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THE MKTG SOLUTION
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CHA P TE R
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CHA P TE R
Strategic Planning for

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MKTG
LAMB / HAIR / MCDANIEL
10 BRIEF CONTENTS
PART 1 THE WORLD OF MARKETING

1 An Overview of Marketing 2
2 Strategic Planning for Competitive Advantage 14
3 Ethics and Social Responsibility 30
4 The Marketing Environment 46
5 Developing a Global Vision 66
PART 2 ANALYZING MARKET OPPORTUNITIES

6 Consumer Decision Making 88
7 Business Marketing 114
8 Segmenting and Targeting Markets 132
9 Marketing Research 150
PART 3 PRODUCT DECISIONS

10 Product Concepts 172
11 Developing and Managing Products 188
12 Services and Nonprofit Organization Marketing 204
PART 4 DISTRIBUTION DECISIONS

13 Supply Chain Management and Marketing Channels 218
14 Retailing 244
PART 5 PROMOTION AND COMMUNICATION STRATEGIES

15 Marketing Communications 262
16 Advertising, Public Relations, and Sales Promotion 280
17 Personal Selling and Sales Management 302
18 Social Media and Marketing 322
PART 6 PRICING DECISIONS

19 Pricing Concepts 340
Endnotes 362
Index 375
Bloomberg via Getty Images
iii
CONTENTS
2-10 Following Up on the Marketing
Part 1 Plan 28
2-11 Effective Strategic Planning 29
THE WORLD OF
MARKETING 3 Responsibility
Ethics and Social
30
3-1 Determinants of a Civil Society 30
3-2 The Concept of Ethical Behavior 32
3-3 Ethical Behavior in Business 34
3-4 Corporate Social Responsibility 38
3-5 Arguments for and Against Social
Responsibility 39
3-6 Cause-Related Marketing 44
Iofoto/Shutterstock.com
4 Environment
The Marketing
46
1 An Overview of Marketing 2
4-1 The External Marketing Environment
4-2 Social Factors 49
46
1-1 What is Marketing? 2 4-3 Demographic Factors 51

1-2 Marketing Management Philosophies 4 4-4 Growing Ethnic Markets 55
1.3 Differences Between Sales and Market 4-5 Economic Factors 57
Orientations 7
4-6 Technological Factors 59
1-4 Why Study Marketing? 13
4-7 Political and Legal Factors 60
4-8 Competitive Factors 64
2 Strategic Planning for

Competitive Advantage 14 5 Vision
Developing a Global
2-1 The Nature of Strategic Planning 14
66
2-2 Strategic Business Units 15 5-1 Rewards of Global Marketing and the Shifting Global
Business Landscape 66
2-3 Strategic Alternatives 16
5-2 Multinational Firms 70
2-4 Defining the Business Mission 21
5-3 External Environment Faced by Global
2-5 Conducting a Situation Analysis 22 Marketers 71
2-6 Competitive Advantage 22 5-4 Global Marketing by the Individual
2-7 Setting Marketing Plan Objectives 25 Firm 80
2-8 Describing the Target Market 26 5-5 The Global Marketing Mix 82
2-9 The Marketing Mix 26 5-6 The Impact of the Internet 86
iv
Part 2 7 Business Marketing 114
ANALYZING
7-1 What Is Business Marketing? 114
7-2 Trends in B-to-B Internet Marketing 115
MARKET 7-3 Relationship Marketing and Strategic Alliances 118
OPPORTUNITIES
7-4 Major Categories of Business Customers 120
7-5 The North American Industry Classification
System 121
7-6 Business versus Consumer Markets 122
7-7 Types of Business Products 125
7-8 Business Buying Behavior 126
8 Segmenting and Targeting

leaada/Shutterstock.come
Markets 132
8-1 Markets and Market Segments 132
8-2 The Importance of Market Segmentation 133
8-3 Criteria for Successful Segmentation 134
6 Consumer
Making 88
Decision
8-4 Bases for Segmenting Consumer Markets
8-5 Bases for Segmenting Business Markets 140
134
8-6 Steps in Segmenting a Market 141

6-1 The Importance of Understanding Consumer 8-7 Strategies for Selecting Target Markets 142
Behavior 88
8-8 CRM as a Targeting Tool 145
6-2 The Consumer Decision-Making Process 90
8-9 Positioning 146
6-3 Postpurchase Behavior 95
6-4 Types of Consumer Buying Decisions and Consumer
Involvement 96 9 Marketing Research 150
6-5 Cultural Influences on Consumer Buying 9-1 The Role of Marketing Research 150
Decisions 101 9-2 Steps in a Marketing Research Project 152
6-6 Social Influences on Consumer Buying 9-3 The Profound Impact of the Internet on Marketing
Decisions 104 Research 165
6-7 Individual Influences on Consumer Buying 9-4 The Growing Importance of Mobile Research 168
Decisions 107
9-5 Scanner-Based Research 169
6-8 Psychological Influences on Consumer Buying
Decisions 109 9-6 When Should Marketing Research Be
Conducted? 169
9-7 Competitive Intelligence 170
CONTENTS v
12-6 Internal Marketing in Service Firms 213
Part 3 12-7 Nonprofit Organization Marketing 213
PRODUCT
12-8 Global Issues in Services Marketing 216
DECISIONS Part 4
DISTRIBUTION
DECISIONS
Paket/Shutterstock.com
Bill Pugliano/Getty Images News/Getty Images

10 Product Concepts 172
10-1 What Is a Product? 172
10-2 Types of Consumer Products 173
10-3 Product Items, Lines, and Mixes
10-4 Branding 178
174
13 Supply Chain Management
and Marketing Channels 218
10-5 Packaging 182
13-1 Supply Chains and Supply Chain Management 218
10-6 Global Issues in Branding and Packaging 185
13-2 Supply Chain Integration 220
10-7 Product Warranties 185
13-3 The Key Processes of Supply Chain
11 Developing
Management 222
and Managing 13-4 Sustainable Supply Chain Management 226
Products 188 13-5 Trends in Supply Chain Management 227
11-1 The Importance of New Products 188 13-6 Marketing Channels and Channel
11-2 The New-Product Development Process 190 Intermediaries 232
11-3 Why Some Products Succeed and Others Fail 197 13-7 Channel Structures 235
11-4 Global Issues in New-Product Development 198 13-8 Omnichannel versus Multichannel Marketing 241
14 Retailing
11-5 The Spread of New Products 198
11-6 Product Life Cycles 200 244
14-1 The Importance of Retailing 244
12 Services and Nonprofit

Organization Marketing 204
14-2 Types of Retailers and Retail Operations
14-3 The Rise of Nonstore Retailing 249
245
14-4 Retail Operations Models 250

12-1 The Importance of Services 204 14-5 Executing a Retail Marketing Strategy 252
12-2 How Services Differ from Goods 205 14-6 Retailing Decisions for Services 256
12-3 Service Quality 206 14-7 Addressing Retail Product/Service Failures 257
12-4 Marketing Mixes for Services 209 14-8 Retailer and Retail Customer Trends and
12-5 Relationship Marketing in Services 212 Advancements 257
vi CONTENTS
Part 5 17 Personal Selling and Sales
Management 302
PROMOTION AND 17-1 The Sales Environment 302
COMMUNICATION 17-2 Personal Selling

17-3 Relationship Selling
303
304
STRATEGIES 17-4 Steps in the Selling Process 306
17-5 Sales Management 313
17-6 Customer Relationship Management and the Sales
Process 315
18 Social Media and

Marketing 322
iStockphoto.com/Uschools
18-1 What Are Social Media? 322
18-2 Creating and Leveraging a Social Media Campaign 327
18-3 Evaluation and Measurement of Social Media 329
18-4 Social Behavior of Consumers 330
18-5 Social Media Tools: Consumer- and Corporate-
15 Marketing
Communications 262
Generated Content 331
18-6 Social Media and Mobile Technology 337
18-7 The Social Media Plan 338
15-1 The Role of Promotion in the Marketing Mix 262
Part 6
15-2 Marketing Communication 263
15-3 The Goals of Promotion 267
15-4 The Promotional Mix
15-5 Promotional Goals and the AIDA Concept
268
273
PRICING
15-6 Integrated Marketing Communications 275 DECISIONS
15-7 Factors Affecting the Promotional Mix 275
16 Advertising, Public
Relations, and Sales
Promotion 280
little Whale/Shutterstock.com
16-1 The Effects of Advertising 280
16-2 Major Types of Advertising 283
16-3 Creative Decisions in Advertising 285
16-4 Media Decisions in Advertising 288
16-5 Public Relations 294
16-6 Sales Promotion 297
19 Pricing Concepts 340
19-1 The Importance of Price 340
19-2 Pricing Objectives 342
CONTENTS vii
19-3 The Demand Determinant of Price 344 19-8 The Legality of Price Strategy 354
19-4 The Power of Dynamic Pricing and Yield Management 19-9 Tactics for Fine-Tuning the Base Price 355
Systems 345 Endnotes 362
19-5 The Cost Determinant of Price 346 Index 375
19-6 Other Determinants of Price 348
19-7 How to Set a Price on a Product 352
viii CONTENTS
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An Overview of Marketing
C H APTER

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1 An Overview
of Marketing
LEARNING OUTCOMES
After studying this chapter, you will be able to…
1-1 Define the term marketing

After you finish
1-2 Describe four marketing management philosophies this chapter go
1-3 Discuss the differences between sales and market orientations to PAGE13 for
Iofoto/Shutterstock.com
1-4 Describe several reasons for studying marketing STUDY TOOLS.
1-1 WHAT IS MARKETING?

What does the term marketing mean to you? Many people think
marketing means personal selling. Others think it means advertising. Still
others believe marketing has to do with making products available in
stores, arranging displays, and maintaining inventories of products for
future sales. Actually, marketing includes all of these activities and more.
Marketing has two facets. First, it is a “Marketing is too have value for customers, clients, part-
philosophy, an attitude, a perspective, or ners, and society at large.1
important to be left only to
a management orientation that stresses Marketing involves more than just
customer satisfaction. Second, market- the marketing department.” activities performed by a group of peo-
ing is an organization function and a — DAVID PACKARD, COFOUNDER ple in a defined area or department. In
set of processes used to implement this OF HEWLETT-PACKARD the often-quoted words of David Pack-
philosophy. ard, co-founder of Hewlett-Packard,
The American Marketing Associa- “Marketing is too important to be left
tion’s definition of marketing focuses on the second facet. only to the marketing department.” Marketing entails
According to the AMA, processes that focus on delivering value and benefits
marketing the activity, set
of institutions, and processes for marketing is the activity, to customers, not just selling goods, services, and/or
creating, communicating, delivering, set of institutions, and pro- ideas. It uses communication, distribution, and pricing
and exchanging offerings that have cesses for creating, com- strategies to provide customers and other stakehold-
value for customers, clients, partners, municating, delivering, and ers with the goods, services, ideas, values, and benefits
and society at large
exchanging offerings that they desire when and where they want them. It involves
2 PART ONE:
CHAPTER
The World
1: 1 of Marketing
building long-term, mutually rewarding
relationships when these benefit all parties
concerned. Marketing also entails an un-
derstanding that organizations have many
connected stakeholder “partners,” includ-
ing employees, suppliers, stockholders,
distributors, and others.
Research shows that companies that
consistently reward employees with incen-
tives and recognition are those that perform
best, while disgruntled, disengaged workers
Zuma Press, Inc./Alamy

cost the United States economy upward of
$350 billion a year in lost productivity.2 In
2014, Google captured the number one po-
sition in Fortune’s “100 Best Companies to
Work For” for the third year in a row. The
Google offers many amenities to its employees, part
company pays 100 percent of employees’
of the reason Fortune ranked it as the best company
health care premiums, offers paid sabbati-
cals, and provides bocce courts, a bowling to work for in 2012, 2013, and 2014.
alley, and twenty-five cafés—all for free.
Google has also never had a layoff. One so-
called Googler reported that “employees are never we think of money as the
more than 150 feet away from a well-stocked pantry.”3 medium of exchange. We exchange people giving
One desired outcome of marketing is an “give up” money to “get” up something in order to receive
exchange—people giving up something in order to re- the goods and services something else they would
rather have
ceive something else they would rather have. Normally, we want. Exchange does
CHAPTER 1: An Overview of Marketing 3
not require money, however. Two (or more) people management assesses its resources and asks these ques-
may barter or trade such items as baseball cards or oil tions: “What can we do best?” “What can our engineers
paintings. design?” “What is easy to produce, given our equip-
An exchange can take place only if the following five ment?” In the case of a service organization, managers
conditions exist: ask, “What services are most convenient for the firm to
1. There must be at least two parties. offer?” and “Where do our talents lie?” The furniture in-
dustry is infamous for its disregard of customers and for
2. Each party has something that might be of value to its slow cycle times. For example, most traditional fur-
the other party. niture stores (think Ashley or Haverty’s) carry the same
3. Each party is capable of communication and delivery. styles and varieties of furniture that they have carried for
4. Each party is free to accept or reject the exchange many years. They always produce and stock sofas, coffee
offer. tables, arm chairs, and end tables for the living room.
Master bedroom suites always include at least a queen-
5. Each party believes it is appropriate or desirable to
or king-sized bed, two dressers, and two side tables.
deal with the other party.4
Regardless of what customers may actually be looking
Exchange will not necessarily take place even if all for, this is what they will find at these stores—and they
these conditions exist, but they must exist for exchange have been so long-lived because what they produce has
to be possible. For example, suppose you place an adver- matched up with customer expectations. This has always
tisement in your local newspaper stating that your used been a production-oriented industry.
automobile is for sale at a certain price. Several people There is nothing wrong with assessing a firm’s ca-
may call you to ask about the car, some may test-drive pabilities; in fact, such assessments are major consider-
it, and one or more may even make you an offer. All five ations in strategic marketing planning (see Chapter 2).
conditions that are necessary for an exchange to occur A production orientation falls short because it does not
exist in this scenario. But unless you reach an agreement consider whether the goods and services that the firm
with a buyer and actually sell the car, an exchange will produces most efficiently also meet the needs of the
not take place. marketplace. Sometimes what a firm can best produce
Notice that marketing can occur even if an exis exactly what the market wants. Apple has a history of
change does not occur. In the example just discussed, production orientation, creating computers, operating
you would have engaged in marketing by advertising in systems, and other gadgetry because it can and hoping
the local newspaper even if no one bought your used to sell the result. Some items have found a waiting mar-
automobile. ket (early computers, iPod, iPhone). Other products,
like the Newton, one of the first versions of a PDA, were
simply flops.
1-2 MARKETING MANAGEMENT In some situations, as when competition is weak or
demand exceeds supply, a production-oriented firm can
PHILOSOPHIES survive and even prosper. More often, however, firms
that succeed in competitive markets have a clear under-
Four competing philosophies strongly influence an standing that they must first determine what customers
organization’s marketing processes. These philoso- want and then produce it, rather than focus on what
phies are commonly referred to as production, sales, mar- company management thinks should be produced and
ket, and societal marketing orientations. hope that the product is something customers want.
production orientation
1-2a Production 1-2b Sales Orientation
a philosophy that focuses on the Orientation A sales orientation is based on the belief that peo-
internal capabilities of the firm
rather than on the desires and A production orientation ple will buy more goods and services if aggressive sales
needs of the marketplace is a philosophy that focuses techniques are used and that high sales result in high
sales orientation the belief on the internal capabili- profits. Not only are sales to the final buyer empha-
that people will buy more goods ties of the firm rather than sized, but intermediaries are also encouraged to push
and services if aggressive sales on the desires and needs of manufacturers’ products more aggressively. To sales-
techniques are used and that high the marketplace. A produc- oriented firms, marketing means selling things and
sales result in high profits
tion orientation means that collecting money.
4 PART ONE: The World of Marketing
business thinks it produces is not of primary importance
Lightning Does to its success. Instead, what customers think they are buy-
ing—the perceived value—defines a business. The mar-
Not Strike Twice keting concept includes the following:
● Focusing on customer wants and needs so that the
One of the dangers organization can distinguish its product(s) from com-
of a sales orientation petitors’ offerings
is failing to under- ● Integrating all the organization’s activities, including
stand what is im- production, to satisfy customer wants
portant to the firm’s
customers. When
● Achieving long-term goals for the organization by
that occurs, sales- satisfying customer wants and needs legally and
oriented firms some- responsibly
times use aggressive The recipe for success is to develop a thorough un-
incentives to drive derstanding of your customers and your competition,
sales. For example, your distinctive capabilities that enable your company to
after Apple received execute plans on the basis of this customer understand-
complaints about ing, and how to deliver the desired experience using and
the $49 selling price integrating all of the resources of the firm. For example,
JMiks/Shutterstock.com
of its Thunderbolt Kellogg’s recently introduced Open for Breakfast, a fo-

cable, the company rum the company uses to connect with consumers about
reduced the cable’s what they are eating for breakfast. The program is also
price to $39 and used to share stories about the foods the company makes
introduced a shorter and its pledge to care for the environment.6
$29 version. The company hoped to spark sales of Firms that adopt and implement the marketing con-
the optical data transfer cable, compatible only with cept are said to be market oriented, meaning they as-
Apple’s newest line of computers and laptops.5 sume that a sale does not depend on an aggressive sales
“Josh Lowensohn, “Apple’s Thunderbolt Cable Gets a Price Drop, Shorter Version,” CNET, force but rather on a customer’s decision to purchase
January 9, 2013, http://news.CNET.com/8301-13579_3-57563157-37/apples-thunderbolt
-cable-gets-a-price-drop-shorter-version (Accessed January 10, 2015).” a product. Achieving a market orientation involves ob-
taining information about customers, competitors, and
markets; examining the information from a total business
The fundamental problem with a sales orientation, as perspective; determining how to deliver superior cus-
with a production orientation, is a lack of understanding of tomer value; and implementing actions to provide value
the needs and wants of the mar- to customers.
ketplace. Sales-oriented compa- Some firms are known for delivering superior cus-
nies often find that, despite the tomer value and satisfaction. For example, in 2014, J.D.
quality of their sales force, they Power and Associates ranked Cadillac highest in
cannot convince people to buy customer satisfaction among luxury auto-
goods or services that are neither motive brands, while Buick ranked
wanted nor needed.
marketing concept the

1-2c Market Orientation idea that the social and economic
The marketing concept is a justification for an organization’s
existence is the satisfaction of
simple and intuitively appealing customer wants and needs while
philosophy that articulates a mar- meeting organizational objectives
Oliver Hoffmann/Shutterstock.com
ket orientation. It states that the

market orientation a philosophy
social and economic justification that assumes that a sale does not
for an organization’s existence depend on an aggressive sales force
is the satisfaction of customer but rather on a customer’s decision to
wants and needs while meeting purchase a product; it is synonymous
with the marketing concept
organizational objectives. What a
highest among mass-market brands.7 Rank- recognizes the importance of a societal mar-
ings such as these, as well as word-of- keting orientation by including “society
mouth from satisfied customers, drive at large” as one of the constituencies for
additional sales for these automotive which marketing seeks to provide value.
companies. Although the societal marketing con-
Understanding your competitive cept has been discussed for more than
arena and competitors’ strengths and thirty years, it did not receive widespread
weaknesses is a critical component of a support until the early 2000s. Concerns
market orientation. This includes assess- such as climate change, the depleting of
ing what existing or potential competitors the ozone layer, fuel shortages, pollution,
intend to do tomorrow and what they are and health issues have caused consumers
doing today. For example, BlackBerry and legislators to become more aware of
(formerly Research in Motion) failed to the need for companies and consumers to
realize it was competing against com- adopt measures that conserve resources
puter companies as well as telecom and cause less damage to the environment.
companies, and its wireless handsets Studies reporting consumers’ at-
were quickly eclipsed by offerings from titudes toward, and intentions to buy,
Google, Samsung, and Apple. Had environmentally friendly products show
BlackBerry been a market-oriented com- widely varying results. A Nielsen study
LunaseeStudios/Shutterstock.com
pany, its management might have better found that while eighty-three percent of
understood the changes taking place in consumers worldwide believe companies
the market, seen the competitive threat, should have environmental programs,
and developed strategies to counter the only twenty-two percent would pay more
threat. Instead, it reentered the market for an eco-friendly product. The key to
after a five-year slump with the wholly re- consumer purchasing lies beyond labels
designed BlackBerry 10 operating system proclaiming sustainability, natural ingre-
and sleek new flagship phones. These new products dients, or “being green.” Customers want sustainable
were fairly well received, but they failed to push Black- products that perform better than their unsustainable
Berry back into the smartphone spotlight. By contrast, counterparts.9 Unilever, whose brands include Dove,
American Express’s success has rested largely on the Lipton, Hellmann’s, and Ben & Jerry’s, is one company
company’s ability to focus on customers and adapt to that puts sustainability at the core of its business. It has
their changing needs over the past 160 years.8 promised both to cut its environmental footprint in half
and to source all its agricultural products in ways that do
1-2d Societal Marketing Orientation not degrade the earth by 2020. The company also pro-
motes the well-being of one billion people by producing
The societal marketing orientation extends the
foods with less salt and fat and has developed campaigns
marketing concept by acknowledging that some prod- advocating hand washing and teeth brushing.10
ucts that customers want may not really be in their best
interests or the best interests of society as a whole. This
philosophy states that an organization exists not only to
1-2e Who Is in Charge?
satisfy customer wants and needs and to meet organiza- The Internet and the widespread use of social media
tional objectives but also to preserve or enhance indi- have accelerated the shift in power from manufactur-
viduals’ and society’s long-term best interests. Marketing ers and retailers to consumers and business users. This
products and containers that are less toxic than normal, shift began when customers began using books, elec-
are more durable, contain tronics, and the Internet to access information, goods,
societal marketing reusable materials, or are and services. Customers use their widespread knowl-
orientation the idea that an made of recyclable ma- edge to shop smarter, leading executives such as for-
organization exists not only to satisfy
terials is consistent with mer Procter & Gamble CEO A. G. Lafley to conclude
customer wants and needs and
to meet organizational objectives a societal marketing ori- that “the customer is boss.”11 Founder of Walmart and
but also to preserve or enhance entation. The American Sam’s Club Sam Walton echoed this sentiment when
individuals’ and society’s long-term Marketing Association’s he reportedly once said, “There is only one boss. The
best interests
definition of marketing customer. And he can fire everybody in the company
from the chairman on down, simply by spending his be perceived as a good value, nor will bare-bones ser-
money somewhere else.”12 The following quotation, vice or low-quality goods selling for a low price. Price
attributed to everyone from L.L.Bean founder Leon is a component of value (a $4,000 handbag is perceived
Leonwood Bean to Mahatma Gandhi, has been a guid- as being more luxurious and of higher quality than one
ing business principle for more than seventy years: “A selling for $100), but low price is not the same as good
customer is the most important visitor on our prem- value. Instead, customers value goods and services that
ises. He is not dependent on us. We are dependent are of the quality they expect and that are sold at prices
on him. He is not an interruption in our work. He is they are willing to pay.
the purpose of it. He is not an outsider in our busi- Value can be used to sell a Mercedes-Benz as well
ness. He is part of it. We are not doing him a favor by as a Tyson frozen chicken dinner. In other words, value
serving him. He is doing us a favor by giving us an op- is something that shoppers of all markets and at all
portunity to do so.”13 And as Internet use and mobile income levels look for. Lower-income consumers are
devices become increasingly pervasive, that control price sensitive, but they will pay for products if they
will continue to grow. This means that companies must deliver a benefit that is worth the money.16 Conversely,
create strategy from the outside in by offering distinct wealthy customers with money to spend may value the
and compelling customer value.14 This can be accom- social message of their purchases above all else. These
plished only by carefully studying customers and using shoppers are being courted by a new breed of social
deep market insights to inform and guide companies’ shopping sites. The basic premise is that a well-known
outside-in view.15 fashion name (be it a fashion editor, elite socialite, or
celebrity) moderates sites by handpicking pieces from
favorite retailers, such as Barneys New York or Saks
1-3 DIFFERENCES BETWEEN SALES Fifth Avenue. Shoppers then purchase the curated
AND MARKET ORIENTATIONS items, and the site receives commission for each pur-
chase. There are many of these sites; Moda Operan-
di has highlighted (and sold out of) woven skirts for
The differences between sales and market orien- $4,000 each, Motilo focuses on French fashion (in-
tations are substantial. The two orientations can be cluding couture pieces), and Fino File is an online,
compared in terms of five characteristics: the organiza- shopable magazine, with pieces ranging from $80 tops
tion’s focus, the firm’s business, those to whom the prod- to $1,000 boots. With reports of growing subscribers
uct is directed, the firm’s primary goal, and the tools used and sold-out merchandise, it is clear that these sites
to achieve the organization’s goals. are attracting customers who value curated style.17
1-3a The Organization’s Focus CUSTOMER SATISFACTION The customers’ evalua-

tion of a good or service in terms of whether that good
Personnel in sales-oriented firms tend to be inward or service has met their needs and expectations is called
looking, focusing on selling what the organization makes customer satisfaction. Failure to meet needs and
rather than making what the market wants. Many of the expectations results in dissatisfaction with the good
historic sources of competitive advantage—technology, or service. Some companies, in their passion to drive
innovation, economies of scale—allowed companies to down costs, have damaged their relationships with cus-
focus their efforts internally and prosper. Today, many tomers. Bank of America, Comcast, Dish Network, and
successful firms derive their competitive advantage AT&T are examples of companies where executives
from an external, market-oriented focus. A market ori- lost track of the delicate balance between efficiency
entation has helped companies such as Zappos.com and and service.18 Firms that have a reputation for deliver-
Bob’s Red Mill Natural Foods outperform their coming high levels of customer satisfaction do things dif-
petitors. These companies put customers at the center ferently from their com-
of their business in ways most companies do poorly or petitors. Top management customer value the relationship
not at all. is obsessed with customer between benefits and the sacrifice
CUSTOMER VALUE The relationship between ben- satisfaction, and employ- necessary to obtain those benefits
efits and the sacrifice necessary to obtain those ben- ees throughout the orga- customer satisfaction
efits is known as customer value. Customer value nization understand the customers’ evaluation of a good or
is not simply a matter of high quality. A high-quality link between their job and service in terms of whether it has met
their needs and expectations
product that is available only at a high price will not satisfied customers. The
MARKETERS INTERESTED IN CUSTOMER VALUE . . .
▸ Offer products that perform: This is the bare
minimum requirement. After grappling with the
problems associated with its Vista operating system,
Microsoft listened to its customers and made dras-
tic changes for Windows 7, which received greatly
improved reviews. Microsoft’s subsequent release,
Windows 8, performed even better than Windows
Northfoto/Shutterstock.com
7, but consumers were much slower to embrace the
operating system’s incremental improvements.
▸ Earn trust: A stable base of loyal customers can help

a firm grow and prosper. To attract customers, online
eyewear company Coastal.com offers a First Pair
Free program, whereby new customers receive their to start with the needs of the customer and work
first pair of prescription eyeglass for free. Moreover, toward the solution.
Coastal.com offers 366-day returns and encourages
▸ Offer organization-wide commitment in
its staff members to do whatever it takes to ensure
that customers are delighted by a smooth and stress- service and after-sales support: Upscale
free experience. Coastal.com’s dedication to earning fashion retailer Nordstrom is widely known for its
customers’ trust is evident—in 2013, the company company-wide support system. If a customer finds
received the STELLA Service elite seal for excellence in that a competitor has reduced the price of an item also
outstanding customer service.19 sold at Nordstrom, Nordstrom will match the other re-
tailer’s price and credit the customer’s account—even
▸ Avoid unrealistic pricing: E-marketers are lever- long after the sale is made. Customer service agents
aging Internet technology to redefine how prices are at each of Nordstrom’s 117 locations are knowledge-
set and negotiated. With lower costs, e-marketers can able and eager to assist customers before, during, or
often offer lower prices than their brick-and-mortar after a sale, and strive to make the return process as
counterparts. The enormous popularity of auction painless as possible. This attention to customer service
sites such as eBay and the customer-bid model used is carried through to Nordstrom’s online store as well:
by Priceline and uBid.com illustrates that online every order receives free shipping, as well as free re-
customers are interested in bargain prices. In fact, as turn shipping. However and wherever they place their
smartphone usage grows, brick-and-mortar stores are orders, customers know that Nordstrom will support
up against customers who compare prices using their them throughout—and long after—the checkout
smartphones and purchase items for less online while process.21
standing in the store.
▸ Co-create: Some companies and products allow
▸ Give the buyer facts: Today’s sophisticated customers to help create their own experience. For ex-
consumer wants informative advertising and knowl- ample, Case-Mate, a firm that makes form-fitting cases
edgeable salespeople. It is becoming very difficult for cell phones, laptops, and other personal devices,
for business marketers to differentiate themselves allows customers to design their own cases by upload-
from competitors. Rather than trying to sell prod- ing their own photos. Customers who do not have
ucts, salespeople need to find out what the customer designs of their own can manipulate art from design-
needs, which is usually a combination of friendli- ers using the “design with” feature at case-mate.com.
ness, understanding, fairness, control, options, and Either way, customers produce completely unique
information.20 In other words, salespeople need covers for their devices.
culture of the organization is to focus on delighting health insurance provider, executed the first type of
customers rather than on selling products. change—changing its decentralized, part-time customer
Coming back from customer dissatisfaction can be service group into a full-time, centralized customer service
tough, but there are some key ways that companies be- team. Aetna’s CxPi score rose six points in one year. Office
gin to improve customer satisfaction. Forrester Research Depot executed the second type of change—addressing
discovered that when companies experience gains in customer “pain points” and making sure that what cus-
the firm’s Customer Experience Index (CxPi), they have tomers need is always available to them. By streamlining
implemented one of two major changes. Aetna, a major its supply chain and adding more stylish office products,
Office Depot satisfied business customers and female Customer-oriented personnel come from an orga-
shoppers, increasing its CxPi by nine points.22 nizational culture that supports its people. Marriott, a
multibillion dollar worldwide hotel chain, believes that
BUILDING RELATIONSHIPS Attracting new custom- treating employees well contributes to good customer
ers to a business is only the beginning. The best com- service. The company has been among Fortune’s “100
panies view new-customer attraction as the launching Best Companies to Work For” every year since the
point for developing and enhancing a long-term rela- magazine introduced the list in 1998. For example, dur-
tionship. Companies can expand market share in three ing the recent recession, Marriott ensured that all of its
ways: attracting new customers, increasing business with employees kept their benefits despite shorter shifts. For
existing customers, and retaining current customers. its focus on customer satisfaction, Marriott received the
Building relationships with existing customers directly number three ranking on MSN.com’s 2014 Customer
addresses two of the three possibilities and indirectly Service Hall of Fame.24
addresses the other. Some companies, such as Coca-Cola, Delta Air
Relationship marketing is a strategy that focus- Lines, Hershey, Kellogg, Nautilus, and Sears, have ap-
es on keeping and improving relationships with current pointed chief customer officers (CCOs). These customer
customers. It assumes that many consumers and busi- advocates provide an executive voice for customers and
ness customers prefer to have an ongoing relationship report directly to the CEO. Their responsibilities include
with one organization rather than switch continually ensuring that the company maintains a customer-centric
among providers in their search for value. Chicago- culture and that all company employees remain focused
based software company 37signals decided to focus its on delivering customer value.
marketing budget on help-
ing current customers get The Role of Training Lea-
ding marketers recognize the
AP Images/PRNewsFoto/Fairfield Inn & Suites by Marriott

more out of the software
they already have rather than role of employee training in
targeting new customers. customer service and rela-
The company would rather tionship building. Sales staff
expand current customers’ at the Container Store re-
awareness of what is possible ceive more than 240 hours of
with its products than focus training and generous ben-
on short term sales. This
23 efits compared to an industry
long-term focus on customer average of 8 hours of training
needs is a hallmark of rela- and modest benefits.
tionship marketing.
Most successful relation- Marriott’s customer-oriented focus is Empowerment In addi-
evident in initiatives like the Fairfield tion to training, many market-
ship marketing strategies de-
Inn & Suites “Some Like It Hot” food oriented firms are giving
pend on customer-oriented
truck, which serves hot, made-to-order employees more authority to
personnel, effective training
solve customer problems on
programs, employees with breakfasts to customers for free.
the spot. The term used to
the authority to make deci-
describe this delegation of au-
sions and solve problems,
thority is empowerment.
and teamwork.
Employees develop ownership attitudes when they are
Customer-Oriented Personnel For an organization treated like part-owners of the business and are expect-
to be focused on building relationships with customers, ed to act the part. These
employees’ attitudes and actions must be customer ori- employees manage them- relationship marketing a
ented. An employee may be the only contact a particular selves, are more likely to strategy that focuses on keeping and
customer has with the firm. In that customer’s eyes, the work hard, account for improving relationships with current
employee is the firm. Any person, department, or divi- their own performance and customers
sion that is not customer oriented weakens the positive that of the company, and empowerment delegation of
image of the entire organization. For example, a potential take prudent risks to build authority to solve customers’ problems
customer who is greeted discourteously may well assume a stronger business and sus- quickly—usually by the first person the
that the employee’s attitude represents the whole firm. customer notifies regarding a problem
tain the company’s success.
telecommunications service representatives is working
to improve interaction with customers, back-office peo-
ple such as computer technicians or training personnel
can become part of the team, with the ultimate goal of
delivering superior customer value and satisfaction.
1-3b The Firm’s Business

A sales-oriented firm defines its business (or mission) in
terms of goods and services. A market-oriented firm de-
fines its business in terms of the benefits its customers
seek. People who spend their money, time, and energy
Rawpixel/Shutterstock.com
expect to receive benefits, not just goods and services.
This distinction has enormous implications. As Michael
Mosley, director of office operations at health care pro-
vider Amedisys Home Health, notes, “We’re in the busi-
ness of making people better.”26 Answering the question
An emphasis on cooperation over “What is this firm’s business?” in terms of the benefits
customers seek, instead of goods and services, offers at
competition can help a company’s
least three important advantages:
performance improve. That is why many
companies have moved to using teams to ● It ensures that the firm keeps focusing on customers
get jobs done. and avoids becoming preoccupied with goods, services,
or the organization’s internal needs.
● It encourages innovation and creativity by reminding
In order to empower its workers, the Ritz-Carlton chain people that there are many ways to satisfy customer
of luxury hotels developed a set of twelve “Service Values” wants.
guidelines. These brief, easy-to-understand guidelines ● It stimulates an awareness of changes in customer
include statements such as “I am empowered to cre-
desires and preferences so that product offerings are
ate unique, memorable and personal experiences for our
more likely to remain relevant.
guests” and “I own and immediately resolve guest prob-
lems.” The twelve Service Values are printed on cards dis- Because of the limited way it defines its business, a
tributed to employees, and each day a particular value is sales-oriented firm often misses opportunities to serve
discussed at length in Ritz-Carlton team meetings. Employ- customers whose wants can be met through a wide range
ees talk about what the value means to them and offer ex- of product offerings instead of through specific products.
amples of how the value can be put into practice that day.25 For example, in 1989, 220-year-old Britannica had esti-
mated revenues of $650 million and a worldwide sales
Teamwork Many organizations that are frequently not- force of 7,500. Just five years later, after three consecu-
ed for delivering superior customer value and providing tive years of losses, the sales force had collapsed to as few
high levels of customer satisfaction, such as Southwest as 280 representatives. How did this respected company
Airlines and Walt Disney World, assign employees to sink so low? Britannica managers saw that competitors
teams and teach them team-building skills. Teamwork were beginning to use CD-ROMs to store huge masses
entails collaborative efforts of people to accomplish com- of information but chose to ignore the new computer
mon objectives. Job performance, company performance, technology as well as an offer to team up with Microsoft.
product value, and customer satisfaction all improve In 2012, the company announced that it would stop
when people in the same department or work group be- printing its namesake books and instead focus on selling
gin supporting and assisting each other and emphasize co- its reference works to subscribers through its Web site
operation instead of competition. Performance is also en- and apps for tablets and smartphones.27
hanced when cross-func- Having a market orientation and a focus on customer
teamwork collaborative efforts tional teams align their wants does not mean offering customers everything
of people to accomplish common jobs with customer needs. they want. It is not possible, for example, to profitably
objectives
For example, if a team of manufacture and market automobile tires that will last
for 100,000 miles for twenty-five dollars. Furthermore, Customer relationship management (CRM) is a
customers’ preferences must be mediated by sound pro- company-wide business strategy designed to optimize
fessional judgment as to how to deliver the benefits they profitability, revenue, and customer satisfaction by fo-
seek. As Henry Ford once said, “If I had asked people cusing on highly defined and precise customer groups.
what they wanted, they would have said faster horses.”28 This is accomplished by organizing the company around
Consumers have a limited set of experiences. They are customer segments, establishing and tracking customer
unlikely to request anything beyond those experiences interactions with the company, fostering customer-
because they are not aware of benefits they may gain satisfying behaviors, and linking all processes of the
from other potential offerings. For example, before the company from its customers through its suppliers. The
Internet, many people thought that shopping for some difference between CRM and traditional mass market-
products was boring and time-consuming but could not ing can be compared to shooting a rifle versus a shotgun.
express their need for electronic shopping. Instead of scattering messages far and wide across the
spectrum of mass media (the shotgun approach), CRM
1-3c Those to Whom the Product Is Directed marketers now are homing in on ways to effectively com-
municate with each customer (the rifle approach).
A sales-oriented organization targets its products at
Companies that adopt CRM systems are almost al-
“everybody” or “the average customer.” A market-oriented
ways market oriented, customizing product and service
organization aims at specific groups of people. The fal-
offerings based on data generated through interactions
lacy of developing products directed at the average user
between the customer and the company. This strategy
is that relatively few average users actually exist. Typically,
transcends all functional areas of the business, producing
populations are characterized by diversity. An average is
an internal system where all of the company’s decisions
simply a midpoint in some set of characteristics. Because
and actions are a direct result of customer information.
most potential customers are not “average,” they are not
We will examine specific applications of CRM in several
likely to be attracted to an average product marketed to
chapters throughout this book.
the average customer. Consider the market for shampoo
The emergence of on-demand marketing is
as one simple example. There are shampoos for oily hair,
taking CRM to a new level. As technology evolves and
dry hair, and dandruff. Some shampoos remove the gray
becomes more sophisticated, consumer expectations of
or color hair. Special shampoos are marketed for infants
their decision- and buying-related experiences have ris-
and elderly people. There are even shampoos for people
en. Consumers (1) want to interact anywhere, anytime;
with average or normal hair (whatever that is), but this
(2) want to do new things with varied kinds of informa-
is a fairly small portion of the total market for shampoo.
tion in ways that create value; (3) expect data stored about
A market-oriented organization recognizes that dif-
them to be targeted specifically to their needs or to per-
ferent customer groups want different features or ben-
sonalize their experiences; and (4) expect all interactions
efits. It may therefore need to develop different goods,
with a company to be easy. In response to these expecta-
services, and promotional appeals. A market-oriented or-
tions, companies are developing new ways to integrate and
ganization carefully analyzes the market and divides it into
personalize each stage of a customer’s decision journey,
groups of people who are fairly similar in terms of selected
which in turn should increase relationship-related behav-
characteristics. Then the organization develops market-
iors. On-demand marketing delivers relevant experiences
ing programs that will bring about mutually satisfying ex-
throughout the consum-
changes with one or more of those groups. For example,
er’s decision and buying customer relationship
Toyota developed a series of tongue-in-cheek videos and
process that are integrat- management (CRM) a
interactive Web pages featuring comedian Michael Show- company-wide business strategy
ed across both physical
alter to advertise the 2013 Yaris subcompact sedan. Toyota designed to optimize profitability,
and virtual environments.
used absurdist humor and an ironic slogan (“It’s a car!”) to revenue, and customer satisfaction by
Trends such as the growth focusing on highly defined and precise
appeal to Internet-savvy teens and young adults—a prime
of mobile connectivity, customer groups
market for inexpensive subcompact cars.29
better-designed Web sites,
on-demand marketing
CUSTOMER RELATIONSHIP MANAGEMENT Be- inexpensive communica- delivering relevant experiences,
yond knowing to whom they are directing their prod- tion through technology, integrated across both physical and
ucts or services, companies must also develop a deeper and advances in handling virtual environments, throughout
the consumer’s decision and
understanding of their customers. One way of do- big data have allowed com-
buying process
ing this is through customer relationship management. panies to start designing
on-demand marketing pro- profits. Nonprofit organizations can and should adopt
grams that appeal to con- a market orientation. Nonprofit organization market-
sumers. For on-demand ing is explored further in
marketing to be successful, Chapter 12.
companies must deliver
high-quality experiences 1-3e Tools the
across all touch points with Organization Uses
the customer, including
sales, service, product use,
to Achieve Its
and marketing. Goals
An example of on- Sales-oriented organizations
demand marketing is seek to generate sales volume
Commonwealth Bank of through intensive promo-
Australia’s new smart- tional activities, mainly per-
phone app that integrates sonal selling and advertising.
and personalizes the house In contrast, market-oriented
hunting experience. A pro- organizations recognize that
spective homebuyer starts promotion decisions are only
by taking a picture of a one of four basic market-
Arena Creative/Shutterstock.com
house he or she likes. Us- ing mix decisions that must

ing special software and be made: product decisions,
location-based technology, place (or distribution) deci-
the app finds the house sions, promotion decisions,
and provides the list price and pricing decisions. A
and other information, market-oriented organization
connects with the buyer’s recognizes that each of these
financial data, and deter- four components is important.
mines whether the buyer Furthermore, market-oriented
can be preapproved for a organizations recognize that
Using the correct tools for the job will
mortgage. This fast series marketing is not just a re-
help an organization achieve its goals.
of interactions decreases sponsibility of the marketing
Marketing tools for success are covered
the hassle of searching department. Interfunctional
real-estate agents’ sites for throughout this book.
coordination means that skills
a house and then connect- and resources throughout the
ing with agents, banks, and/ organization are needed to
or mortgage brokers—a process that traditionally takes create, communicate, and deliver superior customer
up to a week.30 service and value.
1-3d The Firm’s Primary Goal 1-3f A Word of Caution

