chapter opening example about Generation Z shopping in malls, update of the top franchises, new discussion about Amazon Go stores, and a new retail positioning matrix example. Chapter 13 opens with a description of the surprising shopping preferences of Generation Z. They are combining traditional and contemporary approaches by using technology at the mall! The Contractual Systems section has been updated to include new information about the top five franchises. The Self-Service retailing section now includes a description of Amazon’s cashierless convenience stores, called Amazon Go. New topics such as geofencing, mobile app product scanning, personalized advertising, and online retailers with catalogs and storefronts are also discussed. In addition, Ulta Beauty has been added as a new example in the discussion of the retail positioning matrix. Chapter 14: New video case featuring Poshmark, updated terminology describing the digital environment, new example of choiceboard technology, and a new definition and keyword on marketing attribution. Terminology has been updated to include digital natives and the digitally enabled environment. A new example of Indochino’s use of technology to allow customers to design their own products has been added to the Choiceboards section. A new keyword, marketing

attribution, has been added to the Monitor and Measure Multichannel Marketing Performance section. The new Poshmark end-of-chapter case focuses on the growing popularity of the resale clothing market and social commerce. Chapter 15: Updated chapter opening example, new advertisements, updated Marketing Matters box, new example of an IMC program for a movie, new discussion of the Media Agency of the Year, and addition of opt-in approaches to direct marketing discussion. The chapter opening example has been completely updated to reflect Taco Bell’s recent IMC activities. The company’s Taco ReBELLion campaign, Taco Tuesday, Party Packs, Grubhub delivery service, the special Taco Bell edition of Xbox One, the Taco Bell Hotel and Resort, and Taco Hacks are all discussed. New advertisements include examples from The North Face, Oculus, Pepsi/Cheetos, and Otezla. The Marketing Matters box has been updated to describe marketing activities directed at the 20 million college students in the United States, including while they are on spring break! The IMC program used to promote the movie Star Wars: The Rise of Skywalker has been added to the Scheduling the Promotion section. The work of Ad Age ’s Media Agency of the Year, Assembly, is discussed. In addition, the Direct Marketing section has been updated to include the new emphasis on “opt-in” approaches. page 15

Chapter 16: New Fallon Worldwide video case, new chapter opening example about advertising to “over-the-top” media users, new advertisements, new discussion of Ad Age’s Agency of the Year, and updated examples of sales promotions. The consumer shift from viewing video programming through a cable or satellite connection to an Internet or “over-the-top” (OTT) connection is discussed in the chapter opening example. Examples of customized and addressable OTT campaigns include Cadillac and Toyota. New advertising examples from Volvo, Flowers Victoria, Orville Redenbacher, Milk Life, Under Armour, Jeep, Louis Vuitton, Nike, and Bumble have been added. The Identifying the Target Audience section now includes the Under Armour “Project Rock” campaign as an example, and the Message Content section includes a discussion of the increasing use of genderneutral advertising by firms such as CoverGirl, Zara, Guess, Mattel, and Louis Vuitton. The chapter also includes new discussion of Ad Age ’s Agency of the Year — W i ed en+Kennedy. In addi t ion, newsal e s promot ion exam p l es suc h as the Pr i ngl es Mystery Flavor Contest, Starbucks’s loyalty program, and Apple product placements i n m ovi es ar e di s cussed. The chapter ends wit h a ne w vi deo case t i t l ed Fal l o n Worldwide: Creating a Competitive Advantage with Creativity, which describes the agency’s approach to developing advertising such as the Arby’s “We Have the Meats” campaign. Chapter 17: Updated chapter opening example about connected cars, new

section on the growth of influencer marketing, new section on the emergence of social commerce and social shopping, expanded prominent social media section, new material about misinformation prevention and privacy at Facebook, and new Applying Marketing Metrics box on measuring customer engagement on social media platforms. Chapter 17 has been significantly revised. The chapter opening example has been updated to reflect the growth of connected cars, smart transportation, and intelligent mobility. In addition, a new section titled Social Media and Influencer Marketing addresses the role and growth of social media influencers such as Kendall Jenner, who has more than 110 million Instagram followers. Another new section titled Social Media and Social Shopping introduces social shopping as a key term and describes how individuals are influenced by their peers’ purchases and recommendations. The section A Look at Six Prominent Social Media has been expanded to include Instagram and Pinterest. New discussions about Facebook’s Click-Gap metric, designed to prevent misinformation and fake news, and its new privacy protections related to the use of personal data, have been added to the section Mobile Marketing at Facebook. The revised section titled Social Media Marketing Programs and Customer Engagement introduces new key terms and definitions for social media marketing programs, customer engagement and measurement, and social media content. The section now includes an Applying Marketing Metrics box to illustrate the calculation and comparison of customer engagement rates across different social media. Chapter 18: New Cascade Maverik video case, updated prospecting discussion that now includes social selling, and the highlighted growth of salesforce aut om at i on due t o remot e selling dur i ng t he CO VI D-19 pand emic. The Prospecting section now includes social selling as part of the discussion about i dent i f ying l eads and p ros pect s. Newand updat ed examples include col lege t extbook publishers’ use of a geographic sales organization, and reliance on salesforce aut om at i on for remot e sel li ng duri ng the COVI D-19 pandemic. The chapt er ends with a new video case titled Cascade Maverik: Creating an Amazing Success Story with Exceptional Salespeople, which describes the sales management process and the personal selling process used by the firm to be “the fastest supplier of highperformance lacrosse gear.”

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INSTRUCTOR RESOURCES

Test Builder in Connect Available within Connect, Test Builder is a Cloud-based tool that enables instructors to format tests that can be printed or administered within an LMS. Test Builder offers a modern, streamlined interface for easy content configuration that matches course needs, without requiring a download. Test Builder allows you to: •

Access all Test Bank content from a particular title.

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Easily pinpoint the most relevant content through robust filtering options.

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Manipulate the order of questions or scramble questions and/or answers.

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Pin questions to a specific location within a test.

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Determine your preferred treatment of algorithmic questions.

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Choose the layout and spacing.

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Add instructions and configure default settings.

Test Builder provides a secure interface for better protection of content and page 17 allows for just-in-time updates to flow directly into assessments. Tegrity: Lectures 24/7 Tegrity in Connect is a tool that makes class time available 24/7 by automatically capturing every lecture. With a simple one-click start-and-stop process, you capture all computer screens and corresponding audio in a format that is easy to search, frame by frame. Students can replay any part of any class with easy-to-use, browser-based viewing on a PC, Mac, iPod, or other mobile device. Educators know that the more students can see, hear, and experience class resources, the better they learn. In fact, studies prove it. Tegrity’s unique search feature helps students efficiently find what they need, when they need it, across an entire semester of class recordings. Help turn your students’ study time into learning moments immediately supported by your lecture. With Tegrity, you also increase intent listening and class participation by easing students’ concerns about notetaking. Using Tegrity in Connect will make it more likely you will see students’ faces, not the tops of their heads. Practice Marketing

Practice Marketing is a 3D, online, single or multiplayer game that helps students apply the four Ps by taking on the role of marketing manager for a backpack company. By playing the game individually and/or in teams, students come to understand how their decisions and elements of the marketing mix affect one another. Practice Marketing is easy to use, fully mobile, and provides an interactive alternative to marketing plan projects. Log in to mhpractice.com with your Connect credentials to access a demo, or contact your local McGraw Hill representative for more details. Marketing Mini Sims—Now Assignable within Connect!

Marketing Mini Sims are building-block sims based on our full Practice Marketing simulation that require students to take on the role of a marketing decision maker for a backpack manufacturing company. Each of the nine Mini Sims focuses on one aspect of the marketing mix and serves to both reinforce the understanding of key

concepts as well as allow students to make business decisions. To view a demonstration video and/or see a list of available simulations, please visit the McGraw Hill Marketing Discipline Landing page at http://bit.ly/MHEmarketing. Remote Proctoring and Browser-Locking Capabilities

New remote proctoring and browser-locking capabilities, hosted by Proctorio within Connect, provide control of the assessment environment by enabling security options and verifying the identity of the student. Seamlessly integrated within Connect, these services allow instructors to control students’ assessment experience by restricting browser activity, recording students’ activity, and verifying students are doing their own work. Instant and detailed reporting gives instructors an at-a-glance view of page 18 potential academic integrity concerns, thereby avoiding personal bias and supporting evidence-based claims. Writing Assignment Available within McGraw Hill Connect® and McGraw Hill Connect® Master, the Writing Assignment tool delivers a learning experience to help students improve their written communication skills and conceptual understanding. As an instructor you can assign, monitor, grade, and provide feedback on writing more efficiently and effectively.

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ACKNOWLEDGMENTS To ensure continuous improvement of our textbook and supplements we have utilized an extensive review and development process for each of our past editions. Building on that history, the Marketing: The Core, 9th edition development process included several phases of evaluation and a variety of stakeholder audiences (e.g., students, instructors, etc.). Reviewers who were vital in the changes that were made to the 9th and previous editions of Marketing: The Core and its supplements include:

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Thanks are due to many people, including current and past students, marketing educators around the globe, university staff, business journal and periodical authors, company representatives, and marketing professionals of every kind. Their assistance has been essential in our efforts to continue to provide the most comprehensive, upto-date, and integrated teaching and learning package available. We have been fortunate to have so many people be part of our team! In particular, however, we continue to benefit from the insights and guidance of our long-time friend, colleague, and coauthor, William Rudelius. His contributions to the textbook are truly timeless. Nancy Harrower of Concordia University, St. Paul, led our efforts on the Instructor’s Manual, the PowerPoint slides, the In-Class Activities, and the Digital In-Class Activities. In addition, she provides the content for our blog (www.kerinmarketing.com). Tia Quinlan-Wilder of the University of Denver was responsible for the Test Bank and Quizzes. Erin Steffes of Towson University was responsible for the Connect exercises and the new Marketing Analytics exercises. All of these professors are exceptional educators and we are very fortunate that they are part of our team. Michael Vessey, our long-time collaborator who passed away several years ago, also provided assistance in the preparation of materials that are still in use. Thanks are also due to many other colleagues who contributed to the text, cases, and supplements. They include: Richard Lutz of the University of Florida; Linda Rochford of the University of Minnesota–Duluth; Kevin Upton of the University of Minnesota–Twin Cities; Nancy Nentl of Metropolitan State University; Leslie Kendrick of Johns Hopkins University; Lau Geok Theng of the National University of Singapore; and Leigh McAlister of the University of Texas at Austin. Rick Armstrong of Armstrong Photography; Dan Hundley and George Heck of Token Media; Nick Kaufman and Michelle Morgan of NKP Media; Bruce McLean of World Class Communication Technologies; Paul Fagan of Fagan Productions; Martin

Walter of White Room Digital; Scott Bolin of Bolin Marketing; and Andrew Schones of Pure Imagination produced the videos. Many businesspeople also provided substantial assistance by making available information that appears in the text, videos, and supplements—much of it for the first time in college materials. Thanks are due to Randy Goldberg, David Heath, Kate Huyett, and Imani Rodman of Bombas; Rachel Sweet of Turner (public relations); Sheryl Adkins-Green, Katherine Weng, and Stephen Webster of Mary Kay, Inc.; Andy Rhode, Charlie Wolff, Jordan Hoffarber, Tiffany Luong, and Stacy Runkel of Fallon Worldwide; Tim Ellsworth, Debbie Errante, and Laura Edward of Cascade Maverik; Ann Rubin, Teresa Yoo, and Kathleen Cremmins of IBM; Jana Hartline, Rommel Momen, Joanie Swearingen, and Amy Ulloa of Toyota; Justin Gold and Mike Guanella of Justin’s; Lisa Selk of CytoSport; Jeff Ettinger of Hormel; Russ Lesser, Billy Meistrell, Nick Meistrell, and Jenna Meistrell of Body Glove; Peter Maule of Marquee Brands; Daniel Jasper, Jill Renslow, and Sarah Schmidt of Mall of America; Mike Pohl of ACES Flight Simulation; Chris Klein, Jaime Cardenas, Casey Leppanen, Heather Peace, and Lori Nevares of LA Galaxy; David Ford and Don Rylander of Ford Consulting Group; Mark Rehborg of Tony’s Pizza; Vivian Callaway, Sandy Proctor, and Anna Stoesz of General Mills; David Windorski, Tom Barnidge, and Erica Schiebel of 3M; Nicholas Skally, Jeremy Stonier, and Joe Olivas of Prince Sports; Tom Cassady of JCPenney, Inc.; Charles Besio of the Sewell Automotive Group, Inc.; Lindsey Smith of GE Healthcare; Beverly Roberts of the U.S. Census Bureau; Mattison Crowe of Seven Cycles, Inc.; Alisa Allen, Kirk Hodgdon, Patrick Hodgdon, and Nick Naumann of Altus Marketing and Business Development; and Nelson Ng from Dundas Data Visualization, Inc. page 24

Those who provided the resources for use in the 9th edition of Marketing: The Core textbook, Instructor’s Manual, and/or PowerPoint presentations include: Todd Walker and Jean Golden of Million Dollar Idea; Karen Cohick of Susan G. Komen for the Cure; Liz Stewart of Ben & Jerry’s; John Formella and Patricia Lipari of Kodak; Erica Schiebel of 3M; Joe Diliberti of Consumer Reports ; Patricia Breman of Strategic Business Insights (VALS); Brian Nielsen of the Nielsen Company; David Walonick of StatPac; Mark Rehborg of Schwan’s Consumer Brands (Tony’s Pizza); Jennifer Olson of Experian Simmons; Kitty Munger and Mary Wykoff of Wendy’s; Mark Heller of RetailSails; Nicky Hutcheon of ZenithOptimedia; Amy Thompson and Jennifer Allison of Dell, Inc.; Adriana Carlton of Walmart and Rick Hill of Bernstein-Rein Advertising (Walmart); Janine Bolin of Saks, Inc.; Dr. Yory Wurmser of the Data and Marketing Association; and Elizabeth Clendenin of Unilever (Caress). We also want to thank the following people who generously provided assistance with

our 9th edition of Marketing: The Core In-Class Activities (ICAs) and associated PowerPoint presentations: Mitch Forster and Carla Silveira of Ghirardelli Chocolate Company; Karolyn Warfel and Betsy Boyer of Woodstream Corp. (Victor Pest); Leonard Fuld of Fuld & Co.; Maggie Jantzen of Starbucks Coffee Company; Michelle Green and Victoria Glazier of the U.S. Census Bureau; Lisa Castaldo of Pepsi; Muffie Taggert of General Mills; Robert M. McMath, formerly of NewProductWorks; Greg Rodriguez; Jeremy Tucker, Julia Wells, and Lisa Cone of Frito-Lay (Doritos); Susan Carroll and Bob Robinson of Apple, Inc.; Willard Oberton of Fastenal Company; Scott Wosniak and Jennifer Arnold of Toro; Kim Eskro of Fallon Worldwide (Gold’n Plump); Robin Grayson of TBWA/Chiat/Day (Apple); Katie Kramer of Valassis Communications, Inc. (Nutella/Advil); Triestina Greco of Nutella/Ferrero; Tim Stauber of Wyeth Consumer Healthcare (Advil); and Yvonne Pendleton and Lucille Storms of Mary Kay. Staff support from the Southern Methodist University and the University of Denver was essential. We gratefully acknowledge the help of Jeanne Milazzo and Gabriela Barcenas for their many contributions. Checking countless details related to layout, graphics, and photos, and managing lastminute text changes is essential for a sound and accurate textbook. This also involves coordinating activities of authors, designers, editors, compositors, and production specialists. Christine Vaughan, our lead content project manager, of McGraw Hill Education’s production staff provided the necessary oversight and attention to detail while retaining an extraordinary level of professionalism, often under tight deadlines. We are very fortunate that Christine was part of our team. Thank you again! page 25

Finally, we acknowledge the professional efforts of the McGraw Hill Education staff. Completion of our book and its many supplements required the attention and commitment of many editorial, production, marketing, and research personnel. Our McGraw Hill team included Tim Vertovec, Terri Schiesl, Meredith Fossel, Nicole Young, Kelly Pekelder, Keri Johnson, Susan Culbertson, Matt Diamond, Jacob Sullivan, Sharon O’Donnell, Becky Komro, and many others. In addition, we relied on David Tietz for constant attention regarding the photo elements of the text, and Christina Verigan for management of the details of the online authoring system. Handling the countless details of our text, supplement, and support technologies has become an incredibly complex challenge. We thank all these people for their efforts! Roger A. Kerin Steven W. Hartley

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BRIEF CONTENTS Part1

Initiating the Marketing Process 1

Creating Customer Relationships and Value through Marketing 2

2

Developing Successful Organizational and Marketing Strategies 26 Appendix A Building an Effective Marketing Plan 56

3

Part 2

Part 3

Part 4

Understanding the Marketing Environment, Ethical Behavior, and Social Responsibility 72

Understanding Buyers and Markets 4

Understanding Consumer Behavior 98

5

Understanding Organizations as Customers 130

6

Understanding and Reaching Global Consumers and Markets 150

Targeting Marketing Opportunities 7

Marketing Research: From Customer Insights to Actions 180

8

Market Segmentation, Targeting, and Positioning 212

Satisfying Marketing Opportunities 9

Developing New Products and Services 238

10 Managing Successful Products, Services, and Brands 268 11 Pricing Products and Services 300 12 Managing Marketing Channels and Supply Chains 326 13 Retailing and Wholesaling 354

14 Implementing Interactive and Multichannel Marketing 382 15 Integrated Marketing Communications and Direct Marketing 406 16 Advertising, Sales Promotion, and Public Relations 432 17 Using Social Media and Mobile Marketing to Connect with Consumers 462 18 Personal Selling and Sales Management 494 Appendix B Planning a Career in Marketing 522 Glossary 536 Name Index 544 Company/Product Index 552 Subject Index 560

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DETAILED CONTENTS Part 1

Initiating the Marketing Process 1

CREATING CUSTOMER RELATIONSHIPS THROUGH MARKETING 2

AND

VALUE

Kevin Hagen/The New York Times/Redux

Bombas Is Solving Social Problems with Great Socks and Great Marketing! 2 Creating Better Socks 2 Building a Brand with a Purpose 2 Bombas Today 4 Bombas, Marketing, and You 4 What Is Marketing? 4 Marketing and Your Career 5 Marketing: Delivering Value to Customers 5 The Diverse Elements Influencing Marketing Actions 5 What Is Needed for Marketing to Occur 6 How Marketing Discovers and Satisfies Consumer Needs 7 Discovering Consumer Needs 7 The Challenge: Meeting Consumer Needs with New Products 8 Satisfying Consumer Needs 9 The Marketing Program: How Customer Relationships Are Built 11

Relationship Marketing: Easy to Understand, Hard to Do 11 The Marketing Program and Market Segments 13 3M’s Strategy and Marketing Program to Help Students Study 13 How Marketing Became So Important 15 Evolution toward a Market Orientation 15 Focusing on Customer Relationship Management 15 Ethics and Social Responsibility in Marketing: Balancing the Interests of Different Groups 16 The Breadth and Depth of Marketing 17 Learning Objectives Review 19 Learning Review Answers 20 Focusing on Key Terms 20 Applying Marketing Knowledge 20 Building Your Marketing Plan 21 Video Case 1: Bombas: Creating Socks with a Purpose! 21 Chapter Notes 24 2

DEVELOPING SUCCESSFUL MARKETING STRATEGIES 26

ORGANIZATIONAL

AND

Hatim Kaghat/AFP/Getty Images

Peace, Love, and Ice Cream 26 Today’s Organizations 27 Kinds of Organizations 27 Making Responsible Decisions: New Types of Organizations Help Entrepreneurs Focus on Passion and Purpose 28 What Is Strategy? 29

The Structure of Today’s Organizations 29 page 28 Strategy in Visionary Organizations 31 Organizational Foundation: Why Does It Exist? 31 Organizational Direction: What Will It Do? 32 Organizational Strategies: How Will It Do It? 34 Tracking Strategic Performance with Marketing Analytics 34

Applying Marketing Metrics: How Well Is Ben & Jerry’s Doing? 36 Setting Strategic Directions 36 A Look Around: Where Are We Now? 37 Growth Strategies: Where Do We Want to Go? 37 The Strategic Marketing Process 41 Guiding Principles Underlying the Strategic Marketing Process 41 The Planning Phase of the Strategic Marketing Process 41 The Implementation Phase of the Strategic Marketing Process 44 The Evaluation Phase of the Strategic Marketing Process 46 Pulling It All Together 47 Learning Objectives Review 48 Learning Review Answers 49 Focusing on Key Terms 50 Applying Marketing Knowledge 50 Building Your Marketing Plan 50 Video Case 2: IBM: Putting Smart Strategy to Work 51 Chapter Notes 53 Appendix A Building an Effective Marketing Plan 56 3

UNDERSTANDING THE MARKETING ENVIRONMENT, ETHICAL BEHAVIOR, AND SOCIAL RESPONSIBILITY 72

Justin Sullivan/Getty Images

Facebook Responds to a Changing Environment 72 Facebook in the Future 73 Environmental Scanning 74 An Environmental Scan of Today’s Marketplace 74 Social Forces 74 Demographics 74 Making Responsible Decisions: Balancing Profits and Purpose— Millennial Style 76 Culture 77 Economic Forces 78 Macroeconomic Conditions 78 Consumer Income 78 Technological Forces 79 Technology of Tomorrow 79 Technology’s Impact on Customer Value 80 Technology Enables Data Analytics 81 Competitive Forces 81 Alternative Forms of Competition 81

Small Businesses as Competitors 82 Regulatory Forces 82 Protecting Competition 82 Protecting Producers and Consumers 83 Control through Self-Regulation 84

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Understanding Ethical Marketing Behavior 85 Societal Culture and Norms 85 Business Culture and Industry Practices 85 Making Responsible Decisions: Corporate Conscience in the Cola War 86 Corporate Culture and Expectations 86 Your Personal Moral Philosophy and Ethical Behavior 87 Understanding Social Responsibility for Sustainable Marketing 88 Three Concepts of Social Responsibility 88 Sustainable Development: Doing Well by Doing Good 89 Marketing Matters: Will Consumers Switch Brands for a Cause? Yes, If . . . 90 Learning Objectives Review 90 Learning Review Answers 91 Focusing on Key Terms 92 Applying Marketing Knowledge 92 Building Your Marketing Plan 92 Video Case 3: Toyota: Where the Future Is Available Today 93 Chapter Notes 96

Part 2

Understanding Buyers and Markets 4

UNDERSTANDING CONSUMER BEHAVIOR 98

Whisson/Jordan/Getty Images

Enlightened Carmakers Know What Custom(h)ers and Influenc(h)ers Value 98 Consumer Purchase Decision Process and Experience 99 Problem Recognition: Perceiving a Need 100 Information Search: Seeking Value 100 Alternative Evaluation: Assessing Value 100 Purchase Decision: Buying Value 101 Postpurchase Behavior: Realizing Value 102 Marketing Matters: How Much Is a Satisfied Customer Worth? 103 Consumer Involvement Affects Problem Solving 103 Situational Influences That Affect Purchase Decisions 105 Putting the Purchase Decision Process into Practice: Consumer Touchpoints and Consumer Journey Maps 105 Psychological Influences on Consumer Behavior 107 Consumer Motivation and Personality 107 Consumer Perception 109 page 30

Making Responsible Decisions: Subliminal Messages 110

The

Ethics

of

Consumer Learning 110 Consumer Values, Beliefs, and Attitudes 111 Consumer Lifestyle 112 Marketing Matters: What Motivates You? It Depends on Your Mindset 113

Sociocultural Influences on Consumer Behavior 114 Personal Influence 114 Marketing Matters: BzzAgent—the Buzz Experience 116 Reference Group Influence 116 Applying Marketing Metrics: Are Your Recommending Your Company or Brand? 117

Customers

Social Class Influence 118 Family Influence 118 Culture and Subculture Influences 120 Learning Objectives Review 123 Learning Review Answers 124 Focusing on Key Terms 124 Applying Marketing Knowledge 124 Building Your Marketing Plan 124 Video Case 4: Coppertone: Creating the Leading Sun Care Brand by Understanding Consumers 125 Chapter Notes 127 5

UNDERSTANDING ORGANIZATIONS AS CUSTOMERS 130

Source: JCPenney.

Organizational Buying Is Marketing, Too! Purchasing Publication Paper for JCPenney 130 Business-to-Business Marketing and Organizational Buyers 131 Organizational Buyers 131 Organizational Markets 132 Measuring Organizational Markets 133 Characteristics of Organizational Buying 133 Demand Characteristics 133 Size of the Order or Purchase 134 Number of Potential Buyers 134 Organizational Buying Objectives 135 Organizational Buying Criteria 135 Buyer–Seller Relationships and Supply Partnerships 136 Marketing Matters: At Milsco Manufacturing, “Our Marketing Philosophy Is Designed to Develop Partnerships” and Deliver a Great Ride for Customers’ Seats 137 The Organizational Buying Function, Process, and Buying Center 137 The Buying Function in Organizations 137 Making Responsible Decisions: Sustainable Procurement for Sustainable Growth at Starbucks 138

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Stages in the Organizational Buying Process 138 The Buying Center: A Cross-Functional Group 138 Online Buying in Business-to-Business Marketing 141 Prominence of Online Buying in Organizational Markets 141 E-Marketplaces: Virtual Organizational Markets 141 Marketing Matters: eBay Means Business for Business-toBusiness Marketing Entrepreneurs, Too! 142 Online Auctions in Organizational Markets 142 Learning Objectives Review 144 Learning Review Answers 144

Focusing on Key Terms 145 Applying Marketing Knowledge 145 Building Your Marketing Plan 145 Video Case 5: Trek: Building Better Bikes through Organizational Buying 146 Chapter Notes 148 6

UNDERSTANDING AND REACHING GLOBAL CONSUMERS AND MARKETS 150

(Amazon logo): Editorial/Alamy Stock Photo; (woman): Andrey Arkusha/Shutterstock

Transforming the Way India Sells and Buys: Amazon India Builds a Multibillion-Dollar Operation from the Ground up to the Cloud 150 Amazon’s Awesome Opportunity in India 150 Amazon’s Awesome Challenges in India 150 Failure Is Not an Option 151 Dynamics of World Trade 152 Global Perspective on World Trade 152 United States’ Perspective on World Trade 153 Marketing in a Dynamic Global Economy 154 Economic Protectionism by Individual Countries 154 Making Responsible Decisions: Global Ethics and Global Economics—the Case of Protectionism 155 Economic Integration among Countries 156 Global Competition among Global Companies for Global Consumers 157 The Presence of a Networked Global Marketspace 159 Marketing Matters: The Global Teenager—a Market of Voracious Consumers 160

The Prevalence of Economic Espionage 160 A Global Environmental Scan 161 Cultural Diversity 162 Economic Considerations 165 Political-Regulatory Climate 167 Comparing Global Market-Entry Strategies 168 Exporting 168

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Marketing Matters: Creative Cosmetics and Creative Export Marketing in Japan 169 Licensing 169 Joint Venture 170 Direct Investment 170 Crafting a Worldwide Marketing Program 171 Product and Promotion Strategies 171 Distribution Strategy 173 Pricing Strategy 173 Learning Objectives Review 174 Learning Review Answers 175 Focusing on Key Terms 175 Applying Marketing Knowledge 175 Building Your Marketing Plan 176 Video Case 6: Mary Kay, Inc.: Launching Pink Young in China 176 Chapter Notes 178

Part 3

Targeting Marketing Opportunities 7

MARKETING RESEARCH: FROM CUSTOMER INSIGHTS TO ACTIONS 180

Walt Disney Studios Motion Pictures/Photofest

Hollywood Loves Marketing Research! 180 A Film Industry Secret 180 The Role of Marketing Research 182 What Is Marketing Research? 182 The Challenges in Doing Good Marketing Research 182 Five-Step Marketing Research Approach 183 Step 1: Define the Problem 183 Set the Research Objectives 184 Identify Possible Marketing Actions 184 Step 2: Develop the Research Plan 184 Specify Constraints 184 Identify Data Needed for Marketing Actions 184 Determine How to Collect Data 185 Step 3: Collect Relevant Information 185 Secondary Data: Internal 186 Secondary Data: External 186 Advantages and Disadvantages of Secondary Data 187 Marketing Matters: Online Databases and Internet Resources Useful to Marketers 188

Primary Data: Watching People 188 Primary Data: Asking People 191 Primary Data: Other Sources 195 page 33

Applying Marketing Metrics: Are the Carmex Social Media Programs Working Well? 196 Advantages and Disadvantages of Primary Data 197 Step 4: Develop Findings 197 Analyze the Data 197 Making Responsible Decisions: Your Digital Life Is Transparent: The Downside of Data Mining 200 Present the Findings 200 Step 5: Take Marketing Actions 202 Make Action Recommendations 202 Implement the Action Recommendations 202 Evaluate the Results 202 Sales Forecasting Techniques 203 Judgments of the Decision Maker 203 Surveys of Knowledgeable Groups 203 Statistical Methods 204 Learning Objectives Review 205 Learning Review Answers 205 Focusing on Key Terms 206 Applying Marketing Knowledge 206 Building Your Marketing Plan 207 Video Case 7: Carmex® (A): Leveraging Facebook for Marketing Research 207 Chapter Notes 210 8

MARKET SEGMENTATION, TARGETING, AND POSITIONING 212

Scott Olson/Getty Images

“On a Scale of 1 to 10, How Weird Are You?” 212 Segmentation Is Zappos’s Secret to Success 212 Delivering WOW through Customer Service 212 Why Segment Markets? 213 What Market Segmentation Means 213 When and How to Segment Markets 215 Steps in Segmenting and Targeting Markets 218 Step 1: Group Potential Buyers into Segments 218 Applying Marketing Metrics: What Is the Lifetime Value of a McDonald’s and Burger King Customer? 222 Step 2: Group Products to Be Sold into Categories 223 Step 3: Develop a Market-Product Grid and Estimate the Size of Markets 224 Step 4: Select Target Markets 225 Step 5: Take Marketing Actions to Reach Target Markets 226 Marketing Matters: Apple’s Segmentation Strategy—Camp Runamok No Longer 229 Market-Product Synergies: A Balancing Act 229 page 34 Positioning the Product 230 Two Approaches to Product Positioning 231 Writing a Product Positioning Statement 231 Product Positioning Using Perceptual Maps 231 A Perceptual Map to Reposition Chocolate Milk for Adults 232