A sales-oriented organization seeks to achieve prof- This comparison of sales and market orientations is
itability through sales volume and tries to convince not meant to belittle the role of promotion, especially
potential customers to buy, even if the seller knows personal selling, in the marketing mix. Promotion
that the customer and product are mismatched. Sales- is the means by which organizations communicate
oriented organizations place a higher premium on with present and prospective customers about the
making a sale than on developing a long-term relation- merits and characteristics of their organization and
ship with a customer. In contrast, the ultimate goal products. Effective promotion is an essential part of
of most market-oriented organizations is to make a effective marketing. Salespeople who work for market-
profit by creating customer value, providing custom- oriented organizations are generally perceived by
er satisfaction, and building long-term relationships their customers to be problem solvers and important
with customers. The exception is so-called nonprofit links to supply sources and new products. Chapter 18
organizations that exist to achieve goals other than examines the nature of personal selling in more detail.
1-4 WHY STUDY MARKETING? 1-4c Marketing Offers Outstanding
Career Opportunities
Now that you understand the meaning of the term Between one-fourth and one-third of the entire civilian
marketing, why it is important to adopt a market- workforce in the United States performs marketing ac-
ing orientation, and how organizations implement tivities. Marketing offers great career opportunities in
this philosophy, you may be asking, “What’s in it for such areas as professional selling, marketing research,
me?” or “Why should I study marketing?” These advertising, retail buying, distribution management,
are important questions whether you are majoring in a product management, product development, and whole-
business field other than marketing (such as account- saling. Marketing career opportunities also exist in a va-
ing, finance, or management information systems) or a riety of nonbusiness organizations, including hospitals,
nonbusiness field (such as journalism, education, or ag- museums, universities, the armed forces, and various
riculture). There are several important reasons to study government and social service agencies.
marketing: Marketing plays an important role in society,
marketing is important to businesses, marketing offers
outstanding career opportunities, and marketing affects 1-4d Marketing in Everyday Life
your life every day.
Marketing plays a major role in your everyday life. You
1-4a Marketing Plays an Important participate in the marketing process as a consumer of
goods and services. About half of every dollar you spend
Role in Society
pays for marketing costs, such as marketing research,
The total population of the United States exceeds 320 product development, packaging, transportation, stor-
million people.31 Think about how many transactions are age, advertising, and sales expenses. By developing a
needed each day to feed, clothe, and shelter a population better understanding of marketing, you will become a
of this size. The number is huge. And yet it all works quite better-informed consumer. You will better understand
well, partly because the well-developed U.S. economic the buying process and be able to negotiate more effec-
system efficiently distributes the output of farms and fac- tively with sellers. Moreover, you will be better prepared
tories. A typical U.S. family, for example, consumes two to demand satisfaction when the goods and services you
and a half tons of food a year.32 Marketing makes food buy do not meet the standards promised by the manu-
available when we want it, in desired quantities, at acces- facturer or the marketer.
sible locations, and in sanitary and convenient packages
and forms (such as instant and frozen foods).
1-4b Marketing Is Important to Businesses

The fundamental objectives of most businesses are sur-
vival, profits, and growth. Marketing contributes directly
STUDY
TOOLS 1
to achieving these objectives. Marketing includes the LOCATED AT BACK OF THE TEXTBOOK
following activities, which are vital to business organi-
zations: assessing the wants and satisfactions of present □ Rip out Chapter Review Card
and potential customers, designing and managing prod-
uct offerings, determining prices and pricing policies, LOCATED AT WWW.CENGAGEBRAIN.COM
developing distribution strategies, and communicating □ Review Key Terms Flashcards and create your own
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All businesspeople, regardless of specialization or
□ Track your knowledge & understanding of key concepts
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nology and fundamentals of accounting, finance, manage- □ Complete practice and graded quizzes to prepare for tests
ment, and marketing. People in all business areas need to
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Furthermore, marketing is not just a job done by people
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2 Strategic Planning for
LEARNING OUTCOMES
2-1 Understand the importance of strategic planning 2-7 Explain the criteria for stating good marketing objectives
Phase4Studios/Shutterstock.com
2-2 Define strategic business units (SBUs) 2-8 Discuss target market strategies
2-3 Identify strategic alternatives and know a basic outline for a 2-9 Describe the elements of the marketing mix
marketing plan
2-10 Explain why implementation, evaluation, and control of the
2-4 Develop an appropriate business mission statement marketing plan are necessary
2-5 Describe the components of a situation analysis 2-11 Identify several techniques that help make strategic
planning effective
2-6 Identify sources of competitive advantage
After you finish this chapter go to PAGE 29 for STUDY TOOLS.
2-1 THE NATURE OF STRATEGIC PLANNING

Strategic planning is the managerial process of creating and maintaining
a fit between the organization’s objectives and resources and the
evolving market opportunities. The goal of strategic planning is long-
run profitability and growth. Thus, strategic decisions require long-term
commitments of resources.
A strategic error can threaten a firm’s survival. On the at a particular time? (2) How will it reach its goals? Here
other hand, a good strategic plan can help protect and are some examples of strategic decisions:
grow the firm’s resources. For instance, if the March of ● In an effort to halt decreasing sales and compete with
Dimes had decided to focus only on fighting polio, the or- other fast food and fast causal chains, McDonald’s has
ganization would no longer exist because polio is widely unveiled plans to allow customers to customize their
viewed as a conquered disease. The March of Dimes sur- orders for the first time. The new offering, called
vived by making the stra- Create a Taste, lets customers use their tablet com-
tegic decision to switch to puters to choose toppings for their sandwiches.1
strategic planning the
managerial process of creating fighting birth defects.
● Coach, the iconic leather goods company that became
and maintaining a fit between Strategic marketing
the organization’s objectives and management addresses two successful with wallets and handbags, is making an ef-
resources and the evolving market fort to reinvent itself as a lifestyle brand. The com-
questions: (1) What is the
opportunities pany has introduced a variety of products, including
organization’s main activity
14 PART ONE:
CHAPTER
The World
2: 2 of Marketing
footwear, women’s apparel, jewelry, sun- “There are a lot of great of return on investment, growth
glasses, and watches. It even designed a potential, and associated risks,
ideas that have come
luxury baseball glove for men.2 and requires its own strategies
● Following founder Howard Schultz’s vi-
and gone in [the digital and funding. When properly cre-
sion of maintaining an entrepreneurial advertising] industry. Im- ated, an SBU has the following
approach to strategy, Starbucks recently characteristics:
plementation many times
opened the Starbucks Reserve Roastery ● A distinct mission and a specific
and Tasting Room in Seattle to appeal is more important than the target market
to upscale coffee lovers. The company actual idea.” ● Control over its resources
also has plans to expand its food and —DAVID MOORE, CEO
beverage menu.3
● Its own competitors
OF 24/7 REAL MEDIA
All these decisions have affected or will affect
● A single business or a collection
each organization’s long-run course, its allocation of related businesses
of resources, and ultimately its financial success. In ● Plans independent of the other SBUs in the total
contrast, an operating decision, such as changing the organization.
package design for Post Grape-Nuts cereal or altering
the sweetness of a Kraft salad dressing, probably will In theory, an SBU should have its own resources for
not have a big impact on the long-run profitability of handling basic business functions: accounting, engineer-
the company. ing, manufacturing, and marketing. In practice, however,
because of company tradition, management philosophy,
and production and distri-
2-2 STRATEGIC BUSINESS UNITS bution economies, SBUs strategic business unit
sometimes share manufac- (SBU) a subgroup of a single
Large companies may manage a number of turing facilities, distribu- business or collection of related
businesses within the larger
very different businesses, called strategic tion channels, and even top
organization
business units (SBUs). Each SBU has its own rate managers.
CHAPTER 2: Strategic Planning for Competitive Advantage 15
2-3 STRATEGIC EXHIBIT 2.1 ANSOFF’S OPPORTUNITY MATRIX
ALTERNATIVES Present Product New Product
Present Market Market Penetration Product Development
There are several tools available that
Starbucks sells more co ee to Starbucks develops powdered
a company, or SBU, can use to customers who register their instant co ee called Via.
manage the strategic direction of its reloadable Starbucks cards.
portfolio of businesses. Three of the New Market Market Development Diversification
most commonly used tools are Ansoff’s Starbucks opens stores in Brazil Starbucks launches Hear Music
strategic opportunity matrix, the Boston and Chile. and buys Ethos Water.
Consulting Group model, and the General
Electric model. Selecting which strategic
alternative to pursue depends on which of two philosophies products. Ideally, new uses for old products stimulate
a company maintains about when to expect profits—right additional sales among existing customers while also
away or after increasing market share. In the long run, bringing in new buyers. McDonald’s, for example, has
market share and profitability are compatible goals. For opened restaurants in Russia, China, and Italy and
example, Amazon lost hundreds of millions of dollars its is eagerly expanding into Eastern European coun-
first few years, and the company posted quarterly net tries. In the nonprofit arena, the growing emphasis
losses as recently as 2013. Amazon’s primary goal is market on continuing education and executive development
share—not profit. It sacrifices short-term profit for long- by colleges and universities is a market development
term market share, and thus larger long-term profits.4 strategy.
● Product development: A product development
2-3a Ansoff’s Strategic Opportunity Matrix strategy entails the creation of new products for pres-
ent markets. In January 2014, Beats Electronics
One method for developing alternatives is Ansoff’s
launched Beats Music, a subscription-based stream-
strategic opportunity matrix (see Exhibit 2.1), which
ing music service that offers advanced personaliza-
matches products with markets. Firms can explore
tion systems and forward-thinking family sharing
these four options:
plans. Beats hopes this service’s novel features, sleek
● Market penetration: A firm using the market design, and celebrity endorsements will catapult it
penetration alternative would try to increase mar- to the front of the music streaming pack, which is
ket share among existing customers. FTR Energy currently fronted by competitors such as Spotify
Services, a division of Frontier Communications, and Rdio.6
introduced a Green-e certified energy service into ● Diversification: Diversification is a strategy of
New York, Ohio, and Indiana markets served by
increasing sales by introducing new products into
Frontier’s telephone and broadband services. Though
new markets. For example, UGG, a popular footwear
these markets were already served by separate, well-
established energy compa-
market penetration nies, FTR Energy hoped to Source: Deckers Consumer Direct Corporation
a marketing strategy that tries penetrate the energy mar-
to increase market share among
existing customers ket by allowing customers
to lock in competitive rates
market development and offering five percent
a marketing strategy that entails
attracting new customers to existing cash back on energy us-
products age.5 Customer databases,
discussed in Chapter 9,
product development
a marketing strategy that entails the would help managers im-
creation of new products for present plement this strategy.
UGG, a popular footwear brand, introduced
markets ● Market development: an upscale men’s footwear collection that
diversification a strategy of Market development was inspired by Jimi Hendrix and Jim
increasing sales by introducing new means attracting new
products into new markets Morrison.
customers to existing
brand known for its casual boots, has introduced an (the lower left) it traverses a range of change and innova-
upscale men’s footwear collection. The shoes are in- tion rather than choosing one of the four sectors in An-
spired by rock’n’roll legends such as Jimi Hendrix soff’s matrix. These ranges are broken down into three
and Jim Morrison, and are meant to appeal to new levels:
customers. “There are some UGG customers that 1. Core Innovation: Represented by the yellow circle
will be interested in the Collection product, but it in Exhibit 2.2, these decisions implement changes
will also bring in new customers for us,” says Leah that use existing assets to provide added conve-
Larson, UGG’s vice president and creative director.7 nience to existing customers and potentially entice
A diversification strategy can be risky when a firm is customers from other brands. Packaging changes,
entering unfamiliar markets. However, it can be very such as Tide’s laundry detergent pods, fall into this
profitable when a firm is entering markets with little category.
or no competition.
2. Adjacent Innovation: Represented by the orange
2-3b The Innovation Matrix arc in Exhibit 2.2, these decisions are designed to
take company strengths into new markets. This
Critics of Ansoff’s matrix mention that the matrix does space uses existing abilities in new ways. For exam-
not reflect the reality of how businesses grow—that ple, Botox, the popular cosmetic drug, was originally
modern businesses plan growth in a more fluid manner developed to treat intestinal problems and to treat
based on current capabilities rather than the clear-cut crossed eyes. Leveraging the drug into cosmetic
sectors outlined by the opportunity matrix. To reflect medicine has dramatically increased the market
this, Bansi Nagji and Geoff Tuff, global innovation for Botox.
managers at Monitor Group, have recently developed a
3. Transformational Innovation: Represented by
system that enables a company to see exactly what types
the red arc in Exhibit 2.2, these decisions result in
of assets need to be developed and what types of mar-
brand-new markets, products, and often new busi-
kets are possible to grow into (or create) based on the
nesses. The company must rely on new, unfamiliar
company’s core capabilities, as shown in Exhibit 2.2.
assets to develop the type of breakthrough decisions
The layout of the innovation matrix demonstrates
that fall in this category. The wearable, remote-
that as a company moves away from its core capabilities
controlled GoPro documentary video camera is a
prime example of developing an immature market
EXHIBIT 2.2 INNOVATION MATRIX with a brand-new experience.8
The Boston Consulting Group Model

Create new
2-3c
markets
Management must find a balance among the SBUs that

yields the overall organization’s desired growth and
profits with an acceptable level of risk. Some SBUs
Enter adjacent
generate large amounts of cash, and others need cash

markets
Where to Play
to foster growth. The challenge is to balance the or-

ganization’s portfolio of SBUs for the best long-term
performance.
To determine the future cash contributions and
cash requirements expected for each SBU, managers
Serve existing
markets
can use the Boston Consulting Group’s portfolio matrix.

The portfolio matrix classifies each SBU by its pres-
ent or forecast growth and market share. The under-
lying assumption is that market share and profitability
Use existing Add related products Develop new are strongly linked. The
products products
How to Win
measure of market share portfolio matrix a tool for
used in the portfolio ap- allocating resources among products
Based on Bansi Nagji and Geoff Tuff, ”A Simple Tool You Need to Manage Innovation,” proach is relative market or strategic business units on the basis
Harvard Business Review, May 2012 http://hbr.org/2012/05/managing-your-innovation
share, the ratio between of relative market share and market
-portfolio/ar/1 (Accessed June 1, 2012). growth rate
the company’s share and
basic strategy for a cash cow is to maintain market
PORTFOLIO MATRIX FOR A LARGE
EXHIBIT 2.3 dominance by being the price leader and making
COMPUTER MANUFACTURER technological improvements in the product. Man-
agers should resist pressure to extend the basic line
Netbooks, handheld Integrated phone/palm
computers, and device (problem child or unless they can dramatically increase demand. In-
tablet PCs (stars) question mark)
stead, they should allocate excess cash to the product
Market growth rate (in constant dollars)
High categories where growth prospects are the greatest.

For example, Heinz has two cash cows: ketchup and
Weight Watchers frozen dinners.
10 ● Problem children: A problem child, also called a
Laptop and personal Mainframe computer
computers (cash cows) (dog) question mark, shows rapid growth but poor profit
margins. It has a low market share in a high-growth
Low industry. Problem children need a great deal of cash.
Without cash support, they eventually become dogs.
The strategy options are to invest heavily to gain bet-
ter market share, acquire competitors to get the nec-
10x High 1x Low 0.1x essary market share, or drop the SBU. Sometimes a
Market share dominance (share relative to largest competitor) firm can reposition the products of the SBU to move
them into the star category. Elixir guitar strings, made
by W. L. Gore & Associates, maker of Gore-Tex and
the share of the largest competitor. For example, if a Glide floss, were originally tested and marketed to
firm has a 50 percent share and the competitor has five Walt Disney theme parks to control puppets. After trial
percent, the ratio is 10 to 1. If a firm has a 10 percent and failure, Gore repositioned and marketed heavily
market share and the largest competitor has 20 percent, to musicians, who have loved the strings ever since.
the ratio is 0.5 to 1.
● Dogs: A dog has low growth potential and a small
Exhibit 2.3 is a hypothetical portfolio matrix for a
market share. Most dogs eventually leave the market-
computer manufacturer. The size of the circle in each
place. In the computer manufacturer example, the
cell of the matrix represents dollar sales of the SBU rela-
mainframe computer has become a dog. Another ex-
tive to dollar sales of the company’s other SBUs. The
ample is BlackBerry’s smartphone line, which started
portfolio matrix breaks SBUs into four categories:
out as a star for its manufacturer in the United States.
●Stars: A star is a fast-growing market leader. For Over time, the BlackBerry moved into the cash
example, the iPad is one of Apple’s stars. Star SBUs cow category, and then more recently, to a question
usually have large profits but need lots of cash to fi- mark, as the iPhone and Android-based phones cap-
nance rapid growth. The best marketing tactic is to tured market share. Even if it never regains its star
protect existing market share by reinvesting earnings in status in the United States, BlackBerry has moved
product improvement, better distribution, more pro- into other geographic markets to sell its devices. In
motion, and production ef- parts of Africa, Blackberry is seen as a revolutionary
ficiency. Management must company that is connecting people in a way that they
star in the portfolio matrix, a capture new users as they
business unit that is a fast-growing
have never been before. The company currently owns
market leader enter the market. 48 percent of the mobile market and 70 percent of
Cash cows: A cash cow the smartphone market in South Africa.9
cash cow in the portfolio matrix,
●
a business unit that generates more is an SBU that generates While typical strategies for dogs are to harvest or di-
cash than it needs to maintain its more cash than it needs vest, sometimes companies—like BlackBerry—are suc-
market share to maintain its market cessful with this class of product in other markets. Other
problem child (question share. It is in a low- companies may revive products that were abandoned as
mark) in the portfolio matrix, growth market, but the dogs. In early 2014, Church’s Chicken brought its Purple
a business unit that shows rapid product has a dominant Pepper dipping sauce back to the market using a “Back
growth but poor profit margins
market share. Personal by Popular Demand” promotional campaign.10
dog in the portfolio matrix, a computers and laptops After classifying the company’s SBUs in the matrix,
business unit that has low growth are categorized as cash the next step is to allocate future resources for each. The
potential and a small market share
cows in Exhibit 2.3. The four basic strategies are to:
Build: If an organization has an SBU that it be-
EXHIBIT 2.4 GENERAL ELECTRIC MODEL
●
lieves has the potential to be a star (probably a

problem child at present), building would be
an appropriate goal. The organization may de- CAUTIOUSLY
High
INVEST/GROW INVEST/GROW
INVEST
Market Attractiveness
cide to give up short-term profits and use its
financial resources to achieve this goal. Apple
postponed further work on the iPad to pursue
Medium
CAUTIOUSLY
the iPhone. The wait paid off when Apple was HARVEST/DIVEST INVEST/GROW
INVEST
able to repurpose much of the iOS software
and the iPhone’s App Store for the iPad, mak-
ing development less expensive and getting the CAUTIOUSLY
Low
HARVEST/DIVEST HARVEST/DIVEST
product into the marketplace more quickly.11 INVEST
● Hold: If an SBU is a very successful cash cow, Low Medium High

a key goal would surely be to hold or preserve
Business Position
market share so that the organization can
take advantage of the very positive cash flow.
Fashion-based reality series Project Runway is a Electric. The dimensions used in this model—market
cash cow for the Lifetime cable television channel attractiveness and company strength—are richer and
and parent companies Hearst and Disney. New sea- more complex than those used in the Boston Consult-
sons and spin-off editions such as Project Runway: ing Group model, but are harder to quantify.
Under the Gunn are expected for years to come.12 Exhibit 2.4 presents the GE model. The horizontal
● Harvest: This strategy is appropriate for all SBUs axis, Business Position, refers to how well positioned the
except those classified as stars. The basic goal is to organization is to take advantage of market opportunities.
increase the short-term cash return without too much Business position answers questions such as: Does the
concern for the long-run impact. It is especially worth- firm have the technology it needs to effectively penetrate
while when more cash is needed from a cash cow with the market? Are its financial resources adequate? Can
long-run prospects that are unfavorable because of a manufacturing costs be held down below those of the
low market growth rate. For instance, Lever Brothers competition? Can the firm cope with change? The verti-
has been harvesting Lifebuoy soap for a number of cal axis measures the attractiveness of a market, which
years with little promotional backing. is expressed both quantitatively and qualitatively. Some
attributes of an attractive market are high profitability,
● Divest: Getting rid of SBUs with low shares of low-
rapid growth, a lack of government regulation, consumer
growth markets is often appropriate. Problem chil-
insensitivity to a price increase, a lack of competition,
dren and dogs are most suitable for this strategy.
and availability of technology. The grid is divided into
Nestle, for example, is in the process of selling its
three overall attractiveness zones for each dimension:
PowerBar SBU. Once the pioneering brand in the
high, medium, and low.
nutritional bar market, PowerBar has become an un-
Those SBUs (or markets) that have low overall at-
derperforming brand.13
tractiveness (indicated by the red cells in Exhibit 2.4)
should be avoided if the organization is not already
2-3d The General Electric Model serving them. If the firm is in these markets, it should
The third model for selecting strategic alternatives either harvest or divest those SBUs. The organiza-
was originally developed by General tion should selectively maintain markets with me-
dium attractiveness (indicated by the yellow cells in
Exhibit 2.4). If attractiveness begins to slip, then
the organization should withdraw from the market.
Conditions that are highly attractive—a
az on
thriving market plus a strong business position

er na de tte Tu
(the green cells in Exhibit 2.4)—are the best

candidates for investment. For example, when
AP Im ag es /B
Beats Electronics launched a new line of over-the-ear

headphones in 2008, the consumer headphone market
was strong but steady, led by inexpensive, inconspicuous activities. Finally, the marketing plan allows the market-
earbuds. Four years later, the heavily branded and pre- ing manager to enter the marketplace with an awareness
mium-priced Beats by Dr. Dre—helmed by legendary of possibilities and problems.
hip-hop producer Dr. Dre—captured 40 percent of all
U.S. headphone sales, fueling market growth from $1.8 2-3g Marketing Plan Elements
billion in 2011 to $2.4 billion in 2012. As you recently
Marketing plans can be presented in many different
learned, Beats announced the launch of Beats Music
ways. Most businesses need a written marketing plan
in early 2014. This new market is growing quickly and
because a marketing plan is large and can be complex.
is highly competitive, and will surely take Beats’ strong
Details about tasks and activity assignments may be lost
business position to penetrate.14
if communicated orally. Regardless of the way a market-
2-3e The Marketing Plan ing plan is presented, some elements are common to
all marketing plans. Exhibit 2.5 shows these elements,
Based on the company’s or SBU’s overall strategy, mar- which include defining the business mission, perform-
keting managers can create a marketing plan for in- ing a situation analysis, defining objectives, delineating a
dividual products, brands, lines, or customer groups. target market, and establishing components of the mar-
Planning is the process of anticipating future events keting mix. Other elements that may be included in a
and determining strategies to achieve organizational ob-
jectives in the future. Marketing planning involves
designing activities relating to marketing objectives
EXHIBIT 2.5 ELEMENTS OF A MARKETING PLAN
and the changing marketing environment. Marketing
planning is the basis for all marketing strategies and
Business
decisions. Issues such as product lines, distribution Mission
channels, marketing communications, and pricing are Statement
all delineated in the marketing plan. The market-
ing plan is a written document that acts as a guidebook
of marketing activities for the marketing manager. In Situation,
this chapter, you will learn the importance of writing a or SWOT,
Analysis
marketing plan and the types of information contained
in a marketing plan.
2-3f Why Write a Marketing Plan? Objectives

By specifying objectives and defining the actions re-
quired to attain them, you can provide in a marketing
plan the basis by which actual and expected perfor-
Marketing Strategy
mance can be compared. Marketing can be one of the
most expensive and complicated business activities, but
Target Market
it is also one of the most important. The written market- Strategy
ing plan provides clearly
stated activities that help
planning the process of employees and managers Marketing Mix
anticipating future events
and determining strategies to understand and work to-
Product Place
achieve organizational objectives ward common goals.
in the future Writing a marketing
plan allows you to exam- Promotion Price
marketing planning
designing activities relating to ine the marketing environ-
marketing objectives and the ment in conjunction with
changing marketing environment the inner workings of the
marketing plan a written business. Once the mar- Implementation
Evaluation
document that acts as a guidebook keting plan is written, it Control
of marketing activities for the serves as a reference point
marketing manager
for the success of future
plan are budgets, implementation timetables, required
marketing research efforts, or elements of advanced
strategic planning.
2-3h Writing the Marketing Plan

The creation and implementation of a complete mar-
Bryan Busovicki/Shutterstock.com
keting plan will allow the organization to achieve mar-
keting objectives and succeed. However, the marketing
plan is only as good as the information it contains and
the effort, creativity, and thought that went into its cre-
ation. Having a good marketing information system and
a wealth of competitive intelligence (covered in Chap-
ter 9) is critical to a thorough and accurate situation Care must be taken when stating a
analysis. The role of managerial intuition is also impor-
business mission. Companies like Procter
tant in the creation and selection of marketing strate-
and Gamble have earned the right to be
gies. Managers must weigh any information against
broad in their mission’s wording.
its accuracy and their own judgment when making a
marketing decision.
Note that the overall structure of the marketing
plan (Exhibit 2.5) should not be viewed as a series of than on the good or service offered. Otherwise, a new
sequential planning steps. Many of the marketing plan technology may quickly make the good or service ob-
elements are decided simultaneously and in conjunc- solete and the mission statement irrelevant to company
tion with one another. Further, every marketing plan functions. Business mission statements that are stated
has different content, depending on the organization, too narrowly suffer from marketing myopia—defining
its mission, objectives, targets, and marketing mix com- a business in terms of goods and services rather than in
ponents. There is not one single correct format for a terms of the benefits customers seek. In this context,
marketing plan. Many organizations have their own myopia means narrow, short-term thinking. For example,
distinctive format or terminology for creating a market- Frito-Lay defines its mission as being in the snack-food
ing plan. Every marketing plan should be unique to the business rather than in the corn chip business. The mission
firm for which it was created. Remember, however, that of sports teams is not just to play games but also to serve
although the format and order of presentation should the interests of the fans.
be flexible, the same types of questions and topic areas Alternatively, business missions may be stated too
should be covered in any marketing plan. broadly. “To provide products of superior quality and
value that improve the lives of the world’s consumers” is
probably too broad a mission statement for any firm ex-
2-4 DEFINING THE cept Procter & Gamble. Care must be taken when stat-
ing what business a firm is in. For example, the mission
BUSINESS MISSION of Ben & Jerry’s centers on three important aspects of
its ice cream business: (1) Product: “To make, distribute
The foundation of any marketing plan is the firm’s and sell the finest quality all natural ice cream and eu-
mission statement, which answers the question phoric concoctions with a
“What business are we in?” The way a firm defines its continued commitment to
business mission profoundly affects the firm’s long-run incorporating wholesome, mission statement a statement
of the firm’s business based on a
resource allocation, profitability, and survival. The mis- natural ingredients and careful analysis of benefits sought by
sion statement is based on a careful analysis of benefits promoting business prac- present and potential customers and
sought by present and potential customers and an analy- tices that respect the Earth an analysis of existing and anticipated
sis of existing and anticipated environmental conditions. and the Environment”; environmental conditions
The firm’s mission statement establishes boundaries for (2) Economic: “To operate marketing myopia defining
all subsequent decisions, objectives, and strategies. the Company on a sustain- a business in terms of goods and
A mission statement should focus on the market or able financial basis of prof- services rather than in terms of the
benefits customers seek
markets the organization is attempting to serve rather itable growth, increasing
value for our stakeholders and expanding opportunities issue to consider in this section of the marketing plan
for development and career growth for our employees”; is the historical background of the firm—its sales and
and (3) Social: “To operate the Company in a way that profit history.
actively recognizes the central role that business plays When examining external opportunities and threats,
in society by initiating innovative ways to improve the marketing managers must analyze aspects of the market-
quality of life locally, nationally, and internationally.”15 ing environment. This process is called environmental
By correctly stating the business mission in terms of scanning—the collection and interpretation of infor-
the benefits that customers seek, the foundation for the mation about forces, events, and relationships in the
marketing plan is set. Many companies are focusing on external environment that may affect the future of the
designing more appropriate mission statements because organization or the implementation of the marketing
these statements are frequently displayed on the com- plan. Environmental scanning helps identify market
panies’ Web sites. opportunities and threats and provides guidelines for
the design of marketing strategy. Increasing competi-
tion from overseas firms and the fast growth of digital
2-5 CONDUCTING A technology essentially ended Kodak’s consumer film
SITUATION ANALYSIS business. After emerging from bankruptcy, Kodak has

repositioned the firm as a smaller, business-to-business
company that offers commercial printing and digital
Marketers must understand the current and poten- imaging services.17 The six most often studied macroen-
tial environment in which the product or service
vironmental forces are social, demographic, economic,
will be marketed. A situation analysis is sometimes re- technological, political and legal, and competitive.
ferred to as a SWOT analysis—that is, the firm should These forces are examined in detail in Chapter 4.
identify its internal strengths (S) and weaknesses (W) and
also examine external opportunities (O) and threats (T).
When examining internal strengths and weaknesses, 2-6 COMPETITIVE ADVANTAGE
the marketing manager should focus on organizational
resources such as production costs, marketing skills, Performing a SWOT analysis allows firms to identify
financial resources, company or brand image, employee their competitive advantage. A competitive advan-
capabilities, and available technology. For example, tage is a set of unique features of a company and its prod-
when Dell’s stock fell sharply throughout the mid-2010s, ucts that are perceived by the target market as significant
management needed to examine strengths and weak- and superior to those of the competition. It is the factor
nesses in the company and its competition. Dell had a or factors that cause customers to patronize a firm and not
$6 billion server business (strength), but the shrinking the competition. There are three types of competitive ad-
PC market accounted for a significant 24 percent of vantage: cost, product/service differentiation, and niche.
sales (weakness). Competitors like IBM and Hewlett-
Packard (HP) were mov-
ing heavily into software
SWOT analysis identifying
internal strengths (S) and weaknesses and consulting, so to avoid
(W) and also examining external them, Dell moved into the
opportunities (O) and threats (T) enterprise IT and services
environmental scanning market. The shift was not
collection and interpretation of enough to offset poor sales
information about forces, events, in other areas, however,
Yarygin/Shutterstock.com
and relationships in the external and in 2013, the company

environment that may affect the
future of the organization or the entered buyout talks with
implementation of the marketing plan private investors such as
Blackstone and company
competitive advantage a
set of unique features of a company founder Michael S. Dell.
and its products that are perceived Dell ultimately went pri- Hydraulic fracturing is a competitive
by the target market as significant vate and continues to sell advantage for the United States in the
and superior to those of the computers, software, and
competition global natural gas market.
related services.16 Another
2-6a Cost Competitive Advantage Reverse engineering—the process of disassembling a
product piece by piece to learn its components and
Cost leadership can result from obtaining inexpensive raw
obtain clues as to the manufacturing process—can
materials, creating an efficient scale of plant operations, de-
also mean savings. Reverse engineering a low-cost
signing products for ease of manufacture, controlling over-
competitor’s product can save research and design
head costs, and avoiding marginal customers. Hydraulic
costs. The car industry often uses reverse engineering.
fracturing (or fracking) is a controversial mining technique
used to release petroleum, natural gas, and other valuable ● Reengineering: Reengineering entails fundamen-
chemicals from layers of rock in the earth’s crust. In the tal rethinking and redesign of business processes to
United States, fracking has revealed a vast supply of natu- achieve dramatic improvements in critical measures
ral gas locked in shale rock, greatly reducing the cost of of performance. It often involves reorganizing func-
energy across the country and making the United States tional departments such as sales, engineering, and
a primary player in the global natural gas market. Accord- production into cross-disciplinary teams.
ing to George Blitz, vice president of energy and climate ● Production innovations: Production innovations
change at Dow Chemical Company, the shale gas boom such as new technology and simplified production
has given the United States the biggest competitive advan- techniques help lower the average cost of production.
tage the industry has seen in several decades.18 Having a Technologies such as computer-aided design (CAD)
cost competitive advantage means being the low-cost and computer-aided manufacturing (CAM) and in-
competitor in an industry while maintaining satisfactory creasingly sophisticated robots help companies such
profit margins. Costs can be reduced in a variety of ways: as Boeing, Ford, and General Electric reduce their
● Experience curves: Experience curves tell us that manufacturing costs.
costs decline at a predictable rate as experience with a ● New methods of service delivery: Medical ex-
product increases. The experience curve effect encom- penses have been substantially lowered by the use of
passes a broad range of manufacturing, marketing, and outpatient surgery and walk-in clinics. Online-only
administrative costs. Experience curves reflect learn- magazines deliver great savings, and even some print
ing by doing, technological advances, and economies of magazines are exploring ways to go online to save ma-
scale. Firms like Boeing use historical experience curves terial and shipping costs.
as a basis for predicting and setting prices. Experience
curves allow management to forecast costs and set prices
based on anticipated costs as opposed to current costs. 2-6b Product/Service Differentiation
● Efficient labor: Labor costs can be an important Competitive Advantage
component of total costs in low-skill, labor-intensive Because cost competitive advantages are subject to
industries such as product assembly and apparel man- continual erosion, product/service differentiation tends
ufacturing. Many U.S. publishers and software devel- to provide a longer-lasting competitive advantage. The
opers send data entry, design, and formatting tasks to durability of this strategy tends to make it more at-
India, where skilled engineers are available at lower tractive to many top managers. A product/service
overall cost. differentiation competitive advantage exists when
● No-frills goods and services: Marketers can lower a firm provides some-
thing that is unique cost competitive advantage
costs by removing frills and options from a product
being the low-cost competitor in an
or service. Southwest Airlines, for example, offers low and valuable to buyers
industry while maintaining satisfactory
fares but no seat assignments or meals. Low costs give beyond simply offering profit margins
Southwest a higher load factor and greater economies a lower price than that
experience curves curves that
of scale, which, in turn, mean lower prices. of the competition. Ex-
show costs declining at a predictable
amples include brand rate as experience with a product
● Government subsidies: Governments can provide
names (Lexus), a strong increases
grants and interest-free loans to target industries.
dealer network (Cater-
Such government assistance enabled Japanese semi- product/service
pillar for construction differentiation competitive
conductor manufacturers to become global leaders.
work), product reliabil- advantage the provision of
● Product design: Cutting-edge design technology can ity (Maytag appliances), something that is unique and valuable
to buyers beyond simply offering a
help offset high labor costs. BMW is a world leader in image (Neiman Marcus
lower price than that of the competition
designing cars for ease of manufacture and assembly. in retailing), or service
market. Stew Leonard’s is an extremely successful but
small grocery store chain found only in Connecticut
and New York. Blue Bell Ice cream is available in only
about 26 percent of the nation’s supermarkets, but it
ranks as one of the top three best-selling ice creams in
the country.20
The Chef’s Garden, a 225-acre Ohio farm, special-
izes in growing and shipping rare artisan vegetables di-
rectly to its customers. Chefs from all over the world call
Kevin Brine/Shutterstock.com
to order or request a unique item, which is grown and
shipped by the Chef’s Garden. The farm provides per-
sonal services and specialized premium vegetables that
aren’t available anywhere else and relies on its customers
to supply it with ideas for what they would like to be able
to offer in their restaurants. The excellent service and
Customers have a loyalty to Caterpillar due feeling of contribution keep chefs coming back.21
to its strong network of dealerships.
2-6d Building Sustainable
(Zappos). Uniqlo, a fast-fashion retailer with 840 stores
The key to having a competitive advantage is the ability
in Japan and 1,170 stores outside Japan, is among the top
to sustain that advantage. A sustainable competitive
five global clothing retailers. The company provides high-
quality casual wear at reasonable prices. It differentiates
advantage is one that cannot be copied by the compe-
tition. For example, Netflix, the online movie subscription
itself from the competition in several ways. First, it devel-
service, has a steady hold over the movie rental market.
ops and brands innovative fabrics like HeatTech, which
No company has come close to the incomparable depth
turns moisture into heat and has air pockets in the fab-
of titles available to be sent directly to homes or streamed
ric to retain that heat. HeatTech is thin and comfortable,
online. Blockbuster tried to set up a similar online sub-
and enables stylish designs different from the standard
scription service tied to new releases and Amazon.com
apparel made for warmth. Second, Uniqlo emphasizes
offers free streaming to Prime members, but so far nei-
the in-store experience, which involves carefully hiring,
ther has been able to compete with the convenience and
training, and managing all touchpoints with the customer.
selection offered by Netflix. Netflix’s 27.5 million sub-
Every morning, for example, Uniqlo employees practice
scribers have a twenty-eight-day delay on most of the lat-
interacting with shoppers. Finally, the company has a re-
est movies, but Netflix says that only a couple hundred
cycling effort that moves millions of articles of discarded
customers have complained about the delay. Redbox In-
Uniqlo clothing to needy people around the world.19
stant, an up-and-coming streaming service from Verizon
and Coinstar, builds on the popular Redbox kiosk-based
2-6c Niche Competitive Advantage rental service, allowing customers to stream movies and
A niche competitive advantage seeks to target and rent up to four physical DVDs for just $8 a month. Red-
effectively serve a single segment of the market (see box Instant does not offer television shows, however—
Chapter 8). For small companies with limited resources a key advantage of Netflix’s service.22 In contrast, when
that potentially face giant competitors, niche targeting Datril was introduced into the pain-reliever market, it
may be the only viable op- was touted as being exactly like Tylenol, only cheaper.
tion. A market segment that Tylenol responded by lowering its price, thus destroying
niche competitive
advantage the advantage has good growth potential Datril’s competitive advantage and ability to remain on
achieved when a firm seeks to but is not crucial to the suc- the market. In this case, low price was not a sustainable
target and effectively serve a small cess of major competitors is competitive advantage. Without a competitive advantage,
segment of the market a good candidate for devel- target customers do not perceive any reason to patronize
sustainable competitive oping a niche strategy. an organization instead of its competitors.
advantage an advantage Many companies us- The notion of competitive advantage means that a
that cannot be copied by the ing a niche strategy serve successful firm will stake out a position unique in some
competition
only a limited geographic manner from its rivals. Imitation by competitors indicates
A marketing objective is a
statement of what is to be accomplished
through marketing activities.
A strong marketing objective for
Purina might be: “To increase sales of
Purina brand cat food between Janu-
ary 1, 2016 and December 31, 2016 by
15 percent, compared to 2012 sales of
Courtesy of Chapel House Photography

$300 million.”
Objectives must be consistent with
and indicate the priorities of the orga-
nization. Specifically, objectives flow
from the business mission statement to
the rest of the marketing plan.
Carefully specified objectives serve
The ability to stream movies and rent up to four physical several functions. First, they commu-
DVDs for just $8 a month is a compelling competitive nicate marketing management phi-
advantage for Redbox Instant. losophies and provide direction for
lower-level marketing managers so that
marketing efforts are integrated and
a lack of competitive advantage and almost ensures me- pointed in a consistent direction. Objectives also serve as
diocre performance. Moreover, competitors rarely stand motivators by creating
still, so it is not surprising that imitation causes managers something for employ- marketing objective a
ees to strive for. When statement of what is to be accomplished
to feel trapped in a seemingly endless game of catch-
through marketing activities
up. They are regularly surprised by the new accomplish- objectives are attainable
ments of their rivals.
Rather than copy competitors, companies need to
build their own competitive advantages. The sources MARKETING OBJECTIVES SHOULD BE . . .
of tomorrow’s competitive advantages are the skills and ▸ Realistic: Managers should develop objectives that
assets of the organization. Assets include patents, copy- have a chance of being met. For example, it may be
rights, locations, equipment, and technology that are su- unrealistic for start-up firms or new products to com-
perior to those of the competition. Skills are functions mand dominant market share, given other competi-
such as customer service and promotion that the firm tors in the marketplace.
performs better than its competitors. Marketing manag- ▸ Measurable: Managers need to be able to quan-
ers should continually focus the firm’s skills and assets on titatively measure whether or not an objective
sustaining and creating competitive advantages. has been met. For example, it would be difficult to
Remember, a sustainable competitive advantage determine success for an objective that states, “To
is a function of the speed with which competitors can increase sales of cat food.” If the company sells one
imitate a leading company’s strategy and plans. Imitation percent more cat food, does that mean the objective
was met? Instead, a specific number should be stated,
requires a competitor to identify the leader’s competitive
“To increase sales of Purina brand cat food from $300
advantage, determine how it is achieved, and then learn
million to $345 million.”
how to duplicate it.
▸ Time specific: By what time should the objective
be met? “To increase sales of Purina brand cat food
2-7 SETTING MARKETING between January 1, 2016, and December 31, 2016.”
Compared to a benchmark: If the objective
PLAN OBJECTIVES ▸
is to increase sales by 15 percent, it is important to
know the baseline against which the objective will be
Before the details of a marketing plan can be de- measured. Will it be current sales? Last year’s sales? For
veloped, objectives for the plan must be stated. example, “To increase sales of Purina brand cat food by
Without objectives, there is no basis for measuring the 15 percent over 2012 sales of $300 million.”
success of marketing plan activities.
and challenging, they motivate those charged with achiev- characteristics, advantages, and disadvantages of each stra-
ing the objectives. Additionally, the process of writing spe- tegic option are examined in Chapter 8. Target markets
cific objectives forces executives to clarify their thinking. could be eighteen- to twenty-five-year-old females who
Finally, objectives form a basis for control: the effectiveness are interested in fashion (Vogue magazine), people con-
of a plan can be gauged in light of the stated objectives. cerned about sugar and calories in their soft drinks (Diet
Pepsi), or parents without the time to potty train their chil-
dren (Booty Camp classes where kids are potty trained).
2-8 DESCRIBING THE Any market segment that is targeted must be fully
TARGET MARKET described. Demographics, psychographics, and buyer
behavior should be assessed. Buyer behavior is covered
Marketing strategy involves the activities of se- in Chapters 6 and 7. If segments are differentiated by
lecting and describing one or more target markets ethnicity, multicultural aspects of the marketing mix
and developing and maintaining a marketing mix should be examined. If the target market is internation-
that will produce mutually satisfying exchanges al, it is especially important to describe differences in
with target markets. culture, economic and technological development, and
political structure that may affect the marketing plan.
2-8a Target Market Strategy Global marketing is covered in more detail in Chapter 5.
A market segment is a group of individuals or organizations

who share one or more characteristics. They therefore may
have relatively similar product needs. For example, parents 2-9 THE MARKETING MIX
of newborn babies need formula, diapers, and special foods.
The target market strategy identifies the market seg- The term marketing mix refers to a unique blend of
ment or segments on which to focus. This process begins product, place (distribution), promotion, and pricing
with a market opportunity analysis (MOA)—the strategies (often referred to as the four Ps) designed
description and estimation of the size and sales potential to produce mutually satisfying exchanges with a tar-
of market segments that are of interest to the firm and get market. The marketing manager can control each com-
the assessment of key competitors in these market seg- ponent of the marketing mix, but the strategies for all four
ments. After the firm describes the market segments, it components must be blended to achieve optimal results.
may target one or more of them. There are three general Any marketing mix is only as good as its weakest component.
strategies for selecting target markets. For example, the first pump toothpastes were distributed
Target markets can be selected by appealing to the over cosmetics counters and failed. Not until pump tooth-
entire market with one marketing mix, concentrating on pastes were distributed the same way as tube toothpastes did
one segment, or appeal- the products succeed. The best promotion and the lowest
marketing strategy the ing to multiple market price cannot save a poor product. Similarly, excellent prod-
activities of selecting and describing segments using multiple ucts with poor placing, pricing, or promotion will likely fail.
one or more target markets and
marketing mixes. The Successful marketing mixes
developing and maintaining a
marketing mix that will produce have been carefully designed to
mutually satisfying exchanges with satisfy target markets. At first
target markets glance, McDonald’s and Wendy’s
market opportunity may appear to have roughly identi-
analysis (MOA) the description cal marketing mixes because they are
and estimation of the size and sales both in the fast-food hamburger
potential of market segments that business. However, McDon-
are of interest to the firm and the
assessment of key competitors in ald’s has been most successful
these market segments at targeting parents with young
children for lunchtime meals, whereas Wen-
marketing mix (four Ps)
a unique blend of product, place dy’s targets the adult crowd for lunches and
(distribution), promotion, and dinner. McDonald’s has playgrounds, Ronald
pricing strategies designed to McDonald the clown, and children’s Happy
produce mutually satisfying Meals. Wendy’s has salad bars, carpeted restau-
exchanges with a target market
rants, and no playgrounds.
Style-photography/Shutterstock.com
Variations in marketing mixes do not occur by 24-hour grocery store within walking distance or fly to Aus-
chance. Astute marketing managers devise marketing tralia to pick your own? A part of this P—place—is physi-
strategies to gain advantages over competitors and best cal distribution, which involves all the business activities
serve the needs and wants of a particular target market concerned with storing and transporting raw materials or
segment. By manipulating elements of the marketing finished products. The goal is to make sure products arrive
mix, marketing managers can fine-tune the customer in usable condition at designated places when needed.
offering and achieve competitive success. Place strategies are covered in Chapters 13 and 14.
2-9a Product Strategies 2-9c Promotion Strategies

Of the four Ps, the marketing mix typically starts with the Promotion includes advertising, public relations, sales
product. The heart of the marketing mix, the starting point, promotion, and personal selling. Promotion’s role in the
is the product offering and product strategy. It is hard to marketing mix is to bring about mutually satisfying ex-
design a place strategy, decide on a promotion campaign, changes with target markets by informing, educating,
or set a price without knowing the product to be marketed. persuading, and reminding them of the benefits of an
The product includes not only the physical unit but organization or a product. A good promotion strategy,
also its package, warranty, after-sale service, brand name, like using a beloved cartoon character such as Sponge-
company image, value, and many other factors. A Godiva Bob SquarePants to sell gummy snacks, can dramatically
chocolate has many product elements: the chocolate it- increase sales. Each element of this P—promotion—is
self, a fancy gold wrapper, a customer satisfaction guar- coordinated and managed with the others to create a
antee, and the prestige of the Godiva brand name. We promotional blend or mix. These integrated marketing
buy things not only for what they do (benefits) but also communications activities are described in Chapters 16,
for what they mean to us (status, quality, or reputation). 17, and 18. Technology-driven and social media aspects
Products can be tangible goods such as computers, of promotional marketing are covered in Chapter 19.
ideas like those offered by a consultant, or services such
as medical care. Products should also offer customer val- 2-9d Pricing Strategies
ue. Product decisions are covered in Chapters 10 and 11, Price is what a buyer must give up in order to obtain
and services marketing is detailed in Chapter 12. a product. It is often the most flexible of the four Ps—
the quickest element to change. Marketers can raise or
2-9b Place (Distribution) Strategies lower prices more frequently and easily than they can
Place, or distribution, strategies are concerned with change other marketing mix variables. Price is an im-
making products available when and where custom- portant competitive weapon and is very important to the
ers want them. Would you rather buy a kiwi fruit at the organization because price multiplied by the number
of units sold equals total revenue for the firm. Pricing
decisions are covered in Chapters 20 and 21.
The Game of Organizing E-Mail

E-mail has become a necessity for students and business professionals, as well as
an integral part of many personal lives. With so much riding on e-mail, inboxes
can overflow and important e-mails can fall by the wayside. One company is out
©o
to change that. Baydin is a software developer that sells Boomerang, a product

lex i
us/ S
that allows users to “snooze” e-mails. The user sets the time for the e-mail to re-
hu t t
appear in the inbox, and Boomerang moves it into a folder out of the inbox until
er s t
ock
the specified time. To promote their e-mail management products for Outlook,
14 9
Baydin also developed The Email Game. The game sets a timer for each message
737
0 13
and accrues points for decisions made in a timely manner. Baydin guarantees the
game will get you through your e-mail 40 percent faster or your money back.23
“How to Play the Email Game,” The Email Game, http://emailgame.baydin.com/index.html (Accessed February 12, 2015).
2-10 FOLLOWING UP ON THE organizations repeatedly experience failures in strategy
implementation. Brilliant marketing plans are doomed
MARKETING PLAN to fail if they are not properly implemented. These de-
tailed communications may or may not be part of the
One of the keys to success overlooked by many written marketing plan. If they are not part of the plan,
businesses is to actively follow up on the marketing they should be specified elsewhere as soon as the plan has
plan. The time spent researching, developing, and writ- been communicated. Strong, forward-thinking leadership
ing a useful and accurate marketing plan goes to waste if can overcome resistance to change, even in large, highly
the plan is not used by the organization. One of the best integrated companies where change seems very unlikely.
ways to get the most out of a marketing plan is to cor-
rectly implement it. Once the first steps to implementa- 2-10b Evaluation and Control
tion are taken, evaluation and control will help guide the After a marketing plan is implemented, it should be evalu-
organization to success as laid out by the marketing plan. ated. Evaluation entails gauging the extent to which mar-
keting objectives have been achieved during the specified
2-10a Implementation time period. Four common reasons for failing to achieve
Implementation is the process that turns a marketing a marketing objective are unrealistic marketing objectives,
plan into action assignments and ensures that these as- inappropriate marketing strategies in the plan, poor im-
signments are executed in a way that accomplishes the plementation, and changes in the environment after the
plan’s objectives. Implementation activities may involve objective was specified and the strategy was implemented.
detailed job assignments, activity descriptions, time lines, Once a plan is chosen and implemented, its effective-
budgets, and lots of communication. Implementation ness must be monitored. Control provides the mecha-
requires delegating authority and responsibility, deter- nisms for evaluating marketing results in light of the plan’s
mining a time frame for completing tasks, and allocat- objectives and for correcting actions that do not help the
ing resources. Sometimes a strategic plan also requires organization reach those objectives within budget guide-
task force management. A task force is a tightly organized lines. Firms need to establish formal and informal control
unit under the direction of a manager who, usually, has programs to make the entire operation more efficient.
broad authority. A task force is established to accomplish Perhaps the broadest control device available to
a single goal or mission and thus works against a deadline. marketing managers is the marketing audit—a thor-
Implementing a plan has another dimension: gaining ough, systematic, periodic evaluation of the objectives,
acceptance. New plans mean change, and change creates strategies, structure, and performance of the marketing
resistance. One reason people resist change is that they fear organization. A marketing audit helps management al-
they will lose something. For locate marketing resources efficiently.
implementation the process example, when new-product Although the main purpose of the marketing audit is
that turns a marketing plan into to develop a full profile of the organization’s marketing
action assignments and ensures that research is taken away from
marketing research and effort and to provide a basis for developing and revising
these assignments are executed in
a way that accomplishes the plan’s given to a new-product de- the marketing plan, it is also an excellent way to improve
objectives partment, the director of communication and raise the level of marketing con-
marketing research will nat- sciousness within the organization. It is a useful vehicle
evaluation gauging the extent
to which the marketing objectives urally resist this loss of part for selling the philosophy and techniques of strategic
have been achieved during the of his or her domain. Misun- marketing to other members of the organization.
specified time period
derstanding and lack of trust
control provides the mechanisms also create opposition to
2-10c Post-audit Tasks
for evaluating marketing results in change, but effective com- After the audit has been completed, three tasks remain.
light of the plan’s objectives and
for correcting actions that do not munication through open First, the audit should profile existing weaknesses and in-
help the organization reach those discussion and teamwork hibiting factors, as well as the firm’s strengths and the new
objectives within budget guidelines can be one way of overcom- opportunities available to it. Recommendations have to be
marketing audit a thorough, ing resistance to change. judged and prioritized so that those with the potential to
systematic, periodic evaluation of Although implemen- contribute most to improved marketing performance can be
the objectives, strategies, structure, tation is essentially “do- implemented first. The usefulness of the data also depends
and performance of the marketing ing what you said you on the auditor’s skill in interpreting and presenting the data
organization
were going to do,” many so decision makers can quickly grasp the major points.
Four Characteristics of a Marketing
Audit
● Comprehensive: The marketing audit covers all the major marketing issues facing an organization—not just
trouble spots.
● Systematic: The marketing audit takes place in an orderly sequence and covers the organization’s market-
ing environment, internal marketing system, and specific marketing activities. The diagnosis is followed by
an action plan with both short-run and long-run proposals for improving overall marketing effectiveness.
● Independent: The marketing audit is normally conducted by an inside or outside party that is independent
enough to have top management’s confidence and has the ability to be objective.
● Periodic: The marketing audit should be carried out on a regular schedule instead of only in a crisis. Wheth-
er it seems successful or is in deep trouble, any organization can benefit greatly from such an audit.
©StudioM1
The second task is to ensure that the role of the au- lower-cost self-service and convenience store operations.
dit has been clearly communicated. It is unlikely that Major companies took several decades to catch up.
the suggestions will require radical change in the way Perhaps the most critical element in successful stra-
the firm operates. The audit’s main role is to address the tegic planning is top management’s support and par-
question “Where are we now?” and to suggest ways to ticipation. At Google, for example, top managers support
improve what the firm already does. their employees’ strategic plans and even assist in entry-
The final post-audit task is to make someone ac- level employees’ development as strategic planners. This
countable for implementing recommendations. All too has created a top-to-bottom culture of strategic excellence
often, reports are presented, applauded, and filed away at Google.24
to gather dust. The person made accountable should
be someone who is committed to the project and who
2
has the managerial power to make things happen.
STUDY
TOOLS
2-11 EFFECTIVE STRATEGIC PLANNING
LOCATED AT BACK OF THE TEXTBOOK
Effective strategic planning requires continual atten-
tion, creativity, and management commitment. Stra- □ Rip out Chapter Review Card
tegic planning should not be an annual exercise in which
managers go through the motions and forget about strategic LOCATED AT WWW.CENGAGEBRAIN.COM
planning until the next year. It should be an ongoing process □ Review Key Terms Flashcards and create your own
because the environment is continually changing and the
firm’s resources and capabilities are continually evolving. □ Track your knowledge & understanding of key concepts
Sound strategic planning is based on creativity. Man- in marketing
agers should challenge assumptions about the firm and the □ Complete practice and graded quizzes to prepare for tests
environment and establish new strategies. For example,
major oil companies developed the concept of the gaso-
line service station in an age when cars needed frequent
experience
and rather elaborate servicing. These major companies □ View the chapter highlight boxes within the MKTG Online
held on to the full-service approach, but independents experience
were quick to respond to new realities and moved to
3 Ethics and Social
Responsibility
LEARNING OUTCOMES
3-1 Explain the determinants of a civil society

After you finish
3-2 Explain the concept of ethical behavior this chapter go
Wk1003mike/Shutterstock.com
3-3 Describe ethical behavior in business to PAGE44 for
3-4 Discuss corporate social responsibility STUDY TOOLS.
3-5 Describe the arguments for and against society responsibility
3-6 Explain cause-related marketing
3-1 DETERMINANTS OF A CIVIL SOCIETY

Have you ever stopped to think about the social glue that binds
society together? That is, what factors keep people and organizations
from running amok and doing harm, and what factors create order in
a society like ours? The answer lies in social control, defined as any means
used to maintain behavioral norms and regulate conflict.1 Behavioral norms
are standards of proper or acceptable behavior. Social control is part of
your life at every level, from your family, to your local community, to
the nation, to the global civilization. Several modes of social control are
important to marketing:
1. Ethics: Ethics are the moral principles or values that perfect mechanism for ensuring good corporate and
generally govern the conduct of an individual or a employee behavior. This is because laws often address
group. Ethical rules and guidelines, along with cus- the lowest common denominator of socially accept-
toms and traditions, provide principles of right action. able behavior. In other words, just because something
2. Laws: Often, ethical rules and guidelines are codi- is legal does not mean that it is ethical. For example,
fied into law. Laws created by governments are then according to a recent study by Arizona State Univer-
enforced by governmental authority. This is how the sity, fast food restaurants disproportionally aim their
dictum “Thou shall not steal” has become part of for- child-focused marketing efforts at middle-income,
mal law throughout the land. Law, however, is not a rural, and predominately black communities.2
30 PART ONE:
CHAPTER
The World
3: 3 of Marketing
In a national study of more than 6,000 fast-food labor, environmental issues, conservation, and a host
restaurants, researchers found that those situated in of other issues.
middle-income neighborhoods, rural communities, 5. The Media: In an open, democratic society, the
and predominately black neighborhoods were more media play a key role in informing the public about
likely to target children with ads featuring cartoon the actions of individuals and organizations—both
characters; displays on restaurant exteriors featuring good and bad. The Children’s Online Privacy Pro-
movie, television, and sports stars; and indoor play tection Act (COPPA) requires Web site operators to
areas and indoor displays of kids’ meal toys. Overall, obtain verifiable consent from parents before col-
one-fifth of restaurants sampled in the study used lecting personal information about children under
one or more strategies targeting children. Fast-food age thirteen. Recently, Yelp paid a $450,000 fine for
companies in the U.S. spend nearly one-quarter of collecting information on children under thirteen.
their marketing budgets to target kids age 2 to 17.3 Mobile app developer TinyCo was likewise fined
Is this ethical? What is your opinion? $300,000.4 Google has announced new versions of
3. Formal and Informal Groups: Businesses, profes- Chrome and YouTube tailored specifically for kids
sional organizations (such as the American Marketing under the age of 13. To
Association and the American Medical Association), date, Google has not
social control any means used
and clubs (such as Shriners and Ducks Unlimited) all announced the safe- to maintain behavioral norms and
have codes of conduct. These codes prescribe accept- guards it will use to regulate conflict
able and desired behaviors of their members. meet COPPA stan-
behavioral norms standards
4. Self-regulation: Self-regulation involves the volun- dards. Since the vast of proper or acceptable behavior.
tary acceptance of standards established by nongov- majority of Google’s Several modes of social control are
ernmental entities, such as the American Association revenue comes from important to marketing
of Advertising Agencies (AAAA) or the National advertising and the ethics the moral principles
Association of Manufacturers. The AAAA has a self- value of the company’s or values that generally govern
regulation arm that deals with deceptive advertising. ads is tied to its mas- the conduct of an individual
or a group
Other associations have regulations relating to child sive trove of user data,
CHAPTER 3: Ethics and Social Responsibility 31
COPPA compliance is very important to judged. Standards that are legal may not always be
Google and advertisers alike.5 ethical, and vice versa. Laws are the values and
6. An Active Civil Society: An informed and standards enforceable by the courts. Ethics,
engaged society can help mold individual then, consists of personal moral principles. For
Sideways Design/Shutterstock.com
and corporate behavior. The last state in example, there is no legal statute that makes
the union to get a Walmart store was Ver- it a crime for someone to “cut in line.” Yet, if
mont. Citizen campaigns against the big- someone does not want to wait in line and cuts
box retailer were deciding factors in man- to the front, it often makes others very angry.
agement’s decision to avoid the state. If you have ever resented a line-cutter,
The planned Keystone Pipeline has then you understand ethics and have ap-
brought out environmentalists on one plied ethical standards in life. Waiting your
side of the debate and the petroleum turn in line is a social expectation that exists
industry on the other. Proponents because lines ensure order and allocate the
argue that the oil pipeline snak- space and time needed to complete transactions.
ing from Alberta, Canada, to Waiting your turn is an expected but unwritten behavior
Houston, Texas, will not only that plays a critical role in an orderly society.
bring essential infrastructure So it is with ethics. Ethics consists of those unwrit-
to North American oil producers, but it will also ten rules we have developed for our interactions with
provide jobs, long-term energy independence, and a one another. These unwritten rules govern us when we
boost to the economy.6 TransCanada, proposed are sharing resources or honoring contracts. “Waiting
builder of the pipeline, says that it will be the your turn” is a higher standard than the laws that
safest and most advanced oil pipeline oper- are passed to maintain order. Those laws apply
ation in North America. Opponents claim when physical force or threats are used to push
that the pipeline will create few post-construction jobs to the front of the line. Assault, battery, and threats are
and will carry tar-sands oil (which is more hazardous forms of criminal conduct for which the offender can be
than conventional oil). They argue that tar-sands refin- prosecuted. But the law does not apply to the stealthy
ing has created toxic dust storms and that the pipeline line-cutter who simply sneaks to the front, perhaps using
would contribute little to U.S. energy independence.7 a friend and a conversation as a decoy. No laws are bro-
The arguments on both sides are a product of an ken, but the notions of fairness and justice are offended
engaged and free society. by one individual putting himself or herself above others
and taking advantage of others’ time and position.
All six of the preceding factors—individually and in
Ethical questions range from practical, narrowly de-
combination—are critical to achieving a socially coher-
fined issues, such as a businessperson’s obligation to be
ent, vibrant, civilized society. These six factors (the social
honest with customers, to broader social and philosophi-
glue) are more important today than ever before due to
cal questions, such as whether a company is responsible
the increasing complexity of the global economy and the
for preserving the environment and protecting employee
melding of customs and traditions within societies.
rights. Many ethical dilemmas develop from conflicts
between the differing interests of company owners and
their workers, customers, and surrounding community.
3-2 THE CONCEPT OF ETHICAL Managers must balance the ideal against the practical—
BEHAVIOR that is, the need to produce a reasonable profit for the
company’s shareholders against honesty in business prac-
tices and concern for environmental and social issues.
It has been said that ethics is something everyone
likes to talk about but nobody can define. Others have 3-2a Ethical Theories
suggested that defining ethics is like trying to nail Jell-O to
a wall. You begin to think that you understand it, but that People usually base their individual choice of ethical
is when it starts squirting out theory on their life experiences. The following are some
between your fingers. of the ethical theories that apply to marketing.8
deontological theory ethical
theory that states that people should Simply put, ethics can DEONTOLOGY The deontological theory states
adhere to their obligations and duties be viewed as the standard of that people should adhere to their obligations and duties
when analyzing an ethical dilemma
behavior by which conduct is when analyzing an ethical dilemma. This means that a
person will follow his or her obligations to another indi- Another assumption that a utilitarian must make is
vidual or society because upholding one’s duty is what is that he has the ability to compare the various types of
considered ethically correct. For instance, a deontologist consequences against each other on a similar scale. How-
will always keep his promises to a friend and will follow ever, comparing material gains such as money against in-
the law. A person who follows this theory will produce tangible gains such as happiness is impossible because
very consistent decisions because they will be based on their qualities differ so greatly.
the individual’s set duties.
CASUIST The casuist ethical theory compares a
Note that deontological theory is not necessarily
current ethical dilemma with examples of similar ethical
concerned with the welfare of others. For example, sup-
dilemmas and their outcomes. This allows one to deter-
pose a salesperson has decided that it is her ethical duty
mine the severity of the situation and to create the best
(and very practical!) to always be on time to meetings
possible solution according to others’ experiences. Usu-
with clients. Today she is running late. How is she sup-
ally, one will find examples that represent the extremes
posed to drive? Is the deontologist supposed to speed,
of the situation so that a compromise can be reached
breaking the law to uphold her duty to society, or is the
that will include the wisdom gained from the previous
deontologist supposed to arrive at her meeting late,
situations.
breaking her duty to be on time? This scenario of con-
One drawback to this ethical theory is that there
flicting obligations does not lead us to a clear, ethically
may not be a set of similar examples for a given ethi-
correct resolution, nor does it protect the welfare of oth-
cal dilemma. Perhaps that which is controversial and
ers from the deontologist’s decision.
ethically questionable is new and unexpected. Along the
UTILITARIANISM The utilitarian ethical theory same line of thinking, this theory assumes that the results
is founded on the ability to predict the consequences of the current ethical dilemma will be similar to results
of an action. To a utilitarian, the choice that yields the in the examples. This may not be necessarily true and
greatest benefit to the most people is the choice that is would greatly hinder the effectiveness of applying this
ethically correct. One benefit of this ethical theory is ethical theory.
that the utilitarian can compare similar predicted solu- MORAL RELATIVISM Moral relativism is a belief
tions and use a point system to determine which choice in time-and-place ethics, that is, the truth of a moral
is more beneficial for more people. This point system judgment is relative to the judging person or group.9
provides a logical and rational argument for each de- According to a moral relativist, for example, arson is not
cision and allows a person to use it on a case-by-case always wrong—if you live in a neighborhood where drug
context. dealers are operating a crystal meth lab or crack house,
There are two types of utilitarianism: act utilitari- committing arson by burning down the meth lab may
anism and rule utilitarianism. Act utilitarianism ad- be ethically justified. If you are a parent and your child
heres exactly to the definition of utilitarianism as just is starving, stealing a loaf of bread is ethically correct.
described. In act utilitarianism, a person performs the The proper resolution to ethical dilemmas is based upon
acts that benefit the most people, regardless of personal weighing the competing factors at the moment and then
feelings or societal constraints such as laws. Rule utili- making a determination to take the lesser of the evils as
tarianism, however, takes into account the law and is the resolution. Moral rela-
concerned with fairness. A rule utilitarian seeks to ben- tivists do not believe in ab-
efit the most people but through the fairest and most utilitarian ethical theory
solute rules. Their beliefs ethical theory that is founded on the
just means available. Therefore, added benefits of rule center on the pressure of ability to predict the consequences
utilitarianism are that it values justice and doing good the moment and whether of an action
at the same time. the pressure justifies the casuist ethical theory
As is true of all ethical theories, however, both act action taken. ethical theory that compares a
and rule utilitarianism contain numerous flaws. Inher- current ethical dilemma with
ent in both are the flaws associated with predicting the VIRTUE ETHICS Aristo- examples of similar ethical dilemmas
future. Although people can use their life experiences tle and Plato taught that and their outcomes
to attempt to predict outcomes, no human being can be solving ethical dilemmas moral relativism an ethical
certain that his predictions will be true. This uncertainty requires training—that indi- theory of time-and-place ethics;
can lead to unexpected results, making the utilitarian viduals solve ethical dilem- that is, the belief that ethical truths
depend on the individuals and
look unethical as time passes because his choice did not mas when they develop and
groups holding them
benefit the most people as he predicted. nurture a set of virtues.10
A virtue is a character trait valued as being good. Ar-
istotle taught the importance of cultivating virtue in his
students and then having them solve ethical dilemmas
using those virtues once they had become an integral
part of his students’ being through their virtue training.
Some modern philosophers have embraced this no-
Victor Maschek/Shutterstock.com
tion of virtue and have developed lists of what consti-
tutes a virtuous businessperson. Some common virtues
for business people are self-discipline, friendliness, car-
ing, courage, compassion, trust, responsibility, honesty,
determination, enthusiasm, and humility. You may see
other lists of virtues that are longer or shorter, but here
is a good start for core business virtues.
Shipping companies may ultimately
be responsible for the conduct of its
customers.
3-3 ETHICAL BEHAVIOR IN BUSINESS
Depending upon which, if any, ethical theory a generally argue that an indictment or a criminal charge
businessperson has accepted and uses in his or her can cause unacceptable damage, including the loss
daily conduct, the action taken may vary. For exam- of operating licenses, government contracts, and
ple, faced with bribing a foreign official to get a critically customers. A company’s only realistic choice may
needed contract or shutting down a factory and laying be to settle, even if it has a good chance of being
off a thousand workers, a person following a deontology acquitted. Some think this gives prosecutors too much
strategy would not pay the bribe. Why? A deontologist power.11 Consider the ethics of the FedEx case from a
always follows the law. However, a moral relativist would number of different perspectives.
probably pay the bribe. Morals are the rules people develop as a result of
While the boundaries of what is legal and what is cultural values and norms. Culture is a socializing force
not are often fairly clear (for example, do not run a red that dictates what is right and wrong. Moral standards
light, do not steal money from a bank, and do not kill may also reflect the laws and regulations that affect social
anyone), the boundaries of ethical decision making are and economic behavior. Thus, morals can be considered
predicated on which ethical theory one is following. The a foundation of ethical behavior.
law typically relies on juries to determine if an act is legal Morals are usually characterized as good or bad.
or illegal. Society determines whether an action is ethical “Good” and “bad” have many different connotations.
or unethical. A number of women have accused come- One such connotation is “effective” and “ineffective.” A
dian Bill Cosby of sexual molestation and rape. Society good salesperson makes or exceeds the assigned quota.
would view this as unethical behavior, but at the time If the salesperson sells a new computer system or HDTV
of this writing, Mr. Cosby had not been indicted. If he to a disadvantaged consumer—knowing full well that the
is subjected to a trial, a jury will determine if an illegal person cannot keep up the monthly payments—is that
act was committed. In a business-related case, a federal still a good salesperson? What if the sale enables the
prosecutor in San Francisco recently indicted Federal salesperson to exceed his or her quota?
Express for shipping illegal prescription drugs. If suc- “Good” and “bad” can also refer to “conform-
cessful, the case would extend a shipping company’s re- ing” and “deviant” behaviors. A doctor who runs large
sponsibility from its own conduct to the conduct of its ads offering discounts on open-heart surgery would be
customers. This case raises a lot of questions about what considered bad, or unprofessional, because he or she is
a company can and should not conforming to the norms of the medical profession.
know about its customers. “Good” and “bad” also express the distinction between
virtue a character trait valued as What makes the Fed- law-abiding and criminal behavior. And finally, different
being good
eral Express case differ- religions define “good” and “bad” in markedly different
morals the rules people develop ent is that the company ways. A Muslim who eats pork would be considered bad
as a result of cultural values and has chosen to fight it out by other Muslims, for example. Religion is just one of the
norms
in court. Businesspeople many factors that affect a businessperson’s ethics.
3-3a Morality and Business Ethics ethical problems in their organizations tend to disap-
prove more strongly of “unethical” or questionable
Today’s business ethics actually consist of a subset of
practices than those who perceive more ethical prob-
major life values learned since birth. The values busi-
lems. Apparently, the healthier the ethical environ-
nesspeople use to make decisions have been acquired
ment, the more likely it is that marketers will take a
through family, educational, and religious institutions.
strong stand against questionable practices.
Ethical values are situation specific and time oriented.
Everyone must have an ethical base that applies to
● Top management’s actions on ethics: Top managers
conduct in the business world and in personal life. One can influence the behavior of marketing professionals
approach to developing a personal set of ethics is to exam- by encouraging ethical behavior and discouraging un-
ine the consequences of a particular act. Who is helped ethical behavior. Researchers found that when top
or hurt? How long do the consequences last? What ac- managers develop a strong ethical culture, there is
tions produce the greatest good for the greatest number reduced pressure to perform unethical acts, fewer un-
of people? A second approach stresses the importance of ethical acts are performed, and unethical behavior is
rules. Rules come in the form of customs, laws, profes- reported more frequently.14
sional standards, and common sense. “Always treat others ● Potential magnitude of the consequences: The
as you would like to be treated” is an example of a rule. greater the harm done to victims, the more likely that
A third approach to personal ethics emphasizes the marketing professionals will recognize a problem as
development of moral character within individuals. In unethical.
this approach, ethical development is thought to consist ● Social consensus: The greater the degree of agree-
of three levels.12 ment among managerial peers that an action is harm-
● Preconventional morality, the most basic level, is ful, the more likely that marketers will recognize
childlike. It is calculating, self-centered, and even a problem as unethical. Research has found that a
selfish, based on what will be immediately punished strong ethical culture among coworkers decreases
or rewarded. Fortunately, most businesspeople have observations of ethical misconduct. In companies
progressed beyond the self-centered and manipula- with strong ethical cultures, 9 percent of employees
tive actions of preconventional morality. observed misconduct, compared with 31 percent in
● Conventional morality moves from an egocentric companies with weaker cultures.15
viewpoint toward the expectations of society. Loyalty ● Probability of a harmful outcome: The greater the
and obedience to the organization (or society) become likelihood that an action will result in a harmful out-
paramount. A marketing decision maker operating at come, the more likely that marketers will recognize a
this level of moral development would be concerned problem as unethical.
only with whether a proposed action is legal and how ● Length of time between the decision and the
it will be viewed by others.
onset of consequences: The shorter the length of
● Postconventional morality represents the morality of time between the action and the onset of negative
the mature adult. At this level, people are less con- consequences, the more likely that marketers will
cerned about how others might see them and more perceive a problem as unethical.
concerned about how they see and judge themselves ● Number of people to be affected: The greater the
over the long run. A marketing decision maker who
number of persons affected by a negative outcome,
has attained a postconventional level of morality
the more likely that marketers will recognize a prob-
might ask, “Even though it is legal and will increase
lem as unethical.
company profits, is it right in the long run? Might it
do more harm than good in the end?” As you can see, many factors determine the nature
of an ethical decision. In October 2014, drugstore chain
CVS ceased all sales of cigarettes and other tobacco
3-3b Ethical Decision Making
products, becoming the first national pharmacy to do so.
Ethical questions rarely have cut-and-dried answers. CVS President and CEO Larry Merlo said that the
Studies show that the following factors tend to influence decision better aligned the company with its purpose of
ethical decision making and judgments:13 improving customer health, and that it was simply the
● Extent of ethical problems within the organi- right thing to do.16 Which of the above factors do you
zation: Marketing professionals who perceive fewer think contributed to CVS’ decision?
Google’s Code
of Ethics
Google’s now-famous guiding principle of per-
sonal conduct is simply “Don’t be evil.” This gener-
ally means providing Google users with unbiased
access to information, focusing on user needs,
AP Images/Sipa USA/Anthony Behar

and giving them the best products and services
that the company can provide. Google’s code of
ethics is a means of putting “Don’t be evil” into
practice. A summary of the primary components
of Google’s code is as follows:
I. Serve Our Users
Our users value Google not only because we
In this February 2014 photo, cigarettes and deliver great products and services, but be-
other tobacco products can be seen on sale cause we hold ourselves to a higher standard
behind the counter at a New York City CVS in how we treat users and operate in general.
location. As of October 1, 2014, CVS became This requires integrity, useful products, pre-
the first chain of national pharmacies to serving privacy, security, freedom of expres-
remove cigarettes from its shelves. sion, and being responsive to users.
II. Respect Each Other
We are committed to a supportive work
3-3c Ethical Guidelines and Training environment where employees have the op-
In recent years, many organizations have become more portunity to reach their fullest potential. Each
interested in ethical issues. One sign of this interest is Googler is expected to do his or her utmost
the increase in the number of large companies that ap- to create a respectful workplace culture that
point ethics officers—from virtually none several years is free of harassment, intimidation, bias, and
ago to over 40 percent of large corporations today.17 In unlawful discrimination of any kind.
addition, many companies of various sizes have devel- III. Avoid Conflicts of Interest
oped a code of ethics as a guideline to help marketing While working at Google, we have an obliga-
managers and other employees make better decisions. tion to always do what’s best for the company
Creating ethics guidelines has several advantages: and our users. When you are in a situation in
● A code of ethics helps employees identify what their which competing loyalties could cause you to
firm recognizes as acceptable business practices. pursue a personal benefit for you, your friends,
● A code of ethics can be an effective internal control of or your family at the expense of Google or
behavior, which is more desirable than external con- its users, you may be faced with a conflict of
trols such as government regulation. interest. All of us should avoid conflicts of
interest and circumstances that reasonably
● A written code helps employees avoid confusion when present the appearance of a conflict.
determining whether their decisions are ethical.
IV. Preserve Confidentiality
● The process of formulating the code of ethics
facilitates discussion among employees about what V. Protect Google’s Assets
is right and wrong and ultimately leads to better IV. Ensure Financial Integrity and Responsibility
decisions. Financial integrity and fiscal responsibility
are core aspects of corporate professionalism.
Ethics training is an
This is more than accurate reporting
code of ethics a guideline to effective way to help em-
help marketing managers and other of our financials, though that’s certainly
ployees put good ethics
employees make better decisions
into practice. The Ethics
who said they had felt pressure to commit an ethics vio-
important. The money we spend on behalf lation—to cut corners or worse—dropped from 13 per-
of Google is not ours; it’s the company’s, and cent in 2011 to 9 percent in 2013.20
ultimately, our shareholders’. Each person at
THE MOST ETHICAL COMPANIES Each year, Ethis-
Google—not just those in finance—has a role
phere magazine (targeted toward top management and
in making sure that money is appropriately
focused on ethical leadership) examines more than 5,000
spent, our financial records are complete and
companies in thirty separate industries, seeking the
accurate, and internal controls are honored.
world’s most ethical companies. It then lists the top 100.
VII. Obey the Law The magazine uses a rigorous format to identify true eth-
Each of Google’s seven tenants of its code is ical leadership. A few of the selected winners are shown
followed by several pages of detail that fully in Exhibit 3.1.
explain the guiding principle. Space require-
ments don’t allow reprinting the code in full.18 ETHICS AND SMALL BUSINESS Large firms like
those listed in Exhibit 3.1 often have ethics officers
and extensive ethics training for employees. Small
Resource Center’s National Business Ethics Survey companies, however, are often on their own when
(NBES) found that 81 percent of companies provide ethics facing ethical issues. Simply managing the business
training. Coincidentally, the survey found that a historically often demands extensive amounts of time for entre-
low 41 percent of workers reported that they had observed preneurs, so ethics training and awareness may not
misconduct on the job.19 Still, simply giving employees a be a priority. One area in which small firms some-
long list of dos and don’ts does not really help employees times suffer ethical lapses is in promotion. The Inter-
navigate the gray areas or adapt to a changing world mar- net has changed promotional strategy because small
ket. In Carson City, Nevada, all governmental lobbyists are companies can create their own ads and get them
required to attend a course on ethics and policy before they out quickly to the marketplace. A recent study found
can meet with lawmakers. The training outlines exactly how that the number of false advertising lawsuits involv-
and when lobbyists are allowed to interact with lawmakers ing small firms is continually rising.21 One lawyer who
and how to report any money they spend. A clear under- represents small advertisers says, “In order to keep
standing of ethical expectations is essential to an industry up with the big players, they feel like they have to
like lobbying, where illicit—often illegal—actions are taken exaggerate and they can get in trouble.”22 For exam-
to promote individual causes. ple, Hello Products sells toothpaste in flavors such as
Do ethics training programs work? According to the “pink grapefruit” and “mojito mint.” When this line of
NBES, it seems that they do. The number of employees toothpastes launched, it was touted as “99% natural”
University of
Virginia professor,
Bobby Parmar,
demonstrates
BizHero, an online
game that teaches
business ethics
and decision
making.
AP Images/The Daily Progress/Nate Delesline III
SELECTED WINNERS OF THE WORLD’S 3-3d Ethics in Other Countries
EXHIBIT 3.1
MOST ETHICAL COMPANIES Studies suggest that ethical beliefs vary little from cul-
ture to culture. Certain practices, however, such as the
Company Industry use of illegal payments and bribes, are far more accept-
Rockwell Collins Aerospace and Defense able in some places than in others, though enforced laws
Gap, Inc. Apparel are increasingly making the practice less accepted. One
Levi Strauss & Co. Apparel such law, the Foreign Corrupt Practices Act (FCPA),
Cummins, Inc. Automotive was enacted because Congress was concerned about
Ford Motor Company Autos U.S. corporations’ use of illegal payments and bribes in
Accenture Business Services international business dealings. This act prohibits U.S.
Dun & Bradstreet Business Services corporations from making illegal payments to public of-
Manpower Group Business Services ficials of foreign governments to obtain business rights
Dell Inc. Computer Hardware or to enhance their business dealings in those countries.
Intel Corporation Computer Hardware The act has been criticized for putting U.S. businesses at
Google Computer Services a competitive disadvantage. Many contend that bribery
Adobe Systems Computer Software is an unpleasant but necessary part of international busi-
Microsoft Computer Software ness, especially in countries such as China, where busi-
Symantec Computer Software ness gift giving is widely accepted and expected. But,
Colgate-Palmolive Company Consumer Products as prosecutions under the FCPA have increased world-
Kimberly-Clark Corporation Consumer Products wide, some countries are implementing their own anti-
Waste Management Environmental Services bribery laws. For example, even though China is among
Kellogg Company Food and Beverage the three countries with the most international corrup-
PepsiCo Food and Beverage tion cases prosecuted under the FCPA, the country is
L’OREAL Health and Beauty working to develop its own anti-bribery laws.
Cleveland Clinic Healthcare Services
3M Company Industrial Manufacturing
Deere & Company Industrial Manufacturing 3-4 CORPORATE SOCIAL
General Electric
Time Warner
Industrial Manufacturing
Media
RESPONSIBILITY
Safeway Retail Food Stores
Corporate social responsibility (CSR) is a busi-
ness’s concern for society’s welfare. This concern is
Source: “2014 World’s Most Ethical Companies,” Ethisphere, http://ethisphere.com
(Accessed January 20, 2015). demonstrated by managers who consider both the long-
range best interests of the company and the company’s
on the company’s website and on the toothpaste relationship to the society within which it operates.
packaging itself. After the firm delivered its first ship-
ment, it received a letter 3-4a Stakeholders and Social
Foreign Corrupt Practices from Procter & Gamble Responsibility
Act (FCPA) a law that prohibits wanting Hello to retract
U.S. corporations from making illegal its “99% natural” claim. An important aspect of social responsibility is
payments to public officials of foreign
Hello settled its dispute stakeholder theory. Stakeholder theory says that
governments to obtain business
with P&G by agreeing to social responsibility is paying attention to the interest
rights or to enhance their business
dealings in those countries change the label to “Natu- of every affected stakeholder in every aspect of a firm’s
rally Friendly.” Hello end- operation. The stakeholders in a typical corporation
corporate social are shown in Exhibit 3.2.
responsibility (CSR) ed up with 100,000 tubes
a business’s concern for society’s welfare that couldn’t be sold. The ● Employees have their jobs and incomes at stake. If the
stakeholder theory ethical firm ultimately gave them firm moves or closes, employees often face a severe
theory stating that social responsibility away on the streets of hardship. In return for their labor, employees expect
is paying attention to the interest of Manhattan hoping to get wages, benefits, and meaningful work. In return for
every affected stakeholder in every a little promotional mile- their loyalty, workers expect the company to carry
aspect of a firm’s operation
age out of the old tubes.23 them through difficult times.
then production grinds to a halt. The materials
EXHIBIT 3.2 STAKEHOLDERS IN A TYPICAL CORPORATION supplied determine the quality of the product
produced and create a cost floor, which helps
determine the retail price. In turn, the firm is
job and income at stake the customer of the supplier and is therefore vi-
must safeguard the welfare of
the organization
tal to the success and survival of the supplier. A
must balance the multiple supplier that fails to deliver quality products can
claims of conflicting
stakeholders create numerous problems for a firm. For exam-
jobs and incomes generate revenue
at stake for the organization ple, Burger King stopped buying beef from an
expect quality
expect wages,
benefits, and
goods and services Irish supplier whose patties were found to con-
MANAGEMENT delivered in a timely
meaningful work
manner tain traces of horse meat in Britain and Ireland.24
expect the company
customer satisfaction
to carry them
though difficult
leads to higher ● Owners have a financial stake in the form of
EMPLOYEES CUSTOMERS revenues and other
times
satisfied stakeholders stock in a corporation. They expect a reasonable
return based upon the amount of inherent risk
on their investment. Sometimes managers and
LOCAL
have a financial OWNERS/STOCK-
COMMUNITY
grants the firm
the rights to build
employees receive a portion of their compensa-
stake in the HOLDERS
company in the
facilities tion in company stock. When Apple launched its
form of stock benefits from
expect a SUPPLIERS taxes paid by initial public stock offering, 30 Apple employees
corporations
reasonable return
based upon inherent
and workers became instant millionaires.25 Similarly, more
risk of their investment expects good
citizenship
than 10,000 Microsoft employees have become
materials determine the
millionaires from their stock holdings.26
quality of the product and
help determine the retail
price
depend on firm’s success
3-4b Pyramid of Corporate Social
for survival
Responsibility
One theorist suggests that total corporate so-
cial responsibility has four components: eco-
● Management plays a special role, as they also have a nomic, legal, ethical, and philanthropic. The pyramid
stake in the corporation. Like employees, managers of corporate social responsibility portrays eco-
have their jobs and incomes at stake. On the other nomic performance as the foundation for the other three
hand, management must safeguard the welfare of the responsibilities (see Exhibit 3.3). At the same time that
organization. Sometimes this means balancing the it pursues profits (economic responsibility), however, a
multiple claims of conflicting stakeholders. For exam- business is expected to obey the law (legal responsibility);
ple, stockholders want a higher return on investment to do what is right, just, and fair (ethical responsibilities);
and perhaps lower costs by moving factories overseas. and to be a good corporate citizen (philanthropic respon-
This naturally conflicts with the interests of employ- sibility). These four components are distinct but together
ees, the local community, and perhaps suppliers. constitute the whole. Still, if the company does not make
● Customers generate the revenue for the organiza- a profit, then the other three responsibilities are moot.
tion. In exchange, they expect high-quality goods and
services delivered in a timely manner. Customer sat-
isfaction leads to higher revenues and the ability to 3-5 ARGUMENTS FOR AND AGAINST
enhance the satisfaction of other stakeholders.
SOCIAL RESPONSIBILITY
● The local community, through its government, grants
the firm the right to build facilities. In turn, the com- CSR can be a divisive
munity benefits directly from local taxes paid by the issue. Some analysts be- pyramid of corporate
corporation and indirectly by property and sales taxes lieve that a business should social responsibility a
paid by the workers. The firm is expected to be a good model that suggests corporate
focus on making a profit social responsibility is composed
citizen by paying a fair wage, not polluting the envi- and leave social and envi- of economic, legal, ethical, and
ronment, and so forth. ronmental problems to philanthropic responsibilities and
● Suppliers are vital to the success of the firm. For exam- nonprofit organizations and that a firm’s economic performance
supports the entire structure
ple, if a critical part is not available for an assembly line, government. Economist
Recent research has found that being socially re-
THE PYRAMID OF CORPORATE SOCIAL
EXHIBIT 3.3 sponsible and training front line employees about social
RESPONSIBILITY responsibility can have a positive impact on the firm. In
Philanthropic responsibilities a business-to-business environment, researchers found
Be a good corporate citizen. that social responsibility activities can raise customer
Contribute resources to the
community; improve the trust and identification with the firm. These factors, in
quality of life. turn, build customer loyalty, which often leads to higher
Ethical responsibilities profits.28
Be ethical. Another, more pragmatic, reason for being socially
Do what is right, just, and
fair. Avoid harm. responsible is that if businesses do not act responsibly,
then government will create new regulations and per-
haps levy fines against them.
Finally, social responsibility can produce a direct
profit. Smart companies can prosper and build value by
tackling social problems. Starbucks rolled out a reusable
plastic tumbler that customers could buy for $1 instead
of using a disposable cardboard cup for each coffee they
buy. Not only does the reusable tumbler reduce energy
use, landfill waste, and litter, it saves Starbucks the cost
of the disposable cups and encourages customers to buy
their daily cup of coffee from the company. In 2015,
Legal responsibilities
Obey the law. Starbucks introduced a $30 double-walled tumbler
Law is society’s codification made from recycled materials. Customers who brought
of right and wrong. Play by
the rules of the game.
the tumbler back to the store for refills received free
Economic responsibilities
coffee for a month.29
Be profitable.
Profit is the foundation on which
all other responsibilities rest.
Milton Friedman believed that the free market, not