Learning Objectives Review 233

Learning Review Answers 233 Focusing on Key Terms 234 Applying Marketing Knowledge 234 Building Your Marketing Plan 234 Video Case 8: Prince Sports, Inc.: Tennis Racquets for Every Segment 234 Chapter Notes 236

Part 4

Satisfying Marketing Opportunities 9

DEVELOPING NEW PRODUCTS AND SERVICES 238

John Ziomek/Courier-Post via USA TODAY NETWORK

Apple: The World-Class New-Product Machine 238 Apple’s New-Product Development Successes 238 Apple’s New-Product Development Stumbles 238 The Next Chapter in Apple’s Story: An Apple-Enabled iCar? 239 What Are Products and Services? 240 A Look at Goods, Services, and Ideas 240 Classifying Products 240 Classifying Services 242 The Uniqueness of Services 243 Assessing and Improving Service Quality 244 Product Classes, Forms, Items, Lines, and Mixes 245 New Products and Why They Succeed or Fail 245 Marketing Matters: Too Much of a Good Thing: Feature Bloat and Feature Fatigue in New-Product Development 246

What Is a New Product? 246 Why Products and Services Succeed or Fail 248 Tracking New-Product Performance 251 Applying Marketing Metrics: Do Your New Products Have Vitality? 252 The New-Product Development Process 252 Stage 1: New-Product Strategy Development 252 Stage 2: Idea Generation 253 Stage 3: Screening and Evaluation 256 Stage 4: Business Analysis 256 page 35

Marketing Matters: Was the Google Glass Half Full or Half Empty? 257 Stage 5: Development 257 Stage 6: Market Testing 258 Stage 7: Commercialization 259 Learning Objectives Review 260 Learning Review Answers 261 Focusing on Key Terms 262 Applying Marketing Knowledge 262 Building Your Marketing Plan 263 Video Case 9: GoPro: Making All of Us Heroes with Exciting New Products 263 Chapter Notes 266 10 MANAGING SUCCESSFUL PRODUCTS, SERVICES, AND BRANDS 268

J. Meric/Getty Images

Gatorade: Bringing Science to Sweat for 60 Years 268 Creating the Gatorade Brand 268 Building the Gatorade Brand 268 Charting the Product Life Cycle 270 Introduction Stage 270 Growth Stage 272 Maturity Stage 273 Decline Stage 273 Marketing Matters: Will E-Mail Spell Extinction for Fax Machines? 274 Three Aspects of the Product Life Cycle 274 The Product Life Cycle and the Diffusion of Innovations 275 Managing the Product Life Cycle 277 Role of a Product Manager 277 Applying Marketing Metrics: Knowing Your CDI and BDI 278 Modifying the Product 279 Modifying the Market 279 Repositioning the Product 279 Making Responsible Decisions: Consumer Economics of Downsizing—Get Less, Pay More 280 Branding and Brand Management 281 Brand Personality and Brand Equity 281 Picking a Good Brand Name 284 Branding Strategies 285 Packaging and Labeling Products 288 Creating Customer Value and Competitive Advantage through Packaging and Labeling 288 Marketing Matters: Creating Customer Value through Packaging

—Pez Heads Dispense More Than Candy 288 Packaging and Labeling Challenges and Responses 289 The Marketing of Services 290 Product (Service) 290 Price 291 Place (Distribution) 291 Promotion 291 People 292 Physical Environment 292 Process 292

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Learning Objectives Review 293 Learning Review Answers 293 Focusing on Key Terms 294 Applying Marketing Knowledge 294 Building Your Marketing Plan 294 Video Case 10: Justin’s: Managing a Successful Product with Passion 295 Chapter Notes 298 11 PRICING PRODUCTS AND SERVICES 300

Art Konovalov/Shutterstock

Vizio, Inc.--Building a Smart TV Brand at a Great Value 300 Nature and Importance of Price 301 What Is a Price? 302 Price Is What a Consumer Pays; Value Is What a Consumer Receives 303 Marketing Matters: Does Spirit Airlines Engage in Value Pricing? For Some Yes, for Others No 304

Price in the Marketing Mix 304 Common Pricing Approaches 304 Demand-Oriented Pricing Approaches 304 Marketing Matters: Energizer’s Lesson in Price Perception— Value Lies in the Eye of the Beholder 306 Cost-Oriented Pricing Approaches 307 Profit-Oriented Pricing Approaches 308 Competition-Oriented Pricing Approaches 309 Applying Marketing Metrics: Are Red Bull Prices above, at, or below the Market? 310 Estimating Demand and Revenue 310 Estimating Demand 310 Price Elasticity of Demand 312 Fundamentals of Estimating Revenue 312 Determining Cost, Volume, and Profit Relationships 313 The Importance of Controlling Costs 313 Break-Even Analysis 314 Pricing Objectives and Constraints 315 Identifying Pricing Objectives 315 Identifying Pricing Constraints 316 Setting a Final Price 318 Step 1: Select an Approximate Price Level 318 Step 2: Set the List or Quoted Price 318

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Making Responsible Decisions: The Ethics and Economics of Surge Pricing 319 Step 3: Make Special Adjustments to the List or Quoted Price 319 Learning Objectives Review 320 Learning Review Answers 321 Focusing on Key Terms 322

Applying Marketing Knowledge 322 Building Your Marketing Plan 322 Video Case 11: Carmex (B): Setting the Price of the Number One Lip Balm 323 Chapter Notes 325 12 MANAGING MARKETING CHANNELS AND SUPPLY CHAINS 326

JHVEPhoto/Shutterstock

Eddie Bauer: The “Brick, Click, and Flip” Pick for the Active Outdoor Enthusiast 326 Eddie Bauer’s Multichannel Marketing Strategy 326 Supply Chain Dynamics at Eddie Bauer 326 Nature and Importance of Marketing Channels 328 What Is a Marketing Channel of Distribution? 328 How Customer Value Is Created by Intermediaries 328 Marketing Channel Structure and Organization 330 Marketing Channels for Consumer Products and Services 330 Marketing Channels for Business Products and Services 331 Digital Marketing Channels 332 Direct to Consumer and Multichannel Marketing 332 Dual Distribution and Strategic Channel Alliances 333 Marketing Matters: Nestlé and General Mills—Cereal Partners Worldwide 334 Vertical Marketing Systems 334 Marketing Channel Choice and Management 336 Factors Affecting Channel Choice and Management 336

Managing Channel Relationships: Conflict and Cooperation 338 Applying Marketing Metrics: Channel Sales and Profit at Charlesburg Furniture 339 Logistics and Supply Chain Management 340 Supply Chains versus Marketing Channels 341 Sourcing, Assembling, and Delivering a New Car: The Automotive Supply Chain 342 Supply Chain Management and Marketing Strategy 342 page 38

Marketing Matters: IBM’s Watson Supply Chain— Delivering a Total Solution for Its Customers 343 Two Concepts of Logistics Management in a Supply Chain 344 Total Logistics Cost Concept 345 Customer Service Concept 345 Making Responsible Decisions: Reverse Logistics and Green Marketing Go Together at Hewlett-Packard: Recycling e-Waste 346 Closing the Loop: Reverse Logistics 347 Learning Objectives Review 347 Learning Review Answers 348 Focusing on Key Terms 349 Applying Marketing Knowledge 349 Building Your Marketing Plan 349 Video Case 12: Amazon: Delivering the Earth’s Biggest Selection! 350 Chapter Notes 352 13 RETAILING AND WHOLESALING 354

MariaX/Shutterstock

Generation Z Loves Shopping in Malls! 354 The Value of Retailing 356 Consumer Utilities Offered by Retailing 356 The Global Economic Impact of Retailing 357 Classifying Retail Outlets 357 Making Responsible Decisions: How Green Is Your Retailer? The Rankings Are Out! 358 Form of Ownership 358 Level of Service 359 Type of Merchandise Line 360 Nonstore Retailing 362 Automatic Vending 362 Direct Mail and Catalogs 362 Television Home Shopping 363 Online Retailing 363 Telemarketing 364 Direct Selling 365 Formulating a Retailing Strategy 366 Positioning in a Retail Setting 366 Retailing Mix 367 Applying Marketing Metrics: Why Apple Stores May Be the Best in the United States! 370 The Changing Nature of Retailing 371

The Wheel of Retailing 371 The Retail Life Cycle 372 Data Analytics 373 Wholesaling Functions and Firms 374 Merchant Wholesalers 374 Agents and Brokers 374 Manufacturers’ Branches and Offices 375

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Learning Objectives Review 375 Learning Review Answers 376 Focusing on Key Terms 376 Applying Marketing Knowledge 376 Building Your Marketing Plan 377 Video Case 13: Mall of America®: America’s Biggest Mall Knows the Secret to Successful Retailing! 377 Chapter Notes 379 14 IMPLEMENTING MARKETING 382

INTERACTIVE

AND

MULTICHANNEL

©Roberts Publishing Services. All rights reserved.

Seven Cycles Delivers Just One Bike. Yours. 382 Creating Customer Value, Relationships, and Experiences in a Digital Environment 384 Marketing Challenges in Two Environments 384 Creating Customer Value in a Digital Environment 384 Interactivity and Individuality Create Customer Relationships 385 Creating a Compelling Online Customer Experience 387

Applying Marketing Metrics: Sizing Up Site Stickiness at Sewell Automotive Companies 389 Online Consumer Behavior and Marketing Opportunities and Practices 390 Who Is the Online Consumer? 390 What Consumers Buy Online 390 Why Consumers Shop and Buy Online 391 Making Responsible Decisions: Who Is Responsible for Internet Privacy and Security? 395 When and Where Consumers Shop and Buy Online 395 How Consumers Shop and Buy Online 396 Cross-Channel Consumers and Multichannel Marketing 396 Who Is the Cross-Channel Consumer? 396 Implementing Multichannel Marketing 397 Learning Objectives Review 399 Learning Review Answers 400 Focusing on Key Terms 400 Applying Marketing Knowledge 401 Building Your Marketing Plan 401 Video Case 14: Poshmark: Succeeding at Social Commerce 401 Chapter Notes 404 15 INTEGRATED MARKETING COMMUNICATIONS AND page 40 DIRECT MARKETING 406

Source: Taco Bell Corp.

At Taco Bell Every Day Is Taco TuesdayTM ! 406

The Communication Process 408 Encoding and Decoding 408 Feedback 409 Noise 409 The Promotional Elements 410 Advertising 410 Personal Selling 411 Public Relations 411 Sales Promotion 412 Direct Marketing 413 Integrated Marketing Communications—Developing the Promotional Mix 413 Marketing Matters: Marketers Want to Go to College, and on Spring Break, with You! 414 The Target Audience 414 The Product Life Cycle 415 Channel Strategies 415 Developing an Integrated Marketing Communications Program 417 Identifying the Target Audience 417 Specifying Promotion Objectives 417 Setting the Promotion Budget 418 Selecting the Right Promotional Tools 418 Applying Marketing Metrics: How Much Should You Spend on IMC? 419 Designing the Promotion 419 Scheduling the Promotion 420 Executing and Assessing the Promotion Program 420 Direct Marketing 422 The Growth of Direct Marketing 422 The Value of Direct Marketing 422 Technological, Global, and Ethical Issues in Direct Marketing 423

Making Responsible Decisions: What Is the Future of Your Privacy? 424 Learning Objectives Review 425 Learning Review Answers 425 Focusing on Key Terms 426 Applying Marketing Knowledge 426 Building Your Marketing Plan 427 Video Case 15: Taco Bell: Using IMC to Help Customers Live Más! 427 Chapter Notes 429 16 ADVERTISING, SALES PROMOTION, AND PUBLIC page 41 RELATIONS 432

Shaul Schwarz/Getty Images

Consumers Are Going “Over the Top.” So Advertisers Are Too! 432 Types of Advertisements 433 Product Advertisements 434 Institutional Advertisements 435 Developing the Advertising Program 435 Identifying the Target Audience 435 Specifying Advertising Objectives 436

Setting the Advertising Budget 436 Designing the Advertisement 437 Selecting the Right Media 439 Applying Marketing Metrics: What Is the Best Way to Reach 1,000 Customers? 440 Different Media Alternatives 441 Making Responsible Decisions: Who Is Responsible for Preventing Click Fraud? 445 Scheduling the Advertising 446 Executing the Advertising Program 446 Pretesting the Advertising 446 Carrying Out the Advertising Program 447 Assessing the Advertising Program 447 Posttesting the Advertising 447 Making Needed Changes 448 Sales Promotion 448 Consumer-Oriented Sales Promotions 449 Trade-Oriented Sales Promotions 452 Public Relations 453 Learning Objectives Review 454 Learning Review Answers 455 Focusing on Key Terms 455 Applying Marketing Knowledge 456 Building Your Marketing Plan 456 Video Case 16: Fallon Worldwide: Creating a Competitive Advantage with Creativity 456 Chapter Notes 459 17 USING SOCIAL MEDIA AND MOBILE MARKETING TO CONNECT WITH CONSUMERS 462

medvedsky.kz/Shutterstock

Marketing’s Fast Lane Is Filled with Connected Cars! 462 Understanding Social Media 463 Defining Social Media 463 Classifying Social Media 464 Social Networks, Social Media, Influencer Marketing, and Social Shopping 465 Social Media and Influencer Marketing 466 page 42 Social Media and Social Shopping 467 A Look at Six Prominent Social Media 467 Facebook 467 Instagram 469 Twitter 471 YouTube 472 Marketing Matters: Vloggers Are the New Power Players, Worldwide! 473 Pinterest 473 LinkedIn 475 Social Media Marketing Programs and Customer Engagement 476 Selecting Social Media 476 Applying Marketing Metrics: Measuring Your Customer Engagement Rate on Social Media 477 Selecting Social Media Content 478 Measuring the Results of Social Media Marketing Programs 479

Carmex Goes Viral with Luck and a LeBron James Bear Hug 481 The Future: Convergence and Mobility 482 The Convergence of Real and Digital Worlds 482 Mobile Marketing: Tightening Links to Marketing Actions 484 Learning Objectives Review 486 Learning Review Answers 487 Focusing on Key Terms 487 Applying Marketing Knowledge 488 Building Your Marketing Plan 488 Video Case 17: Body Glove: Helping Consumers Do What They Love! 488 Chapter Notes 491 18 PERSONAL SELLING AND SALES MANAGEMENT 494

©Hillsman Stuart Jackson

Meet Today’s Sales Professional 494 Scope and Significance of Personal Selling and Sales Management 495 Nature of Personal Selling and Sales Management 496 Selling Happens Almost Everywhere 496 Personal Selling in Marketing and Entrepreneurship 496 Creating Customer Solutions and Value through Salespeople: Relationship Selling 497 Marketing Matters: Science and Selling: Is Customer Value Creation in Your Genes? 498 The Many Forms of Personal Selling 499

Order-Taking Salespeople 499 Order-Getting Salespeople 499 Customer Sales Support Personnel 500 page 43

Marketing Matters: Creating and Sustaining Customer Value through Cross-Functional Team Selling 501 The Personal Selling Process: Building Relationships 502 Prospecting: Identifying and Qualifying Prospective Customers 502 Preapproach: Preparing for the Sales Call 503 Approach: Making the First Impression 504 Presentation: Tailoring a Solution for a Customer’s Needs 504 Marketing Matters: Imagine This . . . Putting the Customer into Customer Solutions! 506 Close: Asking for the Customer’s Order or Business 507 Follow-Up: Solidifying the Relationship 507 The Sales Management Process 508 Sales Plan Formulation: Setting Direction 508 Making Responsible Decisions: The Ethics of Asking Customers about Competitors 509 Sales Plan Implementation: Putting the Plan into Action 510 Marketing Matters: What Is Your Emotional Intelligence? You Might Be Surprised 511 Salesforce Evaluation: Measuring Results 512 Customer Relationship Management Systems and Technology 513 Applying Marketing Metrics: Tracking Salesperson Performance at Moore Chemical & Sanitation Supply, Inc. 514 Learning Objectives Review 516 Learning Review Answers 516

Focusing on Key Terms 517 Applying Marketing Knowledge 517 Building Your Marketing Plan 518 Video Case 18: Cascade Maverik: Creating an Amazing Success Story with Exceptional Salespeople 518 Chapter Notes 520 Appendix B Planning a Career in Marketing 522 Glossary 536 Name Index 544 Company/Product Index 552 Subject Index 560

page 2

Chapter

1 Creating Customer Relationships and Value through Marketing LEARNING OBJECTIVES After reading this chapter you should be able to: LO 1-1 LO 1-2

Define marketing and identify the diverse factors that influence marketing actions. Explain how marketing discovers and satisfies consumer needs.

LO 1-3

Distinguish between marketing mix factors and environmental forces.

LO 1-4

Explain how organizations build strong customer relationships and customer value through marketing.

LO 1-5

Describe the characteristics of a market orientation.

Bombas Is Solving Social Problems with Great Socks and Great Marketing! Randy Goldberg and David Heath are on a mission—a social mission—to give away millions of socks to homeless shelters. You may know the company they founded, Bombas, for its comfortable socks. And if you’ve purchased a pair you also helped them achieve their mission because for every pair of socks purchased at Bombas, they donate a pair to someone affected by homelessness! Their story started when Goldberg and Heath were co-workers at another company and learned that socks are the most requested item at homeless shelters. They decided to build a company that could solve the problem using the buy-one-

give-one model. Today Bombas has annual sales of more than $100 million and has donated more than 30 million pairs of socks.1 What is the secret to Bombas’s success? Read on to hear the rest of the story!

Creating Better Socks Once they decided on the mission, the two entrepreneurs began to research the sock market. They discovered that most consumers were in “replenishment mode”— simply buying socks to replace old ones.2 In addition, socks were not viewed as being very comfortable. Goldberg and Heath concluded that better socks would attract more consumers and allow them to donate more socks, so they began the process of designing “the most comfortable socks in the history of feet.” They spent several years conducting research and testing prototypes with features they thought made better socks. The result was a sock with a seamless toe, a cushioned foot bed, an arch support system, elastic construction to keep the socks up, and blister tabs on the backs of ankle socks. The donated socks, specifically designed for the homeless population, are dark-colored, reinforced, and antimicrobial-treated.3

Building a Brand with a Purpose The combination of their social mission and their exceptional product was an important platform for starting their company. From there the co-founders used many elements of marketing to build their brand. First, the name Bombas comes from the Latin word for “bumblebee,” and is significant because bees live in a hive and work together to make their world a better place. They added a bee as their logo and adopted “Bee Better” as their motto to describe a mantra or a way of approaching every day. All of these elements were designed to communicate that the brand is driven by more than profits. page 3

Source: Bombas, LLC/Instagram

Source: Bombas, LLC

Source: Bombas, LLC

The new company raised money on crowdfunding site Indiegogo (www.indiegogo.com), created a direct-to-consumer website to sell its socks, and relied heavily on word of mouth to reach customers. Then Bombas received additional funding through a television appearance on Shark Tank and needed a marketing program that could reach a national audience and also communicate its messages of social impact and product quality. Podcasts and video ads were logical communication tools because they could attract attention with audio and visual messages and they provided enough time to explain the social cause and the details of the product quality. Bombas also began using advertising on Facebook, Instagram, and YouTube. You may have seen some of Bombas’s TV ads for its “The Greatest Sock Never Sold” campaign. The Bombas website features a video titled “Most Important Socks in the World” with more than 4 million views!4 VIDEO 1-1 Bombas Video kerin.tv/cr9e/v1-1

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Bombas Today

David Heath and Randy Goldberg started Bombas to help solve a social problem: Socks are the most requested item at homeless shelters. Their buy-one-give-one model has allowed them to donate millions of pairs of socks! Courtesy of Bombas

The Bombas web page says “We’re Bombas. We believe that a more comfortable world is a better world. That everyone, no matter their circumstances, deserves to put on clean clothes that make them feel good.” Bombas has certainly succeeded at this goal and it continues to grow. The company recently expanded its distribution through retail partners such as Nordstrom, Dick’s Sporting Goods, Scheels, and Athleta stores. The company also expanded its product line to include T-shirts and is looking at other possible products to offer. According to Heath, “I think when we look to the future, we could easily be a billion-dollar brand in revenue in the next 5 to 10 years.” The company’s commitment to responsible growth is also emphasized by its B-Corp certification which is given to Bombas for meeting the highest standards of social and environmental performance, transparency, and accountability to balance profit and purpose.5

Bombas, Marketing, and You Will Randy Goldberg and David Heath continue their success story—particularly with the appearance of many other sock competitors and many new companies building altruism into their business models? For Bombas, one key factor will be how well it understands and uses marketing—the subject of this book. Bombas is also the subject of Video Case 1 at the end of this chapter!

WHAT IS MARKETING?

Are you a marketing expert? If so, what would you pay for this cutting-edge TV? Robyn Beck/AFP/Getty Images

The good news is that you are already a marketing expert! You perform many marketing activities and make marketing-related decisions every day. For example, would you sell more LG Signature 65-inch 4K OLED Rollable TVs at $24,999 or $7,999? You answered $7,999, right? So your experience in shopping gives you some expertise in marketing. As a consumer, you’ve been involved in thousands of marketing decisions, mostly on the buying and not the selling side. The bad news is that good marketing isn’t always easy. That’s why every year thousands of new products fail in the marketplace and then quietly slide into oblivion. Marketing and Your Career

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Elon Musk, the chief executive officer of Tesla and SpaceX, began building businesses shortly after graduating from college. John Raoux/AP Images

Marketing affects all individuals, all organizations, all industries, and all countries. This book seeks to teach you marketing concepts, often by having you actually “do marketing”—by putting you in the shoes of a marketing manager facing actual marketing decisions. The book also shows marketing’s many applications and how it affects our lives. This knowledge should make you a better consumer and enable you to be a more informed citizen, and it may even help you in your career planning. Perhaps your future will involve doing sales and marketing for a large organization. Working for a well-known company—Apple, Ford, Facebook, or General Mills—can be personally satisfying and financially rewarding, and you may gain special respect from your friends. Start-ups and small businesses also offer marketing careers. Small businesses are the source of the majority of new U.S. jobs. So you might become your own boss by being an entrepreneur and starting your own business. Shortly after leaving Stanford, Elon Musk, for example, started and sold a web

software company called Zip2. With the proceeds from that business he started another business that merged with another and became PayPal. When PayPal was purchased by eBay, Musk founded another venture called SpaceX, which develops and manufactures space launch vehicles and hopes to send a mission to Mars by 2024. Since those initial business start-ups, Musk also started the electric car company Tesla and a solar power company called SolarCity. In addition, he has started a design competition for a high-speed transportation system called Hyperloop, a nonprofit artificial intelligence company called OpenAI, a neurotechnology company called Neuralink, and a tunnel construction firm called The Boring Company. Perhaps your interest in marketing will lead to new business successes like Musk’s!6 Marketing: Delivering Value to Customers LO 1-1 Define marketing and identify the diverse factors that influence marketing actions.

The American Marketing Association represents individuals and organizations involved in the development and practice of marketing worldwide. It defines marketing 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.7 This definition shows that marketing is far more than simply advertising or personal selling. It stresses the need to deliver genuine value in the offerings of goods, services, and ideas marketed to customers. Also, notice that an organization’s marketing activities should also create value for its partners and for society. marketing The activity, set of institutions, and processes for creating, communicating, delivering, and exchanging offerings that have value for customers, clients, partners, and society at large. exchange The trade of things of value between buyer and seller so that each is better off after the trade.

To serve both buyers and sellers, marketing seeks (1) to discover the needs and wants of prospective customers and (2) to satisfy them. These prospective customers include both individuals, buying for themselves and their households, and organizations, buying for their own use (such as manufacturers) or for resale (such as wholesalers and retailers). The key to achieving these two objectives is the idea of exchange, which is the trade of things of value between a buyer and a seller so that each is better off after the trade.8

The Diverse Elements Influencing Marketing Actions Although an organization’s marketing activity focuses on assessing and satisfying consumer needs, countless other people, groups, and forces interact to shape the nature of its actions (see Figure 1–1 on the next page). Foremost is the organization it s elf , whose mi ssion and objecti ves det er mine what busi ness i t i s in and what goals it seeks. Within the organization, management is responsible for establishing these goals. The marketing department works closely with a network of other departments and employees to help provide the customer-satisfying products required for the organization to survive and prosper.

FIGURE 1–1 A marketing department relates to many people, organizations, and forces. Note that the marketing department both shapes and is shaped by its relationship with these internal and external groups.

Figure 1–1 also shows the key people, groups, and forces outside the page 6 organization that influence its marketing activities. The marketing department is responsible for facilitating relationships, partnerships, and alliances with the organization’s customers, its shareholders (or often representatives of nonprofit organizations), its suppliers, and other organizations. Environmental forces involving social, economic, technological, competitive, and regulatory considerations also shape an organization’s marketing actions. Finally, an organization’s marketing decisions are affected by and, in turn, often have an

important impact on society as a whole. The organization must strike a balance among the sometimes differing interests of these groups. For example, it is not possible to simultaneously provide the lowestpriced and highest-quality products to customers and pay the highest prices to suppliers, the highest wages to employees, and the maximum dividends to shareholders. What Is Needed for Marketing to Occur For marketing to occur, at least four factors are required: (1) two or more parties (individuals or organizations) with unsatisfied needs, (2) a desire and ability on their part to have their needs satisfied, (3) a way for the parties to communicate, and (4) something to exchange. Two or More Parties with Unsatisfied Needs Suppose you’ve developed an unmet need—a desire for a late-night meal after studying for an exam—but you don’t yet know that Domino’s has a location in your area. Also unknown to you is that Domino’s has a special “mix & match” offer for any two or more of its menu items, just waiting to be ordered and picked up or delivered. This is an example of two parties with unmet needs: you, desiring a meal, and your local Domino’s owner, needing someone to place an order. page 7

Desire and Ability to Satisfy These Needs Both you and the Domino’s owner want to satisfy these unmet needs. Furthermore, you have the money to pay for a purchase and the time to place an order. The Domino’s owner has the desire to sell its products but also the ability to do so since the items are easily made and delivered to (or picked up by) you. A Way for the Parties to Communicate The marketing transaction of purchasing a Domino’s pizza or one of its other products will never occur unless you are aware the product exists and you know how to make a purchase (at a Domino’s location, on Dominos.com, or via a store phone number). Similarly, Domino’s won’t be able to sell its products unless there’s a market of potential buyers nearby. When you receive a coupon on your phone or drive by and see the Domino’s store location, this communication barrier between you (the buyer) and the Domino’s owner (the seller) is overcome. Something to Exchange Marketing occurs when the transaction takes place and both the buyer and seller exchange something of value. In this case, you exchange your money ($5.99) for each item ordered from Domino’s Mix & Match menu. Both you and the Domino’s owner have gained and also given up something, but you are both better off because each of you has satisfied the other’s unmet needs. You have the

opportunity to eat Domino’s food items to satisfy your hunger, but you gave up some money to do so; the Domino’s owner gave up the pizza, salad, and other items but received money, which will help the owner remain in business. The ethical and regulatory foundations of this exchange process are central to marketing and are discussed in Chapter 3.

Marketing doesn’t happen in a vacuum. The text describes the four factors needed to buy a product from Domino’s Mix & Match menu. Source: Domino’s IP Holder LLC

LEARNING REVIEW 1-1.

What is marketing?

1-2.

Marketing focuses on and consumer needs.

1-3.

What four factors are needed for marketing to occur?

HOW MARKETING CONSUMER NEEDS

DISCOVERS

AND

SATISFIES

LO 1-2 Explain how marketing discovers and satisfies consumer needs.

The importance of discovering and satisfying consumer needs in order to develop and offer successful products is so critical to understanding marketing that we look at each of these two steps in detail next. Let’s start by asking you to analyze the following three products. Discovering Consumer Needs The first objective in marketing is discovering the needs of prospective customers. Marketers often use customer surveys, concept tests, and other forms of marketing research (discussed in detail in Chapter 7) to better understand customer ideas. Many firms also use “crowdsourcing” or “innovation tournaments” to solicit and evaluate ideas from customers. At LEGO Group, for example, ideas that are submitted to LEGO Ideas (www.ideas.lego.com) and receive 10,000 votes from site visitors are considered for possible addition to the product line. LEGO Group products that were discovered through the website include its Big Bang Theory model, its Women of NASA set, its Central Perk coffee shop model (the coffee shop featured in the Friends TV show), and a model based on the Winnie-the-Pooh franchise! Sometimes, however, customers may not know or be able to describe what they need and want. Smartphones, connected homes, and electric cars are all examples of this, in which case an accurate long-term prediction of consumer needs is essential.9

For these three products, identify (1) what benefits the product provides buyers and (2) what factors or “showstoppers” might doom the product in the marketplace. Answers are discussed in the text. (Left): Ekkasit Keatsirikul/Alamy Stock Photo; (Center): Source: The Coca-Cola Company; (Right): Source: Universal Yums LLC Smart glasses.

A no-sugar soda.

A subscription service for snacks.