companies, should decide what is best for the world.27
Friedman argued that when business executives spend
more money than necessary—to purchase delivery
vehicles with hybrid engines, pay higher wages in
developing countries, or even donate company funds to
charity—they are spending shareholders’ money to
further their own agendas. It would be better to pay Richard B. Levine/Newscom
dividends and let the shareholders give the money

away if they choose.
On the other hand, CSR has an increasing num-
ber of supporters based on several compelling factors.
One is that it is simply the right thing to do. Some
societal problems, such as pollution and poverty-level This reusable tumbler was purchased
wages, have been brought about by corporations’ ac- from a Starbucks location in the Chelsea
tions; it is the responsibility of business to right these neighborhood of New York City. Consumers
wrongs. Businesses also have the resources, so busi- have long criticized Starbucks’ use of
nesses should be given the chance to solve social disposable containers, so the introduction
problems. For example, businesses can provide a fair of the reusable cup benefited both the
work environment, safe products, and informative company and its customers.
advertising.
3-5a Sustainability
A popular theory in social responsibility is called
sustainability. This refers to the idea that socially re-
sponsible companies will outperform their peers by fo-
cusing on the world’s social and environmental problems
and viewing them as opportunities to build profits and
help the world at the same time.
Perhaps the company that most exemplifies the sustain-
ability movement is Patagonia. The firm has recently
launched a program called the Responsible Economy. Rick
Ridgeway, Head of Sustainability for Patagonia, says,
“Responsible Economy is about the role consumption plays
in the continued decline of our planet’s health.”30 Patagonia’s
goal is to get people to pay attention to environmental stress.
Then, the company hopes, they will buy quality products
that do not end up in a landfill after a few months.
Patagonia has placed ads on Black Friday—typically
the busiest shopping day of the year—that read “don’t buy
our products.” While this seems counterintuitive for a
for-profit company, Patagonia has doubled in size and
tripled its profits in recent years. CEO Rose Marcario says
that the promotion has been very successful because what
the ad really means is “don’t buy more than you need“ and
“the more you consume, the more it strains the world’s
resources.”31 Marcario notes that Patagonia has released
a film called “Worn Well” that stresses the durability of
Patagonia’s products and suggests that they can be handed
down from generation to generation. Patagonia backs up
this bold marketing strategy with a guarantee—if some-
thing happens, regardless of age, Patagonia will fix it for free.
Patagonia also funds various activities outside of the
firm that support sustainability. Recently, the company
paid for a documentary film called “Dam Nation,” which
Source: Patagonia
advocates dam removal around the world. Marcario
claims that there is a huge movement in China to dam
virtually all natural rivers. This, she says, would mean
less biodiversity.32 Patagonia also announced a new $13 Patagonia’s decision to Responsible
million project to put solar panels on homes in Hawaii Economy is so strong that the company
because Marcario felt that solar infrastructure was not advises customers not to buy its products
growing in Hawaii the way it should.33 if they don’t absolutely need to.
Sustainability is not simply “green marketing,”
though environmental sustainability is an important
component of the sustainability philosophy. An environ- investors, prospective employees, current employees, and
mentally sustainable process contributes to keeping the consumers to make their organizations more socially re-
environment healthy by using renewable resources and sponsible. In turn, firms are
by avoiding actions that depreciate the environment. seeing social responsibil- sustainability the idea that
socially responsible companies will
ity as an opportunity. A re-
3-5b Growth of Social Responsibility cent global survey from the
outperform their peers by focusing
on the world’s social problems and
The social responsibility of businesses is growing around Nielsen Company, one of viewing them as opportunities to
the world. Companies around the globe are coming under the world’s largest marketing build profits and help the world at
the same time
increasing pressure from governments, advocacy groups, research firms, found that
55 percent of respondents around the world for workers, how much waste the company
were willing to pay extra for products and produces, and the company’s work with lo-
services from companies providing posi- cal businesses. Firms such as Patagonia,
tive social and environmental impact (see Ben & Jerry’s, online crafts marketplace
Exhibit 3.4).34 More than half of the survey Etsy, and cleaning products maker
participants had bought at least one prod- Method Products have qualified. New
uct or service in the past six months from Seasons Market, a 13-store grocery
a socially responsible company.35 chain in Oregon, stamps the B Corp
UNITED NATIONS GLOBAL COMPACT logo on all of its grocery bags and gives
One way that U.S. firms can do more is employees B Corp badges to wear. The
com
logo helps attract socially-minded shop-
ck .
by joining the United Nations Global Com-
sto
tt
er
pact (UNGC). The UNGC, the world’s largest s/ S
hu pers and helps in recruiting new workers.
er s
F is h
global corporate citizenship initiative, has seen
its ranks swell over the past few years. In 2001—the
THE TEN PRINCIPLES OF THE UNITED NATION’S
first full year after its launch—just sixty-seven companies
joined, agreeing to abide by ten principles (see “The Ten
GLOBAL COMPACT
Principles of the United Nation’s Global Compact”). In Human Rights
2015, there were more than 8000 business participants.36 ▸ Principle 1: Businesses should support and re-
Smaller companies that wish to join the social respon- spect the protection of internationally proclaimed
sibility and sustainability movement are turning to the human rights.
B Corp movement.37 To become a B Corp Certified com-
▸ Principle 2: Businesses should make sure that
pany, a firm must score at least 80 points on a 200-point
they are not complicit in human rights abuses.
assessment. Criteria include things like fair compensation
Labor
PERCENT OF RESPONDENTS WILLING ▸ Principle 3: Businesses should uphold the free-
dom of association and the effective recognition
TO PAY EXTRA FOR PRODUCTS of the right to collective bargaining.
EXHIBIT 3.4 AND SERVICES FROM COMPANIES ▸ Principle 4: Businesses should uphold the elimi-
COMMITTED TO POSITIVE SOCIAL nation of all forms of forced and compulsory labor.
AND ENVIRONMENTAL IMPACT ▸ Principle 5: Businesses should uphold the
effective abolition of child labor.
▸ Principle 6: Businesses should uphold the elimi-
nation of discrimination in respect of
64% employment and occupation.
63% 63%
55%
Environment
▸ Principle 7: Businesses should support a precau-
tionary approach to environmental challenges.
42%
40%
▸ Principle 8: Businesses should undertake initia-
tives to promote greater environmental responsi-
bility.
▸ Principle 9: Businesses should encourage the
development and diffusion of environmentally
friendly technologies.
Europe North Middle Latin Asia- Global Anti-Corruption
America East/Africa America Pacific Average
▸ Principle 10: Businesses should work against
corruption in all its forms, including extortion
Source: “It Pays to Be Green: Corporate Social Responsibility Meets the Bottom
Line,” Nielsen, June 17, 2014, www.nielsen.com/us/en/insights/news/2014/it-pays
and bribery
-to-be-green-corporate-social-responsibility-meets-the-bottom-line.html Source: https://www.unglobalcompact.org/AboutThe GC/TheTenPrinciples
(Accessed November 3, 2015). /index.html
3-5c Green Marketing amount of negative publicity. The New Yorker magazine
recently ran a story about furniture and decorative acces-
An outgrowth of the social responsibility and sustainabil-
sories company Restoration Hardware. The article notes:
ity movements is green marketing. Green marketing
The first stirrings of dissent came from the UPS
is the development and marketing of products designed
drivers. They began posting on Brown Café, an anony-
to minimize negative effects on the physical environ-
mous message board, about the thirty-three-hundred
ment or to improve the environment. One approach that
page catalogue bundles sent out by Restoration Hard-
firms use to indicate that they are part of the green move-
ware. “My building for the last few days is slammed with
ment is to use third-party eco-logos. Examples include
RF catalogues (17 pounds each) with another trailer full
the chasing-arrows recycling logo (the product is either
coming in next week,” one wrote. One driver described
recyclable or contains recycled materials); the Energy
orders to give the catalogues to passersby, if necessary,
Star logo (the product is energy efficient); and Certified
rather than return them to UPS distribution centers. “I
Organic (the U.S. Department of Agriculture created
see them all over my route in the recycle bins.”
standards relative to soil quality, animal raising practices,
Then, customers rebelled. In Palo Alto, seven volun-
pest and weed control, and the use of additives). These
teers returned two thousand pounds of the catalogues to
logos can enhance a product’s sales and profitability.
a Restoration Hardware store in one day, on hand trucks.
Nearly four in 10 Americans (about 93 million peo-
One page of the catalogue is devoted to Restoration
ple) say that they are dedicated to buying green products
Hardware’s environmental impact. First, the company
and services. Green purchasing is driven by young adults
claims that sending out the catalogues all at once is more
(age 18 to 34) and Hispanics; about half of the respon-
responsible than spreading them throughout the year. It
dents in these groups report that they regularly seek out
does not acknowledge that, in 2003, when it mailed six
green products. Young adults are also more likely to be
catalogues annually, it used half as many total pages. Sec-
interested in a company’s green practices and to avoid
ond, the company says that it purchases paper certified by
companies with poor environmental records.38
the Programme for the Endorsement of Forest Certifica-
When a firm takes an action that is perceived as
tion. However, as Business Week explained, other retail-
not environmentally friendly, it can create a significant
ers, such as Pottery Barn, buy paper from forests certified
by the Forest Stewardship Council, which has stricter
environmental standards. Third, Restoration Hardware
points out that it purchases carbon offsets through UPS to
fund conservation projects. Those offsets, while helpful,
cover only the shipping, not the paper production, the
most harmful of the process, because of the energy used
to break down wood into pulp. The company responded
to the New Yorker’s questions about its environmental
practices by emailing a press release containing informa-
tion identical to what’s in the catalogue.39
3-5d Leaders in Social Responsibility

Kevin Schafer/Moment Mobile/Getty Images
and Green Marketing

According to Corporate Responsibility magazine,
the top four corporate citizens of 2014 were Bristol-
Myers Squibb, Johnson & Johnson, Gap, and Microsoft.40
Bristol-Myers Squibb currently funds more than 125
health care initiatives around the world. For example, it
is a member of the Medicines Patent Pool in Geneva,
Restoration Hardware, a furniture and Switzerland, which makes
green marketing the
decorating company, recently caught grief drugs available at low costs development and marketing of
for overproducing their catalogs, thus to people in the developing products designed to minimize
causing them to develop a reputation of world with HIV/AIDS. The negative effects on the physical
firm estimates that these environment or to improve the
not being environmentally friendly. environment
projects are benefiting
more than 1 million people.41 Johnson & Johnson has could support a fund that gives free coffee to people
similarly partnered with 12 other companies to attack who cannot afford to pay. Quaker Oats recently created
neglected tropical diseases in developing countries.42 a contest called “Quaker Chewy for Charity.” Every time
Gap runs a program that teaches basic skills like literacy, a customer uploaded a photo or drawing of a customized
verbal communication, and health awareness to female lunch bag to Quaker’s special Facebook app, could the
garment workers in developing countries. So far, the pro- company pledged to “show some lunch bag love” and
gram has reached 25,000 women. Gap is also expanding send a 10 pound food donation to Food Banks Canada.46
a youth program called This Way Ahead that offers job Japan, Argentina, Australia, Russia, and France guar-
training and internships to underserved young people antee their citizens a respective 10, 14, 20, 28, and 30
in New York City and San Francisco. In 2014, Microsoft paid vacation days per year. The United States is the only
donated $948 million in software and hardware to more industrialized nation that does not require workplaces to
than 86,000 nonprofits around the globe. The firm has offer paid vacation time. One in four working Americans,
made a three-year commitment to create opportunities 28 million U.S. citizens, do not get any paid time off.
for 300 million youths under the Microsoft Youth Spark For Dallas-based Hotels.com, this legal status proved
initiative. The program focuses on education, employ- a great opportunity for cause-marketing. The company
ment, and entrepreneurship opportunities.43 launched the Vacation Equality project, a website featur-
ing an interactive map showing the number of vacation
days granted to workers around the world as well as statis-
tics on how paid vacation time benefits businesses and the
3-6 CAUSE-RELATED MARKETING economy. According to a Hotels.com/GfK phone survey,
for example, 79 percent of Americans believe that vaca-
A sometimes controversial subset of social responsi- tion time positively affects their health and well-being.47
bility is cause-related marketing. Sometimes referred The website included a digital petition asking the presi-
to as simply “cause marketing,” it is the cooperative efforts dent to change the laws on guaranteed vacation time.
of a for-profit firm and a nonprofit organization for mutual This cause-marketing campaign garnered 7.5 mil-
benefit. The for-profit firm hopes to generate extra sales, lion total impressions and the petition received 17,120
and the nonprofit in turn hopes to receive money, goods, signatures.48 The primary benefit to Hotels.com was an
and/or services. Any marketing effort that targets social or improvement in brand image. A positive image is a huge
other charitable causes can be referred to as cause-related factor in revenue growth for a .com organization.
marketing. Cause marketing differs from corporate giving
(philanthropy), as the latter generally involves a specific
donation that is tax deductible, whereas cause marketing is
a marketing relationship not based on a straight donation.
Cause-related marketing is very popular and is esti-
mated to generate about $7 billion a year in revenue. It
creates good public relations for the firm and will often
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4 The Marketing
Environment
LEARNING OUTCOMES
4-1 Discuss the external environment of marketing and explain 4-5 Identify consumer and marketer reactions to the state of
Dmitrijs Dmitrijevs/Shutterstock.com
how it affects a firm the economy
4-2 Describe the social factors that affect marketing 4-6 Identify the impact of technology on a firm
4-3 Explain the importance to marketing managers of current 4-7 Discuss the political and legal environment of marketing
demographic trends
4-8 Explain the basics of foreign and domestic competition
4-4 Explain the importance to marketing managers of growing
ethnic markets
4-1 THE EXTERNAL MARKETING ENVIRONMENT

Perhaps the most important decisions a marketing manager
must make relate to the creation of the marketing mix. Recall from
Chapters 1 and 2 that a marketing mix is the unique combination
of product, place (distribution), promotion, and price strategies. The
marketing mix is, of course, under the firm’s control and is designed
to appeal to a specific group of potential buyers, or target market.
A target market is a group of people or organizations for which an
organization designs, implements, and maintains a marketing mix
intended to meet the needs of that group, resulting in mutually
satisfying exchanges.
target market a group of
Managers must alter the mature, some new consumers become part of the target
people or organizations for which an
organization designs, implements, marketing mix because of market; others drop out. Those who remain may have dif-
and maintains a marketing mix changes in the environment ferent tastes, needs, incomes, lifestyles, and buying habits
intended to meet the need of in which consumers live, than the original target consumers. Technology, and the re-
that group, resulting in mutually
work, and make purchasing sulting change in buying habits, meant that consumers no
satisfying exchanges
decisions. Also, as markets longer have those “Kodak Moments” when taking pictures
46 PART ONE:
CHAPTER
The World
4: 4 of Marketing
of a birthday party or an exceptional sunset. Digital pho- environmental information, a process called environ-
tography has sent 35-millimeter film the way of the horse mental scanning. The goal in gathering the environ-
and buggy. Unfortunately, shifting technology ultimately mental data is to identify future market opportunities
led to the bankruptcy of Eastman Kodak. and threats.
Although managers can control the marketing UNDERSTAND CURRENT CUSTOMERS You must
mix, they cannot control elements in the external first understand how customers buy, where they buy,
environment that continually mold and reshape the what they buy, and when they buy. McDonald’s had a
target market. Controllable and uncontrollable vari- rough year in 2014, suffering a net loss as customers
ables affect the target market, whether it consists of moved on to different venues. While upcoming chains
consumers or business purchasers. The uncontrollable like Five Guys limit their offering to around a half dozen
elements in the center of the environment continually items, customers find the McDonald’s menu confus-
evolve and create changes in the target market. Think, ing and too big. More upscale fast-casual restaurants
for example, about how social media have changed like Chipotle Mexican Grill and Shake Shack are luring
your world. In contrast, managers can shape and re- customers, particularly younger ones, by offering bet-
shape the marketing mix to influence the target mar- ter quality food and the ability to customize their meals.
ket. That is, managers react to changes in the external For its part, McDonald’s is in the process of changing its
environment and attempt to create a more effective marketing mix to counter this trend and regain its lost
marketing mix. market share around the globe.
In a brand-new McDonald’s outlet near the com-
4-1a Understanding the pany’s headquarters in Oak Brook, Illinois, customers
do not have to queue at the counter. They can go to a
External Environment touch screen and build their own burger by choosing a
Unless marketing managers understand the exter- bun, toppings, and sauces from a list of more than 20 in-
nal environment, the firm cannot intelligently plan gredients including grilled mushrooms, guacamole, and
for the future. Thus, many organizations assemble a caramelized onions. Customers then sit down and wait
team of specialists to continually collect and evaluate an average of seven minutes until a server brings their
CHAPTER 4: The Marketing Environment 47
burgers to their table. The company is planning to roll Expedia, Priceline, or Kayak. Thirty-six percent of
out these “Create Your Taste” burgers in up to 2,000 res- those who use one or more of these sites ultimately
taurants by late 2015, and possibly more if they do well. book their stay with them.3 The challenge for hotels,
McDonald’s is also trying to engage with customers on then, is to decide how to align their marketing budgets
social media and is working on a smartphone app as well to intercept potential travelers and deliver the right
as testing mobile-payment systems such as Apple Pay, promotion on the appropriate device and through the
Softcard, and Google Wallet.1 right channel.
McDonald’s is also changing its slogan of the past IDENTIFY THE MOST VALUABLE CUSTOMERS AND
ten years from “I’m Lovin’ It” to “Lovin’ Beats Hatin’.” UNDERSTAND THEIR NEEDS Often, 20 percent of
The idea of the shift is to promote happiness over hate. a firm’s customers produce eighty percent of the firm’s
So far, reaction to the new slogan has been under- revenue. An organization must understand what drives
whelming. The “It” in the old slogan can be tied back to that loyalty and then take steps to ensure that those
McDonald’s main product—food. Not so with the new drivers are maintained and enhanced. Airlines use loy-
slogan. The word “hatin’” is negative, and most advertis- alty programs to satisfy and retain their best customers.
ers try to avoid negative words in their slogans.2 Clearly, For example, persons who fly more than 100,000 miles
McDonald’s new slogan seems to have problems with a year on American Airlines are called Executive Plati-
both clarity (no ties to food) and likability. num members. They are granted priority boarding and
Does McDonald’s understand its current custom- seating, free domestic upgrades, no fees for checked
ers? By the time you read this text, you should be able to luggage, coupons for international upgrades, and other
answer this question. benefits.
UNDERSTAND HOW CONSUMER DECISIONS ARE UNDERSTAND THE COMPETITION Successful
MADE Hotel chains like Hyatt, Holiday Inn, and firms know their competitors and attempt to fore-
Marriott must understand the decision process that cast those competitors’ future moves. Competitors
consumers use when selecting a hotel. Boston research threaten both a firm’s market share and its profitabil-
firm Chadwick Martin Bailey (CMB) found that mo- ity. With 55 million wireless customers and growing,
bile, social, and online factors influence leisure travel- T-Mobile is projected to overtake Sprint as the na-
ers very differently at different stages in the purchase tion’s third largest mobile carrier. What is behind this
process. Mobile devices play an impor-
tant role in the initial research phase of
hotel planning but are used sparingly
to book hotel stays. More than 60 per-
cent of travelers use a mobile device—
47 percent use a smartphone—during
their hotel purchase journey, but only
6 percent book their hotel via a smart-
phone. Mobile applications are used
infrequently throughout the hotel pur-
chase journey. In total, only 6 percent
of shoppers use a mobile app.
Consumer reviews trump social
Tupungato/Shutterstock.com
media in influence, research, evalua-

tion, and final decision making. Only
13 percent of bookers use social media
during the purchase process versus
the 59 percent who consult consumer
reviews. This image of a T-Mobile store in Vienna, Switzerland, is
Price-comparison sites play an a reminder that with 55 million wireless customers and
important role—even when they growing, T-Mobile is projected to overtake Sprint as the
are not the final purchase location. third largest mobile carrier in the world-trailing Verizon
Nearly half of travelers (49 percent) and AT&T.
used a price-comparison site such as
meteoric rise? After examining the competition, T- ● Upward mobility: Success would come to anyone
Mobile decided to be as different as possible from its who got an education, worked hard, and played by
rivals. As an innovation leader, T-Mobile is changing the rules.
the way that carriers offer services. T-Mobile was first ● Work ethic: Hard work, dedication to family, and
to eliminate monthly contracts and offer international frugality were moral and right.
data roaming at no extra cost. It was also the first to
● Conformity: No one should expect to be treated
announce it would allow customers to roll over data
differently from anybody else.
capacity from month-to-month. The carrier still has a
long way to go to overtake Verizon or AT&T, but its These core values still hold for a majority of Ameri-
marketing strategy is fostering rapid growth.4 cans today. A person’s values are key determinants
of what is important and not important, what actions
4-1b Environmental Management to take or not to take, and how one behaves in social
situations.
No single business is large or powerful enough to cre- People typically form values through interaction
ate major change in the external environment. Thus, with family, friends, and other influencers such as
marketing managers are basically adapters rather than teachers, religious leaders, and politicians. The chang-
agents of change. For example, despite the huge size of ing environment can also play a key role in shaping
firms like General Electric, Walmart, Apple, and Cater- one’s values.
pillar, they do not control social change, demographics, Values influence our buying habits. Today’s con-
or other factors in the external environment.
sumers are demanding, inquisitive, and discriminat-
Just because a firm cannot fully control the external ing. No longer willing to tolerate products that break
environment, however, does not mean that it is helpless. down, they are insisting on high-quality goods that save
Sometimes a firm can influence external events. For ex- time, energy, and often calories. U.S. consumers rank
ample, extensive lobbying by FedEx has enabled it to the characteristics of product quality as (1) reliability,
acquire virtually all the Japanese routes it has sought. (2) durability, (3) easy maintenance, (4) ease of use,
When a company implements strategies that attempt to (5) a trusted brand name, and (6) a low price. Shop-
shape the external environment within which it oper- pers are also concerned about nutrition and want to
ates, it is engaging in environmental management. know what is in their food; many have environmental
The factors within the external environment that are concerns as well.
important to marketing managers can be classified as
social, demographic, economic, technological, political
and legal, and competitive. 4-2b The Growth of Component Lifestyles
People in the United States today are piecing together
component lifestyles. A lifestyle is a mode of living;
4-2 SOCIAL FACTORS it is the way people decide to live their lives. With com-
ponent lifestyles, people are choosing products and
Social change is perhaps the most difficult exter- services that meet diverse needs and interests rather
nal variable for marketing managers to forecast, than conforming to traditional stereotypes.
influence, or integrate into marketing plans. So- In the past, a person’s profession—for instance,
cial factors include our attitudes, values, and lifestyles. banker—defined his or her lifestyle. Today, a person can
Social factors influence the products people buy; the be a banker and also a gourmet, fitness enthusiast, dedi-
prices paid for products; the effectiveness of specific cated single parent, and Internet guru. Each of these life-
promotions; and how, where, and when people expect to styles is associated with
purchase products. different goods and ser- environmental
management when a company
vices and represents a implements strategies that attempt to
4-2a American Values target audience. Compo- shape the external environment within
nent lifestyles increase which it operates
A value is a strongly held and enduring belief. During the the complexity of con-
United States’ first 200 years, four basic values strongly component lifestyles the
sumers’ buying habits. practice of choosing goods and services
influenced attitudes and lifestyles: Each consumer’s unique that meet one’s diverse needs and
● Self-sufficiency: Every person should stand on his lifestyle can require a interests rather than conforming to a
single, traditional lifestyle
or her own two feet. different marketing mix.
4-2c How Social Media Have ● Multi-platform use is on the rise. Fifty-two percent
Changed Our Behavior of online adults now use two or more social media
sites—a 10 percent increase since 2013.
In 2015, nearly half of the world’s population—3 billion ● For the first time, more than half of all online adults
people—were on the Internet. Beyond accessing the
65 and older (56 percent) use Facebook. This repre-
Internet via computer, tablet, or smartphone, today
sents 31 percent of all seniors.
there is much talk about the Internet of Things. In
2008, the number of “things” (clothing, thermostats, ● For the first time, roughly half of Internet-using
washing machines, fitness trackers, and lightbulbs, for young adults ages 18 through 29 (53 percent) use
example) connected to the Internet exceeded the num- Instagram. Half of all Instagram users (49 percent)
ber of people on earth. By 2020 there will be 50 billion use the site daily.
connected tools, devices, and even cattle.5 Yes, Dutch ● For the first time, the share of Internet users with col-
startup Sparked is developing a wireless sensor for lege educations using LinkedIn reached 50 percent.
cattle. When one is sick or pregnant, the sensor sends ● Women dominate Pinterest. Forty-two percent of
a message to the farmer. Similarly, Corventis makes a
online women now use the platform, compared with
wireless cardiac monitor that doctors can use to moni-
13 percent of online men.9
tor people for health risks in real time. And this is just
the beginning—the Internet of Things has the poten- HOW FIRMS USE SOCIAL MEDIA Social networking
tial to change life as we know it in nearly every area has changed the game when it comes to opinion sharing.
of life. Now, consumers can reach many people at once with
Social media are making profound changes in the their views—and can respond to brands and events in
way we obtain and consume information—consumers real time. In turn, marketers can use social media to en-
are interacting; sharing beliefs, values, ideas, and inter- gage customers in their products and services. Market-
ests; and, of course, making purchases at a dizzying rate. ers have learned that social media are not like network
These media have even played a major role in the begin- television, where a message is pushed out to a mass
nings of revolutions! audience. Instead, social media enable firms to create
What exactly are social media? They are Web- conversations with customers and establish meaningful
based and mobile technologies that allow the creation connections. In other words, social media marketing can
and exchange of user-generated content. Social media humanize brands. Marketers for brands like Charmin
encompasses a wide variety of content formats—you tissues and Oreo cookies post custom videos about their
have most likely used sites such as Facebook, You- products to Facebook and then invite feedback. Clearly
Tube, Twitter, Tumblr, Instagram, and Pinterest, each it’s a winning strategy—Facebook now attracts over a
of which serves a different function (see Chapter 18). billion video views per day.10
These media have changed the way we communicate, A successful social media company requires cre-
keep track of others, browse for products and ser- ativity. For example, Airline WestJet recently asked
vices, and make purchases. Social networking is part travelers on one flight what they wanted for Christmas.
of regular life for people of all ages. Of the 3 billion While the passengers were airborne, WestJet shop-
Internet users, 2 billion use social media. From 2014 pers raced to buy and wrap the requested items. These
to 2015, 222 million people opened their first social presents were then delivered to the recipients via the
media account. 6 Slightly more women than men use destination airport’s baggage carousel. The campaign’s
social media. At 89 percent, the heaviest users by age YouTube video received more than 38 million views.11
are 18- to 29-year-olds. Usage rates are lower among Most importantly, it created a positive image and good-
older age groups.7 will for WestJet.
More than one minute out of every five spent on the When fast-food chain Wendy’s released the Pretzel
Internet worldwide is dedicated to social networking. Bacon Cheeseburger, it quickly became the chain’s most
Facebook, Instagram, Pinterest, LinkedIn, and Twitter successful product launch ever. Fans tweeted about their
are the most-used social networking sites worldwide. love for the new burger, and Wendy’s turned the tweets
Facebook, by far, is the world’s most popular, with more (misspellings and all) into a series of silly love song mu-
than 1.4 billion users. Sixty-six percent of Millennials sic videos (including one staring Nick Lachey). In addi-
around the world use Facebook.8 A recent survey of per- tion to being reported on all of the major news channels,
sons using the Internet in America found: the videos received 7.5 million Facebook views.12
stunt is called “newsjacking” and it
earned DiGiorno 2,000 new followers
by the time the two hour special was
over. The tweets included:
DOUGH a crust an unbaked crust
RAY, a guy that likes pizza ME a pizza
liked by a guy named ray FAH no
idea what fah is SO so LA a city T tee
—DiGiorno Pizza
(@DiGiornoPizza)
#TheSoundOFMusicLive Can’t be-
Source: Twitter, Inc.

lieve pizza isn’t one of her favorite
things smh
—DiGiorno Pizza
(@DiGiornoPizza)
DiGiorno has done a great job of using social media to
convey their message as a brand. THE KITCHEN IS ALIVE, WITH
THE SMELL OF FRESH-BAKED
PIZZA #TheSoundOFMusicLive
On average, about 6,000 tweets are posted on —DiGiorno Pizza
Twitter every second. That equates to 350,000 tweets (@DiGiornoPizza)15
per minute and 500 million tweets (by 248 million As its Twitter success continued, DiGiorno dropped
unique users) per day. 13 Frozen pizza manufacturer the use of others’ hashtags and created its own for col-
DiGiorno has proven to be a master at making its tweets lege football. #DiGiorNOYOUDIDNT became an in-
stand out from the crowd. The company frequently em- stant success as the company used it to make harmless,
ploys humor, Internet memes, and casual language to yet entertaining digs at teams. For example:
endear itself to customers. Here are a few winners: IS YOUR DEFENSE A DELIVERY PIZZA?
KNOCK KNOCK who’s there DELIVERY PIZZA BECAUSE IT LOOKS LIKE THEY’RE NOT
delivery pizza who HAHAHA JK DELIVERY SHOWING UP TONIGHT
PIZZA WON’T BE HERE FOR HOURS #DiGiorNOYOUDIDNT
—DiGiorno Pizza (@DiGiornoPizza)
YO, THIS GAME IS LIKE A DIGIORNO PIZZA
“I’ve got too much on my plate,” said no one ever BECAUSE IT WAS DONE AFTER TWENTY
with pizza on their plate. MINUTES
—DiGiorno Pizza (@DiGiornoPizza) #Super Bowl #SuperSmack #DiGiorNOYOUDIDNT
Keep Calm and Pizza O-WAIT WHAT THERE’S —DiGiorno Pizza (@DiGiornoPizza)16
PIZZA OMG I’M SO FREAKING OUT ABOUT THIS We will explore social media marketing in greater
—DiGiorno Pizza (@DiGiornoPizza) depth in Chapter 18.
March madness was named after a guy who didn’t eat
pizza once in the month of march one time. True story
—DiGiorno Pizza (@DiGiornoPizza)14
4-3 DEMOGRAPHIC FACTORS
Even though the topics are random, the tweets all relate Another uncontrollable variable in the external en-
back to pizza, cheese, or delivery. These tweets are often vironment—also extremely important to marketing
retweeted, which spreads the word to larger audiences. managers—is demography, the study of people’s
DiGiorno also tweets at other Twitter users, replies vital statistics, such as age, race and ethnicity, and
to celebrities, and makes comments about live events. location. Demograph-
DiGiorno noticed that #SoundofMusicLive was trend- ics are significant be- demography the study of people’s
ing and capitalized on the 18 million people watching cause the basis for vital statistics, such as age, race and
ethnicity, and location
the event by sending out a tweet using the hashtag. This any market is people.
Demographic characteristics are strongly related to con- United States, nearly 78 percent of tweens own a mobile
sumer buying behavior in the marketplace. phone and almost half (47 percent) have smartphones.21
That number jumps to 75 percent among tweens in
4-3a Population the United Kingdom, and 83 percent among tweens in
Poland. Both boys and girls are playing mobile games
People are directly or indirectly the basis of all markets,
to pass time in between classes and at home, and many
making population the most basic statistic in marketing.
marketers have tapped into this growing market by ca-
There are more than seven billion people alive today.
tering to tweens’ desire for fast-paced, highly stylized
China has the largest population with 1.39 billion per-
games and apps.22
sons; India is second with 1.23 billion.17 The U.S. popu-
Some tweens are forgoing games and becoming
lation is slightly over 318 million. Older Americans have
young entrepreneurs instead. Twelve-year-old Hartley
moved to retirement communities like the Villages in
Messer’s sleepover travel kit, for example, “comes with a
Central Florida. This area is the nation’s fastest grow-
super cute bag that’s great as well as a super cool pencil
ing metropolitan area. Midland and Odessa, in western
case for school.”23
Texas, are the second and third fastest growing areas in
Messer’s prospects—young girls—dab on samples
the country. Both cities have seen an employment boom
of creams and sniff their wrists as their mothers look
in recent years amid new techniques to extract oil and
on. “The Skinny Mini lip gloss is made to slide into your
natural gas. This growth may slow or stop in coming
jeans or Lululemon pockets,” adds Messer, who sells
years as global oil prices tumbled in 2015.18
moisturizers, lip gloss, acne cream, and other products
Rural areas away from the oil fields, meanwhile,
made by Willagirl Inc.
posted their first-ever net loss of population in 2012.
Known as “Willagirls,” teens and tweens like Messer
The populations of the United States’ rural regions—
host Tupperware-like get-togethers at home, school, or
from the Great Plains to the Mississippi delta to rural
just about anywhere 8- to 12-year-olds hang out. Invites
New England—are aging. These populations are not re-
typically are extended via text message, since “nobody
ceiving many young transplants to replace those who die
uses email anymore,” Messner says.24
or migrate to urban areas. In many parts of the country,
Willagirl’s young sales reps receive 25 percent of
multigenerational households are increasingly common.
total sales for a potential monthly income of $320 to
More than 57 million people live in households with
$3,500 according to a pamphlet sellers distribute at their
at least two adult generations. About 24 percent of
parties. Party hosts also receive 15 percent of retail sales
young adults age 25 to 34 live in multiple generation
from the party in free products, plus one half-priced
households.19
item if party sales exceed $400.
Population is a broad statistic that is most useful to
Founder and CEO Christy Prunier says Willagirl’s
marketers when broken into smaller, more specific incre-
sales reps don’t buy their own inventory in advance. In-
ments. For example, age groups present opportunities
stead, they take orders from customers, which the com-
to focus on a section of the population and offer oppor-
pany fulfills as orders come in. They’re never sitting on
tunities for marketers. These groups are called tweens,
products,” she says. “It’s not work. It’s what these girls
teens, Millennials (or Generation Y), Generation X, and
like to do and their moms are thrilled that they’re sav-
baby boomers. Each cohort has its own needs, values,
ing money and developing important skills.”25 They do,
and consumption patterns.
however, earn money by recruiting other sellers.
TWEENS America’s tweens (ages 8 to 12) are a popula- A Quirk’s study on “global kids” found that tweens
tion of more than twenty million. With access to infor- in 12 developed countries are surprisingly worldly and
mation, opinions, and sophistication well beyond their share much in common because of the Internet and
years (and purchasing power to match), these young social media. Global kids are plugging in at younger
consumers are directly or indirectly responsible for sales ages, and the vast majority frequently use electronic
of over $180 billion annually. Tweens themselves spend entertainment or communication devices including
about $43 billion per year, and the remainder is spent by digital cameras (93 percent), video game consoles
parents and family members for them.20 (84 percent), digital music players (78 percent), and cell
With such spending power, this age group is very phones (77 percent). According to the study, these kids
attractive to many markets. One of the fastest growing are engaging in a wide range of activities, from playing
tween markets is mobile games and other advertising- games (92 percent) to doing schoolwork (76 percent) on
and microtransaction-based smartphone apps. In the these devices.
Global kids are active and
grounded. They are highly engaged,
very busy, and they value learning.
When shown a list of more than
30 activities such as reading, camp-
ing, sports, and crafts, global kids
said on average that they partici-
pated in 25 activities. And, in a world
seemingly obsessed with money and
celebrity, global kids placed “being
Antonio Guillem/Shutterstock.com
smart” and “getting a good educa-
tion” near the top of socially desir-
able attributes. In the United States,
these attributes topped even fame
and fortune. Globally, “getting a good
education” and “being rich” are in a
dead heat among tweens.26
Approximately 90 percent of teenagers that use the
TEENS There are approximately
25 million teenagers in the United internet, also use some form of social media.
States, and they spend approximately
72 hours per week tuned in electronically to television, $819 billion every year. 29 In the United States and
the Internet, music, video games, and cell phones. Canada, teens have almost $118 billion to spend.30 Al-
About 95 percent of U.S. teens use the Internet. Of though much of that money comes from parents, teens
those online, approximately 90 percent use social make many shopping decisions. Seventy-one percent do
media. They still prefer face-to-face communication at least some of the family shopping and 4 percent do
to communicating electronically, however. Twenty-five all of the family shopping. Yet, only 13 percent are told
percent of teens claim that social networking makes what brands to buy.31
them less shy. Teens also note that networking en- Twice a year, Piper Jaffary takes a survey of teen
ables them to keep in touch with friends that they can’t lifestyles and attitudes. Over a 27-year period, the firm
see on a regular basis (89 percent); helps them get to has found several factors that remain the same. First,
know other students better (69 percent); and enables teens continue to seek peer affirmation. Second, their
them to connect with people who share common inter- spending is mostly discretionary (as illustrated above).
ests (55 percent). Teens commonly use the following Third, they are early adopters of change. Some key find-
websites: ings from the most recent survey are that:
Facebook 90 percent ● Teen males are spending more—up 4 percent from
Twitter 49 percent fall 2013.
Tumblr 33 percent (more popular with girls) ● For the first time in the survey history, food exceeded
4chan 23 percent (more popular with boys) clothing as a percentage of teen spending.
Pinterest 20 percent ● Top clothing brands continue to include Nike,
Foursquare 12 percent
Action Sports, Forever 21, American Eagle, Polo
Sixty-two percent also go online to get the news and cur- Ralph Lauren, and Hollister.
rent events.27 ● At home, cable subscriptions are becoming less es-
In many households, teens are now passing tech-
sential for teens while online streaming is more
nology down to their parents, not the other way around.
critical. Outside the home, IMAX continues to grow
Researchers have found that teens are commonly the
share among teens.
ones telling their parents to buy smartphones and tab-
lets and are often the driving force behind their families’
● Music listenership has grown for Pandora and local
technology upgrades.28 radio, largely at the cost of MP3s and CDs.
Teens command an immense amount of buy- ● Eighty-five percent of teen gamers play mobile
ing power. Worldwide, they spend approximately games.32
MILLENNIALS Millennials, or Generation Y, are 52 percent of Gen Yers in the United States have no is-
people born between 1979 and 1994. Initially, Millennials sue with brands and Web sites using data to provide a
were a smaller cohort than baby boomers. However, due better customer experience.37 This is in stark contrast
to immigration and the aging of the boomer generation, to European Millennials—only 37 percent of Millen-
the seventy-seven million Gen Yers in the United States nials in the United Kingdom and just 13 percent of
passed the boomers in total population in 2010. Millen- Millennials in the Netherlands agree.38
nials are currently in two different stages of the life cycle.
GENERATION X Generation X—people born between
The youngest members of Gen Y, born in 1994,
1965 and 1978—consists of fifty million U.S. consumers.
are just entering young adulthood. In contrast, the
It was the first generation of latchkey children—products
oldest Gen Yers, born in 1979, turned 37 years old in
of dual-career households or, in roughly half of the cases,
2016. They have started their careers, and many have
of divorced or separated parents. Gen Xers often spent
become parents for the first time, leading to dramatic
more time without adult support and guidance than any
lifestyle changes. They care for their babies rather than
other age cohort. This experience made them indepen-
go out, and they spend money on baby products. Gen
dent, resilient, adaptable, cautious, and skeptical.39
Yers already spend more than $200 billion annually; over
Gen Xers are in their primary earning years and
their lifetimes, they will likely spend about $10 trillion.
have acquired a disproportionate amount of spending
Many older Millennials graduated from college dur-
power relative to the size of their group. They have an
ing the Great Recession and had difficulty finding good
estimated 31 percent of total income dollars.40 Gen Xers
jobs. Almost a third still live at home with their parents.
have higher average incomes than their Millennial and
They also own the bulk of America’s $1 trillion in stu-
baby boomer counterparts. Higher incomes have con-
dent debt.33 Younger Millennials do have several things
tributed to Gen Xers’ optimistic outlook on the future.
in their favor. First, the recession is over and America
Two-thirds are either “satisfied” or “very satisfied” with
is slowly recovering. Second, the size of the Millennial
their lives, yet they are also concerned about crime, cli-
group is massive. There are more people in their 20s
mate change, and their health.41
(44.5 million) than in their 30s, 40s, or 50s.34 The sheer
Saving money is a major priority for Gen Xers.
size of the 20-old group will create a significant amount
About half note that providing for their children’s col-
of economic growth. This, in turn, will mean more and
lege expenses is a major goal. They also want to become
better jobs.
financially independent, buy or upgrade a home, and
Millennials may be the most tech-savvy generation
provide an estate for their heirs.42 When asked, “what
yet, spending more time surfing the Web and on social
makes your generation unique?” Gen Xers responded:
media than they do watching television, listening to ra-
dio, or reading newspapers, but they still use and value ● Technology use (12 percent)
traditional media. Gen Yers expect brands to be on social ● Work ethic (11 percent)
media. They also like to use social media to share pho- ● Conservative/Traditional (7 percent)
tos of things they are doing and keep up with people in
their network. Fifty-one percent of Millennials have an ● Smarter (6 percent)
Instagram account and 42 percent use Snapchat, a photo- ● Respectful (5 percent)43
sharing app. When it comes to daily use, photo-focused
Gen Xers tend to be frugal and seek value when
social applications are slightly more popular than their text-
making purchases. They place a high value on educa-
focused competitors; 31 percent of Millennials post on Ins-
tion and knowledge and tend to do a significant amount
tagram on a daily basis, while 29 percent tweet every day.35
of research before making a major purchase. Marketers
As to the subject matter of Millennials’ photos,
need to provide a lot of accurate information about their
clues can be found in where they spend their time and
products—particularly why their goods or services are a
money: travel, outdoor ac-
great value—to reach Gen Xers.
Millennials people born tivities, and experiences
between 1979 and 1994 like concerts.36 BABY BOOMERS There are approximately 75 million
Millennials are very baby boomers (persons born between 1946 and
Generation X people born
between 1965 and 1978
aware of the data that 1964) in the United States. With average life expec-
sites like Instagram and tancy at an all-time high of 77.4 years, more and more
baby boomers people born others collect on them. Americans over fifty consider middle age a new start
between 1946 and 1964
One survey found that on life. The size of the baby boom cohort group has
been decreasing in size since 2012.
The pace of this decline will acceler-
ate as the baby boomers grow older.
When the first baby boomers turned
65 in 2011, there were 77 million of
them. In 2030, when the baby boom-
Source: The Sherwin-Williams Company