The Challenge: Meeting Consumer Needs with New Products

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While marketers are improving the ways they can generate new-product ideas, experts estimate that it takes 3,000 raw ideas to generate one commercial success. Market intelligence agency Mintel estimates that 38,000 new products are introduced worldwide each month. In addition, studies of new-product launches indicate that about 40 percent of the products fail. Robert M. McMath, who has studied more than 110,000 new-product launches, has two key suggestions: (1) focus on what the customer benefit is, and (2) learn from past mistakes.10 The solution to preventing product failures seems embarrassingly obvious. First, find out what consumers need and want. Second, produce what they need and want, and don’t produce what they don’t need and want. The three products shown previously illustrate just how difficult it is to achieve new-product success, a topic covered in more detail in Chapter 9. Without reading further, think about the potential benefits to customers and possible “showstoppers”—factors that might doom the product—for each of the three products pictured. Some of the products may come out of your past, and others may be on your horizon. Here’s a quick analysis of the three products: • Smart Glasses. Several years ago Google launched a brand of smart glasses

called Google Glass. The new product was head-mounted and similar in appearance to a pair of glasses. In addition, though, the glasses had Internet capabilities, a camera, phone, speaker, microphone, touchpad, and a heads-up display. While the product was popular among technology enthusiasts it did not attract a mass market. Showstoppers included its $1,500 price tag, a general perception that it looked “nerdy,” and concerns that wearing the device might violate privacy rights. Google discontinued the product, although it has recently reintroduced the concept as an Enterprise Edition for businesses, and other brands such as Focals and Vuzix are offering models that are trying to attract the consumer market!11 VIDEO 1-2 Focals Smart Glasses kerin.tv/cr9e/v1-2

• Coca-Cola Stevia No Sugar. As consumer preferences have shifted, beverage companies have expanded their offerings to include drinks with less sugar. Soda producers, for example, have offered new products such as Coca-Cola Life which is sweetened with sugar and stevia leaf extract. New products are also being developed as the U.S. Food & Drug Administration’s Nutrition Facts label requirements (effective 2020) provide more information about added sugars. Coca-Cola, for example, is testing Coca-Cola Stevia which will be sweetened only with the natural ingredient stevia, rather than the aspartame used in Coke Zero Sugar. A potential showstopper: In the past, consumers reported that products with stevia sweetener had a bitter aftertaste. Will CocaCola Stevia be different? As always, as a consumer you will be the judge!12 VIDEO 1-3 Coca-Cola Stevia Ad kerin.tv/cr9e/v1-3

• Universal Yums Subscription. Approximately 5 million consumers buy page 9 brands through subscription services today. Universal Yums hopes to appeal to customers with a selection of snacks from a different country every month. Each delivery also includes a guidebook with trivia, games, and recipes about that month’s snacks. The service is available in 1-, 3-, 6-, or 12-month options and three sizes. Past boxes have included snacks from Italy, Turkey, Thailand, Brazil, the United Kingdom, and many other countries! What are potential showstoppers? First, the competition is growing—there are already 400–600 subscription box services in the United States. Second, consumers

may tire of receiving new products each month, particularly if they find several brands that meet their needs.13

Studying late at night for an exam and being hungry, you decide to eat a Cool Mint Chocolate Clif Bar. Is this a need or a want? The text discusses the role of marketing in influencing decisions like this one. Evelyn Nicole Kirksey/McGraw-Hill

Firms spend billions of dollars annually on marketing and technical research that significantly reduces, but doesn’t eliminate, new-product failure. So meeting the changing needs of consumers is a continuing challenge for firms around the world. Consumer Needs and Consumer Wants Should marketing try to satisfy consumer needs or consumer wants? Marketing tries to do both. Heated debates rage over this question, fueled by the definitions of needs and wants and the amount of freedom given to prospective customers to make their own buying decisions. A need occurs when a person feels deprived of basic necessities such as food, clothing, and shelter. A want is a need that is shaped by a person’s knowledge, culture, and personality. So if you feel hungry, you have developed a basic need and desire to eat something. Let’s say you then want to eat a Cool Mint Chocolate Clif Bar because, based on your past experience, you know it will satisfy your hunger need. Effective marketing, in the form of creating an awareness of good products at fair prices and convenient locations, can clearly shape a person’s wants. Certainly, marketing tries to influence what we buy. A question then arises: At what point do we want government and society to step in to protect consumers? Most consumers would say they want government to protect them from harmful

drugs and unsafe cars but not from candy bars and soft drinks. To protect college students, should government restrict their use of credit cards?14 Such questions have no cl ear - cut ans wer s, whi ch i s why legal and et hical issues ar e cent ral to m ar ket ing. Because even psychologists and economists still debate the exact meanings of need and want, we shall use the terms interchangeably throughout the book. As shown on the left side of Figure 1–2 on the next page, discovering needs involves looking carefully at prospective customers, whether they are children buying M&M’s candy, college students buying Chobani Greek Yogurt, athletes buying Bombas socks, or firms buying Xerox color copiers. A principal activity of a firm’s marketing department is to scrutinize its consumers to understand what they need and want and the forces that shape those needs and wants.

FIGURE 1–2 Marketing seeks first to discover consumer needs through extensive research. It then seeks to satisfy those needs by successfully implementing a marketing program possessing the right combination of the marketing mix—the four Ps.

What a Market Is Potential consumers make up a market, which is people with both the desire and the ability to buy a specific offering. All markets ultimately are people. Even when we say a firm bought office equipment, we mean one or several people in the firm decided to make the purchase. People who are aware of their unmet needs may have the desire to buy the product, but that alone isn’t sufficient. People must also have the ability to buy, such as the authority, time, and money. People may even “buy” an idea that results in an action, such as having their blood

pressure checked annually or switching to a reusable water bottle. market People with both the desire and the ability to buy a specific offering.

Satisfying Consumer Needs LO 1-3 Distinguish between marketing mix factors and environmental forces.

Marketing doesn’t stop with the discovery of consumer needs. Because the organization obviously can’t satisfy all consumer needs, it must concentrate its efforts on certain needs of a specific group of potential consumers. This is the target market —one or more specific groups of potential consumers toward which an organization directs its marketing program. target market One or more specific groups of potential consumers toward which an organization directs its marketing program. marketing mix The controllable factors—product, price, promotion, and place—that can be used by the marketing manager to solve a marketing problem.

The Four Ps: Controllable Marketing Mix Factors Having selected its page 10 target market consumers, the firm must take steps to satisfy their needs, as shown on the right side of Figure 1–2. Someone in the organization’s marketing department, often the marketing manager, must develop a complete marketing program to reach consumers by using a combination of four elements, often called “the four Ps”—a useful shorthand reference to them first published by Professor E. Jerome McCarthy:15 • Product. A good, service, or idea to satisfy the consumer’s needs. • Price. What is exchanged for the product. • Promotion. A means of communication between the seller and buyer. • Place. A means of getting the product to the consumer. We’ll define each of the four Ps more carefully later in the book, but for now it’s important to remember that they are the elements of the marketing mix. These four elements are the controllable factors—product, price, promotion, and place—that can be used by the marketing manager to solve a marketing problem. For example,

when a company puts a product on sale, it is changing one element of the marketing mix—namely, the price. The marketing mix elements are called controllable factors because they are under the control of the marketing department in an organization. Managing the marketing mix allows an organization to create a cluster of benefits that satisfies customers’ needs.16

Firms can affect some environmental forces with breakthrough products such as AI assistants. Malcolm Haines/Alamy Stock Photo

The Uncontrollable, Environmental Forces While marketers can control their marketing mix factors, there are forces that are mostly beyond their control (see Figure 1–1). These are the environmental forces that affect a marketing decision, which consist of social, economic, technological, competitive, and regulatory forces. Examples are what consumers themselves want and need, changing technology, the state of the economy in terms of whether it is expanding or contracting, actions that competitors take, and government restrictions. Covered in detail in Chapter 3, these five forces may serve as accelerators or brakes on marketing, sometimes expanding an organization’s marketing opportunities and at other times restricting them. The

recent coronavirus pandemic, for example, challenged firms to modify their marketing mix with new purchase and delivery options, but also restricted many firms by reducing in-store traffic. Traditionally, many marketing executives have treated these page 11 environmental forces as rigid, absolute constraints that are entirely outside their influence. However, recent studies and marketing successes have shown that a forward-looking, action-oriented firm can often affect some environmental forces by achieving technological or competitive breakthroughs, such as Amazon’s AI assistant, Google’s Duplex chatbot, and Alibaba’s AliMe customer service technology. environmental forces The uncontrollable forces that affect a marketing decision and consist of social, economic, technological, competitive, and regulatory forces. customer value The unique combination of benefits received by targeted buyers that includes quality, convenience, on-time delivery, and both before-sale and after-sale service at a specific price.

Target, Starbucks, and Nordstrom provide customer value using three very different approaches. For their strategies, see the text. Source: Target Brands, Inc.

Source: Starbucks Coffee Company

Source: Nordstrom, Inc.

THE MARKETING PROGRAM: RELATIONSHIPS ARE BUILT

HOW

CUSTOMER

LO 1-4 Explain how organizations build strong customer relationships and customer value through marketing.

An organization’s marketing program connects it with its customers. To clarify this link, we will first discuss the critically important concepts of customer value, customer relationships, and relationship marketing. Then we will illustrate these

concepts using 3M’s marketing program for its Post-it® Flag Highlighter products. Relationship Marketing: Easy to Understand, Hard to Do Intense competition in today’s fast-paced global markets has prompted many successful U.S. firms to focus on “customer value.” Gaining loyal customers by providing unique value is the essence of successful marketing. What is new is a more careful attempt at understanding how a firm’s customers perceive value and then actually creating and delivering that value to them.17 Customer value is the unique combination of benefits received by targeted buyers that includes quality, convenience, on-time delivery, and both before-sale and after-sale service at a specific price. In addition, firms now try to place a dollar value on the purchases of loyal, satisfied customers during their lifetimes. For example, automobile collision repair centers estimate that loyal customers average $2,350 per repair, return eight times, and provide 50 referrals over 65 years, a value of $147,000!18 Research suggests that firms cannot succeed by being all things to all people. Instead, firms seek to build long-term relationships with customers by providing unique value to them. Many successful firms deliver outstanding customer value with one of three value strategies: best price, best product, or best service.19 With the intense competition among U.S. businesses, being seen as “best” page 12 is admittedly difficult. Still, the three firms shown in the previous ads have achieved great success as reflected in the mission, vision, and values statements they stress and live by:20 • Best price: Target. Target uses the brand promise of “Expect More, Pay Less®” to “make Target the preferred shopping destination for our guests by delivering outstanding value.” • Best product: Starbucks. Starbucks seeks “to inspire and nurture the human spirit—one person, one cup and one neighborhood at a time.” Its ads remind customers that Starbucks coffee is “perfect.” • Best service: Nordstrom. As a leading fashion specialty retailer, Nordstrom works to “deliver the best possible shopping experience, helping our customers express their style—not just buy fashion.” Nordstrom is “committed to providing our customers with the best possible service—and to improving it every day.” Remaining among the “best” is a continuing challenge for today’s businesses. A firm achieves meaningful customer relationships by creating connections with its customers through careful coordination of the product, its price, the way it is promoted, and how it is placed.

The hallmark of developing and maintaining effective customer relationships is today called relationship marketing, which links the organization to its individual customers, employees, suppliers, and other partners for their mutual long-term benefit. Relationship marketing involves a personal, ongoing relationship between the organization and its individual customers that begins before the sale and may evolve through different types of relationships after the sale.21 relationship marketing Links the organization to its individual customers, employees, suppliers, and other partners for their mutual long-term benefit.

Information technology, along with cutting-edge manufacturing and marketing processes, better enables companies to form relationships with customers today. Smart, connected products, now elements of “the Internet of Everything,” help create detailed databases about product usage. Then, using data analytics, or the examination of data to discover relevant patterns, companies can gain insights into how products create value for customers. For example, BMW receives data transmitted by each new vehicle it sells and General Electric collects information sent i n by the j et engi nes it builds to hel p under sta nd howcus tomers us e th eir products and when service may be needed. The Ritz-Carlton Hotel Company trains each of its employees to observe guest preferences and record them in the guest recognition system. In addition, the hotel’s statement of values, called Gold Standards, guides employees to “build strong relationships and create Ritz-Carlton guests for life,” and the website includes a variety of ways for customers to become part of its online community, including a Twitter-based concierge service.22

Ritz-Carlton hotels use relationship marketing concepts—tailoring the purchase experience to each individual—to create lifelong customers. Paul Hilton/Bloomberg/Getty Images

The Marketing Program and Market Segments

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Effective relationship marketing strategies help marketing managers discover what prospective customers need and convert these ideas into marketable products (see Figure 1–2). These concepts must then be converted into a tangible marketing program —a plan that integrates the marketing mix to provide a good, service, or idea to prospective buyers. Ideally, they can be formed into market segments, which are relatively homogeneous groups of prospective buyers that (1) have common needs and (2) will respond similarly to a marketing action. This action might be a product feature, a promotion, or a price. As shown in Figure 1–2, in an effective organization this process is continuous: Consumer needs trigger product concepts that are translated into actual products that stimulate further discovery of consumer needs. marketing program A plan that integrates the marketing mix to provide a good, service, or idea to prospective buyers. market segments The relatively homogeneous groups of prospective buyers that (1) have common needs and (2) will respond similarly to a marketing action.

LEARNING REVIEW 1-4.

An organization can’t satisfy the needs of all consumers, so it must focus on one or more subgroups, which are its.

1-5.

What are the four marketing mix elements that make up the organization’s marketing program?

1-6.

What are environmental forces?

3M’s Strategy and Marketing Program to Help Students Study “How do college students really study?,” asked David Windorski, a 3M inventor of Post-it® brand products, when thinking about adding new items to the Post-it® line.23 To answer this question, Windorski hired a team of four college students. Their task was to observe and question other students about their study behavior, such as how they used their textbooks, took notes, wrote term papers, and reviewed for exams. As part of their research, the team observed that students often highlight a passage and then mark the page with a Post-it® Note or the smaller Post-it® Flag. Windorski realized there was an opportunity to merge the functions of two products —highlighters and Post-it® markers—into one product to help students study!

3M’s initial product line of Post-it® Flag Highlighters and Post-it® Flag Pens included variations in color. Mike Hruby/McGraw-Hill

VIDEO 1-4 3M Post-it® Flag Highlighters Ad kerin.tv/cr9e/v1-4

Moving from Ideas to Marketable Products After testing several models,

Windorski concluded he had to build a highlighter product that would dispense Postit® Flags because the Post-it® Notes were simply too large to put inside the barrel of a highlighter. Next, hundreds of the highlighter prototypes with Post-it® Flags inside were produced and given to students—and also office workers—to get their reactions. This research showed that students loved the convenience of the Post-it® Flags in the highlighter. The research also suggested that many people in offices also need immediate access to Post-it® Flags but while writing with pens. So, the Post-it® Flag Pen was born! Students are a potential market for this product, too, but probably a smaller market segment than office workers. A Marketing Program for the Post-it ® Flag Highlighter and Post-it ® Flag Pen After several years of research, development, and production engineering, 3M introduced its new products. Figure 1–3 on the next page outlines the strategies for each of the four marketing mix elements in 3M’s program to market its Post-it® Flag Highlighters and Post-it® Flag Pens. Although similar, we can compare the marketing program for each of the two products:

FIGURE 1–3 Marketing programs for the launch of two Post-it® brand products targeted at two target market segments.

• Post-it ® Flag Highlighter. The target market shown in the orange page 14 column in Figure 1–3 is mainly college students, so 3M’s initial challenge was to build student awareness of a product that they didn’t know existed. The company used a mix of print ads in college newspapers and a TV ad and then relied on word-of-mouth advertising—students telling their friends about how great the product is. Gaining distribution in college bookstores was also critical. Plus, 3M charged a price to distributors that it hoped would give a reasonable bookstore price to students and an acceptable profit to distributors and 3M. • Post-it ® Flag Pen. The primary target market shown in the green column in Figure 1–3 is people working in offices. The Post-it® Flag Pens are mainly business products—bought by the purchasing department in an organization and stocked as office supplies for employees to use. So the marketing program for Post-it® Flag Pens emphasizes gaining distribution in outlets used by an organization’s purchasing department.

Welcome to the most recent generation of Post-it® Flag Highlighters: the Post-it® Flag + Highlighter & Pen. The cap contains the Post-it® Flags. McGraw-Hill

How well did these new 3M products do in the marketplace? They have done so well that 3M bestowed a prestigious award on David Windorski and his team. The

success of the Post-it® Flag Highlighter and the Post-it® Flag Pen encouraged Windorski to continue to conduct research about how the products were used. Feedback suggested there was another opportunity in the market: A 3-in-1 combination that has a highlighter on one end, a pen on the other, and 3M Post-it® Flags in the removable cap. The latest in the family of 3M product innovations is shown in the photo! page 15

HOW MARKETING BECAME SO IMPORTANT LO 1-5 Describe the characteristics of a market orientation.

To understand why marketing is a driving force in the modern global economy, let us look at (1) the evolution of the market orientation, (2) ethics and social responsibility in marketing, and (3) the breadth and depth of marketing activities. Evolution toward a Market Orientation Marketing became the motivating force among many American firms in the 1950s, which led to the marketing concept —the idea that an organization should (1) strive to satisfy the needs of consumers while also (2) trying to achieve the organization’s goals. General Electric probably launched the marketing concept and its focus on consumers when its 1952 annual report stated: “The concept introduces . . . marketing . . . at the beginning rather than the end of the production cycle and integrates marketing into each phase of the business.”24 marketing concept The idea that an organization should (1) strive to satisfy the needs of consumers while also (2) trying to achieve the organization’s goals. market orientation An organization with a market orientation focuses its efforts on (1) continuously collecting information about customers’ needs, (2) sharing this information across departments, and (3) using it to create customer value. customer relationship management (CRM) The process of identifying prospective buyers, understanding them intimately, and developing favorable long-term perceptions of the organization and its offerings so that buyers will choose them in the marketplace and become advocates after their purchase.

Firms such as Southwest Airlines, Marriott, and Apple have achieved great success by putting a huge effort into implementing the marketing concept, giving their firms what has been called a market orientation. An organization that has a market orientation focuses its efforts on (1) continuously collecting information

about customers’ needs, (2) sharing this information across departments, and (3) using it to create customer value.25 Focusing on Customer Relationship Management A recent focus in the customer relationship era has been the advent of digital marketing, in which organizations and their customers develop relationships through applications (apps) and social media websites such as Instagram, Facebook, Twitter, and YouTube, among others. This focus has allowed organizations to understand and market to current and prospective customers in ways that are still evolving. An important outgrowth of this focus on the customer is the recent attention placed on customer relationship management (CRM), the process of identifying prospective buyers, understanding them intimately, and developing favorable longterm perceptions of the organization and its offerings so that buyers will choose them in the marketplace and become advocates after their purchase.26 This process requires the involvement and commitment of managers and employees throughout the organization27 and a growing application of information, communication, and digital technology, as will be described throughout this book.

Trader Joe’s is consistently ranked as one of America’s favorite supermarket chains. This reflects the company’s focus on providing a great customer experience, as described in the text. Lannis Waters/ZUMA Press/Newscom

The foundation of customer relationship management is really customer page 16 experience, which is the internal response that customers have to all aspects

of an organization and its offering. This internal response includes both the direct and indirect contacts of the customer with the company. Direct contacts include the customer’s contacts with the seller through buying, using, and obtaining services. Indirect contacts most often involve unplanned “touches” with the company through word-of-mouth comments from other customers, reviewers, and news reports. In terms of outstanding customer experience, Trader Joe’s is high on the list. Not surprisingly, it is ranked as one of America’s favorite supermarket chains.28 customer experience The internal response that customers have to all aspects of an organization and its offering.

What makes the customer experience at Trader Joe’s unique? The reasons include: • Setting low prices, made possible by offering its own brands rather than wellknown national ones. • Offering unusual, affordable products, like Organic Bolivia Yanaloma Small Lot Coffee and Trader Ming’s Mandarin Orange Chicken, not available from other retailers. • Encouraging employee “engagement” to help customers, like actually walking them to where the roasted chestnuts are—rather than saying “aisle five.” This commitment to providing an exceptional customer experience is what gives Trader Joe’s its high rankings. It is also the reason why Trader Joe’s doesn’t authorize or sell its products online. According to a company spokesperson, “The store is our brand and our products work best when they’re sold as part of the overall customer experience within the store. Part of that customer experience is the value we are comm it t ed t o pr ovi di ng cust omers, each and every t ime t hey s hop our s t or es —great products of the highest quality at great prices.”29

Facebook’s ads acknowledge the social impact of fake news and describe the company’s efforts to detect and reduce its presence on the social network. Source: Facebook, Inc.

Ethics and Social Responsibility in Marketing: Balancing the Interests of Different Groups Today, the standards of marketing practice have shifted from an emphasis on producers’ interests to consumers’ interests. Guidelines for ethical and socially responsible behavior can help managers balance consumer, organizational, and societal interests. Ethics Many marketing issues are not specifically addressed by existing laws and regulations. Should information about a firm’s customers be sold to other organizations? Should online advertising that reaches young children be restricted? Should consumers be on their own to assess the safety or authenticity of a product? These questions raise difficult ethical issues. Many companies, industries, and professional associations have developed codes of ethics, policies, and guidelines to assist managers. Facebook, for example, is changing its view on its responsibilities related to misinformation and is “working hard to detect and reduce the spread of fake news.”

Social Responsibility While many ethical issues involve only the buyer and seller, others involve society as a whole. For example, suppose you have the oil in your car changed at a local oil change center. Is this just a transaction between you and the service center? Not quite! The used oil and oil filter have potential to contaminate the environment if they are not recycled, and contamination represents a cost to society in terms of lost use of landfill space or eventual cleanup of the discarded waste products. To reduce the social cost of individual purchases today, many organizations use a variety of strategies that range from pure philanthropy, to environmentally friendly and sustainable practices, to creating “shared” value.30 These strategies illustrate the issue of social responsibility, t he idea t hat organi zati ons ar e account able to a larger society. The well-being of society at large should also be recognized in an page 17 o r gan i zati on’ s marketi ng decisions. I n f act, some mar keti ng exper t s str es s the societal marketing concept, the view that organizations should satisfy the needs of consumers in a way that provides for society’s well-being. For example, Patagonia’s Worn Wear program encourages its customers to repair, trade, and eventually recycle all of its products. Patagonia says, “One of the most responsible things we can do as a company is to make high-quality stuff that lasts for years and can be repaired, so you don’t have to buy more of it.”31 Similarly, some marketing approaches, such as the buy-one-give-one model used by Bombas, build an important social cause into their offering. societal marketing concept The view that organizations should satisfy the needs of consumers in a way that provides for society’s wellbeing.

The Breadth and Depth of Marketing Marketing today affects every person and organization. To understand this, let’s analyze (1) who markets, (2) what is marketed, (3) who buys and uses what is marketed, (4) who benefits from these marketing activities, and (5) how consumers benefit. Who Markets? Every organization markets. It’s obvious that business firms involved in manufacturing (Patagonia), retailing (Trader Joe’s), and providing services (Marriott) market their offerings. And nonprofit organizations such as museums (the Louvre), your local hospital or college, places (cities, states, countries), and even special causes (Race for the Cure) also engage in marketing. Finally, individuals such as political candidates often use marketing to gain voter attention and preference.

VIDEO 1-5 Hermitage Tour kerin.tv/cr9e/v1-5

What Is Marketed? Goods, services, and ideas are marketed. Goods are physical objects, such as toothpaste, smartphones, or automobiles, that satisfy consumer needs. Services are intangible items such as airline trips, financial advice, or art museums. Ideas are thoughts about concepts, actions, or causes. In t his book, goods, s er vi ces, and i deas ar e al l consider ed “products” t hat a r e marketed. So a product is a good, service, or idea consisting of a bundle of tangible and intangible attributes that satisfies consumers’ needs and is received in exchange for money or something else of value. product A good, service, or idea consisting of a bundle of tangible and intangible attributes that satisfies consumers’ needs and is received in exchange for money or something else of value.

Strategies in marketing art museums can include new “satellite” museums such as this one for the Louvre in Abu Dhabi . .. Source: Louvre Abu Dhabi

Services like those offered by art museums, hospitals, and sports teams page 18 are relying more heavily on effective marketing. For example, financial pressures have caused art museums to innovate to market their unique services—the viewi ng of wor ks of art byvi si t ors—to i ncrease r evenues. This of t eni nvol ves l evel s of creativity unthinkable several decades ago.

This creativity ranges from establishing a global brand identity by launching overseas museums to offering sit-at-home video tours. France’s Louvre, home to the Mona Lisa painting, opened a new satellite museum in Abu Dhabi, housed in a striking domed building.32 Russia’s world-class, 1,000-room State Hermitage Museum wanted to find a way to market itself to potential first-time visitors. So it developed a free app to guide visitors through the museum and provide information about events and exhibits. Ideas are most often marketed by nonprofit organizations or the government. So The Nature Conservancy markets the cause of protecting the environment. Charities market the idea that it’s worthwhile for you to donate your time or money. The Peace Corps markets to recruit qualified volunteers. And state governments in Arizona and Florida market taking a warm, sunny winter vacation in their states.

. . . or using an app to take an interactive tour of Russia’s State Hermitage Museum. Source: Hermitage Museum ultimate consumers The people who use the products and services purchased for a household. Also called consumers,buyers, or

customers. organizational buyers Those manufacturers, wholesalers, retailers, service companies, nonprofit organizations, and government agencies that buy products and services for their own use or for resale.

Marketing the idea of volunteering for the Peace Corps can benefit society. Source: Peace Corps

Who Buys and Uses What Is Marketed? Both individuals and organizations buy and use products that are marketed. Ultimate consumers are the people who use the products and services purchased for a household. In contrast, organizational buyers are those manufacturers, wholesalers, retailers, service companies, nonprofit organi zat io ns , and government agencies that buy pr oduct s an d s er vices f or thei r own use or for resale. Although the terms consumers, buyers, and customers are sometimes used for both ultimate consumers and organizations, there is no consistency on this. In this book you will be able to tell from the example whether the buyers are ultimate consumers, organizations, or both. Who Benefits? In our free-enterprise society, there are three specific groups that benefit from effective marketing: consumers who buy, organizations that sell, and society as a whole. True competition between products and services in the marketplace ensures that consumers can find value from the best products, the lowest prices, or exceptional service. Providing choices leads to the consumer satisfaction and quality of life that we expect from our economic system.

Organizations that provide need-satisfying products with effective marketing programs— for example, Amazon, Apple, and L’Oréal—have grown. But competition creates problems for ineffective competitors, including the many retailers such as Brooks Brothers, J.Crew, Payless ShoeSource, Brookstone, Sears, and Neiman Marcus that recently filed for bankruptcy. Finally, effective marketing benefits society.33 It enhances competition, which both improves the quality of products and services and lowers their prices. This makes countries more competitive in world markets and provides jobs and a higher standard of living for their citizens. page 19

How Do Consumers Benefit? Marketing creates utility, the benefits or customer value received by users of the product. This utility is the result of the marketing exchange process and the way society benefits from marketing. There are four different utilities: form, place, time, and possession. The production of the product or service constitutes form utility. Place utility means having the offering available where consumers need it, whereas time utility means having it available when needed. Possession utility is the value of making an item easy to purchase through the provision of credit cards or financial arrangements. Marketing creates its ut il i t i es by br i dging s pace ( place ut il ity) and hour s ( t i me uti lit y) t o pr ovide products (form utility) for consumers to own and use (possession utility). utility The benefits or customer value received by users of the product.

LEARNING REVIEW 1-7. 1-8.

What are the two key characteristics of the marketing concept? What is the difference between ultimate consumers and organizational buyers?

LEARNING OBJECTIVES REVIEW LO 1-1 Define marketing and identify the diverse factors that influence marketing actions.

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. This definition relates to two primary goals of marketing: (a) discovering the needs of prospective customers and (b) satisfying them. Achieving these two goals also involves the four marketing mix factors largely controlled by the organization and the five environmental forces that are generally outside its control. LO 1-2 Explain how marketing discovers and satisfies consumer needs. The first objective in marketing is discovering the needs and wants of consumers who are prospective buyers and customers. This is not easy because consumers may not always know or be able to describe what they need and want. A need occurs when a person feels deprived of basic necessities such as food, clothing, and shelter. A want is a need that is shaped by a person’s knowledge, culture, and personality. Effective marketing can clearly shape a person’s wants and tries to influence what he or she buys. The second objective in marketing is satisfying the needs of targeted consumers. Because an organization obviously can’t satisfy all consumer needs, it must concentrate its efforts on certain needs of a specific group of potential consumers or target market—one or more specific groups of potential consumers toward which an organization directs its marketing program. It then selects its target market segment (or segments), which is a relatively homogeneous group of prospective buyers that (1) have c om mon needs and ( 2) wil l r es pond s imi l ar ly to a marketi ng action. Final l y, t he organization develops a set of marketing actions in the form of a unique marketing program to reach them. LO 1-3 Distinguish between marketing mix factors and environmental forces. Four elements in a marketing program designed to satisfy customer needs are product, price, promotion, and place. These elements are called the marketing mix, the four Ps, or the marketer’s controllable variables. The marketing mix also provides a clear customer value proposition—a cluster of benefits that an offering satisfies. Environmental forces, also called uncontrollable variables, are largely beyond the organization’s control. These include social, economic, technological, competitive, and regulatory forces. LO 1-4 Explain how organizations build strong customer relationships and customer value through marketing. The essence of successful marketing is to provide sufficient value to gain loyal, long-term customers. Customer value is the unique combination of benefits received by targeted buyers that usually includes quality, price, convenience, ontime delivery, and both before-sale and after-sale service. Marketers do this by using one of three value strategies: best price, best product, or best service.

LO 1-5 Describe the characteristics of a market orientation. Many firms have achieved great success by putting huge effort into implementing the marketing concept—the idea that an organization should (1) strive to satisfy the needs of consumers while also (2) trying to achieve the organization’s goals. Implementing the marketing concept creates a market orientation. An organization that has a market orientation focuses its efforts on (1) continuously collecting information about customers’ needs, (2) sharing this information across departments, and (3) using it to create customer value. page 20

LEARNING REVIEW ANSWERS 1-1

What is marketing? Answer: Marketing is the activity for creating, communicating, delivering, and exchanging offerings that benefit customers, the organization, its stakeholders, and society at large.

1-2

Marketing focuses on and consumer needs. Answer: discovering; satisfying

1-3

What four factors are needed for marketing to occur? Answer: The four factors are: (1) two or more parties (individuals or organizations) with unsatisfied needs; (2) a desire and ability on their part to have their needs satisfied; (3) a way for the parties to communicate; and (4) something to exchange.

1-4

An organization can’t satisfy the needs of all consumers, so it must focus on one or more subgroups, which are its . Answer: target market(s)

1-5

What are t he fou r marketi ng mi x e l eme nt s that m ake up t he organization’s marketing program? Answer: product, price, promotion, place

1-6

What are environmental forces? Answer: Environmental forces are the uncontrollable forces that affect a marketing decision. They consist of social, economic, technological, competitive, and regulatory forces.

1-7

What are the two key characteristics of the marketing concept? Answer: An organization should (1) strive to satisfy the needs of consumers while also (2) trying to achieve the organization’s goals.

1-8

What is the difference organizational buyers?

between

ultimate

consumers

and

Answer: Ultimate consumers are the people who use the products and services purchased for a household. Organizational buyers are those manufacturers, wholesalers, retailers, and government agencies that buy products and services for their own use or for resale.