ers will be between 66 and 84 years
old, that number is projected to drop
to 60 million.44
While baby boomers’ current
incomes are relatively low because
many have retired, they accumulated
a substantial amount of wealth over
their working years. It is estimated
that boomers control 67 percent ($28 trillion) of the a heavy paint can and reaching for your glasses at the
country’s wealth. 45 Baby boomers outspend other same time can be tough, Sherwin Williams completely
generations by an estimated $400 billion a year on redesigned its can with a clean, crisp look and large
consumer goods and services. They even outspend fonts.50
younger adults by 2:1 on a per-capita basis when
making online purchases. 46 Boomers outspend other
cohorts in categories such as gifts, personal care prod- 4-4 GROWING ETHNIC MARKETS
ucts, medical care, food away from home, and enter-
tainment. Many boomers want to age in place, that The American demographic profile is rapidly changing as
is, not move to a retirement community. As a result, racial and ethnic groups continue to grow. The minority
they often remodel their existing homes to the tune of population today is about 118 million. By 2050, around
around $25 billion per year.47 one in three U.S. residents will be Hispanic. The United
Like other cohort groups, boomers believe that States will flip completely to a majority-minority makeup
price and quality are very important when making pur- in 2041, meaning that whites of European ancestry will
chase decisions. Baby boomers tend to be influenced make up less than 50 percent of the population. Already,
more by traditional advertising, sales reps, and word- minorities make up about half of all Americans under the
of-mouth recommendations than other groups. Yet they age of five.51 As the demographic environment of America
are also very active in seeking product information on- evolves, so too must the marketing mix change to reach
line. Boomers tend to use laptops and tablets more than growing target markets.
smartphones when conducting product research. While
boomers make fewer product purchases online than do
some other cohorts, the same is not true for services.
4-4a Marketing to Hispanic Americans
Boomers now make 90 percent of their travel purchases The term Hispanic encompasses people of many dif-
online.48 ferent backgrounds. Nearly 60 percent of Hispanic
Marketers targeting baby boomers must avoid the Americans are of Mexican descent. Puerto Ricans,
perception that boomers are old. Words such as “senior,” the next largest group, make up just under ten per-
“elderly,” and “aged” can quickly drive away potential cent of Hispanics. Other groups, including Central
customers. Boomers today are active and feel entitled Americans, Dominicans, South Americans, and Cu-
to enjoy the good life. Adult diaper company Depends bans, each account for less than five percent of all
targets consumers age 60 and older, yet the actors in its Hispanics.
advertising are in their 40s and 50s.49 Marketers can also According to surveys, Hispanics believe that the
subtly change their products and packaging to appeal to number one way they contribute to American society
boomers. Depends are today sold as underwear rather is through their commitment to family. Over three-
than diapers, for example. Simplifying instructions for fourths say that the traditional family is the main
product assembly and use makes life easier for boomers. building block of a healthy community.52 Research has
Enlarging font size may enable boomers to avoid reach- found that many adults who have been in the United
ing for their reading glasses. Realizing that holding up States for a number of years become acculturated,
but not to the mainstream U.S. culture. That is, they 4-4b Marketing to African Americans
do not use much English for their everyday activi-
There are approximately 44 million African Americans
ties. Instead, they acculturate to the locally dominant
(14 percent of the country’s population). They are
Spanish-speaking Hispanic community, referred to
young—53 percent are under the age of 35—giving
as the primal 45-Latino society.53 The primal culture
them a strong influence on the latest trends, especially
tends to be regional. It differs widely enough that La-
in regards to music and pop culture. Higher academic
tinos from one region may be unaware of the food,
achievement has translated into increases in household
slang, and even music from another region. A good
income; 44 percent of all African American households
example is the difference in primal cultures between
now earn $50,000 or more and 23 percent earn more
Los Angeles (which draws much of its influence
than $75,000. Higher household incomes, coupled with
from Mexico) and Miami (which draws much of its
an overall population growth, are driving the substantial
influence from Cuba). The same is true for brands
purchasing power of the African American consumer
purchased. Hispanics are more likely to purchase
upwards. Total purchasing power is expected to reach
Jerritos soda if they are integrated into the primal Los
$1.3 trillion within a few years.60
Angeles culture than if they live elsewhere in the
Black Americans want companies to recognize their
United States.54
unique culture. A recent study found that 87 percent
Hispanic Millennials now account for 25 percent
feel that ethnic recognition is important, compared to
of all Hispanics living in the United States.55 Many His-
59 percent of the general population. Seventy-three per-
panic Millennials were born in the United Sates or came
cent of African American adults age 18 to 54 state that
when they were very young, and unlike older genera-
cultural/ethnic heritage is a critical part of their identity.
tions, they have become more acculturated into main-
Among African Americans age 18 to 54 with a house-
stream America. Hispanic Millennials are less likely than
hold income greater than $50,000, 77 percent indicate
their peers to live at home with their parents. Of those
that their heritage is an important part of who they are,
who do live at home, 86 percent contribute to the fam-
as compared to 58 percent of the general population.61
ily’s finances. Moreover, they often act as language trans-
Also compared to the general population, African
lators and cultural advisors to their Spanish-dominant
Americans are 30 percent more likely to believe that di-
family members. Normally, purchase decisions revolve
versity in advertising is important and 38 percent are more
around the Millennial son or daughter who is helping to
likely to make a purchase when advertisements include
interpret and manage bills.
African American people. Further, 44 percent of African
Bilingual Hispanic Millennials share common be-
Americans are more likely to support companies that are
haviors and beliefs with both older Hispanics and their
owned by African Americans or other minority groups
Millennial peers. They are more optimistic about politics
and 43 percent are more likely to purchase products en-
and economics than non-Hispanic Millennials, and they
dorsed by African American celebrities or musicians.62
have a stronger faith in the American dream. Bilingual
Black Americans tend to be loyal to both brands and
Millennials also place more value on higher education.56
stores; they spend 18 percent more than the general popu-
Hispanic Millennials in the U.S. are particularly
lation on store brands. African Americans also are more
prone to taking a bilingual, bicultural approach to
likely to patronize convenience, drug stores, and dollar
their media consumption. Forty percent of Hispanic
stores than other groups. Relative to other cohorts, they
Millennials consume an equal amount of Spanish and
spend more on groceries and hair care products.63 Fea-
English media.57 Spending on Hispanic media now tops
turing nonwhite Americans has become a cornerstone
$8.3 billion in the United States.58 The leading advertis-
of Cheerios’ promotional strategy. A recent Honey Nut
ers targeting Hispanics are Procter & Gamble, AT&T,
Cheerios commercial features musician Usher and Buzz
and L’Oreal. The 2014 World Cup was very popular in
Bee dancing and discussing heart health while Usher’s
the Hispanic market, and Kraft Foods targeted Hispan-
song “She Came to Give It to You” plays in the back-
ics with its “Flavor of the Championship” campaign.
ground. Usher was chosen for the spot because of his broad
Throughout this campaign, Kraft used social media to
appeal—he has more than 50.5 million Facebook fans.64
suggest appropriate recipes for World Cup viewing par-
ties. Finally, Hispanics, particularly Millennials, have
embraced technology. They are more likely to down-
4-4c Marketing to Asian Americans
load apps, chat, stream video, listen to music, and play The Asian American population reached 19 million in
games than non-Hispanics.59 2015. U.S. births have been the primary driving force
behind the increase in the Hispanic
and African American populations.
By contrast, Asian American popula-
tion growth has been fueled primarily
by immigration. Seventy-four percent
of Asian Americans were foreign-
born. 65 California and Hawaii are
home to the largest Asian American
populations. Asian Americans, who
still represent only 6 percent of the
U.S. population, have the highest
average family income of all groups.
AP Images/Shiho Fukada
At $67,000, it exceeds the average
U.S. household income by roughly
$15,000.66 About 53 percent of Asian
Americans over age 25 have at least
a bachelor’s degree.67 Because Asian
Americans are younger (the aver- Women shop for symbolic Chinese New Year flowers at a
age age is 34), better educated, and New York City Chinatown flower market.
have higher incomes than average,
they are sometimes called a “mar-
keter’s dream.” Asian Americans are heavy users of the Kraft American singles and the State Fair corn dogs
technology. Moreover, they are early adopters of the are jars of whole cabbage kimchi. A snack bar in another
latest digital gadgets. They visit computer and con- part of the store cooks up aromatic mung cakes, and an
sumer electronics Web sites 36 percent more often entire aisle is devoted to dried seafood.
and spend 72 percent more time at these sites than Asian Americans are big adopters of technology.
the total population. 68 Because of their high level of More than 70 percent use smartphones—the highest
education, Asian Americans are thriving in America’s rate of any ethnic group.69 Social media continues to be
technology sector. a primary way to reach Asian Americans. Mobile chat
Although Asian Americans embrace the values of apps like Kakao, Viber, Tango, WeChat and WhatsApp
the larger U.S. population, they also hold on to the are also starting to become very popular in the Asian
cultural values of their particular subgroup. Consider American community. Many Asian Americans use these
language: many Asian Americans, particularly Koreans apps to communicate with family and friends back in
and Chinese, speak their native tongue at home their home countries.
(though Filipinos are far less likely to do so). Cultural
values are also apparent in the ways different groups
make big-ticket purchases. In Japanese American
homes, husbands alone make large purchase decisions
4-5 ECONOMIC FACTORS
nearly half the time; wives decide only about six per-
In addition to social and demographic factors,
cent of the time. In Filipino families, however, wives
marketing managers must understand and react
make these decisions a little more often than their hus-
to the economic environment. The three economic
bands do, although, by far, most decisions are made by
areas of greatest concern to most marketers are con-
husbands and wives jointly or with the input of other
sumers’ incomes, inflation, and recession.
family members.
Asian Americans like to shop at stores owned and
4-5a Consumers’ Incomes
managed by other Asian Americans. Small businesses
such as flower shops, grocery stores, and appliance As disposable (or after-tax) incomes rise, more fami-
stores are often best equipped to offer the products lies and individuals can afford the “good life.” In
that Asian Americans want. For example, at first glance, recent years, however, average U.S. incomes have ac-
the Hannam Chain supermarket in Los Angeles’s Kore- tually fallen. The annual median household income in
atown seems like any other grocery store. But next to the United States in 2015 was approximately $52,000,
though the median household income varies widely index takes into account housing, food and groceries,
from state to state. This means half of all U.S. house- transportation, utilities, health care, and miscella-
holds earned less, and the other half earned more. neous expenses such as clothing, services, and enter-
Census data shows that average family incomes, when tainment. HomeFair.com’s salary calculator uses these
adjusted for inflation (discussed later in the chapter), metrics when it determines that the cost of living in
fell around eight percent between 2007 and 2012. New York City is almost three times the cost of liv-
However, it rose slightly in 2013 and 2014.70 The un- ing in Youngstown, Ohio. This means that a worker
employment rate was 5.6 percent in early 2015, which living in New York City must earn nearly $279,500 to
is the lowest it had been in six years. Scars from the have the same standard of living as someone making
Great Recession continue to affect the United States $100,000 in Youngstown.
as 2.8 million people continue to suffer from long- When income is high relative to the cost of living,
term unemployment (defined as not having a job for people have more discretionary income. That means
27 weeks or longer).71 they have more money to spend on nonessential items
Education is the primary determinant of a person’s (in other words, on wants rather than needs). This in-
earning potential. For example, just 1 percent of workers formation is important to marketers for obvious reasons.
with only a high school education earn over $100,000 Consumers with high purchasing power can afford to
annually. By comparison, 13 percent of college- spend more money without jeopardizing their budget
educated workers earn six figures or more. People with for necessities like food, housing, and utilities. They also
a bachelor’s degree take home an average of 38 percent have the ability to purchase higher-priced necessities—
more than those with just a high school diploma. Over a for example, a more expensive car, a home in a more ex-
lifetime, an individual with a bachelor’s degree will earn pensive neighborhood, or a designer handbag versus a
more than twice as much total income as a nondegree purse from a discount store.
holder.72
In recent years, stores that cater to lower-income 4-5c Inflation
consumers—like Family Dollar and Dollar General—
have done well. P&G has found that its typical middle- Inflation is a measure of the decrease in the value of
class customers are increasingly unwilling to spend their money, generally expressed as the percentage reduction
money on household staples with extra features, such in value since the previous year, which is the rate of in-
as Tide with bleach. Many customers have switched to flation. Thus, in simple terms, an inflation rate of five
cheaper brands, while P&G brands like Bounce fabric percent means you will need 5 percent more units of
softener and Bounty paper towels suffered. To regain money than you would have needed last year to buy the
market share, P&G has launched its bargain-priced same basket of products. If inflation is 5 percent, you
Gain dish soap. The firm has also reduced some package can expect that, on average, prices have risen by about
sizes of Tide in order to sell them at Walmart for less 5 percent since the previous year. Of course, if pay raises
than ten dollars. are matching the rate of inflation, then employees will
be no worse off in terms of the immediate purchasing
power of their salaries.
4-5b Purchasing Power In times of low inflation, businesses seeking to in-
Even when incomes rise, a higher standard of liv- crease their profit margins can do so only by increas-
ing does not necessarily result. Increased stan- ing their efficiency. If they significantly increase prices,
dards of living are a function of purchasing power. no one will purchase their goods or services. The Great
Purchasing power is measured by comparing in- Recession brought inflation rates to almost zero. In
come to the relative cost of January 2015, the inflation rate was 0.8 percent.73
purchasing power a a standard set of goods In creating marketing strategies to cope with in-
comparison of income versus the
relative cost of a standard set of
and services in different flation, managers must realize that, regardless of what
goods and services in different geographic areas, usually happens to the seller’s cost, the buyer is not going to
geographic areas referred to as the cost of pay more for a product than the subjective value he
inflation a measure of the living. Another way to or she places on it. No matter how compelling the
decrease in the value of money, think of purchasing power justification might be for a 10 percent price increase,
expressed as the percentage is income minus the cost marketers must always examine its impact on demand.
reduction in value since the of living (i.e., expenses). Many marketers try to hold prices level for as long as
previous year
In general, a cost of living is practical.
4-5d Recession ● Shell Technology Ventures: Shell’s venture capital
arm funds start-ups and entrepreneurs.
A recession is a period of economic activity char-
acterized by negative growth. More pre- ● Shell Tech Works: This program looks for technol-
cisely, a recession is defined as occurring ogy created in other industries but that addresses ar-
when the gross domestic product falls eas that also apply to Shell.
for two consecutive quarters. Gross do- ● Universities: Shell collaborates with universities
mestic product is the total market value of all from around the world to complement its internal re-
final goods and services produced during a pe- search and development department.
riod of time. The official begin-
Some of the innovations that have come from Shell’s
ning of the Great Recession
Idea Factory include visualization tools to print 3-D pic-
of 2008–2009 was De-
tures of rock and oil formations, solar power technolo-
cember 2007. While the
gies that assist oil recovery, space robots, and the world’s
causes of the recession
largest floating structure—a floating liquefaction plant
are very complex, this
for natural gas.74
one began with the col-
lapse of inflated hous- 4-6a Research
ing prices. Those high
prices led people to take The United States, historically, has excelled at both
out mortgages they could basic and applied research. Basic research (or pure
not afford from banks research) attempts to expand the frontiers of knowl-
up
ro
edge but is not aimed at a specific, pragmatic problem.

/ jg
that should have known the

om
o.c
money would not be repaid. Basic research aims to confirm an existing theory or
ot
ph
ck
By 2008, the recession had spread to learn more about a concept or phenomenon. For
to
iS
around the globe. A very slow economic recovery began example, basic research might focus on high-energy
in July 2009 and continues to this day. physics. Applied research, in contrast, attempts to
develop new or improved products. The United States
has dramatically improved its track record in applied
research. For example, the United States leads the
4-6 TECHNOLOGICAL FACTORS world in applying basic research to aircraft design and
propulsion systems.
Technological success is based upon innovation,
and innovation requires imagination and risk
4-6b Stimulating Innovation
taking. Bringing new technology to the marketplace
requires a corporate structure and management ac- Companies attempting to innovate often limit their
tions that will lead to success. Great corporate lead- searches to areas they are already familiar with. This can
ers must embed innovation into the lifeblood of the help lead to incremental progress but rarely leads to a
company. Managers should hire employees with a tol- dramatic breakthrough. Companies are now using sev-
erance for risk. Then, workers must be told not to fear eral approaches such as Shell’s Idea Factory to keep in-
innovation failure. Not everything works the first time. novation strong. These include:
Some of the greatest innovations in recent years, such ● Building scenarios:
as 3-D printing, hydraulic fracturing, social media, Some firms use teams
and the iPhone, all had setbacks before a successful recession a period of economic
of writers to imagine activity characterized by negative
product was created. detailed opportuni- growth, which reduces demand for
Shell, one of the world’s largest oil producers, has ties and threats for goods and services
created the Idea Factory, a technology-forward develop- their companies, basic research pure research
ment platform consisting of four pillars. These are: partners, and col- that aims to confirm an existing theory
● Game Changer: This program works at the early or laborators in future or to learn more about a concept or
phenomenon
“blue sky” stage of innovation. If a start-up proves its markets. With more
concept, and it aligns with Shell’s goals and passes a than 1 billion smart- applied research research that
rigorous approval process, it qualifies for funding and phones in use around attempts to develop new or improved
products
technological help from Shell’s engineers. the world, more and
more companies are creating mobile- their own ideas have worked well at
friendly sites and mobile apps. some companies. At 3M, scientists
However, Senior Vice Presi- can spend fifteen percent of their
dent at Forrester Research time on projects they dream up
John Bernoff advises that themselves—a freedom that led
simply cramming a piece to the development of the yel-
of a Web site into a mo- low Post-It note. Google is well
bile experience is a recipe known in the tech industry for
for disaster that will re- its “20% time” policy, which
sult in complaints and grants employees a day a week
lost customers. Instead, to follow their entrepreneurial
he says, firms must iden- passions.77
tify mobile moments and Although developing new
context. A mobile mo- technology internally is a key
ment is the point in time to creating and maintaining a
at which a customer pulls long-term competitive advan-
out a mobile device to get tage, external technology is
immediate access to the also important to managers for
information that he or she leedsn/Shut terStock.com
two reasons. First, by acquiring
wants.75 Rob Moore, chief tech- the technology, the firm may be able to oper-
nical officer at Hertz, figured out number of key mobile ate more efficiently or create a better product. Second, a
moments during which he could make customers hap- new technology may render existing products obsolete.
pier. For example, he found that customers preferred Radio frequency identification (RFID) chips were
searching the lot for the best available car right from supposed to be a game changer for inventory tracking.
the airport bus. Krispy Kreme figured out that one of Walmart tried using them, but was less than satisfied.
its key moments was right when fresh doughnuts came JC Penney found that the chips interfered with existing
off of the line. To take advantage of this moment, the anti-theft sensors. The company removed the anti-theft
company built an app that lets customers know when sensors, and shoplifting surged. Zara, a fashion chain that
hot doughnuts are available near them. Half a million operates in 88 countries, claims to have learned from oth-
downloads later, Krispy Kreme’s same-store sales are ers’ mistakes and is using RFID chips in a new way. A
up by double digits—without advertising.76 Zara employee suggested putting the RFID chips inside
● Enlisting the Web: A few companies have created items’ security tags. The security tag’s plastic case protects
Web sites that act as literal marketplaces of ideas the chip, preventing interference and allowing for reuse.
where innovators can go to look for help with scien- Before the new tags, taking inventory took 40 em-
tific and business challenges. ployees about five hours to complete. Now, ten employees
● Talking to early adopters: Early adopters tend to walking down store aisles while waving pistol-like scan-
be innovators themselves. They are risk takers and ners can finish in half the time.78 Each time a garment is
look for new things or wish for something better to sold, data from its chip prompts the stockroom to send
help in daily tasks at home and work. out an identical item. Previously, store employees using
paper sales reports restocked shelves a few times a day. If
● Using marketing research: Firms find out what a customer can’t find an item, a salesperson can point an
customers like and dislike about their products and iPod camera at a similar item’s bar code and, using data
competitors’ products. gathered by the chips, see whether the desired item is
● Creating an innovative environment: Compa- available in the store, at a nearby Zara store, or online.79
nies let employees know that they have the “freedom
to fail.” They create intranets to encourage sharing
ideas. Most importantly, top management must lead
by example to create an atmosphere where innova-
4-7 POLITICAL AND LEGAL FACTORS
tion is encouraged and rewarded. Business needs government regulation to pro-
● Catering to entrepreneurs: Policies that reserve tect innovators of new technology, the interests
blocks of time for scientists or engineers to explore of society in general, one business from another,
and consumers. In turn, government needs business ● A worker cannot be denied coverage for a preexisting
because the marketplace generates taxes that support condition.
public efforts to educate our youth, pave our roads, ● Young adults can stay on their parents’ plans until
protect our shores, and the like. age 26.80
Every aspect of the marketing mix is subject to
In 2010, Congress passed the Restoring Ameri-
laws and restrictions. It is the duty of marketing man-
can Financial Stability Act, which brought sweeping
agers or their legal assistants to understand these laws
changes to bank and financial market regulations. The
and conform to them, because failure to comply with
legislation created the Consumer Financial Protection
regulations can have major consequences for a firm.
Bureau (CFPB) to oversee checking accounts, private
Sometimes just sensing trends and taking corrective
student loans, mortgages, and other financial products.
action before a government agency acts can help avoid
The agency deals with unfair, abusive, and deceptive
regulation.
practices. Some groups have expressed concerns that
the CFPB is assembling massive databases on credit
4-7a Federal Legislation
cards, credit monitoring, debt cancellation products,
Federal laws that affect marketing fall into several auto loans, and payday loans. CFPB officials claim that
categories of regulatory activity: competitive envi- they need the information to make effective rules and
ronment, pricing, advertising and promotion, and enforce those policies. One way or another, the CFPB
consumer privacy. The key pieces of legislation in has certainly had a significant impact on several United
these areas are summarized in Exhibit 4.1. The pri- States businesses—the agency has recovered more than
mary federal laws that protect consumers are shown $1.6 billion from financial services firms in the name of
in Exhibit 4.2. The Patient Protection and Affordable wronged consumers.81
Care Act, commonly called Obamacare, has had a sig-
nificant impact on marketing. A few key provisions of
4-7b State and Local Laws
the Act are that:
Legislation that affects marketing varies state by
● Large employers must offer coverage to full-time
state. Oregon, for example, limits utility advertising to
workers.
0.5 percent of the company’s net income. California has
● Workers cannot be denied coverage. forced industry to improve consumer products and has
● A person cannot be dropped when he or she is sick. enacted legislation to lower the energy consumption
EXHIBIT 4.1 PRIMARY U.S. LAWS THAT AFFECT MARKETING

Legislation Impact on Marketing
Sherman Act of 1890 Makes trusts and conspiracies in restraint of trade illegal; makes monopolies and attempts to monopolize
misdemeanors.
Clayton Act of 1914 Outlaws discrimination in prices to different buyers; prohibits tying contracts (which require the buyer of one
product to also buy another item in the line); makes illegal the combining of two or more competing corpora-
tions by pooling ownership of stock.
Federal Trade Created the Federal Trade Commission to deal with antitrust matters; outlaws unfair methods of competition.
Commission Act of 1914
Robinson-Patman Act of 1936 Prohibits charging different prices to different buyers of merchandise of like grade and quantity; requires sellers to
make any supplementary services or allowances available to all purchasers on a proportionately equal basis.
Wheeler-Lea Amendments Broadens the Federal Trade Commission’s power to prohibit practices that might injure the public without affect-
to FTC Act of 1938 ing competition; outlaws false and deceptive advertising.
Lanham Act of 1946 Establishes protection for trademarks.
Celler-Kefauver Strengthens the Clayton Act to prevent corporate acquisitions that reduce competition.
Antimerger Act of 1950
Hart-Scott-Rodino Act of 1976 Requires large companies to notify the government of their intent to merge.
Foreign Corrupt Prohibits bribery of foreign officials to obtain business.
Practices Act of 1977
EXHIBIT 4.2 PRIMARY U.S. LAWS PROTECTING CONSUMERS
Federal Food and Drug Act of 1906 Prohibits adulteration and misbranding of foods and drugs involved in interstate commerce; strength-
ened by the Food, Drug, and Cosmetic Act (1938) and the Kefauver-Harris Drug Amendment (1962).
Federal Hazardous Substances Act of 1960 Requires warning labels on hazardous household chemicals.
Kefauver-Harris Drug Amendment of 1962 Requires that manufacturers conduct tests to prove drug effectiveness and safety.
Consumer Credit Protection Act of 1968 Requires that lenders fully disclose true interest rates and all other charges to credit customers for loans
and installment purchases.
Child Protection and Prevents marketing of products so dangerous that adequate safety warnings
Toy Safety Act of 1969 cannot be given.
Public Health Smoking Act of 1970 Prohibits cigarette advertising on television and radio and revises the health hazard
warning on cigarette packages.
Poison Prevention Labeling Act of 1970 Requires safety packaging for products that may be harmful to children.
National Environmental Policy Act of 1970 Established the Environmental Protection Agency to deal with various types of pollution and organiza-
tions that create pollution.
Public Health Cigarette Smoking Act of 1971 Prohibits tobacco advertising on radio and television.
Consumer Product Safety Act of 1972 Created the Consumer Product Safety Commission, which has authority to specify safety standards for
most products.
Child Protection Act of 1990 Regulates the number of minutes of advertising on children’s television.
Children’s Online Privacy Empowers the FTC to set rules regarding how and when marketers must obtain parental permission
Protection Act of 1998 before asking children marketing research questions.
Aviation Security Act of 2001 Requires airlines to take extra security measures to protect passengers, including the installation
of stronger cockpit doors, improved baggage screening, and increased security training for airport
personnel.
Homeland Security Act of 2002 Protects consumers against terrorist acts; created the Department of Homeland Security.
Do Not Call Law of 2003 Protects consumers against unwanted telemarketing calls.
CAN-SPAM Act of 2003 Protects consumers against unwanted e-mail, or spam.
Credit Card Act of 2009 Provides many credit card protections.
Restoring American Financial Created the Consumer Financial Protection Bureau to protect consumers against unfair, abusive, and
Stability Act of 2010 deceptive financial practices.
Patient Protection and Affordable Care Act Overhauled the U.S. healthcare system; mandated and subsidized health insurance for individuals.
of refrigerators, freezers, and air conditioners. Sev- 4-7c Regulatory Agencies

eral states, including California and North Carolina,
Although some state regulatory bodies actively pursue
are considering levying a tax on all in-state commercial
violators of their marketing statutes, federal regulators
advertising.
generally have the greatest clout. The Consumer Prod-
Many states and cities are attempting to fight
uct Safety Commission, the Federal Trade Commission,
obesity by regulating fast-food chains and other res-
and the Food and Drug Administration are the three
taurants. For example, California and New York have
federal agencies most directly and actively involved in
passed a law banning trans fats in restaurants and bak-
marketing affairs. These agencies, plus others, are dis-
eries, New York City chain restaurants must now dis-
cussed throughout the book, but a brief introduction is
play calorie counts on menus, and Boston has banned
in order at this point.
trans fats in restaurants. New York City enacted a law
prohibiting restaurants CONSUMER PRODUCT SAFETY COMMISSION
Consumer Product Safety from selling soft drinks The sole purpose of the Consumer Product Safety
Commission (CPSC) a federal larger than 16 ounces, but Commission (CPSC) is to protect the health and safety
agency established to protect the the ban was overturned of consumers in and around their homes. The CPSC has
health and safety of consumers in a day before it was to go the power to set mandatory safety standards for almost
and around their homes
into effect. all products consumers use (about 15,000 items) and
can fine offending firms up to $500,000 and sentence The FTC’s Bureau of Consumer Protection works
their officers to up to a year in prison. It can also ban for the consumer to prevent fraud, deception, and un-
dangerous products from the marketplace. The CPSC fair business practices in the marketplace. The Bureau
oversees about 400 recalls per year. In 2008, Congress of Consumer Protection claims that it:
passed the Consumer Product Safety Improvement ● enhances consumer confidence by enforcing federal
Act. The law is aimed primarily at children’s products, laws that protect consumers;
which are defined as those used by individuals 12 years
● empowers consumers with free information to help
old or younger. The law addresses items such as cribs,
them exercise their rights and to spot and avoid fraud
electronics and video games, school supplies, science
and deception; and
kits, toys, and pacifiers. The law requires mandatory
testing and labeling and increases fines and prison time ● wants to hear from consumers who want to get
for violators. information or file a complaint about fraud or
identity theft.82
FOOD AND DRUG ADMINISTRATION The Food
Another important FTC bureau is the Bureau of
and Drug Administration (FDA), another power-
Economics. It provides economic analysis and support to
ful agency, is charged with enforcing regulations against
antitrust and consumer protection investigations. Many
selling and distributing adulterated, misbranded, or
consumer protection issues today involve the Internet.
hazardous food and drug products. In 2009, the To-
bacco Control Act was passed. This act gave the FDA
4-7d Consumer Privacy
authority to regulate tobacco products, with a spe-
cial emphasis on preventing their use by children and The popularity of the Internet for direct marketing,
young people and reducing the impact of tobacco on for collecting consumer data, and as a repository for
public health. Another recent FDA action is the “Bad sensitive consumer data has alarmed privacy-minded
Ad” program. It is geared toward health care providers consumers. In 2003, the U.S. Congress passed the
to help them recognize misleading prescription drug CAN-SPAM Act in an attempt to regulate unsolicited e-
promotions and gives them an easy way to report the mail advertising. The act prohibits commercial e-mailers
activity to the FDA. from using false addresses and presenting false or mis-
leading information, among other restrictions.
FEDERAL TRADE COMMISSION The Federal Internet users who once felt fairly anonymous when
Trade Commission (FTC) is empowered to prevent using the Web are now disturbed by the amount of infor-
persons or corporations from using unfair methods of mation marketers collect about them and their children
competition in commerce. The FTC consists of five as they visit various sites in cyberspace. The FTC, with
members, each holding office for seven years. Over jurisdiction under the Children’s Online Privacy Protec-
the years, Congress has greatly expanded the powers tion Act, requires Web site operators to post a privacy
of the FTC. Its responsibilities have grown so large policy on their home page and a link to the policy on
that the FTC has created several bureaus to better or- every page where personal information is collected. An
ganize its operations. One of the most important is the area of growing concern to privacy advocates is called
Bureau of Competition, which promotes and protects behavioral targeting, which is discussed in more detail
competition. The Bureau of Competition: in Chapters 9 and 16. Behavioral targeting is used by re-
● reviews mergers and acquisitions, and challenges searchers to better target advertising to Web surfers and
those that would likely lead to higher prices, fewer users of search engines and social media.
choices, or less innovation; Despite federal ef-
forts, online tracking Food and Drug
● seeks out and challenges anti-competitive conduct Administration (FDA) a
has become widespread
in the marketplace, including monopolization and federal agency charged with enforcing
and pervasive. A vast
agreements between competitors; regulations against selling and
amount of personal data distributing adulterated, misbranded, or
● promotes competition in industries where consumer is collected through ap- hazardous food and drug products
impact is high, such as health care, real estate, oil and plication software, com-
gas, technology, and consumer goods; and Federal Trade Commission
monly called apps. For (FTC) a federal agency empowered
● provides information and holds conferences and example, some widely to prevent persons or corporations from
workshops for consumers, businesses, and policy used apps on Face- using unfair methods of competition in
commerce
makers on competition issues for market analysis. book gather volumes of
information when they are downloaded. A Wall Street companies have their credit card numbers, phone
Journal analysis of the 100 most popular Facebook numbers, and e-mail addresses. It also highlights sites
apps found that some seek e-mail addresses, current that share user data.89
locations, and even sexual preferences. Information is DuckDuckGo is a search engine that doesn’t collect
collected not only from app users but also from their any information on its users and blocks all ad trackers
Facebook friends. from the search page.90 Ixquick, another privacy-forward
Successful tracking has created a $137 billion online- search engine, attracts more than 4 million users a day.91
advertising business that is growing rapidly. There are
more than 300 companies collecting data about users.93
More than half the time, data collectors piggyback on 4-8 COMPETITIVE FACTORS
each other. When a user visits a Web site that has a code
for one type of tracking technology, the data collection The competitive environment encompasses the
triggers other tracking technologies that are not em- number of competitors a firm must face, the rela-
bedded on the site. Piggybacking means that Web sites tive size of the competitors, and the degree of
really do not know how much data are being gathered interdependence within the industry. Management
about their users. has little control over the competitive environment
Acxiom uses more than 23,000 computer serv- confronting a firm.
ers to collect, collate, and analyze consumer data. The
firm has created the world’s largest consumer data- 4-8a Competition for Market
base—the servers process more than fifty trillion data Share and Profits
transactions a year. The database contains information
As U.S. population growth slows, global competition
on over 500 million consumers worldwide, with about
increases, costs rise, and available resources tighten,
1,500 data points per person. 84 Acxiom customers in-
clude firms like E*Trade, Ford, Wells Fargo, Macy’s,
and many other major firms seeking consumer insights.
Acxiom integrates online, mobile, and offline data to
create in-depth consumer behavior portraits. The firm’s
proprietary software, PersonicX, assigns consumers
to one of 70 detailed socioeconomic clusters. For exam-
ple, the “savvy single” cluster includes mobile, upper-
middle-class singles who do their banking online, attend
pro sports events, are sensitive to prices, and respond to
free-shipping offers.85
Many consumers don’t want to be part of huge
databases—they want their privacy back. Half of
Americans are concerned about the wealth of per-
sonal data on the Internet.86 Approximately 25 percent
of American Internet users have downloaded privacy
protection software.87
AVG PrivacyFix is a free program from antivirus
Lissandra Melo/Shutterstock.com
software company AVG Technologies. The program’s

dashboard gives users a snapshot of what information
they’re actually sharing when they use social networks
and services such as Facebook, LinkedIn, and Google.
It pings users with a small red exclamation point if their
privacy settings are weak and sends an alert when a
visited website makes relevant changes to its privacy A vending machine is a perfect example
policies.88 of competition for market share. Several
Other products let people keep track of their brands are competing for the business of
personal data in other ways. Privowny, a free privacy the person who has the munchies.
toolbar for Firefox and Chrome, shows users which
firms find that they must work harder to maintain Many foreign competitors also consider the United
their profits and market share, regardless of the form States to be a ripe target market. Thus, a U.S. mar-
of the competitive market. Sometimes technology ad- keting manager can no longer focus only on domes-
vances can usher in a whole new set of competitors tic competitors. In automobiles, textiles, watches,
that can change a firm’s business model. For example, televisions, steel, and many other areas, foreign com-
one of the United States’ most competitive companies petition has been strong. In the past, foreign firms
is Amazon. The firm has more than 245 million cus- penetrated U.S. markets by concentrating on price,
tomers that rely on Amazon for everything from flat but the emphasis has switched to product quality.
screen televisions to dog food.92 The Reputation In- Nestlé, Sony, and Rolls-Royce are noted for quality,
stitute has found Amazon to have the best reputation not cheap prices. Global competition is discussed in
in America.93Amazon’s success, spurred by extremely much more detail in Chapter 5.
competitive prices, hurt Sears, JCPenney, Borders,
and Best Buy, and even contributed to Circuit City’s
going out of business. At first glance, Google and Am-
4
azon don’t seem to be competitors. Google is a search
engine that sells ads and Amazon is a retailer that sells STUDY
and delivers goods. However, Google is slowly get-
ting into the market for on-demand goods and has
TOOLS
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Express in several major markets. Google doesn’t own LOCATED AT BACK OF THE TEXTBOOK
massive warehouses like Amazon, but works with lo-
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zon.94 Both companies already compete fiercely in the
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5 Developing a
Global Vision
LEARNING OUTCOMES
5-1 Discuss the importance of global marketing

After you finish
5-2 Discuss the impact of multinational firms on the world economy this chapter go
Lightspring/Shutterstock.com
5-3 Describe the external environment facing global marketers to PAGE87 for
5-4 Identify the various ways of entering the global marketplace STUDY TOOLS.
5-5 List the basic elements involved in developing a global marketing mix
5-6 Discover how the Internet is affecting global marketing
5-1 REWARDS OF GLOBAL MARKETING AND