FOCUSING ON KEY TERMS customer experience p. 16 customer relationship management (CRM) p. 15 customer value p. 11 environmental forces p. 10 exchange p. 5 market p. 9 market orientation p. 15 market segments p. 13 marketing p. 5 marketing concept p. 15 marketing mix p. 10 marketing program p. 13 organizational buyers p. 18 product p. 17 relationship marketing p. 12 societal marketing concept p. 17 target market p. 10 ultimate consumers p. 18 utility p. 19

APPLYING MARKETING KNOWLEDGE

1 What consumer wants (or benefits) are met by the following products or services? (a) 3M Post-it® Flag Highlighter, (b) Nike running shoes, (c) Enterprise Rent-A-Car, and (d) Amazon online shopping. 2 Each of the four products, services, or programs in question 1 has substitutes. Respective examples are (a) a Bic™ highlighter, (b) Adidas tennis shoes, (c) an Uber or Lyft ride, and (d) a department store. What consumer benefits might these substitutes have in each case that some consumers might value more highly than those mentioned in question 1? 3 What are the characteristics (e.g., age, income, education) of the target market customers for the following products or services? (a) National Geographic magazine, (b) Chobani Greek Yogurt, (c) New York Giants football team, and (d) Facebook. 4 A college in a metropolitan area wishes to increase its evening offerings of business-related courses such as marketing, accounting, finance, and management. Who are the target market customers (students) for these courses? 5 What actions involving the four marketing mix elements might be used to reach the target market in question 4? 6 What environmental forces (uncontrollable variables) must the college in question 4 consider in designing its marketing program? 7 Does a firm have the right to “create” wants and try to persuade consumers to buy goods and services they didn’t know about earlier? What are examples of “good” and “bad” want creation? Who should decide what is good and what is bad? page 21

BUILDING YOUR MARKETING PLAN If your instructor assigns a marketing plan for your class, we hope you will be excited—for two reasons. First, you will get insights into trying to actually “do marketing” that often go beyond what you can get by simply reading the textbook. Second, thousands of graduating students every year get their first job by showing prospective employers a “portfolio” of samples of their written work from college —often a marketing plan if they have one. This can work for you. This “Building Your Marketing Plan” section at the end of each chapter suggests ways to improve and focus your marketing plan. You will use the sample

marketing plan in Appendix A (following Chapter 2) as a guide, and this section after each chapter will help you apply those Appendix A ideas to your own marketing plan. The first step in writing a good marketing plan is to have a business or product that enthuses you and for which you can get detailed information, so you can avoid glittering generalities. We offer these additional bits of advice in selecting a topic: • Do pick a topic that has personal interest for you—a family business; a business, product, or service you or a friend might want to launch; or a student organization that needs marketing help. • Do not pick a topic that is so large it can’t be covered adequately or so abst r act i t will lack s pecif i cs. 1 Now to get you started on your marketing plan, list four or five possible topics and compare these with the criteria your instructor suggests and those shown earlier. Think hard, because your decision will be with you all term and may influence the quality of the resulting marketing plan you show to a prospective employer. 2 When you have selected your marketing plan topic, whether the plan is for an actual business, a possible business, or a student organization, write the “company description” in your plan, as shown in Appendix A (following Chapter 2).

VIDEO CASE 1 Bombas: Creating Socks with a Purpose! VIDEO 1-6 Bombas Video Case kerin.tv/cr9e/v1-6

“We just wanted to help solve this problem,” explain Randy Goldberg and David Heath, co-founders of Bombas. And the problem was that socks are the most requested clothing item in homeless shelters. “We knew that if we were going to donate a lot of socks, we needed to sell a lot of socks, and if we were going to sell a lot of socks, we needed to create something that was better than any other sock in the marketplace,” they add. The result? Bombas, and the most comfortable socks in the history of feet!

THE COMPANY Goldberg and Heath met while working at a media company and they quickly learned that they shared a passion for entrepreneurship. “We shared a lot of ideas about businesses that we thought were interesting and we were generally looking around and seeing what was out there,” says Goldberg. Then Heath saw a quote on Facebook about the need for socks in homeless shelters, which led them to investigate the problem. “There’s a huge need; if you are living on the street and you’re homeless, a fresh pair of socks means a lot. And it turns out if you have a used pair of socks you’re not allowed to donate them for hygiene reasons,” he adds. They could see there was an opportunity to help the community, and they matched the problem with the concept of donating an item for each item purchased pioneered by TOMS Shoes and the online sales format used by Warby Parker. “And that was the origin!,” they proclaim. To ensure that they would offer an exceptional product, the two entrepreneurs began to research the socks currently on the market. “We went out to all the stores around us and looked at everything and we realized that there was a massive gap between low cost, low quality commodity-type socks, and premium products that were sold at specialty stores,” explains Heath. “There were a lot of features and benefits that were incorporated into these premium-priced products that just generally translated to overall comfort, and we wanted to take all of that innovation and bring it to the mass market,” he adds. According to Goldberg, “we knew that if we created something that was far beyond the expectations and beyond what customers were asking for that we could really deliver an amazing product.” The next two years were spent developing the product as Goldberg and Heath obsessed over features, quality, and production. Finally, they thought “we love it, our parents love it, our friends love it, let’s see if the world loves it,” observes Goldberg. They selected the name Bombas, from the Latin word for “bumblebee,” because bees are altruistic animals that live in a hive and they work together to make their world a better place. “We loved the name since we’re a company that was born out of a mission to give back to the community where we work and live,” he adds. The idea of working together was woven into their entire approach to branding. In fact, they selected “Bee Better” as their motto. They launched the business on the crowdfunding platform Indiegogo page 22 with the hope of raising $15,000. Within a month they had raised $150,000! The money allowed them to build their website and begin selling their socks to the public. They also raised money from friends and family, and shortly after their online debut they received an invitation to appear on Shark Tank and received an offer from investor Daymond John. The money and exposure

catapulted Bombas onto the national stage. “After that we were kind of off to the races doing what we do best, telling our story, focusing on product, focusing on community, and building the business,” says Goldberg.

Kevin Hagen/The New York Times/Redux

THE MARKET Building the business meant understanding consumers and the sock market. One of the first things they learned was that “the sock category was highly commoditized, it was distilled down to basically the bare essentials, a sock just covered your foot,” Heath observes. In fact, some experts suggested that consumers made purchases only to replace old socks, and that there was no growth in the market. Consumers had grown disinterested in socks and some consumers were so bored with the category that they stopped wearing socks altogether. Innovations introduced by other brands, such as sustainable materials, creative designs, new business models (e.g., subscription services), and specialized socks for different uses helped spark some growth. According to Heath, “now we’ve got dress socks, we’ve got running socks, ski socks, hiking, basketball, golf, and tennis socks, all in different heights, varieties, sizes, and fabrics.” Socks have become a way for consumers to indulge in their particular interests without too much financial or fashion risk. The global sock market exceeds $35 billion, and has grown to more than $6 billion in the United States. The huge size of the market has attracted a variety of competitors including Hanes, Under Armour, Balega, Darn Tough, HOTSOX, Happy Socks, Uniqlo, and many others. These competitors offer socks in numerous styles (e.g., no-show, ankle, crew, dress, outdoor), materials (e.g., wool, Merino wool, cotton), sizes, lengths, and patterns. In addition, socks are sold to a wide variety of customers. According to Heath, “there are a lot of ways you can

define your market. You can define it by the categories which you’re in, the demographics you serve, and the geographies in which you sell.” Bombas launched with men’s and women’s socks and quickly added kids (youth and toddler sizes). MARKETING AT BOMBAS The combination of Bombas’s buy-one-give-one mission, its online direct-toconsumer sales model, and its focus on a high-quality comfortable product presented a variety of marketing opportunities and challenges. Chief Marketing Officer Kate Huyett observes that the company’s best marketing combines “both mission and product.” To accomplish this Bombas used the classic four Ps elements of the marketing mix: product, price, place, and promotion. Product Strategy From the start, Bombas’s product strategy was to create a perfect sock. According to Huyett, “All Bombas socks feature five key elements that make them the most comfortable socks you’ve ever put on your feet: the Y-stitched heel, which makes the heel stay on your heel and not slide around; the honeycomb arch support, which feels amazing; the seamless toe; the blister tab on the ankle sock; and our stay-up technology on the calf sock, which ensures that it doesn’t fall down.” Another important aspect of the Bombas product strategy is its 100% Happiness Guarantee. The bombas.com website explains the guarantee: We care so much about your happiness that we hired a bunch of the best, nicest, most awesome human beings we could find to help with anything you need. We call them the Bombas Customer Happiness Team, and they’re your go-to when you need a recommendation, a refund, or just a reason to smile. Seriously, reach out. Even just to say hi. Huyett adds, “the 100% happiness guarantee has been part of Bombas since day one. It’s really about making sure that our customers are happy no matter what. But from a marketing perspective we also have a lot of fun. At one point we created a Laundry Back Guarantee—if you lost a sock in the wash we would replace it, no questions asked. We also have a Dog Proof Guarantee—if your dog eats your sock, we will replace that. We take our customers’ happiness really seriously!” Price Strategy

page 23

Bombas uses a premium price for its socks, based on the two key elements of the product that create value. “First is that we have this mission of donating a pair of socks for every pair purchased, and the second is that we genuinely produce a

higher quality product,” explains Huyett. The price varies, however, in some circumstances. For example, first-time customers can receive a 20 percent discount, and all customers receive a reduced price (5 to 15 percent) when they purchase a 4-, 6-, 8-, or 12-pack of socks. Similarly, prices might be higher for limited-edition socks and for holiday offerings. Place Strategy Goldberg and Heath modeled their company on the direct-to-consumer approach used by Warby Parker with eyewear. The online model offered many advantages. “The great thing about direct-to-consumer is that we own our customer relationship directly,” says Huyett. “They buy directly from us, we send the product to them through our logistics warehouse, and then the customer support that they receive is also provided by us,” she adds. A few years after the online launch, Bombas also decided to work with wholesale partners such Nordstrom, Dick’s Sporting Goods, Scheels, and Athleta to provide a retail store presence. Although Bombas stores are a future consideration, they are not part of the company’s current place strategy. Promotion Strategy When Bombas first started, it relied on word of mouth, exposure from the crowdfunding platform, and some social media ads. As the company grew, Bombas needed to engage a broader audience. “When we were small someone might see only a Facebook ad; now it’s quite likely that they are hearing a podcast ad, seeing a Facebook ad, and maybe also a TV ad,” says Huyett. The promotion mix has grown to include traditional advertising, social media, and specialpromotion partnerships. Campaigns have included taglines such as “The Most Comfortable Sock in the Hi s t ory of Feet” and “The Great est Sock Nev er S ol d.” “ Across t he entir e mi x of creative, we try to have it balanced between mission and the quality of our product,” says Huyett. “Depending on what medium you’re in you may have more or less room to tell the story,” she adds. Bombas utilizes 30-second TV ads, podcasts, and video ads, for example, because they provide enough time to explain the brand’s mission to help the homeless community, and the product quality. According to Huyett, “Facebook and Instagram provide us with a ton of scale, and the niche social networks such as Snapchat, TikTok, and Pinterest are really about trying to get incremental reach.” Bombas has also used a partnership with Delta Air Lines to reach business travelers. Finally, Bombas uses e-mail as a retention tool. “We send a significant amount of e-mail over the course of a year,” explains Huyett.

Source: Bombas, LLC

THE FUTURE AT BOMBAS Bombas has experienced amazing growth in the last several years and today Bombas has more than $100 million in sales. That’s a lot of socks! To complement its core product, the company recently introduced T-shirts with the same goal it applied to socks—to be the most comfortable T-shirt ever worn. So what is on the horizon for Bombas? According to Goldberg, “I think the future of Bombas is about new products.” Heath agrees, and comments that “we see Bombas as a brand that we want to be around for over a hundred years.”34 Questions 1 How did Bombas’s founders Randy Goldberg and David Heath create customer value when they started their apparel company by selling socks? 2 How did Goldberg and Heath raise money to start the company? 3 What are the key elements of Bombas’s “four Ps” marketing strategy? 4 How has the combination of the Bombas social mission, its “Bee Better” motto, the direct-to-consumer sales model, its Customer Happiness Team, and its promotional activities contributed to Bombas’s success? 5 Describe possible future marketing actions Bombas should consider. Chapter Notes

page 24

1.

Da ni el J. M urphy, “How Bo mbas Bui l t a $100 M il l i on Brand by Gi vin g Away Socks,” Privy, March 18, 2020.

2.

Kellie Ell, “Sock Market Finds Its Footing with Novelty Styles,” WWD, December 24, 2018.

3.

T. L. Stanley, “Q&A: The Founder of Bombas on Why Brands Shouldn’t Think Too Hard about Competition,” Adweek, January 22, 2019, www.adweek.com ; and David Gelles, “Giving Socks to the Homeless to Strengthen the Bottom Line,” The New York Times International Edition, March 22, 2016.

4.

T. L. Stanley, “With a Counterintuitive Message, the ‘Greatest Sock Never Sold,’ Is Helping America’s Homeless Shelters,” Adweek, Novem ber 7, 2018, www.adweek.com ; Daymond John, “How I Spot Winners,” Inc., July–August 2015; and Jocelyn Anderson, “Bombas Squad,” Footwear News, April 14, 2014.

5.

Melody Hahm, “Bombas CEO: We Could Easily Be a Billion-Dollar Brand in the Next 5 Years,” Yahoo! Finance, April 26, 2019; and Bombas, “About Us,” bombas.com/pages/about-us.

6.

Don Reisinger, “Elon Musk’s SpaceX Raptor Engine Is One Step Closer to Reaching Mars,” Fortune, February 7, 2019, fortune.com ; Natasha Bach, “Elon Musk Unveils Boring Company’s Underground Test Tunnel,” Fortune, December 19, 2018, fortune.com; and Richard Robinson, “It’s Time for Marketers to Start a Bonfire of the Legacies,” Marketing Week, January 26, 2017, p. 13.

7.

See www.marketing-dictionary.org/ama (definition approved by the American Marketing Association Board of Directors, July 2013).

8.

Richard P. Bagozzi, “Marketing as Exchange,” Journal of Marketing, October 1975, pp. 32–39; and Gregory T. Gundlach and Patrick E. Murphy, “Ethical and Legal Foundat i ons of Rel at iona l Mar ket i ng Exc hanges ,” Journal of Marketing, October 1993, pp. 35–46.

9.

Nuno Camacho, Hyoryung Nam, P. K. Kannan, et al., “Tournaments to Crowdsource Innovation: The Role of Moderator Feedback and Participation Intensity,” Journal of Marketing, March 2019, pp. 138–57; B. J. Allen, Deepa Chandrasekaran, and Suman Basuroy, “Design Crowdsourcing: The Impact on New Product Performance of Sourcing Design Solutions from the ‘Crowd,’” Journal of Marketing, March 2018, pp. 106–23; and “Building Together: How LEGO Leverages Crowdsourcing to Sustain Both Innovation and Brand Love,” digit.hbs.org, March 26, 2018.

10. Mintel Global New Products Database, www.mintel.com/global-new-productsdatabase, accessed Mar ch 3, 2019; Geor ge Castell i on and St ephenK. Mar kham,

“Per s pect ive: New Pr oduct Fai l ure Rates: Influence of Argum e nt um a d Populum and Self-Interest,” Journal of Product Innovation Management 30, no. 5 (2013), pp. 976–79; Robert M. McMath and Thom Forbes, What Were They Thinking? (New York: Times Business, 1998), pp. 3–22. 11. Ashley Carman, “North Focal Glasses Review: A $600 Smartwatch for Your Face,” The Verge, February 14, 2019, www.theverge.com ; Hugh Langley, “There’s a New Google Glass on the Way—but It Probably Isn’t for You,” Wareable, November 14, 2018, www.wareable.com ; and Ben Geier, “This Is Where Google Says Glass Went All Wrong,” Fortune, March 23, 2015, fortune.com. 12. Nima Rajan, “Coca-Cola Finally Launches Their Patented No-Sugar SteviaSweetened Coke,” Xtalks, May 15, 2018, Xtalks.com ; Barbara Harfmann, “A Sweet Replacement Solution,” Beverage Industry, March 2018, pp. 64, 66, 68; and Megan Poinski, “FDA Proposes 2020 Compliance Deadline for Nutrition Facts Label,” Food Dive, September 29, 2017, www.fooddive.com. 13. Sarah Steimer, “Subscription Box as Stratagem,” Marketing News, Januar y 2018, pp. 42–49; and Universal Yums, August 17, 2020, www.universalyums.com. 14. Neetu Arnold, “Help Students Think Twice before They Go into Debt,” The Hill, February 25, 2020; and Louis DeNicola, “Credit Card Use in College after the CARD Act,” The Clearpoint Blog, May 1, 2017, www.clearpoint.org. 15. E. Jerome McCarthy, Basic Marketing: A Managerial Approach (Hom e wood, IL: Richard D. Irwin, 1960); and Walter van Waterschool and Christophe Van den Bulte, “The 4P Classification of the Marketing Mix Revisited,” Journal of Marketing, October 1992, pp. 83–93. 16. Roger A. Kerin and Robert A. Peterson, Strategic Marketing Problems: Cases and Comments, 13th ed. (Upper Saddle River, NJ: Prentice Hall, 2013), p. 12. 17. Ashish Kothari and Joseph Lackner, “A Value-Based Approach to Management,” Journal of Business and Industrial Marketing 21, no. 4, pp. 243– 49; and James C. Anderson, James A. Narius, and Wouter van Rossum, “Customer Value Propositions in Business Markets,” Harvard Business Review, March 2006, pp. 91–99. 18. Sheryl Driggers, “Retaining Customers Is Vital,” ABRN, September 2017, www.abrn.com ; and V. Kumar and Werner Reinartz, “Creating Enduring Customer Value,” Journal of Marketing 80 (November 2016), pp. 36–68. 19. Nicola s A. Zachar i as, Edwin J . Nijssen, and Ruth Maria St ock, “Ef f ectiv e Configurations of Value Creation and Capture Capabilities: Extending Treacy

and Wiersema’s Value Disciplines,” Journal of Business Research, October 2016, pp. 4121–31; and Michael Treacy and Fred D. Wiersema, The Discipline of Market Leaders (Reading, MA: Addison-Wesley, 1995). 20. Target, “Mission Statement,” www.target.com ; Starbucks Coffee Company, “Our Starbucks Mission Statement,” www.starbucks.in/about-us/companyinformation/mission-statement, accessed June 9, 2019; and Nordstrom, “Mission Statement,” shop.nordstrom.com/content/about-us. 21. Jonathan Z. Zhang, George F. Watson IV, Robert W. Palmatier, et al., “Dynamic Relationship Marketing,” Journal of Marketing, September 2016, pp. 53–75; Robert W. Palmatier, Rajiv P. Dant, Dhruv Grewal, et al., “Factors Influencing the Effectiveness of Relationship Marketing: A Meta-Analysis,” Journal of Relationship Marketing, October 2006, pp. 136–53; and William Boulding, Richard Staelin, Michael Ehret, et al., “A Customer Relationship Management Roadmap: What Is Known, Potential Pitfalls, and Where to Go,” Journal of Marketing, October 2005, pp. 155–66. 22. Jagdish Sheth, “Revitalizing Relationship Marketing,” Journal of Services Marketing, no. 1 (2017), pp. 6–10; Michael E. Porter and James E. Hepplemann, “HowSm ar t , Connected Prod uct s Are Tr ansfor mi ng C ompe tit i on,” Harvard Business Review, November 2014, pp. 65–88; and Ritz-Carlton, www.ritzcarlton.com/en/about/gold-standards. 23. The 3M Post-it® Flag Highlighter and 3M Post-it® Flag P en exam ples are ba s ed on a series of interviews and meetings with 3M inventor and researcher David Windorski. 24. Securities and Exchange Commission, Annual Report (New York: General Electric Company, 1952), p. 21. 25. J ohn C. Na r v er , Stanl ey F. Sl ater , and Brian T iet j e, “Creat ing a Mar ket Orientation,” Journal of Market-Focused Management, no. 2 (1998), pp. 241– 55; Stanley F. Slater and John C. Narver, “Market Orientation and the Learning Organization,” Journal of Marketing, July 1995, pp. 63–74; and George S. Day, “The Capabili t ies of M ar ket - Dri ven Or ganiza t ions,” Journal of Marketing, October 1994, pp. 37–52. 26. The definition of customer relationship management is adapted from Philip Kotler, Hermawan Kartajaya, and Iwan Setiawan, Marketing 4.0 (Hoboken, NJ: Wiley, 2017); Rajendra K. Srivastava, Tasadduq A. Shervani, and Liam Fahey, “Marketing, Business Processes, and Shareholder Value: An Embedded View of Marketing Activities and the Discipline of Marketing,” Journal of Marketing, special issue (1999), pp. 168–79; and Christopher Meyer and Andre Schwager,

“Understanding Customer Experience,” Harvard Business Review, Februar y 2007, pp. 117–26. 27. Gary F. Gebhardt, Gregory S. Carpenter, and John F. Sherry Jr., page 25 “Creating a Market Orientation: A Longitudinal, Multifirm, Grounded Analysis of Cultural Transformation,” Journal of Marketing, October 2006, pp. 37–55. 28. Marilyn Much, “How Joe Coulombe Built the Culture behind Trader Joe’s Cult Status,” Investor ’ s Business Daily, M a r ch 1, 20 19; an d Mar ketf o r ce Information, www.marketforce.com/2018-americasfavorite-grocery-stores. 29. “Trader Joe’s Sticks to Stores,” Dallas Morning News, April 30, 2019, p. 3B. 30. Kasturi Rangan, Lisa Chase, and Sohel Karim, “The Truth about CSR,” Harvard Business Review, January–February 2015, pp. 41–49. 31. Worn Wear Spring 2015 Tour—Free Clothing Repairs and More in 15 Cities a cross t he Count ry; J ami e F e ldman , “Pat ago ni a Just Mad e Another M ajor Move to Save the Earth and Your Wallet,” HuffPost, January 30, 2017, www.huffpost.com ; Philip Kotler and Sidney J. Levy, “Broadening the Concept of Marketing,” Journal of Marketing, January 1969, pp. 10–15; and Jim Rendon, “When Nations Need a Little Marketing,” The New York Times, November 23, 2003, p. BU6. 32. Peter Gumbel, “Louvre, Inc.,” Time, August 11, 2008, pp. 51–52; and Stella Wai-Art Law, A Branding Context: The Guggenheim and the Louvre, master’s thesis, Columbus: The Ohio State University, 2008. 33. William L. Wilkie and Elizabeth S. Moore, “Marketing’s Relationship to Society,” in Handbook of Marketing, ed. Barton Weitz and Robin Wensley (London: Sage, 2006), pp. 9–38. 34. Bombas: This case was written by Steven Hartley and Roger Kerin. Sources: Interviews with Randy Goldberg, David Heath, and Kate Huyett; Daniel J. Murphy, “How Bombas Built a $100 Million Brand by Giving Away Socks,” Privy, March 18, 2020, privy.com; T. L. Stanley, “Q&A: The Founders of Bombas on Why Brands Shouldn’t Think Too Hard about Competition,” Adweek, January 22, 2019, www.adweek.com; T. L. Stanley, “With a Counterintuitive Message, the ‘Greatest Sock Never Sold’ Is Helping America’s Homeless Shelters,” Adweek, November 7, 2018, www.adweek.com ; Kellie Ell, “Sock Market Finds Its Footing with Novelty Styles,” WWD, December 24, 2018; David Gelles, “Giving Socks to the Homeless to Strengthen the Bottom Line,” International New York Times, March 22, 2016; Daymond John, “How I Spot Winners,” Inc., July–August 2015; and Jocelyn Anderson, “Bombas

Squad,” Footwear News, April 14, 2014.

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Chapter

2 Developing Successful Organizational and Marketing Strategies LEARNING OBJECTIVES After reading this chapter you should be able to: LO 2-1

Describe three kinds of organizations and the three levels of strategy in them.

LO 2-2

Describe core values, mission, organizational culture, business, and goals.

LO 2-3

Explain why managers use marketing dashboards and marketing metrics.

LO 2-4

Discuss how an organization assesses where it is now and where it seeks to be.

LO 2-5

Explain the three steps of the planning phase of the strategic marketing process.

LO 2-6

Describe the four components of the implementation phase of the strategic marketing process.

LO 2-7

Discuss how managers identify and act on deviations from plans.

Peace, Love, and Ice Cream Chances are this is a familiar motto to you. It is also the belief that guided longtime friends Ben Cohen and Jerry Greenfield when they started their business, Ben &

Jerry’s ice cream shops! Ben & Jerry’s started in 1978 when the two men moved to Vermont to open an ice cream parlor in a renovated gas station. The venture was buoyed with enthusiasm, $12,000 in borrowed and saved money, and ideas from a $5 correspondence course in ice cream making. Their first flavor? Vanilla—because it’s a universal best-seller. Flavors such as Chunky Monkey, Cherry Garcia, Peanut Butter Cup, and many others soon followed. The ice cream flavors weren’t the only extraordinary thing about the company, though. Cohen and Greenfield embraced a concept they called “linked prosperity” which encouraged the success of all their constituents, including employees, suppliers, farmers, customers, franchisees, and neighbors. They set out to achieve linked prosperity with a three-part mission statement: • Product Mission: To make, distribute, and sell the finest quality all-natural ice cream. • Economic Mission: To operate the company for sustainable financial growth. • Social Mission: To operate the company in ways that make the world a better place. The mission statement guided the entrepreneurs’ decisions related to many aspects of the business, including purchasing practices, ingredient sourcing, manufacturing, and involvement in the community.1 Cohen and Greenfield’s mission-driven approach led them to successfully implement many highly creative organizational and marketing strategies. Some examples include: • Elimination of Single-Use Plastic. Ben & Jerry’s has announced that it will no longer offer plastic straws and spoons. Jenna Evans, global sustainability manager, explains that recycling isn’t enough, “we, and the rest of the world, need to get out of single-use plastic.” • Free Cone Day. One day each year Ben & Jerry’s gives away free servings of ice cream to more than a million fans around the world. It’s one way the company can give back to the communities it serves. • Fairtrade Practices. Ben & Jerry’s believes that farmers who grow ingredients for their ice cream products (such as cocoa, coffee, and vanilla) should receive a fair price for their harvest. In return Fairtrade farmers agree to use sustainable farming practices, implement fair working standards, and invest in local communities. • B-Corp Certification. Ben & Jerry’s was one of the first companies page 27 involved in the Benefit Corporation movement, which has developed a

rigorous set of principles and standards on which to evaluate companies in terms of social and environmental performance, accountability, and transparency.

Source: Ben & Jerry’s Homemade, Inc.

As you can see, Ben & Jerry’s has a strong link between its mission and its strategies. CEO Matthew McCarthy explains that the brand’s tradition is to promote sustainability and advocate for social causes while promoting ice cream!2 Today, Ben & Jerry’s is owned by Unilever, which is the market leader in the global ice cream industry—one that is expected to reach $74.9 billion by 2024. Ben & Jerry’s recently added a line of nondairy flavors made with almond milk that are certified 100 percent vegan, and it offered beer and ice cream flavor pairings in honor of St. Patrick’s Day. In addition, the company supports a foundation that helps employees engage in philanthropy and activism. While customers love Ben & Jerry’s flavors, many buy its products to support its social mission. As a testament to its success, Ben & Jerry’s has over 8.7 million fans on Facebook!3 This chapter describes how organizations set goals to provide an overall direction to their organizational and marketing strategies. The marketing department of an organization converts these strategies into plans that must be implemented and then evaluated so deviations can be exploited or corrected based on the marketing environment. VIDEO 2-1 Ben & Jerry’s

kerin.tv/cr9e/v2-1

TODAY’S ORGANIZATIONS LO 2-1 Describe three kinds of organizations and the three levels of strategy in them.

In studying today’s organizations, it is important to recognize (1) the kinds of organizations that exist, (2) what strategy is, and (3) how this strategy relates to the three levels of structure found in many large organizations. Kinds of Organizations An organization is a legal entity that consists of people who share a common mission. This motivates them to develop offerings (goods, services, or ideas) that create value for both the organization and its customers by satisfying their needs and wants.4 Today’s organizations are of three types: (1) for-profit organizations, (2) nonprofit organizations, and (3) government agencies. A for-profit organization, often called a business firm, is a privately owned organization such as Target, Nike, or Keurig that serves its customers to earn a profit so that it can survive. Profit is the money left after a for-profit organization subtracts its total expenses from its total revenues and is the reward for the risk it undertakes in marketing its offerings. profit The money left after a for-profit organization subtracts its total expenses from its total revenues and is the reward for the risk it undertakes in marketing its offerings.

page 28

Making Responsible Decisions

Social Responsibility

New Types of Organizations Help Entrepreneurs Focus on Passion and Purpose Filmmaker Pete Williams recently spent two years creating a documentary called The New Breed to describe the growing movement of people who are committed to using business concepts to change the world for good. These “social entrepreneurs” are using a variety of organizational models to address social needs about which they are passionate. The enterprises are sometimes organized as traditional for-profit companies with a for-purpose orientation. They can also be benefit corporations, which are for-profit organizations with

legal requirements for social and environmental impact assessment. Finally, social entrepreneurs often create enterprises that are organized as nonprofit ventures. The issues they are focusing on range from health care delivery, to the cost of higher education, to agricultural efficiency. Each year Forbes magazine recognizes some of the most innovative social ventures in its annual list of 30 Under 30: Social Entrepreneurs. For example, Jenny Xia and Patrick Schmitt met in college, decided they wanted to have a positive impact on the world, and founded FreeWill. The social venture is an online service that makes estate planning warm, accessible, and totally free so that users can easily care for the people and causes they love. So, has the idea been a success? To date, more than 32,000 people have used the FreeWill service to create a will, and they have committed more than $373 million to charity! Teach For America is another example of a creative social venture. Launched by college senior Wendy Kopp, Teach For America is the national corps of outstanding recent college graduates who commit to teach for two years in urban and rural public schools and become lifelong leaders in expanding educational opportunity. Each year more than 10,000 corps members teach 750,000 students. These examples illustrate how organizations are changing to create value for a broad range of constituents by addressing the needs and challenges of society.

Courtesy of STAY GOLD Studios

In contrast, a nonprofit organization is a nongovernmental organization that serves its customers but does not have profit as an organizational goal. Instead, its goals may be operational efficiency or client satisfaction. Regardless, it also must receive sufficient funds above its expenses to continue operations. Organizations like Teach For America, described in the Making Responsible Decisions box, seek to solve the practical needs of society and are often structured as nonprofit organizations.5 For simplicity in the rest of the book, the terms firm, company, and organization are used interchangeably to cover both for-profit and nonprofit organizations. Last, a government agency is a federal, state, county, or city unit that page 29 provides a specific service to its constituents. For example, the Census Bureau, a unit of the U.S. Department of Commerce, is a federal government agency that provides population and economic data.