THE SHIFTING GLOBAL BUSINESS LANDSCAPE
Today, global revolutions are underway in many areas of our
lives: management, politics, communications, and technology. The
word global has assumed a new meaning, referring to a boundless
mobility and competition in social, business, and intellectual arenas.
Global marketing—marketing that targets markets throughout the
world—has become an imperative for business.
U.S. managers must develop a global vision not only to to understand that customer and distribution networks
recognize and react to international marketing opportuni- operate worldwide, blurring geographic and political bar-
ties but also to remain com- riers and making them increasingly irrelevant to business
petitive at home. Often a decisions. In summary, having a global vision means
global marketing marketing
that targets markets throughout
U.S. firm’s toughest domes- recognizing and reacting to international marketing op-
the world tic competition comes from portunities, using effective global marketing strategies,
foreign companies. Con- and being aware of threats from foreign competitors in
global vision recognizing and
reacting to international marketing
sider the impact of Toyota all markets.
opportunities, using effective and Honda on Ford and World trade climbed from $200 billion in 1991 to
global marketing strategies, and General Motors, for ex- more than $18 trillion in merchandise exports alone in
being aware of threats from foreign ample. Moreover, a global 2015. Growth is not occurring evenly around the globe,
competitors in all markets
vision enables a manager however. In 2015, the United States was projected to
66 PART ONE:
CHAPTER
The World
5: 5 of Marketing
grow by 3.2 percent. The European Union (discussed small businesses are taking only slow, hesitant steps into
later in the chapter) was projected to grow 1.3 per- the global market.
cent over the same span, while Japan was forecasted to Of course, global marketing is not a one-way street
grow just 0.8 percent due to struggles with economic whereby only U.S. companies sell their wares and ser-
policy. China’s projected 2015 growth of 7.1 percent vices throughout the world. Foreign competition in the
may seem gargantuan by comparison, but this actu- domestic market was once relatively rare but now is
ally represents the country’s lowest growth rate in 15 found in almost every industry. In fact, in many indus-
years.1 These low growth rates indicate that marketers tries, U.S. businesses have lost significant market share
are facing many challenges to their customary prac- to imported products. In electronics, cameras, automo-
tices. Product development costs are rising, the life biles, fine china, tractors, leather goods, and a host of
of products is getting shorter, and new technology is other consumer and industrial products, U.S. companies
spreading around the world faster than ever. But mar- have struggled at home to maintain their market shares
keting winners relish the pace of change instead of against foreign competitors.
fear it.
Adopting a global vision can be very lucrative for a 5-1a Importance of Global Marketing
company. General Electric is involved in everything
to the United States
from private label credit cards to jet engines and health
care equipment. There are now 24 countries outside of Many countries depend more on international com-
the United States where General Electric has annual merce than the United States does. For exam-
sales of $1 billion or more. Today, the company has an ple, France, the United Kingdom, and Germany
order backlog of $244 billion.2 derive 28, 30, and 46 percent of their respective
Despite the increasing availability of foreign cus- gross domestic products gross domestic product
tomers, small businesses still account for only approxi- (GDP) from world trade— (GDP) the total market value
mately 34 percent of U.S. exporting volume. Whether considerably more than the of all final goods and services
global business is daunting because of the various trade United States’ 14 percent. 3 produced in a country for a
given time period
laws or tariffs, or because the markets are unfamiliar, Gross domestic product is
CHAPTER 5: Developing a Global Vision 67
The Impact of Exports
Although some countries depend more on international commerce than the
0 13
737
United States does, the impact of international business on the U.S. economy is still
14 9
impressive:
ock
er s t
The United States exports about thirteen percent of its industrial production.4
hu t t
●
us/ S
● More than 11 million Americans hold jobs that are supported by exports.5
lex i
©o
● Every U.S. state has realized net employment gains directly attributed to
foreign trade.
● The United States exports more than $2.3 trillion in goods and services each year.6
● Every $1 billion in additional exports creates about 5,000 new U.S. jobs.7
the total market value of all final goods and services

produced in a country for a given time period (usu-
ally a year or a quarter of a year). Final in this In addition, the Small Busi-
sense refers to final products that are sold, not to ness Administration backed more than
intermediate products used in the assembly of a final 2,400 loans to 3,500 small businesses, supporting
product. For example, if the value of a brake (an inter- $3.4 billion in small business export sales.
mediate product) and that of a car (the final product) JOB OUTSOURCING AND INSHORING The notion
were both counted, the brake would be counted twice. of outsourcing (sending U.S. jobs abroad) has been
Therefore, GDP counts only final goods and services highly controversial for several decades. Many executives
in its valuation of a country’s production. have said that it leads to corporate growth, efficiency,
The main types of goods that the United States productivity, and revenue growth. Most companies see
exports are automobiles, agricultural goods, machines, cost savings as a key driver in outsourcing. But outsourc-
airplanes, computers, chemicals, and petroleum prod- ing also has its negative side. For instance, Detroit has
ucts. Services that the United States exports are pri- suffered as many factories in the auto industry have been
marily educational, financial, legal, licensing-, and shut down and relocated around the world. Ford manu-
travel-related. When a foreign tourist visits the United factures the Fiesta compact sedan in several countries
States, all the money she spends while stateside is
counted as a travel-related export. Why is this? Because
she is buying a service product (travel) and is simply
coming to the United States to pick it up!
Traditionally, only very large multinational compa-
nies have seriously attempted to compete worldwide. How-
ever, more and more small and medium sized companies
have begun pursuing international markets, and some
are even beginning to play a critical role in driving ex-
Ed Aldridge/Shutterstock.com
port growth. Today, a record 287,000 small and medium

size firms export goods from the United States. The U.S.
government is working with these firms to expand small
business trade. The Export–Import bank of the United
States, for example, helps thousands of small businesses
obtain financing to expand their export sales. In 2014, Ford manufactures the Fiesta in several
the Export-Import Bank countries, but no Fiestas are being built in
outsourcing sending U.S. jobs authorized $20.5 billion to
abroad the United States.
support 164,000 U.S. jobs.8
Imports Can Help Too
Many people view exports as generally good for the United States and view imports as generally harmful to
the United States. Indeed, waves upon waves of U.S. factories have had to close over the years because they
could not compete with low-cost imports. China is widely known as the largest supplier of imports to the
United States. Some claim that Chinese goods are so cheap because Chinese manufacturers pay their em-
ployees inhumane wages. Although China’s wages are still relatively low, they have doubled since 2008. Fur-
ther, nearly half of the United States’ non-oil imports come from developed, high-wage countries like France,
Germany, Ireland, and Switzerland. These countries all have higher average wages than does the United
States, so low wages (and low prices) are only one factor driving the popularity of imports.9
While some employers can’t compete with lower-cost imports, many U.S. workers actually owe their jobs
to imports. Transportation workers move goods around the country. Workers for manufacturers, wholesal-
ers, and retailers research and place orders with foreign suppliers for products ranging from paper boxes to
computer servers.
More than 60 percent of U.S. imports are raw materials, components, and machinery used to make goods or
grow crops.10 American manufacturers use these imported inputs when locally produced substitutes are either
not available or too expensive. Imported inputs thus keep American manufacturing competitive—both locally
and globally.
©StudioM1
around the world—including Mexico—but no Fiestas competition to drive down prices and increase product
are being built in the United States. and service quality. Business goes to the countries that
Recently, some companies have begun to suspect operate most efficiently and/or have the technology
that outsourcing’s negatives outweigh its positives. to produce what is needed. In summary, globalization
Improperly designed parts and products have caused expands economic freedom, spurs competition, and
production delays, and rising wages in the developing raises the productivity and living standards of people
world have rendered American rates more competi- in countries that open themselves to the global market-
tive. Increased fuel and transportation costs associ- place. For less developed countries, globalization also
ated with long-distance shipping, coupled with falling offers access to foreign capital, global export markets,
U.S. energy costs, have given impetus to inshoring, and advanced technology while breaking the monopoly
returning production jobs to the United States. Rapid of inefficient and protected domestic producers. Faster
consumer product innovation has led to the need to growth, in turn, reduces poverty, encourages democra-
keep product designers, marketing researchers, logis- tization, and promotes higher labor and environmental
tics experts, and manufacturers in close proximity so standards. Though government officials in developing
that they can work quickly as a team. Thus, shrinking countries may face more difficult choices as a result
development and manufacturing timelines have fur- of globalization, their citizens enjoy greater individual
ther contributed to inshoring. freedom. In this sense, globalization acts as a check on
Walmart is also aiding the cause by promising to governmental power by making it more difficult for
stock more “Made in the USA” goods. The firm plans to governments to abuse the freedom and property of
buy $50 billion of such goods as a start. This decision has their citizens.
already caused a ripple of effects. Redman & Associates, Globalization deserves credit for helping lift many
which manufactures battery-powered children’s cars millions out of poverty and for improving standards of
in China, recently announced a new factory in Rogers, living of low-wage families. In developing countries
Arkansas—not too far from Walmart’s Bentonville, around the world, globalization has created a vibrant
Arkansas headquarters.11 middle class that has el-
evated the standard of living inshoring returning
B E N E F I T S O F G LO B A L I Z AT I O N Tr a d i t i o n a l for hundreds of millions production jobs to the United
States
economic theory says that globalization relies on of people.
5-2 MULTINATIONAL FIRMS The role of multinational corporations in developing
nations is a subject of controversy. The ability of
multinationals to tap financial, physical, and human
The United States has a number of large compa-
resources from all over the world and combine them
nies that are global marketers. Many of them have
economically and profitably can benefit any country.
been very successful. A company that is heavily engaged
They also often possess and can transfer the most up-to-
in international trade, beyond exporting and importing,
date technology. Critics, however, claim that often the
is called a multinational corporation . A multina-
wrong kind of technology is transferred to developing
tional corporation moves resources, goods, services, and
nations. Usually, it is capital intensive (requiring
skills across national boundaries without regard to the
a greater expenditure for equipment than for labor)
country in which its headquarters is located.
and thus does not substantially increase employment.
Multinationals often develop their global business
A “modern sector” then emerges in the nation,
in stages. In the first stage, companies operate in one
employing a small proportion of the labor force with
country and sell into others. Second-stage multination-
relatively high productivity and income levels and with
als set up foreign subsidiaries to handle sales in one
increasingly capital-intensive technologies. In addition,
country. In the third stage, multinationals operate an
multinationals sometimes push for very quick production
entire line of business in another country. The fourth
turn-around times, which has led to long hours and
stage has evolved primarily due to the Internet and in-
dangerous working conditions. In 2013, a Bangladesh
volves mostly high-tech companies. For these firms, the
garment factory collapsed and more than 1,100 people
executive suite is virtual. Their top executives and core
died as they rushed to meet production quotas for firms
corporate functions are in different countries, wherever
such as Benetton and Marks & Spencer.13 Other critics
the firms can gain a competitive edge through the avail-
say that the firms take more wealth out of developing
ability of talent or capital, low costs, or proximity to their
nations than they bring in, thus widening the gap
most important customers.
between rich and poor nations. The petroleum industry
A multinational company may have several world-
in particular has been heavily criticized in the past for its
wide headquarters, depending on where certain markets
actions in some developing countries.
or technologies are located. Britain’s APV, a maker of
To counter such criticism, more and more multina-
food-processing equipment, has a different headquar-
tionals are taking a proactive role in being good global
ters for each of its worldwide businesses.
citizens. Sometimes companies are spurred to action by
Many U.S.-based multinationals earn a large per-
government regulation; in other cases, multinationals are
centage of their total revenue abroad. Caterpillar, the
attempting to protect their good brand names. Some com-
construction-equipment company, receives 67 percent
panies, such as Apple, Walmart, Calvin Klein, and Tommy
of its revenue from overseas markets, and General Elec-
Hilfiger, have begun conducting factory inspections to
tric earns 54 percent of its revenue abroad. Other large
protect the health and safety of their workers. Coca-
American exporters include General Motors, Ford,
Cola has trained a half million women in 44 countries to
Hewlett-Packard, and IBM.
5-2a Are Multinationals Beneficial?

Although multinationals comprise far less than 1
percent of U.S. companies, they account for about
nineteen percent of all private jobs, 25 percent of all
Ellen Mack/Moment/Getty Images
private wages, 48 percent of total exports of goods,

and a remarkable 74 percent of nonpublic research
and development (R&D)
multinational corporation spending. 12 For decades,
a company that is heavily engaged U.S. multinationals have
in international trade, beyond driven an outsized share of
exporting and importing
U.S. productivity growth, Coca-Cola has made an effort to provide
capital intensive using the foundation of ris- opportunities for over half a million
more capital than labor in the ing standards of living for
production process women in 44 countries.
everyone.
become small-scale businesspeople. Coca-Cola has nur- strategy. A multidomestic strategy occurs when
tured female owners of “sari-sari” convenience stores in multinational firms enable individual subsidiaries to
the Philippines, farmers growing mangos in Kenya, and compete independently in domestic markets. Simply
poor villagers building tiny recycling operations out of put, multidomestic strategy is how multinational firms
discarded bottles from trash heaps in Mexico.14 use strategic business units (see Chapter 2). Colgate-
Palmolive uses both strategies: Axion paste dishwashing
5-2b Global Marketing Standardization detergent, for example, was formulated for develop-
ing countries, and La Croix Plus detergent was custom
Traditionally, marketing-oriented multinational cor-
made for the French market.
porations have operated somewhat differently in each
Nevertheless, some multinational corporations
country. They use a strategy of providing different prod-
are moving beyond multidomestic strategies toward a
uct features, packaging, advertising, and so on. However,
degree of global marketing standardization. Colgate
Ted Levitt, a former Harvard professor, has described
toothpaste and Nike shoes are marketed the same ways
a trend toward what he refers to as “global marketing,”
globally, using global marketing standardization.
with a slightly different meaning.15 He contends that
communication and technology have made the world
smaller so that almost all consumers everywhere want all
the things they have heard about, seen, or experienced. 5-3 EXTERNAL ENVIRONMENT
Thus, he sees the emergence of global markets for stan-
dardized consumer products on a huge scale, as opposed
FACED BY GLOBAL MARKETERS
to segmented foreign markets with different products.
A global marketer or a firm considering global
In this book, global marketing is defined as individu-
marketing must consider the external environ-
als and organizations using a global vision to effectively
ment. Many of the same environmental factors that
market goods and services across national boundaries.
operate in the domestic market also exist internationally.
To make the distinction, we can refer to Levitt’s notion
These factors include culture, economic development,
as global marketing standardization.
the global economy, political structure and actions,
Global marketing standardization presumes that the
demographic makeup, and natural resources.
markets throughout the world are becoming more alike.
Firms practicing global marketing standardization
produce “globally standardized products” to be sold
5-3a Culture
the same way all over the world. Most smartphones Central to any society is the common set of values
and tablets, for example, are standardized globally shared by its citizens that determines what is socially
except for the languages displayed. These devices acceptable. Culture underlies the family, the educa-
allow the user to switch easily from one language to tional system, religion, and the social class system. The
another. Uniform production should enable companies network of social organizations generates overlapping
to lower production and marketing costs and increase roles and status positions. These values and roles have a
profits. Levitt has cited Coca-Cola, Colgate-Palmolive, tremendous effect on people’s preferences and thus on
and McDonald’s as successful global marketers. His marketers’ options. A company that does not understand
critics point out, however, that the success of these a country’s culture is doomed to failure in that country.
three companies is really based on variation, not on Cultural blunders lead to misunderstandings and often
offering the same product everywhere. McDonald’s, perceptions of rudeness or even incompetence. For ex-
for example, changes its salad dressings and provides ample, when people in India shake hands, they some-
self-serve espresso for French tastes. It sells bulgogi times do so rather limply.
burgers in South Korea and falafel burgers in Egypt. This is not a sign of weakness global marketing
standardization
Further, the fact that Coca-Cola and Colgate-Palmolive or disinterest; instead, a soft production of uniform products
sell some of their products in more than 160 countries handshake conveys respect. that can be sold the same way
does not signify that they have adopted a high degree Avoiding eye contact is also a all over the world
of standardization for all their products globally. Only sign of deference in India. multidomestic strategy
three Coca-Cola brands are standardized, and one of W h e n eB a y e n t e r e d when multinational firms
them, Sprite, has a different formulation in Japan. China in 2001, it did quite well enable individual subsidiaries
Companies with separate subsidiaries in other because it had no competi- to compete independently in
domestic markets
countries can be said to operate using a multidomestic tion. But when the Chinese
online form, many Chinese users will
be left scratching their heads. The sim-
plest and most common approach to
accommodate this cultural difference is
to ask simply “name” instead of “first,”
“middle,” and “last name.” Similarly,
addresses are not written in line with
street names in Japan. For Japanese
consumers, this small issue can make it
incredibly hard to order products from
Source: Taobao.com
Western Web sites.16
Language is another important as-
pect of culture that can create problems
for marketers. Marketers must take care
With a keen understanding of Chinese culture, Taobao
in translating product names, slogans,
proved to be stiff competition for eBay in China instructions, and promotional messages
so as not to convey the wrong meaning.
competitor Taobao launched, eBay quickly lost ground. Free translation software, such as babelfish.com or Google
Its market share dropped from eighty percent to 7 percent Translate, allows users to input text in one language and
in just five years. If you looked at eBay’s site in China, you output in another language. But marketers must take care
would recognize it—it looks very similar to eBay’s United using the software, as it can have unintended results—the
States site. This failure to adapt to Chinese culture led best being unintelligible, the worst being insulting.
to eBay’s decline: Americans do not want celebrity gossip Each country has its own customs and traditions that
or social interaction when they shop online, but the determine business practices and influence negotiations
Chinese do. with foreign customers. In many countries, personal
Taobao is more than a one-stop shop for online relationships are more important than financial con-
shoppers—it is a social forum as well. The site features siderations. For instance, skipping social engagements
pictures and descriptions—very long descriptions—of in Mexico may lead to lost sales. Negotiations in Japan
products, but shoppers can also chat online about cur- often include long evenings of dining, drinking, and
rent trends, share shopping tips, and catch up on celeb- entertaining, and only after a close personal relationship
rity news at Taobao. Chinese shoppers are more inclined has been formed do business negotiations begin.
to follow fashion trends than American shoppers are, so Making successful sales presentations abroad re-
Taobao lists trends in order of popularity, unlike eBay. quires a thorough understanding of the country’s culture.
Finally, when eBay entered China, it did not allow direct Germans, for example, do not like risk and need strong
communication between buyers and sellers. As in the reassurance. A successful presentation to a German client
United States, all communication was handled by eBay’s will emphasize three points: the bottom-line benefits of
messaging system. This system was not well received in the product or service, that there will be strong service
China because Chinese are much less likely than Ameri- support, and that the product is guaranteed. In southern
cans to buy from strangers. Chinese Internet users ex- Europe, it is an insult to show a price list. Without ne-
pect Web sites to be much denser than many Western gotiating, you will not close the sale. The English want
Internet users are used to. That is, Chinese Web sites plenty of documentation for product claims and are less
tend to have more links, many more images, and longer likely to simply accept the word of the sales representa-
page lengths than Western Web sites do. Eye-grabbing tive. Scandinavian and Dutch companies are more likely
animations and floating images are common on Chinese to approach business transactions as Americans do than
sites. A page with less text, fewer embedded links, and are companies in any other country.
nice imagery might be called “well-designed” by West-
ern Internet users but “boring” by Chinese ones.
5-3b Economic Factors
User experience issues also plague the digital divide
between China and the West. In China, form fields like A second major factor in the external environment
“first name,” “middle name,” and “last name” often con- facing the global marketer is the level of economic
fuse users. If you ask for name information this way in an development in the countries where it operates. In
general, complex and sophisticated industries are found than there are in developed nations. This holds espe-
in developed countries, and more basic industries are cially true for big-ticket items like housing, cars, and
found in less developed nations. Average family incomes large appliances. Seventy percent of consumers in China
are higher in the more developed countries compared and 67 percent of consumers in India cite “brand name
to the less developed countries. Larger incomes mean and reputation” as key reasons for trading up to higher-
greater purchasing power and demand, not only for con- priced goods and services.21
sumer goods and services, but also for the machinery About half of all Indians have a mobile subscription.
and workers required to produce consumer goods. In fact, more people in India have mobile phones than
According to the World Bank, the average gross have toilets. The Indian middle class spends three hours a
national income (GNI) per capita for the world is day on mobile—more time than they spend on TV. Clearly,
$10,679. 17 GNI is a country’s GDP (defined earlier) targeting consumers via mobile is critical in India.22
together with its income received from other countries
(mainly interest and dividends) less similar payments
made to other countries. The United States’ GNI
5-3d Political Structure and Actions
per capita is $53,470, but it is not the world’s highest. Political structure is a fourth important variable facing
That honor goes to Bermuda at $104,610. Of course, global marketers. Government policies run the gamut
there are many very poor countries: Rwanda, $630; from no private ownership and minimal individual free-
Afghanistan, $690; Ethiopia, $470; Liberia, $410; and dom to little central government and maximum personal
Democratic Republic of Congo, $430.18 GNI per capita freedom. As rights of private property increase, govern-
is one measure of the ability of a country’s citizens to ment-owned industries and centralized planning tend
buy various goods and services. A marketer with a global to decrease. But a political environment is rarely at one
vision can use these data to aid in measuring market extreme or the other. India, for instance, is a republic
potential in countries around the globe. with elements of socialism, monopoly capitalism, and
Not only is per capita income a consideration when competitive capitalism in its political ideology.
going abroad, but so is the cost of doing business in a A recent World Bank study found that less regula-
country. Although it is not the same as the cost of doing tion fosters the strongest economies. The least regulated
business, we can gain insights into expenses by examin- and most efficient economies are concentrated among
ing the cost of living in various cities.19 countries with well-established common-law traditions,
including Australia, Canada, New Zealand, the United
Kingdom, and the United States. On par with the best
5-3c The Global Economy performers are Singapore and Hong Kong. Not far
A global marketer today must be fully aware of the in- behind are Denmark, Norway, and Sweden—social
tertwined nature of the global economy. In the past, democracies that recently streamlined their business
the size of the U.S. economy was so large that global regulation. In the United States, starting a new busi-
markets tended to move up or down depending on its ness—the future lifeblood of any economy—on average
health. It was said, “If America sneezes, then the rest of takes 7 procedures, 25 days, and costs the entrepreneur
the world catches a cold.” This is still true today. Slow 32 percent of income per capita in fees. While it takes
growth in America—and even slower growth in Europe as little as one procedure, half a day, and almost noth-
and Japan—have hampered global economic progress. ing in fees in New Zealand, a businessperson must wait
Even China’s astronomical growth rate is much lower 208 days in Suriname and 144 in Venezuela.23
today than in recent years. Unfortunately, politics is It is not uncommon for international politics to af-
playing an increasingly important role in how multina- fect business laws. China recently started investigating
tional firms serve their markets in countries like China dozens of America’s largest multinationals—companies
and Russia. Despite politics, the BRIC (Brazil, Russia, structured to compete with other corporations, not gov-
India, and China) countries will play an increasingly ernments. Among the investigated companies, Google
important role in the global economy for years to left China after enduring cyber-attacks and governmen-
come. By 2020, Brazil’s market will top $1.6 trillion. tal pressure to release user information. Apple CEO
The consumer markets in India and China are together Tim Cook expressed “sincere apologies” in the wake of
projected to top $10 trillion in 2020.20 Beijing’s media campaign against the company. Adobe
There are more consumers trading up to higher- shut down both its China headquarters and ended its
priced, higher-quality products in emerging markets research and development in the country.24 Not all of
China’s oversight is excessive, or raise prices to buyers, or both.
however. Mead Johnson and Normally, a tariff raises prices of
Abbott Laboratories were fined the imported goods and makes
$110 million by Chinese authori- it easier for domestic firms
ties for price fixing. Glaxo Smith to compete. In general, the
Kline was fined $490 million U.S. economy is open to im-
for bribing doctors to prescribe ports. America has tariffs on 1,000
its drugs. Walmart was fined
25
product categories, but at a relatively
$9.8 million for misleading k . c o m low rate of 1.4 percent. 28 Exceptions to this are
stoc
t ter
pricing, selling poor quality Shu footwear and apparel, which carry a rate that is ten
e s 2 0 13 /
ag
products, and selling donkey o b inim percent higher. In 2014, China and the U.S. slashed
R
meat that turned out to be tariffs on a range of technology products. The agree-
fox. But Walmart is also doing ment covered $1 trillion in trade and benefited com-
something rare for a Western panies like Apple, Intel, and Microsoft.29 Nearly every
company: telling the Chinese piece of military gear that recruits get when they
government that it needs to clean up its own act. show up for training is made in the United States.
In the U.S. and most other countries, manufacturers The Pentagon recently conceded that even running
rather than retailers are responsible for ensuring prod- shoes should be made domestically. New Balance will
uct quality. In China, however, retailers are accountable. likely review the contract outlining production of up
In 2014, Walmart executives met with China’s Food and to 250,000 pairs of running shoes per year.30
Drug Administration and urged officials to step up their ● Quota a limit on the amount of a specific product
inspections of food purveyors. Walmart later reported that can enter a country. Several U.S. companies have
that it ended relationships with 300 suppliers in 2014 sought quotas as a means of protection from foreign
because they didn’t pass the retailer’s testing and safety competition. The United States, for example, has a
standards. Those 300 suppliers had paperwork proving quota on raw cane sugar.
that they passed muster with local food watchdogs, how-
ever. Clearly, international business can be a proxy for
● Boycott: the exclusion of all products from certain
political jousting when governments enter the mix.26 countries or companies. Governments use boycotts
Russia has also directly attacked American com- to exclude companies from countries with which they
panies in the wake of political disagreement. In 2014, have a political dispute. Several Arab nations have
Russia seized the Crimean peninsula, leading to an boycotted products made in Israel.
onslaught of sanctions from the European Union, the ● Exchange control: a law compelling a company
United States, and others. Russia fought back, banning earning foreign exchange from its exports to sell it
these countries from selling billions of dollars worth of to a control agency, usually a central bank. A com-
fruits, vegetables, fish, and meat to Russians. Russia pany wishing to buy goods abroad must first obtain a
then went after McDonald’s, closing down a number of foreign currency exchange from the control agency.
restaurants for “sanitary conditions.”27 Some countries with foreign exchange controls
LEGAL CONSIDERATIONS As you can see, legal con- are Argentina, Brazil, China, Iceland, India, North
siderations are often intertwined with the political en- Korea, Russia, and Venezuela.
vironment. In France, nationalistic sentiments led to a ● Market grouping (also known as a common
law that requires pop music stations to play at least forty trade alliance): occurs when several countries
percent of their songs in French (even though French agree to work together to form a common trade area
teenagers love American and English rock and roll). that enhances trade opportunities. The best-known
Many legal structures are designed to either encour- market grouping is the European Union (EU), which
age or limit trade: will be discussed later in this chapter.
● Tariff: a tax levied on ● Trade agreement: an agreement to stimulate inter-
Mercosur the largest Latin the goods entering a national trade. Not all government efforts are meant
American trade agreement; includes country. Because a tar- to stifle imports or investment by foreign corpora-
Argentina, Bolivia, Brazil, Chile, iff is a tax, it will either tions. The largest Latin American trade agreement is
Colombia, Ecuador, Paraguay, Peru, reduce the profits of the Mercosur, which includes Argentina, Bolivia, Brazil,
Uruguay, and Venezuela
firms paying the tariff Chile, Colombia, Ecuador, Paraguay, Peru, Uruguay,
over $235 billion annually.31 Perhaps most notable is the
New Balance’s recognition of new global realities. For the first time, a
trade agreement covers services, intellectual property
stateside stride rights, and trade-related investment measures such as
exchange controls.
New Balance is the only ath- The Uruguay Round made several major changes in
letic shoe manufacturer world trading practices:
that still operates ● Entertainment, pharmaceuticals, integrated
factories in circuits, and software: The rules protect patents,
copyrights, and trademarks for twenty years. Com-
puter programs receive 50 years of protection, and
semiconductor chips receive 10 years of protection.
Le on ar d
Zhukov sk
y/ S hu tt er
But many developing nations were given a decade
st oc k. co
m to phase in patent protection for drugs. Also France,
the United States. These plants produce which limits the number of U.S. movies and televi-
about a quarter of the shoes that New Balance sion shows that can be shown, refused to liberalize
sells domestically—the rest are imported. market access for the U.S. entertainment industry.
The company has invested in new machines ● Financial, legal, and accounting services: Services
and cut out waste at its U.S. plants, which to-
came under international trading rules for the first
gether employ 1,350 people. But even in its most
time, creating a vast opportunity for these competitive
streamlined form, shoe making remains relatively
U.S. industries. Now, it is easier for managers and
labor-intensive. New Balance reports that despite
key personnel to be admitted to a country. Licensing
its investments, it still costs 25 to 35 percent
standards for professionals, such as doctors, cannot
more to produce shoes in the United States than
discriminate against foreign applicants. That is,
it does in Asia.
foreign applicants cannot be held to higher standards
Why does New Balance continue to produce
than domestic practitioners.
shoes in the United States. even though that
means settling for less profit? The U.S. factories’
● Agriculture: Europe is gradually reducing farm
flexibility allows the company to count turn- subsidies, opening new opportunities for such U.S.
around times in days rather than weeks, making farm exports as wheat and corn. Japan and Korea are
up for some of the company’s higher costs. How- beginning to import rice. But U.S. growers of sugar
ever, a push by rivals to do away with tariffs on and citrus fruit have had their subsidies trimmed.
imported running shoes—part of a larger trade ● Textiles and apparel: Strict quotas limiting imports
deal—could finally tip the scales against New from developing countries are being phased out,
Balance’s American strategy. causing further job losses in the U.S. clothing trade.
But retailers are the big
winners, because past quo-
Uruguay Round a trade
and Venezuela. The elimination of most tariffs among tas have added $15 billion
agreement to dramatically
the trading partners has resulted in trade revenues of a year to clothing prices. lower trade barriers worldwide;
more than $16 billion annually. The economic boom ● A new trade organiza- created the World Trade
created by Mercosur will undoubtedly cause other Organization
tion: The World Trade
nations to seek trade agreements on their own or to Organization (WTO) World Trade
enter Mercosur. replaced the old General Organization (WTO) a
trade organization that replaced
THE URUGUAY ROUND, THE FAILED DOHA ROUND, Agreement on Tariffs the old General Agreement on
AND BILATERAL AGREEMENTS The Uruguay a n d Tr a d e (G AT T ) , Tariffs and Trade (GATT)
Round is a trade agreement that has dramatically which was created in 1948.
General Agreement on
lowered trade barriers worldwide. Adopted in 1994, The WTO eliminated the Tariffs and Trade (GATT)
the agreement has been signed by 159 nations. It is extensive loopholes of a trade agreement that
the most ambitious global trade agreement ever nego- which GATT members contained loopholes enabling
tiated. The agreement has reduced tariffs by one-third took advantage. Today, countries to avoid trade-barrier
reduction agreements
worldwide—a move that has raised global income by all WTO members must
fully comply with all agreements
under the Uruguay Round. The
WTO also has an effective dispute
settlement procedure with strict
time limits to resolve disputes.
Beijing recently lost a case on
rare earth metals such as molyb-
denum and tungsten. The WTO
charged that China’s policies vio-
lated global trade rules and that
Beijing was using export quotas to
restrict trade. China claimed that
Jim Barber/ShutterStock.com
the laws were for environmental
protection. But the WTO said that
this was an invalid reason for lim-
iting exports.32
The latest round of WTO trade
talks began in Doha, Qatar, in 2001. The Doha Round suffers from fears of mass imports on
For the most part, the periodic agricultural goods that would economically stunt domestic
meetings of WTO members under producers.
the Doha Round have been very
contentious. One of the most contentious goals of the Vietnam, and the United States, are to enhance trade
round was for the major developing countries, known and investment, promote innovation, and spur economic
collectively as BRIC (Brazil, Russia, India, and China), growth and development. The negotiations also center
to lower tariffs on industrial goods in exchange for Euro- on control of data, intellectual property protection, and
pean and American tariff and subsidy cuts on farm prod- environmental and safety standards. The agreement,
ucts. Concerned that lowering tariffs would result in an still being negotiated as of 2015, will cover about 40 per-
economically damaging influx of foreign cotton, sugar, cent of the world’s gross domestic product and a third of
and rice, China and India demanded a safeguard clause all global trade.35
that would allow them to raise tariffs on those crops if A third agreement, the Pacific Alliance, was signed
imports surged. A breakthrough came in 2014 when in 2012 by Colombia, Chile, Peru, and Mexico to create
the United States and India reached an agreement over a single region for the free movement of goods, services,
food security issues. Now India and the United States investment, capital, and people. Full implementation of
are looking forward to pushing the Doha Round to a the Pacific Alliance, which created a market of 210 mil-
conclusion.33 Will it happen? Only time will tell. lion people, began in 2014.36 Costa Rica was recently ac-
Because many countries still view the Doha Round cepted as a fifth member of the Alliance.
as virtually dead-in-the-water, several other coalitions
have formed to negotiate alternative free-trade alli- NORTH AMERICAN FREE TRADE AGREEMENT
ances. The Transatlantic Trade and Investment Partner- At the time it was instituted, the North American
ship, which saw negotiations begin in 2013 and continue Free Trade Agreement (NAFTA) created the world’s
into 2015, is a proposed partnership between the United largest free trade zone. Ratified by the U.S. Congress
States and the European Union. The agreement would in 1993, the agreement includes Canada, the United
be a major benefit to Europe because of the continent’s States, and Mexico, with a combined population of
continued economic weakness.34 A second set of negoti- 450 million. Since NAFTA’s implementation in 1994,
ations are being conducted trade with Canada and Mexico has grown three and a
f o r t h e Tr a n s - P a c i f i c half fold to $1.2 trillion. These countries now buy about
North American Free Trade
Agreement (NAFTA) an Partnership. The major one-third of U.S. merchandise exports.37 The Act sup-
agreement between Canada, the goals of this partnership, ports 14 million U.S. jobs.
United States, and Mexico that formed by Australia, Bru- The main impact of NAFTA was to open the
created the world’s then-largest free nei, Chile, Malaysia, New Mexican market to U.S. companies. When the treaty
trade zone
Zealand, Peru, Singapore, went into effect, tariffs on about half the items traded
across the Rio Grande disappeared. The pact removed Slovenia, Spain, Sweden, and the United Kingdom.
a web of Mexican licensing requirements, quotas, and There are currently six candidate countries: Albania,
tariffs that limited transactions in U.S. goods and ser- Iceland, the Republic of Macedonia, Montenegro,
vices. For instance, the pact allowed United States and Serbia, and Turkey. In addition, the western Balkan
Canadian financial-services companies to own subsid- countries of Bosnia and Herzegovina and Kosovo are
iaries in Mexico. recognized as potential candidates.39
In August 2007, the three member countries met in In early 2010, Greece entered a financial crisis that
Canada to tweak NAFTA but not make substantial changes. highlighted the challenges of a large currency union
For example, the members agreed to further remove where member nations maintain responsibility for their
trade barriers on hogs, steel, consumer electronics, own fiscal policies. Unable to devalue its currency to
and chemicals. They also directed the North American boost sales of products without injuring other member
Steel Trade Committee, which represents the three nations, Greece turned to member states for a bail-
governments, to focus on subsidized steel from China. out. In 2015, the anti-austerity Syriza party was elected
in Greece. The newly elected officials vowed to have
DOMINICAN REPUBLICCENTRAL AMERICA FREE
Greek debt forgiven and to enact a program of stimulus
TRADE AGREEMENT The Dominican Republic–
spending. The only leverage Greece has is to threaten to
Central America Free Trade Agreement (CAFTA–
stop using the euro currency, an act that would cause a
DR) was instituted in 2005. Because it joined after the
banking crises and a severe recession at home.40
original agreement was signed, the Dominican Re-
The EU is the largest economy in the world (with
public was amended to the original agreement title
the United States very close behind). The EU is also a
(Central America Free Trade Agreement, or CAFTA).
huge market, with a population of nearly 500 million
Besides the United States and the Dominican Republic,
and a GDP of $18.4 trillion.41 The United States and the
the agreement includes Costa Rica, El Salvador,
EU have the largest bilateral trade and investment rela-
Guatemala, Honduras, and Nicaragua.
tionship in world history. Together, they account for al-
As of 2015, all consumer and industrial goods
most half of the entire world GDP and nearly one-third
exported to CAFTA-DR countries are no longer subject
of world trade flows. United States and EU companies
to tariffs. Tariffs on agricultural goods will be phased out
have invested trillions of dollars in each other’s econo-
by 2020. The agreement also covers intellectual property
mies, contributing to significant job growth on both
rights, transparency, electronic commerce, and telecom-
sides of the Atlantic. The relationship between these
munications. The CAFTA-DR countries comprise the
two economic superpowers has also shaped the global
14th largest U.S. export market in the world. Today, the
economy as a whole—the United States and the EU are
U.S. exports more than $30 billion in goods to the five
primary trade partners for almost every other country in
Central American countries and Dominican Republic.38
the world.42
EUROPEAN UNION The European Union (EU) is The EU is a very attractive market for multinational
one of the world’s most important free trade zones and firms. But the EU presents marketing challenges be-
now encompasses most of Europe. More than a free cause, even with standardized regulations, marketers
trade zone, it is also a political and economic commu- will not be able to produce a single European product
nity. As a free trade zone, it guarantees the freedom of for a generic European consumer. With more than 14
movement of people, goods, services, and capital be- different languages and in-
tween member states. It also maintains a common trade dividual national customs, Dominican Republic-
policy with outside nations and a regional development Europe will always be far Central America Free
policy. The EU represents member nations in the WTO. more diverse than the United Trade Agreement
Recently, the EU also began venturing into foreign pol- States. Thus, product dif- (CAFTA-DR) a trade
agreement instituted in 2005
icy as well, getting involved in issues such as Iran’s refin- ferences will continue to be that includes Costa Rica,
ing of uranium. necessary. Atag Holdings the Dominican Republic,
The European Union currently has twenty- NV, a diversified Dutch com- El Salvador, Guatemala,
eight member states: Austria, Belgium, Bulgaria, pany whose main business is Honduras, Nicaragua, and the
United States
Croatia, Cyprus, the Czech Republic, Denmark, kitchen appliances, was con-
Estonia, Finland, France, Germany, Greece, Hungary, fident it could cater to both European Union (EU)
Ireland, Italy, Latvia, Lithuania, Luxembourg, Malta, the “potato” and “spaghetti” a free trade zone encompassing
28 European countries
Netherlands, Poland, Portugal, Romania, Slovakia, belts—marketers’ terms for
consumer preferences in northern and southern Europe. emergency loans, IMF lenders frequently extract sig-
But Atag quickly discovered that preferences vary much nificant commitments from the borrowing nations to
more than that. Ovens, burner shape and size, knob address the problems that led to the crises. These steps
and clock placement, temperature range, and colors may include curtailing imports or even devaluing the
vary greatly from country to country. Although Atag’s currency. Greece, working with both the IMF and the
kitchenware unit has lifted foreign sales to 25 percent of EU, has raised taxes to unprecedented levels, cut gov-
its total from 4 percent in the mid-1990s, it now believes ernment spending (including pensions), and imple-
that its diversified products and speed in delivering mented labor reforms such as reducing minimum wage
them—rather than the magic bullet of a Europroduct— as part of its austerity measures to receive loans from
will keep it competitive. the IMF and the European Union.
An entirely different type of problem facing global The Group of Twenty (G-20) finance ministers
marketers is the possibility of a protectionist movement and central bank governors was established in 1999 to
by the EU against outsiders. For example, European bring together industrialized and developing economies
automakers have proposed holding Japanese imports to discuss key issues in the global economy. The G-20
at roughly their current ten percent market share. The is a forum for international economic development that
Irish, Danes, and Dutch do not make cars and have un- promotes discussion between industrial and emerging-
restricted home markets; they would be unhappy about market countries on key issues related to global economic
limited imports of Toyotas and Nissans. But France has stability. By contributing to the strengthening of the inter-
a strict quota on Japanese cars to protect Renault and national financial system and providing opportunities for
Peugeot. These local carmakers could be hurt if the discussion on national policies, international cooperation,
quota is raised at all. and international financial institutions, the G-20 helps to
support growth and development across the globe. The
T H E W O R L D B A N K , T H E I N T E R N AT I O N A L members of the G-20 are shown in Exhibit 5.1.
MONETARY FUND, AND THE G20 Two international
financial organizations are instrumental in fostering
global trade. The World Bank offers low-interest loans
to developing nations. Originally, the purpose of the
loans was to help these nations build infrastructure such
as roads, power plants, schools, drainage projects, and
hospitals. Now the World Bank offers loans to help devel-
oping nations relieve their debt burdens. To receive the
loans, countries must pledge to lower trade barriers and
aid private enterprise. In addition to making loans, the
World Bank is a major source of advice and information
for developing nations. The International Monetary
Fund (IMF) was founded
World Bank an international in 1945, one year after
bank that offers low-interest
the creation of the World
Artefficient/Shutterstock.com
loans, advice, and information to
developing nations Bank, to promote trade
through financial coopera-
International Monetary
Fund (IMF) an international tion and eliminate trade
organization that acts as a lender barriers in the process.
of last resort, providing loans to The IMF makes short-
troubled nations, and also works
term loans to mem-
to promote trade through financial
cooperation ber nations that are EXHIBIT 5.1 MEMBERS OF THE G-20
unable to meet their
Group of Twenty (G-20) a budgetary expenses. Argentina European Union Italy South Africa
forum for international economic
It operates as a Australia France Japan Republic of Korea
development that promotes
discussion between industrial and lender of last resort Brazil Germany Mexico Turkey
emerging-market countries on key for troubled nations, Canada India Russia United Kingdom
issues related to global economic such as Greece. In
stability China Indonesia Saudi Arabia United States
exchange for these
Members of the G-20 met in Brisbane, Austra- have created huge amounts of wealth for oil-producing
lia in November 2014. The meeting focused on raising countries such as Norway, Saudi Arabia, and the United
global growth to deliver better living standards and cre- Arab Emirates. Both consumer and industrial markets
ate high-quality jobs. In Brisbane, the G-20 set a goal have blossomed in these countries. Other countries—
to lift global GDP by two percent by 2018. This alone such as Indonesia, Mexico, and Venezuela—were
would add more than $2 trillion to the global economy able to borrow heavily against oil reserves in order to
and would create millions of new jobs.43 develop more rapidly. On the other hand, industrial
countries such as Japan, the United States, and much
5-3e Demographic Makeup of Western Europe experienced an enormous transfer
The world’s wealth is not evenly distributed. In fact, it is of wealth to the petroleum-rich nations. The high price
very highly concentrated. Only 0.7 percent of the world’s of oil has created inflationary pressures in petroleum-
population has assets valued at $1 million or more. This importing nations. Now, however, new technologies
group owns an astounding 44 percent of all the world’s like fracking are facilitating the economic recovery of
wealth. The next 7.9 percent of the population owns an oil and gas from the tar sands of Canada and shale rock
additional 41 percent of the world’s wealth. That leaves of America. This will significantly reduce U.S. demand
91.4 percent of the population controlling the remaining for foreign oil.
14.7 percent of the wealth.44 Two primary determinants Steep declines in the price of oil in 2014 and
of any consumer market are wealth and population. 2015 had a very negative impact on America’s oil
China, India, and Indonesia are three of the most producers—particularly shale oil companies. Falling
densely populated nations in the world. But that fact prices proved an economic boon to American con-
alone is not particularly useful to marketers. They also sumers, however. Thanks to oil dropping to below $50
need to know whether the population is mostly urban or a barrel, the typical American household saved about
rural, because marketers may not have easy access to ru- $750 in 2015. People who depend upon home heating
ral consumers. Belgium, for example, with about ninety oil also saved around $750.45
percent of the population living in urban settings, is a Petroleum is not the only natural resource that
more attractive market. affects international marketing. Warm climate and
Another key demographic consideration is age. lack of water mean that many of Africa’s countries will
There is a wide gap between the older populations remain importers of foodstuffs. The United States,
of the industrialized countries and the vast working- on the other hand, must rely on Africa for many
age populations of developing countries. This gap has precious metals. Vast differences in natural resources
enormous implications for economies, businesses, and create international dependencies, huge shifts of
the competitiveness of individual countries. It means wealth, inflation and recession, export opportunities
that while Europe and Japan struggle with pension for countries with abundant resources, and even a
schemes and the rising cost of health care, countries stimulus for military intervention.
like Brazil, China, and Mexico can reap the fruits of
a demographic dividend. Caused by shifting birthrate
trends, the demographic dividend results in a tem-
porary bulge in the number of working-age people.
This often leads to falling labor costs, a healthier and
more educated population, and the entry of millions of
women into the workforce. Population experts have es-
timated that one-third of East Asia’s recent economic
Kokhanchikov/Shutterstock.com
upswing can be attributed to a beneficial age structure.