Organizations that develop similar offerings create an industry, such as the computer industry or the automobile industry.6 As a result, organizations make strategic decisions that reflect the dynamics of the industry to create a compelling and sustainable advantage for their offerings relative to those of competitors and achieve a superior level of performance.7 Much of an organization’s marketing strategy is having a clear understanding of the industry within which it competes.

Keurig is an example of a for-profit organization. Its K-Mini Plus Single Serve Coffee Maker is slim, fast, and also travel mug friendly. McGraw-Hill Education

What Is Strategy? An organization has limited human, financial, technological, and other resources available to produce and market its offerings—it can’t be all things to all people! Every organization must develop strategies to help focus and direct its efforts to accomplish its goals. However, the definition of strategy has been the subject of debate among management and marketing theorists. For our purpose, strategy is an organization’s long-term course of action designed to deliver a unique customer experience while achieving its goals.8 All organizations set a strategic direction. And marketing helps both set this direction and move the organization there. strategy An organization’s long-term course of action designed to deliver a unique customer experience while achieving its goals.

The Structure of Today’s Organizations

Large organizations are extremely complex. They usually consist of three organizational levels whose strategies are linked to marketing, as shown in Figure 2– 1.

FIGURE 2–1 The board of directors oversees the three levels of strategy in organizations: corporate, strategic business unit, and functional.

Corporate Level The corporate level is where top management directs overall strategy for the entire organization. “Top management” usually means the board of directors and senior management officers with a variety of skills and experiences that are invaluable in establishing the organization’s overall strategy. The president or chief executive officer (CEO) is the highest-ranking officer in the organization and is usually a member of its board of directors. This person must possess leadership skills ranging from overseeing the organization’s daily operations to spearheading strategy planning efforts that may determine its very survival. In recent years, many large firms have changed the title of the head of page 30 marketing from vice president of marketing to chief marketing officer (CMO). In fact, 70 percent of Fortune 500 companies have a CMO. These CMOs have an important role in top management and typically offer multi-industry backgrounds, cross-functional management expertise, and insightful marketing intuition as qualifications. In addition, they are increasingly called upon to bring “a strategic viewpoint, exceptional measurement and analytical capabilities, financial management rigor, and operational savviness to their role.”9

Prada manages a portfolio or group of businesses—including clothing, perfume, leather goods, and footwear—each of which may be viewed as a strategic business unit (SBU). Lintao Zhang/Getty Images

Strategic Business Unit Level Some multimarket, multiproduct firms, such as Prada and Johnson & Johnson, manage a portfolio or group of businesses. Each group is a strategic business unit (SBU), which is a subsidiary, division, or unit of an organization that markets a set of related offerings to a clearly defined target market. At the strategic business unit level, managers set a more specific strategic direction for their businesses to exploit value-creating opportunities. For less complex firms with a single business focus, such as Ben & Jerry’s, the corporate and business unit levels may merge. Functional Level Each strategic business unit has a functional level, where groups of specialists actually create value for the organization. The term department generally refers to these specialized functions such as marketing and finance (see Figure 2–1). At the functional level, the organization’s strategic direction becomes its most specific and focused. Just as there is a hierarchy of levels within an organization, there is a hierarchy of strategic directions set by managers at each level. A key role of the marketing department is to look outward by listening to customers, developing offerings, implementing marketing program actions, and then evaluating whether those actions are achieving the organization’s goals. When developing marketing programs for new or improved offerings, an organization’s

senior management may form cross-functional teams. These consist of a small number of people from different departments who are mutually accountable to accomplish a task or a common set of performance goals. Sometimes these teams will have representatives from outside the organization, such as suppliers or customers, to assist them. page 31

LEARNING REVIEW 2-1.

What is the difference between a for-profit and a nonprofit organization?

2-2.

What are examples of a functional level in an organization?

STRATEGY IN VISIONARY ORGANIZATIONS LO 2-2 Describe core values, mission, organizational culture, business, and goals.

To be successful, today’s organizations must be forward-looking. They must anticipate future events and then respond quickly and effectively to those events. In addition, they must thrive in today’s uncertain, chaotic, rapidly changing environment. A visionary organization must specify its foundation (why does it exist?), set a direction (what will it do?), and formulate strategies (how will it do it?), as shown in Figure 2–2.10

FIGURE 2–2 Today’s visionary organizations use key elements to (1) establish a foundation and (2) set a direction using (3) strategies that enable them to develop and market their products successfully.

Organizational Foundation: Why Does It Exist? An organization’s foundation is its philosophical reason for being—why it exists. At their most basic level organizations exist to create value for someone. Why does

Microsoft exist? Simply put: “To empower every person and organization on the planet to achieve more.”11 Successful visionary organizations use this foundation to guide and inspire their employees through four elements: organizational purpose, core values, mission, and organizational culture. Organizational Purpose Visionary organizations have a clear expression of their purpose. Organizational purpose describes why an organization exists, what problems it wishes to solve, and who it wants to be to every person it touches through its work. Consider the “top line” on organizational purpose expressed by the chief executive officers at Facebook and Apple, two visionary organizations. According to Facebook’s Mark Zuckerberg: organizational purpose Describes why an organization exists, what problems it wishes to solve, and who it wants to be to every person it touches through its work.

The most important thing we at Facebook can do is to develop the social infrastructure to give people the power to build a global community that works for all of us.12 For Apple, Tim Cook says: At Apple, we believe our technology should lift humanity and enrich people’s lives in all the ways people want to experience it.13 Organizational purpose statements have been found to help organizations create deeper connections with consumers and suppliers, do more for the communities with which the organization works, attract and retain talent who ascribe to the purpose, and in the process, achieve greater social impact and profitability. Organizational purpose serves as the basis for an organization’s core values, mission, and culture.14 page 32

Core Values An organization’s core values are the fundamental, passionate, and enduring principles that guide its conduct over time. A firm’s founders or senior management develop and nurture these core values, which are consistent with their essential beliefs and character. They capture the firm’s heart and soul and serve to inspire and motivate its stakeholders —employees, shareholders, board of directors, suppliers, distributors, creditors, unions, government, local communities, and customers. Core values also are timeless and guide the organization’s conduct. The seven core values at IKEA, for example, are (1) humbleness and willpower, (2) leadership by example, (3) daring to be different, (4) togetherness and enthusiasm, (5) cost-consciousness, (6) constant desire for renewal, and (7) accept and delegate responsibility. To be effective, an organization’s core values must be communicated

to and supported by its top management and employees.15 core values The fundamental, passionate, and enduring principles of an organization that guide its conduct over time.

Mission By understanding its purpose and core values, an organization can take steps to define its mission, a statement of the organization’s function in society that often identifies its customers, markets, products, and technologies. Often used interchangeably with vision, a mission statement should be clear, concise, meaningful, inspirational, and long-term.16 mission A statement of the organization’s function in society that often identifies its customers, markets, products, and technologies. Often used interchangeably with vision.

VIDEO 2-2 Southwest Airlines kerin.tv/cr9e/v2-2

Inspiration and focus appear in the mission statements of for-profit organizations, as well as nonprofit organizations and government agencies. For example: • Southwest Airlines: “Dedication to the highest quality of Customer Service delivered with a sense of warmth, friendliness, individual pride, and Company Spirit.”17 • American Red Cross: “To prevent and alleviate human suffering in the face of emergencies by mobilizing the power of volunteers and the generosity of donors.”18 • Federal Trade Commission : “To prevent business practices that are anticompetitive or deceptive or unfair to consumers; to enhance informed consumer choice and public understanding of the competitive process; and to accomplish this without unduly burdening legitimate business activity.”19 Each statement exhibits the qualities of a good mission and provides a compelling picture of an envisioned future. Recently, many organizations have added a social element to their mission statements to reflect an ideal that is morally right and worthwhile. This is what Ben & Jerry’s social mission statement shows in the chapter opener. Stakeholders, particularly customers, employees, and now society, are asking organizations to

serve two purposes— to create financial value while also paying attention to social goals.20 Organizational Culture An organization must connect with all of its stakeholders. Thus, an important corporate-level marketing function is communicating its core values and mission to them. These activities send clear messages to employees and other stakeholders about organizational culture —the set of values, ideas, attitudes, and norms of behavior that is learned and shared among the members of an organization.

“Heart sets us apart” ads emphasize how providing a warm, friendly experience is part of Southwest Airlines’s organizational strategy. Source: Southwest Airlines Co. organizational culture The set of values, ideas, attitudes, and norms of behavior that is learned and shared among the members of an organization.

Organizational Direction: What Will It Do? As shown in Figure 2–2, the organization’s foundation enables it to set a direction in terms of (1) the “business” it is in and (2) its specific goals. page 33

Business A business describes the clear, broad, underlying industry or market sector of an organization’s offering. To help define its business, an organization looks at the set of organizations that sell similar offerings—those that are in direct competition with each other—such as “the ice cream business.” The organization can then begin to answer the questions “What do we do?” or “What business are we in?”

business The clear, broad, underlying industry or market sector of an organization’s offering.

Professor Theodore Levitt saw that 20th-century American railroads defined their business too narrowly, proclaiming, “We are in the railroad business!” This myopic focus caused them to lose sight of who their customers were and what they needed. So railroads failed to develop strategies to compete with airlines, barges, pipelines, and trucks. As a result, many railroads merged or went bankrupt. Railroads should have realized they were in “the transportation business.” Similarly, the publishing industry defined its business as being the printer of newspapers and magazines. The dramatic decline in demand for print publications, however, suggests that it should view itself as being in the information and entertainment business.21 VIDEO 2-3 Uber Video kerin.tv/cr9e/v2-3

With today’s increased global competition, many organizations are rethinking their business model, the strategies an organization develops to provide value to the customers it serves. Technological innovation is often the trigger for this business model change, particularly when it is linked to consumer needs. Netflix, for example, changed its business model several times, shifting its original DVD rental model to a video streaming model, and then to an original content production model.22 Bookstore retailer Barnes & Noble, too, is rethinking its business model as e-book readers like Amazon’s Kindle and Apple’s iPad have gained widespread popularity.23 Uber, known for its car transportation services, is continually redefining its business. The company started as a limousine service called UberCab. Soon the business was redefined as a ride-sharing service when it added UberX and UberPool apps which allowed drivers to use their own cars. The definition expanded further, to transportation, when UberRush was added to provide package delivery, Uber Eats was added to provide food delivery from restaurants, and Uber Jump was added to offer bicycles and scooters. Today, taking a lesson from Theodore Levitt, Uber sees itself as much more than a cab service or ride-sharing service or delivery service. In fact, Forbes magazine simply describes Uber’s business model as a “frictionless middleman.”24

Why is the definition of Uber’s business changing? See the text for the answer. Hatim Kaghat/AFP/Getty Images

Goals or Objectives Goals or objectives (terms used interchangeably in this book) are statements of an accomplishment of a task to be achieved, often by a specific time. Goals convert an organization’s mission and business into long- and short-term performance targets. Business firms can pursue several different types of goals: goals Statements of an accomplishment of a task to be achieved, often by a specific time. Also called objectives. objectives Statements of an accomplishment of a task to be achieved, often by a specific time. Also called goals. market share The ratio of sales revenue of the firm to the total sales revenue of all firms in the industry, including the firm itself.

• Profit. Most firms seek to maximize profits—to get as high a financial return on investment (ROI) as possible. • Sales. If profits are acceptable, a firm may elect to maintain or increase its sales (dollars or units) even though profits may not be maximized. • Market share. Market share is the ratio of sales revenue of the firm to the total sales revenue of all firms in the industry, including the firm itself. • Quality. A firm may seek to offer a level of quality that meets or exceeds the cost and performance expectations of its customers. • Customer satisfaction. Customers are the reason the organization exists, so their perceptions and actions are of vital importance. Satisfaction can be measured with surveys or by the number of customer complaints.

• Employee welfare. A firm may recognize the critical importance of its page 34 employees by stating its goal of providing them with good employment opportunities and working conditions. • Social responsibility. Firms may seek to balance the conflicting goals of stakeholders to promote their overall welfare, even at the expense of profits. Nonprofit organizations (such as museums and hospitals) also have goals, such as to serve consumers as efficiently as possible. Similarly, government agencies set goals that seek to serve the public good. Organizational Strategies: How Will It Do It? As shown in Figure 2–2, the organizational foundation sets the “why” of organizations and the organizational direction sets the “what.” To convert these into actual results, the organizational strategies are concerned with the “how.” These organizational strategies vary in at least two ways, depending on (1) a strategy’s level in the organization and (2) the offerings an organization provides to its customers. Variation by Level Moving down the levels in an organization involves creating increasingly specific, detailed strategies and plans. So, at the corporate level, top managers create a portfolio of market-product businesses (SBUs) that is consistent with the mission statement. At the strategic business unit level managers focus on specific value-creation activities such as improving quality, lowering cost, or adding services. Finally, at the functional level, the issue is who makes tomorrow’s sales call. Variation by Product Organizational strategies also vary by the organization’s products. The strategy will be far different when marketing a very tangible physical good (Ben & Jerry’s ice cream), a service (a Southwest Airlines flight), or an idea (a donation to the American Red Cross). Most organizations develop a marketing plan as part of their strategic marketing planning efforts. A marketing plan is a road map for the marketing actions of an organization for a specified future time period, such as one year or five years. The planning phase of the strategic marketing process (discussed later) usually results in a marketing plan that directs the marketing actions of an organization. Appendix A at the end of this chapter provides guidelines for writing a marketing plan. marketing plan A road map for the marketing actions of an organization for a specified future time period, such as one year or five years.

LEARNING REVIEW 2-3.

What is the meaning of an organization’s mission?

2-4.

What is the difference between an organization’s business and its goals?

Tracking Strategic Performance with Marketing Analytics LO 2-3 Explain why managers use marketing dashboards and marketing metrics.

Although marketing managers can set the strategic direction for their organizations, how do they know if they are making progress in getting there? As several industry experts have observed, “You can’t manage what you don’t measure.”25 One answer to this problem is the growing field of data analytics, or big data, which enables datadriven decisions by collecting data and presenting them in a visual format such as a marketing dashboard. Car Dashboards and Marketing Dashboards A marketing dashboard is the visual display of the essential information related to achieving a marketing objective.26 Today’s business intelligence and artificial intelligence tools often provide real-time data to allow marketing mix changes, personalization, and evaluation of customer satisfaction. An example is when a chief marketing officer (CMO) wants to see daily what the effect of a new social media campaign is on a product’s sales.27 marketing dashboard The visual display of the essential information related to achieving a marketing objective.

The idea of a marketing dashboard really comes from the display of page 35 information found on a car’s dashboard. On a car’s dashboard, we glance at the fuel gauge and take action when our gas is getting low. With a marketing dashboard, a marketing manager glances at a graph or table to monitor key metrics and makes a decision to take action or analyze the problem further.28 Dashboards, Metrics, and Plans The marketing dashboard from Dundas Data Visualization, Inc. in Figure 2–3 is from Sonatica, a hypothetical hardware and software firm. This dashboard shows graphic displays of key performance indicators linked to Sonatica’s product lines.29 Each display in a marketing dashboard shows a

marketing metric, which is a measure of the quantitative value or trend of a marketing action or result.30 Choosing which marketing metrics to display is critical for a busy manager, who can be overwhelmed with irrelevant data.31

FIGURE 2–3 An effective marketing dashboard, like this one from Dundas Data Visualization, Inc., helps managers assess a business situation at a glance. Source: Dundas Data Visualization, Inc.

marketing metric A measure of the quantitative value or trend of a marketing action or result.

Today’s marketers use data visualization, which presents information about an organization’s marketing metrics graphically so marketers can quickly (1) spot deviations from plans during the evaluation phase and (2) take corrective actions.32 This book uses data visualization in many figures to highlight in color key points described in the text. The Sonatica marketing dashboard in Figure 2–3 prepared by Dundas Data Visualization, Inc. effectively uses data visualization tools like a pie chart, a line or bar chart, and a map to show how parts of its business are performing as of December 2020:

Website Traffic Sources. The color-coded perimeter of the pie chart shows the • three main sources of website traffic (referral sites at 47 percent, search engines at 37 percent, and direct traffic at 16 percent). These three colors link to those of the circles in the column of website traffic sources. Of the 47 percent of traffic coming from referral sites, the horizontal bullet graphs to the right show that Sonatica’s Facebook visits comprise 15 percent of total website traffic, up from a month ago (as shown by the vertical line). page 36

Applying Marketing Metrics How Well Is Ben & Jerry’s Doing? As the marketing manager for Ben & Jerry’s, you need to assess how it is doing within the United States in the super-premium ice cream market in which it competes. For this, you choose two marketing metrics: dollar sales and dollar market share. Your Challenge Scanner data from checkout counters in supermarkets and other retailers show the total industry sales of super-premium ice cream were $1.25 billion in 2020. Internal company data show you that Ben & Jerry’s sold 50 million units at an average price of $5.00 per unit in 2020. A “unit” in super-premium ice cream is one pint. Your Findings Dollar sales and dollar market share for 2020 can be calculated using simple formulas and displayed on the Ben & Jerry’s marketing dashboard as follows:

Your dashboard displays show that from 2019 to 2020 dollar sales increased from $240 million to $250 million and that dollar market share grew from 18.4 to 20.0 percent. Your Action The results need to be compared with the goals established for these metrics. In addition, they should be compared with previous years’ results to see if the trends are increasing, flat, or decreasing. This will lead to marketing actions. • Sales Performance by SBU. The spark lines (the wavy lines in the far left column) show the 13-month trends of Sonatica’s strategic business units (SBUs). For example, the trends in electronics and peripherals are generally up, causing their sales to exceed their YTD (year to date) targets. Conversely, both software and hardware sales failed to meet YTD targets, a problem quickly noted by a marketing manager seeing the red “warning” circles in their rows at the far right. This suggests that immediate corrective actions are needed for the software and hardware SBUs. • Website Visits by State. The U.S. map shows that the darker the state, the greater the number of website visits for the current month. For example, Texas has close to 20,000 visits per month, while Illinois has none. The Ben & Jerry’s dashboard in the Applying Marketing Metrics box shows how the two widely used marketing metrics of dollar sales and dollar market share can help the company assess its growth performance from 2019 to 2020. The Applying Marketing Metrics boxes in later chapters highlight other key marketing metrics and how they can lead to marketing actions.

SETTING STRATEGIC DIRECTIONS To set a strategic direction, an organization needs to answer two difficult questions: (1) Where are we now? and (2) Where do we want to go? A Look Around: Where Are We Now?

page 37

Asking an organization where it is at the present time involves identifying its competencies, customers, and competitors. LO 2-4 Discuss how an organization assesses where it is now and where it seeks to be.

Competencies Senior managers must ask the question: What do we do best? The answer involves an assessment of the organization’s core competencies, which are its special capabilities—the skills, technologies, and resources—that distinguish it from other organizations and provide customer value. Exploiting these competencies can lead to success.33 Competencies should be distinctive enough to provide a competitive advantage, a unique strength relative to competitors that provides superior returns, often based on quality, time, cost, or innovation.34 Customers Ben & Jerry’s customers are ice cream and frozen yogurt consumers who have different preferences (form, flavor, health, and convenience). Boeing’s jet airliner customers include passenger airlines such as American, United, and Southwest who serve travelers that need this type of service. Lands’ End communicates a remarkable commitment to its customers and its product quality with these unconditional words: Guaranteed. Period. ® The Lands’ End website points out that this guarantee has always been an unconditional one. It reads: “If you’re not satisfied with any item, simply return it to us at any time for an exchange or refund of its purchase price.” But to get the message across more clearly to its customers, it created the two-word guarantee. The point is that Lands’ End’s strategy must provide genuine value to customers to ensure that they have a satisfying experience.35 Competitors In today’s global marketplace, the distinctions among competitors are increasingly blurred. Lands’ End started as a catalog retailer. But today, Lands’ End competes with not only other clothing catalog retailers such as L.L.Bean but also department stores, mass merchandisers, and specialty shops. In addition, well-known clothing brands such as Eddie Bauer have their own chain stores. Although only

some of the clothing in any of these stores may directly compete with Lands’ End offerings, all of these retailers have websites to sell their offerings online. This means there’s a lot of competition out there.

Lands’ End’s unconditional guarantee for its products highlights its focus on customers. Source: Lands’ End

Growth Strategies: Where Do We Want to Go? Knowing where the organization is at the present time enables managers to set a direction for the firm and allocate resources to move in that direction. Two techniques to aid managers with these decisions are (1) business portfolio analysis and (2) diversification analysis. Business Portfolio Analysis Successful organizations have a portfolio or range of offerings (products and services) that possess different growth rates and market shares within the industry in which they operate. The Boston Consulting Group (BCG), an internationally known management consulting firm, has developed business portfolio analysis. It is a technique that managers use to quantify performance measures and growth targets to analyze their firms’ SBUs as though they were a collection of separate investments.36 The purpose of this tool is to determine which SBU or offering generates cash and which one requires cash to fund the organization’s growth opportunities.

business portfolio analysis A technique that managers use to quantify performance measures and growth targets to analyze their firms’ strategic business units (SBUs) as though they were a collection of separate investments.

Let’s assume you are filling the shoes of Apple CEO Tim Cook. Based on page 38 your knowledge of Apple products, you are currently conducting a quick analysis of four major Apple SBUs through 2022. Try to rank them from highest to lowest in terms of percentage growth in expected unit sales. We will introduce you to business portfolio analysis as we look at the possible future of the four Apple SBUs. The BCG business portfolio analysis requires an organization to locate the position of each of its SBUs on a growth-share matrix (see Figure 2–4). The vertical axis is the market growth rate, which is the annual rate of growth of the SBU’s industry. The horizontal axis is the relative market share, defined as the sales of the SBU divided by the sales of the largest firm in the industry. A relative market share of 10× (at the left end of the scale) means that the SBU has 10 times the share of its largest competitor, whereas a share of 0.1× (at the right end of the scale) means it has only 10 percent of the share of its largest competitor.

FIGURE 2–4 Boston Consulting Group (BCG) business portfolio analysis for four of Apple’s consumer-related SBUs. The red arrow indicates typical movement of a product through the matrix.

Photos: (iPhoneX) Oleg GawriloFF/Shutterstock; (iPad) Zeynep Demir/Shutterstock; (Apple Card) ErickPHOTOPRO/Shutterstock; (iPod) David Caudery/Tap Magazine via Getty Images

The BCG has given specific names and descriptions to the four resulting quadrants in its growth-share matrix based on the amount of cash they generate for or require from the organization: 1.

Question marks are SBUs with a low share of high-growth markets. They require large injections of cash just to maintain their market share, much less increase it. The name implies management’s dilemma for these SBUs: choosing the right ones to invest in and phasing out the rest.

2.

Stars are SBUs with a high share of high-growth markets that may need extra cash to finance their own rapid future growth. When their growth slows, they are likely to become cash cows.

3.

Cash cows are SBUs that generate large amounts of cash, far more than they can use. They have dominant shares of slow-growth markets and provide cash to cover the organization’s overhead and to invest in other SBUs.

4.

Dogs are SBUs with low shares of slow-growth markets. Although they may generate enough cash to sustain themselves, they may no longer be or may not become real winners for the organization. Dropping SBUs that are dogs may be required if they consume more cash than they generate, except when relationships with other SBUs, competitive considerations, or potential strategic alliances exist.37 page 39

What can Apple expect in future growth of sales revenues from its iPhone products . .. Oleg GawriloFF/Shutterstock

An organization’s SBUs often start as question marks and go counterclockwise around Figure 2–4 to become stars, then cash cows, and finally dogs. Because an organization has limited influence on the market growth rate, its main objective is to

try to change its relative dollar or unit market share. To do this, management decides what strategic role each SBU should have in the future and either injects cash into or removes cash from it. According to Interbrand, a leading brand management consulting firm, Apple has been consistently cited as one of the top global brands over the past decade in its annual Best Global Brands survey. What has made Apple so iconic is not only its revolutionary products but also its commitment to infusing the “human touch” with its technology such that its customers connect with the brand on both a cognitive and an emotional level.38 Using the BCG business portfolio analysis framework, Figure 2–4 shows that the Apple picture might look this way from 2020 to 2022 for four of its SBUs:39

. . . or its Apple Card financial services? ErickPHOTOPRO/Shutterstock

1.

Apple Card. Apple recently entered the financial services market with its version of a credit card, the Apple Card. The card competes with Citi, Chase, and Capital One credit cards and a wide range of other financial payment technologies such as PayPal, Venmo, and Android Pay. Industry analysts estimate that 6 out of 10 Americans have a credit card and that credit card use has grown by 42 percent in the past seven years. The Apple Card enters the market as a question mark.40

2.

iPhone (smartphone). Apple launched its revolutionary iPhone smartphone in 2007. iPhone unit sales skyrocketed and Apple’s U.S. market share is now greater than 56 percent, exceeding the 24 percent market share of its largest competitor, Samsung. The smartphone market grew at double-digit rates through 2015 and has been slowing in recent years. U.S. and global smartphone sales are expected to grow at 1 to 2 percent through 2022. High market share and high growth suggest that Apple’s iPhone has been a star and may become a cash cow. 41

3.

iPad/iPad mini (tablets). Launched in 2010, iPad unit sales now represent 35

percent market share—leading both Samsung’s (15 percent) and Huawei’s (10 percent). Tablet sales are declining, however, as consumers are substituting bigscreen smartphones and ultra-thin computers for tablets. For Apple, its iPad SBU is a cash cow (high market share in a low-growth market).42 4.

iPod (music player). Apple entered the music player market with its iPod device in 2001. The product became a cultural icon, selling more than 50 million units annually until 2010 when the iPhone integrated a music player. Since 2010, sales have been declining dramatically. In 2014 Apple announced that it was discontinuing the iPod classic, and in 2017 it announced that it was discontinuing the iPod shuffle and nano. Today Apple still sells the iPod touch —although declining sales and discontinued products suggest that this SBU is entering the dog category.43

So, how did you—as Tim Cook—rank the growth opportunity for each of the four SBUs? The Apple Card represents the highest potential growth rate The iPhone SBU is likely to continue growing at 1 to 2 percent, while the iPad and iPod are experiencing a decline in sales. Despite the difference in growth rates, the iPhone and iPad product lines together accounted for 59 percent of Apple’s revenues in 2020. These revenues are used to pursue other growth opportunities such as Apple News, Apple Arcade, Apple HomePod, Apple TV+, Apple Watch, a next-generation phone, AR smart glasses, and possibly an Apple-enabled car. A careful look at many of Apple’s new offerings suggests a shift to services that complement its existing products.44 The primary strength of business portfolio analysis lies in forcing a firm to place each of its SBUs in the growth-share matrix, which in turn suggests which SBUs will be cash producers and cash users in the future. Weaknesses of this analysis arise from the difficulty in (1) getting the needed information and (2) incorporating competitive data into business portfolio analysis.45 page 40

Diversification Analysis Diversification analysis is a technique that helps a firm search for growth opportunities from among current and new markets as well as current and new products. For any market, there is both a current product (what the firm now sells) and a new product (what the firm might sell in the future). And for any product there is both a current market (the firm’s existing customers) and a new market (the firm’s potential customers). As Ben & Jerry’s seeks to increase sales revenues, it considers all four market-product strategies shown in Figure 2–5 :

FIGURE 2–5 Four market-product strategies: Alternative ways to expand sales revenues for Ben & Jerry’s using diversification analysis.

diversification analysis A technique that helps a firm search for growth opportunities from among current and new markets as well as current and new products.

VIDEO 2-4 B&J’s Chocolate Chip Cookie Dough Video kerin.tv/cr9e/v2-4

• Market penetration is a marketing strategy to increase sales of current products in current markets, such as selling more Ben & Jerry’s Chocolate Chip Cookie Dough ice cream to U.S. consumers. There is no change in either the basic product line or the markets served. Increased sales are generated by selling either more ice cream (through better promotion or distribution) or the same amount of ice cream at a higher price to its current customers. • Market development is a marketing strategy to sell current products to new markets. For Ben & Jerry’s, Brazil is an attractive new market. There is good news and bad news for this strategy: As household incomes of Brazilians increase, consumers can buy more ice cream; however, the Ben & Jerry’s brand may be unknown to Brazilian consumers. • Product development is a marketing strategy of selling new products to current markets. Ben & Jerry’s could leverage its brand by selling children’s clothing in the United States. This strategy is risky because Americans may not see the

company’s expertise in ice cream as extending to children’s clothing. • Diversification is a marketing strategy of developing new products and selling them in new markets. This is a potentially high-risk strategy for Ben & Jerry’s if it decides to try to sell Ben & Jerry’s branded clothing in Brazil. Why? Because the firm has neither previous production nor marketing experience from which to draw in marketing clothing to Brazilian consumers. Research shows that senior marketing executives prefer to invest in existing markets and products (market penetration) for growth. The second most preferred strategy is product development, followed by market development and diversification, respectively.46

LEARNING REVIEW 2-5.

What is the difference between a marketing dashboard and a marketing metric?

2-6.

What is business portfolio analysis?

2-7.

Explain the four market-product strategies in diversification analysis. page 41

THE STRATEGIC MARKETING PROCESS LO 2-5 Explain the three steps of the planning phase of the strategic marketing process.

After an organization assesses where it is and where it wants to go, management attention is focused on the strategic marketing process. The strategic marketing process involves the allocation of an organization’s marketing mix resources to reach its target markets and achieve a competitive advantage. The process is guided by underlying principles and is divided into three phases: planning, implementation, and evaluation. strategic marketing process The approach whereby an organization allocates its marketing mix resources to reach its target markets. situation analysis Taking stock of where the firm or product has been recently, where it is now, and where it is headed in terms of the organization’s marketing plans and the external forces and trends affecting it.

SWOT analysis An acronym describing an organization’s appraisal of its internal Strengths and Weaknesses and its external Opportunities and Threats.

Guiding Principles Underlying the Strategic Marketing Process Four guiding principles underlie the strategic marketing process.47 Each principle represents a fundamental assumption about customers, competitors, and organizational resources. They are: 1.

Customers are different. Customers are not alike. Rather, important differences exist and these differences affect how customers respond to different marketing mix elements.

2.

Customers change. Customer preferences, needs, and behavior are not static. Customer preferences, needs, and behavior change over time and due to circumstances and are affected by competitor actions.

3.

Competitors change and react. The sustainability of an organization’s competitive advantage is affected by the conduct of present and future competitors and how they react to an organization’s actions.

4.

Organizational resources are limited. No organization has unlimited human, technological, and financial resources. Trade-offs have to be made when capitalizing on organizational opportunities and overcoming threats to their performance.

These principles are central to the concepts, techniques, and tools applied in each phase of the strategic marketing process. The Planning Phase of the Strategic Marketing Process The three steps in the planning phase of the strategic marketing process include (1) conduct a situation (SWOT) analysis; (2) develop a market-product focus, customer value proposition, and goals; and (3) design the marketing program. Planning Phase Step 1: Conduct a Situation (SWOT) Analysis The essence of situation analysis is taking stock of where the firm or product has been recently, where it is now, and where it is headed in terms of the organization’s marketing plans and the external forces and trends affecting it. An effective summary of a situation analysis is a SWOT analysis, an acronym describing an organization’s appraisal of its internal Strengths and Weaknesses and its external Opportunities and Threats. The SWOT analysis is based on an exhaustive study of four areas that form the foundation upon which the firm builds its marketing program: • Identify changes and trends in the organization’s industry.

• Analyze the organization’s current and potential competitors. • Assess the organization itself, including available resources. • Research the organization’s present and prospective customers.

How can Ben & Jerry’s develop new products and social responsibility programs that contribute to its mission? The text describes how the strategic marketing process and its SWOT analysis can help. Source: Ben & Jerry’s Homemade, Inc.

Assume you are responsible for doing the SWOT analysis for Ben & page 42 Jerry’s shown in Figure 2–6. Note that the SWOT table has four cells formed by the combination of internal versus external factors (the rows) and favorable versus unfavorable factors (the columns) that identify Ben & Jerry’s strengths, weaknesses, opportunities, and threats.

FIGURE 2–6 Ben & Jerry’s: A SWOT analysis to keep it growing. The picture painted in this SWOT analysis is the basis for management actions.

The task is to translate the results of the SWOT analysis into specific marketing actions that will help the firm grow. The ultimate goal is to identify the critical strategy-related factors that impact the firm and then build on vital strengths, correct glaring weaknesses, exploit significant opportunities, and avoid disaster-laden threats. The Ben & Jerry’s SWOT analysis in Figure 2–6 can be the basis for these kinds of specific marketing actions. An action in each of the four cells might be: • Build on a strength. Find specific efficiencies in distribution with parent company Unilever’s existing ice cream brands. • Correct a weakness. Recruit experienced managers from other consumer product firms to help stimulate growth. • Exploit an opportunity. Develop new flavors of nondairy frozen desserts to respond to changes in consumer tastes. • Avoid a disaster-laden threat. Focus on less risky international markets, such as Brazil and Argentina. Planning Phase Step 2: Develop a Market-Product Focus, Customer Value

Proposition, and Goals Determining what products will be directed toward which customers is essential for designing an effective marketing program (Step 3). This decision is often based on market segmentation, which involves aggregating prospective buyers into groups, or segments, that (1) have common needs and (2) will respond similarly to a marketing action. This enables an organization to tailor specific marketing programs for its target market segments. market segmentation Involves aggregating prospective buyers into groups, or segments, that (1) have common needs and (2) will respond similarly to a marketing action. customer value proposition The cluster of benefits that an organization promises customers to satisfy their needs.

Step 2 also involves developing a clear customer value proposition, which is a cluster of benefits that an organization promises customers (or segments) to satisfy their needs. An effective customer value proposition is a formal statement that meets three criteria. First, it is relevant. That is, it describes how an organization’s products solve a customer (segment) problem or improve their situation. Second, it details specific benefits in clear terms. Finally, it states why targeted customers, or customer segments, should purchase your products and not your competitor’s offerings. This comparison is often called points of difference, or those characteristics of a product or service that make it superior to competitive substitutes. The value proposition allows an organization to specify meaningful and measurable marketing goals to be achieved. points of difference Those characteristics of a product that make it superior to competitive substitutes.

What does a customer value proposition look like? Consider IKEA, the page 43 world’s largest home furnishings retailer. Its customer value proposition promises customers (1) a wide range of well-designed, ready-to-assemble, functional home furnishings at low prices; (2) a favorable and consistent shopping and buying experience in its stores, online, and from its catalogs; and (3) uniformity in product selection and quality workmanship across countries. It should not be surprising that IKEA’s customer value proposition reflects the company’s organizational values described earlier. Goal setting completes Step 2. An organization can pursue a variety of goals as previously described. Importantly, the goal(s) set provides the basis for a marketing program.

Planning Phase Step 3: Design a Marketing Program Activities in Step 2 tell the marketing manager which customers to target and which customer needs the firm’s product offerings can satisfy—the who and what aspects of the strategic marketing process. The how aspect—this step in the planning phase—involves designing the marketing program and mix (the four Ps) and its budget. Figure 2–7 shows that each marketing mix element is combined to provide a cohesive marketing program.

FIGURE 2–7 The four Ps elements of the marketing mix must be blended to produce a cohesive marketing program.

Putting a marketing program into effect requires that the firm commit time and money to it in the form of a sales forecast (see Chapter 7) and budget that must be approved by top management.

LEARNING REVIEW 2-8. 2-9.

What are the three steps of the planning phase of the strategic marketing process? What is a customer value proposition?

The Implementation Phase of the Strategic Marketing Process

page 44

LO 2-6 Describe the four components of the implementation phase of the strategic marketing process.

The result of the hours spent in the planning phase of the strategic marketing process is the firm’s marketing plan. Implementation, the second phase of the strategic marketing process, involves carrying out the marketing plan that emerges from the planning phase. If the firm cannot execute the marketing plan—in the implementation phase—the planning phase has been a waste of time and resources. There are four components of the implementation phase: (1) obtaining resources; (2) designing the marketing organization; (3) defining precise tasks, responsibilities, and deadlines; and (4) actually executing the marketing program designed in the planning phase. Obtaining Resources A key task in the implementation phase of the strategic marketing process is obtaining and assembling sufficient human and financial resources to execute the marketing program successfully. Small business owners often obtain funds from savings, family, friends, and bank loans. Marketing managers in existing organizations obtain these resources by getting top management to assign managerial talent and invest financial resources through approved marketing budgets. Designing the Marketing Organization A marketing program needs a marketing organization to implement it. Figure 2–8 shows the organization chart of a typical manufacturing firm, giving some details of the marketing department’s structure. Four managers of marketing activities are shown to report to the chief marketing officer or CMO. Sales representatives report to the manager of sales, possibly through several regional sales managers and an international sales manager based on the size of the salesforce. The product or brand managers and their subordinates help plan, implement, and evaluate the marketing plans for their offerings. However, the entire marketing organization is responsible for converting these marketing plans into realistic marketing actions.

FIGURE 2–8 Organization of a typical manufacturing firm, showing a breakdown of the marketing department.

Defining Precise Tasks, Responsibilities, and Deadlines Successful implementation requires that team members know the tasks for which they are responsible and the deadlines for completing them. Scheduling activities can be done efficiently with a Gantt chart, which is a graph of a program schedule. Figure 2–9 shows a Gantt chart—invented by Henry L. Gantt—used to schedule tasks involved in the strategic marketing process, demonstrating how the concurrent work on several tasks enables team members to deliver an executable marketing program on time. Software applications such as Microsoft Project simplify the task of developing a program schedule or Gantt chart.

FIGURE 2–9 This Gantt chart shows how tasks are scheduled to complete the strategic marketing process on time.

Central features of a Gantt chart include: (1) the task, (2) the person or page 45 people responsible for completing the task, (3) the date to finish the task, and (4) what is to be delivered. In this example, the people involved include the chief marketing officer (CMO); chief financial officer (CFO); marketing research (MR) staff; product managers (PMs); sales professionals (SMs); and advertising, promotion, and social media specialists (APSMs). The key to all scheduling techniques is to distinguish tasks that must be done sequentially from those that can be done concurrently. For example, Tasks 6 and 7 in Figure 2–9 must be done sequentially. This is because the marketing team must get formal top management approval (Task 6) before it can finalize the marketing mix program (Task 7). In contrast, Tasks 3 and 4 can be done somewhat concurrently because the choice of marketing mix program elements overlaps with market segmentation and consumer value proposition determination. Executing the Marketing Program Marketing plans are meaningless without effective execution of those plans. This requires attention to detail for both marketing strategies and marketing tactics. A marketing strategy is the means by which a marketing goal is to be achieved, usually characterized by a specified target market and a marketing program to reach it. The term implies both the end sought (target market) and the means or actions to achieve it (marketing program).

marketing strategy The means by which a marketing goal is to be achieved, usually characterized by a specified target market and a marketing program to reach it. marketing tactics The detailed day-to-day operational marketing actions for each element of the marketing mix that contribute to the overall success of marketing strategies.

To implement a marketing program successfully, hundreds of detailed decisions are often required to develop the actions that comprise a marketing program for an offering. These actions, called marketing tactics, are detailed day-to-day operational marketing actions for each element of the marketing mix that contribute to the overall success of marketing strategies. Writing ads, setting a temporary price discount for a product, and offering a “two for one” promotion are examples of marketing tactics. The Evaluation Phase of the Strategic Marketing Process

page 46

LO 2-7 Discuss how managers identify and act on deviations from plans.

The evaluation phase of the strategic marketing process seeks to keep the marketing program moving in the direction set for it. Accomplishing this requires the marketing manager to (1) compare the results of the marketing program with the goals in the written plans to identify the presence and causes of deviations using marketing metrics and (2) act on these deviations—exploiting positive deviations and correcting negative ones. Comparing Results with Plans to Identify Deviations At the end of its fiscal year, which is September 30, Apple begins the evaluation phase of its strategic marketing process. Suppose you are on an Apple task force in 2009 that is responsible for making plans through 2019. You observe that extending the 2004–2009 trend of Apple’s recent sales revenues (line AB in Figure 2–10) to 2019 along line BC shows an annual growth in sales revenue unacceptable to Apple’s management.

FIGURE 2–10 The evaluation phase of the strategic marketing process requires that the organization compare actual results with goals to identify and act on deviations to fill in its “planning gap.” The text describes how Apple is working to fill in its planning gap. Computer: Manaemedia/Shutterstock

Looking at potential new products in the Apple pipeline, your task force sets an aggressive annual sales growth target of 25 percent per year—line BD in Figure 2– 10. This would give sales revenues of $130 billion in 2014 and $394 billion in 2019. This reveals a white wedge-shaped gap DBC in the figure. Planners call this the planning gap, the difference between the projection of the path to reach a new sales revenue goal (line BD) and the projection of the path of a plan already in place (line BC). The ultimate purpose of the firm’s marketing program is to “fill in” this planning gap—in the case of your Apple task force, to move its future sales revenue line from the slow-growth line BC up to the more challenging target of line BD. This is the essence of evaluation: comparing actual results with goals set. To

reach aggressive growth targets in sales revenues, firms like Apple must continuously look for a new BCG SBU or product cash cow or star. page 47

Acting on Deviations When evaluation shows that actual performance differs from expectations, managers need to take immediate marketing actions— exploiting positive deviations and correcting negative ones. Comparing Apple’s actual sales revenues from 2009 to 2019 (line BE in Figure 2–10) to its target sales revenues (line BD) shows Apple’s initial ability to generate consumer demand that exceeded its targets, and more recently, sales that did not meet its targets. Let’s consider some of its marketing actions: • Exploiting a positive deviation. Favorable customer reactions to Apple’s iPhone (2007) and its iPad (2010) enable it to sell the products globally and to introduce improved versions and models, such as the iPhone 12 (2020) and the iPad Pro (2020). Success of new versions and models also enables the introduction of new products such as the Apple Watch (2015), Apple AirPods (2016), the HomePod (2018), Apple News (2019), and AirTags (2020). • Correcting a negative deviation. As Apple’s desktop PCs became dated, it moved aggressively to replace them with new iMacs and MacBooks. Also, Apple refreshed its MacBook Air (2015, 2017, 2019) and MacBook Pro (2016, 2017, 2019) lines of laptops. Similarly, as demand for tablets declined, Apple introduced next-generation versions of Apple Watch (2020), iPad Air (2019), and iPad mini (2019). As we saw earlier in the BCG business portfolio analysis of the four Apple product lines, the firm has several stars and cash cows to fill in its planning gap. We shall explore Apple’s market-product strategies in more detail later in Chapters 8 and 9. Pulling It All Together Figure 2–11 summarizes the strategic marketing process along with pertinent marketing actions and information. While the process appears simple, it is very complex in detail. For example, feedback loops that highlight the importance of identifying and taking correction actions throughout the process attest to the fluidity of the process.

FIGURE 2–11 The phases in the strategic marketing process contain specific actions and information. page 48

LEARNING REVIEW 2-10.

What is the implementation phase of the strategic marketing process?

2-11.

How do the goals set for a marketing program in the planning phase relate to the evaluation phase of the strategic marketing process?

LEARNING OBJECTIVES REVIEW LO 2-1 Describe three kinds of organizations and the three levels of strategy in them. An organization is a legal entity that consists of people who share a common mission. It develops offerings (goods, services, or ideas) that create value for both the organization and its customers by satisfying their needs and wants. Today’s organizations are of three types: for-profit organizations, nonprofit organizations, and government agencies. A for-profit organization serves its customers to earn a profit so that it can survive. Profit is the money left after a

for-profit organization subtracts its expenses from its total revenues and is the reward for the risk it undertakes in marketing its offerings. A nonprofit organization is a nongovernmental organization that serves its customers but does not have profit as an organizational goal. Instead, its goals may be operational efficiency or client satisfaction. A government agency is a federal, state, county, or city unit that provides a specific service to its constituents. Most large for-profit and nonprofit organizations are divided into three levels of strategy: (a) the corporate level, where top management directs overall strategy for the entire organization; (b) the strategic business unit level, where managers set a more specific strategic direction for their businesses to exploit valuecreating opportunities; and (c) the functional level, where groups of specialists actually create value for the organization. LO 2-2 Describe core values, mission, organizational culture, business, and goals. Organizations exist to accomplish something for someone. To give organizations direction and focus, they continuously assess their core values, mission, organizational culture, business, and goals. Today’s organizations specify their foundation, set a direction, and formulate strategies—the “why,” “what,” and “how” factors, respectively. Core values are the organization’s fundamental, passionate, and enduring principles that guide its conduct over time. The organization’s mission is a statement of its function in society, often identifying its customers, markets, products, and technologies. Organizational culture is a set of values, ideas, attitudes, and norms of behavior that is learned and shared among the members of an organization. To answer the question “What business are we in?” an organization defines its “business” as the clear, broad, underlying industry category or market sector of its offering. The organization’s goals (or objectives) are statements of an accomplishment of a task to be achieved, often by a specific time. Finally, organizational strategies vary by level in the organization and by product. The strategies are often described in a marketing plan. LO 2-3 Explain why managers use marketing dashboards and marketing metrics. Marketing managers use marketing dashboards to visually display the essential information related to achieving a marketing objective. This information consists of key performance measures of a product category, such as sales or market share, known as marketing metrics, which are a measure of the quantitative value or trend of marketing actions or results. Today’s marketers use data visualization to present marketing metrics graphically so they can spot deviations from plans and take corrective actions.

LO 2-4 Discuss how an organization assesses where it is now and where it seeks to be. Managers of an organization ask two key questions to set a strategic direction. The first question, “Where are we now?,” requires an organization to (a) assess its core competencies to understand how its special capabilities provide a competitive advantage; (b) identify its customers and how they receive genuine value and have a satisfying experience; and (c) analyze its competitors from a global perspective to determine the distinctions among them. The second question, “Where do we want to go?,” requires an organization to set a specific direction and allocate resources to move it in that direction. Business portfolio analysis and diversification analysis help an organization do this. Managers use business portfolio analysis to assess the organization’s strategic business units (SBUs), product lines, or individual products as though they were a collection of separate investments (cash cows, stars, question marks, and dogs) to determine the amount of cash each should receive. Diversification analysis is a technique that helps a firm search for growth opportunities from among four strategies: market penetration (selling more of current products to current markets); market development (selling current products to new markets); product development (selling new products to current markets); and diversification (selling new products to new markets). LO 2-5 Explain the three steps of the planning phase of the strategic marketing process. An organization uses the strategic marketing process to allocate its marketing mix resources to reach its target markets and achieve a competitive advantage. This process is divided into three phases: planning, implementation, and evaluation. The planning phase consists of (a) a situation (SWOT) analysis, which involves taking stock of where the firm or product has been recently, where it is now, and where it is headed and focuses on the organization’s internal factors (strengths and weaknesses) and the external forces and trends affecting it (opportunities and threats); (b) a market-product focus through market segmentation (grouping buyers into segments with common needs and similar responses to marketing programs) and customer value proposition, which in part requires identifying points of difference (those characteristics of a product that make it superior to competitive substitutes); and (c) a marketing program that specifies the budget and actions (marketing strategies and tactics) for each marketing mix element. LO 2-6 Describe the four components of the implementation phase of page 49 the strategic marketing process. The implementation phase of the strategic marketing process carries out the

marketing plan that emerges from the planning phase. It has four key components: (a) obtaining resources; (b) designing the marketing organization to perform product management, marketing research, sales, and advertising and promotion activities; (c) developing schedules to identify the tasks that need to be done, the time that is allocated to each one, the people responsible for each task, and the deadlines for each task—often with an action item list and Gantt chart; and (d) executing the marketing strategies, which are the means by which marketing goals are to be achieved, and their associated marketing tactics, which are the detailed day-to-day marketing actions for each element of the marketing mix that contribute to the overall success of a firm’s marketing strategies. These are the marketing program actions a firm takes to achieve the goals set forth in its marketing plan. LO 2-7 Discuss how managers identify and act on deviations from plans. The evaluation phase of the strategic marketing process seeks to keep the marketing program moving in the direction that was established in the marketing plan. This requires the marketing manager to compare the results from the marketing program with the marketing plan’s goals to (a) identify deviations or “planning gaps” and (b) take corrective actions to exploit positive deviations or correct negative ones.

LEARNING REVIEW ANSWERS 2-1

What is the difference between a for-profit and a nonprofit organization? Answer: A for-profit organization is a privately owned organization that serves its customers to earn a profit so that it can survive. A nonprofit organization is a nongovernmental organization that serves its customers but does not have profit as an organizational goal. Instead, its goals may be operational efficiency or client satisfaction.

2-2

What are examples of a functional level in an organization? Answer: The functional level in an organization is where groups of specialists from the marketing, finance, manufacturing/operations, accounting, information systems, research and development, and/or human resources departments focus on a specific strategic direction to create value for the organization.

2-3

What is the meaning of an organization’s mission? Answer: A mission is a clear, concise, meaningful, inspirational, and longterm statement of the organization’s function in society, often identifying its customers, markets, products, and technologies. It is often used interchangeably with vision.

2-4

What is the difference between an organization’s business and its goals? Answer: An organization’s business describes the clear, broad, underlying industry or market sector of an organization’s offering. An organization’s goals (or objectives) are statements of an accomplishment of a task to be achieved, often by a specific time. Goals convert an organization’s mission and business into long- and short-term performance targets to measure how well it is doing.

2-5

What is the difference between a marketing dashboard and a marketing metric? Answer: A marketing dashboard is the visual display of the essential information related to achieving a marketing objective. Each variable displayed in a marketing dashboard is a marketing metric, which is a measure of the quantitative value or trend of a marketing action or result.

2-6

What is business portfolio analysis? Answer: Business portfolio analysis is a technique that managers use to quantify performance measures and growth targets to analyze their firms’ SBUs as though they were a collection of separate investments. The purpose of this tool is to determine which SBU or offering generates cash and which one requires cash to fund the organization’s growth opportunities.

2-7

Explain the four market-product strategies in diversification analysis. Answer: The four market-product strategies in diversification analysis are: (1) Market penetration, which is a marketing strategy to increase sales of current products in current markets. There is no change in either the basic product line or the markets served. Rather, selling more of the product or selling the product at a higher price generates increased sales. (2) Market development, which is a marketing strategy to sell current products to new markets. (3) Product development, which is a marketing strategy of selling new products to current markets. (4) Diversification, which is a marketing strategy of developing new products and selling them in new markets. This

is a potentially high-risk strategy because the firm has neither previous production nor marketing experience on which to draw in marketing a new product to a new market. 2-8

What are the three steps of the planning phase of the strategic marketing process? Answer: The three steps of the planning phase of the strategic marketing process are: (1) Conducting a situation analysis, which involves taking stock of where the firm or product has been recently, where it is now, and where it is headed in terms of the organization’s marketing plans and the external forces and trends affecting it. To do this, an organization uses a SWOT analysis, an acronym that describes an organization’s appraisal of its internal S trengths and W eaknesses and its external O pportunities and T hreats. (2) Developing a market-product focus and customer value proposition, which determine what products an organization will offer to which customers. This is often based on market segmentation— aggregating prospective buyers into groups or segments that have common needs and will respond similarly to a marketing action—and crafting a customer value proposition. (3) Designing a marketing program, which is where an organization develops the marketing mix elements and budget for each offering.

2-9

What is a customer value proposition?

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Answer: A customer value proposition is a cluster of benefits that an organization promises customers (or segments) to satisfy their needs. 2-10

What is the implementation phase of the strategic marketing process? Answer: The implementation phase carries out the marketing plan that emerges from the planning phase and consists of (1) obtaining resources; (2) designing the marketing organization; (3) defining precise tasks, responsibilities, and deadlines; and (4) executing the marketing program designed in the planning phase.

2-11

How do the goals set for a marketing program in the planning phase relate to the evaluation phase of the strategic marketing process? Answer: The planning phase goals or objectives are used as the benchmarks with which the actual performance results are compared in the evaluation phase to identify deviations from the written marketing plans and to act on those deviations—exploiting positive ones and correcting negative ones.

FOCUSING ON KEY TERMS business p. 33 business portfolio analysis p. 37 core values p. 32 customer value proposition p. 42 diversification analysis p. 40 goals (objectives) p. 33 market segmentation p. 42 market share p. 33 marketing dashboard p. 34 marketing metric p. 35 marketing plan p. 34 marketing strategy p. 45 marketing tactics p. 45 mission p. 32 objectives (goals) p. 33 organizational culture p. 32 organizational purpose p. 31 points of difference p. 43 profit p. 28 situation analysis p. 41 strategic marketing process p. 41 strategy p. 29 SWOT analysis p. 41

APPLYING MARKETING KNOWLEDGE 1 (a) Using Netflix as an example, explain how a mission statement gives it a strategic direction. (b) Create a mission statement for your own career. 2 What competencies best describe (a) your college or university and (b) your favorite restaurant? 3 Compare the advantages and disadvantages of Ben & Jerry’s attempting to

expand sales revenues by using (a) a product development strategy or (b) a market development strategy. 4 Select one strength, one weakness, one opportunity, and one threat from the Ben & Jerry’s SWOT analysis shown in Figure 2–6. Suggest an action that a Ben & Jerry’s marketing manager might take to address each factor. 5 What is the main result of each of the three phases of the strategic marketing process? (a) planning, (b) implementation, and (c) evaluation. 6 Parts of Tasks 4 and 5 in Figure 2–9 are done both concurrently and sequentially. (a) How can this be? (b) How does it help the team members meet the project deadline? (c) What is the main advantage of scheduling tasks concurrently rather than sequentially? 7 The goal-setting step in the planning phase of the strategic marketing process sets quantified objectives for use in the evaluation phase. What does a manager do if measured results fail to meet objectives? Exceed objectives?

BUILDING YOUR MARKETING PLAN 1 Read Appendix A, “Building an Effective Marketing Plan.” Then write a 600-word executive summary for the Paradise Kitchens marketing plan using the numbered headings shown in the plan. When you have completed the draft of your own marketing plan, write a 600-word executive summary to go in the front of your own marketing plan. 2 Using this chapter and Appendix A as guides, focus your marketing plan by (a) writing your mission statement in 25 words or less, (b) listing three nonfinancial goals and three financial goals, (c) writing your competitive advantage in 35 words or less, and (d) creating a SWOT analysis table. 3 Draw a simple organization chart for your organization. page 51

VIDEO CASE 2 IBM: Putting Smart Strategy to Work VIDEO 2-5 IBM Video Case

kerin.tv/cr9e/v2-5

Businesses of the world are changing the way they work and IBM has a strategy to help them. Ann Rubin, vice president of corporate marketing at IBM, explains: “IBM is in a constant state of innovation, preparing for a world that is infused with digital intelligence and a world where humans and machines work side-by-side to do things that humans simply cannot do alone.” “‘Let’s Put Smart To Work’ is our new brand platform,” she continues, but “it’s not just advertising, it’s bigger than that. ‘Let’s Put Smart To Work’ is an invitation. We’re asking clients and partners to work with us to put smart to work to use innovative technologies to change businesses and industries and organizations.” THE NEW IBM IBM has a hundred-plus-year history of innovation. Since its early days as the Tabulating Machine Company, IBM has gone through many dramatic transformations. The company shifted from tabulation machines, to typewriters, to computers, to business services and consulting, to artificial intelligence in response to changes in technology, the global economy, and business practices. Along the way IBM developed several well-known products such as the automated teller machine (ATM), the hard disk drive, the magnetic stripe card, and the Universal Product Code (UPC). In addition, researchers at the company won four Nobel Prizes and six Turing Awards for contributions of lasting and major technical importance to the computer field. IBM is in the top 25 of the world’s most valuable brands and in the top 35 of the world’s most admired companies. Today IBM has $77 billion in sales and 352,000 employees, is ranked 38th on the Fortune 500, and is viewed as a cognitive solutions and cloud platform company. According to CEO Arvind Krishna, “IBM is an innovation powerhouse. If you look at all the tectonic forces shaping the future of technology—cloud, AI, blockchain and quantum— IBM is leading on all fronts.”

Rvlsoft/Shutterstock

Strategy Based on Values The forward-looking, visionary strategy at IBM is built on core values that are the fundamental, passionate, and enduring principles guiding its conduct. To articulate those values IBM held a global discussion event, called ValuesJam, among more

than 50,000 employees. The results were three underlying values of IBM’s business practices. Teresa Yoo, vice president of brand strategy and experience design, explains the outcome: “We weren’t founded on or defined by a particular product or even a particular leader. It was what we believed and valued in the world, and what drove the decisions about everything that we do. So, those values have evolved over time and remain at the core of what we do. They are (1) a dedication to every client’s success, (2) innovation that matters for our company and for the world, and (3) trust and personal responsibility in all our relationships.” The values influence IBM’s use of strategic tools, such as portfolio analysis and SWOT analysis, in its assessment of marketplace opportunities around the globe. According to Rubin, “Using methodologies like business portfolio analysis is really important because you need to understand the opportunities in every country that you are going to and what is going to drive business in a certain area.” The analysis “helps figure out what the revenue opportunity is and the growth opportunity for every one of our products in every one of our countries,” she continues. Similarly, Teresa Yoo explains that “we use SWOT analysis when we’re putting together a strategy for a particular brand we’re building or a particular portfolio or product set. It makes a difference when you’re trying to figure out what your value proposition is and you need to look at where you really stand in order to create a great strategy.” The analysis indicates fundamental changes in the business environment. IBM believes that in the near future businesses will need enterprise-strength cloud capabilities, artificial intelligence that is capable of analyzing all company and consumer data, industry-specific consulting services, and advanced cybersecurity. “Our brand strategy is to help IBM be easier to understand, consume, and navigate,” says Yoo. “We have hundreds of products that span the whole gamut of what we do, from services to AI to cloud to research to security. So we have really focused around a few core brands that we want to be known for. They are IBM Watson for AI, IBM Cloud, IBM Security, IBM Services, and IBM Research.” Overall, IBM sees these brands as the key to helping businesses become smarter businesses. In a letter to IBM shareholders, former CEO Virginia Rometty described the trend toward smarter businesses as an “inflection point.” She observed that (1) businesses are becoming smarter by leveraging intelligent digital platforms, (2) businesses are becoming smarter by making their systems and processes intelligent, and (3) businesses are becoming smarter by embedding AI and data to change how work is done, equipping themselves for an era of man + machine. The insights about the changes in businesses have led to IBM’s strategy called “Let’s Put Smart To Work.” page 52

The “Let’s Put Smart To Work” Strategy The “Let’s Put Smart To Work” initiative was launched at IBM’s annual conference, called IBM Think, at which partners, clients, industry representatives, and technology leaders meet to share information about the changing business environment and business needs. IBM seeks to be an “incumbent disruptor” as it continues its transformation to the new world of enterprise technology. “The evolution of ‘Let’s Put Smart To Work’ is the result of technologies that are fundamentally different today. They are amazing. And we are directing them more specifically to business applications,” explains Yoo. We can tell clients “so let’s really put it to work in your business to accomplish whatever it is that you need to get done,” she adds. The strategy touches every aspect of IBM. “‘Let’s Put Smart To Work’ is our rallying cry or call to action to partner with clients and to make the world a better place and to make businesses smarter,” says Rubin. “IBM and our clients are putting smart to work across every industry,” she adds. Industries where IBM is assisting businesses include agriculture, automotive, aviation, banking, health care, insurance, oil and gas, retail, and utilities. For example, in agriculture IBM’s Watson analyzes temperature, soil pH, and other environmental factors to help farmers improve their harvest yields. In the automotive industry IBM technologies are helping combine data from IoT (Internet of Things) sensors to create better experiences for drivers in intelligent vehicles. Health care scientists are using IBM artificial intelligence to help accelerate research and find new uses for existing drugs. And in South Africa, IoT sensors are being used to monitor animal movements to help reduce rhinoceros poaching.