But the miracle occurred only because the govern-
ments had policies in place to educate their people,
create jobs, and improve health.
5-3f Natural Resources

The shortage of natural resources has
A final factor in the external environment that has become a major issue in the external
become more evident in the past decade is the shortage environment in the last decade.
of natural resources. For example, petroleum shortages
5-4 GLOBAL MARKETING BY is currently the world’s largest exporter, but the United
States and Germany are not far behind.
THE INDIVIDUAL FIRM Small companies comprise the majority of U.S.
exporters. Businesses with fewer than 500 employees
A company should consider entering the global accounted for 294,589 of 301,238 U.S. exporters (about
marketplace only after its management has a solid 98 percent) in 2012, the last year for which data is avail-
grasp of the global environment. able. 46 Just over half were small manufacturers and
Companies decide to “go global” for a number of wholesalers. Together they generated $460 billion in
reasons. Perhaps the most important is to earn addi- foreign trade—about 34 percent of total U.S. exports.
tional profits. Managers may believe that international While paperwork is a headache for some small
sales will result in higher profit margins or more added- companies, it’s not their biggest concern according to
on profits. A second stimulus is that a firm may have a survey of small businesses fielded by the National
a unique product or technological advantage not avail- Small Business Association and the Small Business
able to other international competitors. Such advan- Exporters Association. Asked to identify the largest
tages should result in major business successes abroad. challenges to selling goods and services to foreign cus-
In other situations, management may have exclusive tomers, 41 percent of respondents selected, “I worry
market information about foreign customers, market- about getting paid.”47
places, or market situations not known to others. While “I think the biggest issue is getting a staff up over-
exclusivity can provide an initial motivation for inter- seas, as well as the cost of business travel, and of com-
national marketing, managers must realize that communication with far-flung clients,” said Chris Coccio,
petitors can be expected to catch up with the firm’s chief executive of Sono-Tek Corp., which develops
information advantage. Finally, saturated domestic ultrasonic spray coating technology. Sono-Tek’s pri-
markets, excess capacity, and potential for economies mary overseas clients include contract manufacturers
of scale can also be motivators to go global. Economies for electronic companies and medical firms. According
of scale mean that average per-unit production costs to Coccio, about 60 percent of the company’s roughly
fall as output is increased. $10 million in annual revenue comes from sales to non-
Many firms form multinational partnerships—called U.S. markets.48
strategic alliances—to assist them in penetrating global Sono-Tek exports widely in Europe as well as to
markets; strategic alliances are examined in Chapter 7. many parts of Asia (including China, Japan, and the
Five other methods of entering the global marketplace Philippines). Its products can also be found in Mexico
are, in order of risk, exporting, licensing and franchising, and Brazil. About 80 percent of the company’s sales and
contract manufacturing, joint venture, and direct invest- marketing budget is spent on international sales, “so
ment (see Exhibit 5.2). there clearly is extra cost per sales dollar,” says Coccio.
5-4a Exporting RISK LEVELS FOR FIVE METHODS OF ENTERING

EXHIBIT 5.2
When a company decides THE GLOBAL MARKETPLACE
to enter the global mar-
ket, exporting is usually Risk High risk/
the least complicated and high return
least risky alternative.
Exporting is selling do-
mestically produced prod- Direct
Joint investment
ucts to buyers in other
venture
countries. A company can Contract
manufacturing
sell directly to foreign im- Exporting Licensing
porters or buyers. China
Low
risk/
exporting selling domestically low
produced products to buyers in return
other countries Return
On the whole, Coccio remains an advocate for ex- actions. Two common ways of maintaining effective
porting. “Without it, we would be one-third of our size,” control over licensees are shipping one or more criti-
he says. Receiving payment is a regular concern when cal components from the United States and locally
exporting goods, but “to deal with this our payment registering patents and trademarks to the U.S. firm,
terms are front-end loaded with most of the payment not to the licensee. Garment companies maintain con-
prior to shipment.”49 trol by delivering only so many labels per day; they
Instead of selling directly to foreign buyers, a com- also supply their own fabric, collect the scraps, and do
pany may decide to sell to intermediaries located in its accurate unit counts.
domestic market. The most common intermediary is the Franchising is a form of licensing that has grown
export merchant, also known as a buyer for export, rapidly in recent years. More than 400 U.S. franchisors
which is usually treated like a domestic customer by the operate more than 40,000 outlets in foreign countries,
domestic manufacturer. The buyer for export assumes bringing in sales of more than $13 billion.50 More than
all risks and sells internationally for its own account. The half of the international franchises are for fast-food
domestic firm is involved only to the extent that its prod- restaurants and business services.
ucts are bought in foreign markets.
A second type of intermediary is the export 5-4c Contract Manufacturing
broker , who plays the traditional broker’s role by
Firms that do not want to become involved in licens-
bringing buyer and seller together. The manufacturer
ing or to become heavily involved in global marketing
still retains title and assumes all the risks. Export bro-
may engage in contract manufacturing, which is
kers operate primarily in agricultural products and raw
private label manufacturing by a foreign company.
materials.
The foreign company produces a certain volume of
Export agents , a third type of intermedi-
products to specification, with the domestic firm’s
ary, are foreign sales agents/distributors who live in
brand name on the goods.
the foreign country and perform the same functions buyer for export an
The domestic company usu-
as domestic manufacturers’ agents, helping with in- intermediary in the global
ally handles the marketing. market that assumes all
ternational financing, shipping, and so on. The U.S.
Thus, the domestic firm can ownership risks and sells
Department of Commerce has an agent/distributor
broaden its global market- globally for its own account
service that helps about 5,000 U.S. companies each
ing base without investing in export broker an
year find an agent or distributor in virtually any coun-
overseas plants and equip- intermediary who plays the
try of the world. A second category of agents resides
ment. After establishing a traditional broker’s role by
in the manufacturer’s country but represents foreign bringing buyer and seller
solid base, the domestic firm
buyers. This type of agent acts as a hired purchasing together
may switch to a joint venture
agent for foreign customers operating in the exporter’s
or direct investment. export agent an
home market. intermediary who acts like a
manufacturer’s agent for the
5-4d Joint Venture exporter; the export agent lives
5-4b Licensing and Franchising Joint ventures are somewhat in the foreign market
Another effective way for a firm to move into the global similar to licensing agree- licensing the legal process
arena with relatively little risk is to sell a license to man- ments. In an international whereby a licensor allows
another firm to use its
ufacture its product to someone in a foreign country. joint venture, the domes-
manufacturing process,
Licensing is the legal process whereby a licensor tic firm buys part of a for- trademarks, patents, trade
allows another firm to use its manufacturing process, eign company or joins with a secrets, or other proprietary
trademarks, patents, trade secrets, or other proprietary foreign company to create a knowledge
knowledge. The licensee, in turn, pays the licensor a new entity. Thanks to a joint contract manufacturing
royalty or fee agreed on by both parties. venture between General private label manufacturing by a
A licensor must make sure it can exercise suf- Electric and CFM Interna- foreign company
ficient control over the licensee’s activities to ensure tional, workers assemble the joint venture when a
proper quality, pricing, distribution, and so on. Licens- best-selling aircraft engine domestic firm buys part of a
ing may also create a new competitor in the long run, in history in a huge factory foreign company or joins with
a foreign company to create a
if the licensee decides to void the license agreement. just south of Paris. The en-
new entity
International law is often ineffective in stopping such gine’s core, consisting of the
combustion chamber and related elements, is produced to the largest investors in the United States, followed
in a GE factory near Cincinnati, Ohio and shipped to by Japan, the Netherlands, Canada, and France. U.S.
France. Once the core arrives in France, engineers and affiliates of foreign firms employ more than 5.8 million
technicians in blue overalls carefully marry the core to people in the United States. These companies spend
French-made turbo fans, turbines, and compressors. more than $50 billion on U.S. research and develop-
Combined, these parts form jet engines weighing two ment and export over $345 billion worth of goods manu-
and a half tons each. Every month, about 65 of these en- factured in the United States.54
gines are tested and shipped out. Like many successful
joint ventures, one partner recently decided to acquire
the other. General Electric made a $13.5 billion offer for 5-5 THE GLOBAL MARKETING MIX
CFM, and after much bickering with the French gov-
ernment, the deal was approved in November 2014.51 To succeed, firms seeking to enter into foreign
While this collaboration was successful, joint ven- trade must still adhere to the principles of the
tures can also be very risky. Many fail. Sometimes joint marketing mix. Information gathered on foreign mar-
venture partners simply cannot agree on management kets through research is the basis for the four Ps of
strategies and policies. Often, joint ventures are the only global marketing strategy: product, place (distribution),
way a government will allow a foreign company to enter promotion, and price. Marketing managers who un-
its country. Joint ventures enable the local firm to ac- derstand the advantages and disadvantages of different
quire managerial skills and new technology. ways of entering the global market and the effect of the
external environment on the firm’s marketing mix have a
5-4e Direct Investment better chance of reaching their goals.
The first step in creating a marketing mix is develop-
Active ownership of a foreign company or of overseas
ing a thorough understanding of the global target market.
manufacturing or marketing facilities is called direct
Often this knowledge can be obtained through the same
foreign investment . Direct foreign investment
types of marketing research used in the domestic market
by U.S. firms is currently about $5.4 trillion. 52 Direct
(see Chapter 9). However, global marketing research is
investors have either a controlling interest or a large
conducted in vastly different environments. Conducting a
minority interest in the firm. Thus, they have the
survey can be difficult in developing countries where tele-
greatest potential reward and the greatest potential
phone ownership is growing but is not always common
risk. Because of problems with contract manufacturing
and mail delivery is slow or sporadic. Drawing samples
and joint ventures in China, multinationals are going it
based on known population parameters is often difficult
alone. Today, nearly five times as much foreign direct
because of the lack of data. In some cities in Africa, Asia,
investment comes into China in the form of stand-alone
Mexico, and South America, street maps are unavailable,
efforts as comes in for joint ventures.
streets are unidentified, and houses are unnumbered.
A firm may make a direct foreign investment by ac-
Moreover, the questions a marketer can ask may differ in
quiring an interest in an existing company or by build-
other cultures. In some cultures, people tend to be more
ing new facilities. It might do so because it has trouble
private than in the United States and will not respond to
transferring some resource to a foreign operation or
personal questions on surveys. For instance, in France,
getting that resource locally. One important resource is
questions about one’s age and income are considered
personnel, especially managers. If the local labor mar-
especially rude. In other situations, a question may sim-
ket is tight, the firm may buy an entire foreign firm and
ply not be relevant. A research company recently did an
retain all its employees instead of paying higher salaries
automobile-related study in Saudi Arabia. When asked
than competitors.
for opinions about an advertisement that stressed fuel
The United States is a popular place for direct in-
economy, a respondent was silent at first. Finally, he said,
vestment by international companies. Foreign direct
“Water is more expensive here than gas. We don’t really
investment in the United States accounts for approxi-
think about fuel economy.”55
mately $2.8 trillion.53 The
direct foreign investment United States continues
active ownership of a to receive more foreign
5-5a Product Decisions
foreign company or of investment flows than any With the proper information, a good marketing mix
overseas manufacturing or
marketing facilities country in the world. The can be developed. One important decision is whether
United Kingdom is home to alter the product or the promotion for the global
marketplace. Other options are to radically change the been invented for international markets. Prawn Cock-
product or to adjust either the promotional message or tail (the United Kingdom), Seaweed (Japan), Blue-
the product to suit local conditions. berry (China), Cinnamon Sweet Potato (France), and
Bangkok Grilled Chicken Wing (Thailand) are some of
ONE PRODUCT, ONE MESSAGE The strategy of the many Pringles flavors available outside the United
global marketing standardization, which was discussed States.57 Chinese consumers found Oreo cookies “too
earlier, means developing a single product for all mar- sweet,” while Indian consumers said that they were
kets and promoting it the same way all over the world. “too bitter.” In response, Kraft changed the recipe in
For instance, P&G uses the same product and pro- each country and created a new Green Tea Oreo flavor
motional themes for Head & Shoulders in China as it for China.
does in the United States. The advertising draws atten-
tion to a person’s dandruff problem, which stands out PRODUCT ADAPTATION Another alternative for
in a nation of black-haired people. Head & Shoulders global marketers is to alter a basic product to meet local
is now the best-selling shampoo in China despite cost- conditions. In India, Starbucks sells a tandoori paneer
ing over 300 percent more than local brands. Procter roll. KFC makes a “paneer zinger.” Burger King sells its
& Gamble markets its rich portfolio of personal-care, classic Whopper hamburger alongside a cheese-based
beauty, grooming, health, and fabric products in more Paneer King burger. This is largely how international
than 180 countries. The firm has 20 brands that sell food brands court India’s 1.25 billion consumers—by
more than $1 billion annually around the world. Some playing to local tastes. But Domino’s is doing more than
brands, such as Duracell batteries, are heavily standard- simply creating new products in its attempt to woo In-
ized. P&G has moved away from standardization for dian customers. It has reimagined everything about
other brands, however. Its Axe line of male grooming itself, from changing the flour it uses to maintaining a
products uses a constantly running sociological study delicate balance between local tastes and Western influ-
in order to keep its video ads up to date with the latest ence. This dedication to adaptation has made Domino’s
trends among young men. Axe’s promotion, bottle size, India’s largest international foreign-food chain; the com-
and pricing also change according to which country is pany currently has 806 stores across 170 cities—more
being targeted.56 than twice as many as McDonald’s.58
Global marketing standardization can sometimes Pizza dough and toppings have much in common
backfire. Unchanged products may fail simply be- with Indian roti (flat bread) and subji (vegetables).
cause of cultural factors. Any type of war game tends Pizza also carries two important keystones of local In-
to do very poorly in Germany, even though Germany dian culture—shared plates and food that can be eaten
is by far the world’s biggest game-playing nation. A with your hands. After eight months of research, Dom-
successful game in Germany is highly detailed and ino’s introduced a small pizza called “Pizza Mania.” It
has a thick rulebook. In Russia, Campbell’s Soups sells for 60 cents, is made in 2.5 minutes, and takes
failed because housewives prefer to make soup from just six minutes to bake. The company also created a
scratch. “cheese burst” (topped with chicken, salami, and clas-
Sometimes the desire for absolute standardiza- sic Indian spices) and the “Taco Indiana” dish inspired
tion must give way to practical considerations and local by northern India’s kebabs and parathas. In southern
market dynamics. For example, because of the negative India, where pizza is less popular, research led to a
connotations of the word diet among European females, spicy taw banana pizza.59
the European version of Diet Coke is Coca-Cola Light.
Even if the brand name differs by market—as with Lay’s
potato chips, which are called Sabritas in Mexico—a 5-5b Promotion Adaptation
strong visual relationship may be created by uniform
application of the brandmark and graphic elements on Another global marketing strategy is to maintain the
packaging. same basic product but alter the promotional strategy.
For example, bicycles are mainly pleasure vehicles in
PRODUCT INVENTION In the context of global the United States, but in many parts of the world, they
marketing, product invention can be taken to mean are a family’s main mode of transportation. Thus, pro-
either creating a new product for a market or drasti- motion in these countries should stress durability and
cally changing an existing product. For example, more efficiency. In contrast, U.S. advertising may emphasize
than 100 unique Pringles potato chip flavors have escaping and having fun.
Language barriers, translation problems, and cul- Its locations are situated exactingly throughout the
tural differences have generated numerous headaches country; the pizza chain studies each neighborhood,
for international marketing managers. For example, its streets, and traffic flow before deciding to launch
a toothpaste claiming to give users white teeth was es- a new store. Then, each store’s surrounding area is
pecially inappropriate in many areas of Southeast Asia, meticulously mapped (down to every intersection and
where the well-to-do chew betel nuts and black teeth traffic light) to find the fastest delivery routes. In In-
are a sign of higher social status. dia, Domino’s still offers its “30 minute or it’s free”
In many parts of the world, businesses market to policy—a promotion the company ended in America
customers via Web-connected smartphones by placing in 1993.62
ads in everything from interactive games to graphics- In many developing nations, channels of distribu-
laden productivity apps. Not so in rural India. To better tion and the physical infrastructure are inadequate.
reach the country’s 833 million villagers, Unilever is South Africa has perhaps the best infrastructure in all of
delivering free Bollywood music and jokes to basic cell Africa, but even there distributing products in a safe and
phones via old-fashioned phone calls. Users of Unilever’s cost-effective way is a monumental task. Though spazas
mobile phone music service listen to four product ads in (informal convenience stores) comprise approximately
between the popular tunes and cheesy jokes presented thirty percent of South Africa’s national retail market,
throughout each 15-minute program. Consumers like no formal distribution system exists—many shop own-
the offering; at least 2 million people subscribe to the ers cannot even afford delivery vans. To counter this
free service.60 distributional hurdle, Nestlé established eighteen dis-
tribution centers to deliver Nespray, a mineral-rich milk
5-5c Place (Distribution) powder, directly to the spazas scattered across rural
South Africa.63
Solving promotional and product problems does not
American companies importing goods from over-
guarantee global marketing success. The product must
seas facilities to the United States are facing other
still get adequate distribution. For example, Europeans
problems. Logistics has been a growing challenge
do not play sports as much as Americans do, so they do
for U.S. companies seeking to cut costs by shifting
not visit sporting-goods stores as often. Realizing this,
more production to countries where manufacturing
Reebok started selling its shoes in about 800 traditional
is cheaper. Now, however, the rising costs for ship-
shoe stores in France. In just one year, the company
ping goods are adding to their profit pressures. The
doubled its French sales.
surge in global trade in recent years has added to
Taiwanese convenience stores are quite different
strains and charges for all forms of transport. As a re-
from what is found in the United States. Beyond the
sult, some manufacturers are developing costly buf-
staple snacks, they provide an array of services includ-
fer stocks—which can mean setting up days’ or weeks’
ing dry cleaning, train and concert ticket reservations,
worth of extra components—to avoid shutting down
traffic fine and utility payment, hot sit-down meals, mail
production lines and failing to make timely deliver-
drop-off, and book pickup. They also deliver everything
ies. Others are shifting to more expensive but more
from refrigerators to multicourse banquets. As you
reliable modes of transport, such as airfreight, which
might expect, heavy convenience store patronage is the
is faster and less prone to delays than ocean shipping.
norm in Taiwan.
Still others are inshoring as discussed earlier in the
Taiwan’s major convenience store chains recently
chapter.
added seating areas to keep their customers around lon-
ger. This has resulted in convenience stores becoming
popular hangouts for everyone from suited businesspeo-
5-5d Pricing
ple conducting meetings to students using the stores’ Once marketing managers have determined a global
free wifi.61 product and promotion strategy, they can select the re-
Similarly, Starbucks targets white-collar consumers mainder of the marketing mix. Pricing presents some
in China by providing larger eat-in areas with comfort- unique problems in the global sphere. Exporters must
able sofas, high-speed Internet access, and a business not only cover their production costs but also consider
atmosphere. This allows Starbucks customers to sit in its transportation costs, insurance, taxes, and tariffs. When
coffee shops for casual business meetings. deciding on a final price, marketers must also deter-
In India’s small cities, where eating out is often mine how much customers are willing to spend on a
a family event, Domino’s offers large dine-in spaces. particular product. Marketers also need to ensure that
their foreign buyers will pay the price. Because devel- time, as the dollar depreciates relative to the yen, the
oping nations lack mass purchasing power, selling to yen appreciates relative to the dollar. This means prices
them often poses special pricing problems. Sometimes of U.S. goods fall for the Japanese, so they buy more
a product can be simplified in order to lower the price. U.S. goods—and U.S. exports rise.
A firm must not assume low-income countries are Currency markets operate under a system of
willing to accept lower quality, however. L’Oréal was floating exchange rates. Prices of different curren-
unsuccessful selling cheap shampoo in India, so the cies “float” up and down based on the demand for and
company targets the rising class. It now sells a $17 Paris the supply of each currency. Global currency traders
face powder and a $25 Vichy sunscreen. Both products create the supply of and demand for a particular coun-
are very popular. try’s currency based on that country’s investment, trade
Walmart’s low-price business model has been slow potential, and economic strength. Sanctions imposed
to catch on with Chinese shoppers, many of whom because of Russia’s annexation of Crimea and its engage-
like to shop for bargains online and in mom-and-pop ment in the Ukrainian conflict in 2014 and 2015 have re-
stores.64 Chinese consumers expect foreign retailers to sulted in the Russian ruble plunging in value. On August
offer the highest quality shopping environments, not 3, 2014, the exchange rate was 35.75 rubles to the U.S.
the warehouse-like design common to United States dollar. By January 29, 2015, the rate was 68.75 rubles to
Walmart stores. The company recently decided to close the dollar.66
29 underperforming stores in China.65
DUMPING Dumping is the sale of an exported prod-
EXCHANGE RATES The exchange rate is the price uct at a price lower than that charged for the same or
of one country’s currency in terms of another country’s a like product in the “home” market of the exporter.
currency. If a country’s currency appreciates, less of This practice is regarded as a form of price discrimi-
that country’s currency is needed to buy another coun- nation that can potentially harm the importing nation’s
try’s currency. If a country’s currency depreciates, more competing industries. Dumping may occur as a result
of that currency will be needed to buy another country’s of exporter business strategies that include (1) trying to
currency. increase an overseas market share, (2) temporarily dis-
How do appreciation and depreciation affect tributing products in overseas markets to offset slack
the prices of a country’s goods? If, say, the U.S. dollar demand in the home market, (3) lowering unit costs by
depreciates relative to the Japanese yen, U.S. residents exploiting large-scale production, and (4) attempting to
will need to pay more dollars to buy Japanese goods. maintain stable prices dur-
To illustrate, suppose the dollar price of one yen is ing periods of exchange rate exchange rate the price of
$0.012 and that a Toyota is priced at ¥2 million. fluctuations. one country’s currency in terms of
At this exchange rate, a U.S. resident Historically, the dump- another country’s currency
pays $24,000 for a Toyota ($0.012 3 ing of goods has presented floating exchange
¥2 million 5 $24,000). If the dollar serious problems in inter- rates a system in which prices
depreciates to $0.018 to ¥1, then the national trade. As a result, of different currencies move up
and down based on the demand
U.S. resident will need to pay $36,000 dumping has led to significant for and the supply of each
for the same Toyota. disagreements among coun- currency
As the dollar depreciates, the tries and diverse views about dumping the sale of an
prices of Japanese goods rise for U.S. its harmfulness. Some trade exported product at a price
residents, so they buy fewer Japanese economists view dumping lower than that charged for the
goods—thus, U.S. imports as harmful only when it in- same or a like product in the
may decline. At the same “home” market of the exporter
volves the use of “predatory”
If a country’s currency depreciates,

more of that currency will be needed
to buy another country’s currency.
OtnaYdur/Shutterstock.com
practices that intentionally try to eliminate competition accessible to people around the world. Global shippers
and gain monopoly power in a market. They believe that such as UPS, FedEx, and DHL help solve international
predatory dumping rarely occurs and that anti-dumping e-commerce distribution complexities. E4X Inc. offers
rules are a protectionist tool whose cost to consumers software to ease currency conversions by allowing cus-
and import-using industries exceeds the benefits to the tomers to pay in the currency of their choice. E4X col-
industries receiving protection. lects the payment from the customer and then pays the
In January 2015, the United States Commerce De- site in U.S. dollars. Nevertheless, the promise of “border-
partment declared anti-dumping duties for passenger and less commerce” and the global “Internet economy” are
light truck tires imported from China. More than 30 dif- still being restrained by the old brick-and-mortar rules,
ferent manufacturers were involved in dumping at various regulations, and habits. For example, Lands’ End is not
prices. The duty rates ranged from 19 to 88 percent.67 allowed to mention its unconditional refund policy on its
e-commerce site in Germany because German retailers,
COUNTERTRADE Global trade does not always in- which normally do not allow returns after 14 days, sued
volve cash. Countertrade is a fast-growing way to con- and won a court ruling blocking mention of it.
duct global business. In countertrade, all or part of
the payment for goods or services is in the form of other
goods or services. Countertrade is thus a form of barter
5-6a Social Media in Global Marketing
(swapping goods for goods), an age-old practice whose Because Facebook, YouTube, and other social media are
origins have been traced back to cave dwellers. The U.S. popular around the world, firms both large and small
Department of Commerce says that roughly thirty per- have embraced social media marketing. Every passen-
cent of all global trade is countertrade. 68 In fact, both ger hopes for the opportunity to get a free upgrade to
India and China have made billion-dollar government business class when flying. To help raise awareness of
purchasing lists, with most of the goods to be paid for by the launch of Air France’s new business class cabins in
countertrade. Asia, Fred & Farid Shanghai created a social game in
One common type of countertrade is straight barter. which travelers could compete to win a free upgrade
The Malaysian government purchased 20 diesel-electric to business class just prior to boarding. The agency
locomotives from General Electric in exchange for a transformed the boarding gates of Changi Airport in
supply of 200,000 metric tons of palm oil. Sometimes, Singapore and Kansai Airport in Osaka, Japan into social
countertrades involve both cash and goods. General gaming arenas where passengers could download a
Motors sold locomotive and diesel engines to Yugoslavia mobile game (similar to fruit ninja) and try to get a high
in exchange for $4 million and Yugoslavian cutting tools.69 score. Over 400 passengers were invited to compete
Another form of countertrade is the compensation against one another and monitor all the competitors on a
agreement. Typically, a company provides technology large scoreboard during their wait.70
and equipment for a plant in a developing nation and Fashion label H&M promoted its summer prod-
agrees to take full or partial payment in goods produced ucts on Twitter and Facebook using the hashtag #Di-
by that plant. For example, General Tire Company videOpinion. For each #DivideOpinion post, H&M
supplied equipment and know-how for a Romanian truck captured a fashion item in two distinctive scenes (for
tire plant. In turn, General Tire sold the tires it received example, a sheer lace top styled for both a romantic-
from the plant in the United States under the Victoria inspired outfit and a street-style outfit) and asked its
brand name. Both sides benefit even though they do not followers to reply with which look was better and why.
use cash. The best responses received a trip to Los Angeles for
each winner and a friend. With this campaign, H&M
reinvented a popular idea often seen in fashion maga-
5-6 THE IMPACT OF THE INTERNET zines for the mobile market. By comparing two prod-
ucts (rather than three or four) against one another,
In many respects, going global is easier than it has H&M was able to target mobile users who want quick
ever been before. Opening an e-commerce site on the snippets of information and whose screens do not allow
Internet immediately puts for more than a couple of images at a time. This cam-
countertrade a form of trade a company in the interna- paign was successful in its effort to drive excitement
in which all or part of the payment tional marketplace. Sophis- around H&M’s summer fashions.71
for goods or services is in the form of ticated language translation Managers of global social media campaigns must
other goods or services
software can make any site always be aware of the cultures of the countries in
Source: Twitter
Source: Twitter
an online advertising campaign about the company’s
direct flights to Nairobi. The advertisement read in
part: “Fly to Nairobi with Korean Air and enjoy the
grand African savanna, the safari tour, and the indig-
which they operate. Global energy drink giant Red Bull enous people full of primitive energy.” The words
sparked a major spat with Kenyans after it posted a video ‘primitive energy’ annoyed many Kenyans, who
that seemed to imply that Kenyans were backwards to forced the airline to retract the ad and issue an apol-
Facebook. The video clip featured South African motor- ogy on social media.74
cycle rider Brian Capper, who started the video off by
expressing his shock at how many people spoke English
5
in Nairobi. “I’ve been blown away with the amount of
people that speak English. I had absolutely no idea what STUDY
to expect from that point of view; just about everybody
I spoke to spoke English, which was really surprising for TOOLS
me,” said the rider. “They are unbelievably knowledge-
able … they know what’s going on with the rest of the LOCATED AT BACK OF THE TEXTBOOK
world.”72 Capper’s comments did not go down well with
many, as Red Bull’s Facebook page quickly filled with □ Rip out Chapter Review Card
angry comments such as:
“Seems like a nice guy and cool video, but seriously,
what era is he and the Red Bull crew living in! Sur- □ Review Key Terms Flashcards and create your own
prised about the English and saying 3rd world country, □ Track your knowledge & understanding of key concepts
eyes need to be open to 2015 Kenya! And the dude is in marketing
from SA as well, so should really know better.”
“Don’t you just love the ignorance of these
□ Complete practice and graded quizzes to prepare for tests
people! Surprised that Kenyans speak English? We □ Complete interactive content within the MKTG Online
speak better English than you dude. All in all, great experience
biking skills! Now go back to school.”73
□ View the chapter highlight boxes within the MKTG Online
These reactions are reminiscent of a similar out- experience
cry after Korean Air termed Kenyans “primitive” in
6 Consumer
Decision Making
LEARNING OUTCOMES
6-1 Explain why marketing managers should understand 6-6 Identify and understand the social factors that affect
consumer behavior consumer buying decisions
6-2 Analyze the components of the consumer decision- 6-7 Identify and understand the individual factors that affect
leaada/Shutterstock.come
making process consumer buying decisions
6-3 Explain the consumer’s postpurchase evaluation process 6-8 Identify and understand the psychological factors that affect
consumer buying decisions
6-4 Identify the types of consumer buying decisions and discuss
the significance of consumer involvement
6-5 Identify and understand the cultural factors that affect

consumer buying decisions
6-1 THE IMPORTANCE OF UNDERSTANDING CONSUMER BEHAVIOR

Consumers’ product and service preferences are constantly changing.
Marketing managers must understand these desires in order to create
a proper marketing mix for a well-defined market. So it is critical that
marketing managers have a thorough knowledge of consumer behavior.
Consumer behavior describes how consumers make purchase decisions
and how they use and dispose of the purchased goods or services.
The study of consumer behavior also includes factors that influence
purchase decisions and product use.
Understanding how con- through research that a more comfortable seat is a key
consumer behavior sumers make purchase de- attribute for purchasers of mountain bikes, Trek can re-
processes a consumer uses to make
purchase decisions, as well as to use
cisions can help marketing design the seat to meet that criterion. If the firm cannot
and dispose of purchased goods or managers in several ways. change the design in the short run, it can use promotion in
services; also includes factors that For example, if the prod- an effort to change consumers’ decision-making criteria.
influence purchase decisions and uct development manager Trek, for example, could promote the ultra-light weight,
product use
for Trek bicycles learns durability, and performance of its current mountain bikes.
88 PART TWO:
CHAPTER
Analyzing
6: 6 Market Opportunities
Buying a mountain bike, or anything else, is all However, the valve tends to stick, and after about a week
about value. Value is a personal assessment of the net of use, the valve stuck during a fill-up and coffee went
worth one obtains from making a purchase. To put it an- all over the kitchen counter. No value there! (For the
other way, value is what you get minus what you give up. curious, the author has moved on to a new traditional-
When you buy something, you hope to get benefits like style coffee maker.)
relief from hunger, durability, convenience, prestige, The value received from a purchase can be bro-
affection, happiness, a sense of belonging . . . the list ken down into two categories. Utilitarian value is
goes on. In order to receive these benefits, you must derived from a product or service that helps the con-
give something up. You may sacrifice money, self-image, sumer solve problems and accomplish tasks. Buying a
time, convenience, effort, opportunity, or a combina- washing machine and dryer
tion thereof. Value can also mean an enduring belief gives you a convenient means value a personal assessment
of the net worth one obtains
shared by a society that a specific mode of conduct is of cleaning your clothes.
from making a purchase, or the
personally or socially preferable to another mode of Buying a new pair of eye- enduring belief that a specific
conduct. This definition of “value” will be discussed glasses lets you better view mode of conduct is personally
later in the chapter. the computer screen. Utili- or socially preferable to another
mode of conduct
Purchases are made based upon perceived value, tarian value, then, is a means
which is what you expect to get. The actual value may be to an end. Value is provided perceived value the value a
more or less than you expected. Recently, one of your because the purchase allows consumer expects to obtain from
a purchase
authors bought a well-known brand of coffee maker something good to happen.
with a thermal carafe. He likes to drink coffee all morn- The second form of value utilitarian value a value
ing, but found that traditional coffee makers’ heating is hedonic value. Hedonic derived from a product or service
that helps the consumer solve
elements tended to turn the coffee bitter and thick- value is an end in itself rather
problems and accomplish tasks
tasting after a few hours. The thermal carafe has no such than as a means to an end.
heating element, so the coffee stays fresh. That is, if the The purchase tends to give hedonic value a value that
acts as an end in itself rather than as
coffee actually makes it into the carafe. The carafe lid us good feelings, happiness,
a means to an end
has a valve that lets the coffee drip into the carafe basin. and satisfaction. The value is
CHAPTER 6: Consumer Decision Making 89
provided entirely through the experience and
EXHIBIT 6.1 THE CONSUMER DECISION-MAKING PROCESS
emotions associated with consumption, not
because another end is accomplished. Tak- 1
ing a ski vacation or a trip to the beach gives Need recognition
us hedonic value. Spending a day in a spa is
a source of hedonic value. A coffee maker
provides utilitarian value, but the coffee itself 2
Information search
provides hedonic value.
Utilitarian and hedonic values are not Cultural,
mutually exclusive. In some cases, the pur- social,
individual, and 3
chase experience can give you both hedonic psychological Evaluation of alternatives
and utilitarian value. Morton’s The Steak- factors affect
all steps
house is considered to be one of the top steak
restaurant chains in America. Going to a Mor- 4
Purchase
ton’s and enjoying the atmosphere and a fine
steak will give you hedonic value. At the same
time, it satisfies your hunger pangs and thus 5
provides utilitarian value. Some of the best Postpurchase behavior
consumer experiences are high in both utili-
tarian and hedonic value.1
Acquiring value comes from making a purchase.
How does one go about making the decision to buy? We begin, however, by examining the basic purchase pro-
will explore this topic next. cess in greater detail.
6-2a Need Recognition

6-2 THE CONSUMER DECISION- The first stage in the consumer decision-making process
MAKING PROCESS is need recognition. Need recognition is the result
of an imbalance between actual and desired states. The
When buying products, particularly new or ex- imbalance arouses and activates the consumer decision-
pensive items, consumers generally follow the making process. A want is the recognition of an unful-
consumer decision-making process shown in filled need and a product that will satisfy it. For example,
Exhibit 6.1: (1) need recognition, (2) informa- have you ever gotten blisters from an old running shoe
tion search, (3) evaluation of alternatives, (4) pur- and realized you needed new shoes? Or maybe you have
chase, and (5) postpurchase behavior. These five seen a new sports car drive down the street and wanted
steps represent a general process that can be used as a to buy it. Need recognition is triggered when a consumer
guide for studying how consumers make decisions. It is is exposed to either an internal or an external stimulus,
important to note, though, which is any unit of input affecting one or more of
consumer decision-making that consumers’ decisions the five senses: sight, smell, taste, touch, and hearing.
process a five-step process used do not always proceed in Internal stimuli are occurrences you experience, such
by consumers when buying goods order through all of these as hunger or thirst. For example, you may hear your
or services
steps. In fact, the con- stomach growl and then realize you are hungry. External
need recognition result of sumer may end the pro- stimuli are influences from an outside source. In today’s
an imbalance between actual and cess at any time or may digital age, stimuli can come from a multitude of sources.
desired states
not even make a purchase. Perhaps it was a YouTube video that created a purchase
want recognition of an unfulfilled The section on the types desire. Perhaps it was a Google search on a smartphone
need and a product that will satisfy it of consumer buying deci- or an interactive advertisement playing on a large touch-
stimulus any unit of input sions later in the chapter enabled screen. Or perhaps it was a friend’s video posted
affecting one or more of the five discusses why a consum- on Facebook using a new GoPro camera.
senses: sight, smell, taste, touch, er’s progression through The imbalance between actual and desired states
hearing
these steps may vary. We is sometimes referred to as the want–got gap. That is,
90 PART TWO: Analyzing Market Opportunities
information stems largely from pre-
vious experience with a product. For
example, while traveling with your
family, you may choose to stay at a
hotel you have stayed in before be-
cause you remember that the hotel
had clean rooms and friendly service.
I n c o n t r a s t , a n ex t e r n a l
information search seeks infor-
mation in the outside environment.
Source: Fitbit, Inc.

There are two basic types of external
information sources: nonmarketing-
controlled and marketing-controlled.
A nonmarketing- controlled
A want can be for a specific product, or it can be for a information source is a product in-
certain attribute or feature of a product. formation source that is not associated
with marketers promoting a product.
there is a difference between what a customer has and These information sources include personal experiences
what he or she would like to have. This gap does not (trying or observing a new product), personal sources
always trigger consumer action. The gap must be large (family, friends, acquaintances, and coworkers who may
enough to drive the consumer to do something. Just be- recommend a product or service), and public sources
cause your stomach growls once does not mean that you (such as Rotten Tomatoes, Consumer Reports, and other
necessarily will stop what you are doing and go eat. rating organizations that comment on products and ser-
A marketing manager’s objective is to get consum- vices). Once you have read reviews on Rotten Tomatoes
ers to recognize this want–got gap. Advertising, sales to decide which movie to see (public source), you may
promotion, and social media often provide this stimulus. search your memory for positive theater experiences to
Surveying buyer preferences provides marketers with determine where you will go (personal experience). Or
information about consumer needs and wants that can you might rely on a friend’s recommendation to try out
be used to tailor products and services. Marketing man- a new theater (personal source). Marketers gather infor-
agers can create wants on the part of the consumer. An mation on how these information sources work and use
ad promoting a healthy, active lifestyle and the fun of it to attract customers. For example, car manufacturers
fitness tracking may inspire you to purchase a wearable know that younger customers are likely to get infor-
fitness tracker like a Fitbit Charge HR or a Runtastic mation from friends and family, so they try to develop
Orbit. A want can be for a specific product, or it can be enthusiasm for their products via word of mouth and
for a certain attribute or feature of a product. A runner social media.
may purchase the Orbit, for example, because the band Living in the digital age has changed the way con-
pairs with the Runtastic app to display information about sumers get nonmarketing-controlled information. It can
recent runs right on the wearer’s wrist. be from blogs, Amazon, social media, Web forums, or
consumer opinion sites such as www.consumerreview
.com, www.tripadvisor.com,
6-2b Information Search
or www.epinions.com. internal information search
After recognizing a need or want, consumers search Eighty percent of U.S. the process of recalling past
for information about the various alternatives avail- consumers research elec- information stored in the memory
able to satisfy it. For example, you know you are in- tronics, computers, and external information search
terested in seeing a movie, but you are not sure what media online before mak- the process of seeking information in
to see. So you visit the Rotten Tomatoes Web site to ing an in-store purchase, the outside environment
see what is getting great reviews by both critics and and a quarter of shoppers nonmarketing-controlled
your peers on Facebook. This is a type of information utilize at least four sources information source a
search, which can occur internally, externally, or both. for product information. product information source that is
In an internal information search, the person re- To give you an idea of the not associated with advertising or
promotion
calls information stored in the memory. This stored number of searches this
implies, Google averages more than
12 billion searches a month. 2 This
number is only going to expand.
The Internet has changed the
quality of information available to
make purchase decisions. In the past,
consumers used quality proxies to help
determine what to buy. A proxy could
be a brand name (“it is made by Sony
so it must be good”), price (“higher
Source: TripAdvisor
price meant higher quality”), or ori-
gin (“made in the USA is better”).
Today, consumers can appraise a prod-
uct based upon how it is evaluated by
others. If you are looking for a hotel The internet has changed the quality of information
in New York City, for example, you available to make purchase decisions.
can easily view a ranking of all New
York hotels based upon thousands of
reviews on Web sites like TripAdvisor. This provides Not every information search is about compar-
much better information than simply relying on a brand ing Product or Service Firm A with Product or Service
name (such as Hilton) because you have the direct ex- Firm B. Yet, the online search can still influence pur-
perience of others to guide you.3 A word of caution, chase patterns. For example, a shopper may browse
however: researchers using data from a large private recipe Web sites or watch cooking demonstration videos
label retailer’s Web site found that approximately before deciding on a dinner party menu. This research
5 percent of product reviews were submitted by people helps the shopper decide which ingredients to purchase
with no record of ever having purchased the products at the supermarket.
they were reviewing.4 Expedia avoids this problem by A marketing-controlled information source
only allowing customers who have purchased a service is biased toward a specific product because it originates
(such as a flight, car, or hotel room) to write a review. with marketers promoting that product. Marketing-
Similarly, Amazon identifies whether a review matches controlled information sources include mass media ad-
a confirmed transaction. vertising (radio, newspaper, television, and magazine
Social media are playing an ever-increasing role advertising), sales promotion (contests, displays, premi-
in consumer information search. Thirty percent of ums, and so forth), salespeople, product labels and pack-
shoppers made a purchase via social media in 2014. aging, and digital media. In 2016, the web influenced
Forty-four percent will discover new products via social more than half of all retail transactions, representing
networks, and 49 percent will make purchases based sales of almost $2 trillion.7
upon referrals from social media, recommendations The extent to which an individual conducts an
from friends in their social networks, or promotions external search depends on his or her perceived risk,
from brands that they follow on Facebook or Twitter.5 knowledge, prior experience, and level of interest in
Although the use of a mobile device to make the good or service. Generally, as the perceived risk
purchases is rising, consumers primarily use their of the purchase increases, the consumer enlarges the
smartphones and tablets to research products before search and considers more alternative brands. For ex-
buying. One survey found that 70 percent of respon- ample, suppose that you want to purchase a surround-
dents planned to research products on their mobile sound system for your home entertainment system.
devices and then purchased them in-store. 6 In-store The decision is relatively risky because of the expense
research and price com- and technical nature of the surround-sound system,
marketing-controlled parisons conducted on so you are motivated to search for information about
information source a mobile devices while shop- models, prices, options, compatibility with existing
product information source that ping have become stan- entertainment products, and capabilities. You may
originates with marketers promoting dard practice for many decide to compare attributes of many speaker systems
the product
consumers. because the value of the time expended finding the
“right” stereo will be less than the cost of buying the The consumer’s information search should yield
wrong system. a group of brands, sometimes called the buyer’s
A consumer’s knowledge about the product or ser- evoked set (or consideration set), which are the
vice will also affect the extent of an external informa- consumer’s most preferred alternatives. From this set,
tion search. A consumer who is knowledgeable and well the buyer will further evaluate the alternatives and make
informed about a potential purchase is less likely to a choice. Consumers do not consider all brands available
search for additional information. In addition, the more in a product category, but they do seriously consider a
knowledgeable consumers are, the more efficiently they much smaller set. For example, from the many brands
will conduct the search process, thereby requiring less of pizza available, consumers are likely to consider only
time to search. For example, many consumers know that the alternatives that fit their price range, location, take-
Spirit Airlines and other discount airlines have much out/delivery needs, and taste preferences. Having too
lower fares, so they generally use the discounters and do many choices can, in fact, confuse consumers and cause
not even check fares at other carriers. them to delay the decision to buy, or in some instances,
The extent of a consumer’s external search is cause them not to buy at all.
also affected by confidence in one’s decision-making
ability. A confident consumer not only has sufficient 6-2c Evaluation of Alternatives
stored information about the product but also feels
self-assured about making the right decision. People
and Purchase
lacking this confidence will continue an information After getting information and constructing an evoked
search even when they know a great deal about the set of alternative products, the consumer is ready to
product. Consumers with prior make a decision. A consumer will use the in-
experience in buying a formation stored in memory
certain product will have and obtained from outside
less perceived risk than sources to develop a set of
inexperienced consum- criteria. Recent research has
ers. Therefore, they will shown that exposure to cer-
spend less time search- tain cues in your everyday en-
ing and limit the num- vironment can affect decision
ber of products they criteria and purchase. For
consider. example, when NASA landed
A third factor influ- the Pathfinder spacecraft on
encing the external infor- Mars, it captured media at-
mation search is product Radu Bercan/Shutterstock.com tention worldwide. The candy
experience. Consumers who have had a positive ex- maker Mars also noted a rather unusual increase in
perience with a product are more likely to limit their sales. Although the Mars bar takes its name from the
search to items related to the positive experience. For company’s founder and not the planet, consumers
example, when flying, consumers are likely to choose apparently responded to news about the planet Mars by
airlines with which they have had positive experiences, purchasing more Mars bars.
such as consistent on-time arrivals, and avoid airlines The environment, internal information, and exter-
with which they have had a negative experience, such nal information help consumers evaluate and compare
as lost luggage. alternatives. One way to begin narrowing the number of
Finally, the extent of the search is positively related choices in the evoked set is to pick a product attribute
to the amount of interest a consumer has in a product. and then exclude all products in the set that do not have
A consumer who is more interested in a product will that attribute. For example, assume Jane and Jill, both
spend more time searching for information and alterna- college sophomores, are looking for their first apart-
tives. For example, suppose you are a dedicated runner ment. They need a two-bedroom apartment, reason-
who reads jogging and fitness magazines and catalogs. ably priced and located
In searching for a new pair of running shoes, you may near campus. They evoked set (consideration
enjoy reading about the new brands available and spend want the apartment to set) a group of brands resulting from
more time and effort than other buyers in deciding on have a swimming pool, an information search from which a
buyer can choose
the right shoe. washer and dryer, and
covered parking. Jane and Jill begin their search with all So, when consumers rely on a categorization pro-
fifty apartments in the area and systematically eliminate cess, a product’s evaluation depends on the particular
complexes that lack the features they need. Hence, they category to which it is perceived as belonging. Given
may reduce their list to ten apartments that possess all this, companies need to understand whether consumers
of the desired attributes. Now, they can use cutoffs to are using categories that evoke the desired evaluations.
further narrow their choices. Cutoffs are either mini- Indeed, how a product is categorized can strongly influ-
mum or maximum levels of an attribute that an alterna- ence consumer demand. For example, what products
tive must pass to be considered. Suppose Jane and Jill come to mind when you think about the “morning bev-
set a maximum of $1,000 per month for rent. Then all erages” category? To the soft drink industry’s dismay, far
apartments with rent higher than $1,000 will be elimi- too few consumers include sodas in this category. Sev-
nated, further reducing the list of apartments from ten eral attempts have been made at getting soft drinks on
to eight. A final way to narrow the choices is to rank the the breakfast table, but with little success.
attributes under consideration in order of importance Brand extensions, in which a well-known and re-
and evaluate the products based on how well each per- spected brand name from one product category is
forms on the most important attributes. To reach a final extended into other product categories, is one way
decision on one of the remaining eight apartments, Jane companies employ categorization to their advantage.
and Jill may decide proximity to campus is the most im- Brand extensions are a common business practice.
portant attribute. As a result, they will choose to rent For example, mixed martial arts promotional organiza-
the apartment closest to campus. tion Ultimate Fighting Championship (UFC) has built
If new brands are added to an evoked set, the con- its brand on pay-per-view events, cable and network
sumer’s evaluation of the existing brands in that set television broadcasts, and merchandising. The UFC
changes. As a result, certain brands in the original set launched a 24-hour full-service gym in Long Island,
may become more desirable. Suppose Jane and Jill find New York. In addition to martial arts–themed activi-
two apartments located an equal distance from campus, ties, the UFC Gym features standard fitness equip-
one priced at $800 and the other at $750. Faced with ment, a café, and signature classes like Hot Hula and
this choice, they may decide that the $800 apartment Hi-Octane Conditioning.
is too expensive given that a comparable apartment is
cheaper. If they add a $900 apartment to the list, how- TO BUY OR NOT TO BUY Ultimately, the consumer
ever, then they may perceive the $800 apartment as has to decide whether to buy or not buy. Specifically,
more reasonable and decide to rent it. consumers must decide:
The purchase decision process described above is a 1. Whether to buy
piecemeal process. That is, the evaluation is made by ex-
amining alternative advantages and disadvantages along 2. When to buy
important product attributes. A different way consumers 3. What to buy (product type and brand)
can evaluate a product is according to a
categorization process. The evaluation
of an alternative depends upon the par-
ticular category to which it is assigned.
Categories can be very general (motor-
ized forms of transportation), or they
can be very specific (Harley-Davidson
motorcycles). Typically, these catego-
ries are associated with some degree of
liking or disliking. To the extent that the
Source: UFC Gym
product can be assigned membership