Source: IBM Corporation

Marketing “Let’s Put Smart To Work” The IBM marketing organization includes thousands of marketing professionals located in hundreds of countries. They are all adopting an approach they call “agile

marketing,” which is based on improvisation, testing and data, and collaboration, and which results in speed, adaptability, and creativity. “At IBM we use agile practices, agile methodologies,” says Rubin. “It’s the way that you best collaborate and the way that you best iterate and the way that you best create programs and products to move forward,” she adds. The general strategy and the specific elements of the agile marketing approach all come together in a marketing plan. Rubin explains, “Everything is grounded in the marketing plan, in fact, everything is grounded in our overall corporate strategy and our values, and our strategic priorities.” The marketing plan includes a variety of marketing tools. “Our marketing plan leverages all kinds of elements from traditional to emerging technologies and emerging platforms. We use traditional advertising like TV and radio and print but we have to really understand how our clients consume media,” says Rubin. For example, IBM customers tend to travel a lot so IBM places a lot of out-of-home advertising in airports. Digital advertising and social media are also part of the marketing plan. “The important thing about social [media] is understanding that every platform is different. You can’t just take your TV spot and run it on Facebook and LinkedIn and Twitter and Instagram and think it’s going to work. The more you look at the metrics and the data and the analytics, the more you learn those things. Then you uncover the insights and you can create the right content for the right platform,” Rubin explains. Events are also a very important part of the marketing plan. The reason, Rubin continues, is that “it’s hard to touch and feel our products so it’s really important for our audience to engage with IBMers.” The events give IBM managers an opportunity to engage one-on-one with their clients. Similarly, IBM sponsors events such as the Masters golf tournament, the US Open, many tennis tournaments around the world, and the Grammys, the Oscars, and the Tony Awards. The reason, explains Yoo, is “the clients we are targeting tend to watch and go to those events” and the events are “an opportunity to make the technology we provide easier to understand.” The “Smart” Future

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Innovative technologies and changing businesses have created an exciting combination for IBM’s latest transformation. Ann Rubin describes the excitement in this way: “I feel like I have the best job in IBM and frankly one of the best jobs in the marketing industry overall. The marketing industry is changing every day, so you need to keep up, but it’s so exiting, there’s just nothing boring about it!” So what will the future bring? Teresa Yoo’s advice is, “Keep your eyes on IBM, we’re working on some incredible things that are going to change the world!”48

Questions 1 What is IBM’s “Let’s Put Smart To Work” strategy? 2 How does this strategy relate to IBM’s values? 3 Conduct a SWOT analysis for IBM’s “Let’s Put Smart To Work” initiative. What are the relevant trends to consider? 4 What marketing tools described in this chapter are prominent in IBM’s strategic marketing process? 5 What is “agile” marketing at IBM? Why does IBM use the agile approach? Chapter Notes 1.

Ben & Jerry’s, “Our Values,” www.benjerry.com/values, accessed March 23, 2019; and “Ice Cream History Revealed! What Was Ben & Jerry’s First Ice Cream Flavor?,” Business Wire, November 15, 2011, www.businesswire.com/news/home/20111115007275/en/Ice-Cream-HistoryRevealed!-Ben-Jerry%E2%80%99s-Ice#.VR8B7J50yM8.

2.

“The Final Straw for Ben & Jerry’s,” Waste360, January 30, 2019, p. 1; Vanessa Fuhrmans, “New CEO at Ben & Jerry’s Plans to Whip Up Activism,” The Wall Street Journal, August 15, 2018, www.wsj.com ; Mahita Gajanan, “You Can Get Unlimited Free Ben & Jerry’s Ice Cream Tuesday for Free Cone Day,” Fortune, April 10, 2018, fortune.com; Nick Craig and Scott Snook, “From Purpose to Impact,” Harvard Business Review, May 2014, pp. 105–11; and Joe Van Brussel, “Ben & Jerry’s Becomes B-Corp Certified, Adds Credibility to Impact Investing Movement,” HuffPost: Business, October 23, 2012.

3.

“Size of the Global Ice Cream Market from 2013 to 2024,” Statista, 2019; Madison Flager, “Ben & Jerry’s Added Two New Vegan Flavors to Its DairyFree Line-up,” Delish, February 19, 2019, www.delish.com ; and Ben & Jerry’s, “8 Ice Cream and Beer Pairings Perfect for St. Patrick’s Day,” March 14, 2019, www.benjerry.com/whats-new.

4.

Roger A. Kerin and Robert A. Peterson, Strategic Marketing Problems: Cases and Comments, 13th ed. (Upper Saddle River, NJ: Prentice Hall, 2013), p. 140.

5.

Steven Beroni and Alexandra Wilson, eds., “30 Under 30 Social Entrepreneurs,” Forbes, November 30, 2018, p. 99; Tori Utley, “Can Business Change the World? This Filmmaker Says Yes—through Social Entrepreneurship,” Forbes, February 28, 2018, www.forbes.com ; and Teach For America, www.teachforamerica.org.

6.

For a discussion of how industries are defined and offerings are classified, see the Census Bureau’s Economic Classification Policy Committee Issues Paper #1 (www.census.gov/eos/www/naics/history/docs/issue_paper_1.pdf), which aggregates industries in the NAICS from a “production-oriented” view; see also the American Marketing Association definition at www.ama.org/resources/Pages/Dictionary.aspx?dLetter=I.

7.

W. Chan Kim and Reneé Mauborgne, “Blue Ocean Strategy: From Theory to Practice,” California Management Review 47, no. 3 (Spring 2005), p. 105; and Michael E. Porter, “What Is Strategy?,” Harvard Business Review, November– December 1996, p. 2.

8.

The definition of strategy reflects thoughts appearing in Porter, “What Is Strategy?,” pp. 4, 8; a condensed definition of strategy is found on the American Marketing Association website, www.ama.org/resources/Pages/Dictionary.aspx? dLetter=S ; Gerry Johnson, Kevan Scholes, and Richard Whittington, Exploring Corporate Strategy (Upper Saddle River, NJ: Prentice Hall, 2005), p. 10; and Costas Markides, “What Is Strategy and How Do You Know If You Have One?,” Business Strategy Review 15, no. 2 (Summer 2004), p. 5.

9.

“The Vanishing CMO,” Ad Age, July 15, 2019, pp. 22–23; Hal Conick, “The Evolution and Awakening of the Modern CMO,” Marketing News, March 2017, pp. 28–37; and Roger A. Kerin, “Strategic Marketing and the CMO,” Journal of Marketing, October 2005, pp. 12–13.

10. Taken in part from Jim Collins and Morten T. Hansen, Great by Choice (New York: HarperCollins, 2011); Jim Collins and Jerry I. Porras, Built to Last: Successful Habits of Visionary Companies (New York: HarperCollins, 2002), p. 54; and Steve Hemsley, “How to Build a Visionary Company,” Marketing Week, July 23, 2015, p. 1. 11. Clifton Leaf, “Mission Possible,” Fortune, February 2020, pp. 8–10. 12. George Serafeim, “What Mark Zuckerberg Understands about Corporate Purpose,” Harvard Business Review, February 22, 2017, hbr.org. 13. Jim Hemerling, Brad White, Jon Swan, et al., “For Corporate Purpose to Matter, You’ve Got to Measure It,” Boston Consulting Group, August 16, 2018, www.bcg.com ; and Cadence Bambenek, “Tim Cook’s Mission of Making Tech to ‘Lift Humanity’ Fills an Important Void Left by Steve Jobs,” Business Insider, June 13, 2016. 14. Sally Blount and Paul Leinwand, “ Why Are We Here?,” Harvard Business Review, November–December 2019, pp. 132–39. 15. IKEA,

www.ikea.com/ms/en_US/the_ikea_story/working_at_ikea/our_values.html. 16. Jim Collins and Jerry I. Porras, Built to Last: Successful Habits of Visionary Companies (New York: HarperCollins, 2002), pp. 94–95; and Tom Krattenmaker, “Write a Mission Statement That Your Company Is Willing to Live,” Harvard Management Communication Letter, March 2002, pp. 3–4. 17. Southwest Airlines, “About Southwest,” www.southwest.com/html/aboutsouthwest /, accessed April 13, 2019. 18. American Red Cross, “Mission & Values,” www.redcross.org/about-us/who-weare/mission-and-values.html, accessed April 13, 2019. 19. Mission statement of Federal Trade Commission, see www.ftc.gov/about-ftc. 20. Adi Ignatius, “Profit and Purpose,” Harvard Business Review, March–April 2019, p. 10; and Julie Battilana, Anne-Claire Pache, Metin Sengul, et al., “The Dual-Purpose Playbook,” Harvard Business Review, March–April 2019, pp. 125–33. 21. Amy Gallo, “A Refresher on Marketing Myopia,” Harvard Business Review, August 22, 2016, pp. 2–5; and Theodore Levitt, “Marketing Myopia,” Harvard Business Review, July–August 1960, pp. 45–56. 22. Stelios Kavadias, Kostas Ladas, and Christoph Loch, “The Transformative Business Model,” Harvard Business Review, October 2016, pp. 90–98; Dan Radak, “Breaking Down the Netflix Business Model: The History and the Future of the VOD Giant,” Business 2 Community, July 1, 2016; and Miriam Gottfried, “Eyeballs Are No Longer Enough for Netflix,” The Wall Street Journal, January 17, 2017. 23. Jim Milliot, “What’s Next for Barnes & Noble?,” Publishers Weekly, page 54 August 22, 2016, p. 4; Jim Milliot, “E-books Gained, Online Retailers Slipped in 2014,” Publishers Weekly, March 30, 2015, pp. 4–5; and Jeffrey A. Trachtenberg, “What’s Barnes & Noble’s Survival Plan?,” The Wall Street Journal, April 18, 2014, p. B1. 24. Joshua Brustein, “A New Way to Uber,” Bloomberg Businessweek, September 3, 2018, pp. 23–24; Alan Ohnsman and Brian Solomon, “Uber’s Bold Move,” Forbes, December 30, 2016, pp. 58–74; and Adam Lashinsky, “Classifying Uber’s Business Model Is a Complicated Affair,” Fortune, December 5, 2016, fortune.com. 25. Andrew McAfee and Erik Brynjolfsson, “Big Data: The Management Revolution,” Harvard Business Review, October 2012, pp. 61–68. 26. The definition is adapted from Stephen Few, Information Dashboard Design:

The Effective Visual Communication of Data (Sebastopol, CA: O’Reilly Media, Inc., 2006), pp. 2–46. 27. Tim Fountaine, Brian McCarthy, and Tamim Saleh, “Building the AI-Powered Organization,” Harvard Business Review, July–August 2019, pp. 62–73; Pedro Hernandez, “Microsoft Enables Real-Time IoT Dashboards in Power BI,” eWeek, February 1, 2017, p. 3; Michel Wedel and P. K. Kannan, “Marketing Analytics for Data-Rich Environments,” Journal of Marketing, November 2016, pp. 97–121; and Koen Pauwels et al., Dashboards & Marketing: Why, What, How and What Research Is Needed? (Hanover, NH: Tuck School, Dartmouth, May 2008). 28. Vikal Mittal, “The Downside of Marketing Dashboards,” Marketing News, January 2017, pp. 22–23; Stephen Few, Information Dashboard Design: The Effective Visual Communication of Data (Sebastopol, CA: O’Reilly Media, Inc., 2006), pp. 2–46; Michael T. Krush, Raj Agnihotri, Kevin J. Trainor, et al., “Enhancing Organizational Sensemaking: An Examination of the Interactive Effects of Sales Capabilities and Marketing Dashboards,” Industrial Marketing Management, July 2013, pp. 824–35; Bruce H. Clark, Andrew V. Abela, and Tim Ambler, “Behind the Wheel,” Marketing Management, May–June 2006, pp. 19–23; and Spencer E. Ante, “Giving the Boss the Big Picture,” BusinessWeek, February 13, 2006, pp. 48–49. 29. Stephen Few, Information Dashboard Design: The Effective Visual Communication of Data (Sebastopol, CA: O’Reilly Media, Inc., 2006), p. 13. 30. Mark Jeffery, Data-Driven Marketing: The 15 Metrics Everyone in Marketing Should Know (Hoboken, NJ: Wiley, 2010), Chap. 1; Michael Krauss, “Balance Attention to Metrics with Intuition,” Marketing News, June 1, 2007, pp. 6–8; John Davis, Measuring Marketing: 103 Key Metrics Every Marketer Needs (Singapore: Wiley [Asia], 2007); and Paul W. Farris, Neil T. Bendle, Phillip E. Pfeifer, et al., Marketing Metrics, 2nd ed. (Upper Saddle River, NJ: Wharton School Publishing, 2010). 31. David Burrows, “Too Many Metrics: The Perils of Training Marketers to Calculate ROI,” Marketing Week, September 11, 2014, p. 42; Art Weinstein and Shane Smith, “Game Plan,” Marketing Management, Fall 2012, pp. 24–31; Alexander Chiang, “Special Interview with Stephen Few, Dashboard and Data Visualization Expert,” Dundas Dashboard, July 14, 2011; Stephen Few, Now You See It (Oakland, CA: Analytics Press, 2009), Chap. 1–3; and Jacques Bughin, Amy Guggenheim Shenkan, and Mark Singer, “How Poor Metrics Undermine Digital Marketing,” The McKinsey Quarterly, October 2008. 32. The now-classic reference on effective graphic presentation is Edward R. Tufte,

The Visual Display of Quantitative Information, 2nd ed. (Cheshire, CT: Graphics Press, 2001); see also Stephen Few, Information Dashboard Design: The Effective Visual Communication of Data (Sebastopol, CA: O’Reilly Media, Inc., 2006), Chap. 3–5. 33. George Stalk, Phillip Evans, and Lawrence E. Shulman, “Competing on Capabilities: The New Rules of Corporate Strategy,” Harvard Business Review, March–April 1992, pp. 57–69; and Darrell K. Rigby, Management Tools 2007: An Executive’s Guide (Boston: Bain & Company, 2007), p. 22. 34. Roger Kerin and Robert Peterson, Strategic Marketing Problems: Cases and Comments, 13th ed. (Upper Saddle River, NJ: Prentice Hall, 2013), pp. 2–3. 35. Donna Rosato, “Guide to Returning Gifts: Retailers with the Best and Worst Policies,” Consumer Reports, December 10, 2018. 36. Adapted from The Experience Curve Reviewed, IV: The Growth Share Matrix of the Product Portfolio (Boston: Boston Consulting Group, 1973). See also www.bcgperspectives.com/content/classics/ strategy_the_product_portfolio (registration and login required for access). 37. Roger A. Kerin, Vijay Mahajan, and P. Rajan Varadarajan, Contemporary Perspectives on Strategic Marketing Planning (Boston: Allyn & Bacon, 1990), p. 52. 38. “The Best Global Brands 2019 Rankings,” Interbrand, www.interbrand.com/best-brands/best-global-brands/2019/ranking/. 39. See the Apple press release library at www.apple.com/pr/library/ 40. “Apple, Goldman to Test Joint Credit Card,” American Banker, February 22, 2019, p. 1; Alaina Lee, “Apple Card vs Citi, Chase, and Capital One: Is Apple’s New Credit Card as Good as It Seems?,” Macworld, March 26, 2019, www.macworld.com ; and Andrew Latham, “2019 Consumer Credit Card Industry Study,” SuperMoney, January 22, 2019, www.supermoney.com. 41. “Mobile Vendor Market Share United States of America,” Statcounter GlobalStats, February 2019, gs.statcounter.com ; and Jake Swearingen, “We’re No Longer in Smartphone Plateau. We’re in the Smartphone Decline,” New York Intelligencer, December 4, 2018, www.nymag.com/intelligencer. 42. Peter Cao, “Tablet Shipments in Q2 Still Declining Despite Apple’s Growth with iPad,” 9to5Mac, August 2, 2018, www.9to5mac.com ; “Tablet Shipments Continue to Decline,” IDC, August 2, 2018, www.idc.com; and Matt Weinberger, “The World of Technology Is Changing and the iPad Is Getting Caught in the Middle,” Business Insider, February 1, 2017.

43. Anita Balakrishnan, “Apple Is Discontinuing the iPod Shuffle and Nano,” CNBC, July 27, 2017, www.cnbc.com ; Jason Cipriani, “The Real Reason Apple Decided to Release a New iPod Touch,” Fortune, July 15, 2015, fortune.com; Don Reisinger, “iPod History: 10 Milestones in This Wearable Music Player’s Evolution,” eWeek, October 31, 2014; James Hall, “MP3 Players Are Dead,” Business Insider, December 26, 2012, www.businessinsider.com/mp3-playersare-dead-2012-12 ; and Zak Islam, “Smartphones Heavily Decrease Sales of iPod, MP3 Players,” Tom’s Hardware, December 31, 2012, www.tomshardware.com/news/SmartphonesiPod-MP3-PlayersSales,20062.html. 44. “Share of Apple’s Revenue by Product Category from the 1st Quarter of 2012 to the 4th Quarter of 2019,” Statista, 2020; Juli Clover, “Upcoming Apple Products Guide: Everything We Expect to See in 2020 and Beyond,” MacRumors, February 28, 2020, www.macrumors.com ; and Heather Kelly, “Apple Event 2019: Everything Announced at Apple’s Big March Presentation,” CNN, March 26, 2019, www.cnn.com. 45. Strengths and weaknesses of the BCG technique are based on Derek F. Abell and John S. Hammond, Strategic Market Planning: Problems and Analytical Approaches (Englewood Cliffs, NJ: Prentice Hall, 1979); Yoram Wind, Vijay Mahajan, and Donald Swire, “An Empirical Comparison of Standardized Portfolio Models,” Journal of Marketing, Spring 1983, pp. 89–99; and J. Scott Armstrong and Roderick J. Brodie, “Effects of Portfolio Planning Methods on Decision Making: Experimental Results,” International Journal of Research in Marketing, Winter 1994, pp. 73–84. 46. H. Igor Ansoff, “Strategies for Diversification,” Harvard Business page 55 Review, September–October 1957, pp. 113–24; and Christine Moorman and Lauren Kirby, “The CMO Survey: Top Marketing Trends of the Decade,” Marketing News, June–July 2019, pp. 36–41. 47. Robert W. Palmatier and Andrew T. Crecelius, “The ‘First Principles’ of Marketing Strategy,” Academy of Marketing Science Review, June 2019, pp. 5– 26. 48. This case was written by Steven Hartley and Roger Kerin. Sources: Interviews with IBM executives Ann Rubin and Teresa Yoo; Arvind Krishna, “My First Day as CEO—Our Journey Together,” linkedin.com, April 6, 2020; Thomas Haigh, “Defining American Greatness: IBM from Watson to Trump,” Communication of the ACM, January 2018, pp. 32–37; Yagmur Simsek, “IBM Has Introduced a New Brand Platform along with a New Campaign—‘Let’s Put Smart To Work,’” Digital Agency Network, April 2018; Jason Bloomberg,

“IBM Bet Company on Exponential Innovation in AI, Blockchain, and Quantum Computing,” Forbes, March 22, 2018; “Our Values at Work,” www.ibm.com/ibm/values/us/ ; Adi Ignatius, “Don’t Try to Protect the Past: A Conversation with IBM CEO Ginni Rometty,” Harvard Business Review, July– August 2017, pp. 126–32; Avi Dan, “How Michele Peluso Is Redefining Marketing at IBM,” Forbes, January 18, 2018; IBM 2017 Annual Report, IBM, www.ibm.com ; “The Fortune 500,” Fortune, June/July 2020; “The World’s Most Admired Companies,” Fortune, February 2020; and “The World’s Most Valuable Brands,” Forbes, July 2020.

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Chapter

3 Understanding the Marketing Environment, Ethical Behavior, and Social Responsibility LEARNING OBJECTIVES After reading this chapter you should be able to: LO 3-1

Explain the purpose of environmental scanning.

LO 3-2

Describe social forces such as demographics and culture.

LO 3-3

Discuss how economic forces affect marketing.

LO 3-4

Describe how technological changes can affect marketing.

LO 3-5

Discuss the forms of competition that exist in a market.

LO 3-6

Explain how regulatory forces ensure competition and protect producers and consumers.

LO 3-7

Identify factors that influence ethical and unethical marketing decisions.

LO 3-8

Describe the different concepts of social responsibility.

Facebook Responds to a Changing Environment We have all heard a version of the Facebook story by now. Mark Zuckerberg started the social network in his Harvard dorm room. He built Facebook to accomplish a social mission—to make the world more open and connected. And the outcome: Today Facebook has more than 2.7 billion monthly active users, nearly one-third of

the world’s population! Facebook’s incredible success was the result of many things, including its ability to observe and adapt to a rapidly changing marketing environment. The environment continues to change, however, and Facebook has recently faced a variety of challenges related to misinformation, election interference, and control of personal information. Let’s take a look at the environmental forces that influence Facebook: • Social forces created an extraordinary demand for information and real-time communication through messaging, photos, and video. Facebook’s initial role was to provide a platform for exchange. Now the potential for fake news and offensive content has necessitated a proactive approach to preventing harm. • Economic forces are also changing as the global standard of living improves and the cost of mobile devices and Internet access declines. Experts estimate that more than 50 percent of the world’s population now has access to the Internet. • Technological advances include voice recognition software, GPS-enabled apps, high-resolution cameras, cloud storage, and a variety of enhancements that increase use of Facebook. Facebook is one of the largest investors in the installation of new high-speed cable around the globe. • Competitive forces include a variety of other social networks such as WhatsApp, WeChat, and Twitter. In addition, Facebook competes with Google, Amazon, and other platforms for digital advertising revenue. The company also faces a variety of malicious threats in the form of cyber attacks, spamming, hacking, and fraud. • Regulatory forces are likely to be a growing influence. Some legislators are suggesting that Facebook has become so large that antitrust laws may become relevant. In the aftermath of the misuse of consumer data the Federal Trade Commission fined Facebook $5 billion and a discussion of possible new privacy laws has begun. Facebook has already responded to many of these trends. In a letter to users and shareholders Zuckerberg suggests that recent changes have “fundamentally altered our DNA.” page 73

Justin Sullivan/Getty Images

Facebook in the Future Today Facebook’s portfolio of services includes Facebook, Instagram, WhatsApp, Facebook Messenger, and Oculus virtual reality technology. In a recent interview Zuckerberg suggested that “The future of communication will increasingly shift to private encrypted services where people can be confident what they say to each other stays secure.” This means there might be two types of services: public platforms or digital “town squares” such as Facebook and Instagram, and private platforms, or digital “living rooms” such as WhatsApp and Messenger. In addition, Facebook is developing procedures for removing harmful activity from its platforms, it has established a fact-checking partnership with Reuters to detect misinformation, and the company is changing its guidelines for targeting advertising (to particular users by age, gender, or zip code) that might be discriminatory. New features will include a “clear history” tool, groups that require paid subscriptions to maintain membership, and a Creator Studio mobile app to help manage pages on the go.1 Chapter 17 provides additional discussion on social networks and social media.

Many businesses operate in environments where important forces change. Anticipating and responding to changes often means the difference between marketing success and failure. This chapter describes how the marketing environment has changed in the past and how it is likely to change in the future. page 74

ENVIRONMENTAL SCANNING LO 3-1 Explain the purpose of environmental scanning.

Changes in the marketing environment are a source of opportunities and threats to be managed. The process of continually acquiring information on events occurring outside the organization to identify and interpret potential trends is called environmental scanning. Environmental trends typically arise from five sources: social, economic, technological, competitive, and regulatory forces. As shown in Figure 3–1 and described later in this chapter, these forces affect the marketing activities of a firm in numerous ways.

FIGURE 3–1 Environmental forces affect the organization, as well as its suppliers and customers.

An Environmental Scan of Today’s Marketplace environmental scanning The process of continually acquiring information on events occurring outside the organization to identify and interpret potential trends.

social forces The demographic characteristics of the population and its culture.

What trends might affect marketing in the future? A firm conducting an environmental scan of the marketplace might uncover a number of key trends—from the growing popularity of personalized marketing; to the increasing emphasis on reuse rather than disposal of products and resources; to the importance of visual search, artificial intelligence, and blockchain technologies. These trends, which affect consumers and the organizations that serve them, are described in the following discussion of the five environmental forces.

SOCIAL FORCES LO 3-2 Describe social forces such as demographics and culture.

The social forces of the environment include the demographic characteristics of the population and its culture. Changes in these forces can have a dramatic impact on marketing strategy. Demographics Describing a population according to selected characteristics such as age, gender, ethnicity, income, and occupation is referred to as demographics. Three key demographic characteristics include a population profile, a description of generational cohorts, and a description of racial and ethnic diversity. page 75

The Population at a Glance The most recent estimates indicate there are 7.6 billion people in the world today, and the population is likely to exceed 9.9 billion by 2050. While this growth has led to the term population explosion, the increases have not occurred worldwide; they are primarily in the developing countries of Africa and Asia. In fact, India is predicted to have the world’s largest population in 2050 with 1.68 billion people, replacing the current largest country, China, which will have a population of 1.34 billion people. World population projections show that the populations of 38 countries, including China, Japan, Ukraine, Russia, Romania, Poland, Spain, and Taiwan, will be declining.2 Studies of the demographic characteristics of the U.S. population suggest several important trends. Generally, the population is becoming larger, older, and more diverse. The U.S. Census Bureau estimates that the current population of the United States is approximately 330 million people. If current trends in life expectancy, birthrates, and immigration continue, by 2030 and 2050 the U.S. population will

exceed 355 and 389 million people, respectively. This growth suggests that niche markets based on age, life stage, family structure, geographic location, and ethnicity will become increasingly important. demographics Describing a population according to selected characteristics such as age, gender, ethnicity, income, and occupation. baby boomers Includes the generation of 76 million children born between 1946 and 1964. Generation X Includes the 55 million people born between 1965 and 1980. Also called the baby bust. Generation Y Includes the 62 million Americans born between 1981 and 1996. Also called the echo-boom.

Generational Cohorts A major reason for the graying of America is that the generation referred to as the baby boomers —the 76 million children born between 1946 and 1964—are growing older. Baby boomers are retiring at a rate of 10,000 every 24 hours, and they will all be 65 or older by 2030. Companies that target boomers will need to respond to their interests in health, fitness, retirement housing, financial planning, and appearance. Prudential, for example, offers a retirement plan and Olay offers “age-defying” products for this age group.3 The baby boom cohort is followed by Generation X, which includes the 55 million people born between 1965 and 1980. This period is also known as the baby bust, because the number of children born each year was declining. This is a generation of consumers who are self-reliant, supportive of racial and ethnic diversity, and better educated than any previous generation. They are not prone to extravagance and are likely to pursue lifestyles that are a blend of caution, pragmatism, and traditionalism. This generation is on the Internet more than any other generation and has become the largest segment of business travelers. Delta often offers amenities such as 110-volt and USB ports to appeal to this cohort.4 The generational cohort labeled Generation Y includes the 62 million Americans born between 1981 and 1996. This was a period of increasing births as baby boomers began having children, and is often referred to as the echo-boom. Generation Y exerts influence on music, sports, computers, video games, and all forms of communication and networking related to smartphones. Sony Xperia phones, for example, offer features such as a triple lens camera, a large 4K display, stereo speakers, and wireless charging batteries to accommodate this cohort’s interests. Generation Y members are interested in distinctive, memorable, and personal experiences and are very adept at managing their lives to create a work–life balance. They are strong-willed, passionate about the environment, and optimistic.

This is also a group that is attracted to purposeful work where they have control. The term millennials is often used, with inconsistent definitions, to refer to members of Generation Y. The Making Responsible Decisions box describes how millennials’ interest in sustainability is influencing product offerings, colleges, and employers. Based on immigration and death rate estimates, millennials have recently surpassed baby boomers as the largest living generation, with 75 million people.

Which generational cohorts are these three advertisers trying to reach? (Left) Source: Procter & Gamble; (Center) Source: Delta Air Lines, Inc.; (Right) Source: Sony Corporation of America page 76

Making Responsible Decisions

Sustainability

Balancing Profits and Purpose—Millennial Style Millennials are technologically savvy, innovative, and ambitious. In addition, they are a generation that is determined to make the world a better place. They expect brands and companies to embrace social change, corporate social responsibility, and environmental stewardship, as well as profits. This focus on a higher purpose influences their choices as consumers, as students, and as early career employees. Some companies are taking note of millennials’ interests. Procter & Gamble, for example, recently introduced fully recyclable Head & Shoulders shampoo bottles made with 25 percent recycled plastic. Similarly, Unilever has launched its Sustainable Living Plan to create “brands with purpose,” Apple’s new headquarters is described as “the greenest building on the planet,” and Whole Foods Market makes decisions only after considering the needs of all stakeholders.

There are approximately 17 million undergraduate millennials who expect sustainable campus communities that include LEED (Leadership in Energy and Environmental Design)–certified housing, campus transit systems, and recycling programs. Graduate students are looking for programs with sustainability electives, case studies, and potential for involvement with organizations such as Net Impact (www.netimpact.org), a nonprofit for students who want to “use business to improve the world.” Sara Hochman is a typical example. She was interested in environmental issues in college, and her first job was as an environmental consultant. To make a bigger impact on her clients, she enrolled in graduate school at the University of Chicago where she could take an elective on renewable energy and join the Energy Club. Early career employees want “green” jobs such as social responsibility officer, corporate philanthropy manager, and sustainability database specialist. In addition they want to work at companies that advocate good corporate citizenship, responsible capitalism, and “B-Corp” status. They view themselves as part of a “positive business” movement that balances the interests of shareholders, employees, and society. Charlotte Moran, a mid-20s group marketing manager for Siemens Home Appliances, explains: “I’d find it very hard to work for a company that didn’t understand its impact on the environment and didn’t make an effort to change for the better.” How will your interests in being a force for good influence your education and career decisions? The world will know soon!

Source: Net Impact

The post-millennial generation is referred to as Generation Z, which includes consumers born between 1997 and 2010. Their values were formed by the Great Recession, ISIS, Sandy Hook, marriage equality, the first black president, and a growing interest in populism. They are hardworking, financially responsible, and independent multitaskers who embrace the broadest definitions of diversity and inclusivity. They prefer a “natural” look, discover and learn online, and expect a seamless use of digital and physical aspects of the marketplace. From a marketing perspective, Generation Z consumers say they will pay more for a product or brand if it promotes environmental issues, social justice, and gender equality. The COVID-

19 pandemic had important marketing implications for this cohort as they postponed marriages and delayed having children due to stress, unemployment, and uncertainty related to the availability of child care.5 Generation Z The post-millennial generation, which includes consumers born between 1997 and 2010.

Racial and Ethnic Diversity A notable trend is the changing racial and page 77 ethnic composition of the U.S. population. Approximately one in three U.S. residents belongs to the following racial or ethnic groups: African American, Native American or Alaska Native, Asian American, or Native Hawaiian or Pacific Islander. While the growing size of these groups has been identified through new Census data, their economic impact on the marketplace is also very noticeable. Hispanics, African Americans, and Asian Americans spend more than $1.5 trillion, $1.3 trillion, and $1.0 trillion each year, respectively. To adapt to this new marketplace, many companies are developing multicultural marketing programs, which are combinations of the marketing mix that reflect the unique attitudes, ancestry, communication preferences, and lifestyles of different races and ethnic groups.6

Calvin Klein introduced CK2 to appeal to women as well as men. Source: Calvin Klein

Culture VIDEO 3-1 Patagonia Video kerin.tv/cr9e/v3-1

multicultural marketing Combinations of the marketing mix that reflect the unique attitudes, ancestry, communication preferences, and lifestyles of different races. culture The set of values, ideas, and attitudes that are learned and shared among the members of a group.

A second social force, culture, incorporates the set of values, ideas, and attitudes that are learned and shared among the members of a group. Because many of the elements

of culture influence consumer buying patterns, monitoring national and global cultural trends is important for marketing. Cross-cultural analysis needed for global marketing is discussed in Chapter 6. One of the most notable cultural changes in the United States in the past 30 years has been in the attitudes and roles of men and women in the marketplace. Some companies are moving away from traditional gender norms to avoid gender stereotypes. Target, for example, removed gender-based signage from its toy, entertainment, and home departments. Fashion leader Zara recently introduced a line of ungendered clothing that includes hoodies, Bermuda shorts, and crewneck tops, and Calvin Klein introduced fragrance CK2 for women and men. Gender-neutral advertising is also becoming more common. Jaden Smith recently modeled Louis Vuitton’s new women’s line with three female models, and one of Calvin Klein’s advertising campaigns for CK2 uses the tagline, “a new scent for #the2ofus.”7 Another increasingly important value for consumers in the United States and around the globe is practicing sustainability and preserving the environment. In fact, 82 percent of today’s shoppers consider themselves environmentally friendly. Recent research also indicates that consumers are committed to brands with a strong link to social action. Patagonia, for example, donates one percent of its sales to the preservation and restoration of the environment. Its Patagonia Action Works has donated more than $20 million in support of grassroots environmental efforts, and programs such as its Responsibili-Tee® T-shirt manufacturing process use recycled material to produce new clothes.8

LEARNING REVIEW 3-1.

Describe four generational cohorts.

3-2.

Why are many companies developing multicultural marketing programs?

3-3.

How are important values such as sustainability reflected in the marketplace today? page 78

ECONOMIC FORCES LO 3-3 Discuss how economic forces affect marketing.

The second component of the environmental scan, the economy, pertains to the

income, expenditures, and resources that affect the cost of running a business and household. We’ll consider two aspects of these economic forces: a macroeconomic view of the marketplace and a microeconomic perspective of consumer income. Macroeconomic Conditions Of particular concern at the macroeconomic level is the performance of the economy based on indicators such as gross domestic product (GDP), unemployment, and price changes (inflation or deflation). In an inflationary economy, the cost to produce and buy products and services escalates as prices increase. From a marketing standpoint, if prices rise faster than consumer incomes, the number of items consumers can buy decreases. This relationship is evident in the cost of a college education. The College Board reports that since 2000 college tuition and fees have increased 190 percent (from $3,510 to $10,230) while family incomes have increased by 2 percent. The share of family income required to pay for tuition at public four-year colleges has risen from 8 percent in 2000 to 16 percent today.9 Periods of declining economic activity are referred to as recessions. During recessions, businesses decrease production, unemployment rises, and many consumers have less money to spend. The U.S. economy experienced recessions from 1973 to 1975, 1981 to 1982, 1990 to 1991, 2001, and 2007 to 2009. Most recently, a recessionary period began in 2020 as employment and production declined due to the COVID-19 pandemic, ending the longest expansion (128 months) in U.S. history.10 Consumer Income The microeconomic trends in terms of consumer income are also important issues for marketers. Having a product that meets the needs of consumers may be of little value if they are unable to purchase it. A consumer’s ability to buy is related to income, which consists of gross, disposable, and discretionary components. Gross Income The total amount of money made in one year by a person, household, or family unit is referred to as gross income (or money income at the Census Bureau). While the typical U.S. household earned only about $8,700 of income in 1970, it earned about $63,179 in 2018. When gross income is adjusted for inflation, however, income of that typical U.S. household was relatively stable. In fact, inflation-adjusted income has increased only $12,600 since 1970. Approximately 50 percent of U.S. households have an annual income between $25,000 and $99,999.11 Are you from a typical household? Disposable Income The second income component, disposable income, is the money a consumer has left after paying taxes to use for necessities such as food,

housing, clothing, and transportation. Thus, if taxes rise or fall faster than income, consumers are likely to have more or less disposable income. Similarly, dramatic changes in the prices of products can lead to spending adjustments. A decline in the price of gasoline, for example, often leads to increases in consumer spending in other categories. In addition, changes in home prices have a psychological impact on consumers, who tend to spend more when they feel their net worth is rising and postpone purchases when it declines. During a recessionary period, spending, debt, and the use of credit all decline.12 Discretionary Income The third component of income is discretionary income, the money that remains after paying for taxes and necessities. Discretionary income is used for luxury items such as a Cunard cruise. An obvious problem in defining discretionary versus disposable income is determining what is a luxury and what is a necessity. The Department of Labor monitors consumer expenditures through its page 79 annual Consumer Expenditure Survey. The most recent report indicates that consumers spend about 13 percent of their income on food, 33 percent on housing, and 3 percent on clothes. While an additional 24 percent is often spent on transportation and health care, the remainder is generally viewed as discretionary. The percentage of income spent on food and housing typically declines as income increases, which can provide an increase in discretionary income. Discretionary expenditures also can be increased by reducing savings. The Bureau of Labor Statistics observed that during the 1990s and early 2000s the savings rate declined from a long-term average of 8 percent to less than 4 percent. Recent data on consumer expenditures indicate that the savings rate is now approximately 7.5 percent.13

As consumers’ discretionary income increases, so does the opportunity to indulge in the luxurious leisure travel marketed by Cunard. Courtesy of Cunard Line economy Pertains to the income, expenditures, and resources that affect the cost of running a business and household. gross income The total amount of money made in one year by a person, household, or family unit. Also known as money income at the Census Bureau. disposable income The money a consumer has left after paying taxes to use for necessities such as food, housing, clothing, and transportation. discretionary income The money that remains after paying for taxes and necessities.

TECHNOLOGICAL FORCES LO 3-4 Describe how technological changes can affect marketing.

Our society is in a period of dramatic technological change. Technology, the third environmental force in Figure 3–2, refers to inventions or innovations from applied

science or engineering research. Each new wave of technological innovation can replace existing products and companies. Perhaps you’ve had a favorite product such as a phone or a computer replaced by an improved version, or a product category such as digital music files or printed books replaced by completely new technology?

FIGURE 3–2 A framework for understanding ethical behavior. Each of these influences has an effect on ethical marketing behavior, as described in the text.

technology Inventions or innovations from applied science or engineering research.

Technology of Tomorrow Technological change is the result of research, so it is difficult to predict. Some of the most dramatic technological changes occurring now, however, include the following: • New authentication technology based on facial recognition and fingerprint recognition will improve transactions by eliminating passwords. • Digital ledger technology, or blockchain, will facilitate instant and page 80 efficient digital advertising by connecting advertisers directly with media platforms. • Smart speakers, digital assistants, and artificial intelligence will combine to become convenient, knowledgeable, and always-available purchase influencers. • Wearable technology will evolve from fitness monitors to health and wellness

devices that provide remote monitoring, digital therapeutics, and even personalized healthy behavior guidance.

Technological change leads to new products. What products or services might be replaced by these innovations? (Left) Source: Alphabet Inc.; (Center) Source: Slack; (Right) Source: Nest Labs

Some of these trends in technology are already being realized in today’s marketplace. The Olympics, for example, uses facial recognition technology to reduce congestion in waiting lines. IBM has partnered with Salesforce.com to use artificial intelligence to enhance Salesforce’s customer service software. Apple recently introduced a watch with electrocardiogram (ECG) capability. Other technologies, such as Google’s Cloud Storage service, Slack’s communication software, and Nest’s doorbells, are likely to replace or become substitutes for existing products and services such as hard-drive storage, e-mail, and security cameras.14 Technology’s Impact on Customer Value Advances in technology have important effects on marketing. First, the cost of technology is plummeting, causing the customer value assessment of technologybased products to focus on other dimensions such as quality, service, and relationships. PC Magazine (www.pcmag.com) publishes an article titled “The Best Free Software” each year to tell readers about companies that give away their software, with the expectation that advertising or upgrade purchases will generate revenue. A similar approach is used by some cell phone service providers, who offer free or subsidized telephones if the consumer changes providers.15 Technology also provides value through the development of new products. More than 4,400 companies recently unveiled thousands of new products at the Consumer

Electronics Show held in Las Vegas. New products included wireless earbuds that translate 37 languages in real time, a smart alarm clock that simulates a sunrise, a heated razor, and a personal robot that monitors your sleep, responds to hand gestures, and provides a daily briefing! Better Homes and Gardens magazine recently announced its Innovation Awards, which include anti-hacking software from Virtru, a washer and dryer combined into one unit by LG, and a 360-degree camera by Samsung. Other new products likely to be available soon include injectable health monitors that will send biometric information to a mobile monitor, such as a watch or a phone, and wireless charging systems that will send power to devices within five feet of the system.16 page 81

The Internet of Things has contributed to the growth in data analytics. elenabsl/Shutterstock

Technology Enables Data Analytics Technology has also had a dramatic impact on the operations of marketing organizations. First, the development of online capabilities created the marketspace, an information- and communication-based electronic exchange environment occupied by sophisticated computer and telecommunication technologies and digital offerings. Second, these capabilities led to electronic commerce (e-commerce), or the activities that use electronic communication in the inventory, promotion, distribution, purchase, and exchange of products and services. Internet-based technology also allows companies to create intranets to communicate within the organization and extranets to communicate with suppliers, distributors, and other partners such as advertising agencies. marketspace An information- and communication-based electronic exchange environment mostly occupied by sophisticated computer and telecommunication technologies and digital offerings.

Today, technologies have advanced to allow computer chips to be placed in almost anything and to be connected to a network almost anywhere. This network of

products embedded with connectivity-enabled electronics has come to be known as the Internet of Things (IoT). The information generated by the Internet of Things has led to an explosion in interest in advanced analytics that can predict consumer preferences and behavior. A recent study by Forrester Research indicates that 74 percent of firms want to be “data-driven,” while Wikibon Research estimates that expenditures on big data capabilities will reach $92 billion by 2026. Some experts suggest that the use of analytics is associated with success in the marketplace. Firms that have grown their revenues through analytical insights include Netflix, Google, Amazon, Dell, and eBay.17 electronic commerce The activities that use electronic communication in the inventory, promotion, distribution, purchase, and exchange of products and services. Also called e-commerce. Internet of Things (IoT) The network of products embedded with connectivity-enabled electronics.

Source: Federal Trade Commission (FTC)

COMPETITIVE FORCES The fourth component of the environmental scan, competition, refers to the alternative firms that could provide a product to satisfy a specific market’s needs. There are various forms of competition, and each company must consider its present and potential competitors in designing its marketing strategy. competition The alternative firms that could provide a product to satisfy a specific market’s needs.

Alternative Forms of Competition LO 3-5 Discuss the forms of competition that exist in a market.

Four basic forms of competition create a continuum from pure competition to monopolistic competition to oligopoly to pure monopoly. At one end of the continuum is pure competition, in which there are many sellers and each has a similar product. Companies that deal in commodities common to agribusiness (for example, wheat, rice, and grain) often are in a pure competition position in which distribution (in the sense of shipping products) is important but other elements of marketing have little impact.

In the second point on the continuum, monopolistic competition, many sellers compete with substitutable products within a price range. For example, if the price of coffee rises too much, consumers may switch to tea. Coupons or sales are frequently used marketing tactics. Oligopoly, a common industry structure, occurs when a few companies control the majority of industry sales. The wireless telephone industry, for example, is dominated by three carriers that serve more than 95 percent of the U.S. market. Verizon, T-Mobile, and AT&T have 120, 98, and 93 million subscribers, respectively. Similarly, the entertainment industry in the United States is dominated by Viacom, Disney, and Time Warner, and the major firms in the U.S. defense contractor industry are Boeing, Northrop Grumman, and Lockheed Martin. Critics of oligopolies suggest that because there are few sellers, price competition among firms is not desirable because it leads to reduced profits for all producers.18 The final point on the continuum, pure monopoly, occurs when only one page 82 firm sells the product. Monopolies are common for producers of products and services considered essential to a community: water, electricity, and cable service. Typically, marketing plays a small role in a monopolistic setting because it is regulated by the state or federal government. Government control usually seeks to ensure price protection for the buyer, although deregulation in recent years has encouraged price competition in the electricity market. Concern that Microsoft’s 91 percent share of the PC operating system market was a monopoly that limited consumer access to competitors’ Internet browsers led to lawsuits and consent decrees from the U.S. Justice Department and investigations and fines from the European Union. A recent Federal Trade Commission investigation of Google found that although the company’s market share of the online search market exceeds 70 percent, it had not harmed competition in the marketplace. An investigation by the European Union, however, has led to $9 billion in antitrust fines.19 Small Businesses as Competitors While large companies provide familiar examples of the forms and components of competition, small businesses make up the majority of the competitive landscape for most businesses. Consider that there are approximately 30.2 million small businesses in the United States, which employ 48 percent of all private sector employees. In addition, small businesses generate 66 percent of all new jobs and 46 percent of the GDP. Research has shown a strong correlation between national economic growth and the level of new small business activity in previous years.20

LEARNING REVIEW 3-4.

What is the difference between a consumer’s disposable and discretionary income?

3-5.

How does technology impact customer value?

3-6.

In pure competition there are a ______________ number of sellers.

REGULATORY FORCES LO 3-6 Explain how regulatory forces ensure competition and protect producers and consumers.

For any organization, the marketing and broader business decisions are constrained, directed, and influenced by regulatory forces. Regulation consists of restrictions state and federal laws place on business with regard to the conduct of its activities. Regulation exists to protect companies as well as consumers. Much of the regulation from the federal and state levels is the result of an active political process and has been passed to ensure competition and fair business practices. For consumers, the focus of legislation is to protect them from unfair trade practices and ensure their safety. regulation Restrictions state and federal laws place on a business with regard to the conduct of its activities.

Protecting Competition Major federal legislation has been passed to encourage competition, which is deemed desirable because it permits the consumer to determine which competitor will succeed and which will fail. The first such law was the Sherman Antitrust Act (1890). Lobbying by farmers in the Midwest against fixed railroad shipping prices led to the passage of this act, which forbids (1) contracts, combinations, or conspiracies in restraint of trade and (2) actual monopolies or attempts to monopolize any part of trade or commerce. Because of vague wording and government inactivity, however, there was only one successful case against a company in the nine years after the act became law, and the Sherman Act was supplemented with the Clayton Act (1914). This act forbids certain actions that are likely to lessen competition, although no actual harm has yet occurred.

In the 1930s, the federal government had to act again to ensure fair page 83 competition. During that time, large chain stores appeared, such as the Great Atlantic & Pacific Tea Company (A&P). Small businesses were threatened, and they lobbied for the Robinson-Patman Act (1936). This act makes it unlawful to discriminate in prices charged to different purchasers of the same product, where the effect may substantially lessen competition or help create a monopoly. Protecting Producers and Consumers Various federal laws are intended to protect the company while others are intended to protect the consumer. In some cases the laws are designed to protect both. A company can protect its competitive position in new and novel products under the patent law, which gives inventors the right to exclude others from making, using, or selling products that infringe the patented invention. The federal copyright law is another way for a company to protect its competitive position in a product. The copyright law gives the author of a literary, dramatic, musical, or artistic work the exclusive right to print, perform, or otherwise copy that work. Copyright is secured automatically when the work is created. Digital technology has necessitated additional copyright legislation, called the Digital Millennium Copyright Act (1998), to improve protection of copyrighted digital products. In addition, producers of DVD movies, music recordings, and software want protection from websites and devices designed to circumvent antipiracy elements of their products.21 consumerism A grassroots movement started in the 1960s to increase the influence, power, and rights of consumers in dealing with institutions.

Federal laws also protect consumers. Various laws address each of the four elements of the marketing mix. Product requirements, for example, are specified in laws such as the Child Protection Act (1966), the Consumer Product Safety Act (1972), the Infant Formula Act (1980), the Nutritional Labeling and Education Act (1990), and labeling requirements for dietary supplements (1997) and trans fats (2006). Recently, several states have proposed new legislation that would require the labeling of genetically modified (GM) food.22 Many of these laws came about because of consumerism, a grassroots movement started in the 1960s to increase the influence, power, and rights of consumers in dealing with institutions. This movement continues and is reflected in the growing consumer demand for ecologically safe products and ethical and socially responsible business practices. One hotly debated issue concerns liability for environmental abuse. VIDEO 3-2

Federal Trade Commission (FTC) kerin.tv/cr9/v3-2

Source: Federal Trade Commission (FTC)

Laws also address pricing, distribution, and promotion. The FTC Act of 1914, for example, established the Federal Trade Commission (FTC) to monitor unfair business practices. The FTC has the power to (1) issue cease and desist orders and (2) order corrective advertising. In issuing a cease and desist order, the FTC orders a company to stop practices the commission considers unfair. With corrective advertising, the FTC can require a company to spend money on advertising to correct previous misleading promotion. Other laws, such as the Deceptive Mail Prevention and Enforcement Act (1999), the Telephone Consumer Protection Act (1991), and the Controlling the Assault of Non-Solicited Pornography and Marketing (CAN-SPAM) Act (2004), are designed to guide the use of direct mail, telemarketing, e-mail solicitations, and other forms of promotion.23 page 84

These products are identified by protected trademarks. Are any of these trademarks in danger of becoming generic?

Editorial Image, LLC

An example of a law that protects producers and consumers is the Lanham Act (1946), which provides for the registration of trademarks. Registration under the Lanham Act provides important advantages to a trademark owner but it does not confer ownership. A company can lose its trademark if it becomes generic, which means that it has come to be a common, descriptive word for the product. CocaCola, Whopper, and Xerox are registered trademarks, and competitors cannot use these names. Aspirin and escalator, however, are former trademarks that are now generic terms in the United States and can be used by anyone. Consumers benefit from the use of trademarks because it allows them to correctly identify products they want to purchase.24 Control through Self-Regulation

Companies must meet certain requirements before they can display this logo on their websites. Better Business Bureau. Used with permission.

An alternative to government control is self-regulation, where an industry attempts to police itself. The major television networks, for example, have used self-regulation to set their own guidelines for TV ads for children’s toys. These guidelines have generally worked well. There are two problems with self-regulation, however: noncompliance by members and enforcement. In addition, if attempts at selfregulation are too strong, they may violate the Robinson-Patman Act. The bestknown self-regulatory group is the Better Business Bureau (BBB). This agency is a voluntary alliance of companies whose goal is to help maintain fair practices. The

BBB is a nonprofit corporation that uses a Partner Code of Conduct to encourage its members to comply with its standards.25 self-regulation An alternative to government control whereby an industry attempts to police itself.

LEARNING REVIEW 3-7. 3-8. 3-9.

The ____________ Act forbids actual monopolies whereas the ___________ Act forbids actions that are likely to lessen competition. The Federal Trade Commission (FTC) monitors ___________. How does the Better Business Bureau encourage companies to follow its standards for commerce? page 85

UNDERSTANDING ETHICAL MARKETING BEHAVIOR LO 3-7 Identify factors that influence ethical and unethical marketing decisions.

Ethics are the moral principles and values that govern the actions and decisions of an individual or group.26 They serve as guidelines on how to act rightly and justly when faced with moral dilemmas. Researchers have identified four factors that influence ethical marketing behavior.27 Figure 3–2 presents a framework that shows these factors and their relationships. ethics The moral principles and values that govern the actions and decisions of an individual or group.

Societal Culture and Norms As described previously, culture refers to the set of values, ideas, and attitudes that are learned and shared among the members of a group. Culture also serves as a socializing force that dictates what is morally right and just. This means that moral standards are relative to particular societies.28 These standards often reflect the laws and regulations that affect social and economic behavior, which can create ethical dilemmas. Companies that compete in the global marketplace recognize this fact.

Consider UPS, the world’s largest package delivery company operating in more than 220 countries and territories worldwide.29 According to UPS’s global compliance and ethics coordinator, “Although languages and cultures around the world may be different, we do not change our ethical standards at UPS. Our ethics program is global in nature.” Not surprisingly, UPS is consistently ranked among the world’s most ethical companies. Business Culture and Industry Practices Societal culture provides a foundation for understanding moral behavior in business activities. Business cultures “comprise the effective rules of the game, the boundaries between competitive and unethical behavior, [and] the codes of conduct in business dealings.”30 Consumers have witnessed instances where business cultures in the financial (insider trading), insurance and banking (deceptive sales practices), and defense (bribery) industries went awry. Business culture affects ethical conduct both in the exchange relationship between sellers and buyers and in the competitive behavior among sellers. Ethics of Exchange The exchange process is central to the marketing concept. Ethical exchanges between sellers and buyers should result in both parties being better off after a transaction. Before the 1960s, the legal concept of caveat emptor —let the buyer beware— was pervasive in the American business culture. In 1962, President John F. Kennedy outlined a Consumer Bill of Rights that codified the ethics of exchange between buyers and sellers. These were the right (1) to safety, (2) to be informed, (3) to choose, and (4) to be heard. Consumers expect and often demand that these rights be protected, as have American businesses. caveat emptor The legal concept of “let the buyer beware” that was pervasive in the American business culture prior to the 1960s. Consumer Bill of Rights An outline presented by President John F. Kennedy in 1962 that codified the ethics of exchange between buyers and sellers, including the rights to safety, to be informed, to choose, and to be heard.

page 86

Making Responsible Decisions

Ethics

Corporate Conscience in the Cola War Suppose you are a senior executive at Pepsi-Cola and a Coca-Cola employee offers to sell you the marketing plan and sample for a new Coke product at a

modest price. Would you buy it knowing Pepsi-Cola could gain a significant competitive edge in the cola war? When this question was posed in an online survey of marketing and advertising executives, 67 percent said they would buy the plan and product sample if there were no repercussions. What did Pepsi-Cola do when this offer actually occurred? The company immediately contacted Coca-Cola, which contacted the FBI. An undercover FBI agent paid the employee $30,000 in cash stuffed in a Girl Scout cookie box as a down payment and later arrested the employee and accomplices. When asked about the incident, a Pepsi-Cola spokesperson said: “We only did what any responsible company would do. Competition must be tough, but must always be fair and legal.” Why did the 33 percent of respondents in the online survey say they would decline the offer? Most said they would prefer competing ethically so they could sleep at night. According to a senior advertising agency executive who would decline the offer: “Repercussions go beyond potential espionage charges. As long as we have a conscience, there are repercussions.” So what happened to the Coca-Cola employee and her accomplices? She was sentenced to eight years in prison and ordered to pay $40,000 in restitution. Her accomplices were each sentenced to five years in prison.

Cliff Tew

Ethics of Competition Business culture also affects ethical behavior in competition. Two kinds of unethical behavior are most common: (1) economic espionage and (2) corruption. Economic espionage is the clandestine collection of trade secrets or proprietary information about a company’s competitors. This practice is illegal and unethical

and carries serious criminal penalties for the offending individual or business. Espionage activities include illegal trespassing, theft, fraud, misrepresentation, electronic hacking, the search of a competitor’s trash, and violations of written and implicit employment agreements with noncompete clauses. More than half of the largest firms in the world have uncovered espionage in some form, costing them $445 billion annually in lost sales.31 Read the Making Responsible Decisions box to learn how Pepsi-Cola responded to an offer to obtain confidential information about its archrival’s marketing plans.32 economic espionage The clandestine collection of trade secrets or proprietary information about a company’s competitors.

Corruption is a second form of unethical behavior. Corruption involves unethical conduct by a person entrusted with a position of authority, often to acquire a personal benefit. The giving and receiving of bribes, kickbacks, and graft are the most common forms of corruption. These practices are more common in business-tobusiness and government marketing than in consumer marketing. In general, bribery is most evident in industries experiencing intense competition and in countries in the earlier stages of economic development or facing economic and political turmoil. According to a United Nations study, 15 percent of all companies in industrialized countries have to pay bribes to win or retain business. In Asia, this figure is 40 percent. In Eastern Europe, 60 percent of all companies must pay bribes to do business. Analysts at the World Bank estimate that the equivalent of $2.6 trillion is offered in bribes and kickbacks every year in the global arena.33 Corporate Culture and Expectations A third influence on ethical practices is corporate culture. Corporate culture is the set of values, ideas, and attitudes that is learned and shared among the members of an organization. The culture of a company demonstrates itself in the dress (“We don’t wear ties”), sayings (“The IBM Way”), and manner of work (team efforts) of employees. Culture is also apparent in the expectations for ethical behavior present in formal codes of ethics and the ethical actions of top management and co-workers. page 87

Codes of Ethics A code of ethics is a formal statement of ethical principles and rules of conduct. It is estimated that 85 to 90 percent of U.S. companies have some sort of ethics code and one of every four large companies has corporate ethics officers. Ethics codes typically address contributions to government officials and political parties, customer and supplier relations, conflicts of interest, and accurate recordkeeping.

Ethical Behavior of Top Management and Co-Workers One reason for violating ethics codes rests in the perceived behavior of top management and co-workers.34 Observing peers and top management and gauging responses to unethical behavior play an important role in individual actions. A study of business executives reported that 47 percent had witnessed ethically troubling behavior. About 44 percent of those who reported unethical behavior were penalized, through either outright punishment or a diminished status in the company.35 Clearly, ethical dilemmas can bring personal and professional conflict. For this reason, states have enacted laws designed to protect whistle-blowers, employees who report unethical or illegal actions of their employers. code of ethics A formal statement of ethical principles and rules of conduct. whistle-blowers Employees who report unethical or illegal actions of their employers. moral idealism A personal moral philosophy that considers certain individual rights or duties as universal, regardless of the outcome. utilitarianism A personal moral philosophy that focuses on “the greatest good for the greatest number” by assessing the costs and benefits of the consequences of ethical behavior.

What does 3M’s Scotchgard have to do with ethics, social responsibility, and a $200 million loss in annual sales? Read the text to find out. Mike Hruby/McGraw-Hill

Your Personal Moral Philosophy and Ethical Behavior Ultimately, ethical choices are based on the personal moral philosophy of the decision maker. Moral philosophy is learned through the process of socialization with friends and family and by formal education. It is also influenced by the societal, business, and corporate culture in which a person finds him- or herself. Two prominent personal moral philosophies have direct bearing on marketing practice: (1) moral idealism and (2) utilitarianism. Moral Idealism Moral idealism is a personal moral philosophy that considers certain individual rights or duties as universal, regardless of the outcome. This philosophy exists in the Consumer Bill of Rights and is favored by moral philosophers and consumer interest groups. For example, the right to know applies to probable defects in an automobile that relate to safety. This philosophy also applies to ethical duties. A fundamental ethical duty is to do no harm. Adherence to this duty prompted the recent decision by 3M executives to phase out production of a chemical 3M had manufactured for nearly 40 years. The substance, used in far-ranging products from pet food bags, candy wrappers, carpeting, and 3M’s popular Scotchgard fabric protector, had no known harmful health or environmental effect. However, the company discovered that the chemical appeared in minuscule amounts in humans and animals around the world and accumulated in tissue. Believing that the substance could be possibly harmful in large doses, 3M voluntarily stopped the production of the chemical, resulting in a $200 million loss in annual sales.36 Utilitarianism An alternative perspective on moral philosophy is utilitarianism, which is a personal moral philosophy that focuses on “the greatest good for the greatest number” by assessing the costs and benefits of the consequences of ethical behavior. If the benefits exceed the costs, then the behavior is ethical. If not, then the behavior is unethical. This philosophy underlies the economic tenets of capitalism and, not surprisingly, is embraced by many business executives and students.37

LEARNING REVIEW 3-10.

What rights are included in the Consumer Bill of Rights?

3-11.

Economic espionage includes what kinds of activities?

3-12.

What is meant by moral idealism? page 88

UNDERSTANDING SOCIAL RESPONSIBILITY FOR SUSTAINABLE MARKETING LO 3-8 Describe the different concepts of social responsibility.

As we saw in Chapter 1, the societal marketing concept stresses marketing’s social responsibility by not only satisfying the needs of consumers but also providing for society’s welfare. Social responsibility means that organizations are part of a larger society and are accountable to that society for their actions. Like ethics, agreement on the nature and scope of social responsibility is often difficult to come by, given the diversity of values present in different societal, business, and corporate cultures. Three Concepts of Social Responsibility There are three concepts of social responsibility: (1) profit responsibility, (2) stakeholder responsibility, and (3) societal responsibility. Profit Responsibility Profit responsibility holds that companies have a simple duty: to maximize profits for their owners or stockholders. This view is expressed by Nobel Laureate Milton Friedman, who said, “There is one and only one social responsibility of business—to use its resources and engage in activities designed to increase its profits so long as it stays within the rules of the game, which is to say, engages in open and free competition without deception or fraud.”38 Stakeholder Responsibility Criticism of the profit view has led to a broader concept of social responsibility. Stakeholder responsibility focuses on the obligations an organization has to those who can affect achievement of its objectives. These constituencies include consumers, employees, suppliers, and distributors. Failure to consider a company’s broader constituencies when making decisions can have dire consequences. For example, Volkswagen AG was widely criticized for employing sophisticated software on selected Volkswagen, Audi, and Porsche models that impaired its diesel emissions devices required by the U.S. Environmental Protection Agency.39 Volkswagen AG executives admitted that the company engaged in emissions deception practices and agreed to pay up to $25 billion in settlement fees.40 Societal Responsibility An even broader concept of social responsibility has emerged in recent years. Societal responsibility refers to obligations that organizations have (1) to the preservation of the ecological environment and (2) to the general public. Emphasis is placed on the triple bottom line —recognition of the need for organizations to improve the state of people, the planet, and profit

simultaneously if they are to achieve sustainable, long-term growth.41 Marketers have embraced societal responsibility through sustainable marketing, which seeks to meet today’s (global) economic, environmental, and social needs without compromising the opportunity for future generations to meet theirs. Green marketing, cause marketing, social audits, and sustainable development reflect this recognition. Green marketing —marketing efforts to produce, promote, and reclaim environmentally sensitive products—takes many forms.42 At 3M, product development opportunities emanate both from consumer research and its “Pollution Prevention Pays” (3P) program. This program solicits employee suggestions on how to reduce pollution and recycle materials. This program has generated over 11,000 3P projects that have eliminated more than 2 billion tons of air, water, and solidwaste pollutants from the environment. Levi Strauss & Co. uses eight recycled plastic bottles in each pair of Waste