in a particular category, it will receive
an evaluation similar to that attached
to the category. If you go to the grocery The UFC Gym extends the Ultimate Fighting Championship’s
store and see a new organic food on the combative nature and gritty aesthetic into a new product
shelf, you may evaluate it on your liking category.
and opinions of organic food.
4. Where to buy (type of retailer, specific retailer, on- payment and walk out of the store with a date and time
line or in store) for delivery. A week later, on the designated day, they
5. How to pay receive confirmation that a truck is in their area and that
they will be texted within a half hour of arrival time (“No
As mentioned previously, technology has forever need to cancel other plans just to wait for your order
changed the way we make our purchase decisions. to arrive!”). Three weeks after the appliances are deliv-
Imagine that Mike and Linda have just bought their first ered, the couple receives a message from the retailer
home and are now looking to purchase a washer and with offers for other appliances and home-improvement
dryer. They start their journey by visiting several big-box services tailored toward first-year home owners . . . and
retailers’ Web sites. They identify three models they are the cycle begins again.8
interested in at one store’s site and save them to a wish
PLANNED VERSUS IMPULSE PURCHASE The previ-
list. Because space in their starter home is limited—and
ous example represents a fully planned purchase based
because is the washer and dryer constitute a relatively
upon a lot of information. People rarely buy a new
big purchase in their eyes—they decide to see the items
washer and dryer simply on impulse. Often, consum-
in person before deciding on which to buy.
ers will make a partially planned purchase when they
The couple finds the nearest physical outlet on the
know the product category they want to buy (shirts,
retailer’s Web site, gets directions using Google Maps,
pants, reading lamp, car floor mats) but wait until they
and then drives over to view the desired products.
get to the store or go online to choose a specific style
Even before they walk through the doors, a transmitter
or brand. Finally, there is the unplanned purchase,
mounted at the retailer’s entrance identifies Mike and
which people buy on impulse. Research has found that
Linda and sends a text message to their smartphones
75 percent of adults in the United States have made an
welcoming them and providing personalized offers and
impulse purchase. We often think of impulse purchasing
recommendations based on their unique histories with
as buying inexpensive items at the grocery store check-
the store. In this case, they receive links to the wish list
out. This, however, is not always the case. In the survey
they created as well as updated specs and prices for the
above, 16 percent said that they spent $500 to $1,000
washers and dryers they had shown interest in (captured
on impulse purchases while 10 percent spent more than
in their click trails on the store’s Web site). Addition-
$1,000.9 The purchase may be in a planned category
ally, they receive notification of a sale (“15 percent off
(for example, soup), but decisions regarding the brand
selected brand appliances—today only!”) that applies to
(Campbell’s), package (can), and type (tomato) are
two of the items they had added to their wish list.
all made on impulse. Researchers using in-store video
When Mike and Linda tap on their wish list in the
cameras observed that when shoppers make impulse
store’s app, they are provided with a store map direct-
buys, they tend to touch and examine the item more,
ing them to the appliances section and a “call button”
stand further from the shelf, and are less likely to refer
to speak with an expert. They meet with the salesper-
to their shopping lists, coupons, or in-store circulars.10
son, ask some questions, take some measurements, and
close in on a particular brand and model of washer and
dryer. Because the store employs sophisticated tagging
technologies, information about the washer and dryer 6-3 POSTPURCHASE BEHAVIOR
are automatically synced with other apps on the couple’s
smartphones. They scan reviews using the Consumer When buying products, consumers expect certain
Reports app, share the appliance specs to their messag- outcomes from the purchase. How well these expec-
ing apps and send them to their parents for advice, ask tations are met determines whether the consumer is
Facebook friends to weigh in on the purchase, and com- satisfied or dissatisfied with the purchase. For example,
pare the retailer’s prices against others. Mike and Linda if a person bids on a used KitchenAid mixer from eBay
also take advantage of a virtual designer feature in the and wins, she may have fairly low expectations regard-
retailer’s mobile app that, with the entry of just a few key ing performance. If the mixer’s performance turns out
pieces of information, allows them to preview how the to be of superior quality, then the person’s satisfaction
washer and dryer might look in their home. will be high because her expectations were exceeded.
All of the input is favorable, so the couple decides Conversely, if the person bids on a new Kitchen Aid
to take advantage of the 15 percent offer and buy the mixer expecting superior quality and performance, but
appliances. They use Mike’s smartwatch to authenticate the mixer breaks within one month, she will be very
dissatisfied because her expectations were not met. increase) cognitive dissonance is when a customer has
Price often influences the level of expectations for a a question or complaint and tries to contact the com-
product or service. pany. Too many firms view their contact centers as
For the marketer, an important element of any cost centers and every contact as a problem to be min-
postpurchase evaluation is reducing any lingering imized by making it as hard as possible to speak to a
doubts that the decision was sound. When people recog- customer representative. Have you ever gone through
nize inconsistency between their values or opinions and four or five automated sequences, pushing a series of
their behavior, they tend to feel an inner tension called buttons, only to be told, “We are experiencing a higher
cognitive dissonance. For example, suppose Ange- than normal call volume and you can expect a lengthy
lika is looking to purchase an e-reader. After evaluating delay.” Not only does this raise cognitive dissonance, it
her options, she has decided to purchase an iPad, even can also destroy brand loyalty. Marketing-oriented com-
though it is much more expensive than other dedicated panies perceive the contact center as an opportunity
e-readers. Prior to choosing the iPad, Angelika may ex- to engage customers and reinforce the brand promise.
perience inner tension or anxiety because she is wor- At these companies, there is no long menu of buttons
ried that the current top-of-the-line technology, which to push. Instead, a service rep answers on the first or
costs much more than the middle-of-the-line technol- second ring and is empowered to solve customer prob-
ogy, will be obsolete in a couple months. That feeling of lems. A recent study found that positive contact ex-
dissonance arises as her worries over obsolescence bat- periences resulted in consumers being 15 times more
tle her practical nature, which is focused on the lower likely to say that they would definitely buy again than
cost of a Kindle Paperwhite and its adequate—but less those with negative contact experiences. Of four differ-
fancy—technology. ent channels for a company to interact with its custom-
Consumers try to reduce dissonance by justifying ers, telephone was most effective. Eighty-six percent
their decision. They may seek new information that of respondents said that speaking on the phone with a
reinforces positive ideas about the purchase, avoid in- service rep enabled them to resolve their issues. Chat
formation that contradicts their decision, or revoke the earned a 70 percent success rate, e-mail 44 percent,
original decision by returning the product. In some in- and Facebook 27 percent.11
stances, people deliberately seek contrary information
in order to refute it and reduce dissonance. Dissatisfied
customers sometimes rely on word of mouth to reduce
6-4 TYPES OF CONSUMER BUYING
cognitive dissonance by letting friends and family know
they are displeased.
DECISIONS AND CONSUMER
Marketing managers can help reduce dissonance INVOLVEMENT
through effective communication with purchasers. For
example, a customer service manager may slip a note in- All consumer buying decisions generally fall along
side the package congratulating the buyer on making a a continuum of three broad categories: routine
wise decision. Postpurchase letters sent by manufactur- response behavior, limited decision making, and
ers and dissonance-reducing statements in instruction extensive decision making (see Exhibit 6.2). Goods
booklets may help customers feel at ease with their pur- and services in these three categories can best be
chase. Advertising that displays the product’s superiority described in terms of five factors:
over competing brands or guarantees can also help re- ● Level of consumer involvement
lieve the possible dissonance of someone who has already
bought the product. Apple’s ● Length of time to make a decision
Genius Bar and customer ● Cost of the good or service
cognitive dissonance inner
service will ease cognitive
tension that a consumer experiences ● Degree of information search
after recognizing an inconsistency dissonance for purchasers
between behavior and values or of an iPad because they
● Number of alternatives considered
opinions know that the company is The level of consumer involvement is perhaps the
involvement the amount of there to support them. most significant determinant in classifying buying deci-
time and effort a buyer invests in An excellent opportu- sions. Involvement is the amount of time and effort
the search, evaluation, and decision nity for a company to re- a buyer invests in the search, evaluation, and decision
processes of consumer behavior
duce (or if handled poorly, processes of consumer behavior.
evaluate several other brands
EXHIBIT 6.2 CONTINUUM OF CONSUMER BUYING DECISIONS
based on their active ingredi-
Routine Limited Extensive
ents, their promotional claims,
a n d t h e c o n s u m e r ’s p r i o r
experiences.
Consumers practice
extensive decision making
Involvement Low Low to moderate High
when buying an unfamiliar,
Time Short Short to moderate Long expensive product or an in-
Cost Low Low to moderate High frequently bought item. This
Information Search Internal only Mostly internal Internal and external process is the most complex
type of consumer buying de-
Number of Alternatives One Few Many
cision and is associated with
high involvement on the part of
Frequently purchased, low-cost goods and ser- the consumer. This process resembles the model out-
vices are generally associated with routine response lined in Exhibit 6.1. These consumers want to make the
behavior . These goods and services can also be right decision, so they want to know as much as they
called low-involvement products because consumers can about the product category and available brands.
spend little time on search and decision before making People usually experience the most cognitive disso-
the purchase. Usually, buyers are familiar with sev- nance when buying
eral different brands in the product category but high-involvement
stick with one brand. For example, a person products. Buyers use
may routinely buy Tropicana orange juice. several criteria for eval-
Consumers engaged in routine response be- uating their options and
havior normally do not experience need rec- spend much time seeking
ognition until they are exposed to advertising information. Buying a home or
or see the product displayed on a a car, for example, requires extensive
store shelf. Consumers buy first decision making.
and evaluate later, whereas The type of decision making that
the reverse is true for consumers use to purchase a product
extensive decision does not necessarily remain constant.
making. A consumer For instance, if a routinely purchased
who has previously product no longer satisfies, consumers
purchased whitening may practice
iS to ck ph ot
toothpaste and was sat- o. co m /K ic
ks ta nd limited or exten-
isfied with it will probably walk sive decision making routine response behavior
the type of decision making exhibited
to the toothpaste aisle and select that same brand to switch to another by consumers buying frequently
without spending twenty minutes examining all other brand. And people who purchased, low-cost goods and services;
alternatives. first use extensive deci- requires little search and decision time
Limited decision making typically occurs sion making may then limited decision making the
when a consumer has previous product experience use limited or routine type of decision making that requires a
but is unfamiliar with the current brands available. decision making for moderate amount of time for gathering
Limited decision making is also associated with lower future purchases. For information and deliberating about an
unfamiliar brand in a familiar product
levels of involvement (although higher than routine example, when a fam- category
decisions) because consumers expend only moderate ily gets a new puppy,
effort in searching for information or in considering they will spend a lot of extensive decision making
the most complex type of consumer
various alternatives. For example, what happens if time and energy trying decision making, used when buying
the consumer’s usual brand of whitening toothpaste out different toys to an unfamiliar, expensive product or an
is sold out? Assuming that toothpaste is needed, the determine which one infrequently bought item; requires use
consumer will be forced to choose another brand. Be- the dog prefers. Once of several criteria for evaluating options
and much time for seeking information
fore making a final decision, the consumer will likely the new owners learn
that the dog prefers a bone to a ball, however, the become extremely involved. Therefore, price and
purchase no longer requires extensive evaluation and involvement are usually directly related: As price
will become routine. increases, so does the level of involvement. For
example, someone who is purchasing a new car
for the first time (higher perceived risk) will spend
6-4a Factors Determining the Level
a lot of time and effort making this purchase.
of Consumer Involvement
● Social risks occur when consumers buy products
The level of involvement in the purchase depends on that can affect people’s social opinions of them
the following factors: (for example, driving an old, beat-up car or wear-
● Previous experience: When consumers have had ing unstylish clothes).
previous experience with a good or service, the level ● Psychological risks occur if consumers believe that
of involvement typically decreases. After repeated making the wrong decision might cause some con-
product trials, consumers learn to make quick choices. cern or anxiety. For example, some consumers feel
Because consumers are familiar with the product and guilty about eating foods that are not healthy, such
know whether it will satisfy their needs, they become as regular ice cream rather than fat-free frozen
less involved in the purchase. For example, a con- yogurt.
sumer purchasing cereal has many brands to choose
● Social visibility: Involvement also increases as the
from—just think of any grocery store cereal aisle. If
social visibility of a product increases. Products often
the consumer always buys the same brand because it
on social display include clothing (especially designer
satisfies his hunger, then he has a low level of involve-
labels), jewelry, cars, and furniture. All these items
ment. When a consumer purchases a new category
make a statement about the purchaser and, there-
of cereal for the first time, however, it likely will be a
fore, carry a social risk.
much more involved purchase.
● Interest: Involvement is directly related to consumer High involvement means that the consumer cares
interests, as in cars, music, movies, bicycling, or on- about a product category or a specific good or service.
line games. Naturally, these areas of interest vary The product or service is relevant and important, and
from one individual to another. A person highly in- means something to the buyer. High involvement can
volved in bike racing will be more
interested in the type of bike she
owns and will spend quite a bit of
time evaluating different bikes.
If a person wants a bike only for
recreation, however, he may be
fairly uninvolved in the purchase.
He may just choose a bike from
the most convenient location and
in a reasonable price range.
● Perceived risk of negative
consequences: As the perceived
risk in purchasing a product in-
yellowdog/Cultura RM/Alamy
creases, so does a consumer’s

level of involvement. The types
of risks that concern consumers
include financial risk, social risk,
and psychological risk.
● Financial risk is exposure to Purchase involvement depends on level of interest. If
loss of wealth or purchasing this shopper is looking to use a bike as her main mode
power. Because high risk is of transportation, then she is highly involved in this
associated with high-priced purchase decision.
purchases, consumers tend to
take a number of different forms. The most important
types are discussed below:
● Product involvement means that a product cate-
gory has high personal relevance. Product enthu-
siasts are consumers with high involvement in a
product category. The fashion industry has a large
segment of product enthusiasts. These people are
seeking the latest fashion trends and want to wear
the latest clothes.
● Situational involvement means that the circumstances
of a purchase may temporarily transform a low-
involvement decision into a high-involvement one.
Mikeledray/Shutterstock.com
High involvement comes into play when the con-
sumer perceives risk in a specific situation. For ex-
ample, an individual might routinely buy low-priced
brands of liquor and wine. When the boss visits, how-
ever, the consumer might make a high-involvement
decision and buy more prestigious brands.
Tide uses bright, eye-catching packaging
● Shopping involvement represents the personal rel-
to draw customers to what is otherwise a
evance of the process of shopping. Some people
low-involvement product.
enjoy the process of shopping even if they do not
plan to buy anything. For others, shopping is an
enjoyable social activity. Many consumers also en-
gage in showrooming—examining merchandise have several objectives. First, promotion to the target
in a physical retail location without purchasing it, market should be extensive and informative. A good ad
and then shopping online for a better deal on the gives consumers the information they need for making
same item. the purchase decision and specifies the benefits and
unique advantages of owning the product. For exam-
● Enduring involvement represents an ongoing interest
ple, Ford has a vehicle with many custom options that
in some product, such as kitchen gadgets, or activity,
is marketed to small business owners. One example of
such as fishing. The consumer is always searching for
a recent print ad shows how one entrepreneur custom-
opportunities to consume the product or participate
ized his Ford Transit to help improve the efficiency of
in the activity. Enduring involvement typically gives
his home theater and electronics installation business.
personal gratification to consumers as they continue
Ford highlights the fact that unique businesses need
to learn about, shop for, and consume these goods
unique and customizable transportation. The Transit
and services. Therefore, there is often linkage be-
comes in three body lengths, each offering a unique vol-
tween enduring involvement, shopping, and product
ume and payload capacity. There are also three differ-
involvement.
ent roof heights to choose from, and of course, several
● Emotional involvement represents how emotional different engines.
a consumer gets during some specific consumption For low-involvement product purchases, con-
activity. Emotional involvement is closely related to sumers may not recognize their wants until they are
enduring involvement because the things that con- in the store. Therefore, in-store promotion is an im-
sumers care most about will eventually create high portant tool when promoting low-involvement prod-
emotional involvement. Sports fans typify consumers ucts. Marketing managers focus on package design
with high emotional involvement. so the product will be eye-catching and easily recog-
nized on the shelf. Ex-
amples of products that showrooming the practice of
6-4b Marketing Implications of Involvement take this approach are examining merchandise in a physical
Marketing strategy varies according to the level of Campbell’s soups, Tide retail location without purchasing it,
involvement associated with the product. For high- detergent, Velveeta and then shopping online for a better
deal on the same item
involvement product purchases, marketing managers cheese, and Heinz
ketchup. In-store displays also stimulate sales of low- (for example, item availability for a limited time only),
involvement products. A good display can explain the harvest time (for example, corn in the summer), and
product’s purpose and prompt recognition of a want. small production runs (for example, limited edition
Displays of snack foods in supermarkets have been items). Limited availability creates a “get it now or
known to increase sales many times above normal. never” mentality. Researchers have found that consum-
Coupons, cents-off deals, and two-for-one offers also ing such products leads to more consumer enjoyment
effectively promote low-involvement items. than if the items were always available.13
Linking a product to a higher-involvement issue It is important to understand that the consumer
is another tactic that marketing managers can use decision-making process does not occur in a vacuum.
to increase the sales or positive publicity of a rela- On the contrary, underlying cultural, social, individ-
tively low-involvement product. In 2015, McDonald’s ual, and psychological factors strongly influence the
tweaked its long-running advertising campaign from decision process. These factors have an effect from
“I’m Lovin’ It,” which focused on McDonald’s vari- the time a consumer perceives a stimulus through
ous menu items, to “Choose Lovin’.” The notion of postpurchase behavior. Cultural factors, which include
choosing love and offering love is a much more emo- culture and values, subculture, and social class, exert
tional and high-involvement message. The fast food a broad influence over consumer decision making.
chain randomly selected a million customers and let Social factors sum up the social interactions between
them pay for their meals with acts of love. Partici- a consumer and influential groups of people, such as
pants could do things like hug family members or call reference groups, opinion leaders, and family mem-
their moms and tell them that they loved them to bers. Individual factors, which include gender, age,
“choose lovin’.”12 family life cycle stage, personality, self-concept, and
Researchers have found that another way to in- lifestyle, are unique to each individual and play a ma-
crease involvement is to offer products on a “limited jor role in the type of products and services consumers
availability” basis. McDonald’s, for example, has regu- want. Psychological factors determine how consum-
larly cycled its McRib sandwich on and off its menu ers perceive and interact with their environments and
for more than 30 years. Marketers can use several ways influence the ultimate decisions consumers make.
to trigger limited availability, including daily specials They include perception, motivation, and learning.
(for example special soup du jour), day of the week Exhibit 6.3 summarizes these influences, and the fol-
(for example, Sunday brunch), promotional periods lowing sections cover each in more detail.
EXHIBIT 6.3 FACTORS THAT AFFECT THE CONSUMER DECISION-MAKING PROCESS
Social Factors Buy? Don’t Cultural Factors

Reference groups
Buy? Culture and values
Opinion leaders Subculture
Family Social class
Photomondo/Photodisc/Getty Images
Individual Factors Psychological

Gender Factors
Age and family Perception
life cycle stage Motivation
Personality, Learning
self-concept, Beliefs and
and lifestyle attitudes
Consumer Decision-Making
Process
6-5 CULTURAL INFLUENCES technology in today’s world has accelerated the
rate of cultural change. Our culture is begin-
ON CONSUMER ning to tell us when it is okay to send a text
BUYING DECISIONS message and when it is considered impolite. As-

sume that you are on a first date with someone
in a nice, romantic restaurant and your date is
Of all the factors that affect consumer
talking to you about his or her favorite things to
decision making, cultural factors exert the
do. Pulling out your smartphone to check a text
broadest and deepest influence. Marketers
will probably lead to a very short date. Cultural
must understand the way people’s culture
norms will continue to evolve because of our
and its accompanying values, as well as their
need for social patterns that solve problems.
subculture and social class, influence their
The most defining element of a culture
Bloody/Shutterstock.com
buying behavior.
is its values. Recall that “value” can refer to
an enduring belief shared by a society that a
6-5a Culture and Values specific mode of conduct is personally or socially
preferable to another mode of conduct. People’s
Culture is the set of values, norms, attitudes, value systems have a great effect on their consumer
and other meaningful symbols that shape human behav- behavior. Consumers with similar value systems tend to
ior and the artifacts, or products, of that behavior as they react alike to prices and other marketing-related induce-
are transmitted from one generation to the next. It is the ments. Values also correspond to consumption patterns.
essential character of a society that distinguishes it from For example, Americans place a high value on conve-
other cultural groups. The underlying elements of every nience. This value has created lucrative markets for
culture are the values, language, myths, customs, rituals, products such as breakfast bars, energy bars, and nutri-
and laws that guide the behavior of the people. tion bars that allow consumers to eat on the go. Values
Culture is pervasive. Cultural values and influences can also influence consumers’ television viewing habits
are the ocean in which individuals swim, and yet most or the magazines they read. For instance, people who
are completely unaware that it is there. What people strongly object to violence avoid crime shows and veg-
eat, how they dress, what they think and feel, and what etarians avoid cooking magazines that feature numerous
language they speak are all dimensions of culture. meat-based recipes.
Culture encompasses all the things consumers do
without conscious choice because their culture’s values,
customs, and rituals are ingrained in their daily habits.
6-5b Subculture
Culture is functional. Human interaction creates A culture can be divided into subcultures on the basis
values and prescribes acceptable behavior for each of demographic characteristics, geographic regions, na-
culture. By establishing common expectations, culture tional and ethnic background, political beliefs, and reli-
gives order to society. Sometimes these expectations gious beliefs. A subculture is a homogeneous group of
are enacted into laws. For example, drivers in our cul- people who share elements of the overall culture as well
ture must stop at a red light. Other times these expecta- as cultural elements unique to their own group. Within
tions are taken for granted: grocery stores and hospitals subcultures, people’s attitudes, values, and purchase
are open 24 hours, whereas banks are open only dur- decisions are even more similar than they are within
ing “bankers’ hours,” typically nine in the morning until the broader culture. Subcultural differences may result
five in the afternoon. in considerable varia-
Culture is learned. Consumers are not born know- tion within a culture
ing the values and norms of their society. Instead, they in what, how, when, culture the set of values, norms,
attitudes, and other meaningful
must learn what is acceptable from family and friends. and where people buy symbols that shape human behavior
Children learn the values that will govern their behavior goods and services. and the artifacts, or products, of that
from parents, teachers, and peers. As members of our Once marketers behavior as they are transmitted from
society, they learn to shake hands when they greet some- identify subcultures, one generation to the next
one, to drive on the right-hand side of the road, and to they can design spe- subculture a homogeneous
eat pizza and drink Coca-Cola. cial marketing to serve group of people who share elements
Culture is dynamic. It adapts to changing needs their needs. The United of the overall culture as well as unique
elements of their own group
and an evolving environment. The rapid growth of States’ growing Hispanic
arbitrator, and translator. This spouse
compensates for her relative advan-
tage in purchase decision making by
giving up control in other decisions.
Therefore, the immigrant spouse
may gain greater influence in deci-
sions relating to vacations, education,
and food.14
6-5c Social Class

The United States, like other societ-
SandiMako/Shutterstock.com
ies, has a social class system. A social
class is a group of people who are
considered nearly equal in status or
community esteem, who regularly
socialize among themselves both for-
The popularity of biker events has created an opportunity mally and informally, and who share
for fans of Harley-Davidson to get together and create their behavioral norms.
own subculture. A number of techniques have
been used to measure social class, and
a number of criteria have been used to
population has made South and Central American define it. One view of contemporary U.S. status struc-
subcultures a prime focus for many companies, for ex- ture is shown in Exhibit 6.4.
ample. Recall that marketing to Hispanics was discussed As you can see from Exhibit 6.4, the upper and up-
in Chapter 4. per middle classes comprise the small segment of af-
In the United States alone, countless subcultures fluent and wealthy Americans. In terms of consumer
can be identified. Many are concentrated geographi- buying patterns, the affluent are more likely to own their
cally. People who belong to the Church of Jesus Christ of own homes and purchase new cars and trucks and are
Latter-Day Saints, for example, are clustered mainly in less likely to smoke. The very rich flex their financial
Utah; Cajuns are located in the bayou regions of south- muscles by spending more on vacation homes, jewelry,
ern Louisiana. Many Hispanics live in states bordering vacations and cruises, and housekeeping and gardening
Mexico, whereas the majority of Chinese, Japanese, and services. The most affluent consumers are more likely
Korean Americans are found on the West Coast. Other to attend art auctions and galleries, dance performances,
subcultures are geographically dispersed. Computer operas, the theater, museums, concerts, and sporting
hackers, people who are hearing or visually impaired, events. What types of things do the wealthiest of the
Harley-Davidson bikers, military families, and university wealthy buy? The most expensive new car in the world
professors may be found throughout the country. Yet is the Lamborghini Veneno. It goes from 0 to 60 miles
they have identifiable attitudes, values, and needs that per hour in 2.8 seconds and has a top speed of 221 mph.
distinguish them from the larger culture. Only three of these cars are made a year at a price of
Today, America has a rapidly growing number of $4,500,000 each.15 Unfortunately, if you want one, you
binational households. In such households, one spouse must get on a waiting list.
was born and raised in the United States while the other The majority of Americans today define themselves
was originally from another country. This often creates as middle class, regardless of their actual income or
cultural complexity in family purchase decision making. educational attainment. This phenomenon most likely
Researchers have found occurs because working-class Americans tend to aspire
social class a group of people that the partner with the to the middle-class lifestyle, while some of those who
in a society who are considered
nearly equal in status or community greatest cultural compe- do achieve some affluence call themselves middle-class
esteem, who regularly socialize tence (knowledge of the as a matter of principle.
among themselves both formally customs of the country of The working class is a distinct subset of the mid-
and informally, and who share residence) plays the fam- dle class. Interest in organized labor is one of the
behavioral norms
ily role of cultural bridge, most common attributes among the working class.
EXHIBIT 6.4 U.S. SOCIAL CLASSES
Upper Classes
Capitalist class 1% People whose investment decisions shape the national economy; income mostly from assets, earned or inherited;
university connections
Upper middle 14% Upper-level managers, professionals, owners of medium-sized businesses; well-to-do, stay-at-home homemakers
class who decline occupational work by choice; college educated; family income well above national average
Middle Classes
Middle class 33% Middle-level white-collar, top-level blue-collar; education past high school typical; income somewhat above
national average; loss of manufacturing jobs has reduced the population of this class
Working class 32% Middle-level blue-collar, lower-level white-collar; income below national average; largely working in skilled or
semi-skilled service jobs
Lower Classes
Working poor 11–12% Low-paid service workers and operatives; some high school education; below mainstream in living standard;
crime and hunger are daily threats
Underclass 8–9% People who are not regularly employed and who depend primarily on the welfare system for sustenance; little
schooling; living standard below poverty line
This group often rates job security as the most impor- Marketers are interested in social class for two main
tant reason for taking a job. The working-class person reasons. First, social class often indicates which medium
depends heavily on relatives and the community for to use for promotion. Suppose an insurance company
economic and emotional support. seeks to sell its policies to middle-class families. It might
Lifestyle distinctions between the social classes are advertise during the local evening news because middle-
greater than the distinctions within a given class. The class families tend to watch more television than other
most significant difference between the classes occurs classes do. If the company wanted to sell more policies
between the middle and lower classes, where there is a to upscale individuals, it might place an ad in a business
major shift in lifestyles. Members of the lower class have publication like the Wall Street Journal. The Internet,
annual incomes at or below the pov-
erty level—$11,770 for individuals and
$24,250 for families of four (as defined
by the federal government).16
Social class is typically measured as
a combination of occupation, income,
education, wealth, and other variables.
For instance, affluent upper-class con-
sumers are more likely to be salaried
executives or self-employed profes-
sionals with at least an undergraduate
degree. Working-class or middle-class
consumers are more likely to be hourly
Greta Gabaglio/Shutterstock.com
service workers or blue-collar em-

ployees with only a high school educa-
tion. Educational attainment, however,
seems to be the most reliable indicator
of a person’s social and economic status.
Those with college degrees or graduate
degrees are more likely to fall into the Knowing what products appeal to which social classes
upper classes, while those with some can help mareters determine where to best distribute
college experience fall closest to tradi- their products.
tional concepts of the middle class.
long the domain of more educated
EXHIBIT 6.5 TYPES OF REFERENCE GROUPS
and affluent families, has become
an increasingly important advertis-
ing outlet for advertisers hoping Primary
to reach blue-collar workers and Small, informal group
homemakers. Direct
Second, knowing what products Face-to-face
membership
appeal to which social classes can
help marketers determine where to Secondary
Large, formal group
best distribute their products. Af-
fluent Americans, one-fifth of the Reference
U.S. population, have changed their groups
buying habits since the Great Re- Aspirational
Group that someone
cession ended. They are now willing would like to join
to spend more of their discretion-
Indirect
ary income on one-of-a-kind items. Nonmembership
Full-priced and upscale retailers
Nonaspirational
such as Neiman Marcus have ex- Group with which
someone wants to
perienced greater sales gains than avoid being identified
have discount chains. Because many
lower-income consumers are still
struggling to recover from job loss,
retailers such as Walmart are selling smaller packages of 6-6a Reference Groups
items because customers do not have enough cash to buy
more standard-size products. People interact with many reference groups. A
reference group consists of all the formal and infor-
mal groups that influence the buying behavior of an
6-6 SOCIAL INFLUENCES ON individual. Consumers may use products or brands to
identify with or become a member of a group. They
CONSUMER BUYING DECISIONS learn from observing how members of their reference
groups consume, and they use the same criteria to make
Many consumers seek their own consumer decisions.
reference group all of the out the opinions of others Reference groups can be categorized very broadly as
formal and informal groups in to reduce their search either direct or indirect (see Exhibit 6.5). Direct refer-
society that influence an individual’s and evaluation effort or ence groups are membership groups that touch people’s
purchasing behavior
uncertainty, especially lives directly. They can be either primary or secondary.
primary membership as the perceived risk of A primary membership group includes all groups
group a reference group with the decision increases. with which people interact regularly in an informal man-
which people interact regularly in an
informal, face-to-face manner, such Consumers may also seek ner, such as family, friends, members of social media,
as family, friends, and coworkers out others’ opinions for and coworkers. Today, they may also communicate by
guidance on new products e-mail, text messages, Facebook, Skype, or other social
secondary membership
group a reference group or services, products with media as well as face-to-face. In contrast, people associ-
with which people associate less image-related attributes, or ate with a secondary membership group less con-
consistently and more formally than products for which attribute sistently and more formally. These groups might include
a primary membership group, such information is lacking or clubs, professional groups, and religious groups.
as a club, professional group, or
religious group
uninformative. Specifically, Consumers also are influenced by many indirect,
consumers interact socially nonmembership reference groups to which they do
aspirational reference with reference groups, not belong. An aspirational reference group is a
group a group that someone
would like to join
opinion leaders, and family group a person would like to join. To join an aspirational
members to obtain product group, a person must at least conform to the norms of
norm a value or attitude deemed information and decision that group. (A norm consists of the values and attitudes
acceptable by a group
approval. deemed acceptable by the group.) Thus, a person who
professionals who take an interest in
Harley-Davidson motorcycles, biker
gangs serve as both an aspirational
and a nonaspirational reference group.
Though the professionals (derisively
called RUBS—rich urban bikers—by
hardcore Harley enthusiasts) aspire to
the freedom, community, and tough
posturing of biker gangs, they do not
aspire to the perpetual life on the road,
crime, or violence of gangs. Thus, a
professional may buy a Harley because
Uncleru/Shutterstock.com
of the gangs, but he may intentionally
buy a specific model not typically as-
sociated with those gangs.
Reference groups are particularly
powerful in influencing the clothes
Members of the Hell’s Angels biker gang protest in Oslo, people wear, the cars they drive, the
Norway, against police bias towards motorcycle gangs. electronics they use, the activities they
participate in, the foods they eat, and
the luxury goods they purchase. In
wants to be elected to public office may begin to dress short, the activities, values, and goals of reference groups
more conservatively, as other politicians do. He or she directly influence consumer behavior. For marketers,
may go to many of the restaurants and social engage- reference groups have three important implications:
ments that city and business leaders attend and try to (1) They serve as information sources and influence per-
play a role that is acceptable to voters and other influen- ceptions; (2) they affect an individual’s aspiration levels;
tial people. and (3) their norms either constrain or stimulate con-
Nonaspirational reference groups, or disso- sumer behavior.
ciative groups, influence our behavior when we try to
maintain distance from them. A consumer may avoid 6-6b Opinion Leaders
buying some types of clothing or cars, going to cer-
tain restaurants or stores, or even buying a home in a Reference groups and social media groups (for example,
certain neighborhood to avoid being associated with a your friends on Facebook) frequently include individu-
particular group. For middle- and upper-middle-class als known as group leaders, or opinion leaders—
persons who influence others. Obviously, it is important
for marketing managers to persuade such people to pur-
chase their goods or services. They are often the most
influential, informed, plugged-in, and vocal members of
society. Technology companies have found that teenag-
ers, because of their willingness to experiment, are key
opinion leaders for the success of new technologies.
Thearon W. Henderson/Getty Images
Opinion leadership is a casual phenomenon and is

usually inconspicuous, so locating opinion leaders offline
can be a challenge. An opinion leader in one field, such
as cooking, may not be an opinion leader in another,
such as sports. In fact, it is rare to find an opinion leader
who spans multiple di-
verse domains. Thus, nonaspirational reference
group a group with which an
Professional athletes serve as opinion marketers often try to individual does not want to associate
leaders when they choose a specific shoe create opinion lead-
ers. They may use high opinion leader an individual who
they feel helps them perform at a high level. influences the opinions of others
school cheerleaders to
model new fall fashions or civic leaders to promote in- grocery list distinctly different from that of a family that
surance, new cars, and other merchandise. On a national views every dinner as a gourmet event. Moreover, the
level, companies sometimes use movie stars, sports fig- family is responsible for the socialization process, the
ures, and other celebrities to promote products, hoping passing down of cultural values and norms to children.
they are appropriate opinion leaders. The effectiveness Children learn by observing their parents’ consumption
of celebrity endorsements varies, though, depending patterns, so they tend to shop in similar patterns.
largely on how credible and attractive the spokesperson Decision-making roles among family members tend
is and how familiar people are with him or her. Endorse- to vary significantly, depending on the type of item pur-
ments are most likely to succeed if a reasonable associa- chased. Family members assume a variety of roles in the
tion between the spokesperson and the product can be purchase process. Initiators suggest, initiate, or plant the
established. seed for the purchase process. The initiator can be any
Increasingly, marketers are looking to social media member of the family. For example, Sister might initi-
to find opinion leaders, but the sheer volume of posts ate the product search by asking for a new bicycle as a
and platforms makes determining true opinion leaders birthday present. Influencers are members of the family
challenging. So, marketers are focusing their attention whose opinions are valued. In our example, Mom might
on platforms such as Facebook, Pinterest, and Tum- function as a price-range watchdog, an influencer whose
blr because those sites better identify the social trends main role is to veto or approve price ranges. Brother may
that are shaping consumer behavior. With their unprec- give his opinion on certain makes of bicycles. The deci-
edented ability to network and communicate with each sion maker is the family member who actually makes the
other, people often rely on each other’s opinions more decision to buy or not to buy. For example, Dad or Mom
than marketing messages when making purchase deci- is likely to choose the final brand and model of bicycle to
sions. And social media are becoming a key way that
people communicate their opinions.
Social media have made identification of opinion
leaders easier than ever before. Klout, for example, col-
lects data from 13 social networks and search data from
Bing and Google to measure a person’s influence. The
firm also looks at offline data such as how often the indi-
vidual is mentioned in traditional media like magazines
and newspapers. Klout then tabulates a score for each
person ranging from 1 to 100.
Klout’s Perks program has expanded from offering
certain opinion leaders coupons and product samples to
helping brands send out invitations for product launches,
promotional events, and concerts. The company recently
launched VIP Perks, a program that tracks opinion lead-
ers’ mobile devices to tell when they enter a store or
restaurant. Marketers have used the program to offer
social influencers with high Klout scores seat upgrades
Image Courtesy of The Advertising Archives
at Cirque Du Soleil shows and access to VIP airport

lounges.17 Research has found that when social media
influencers purchase a new product, they tend to share
this information right away with their social networks.18
6-6c Family
The family is the most important social institution for
many consumers, strongly influencing values, attitudes, By working with children to develop a drink
self-concept, and buying they like, Innocent Smoothies for kids can
socialization process how behavior. For example, a advertise kid-friendly flavors with healthy
cultural values and norms are passed family that strongly values
down to children benefits, satisfying moms and kids.
good health will have a
buy after seeking further information from Sister about that she is being watched. Researchers have found this
cosmetic features such as color and then imposing ad- to be especially true when individuals are consuming
ditional criteria of his or her own, such as durability and or buying personal products. Some people will not buy
safety. The purchaser (probably Dad or Mom) is the one memberships to athletic clubs because they don’t want
who actually exchanges money for the product. Finally, to work out with (or even around) a group of people.
the consumer is the actual user—in this case, Sister. They fear how they may appear to others.19
Marketers should consider family purchase situ-
ations along with the distribution of consumer and
decision-maker roles among family members. Ordinary 6-7 INDIVIDUAL INFLUENCES ON
marketing views the individual as both decision maker
and consumer. Family marketing adds several other CONSUMER BUYING DECISIONS
possibilities: sometimes more than one family mem-
ber or all family members are involved in the decision, While individuality impacts a person’s suscepti-
sometimes only children are involved in the decision, bility to social influences, factors such as gender,
sometimes more than one consumer is involved, and age, life cycle stage, personality, self-concept, and
sometimes the decision maker and the consumer are lifestyle also play important roles in consumer
different people. In most households, when parental decision making. Individual characteristics are gen-
joint decisions are being made, spouses consider their erally stable over the course of one’s life. For instance,
partner’s needs and perceptions to maintain decision most people do not change their gender, and the act of
fairness and harmony. This tends to minimize family changing personality or lifestyle requires a complete re-
conflict. When couples agree to narrow down their op- orientation of one’s life. In the case of age and life cycle
tions before making a purchase, they are more likely to stage, these changes occur gradually over time.
be satisfied with the eventual outcome and less likely
to feel regret. 6-7a Gender
6-6d Individual Differences in Susceptibility Physiological differences between men and women
result in many different needs, such as with health and
to Social Influences beauty products. Just as important are the distinct cul-
Social influence plays an important role in consumer tural, social, and economic roles played by men and
behavior, but not all persons are equally influenced in women and the effects that these have on their decision-
their purchase decisions. Some have a strong need to making processes. A recent survey found that 52 per-
build the images others have of them by buying prod- cent of women have purchased a product based upon
ucts used by other members of their reference groups. a marketer’s portrayal of women.20 Messages and videos
Seeking approval of others through the “correct” prod- for companies such as Nike, Always, and Under Armour
uct ownership is very important to these consumers. were perceived as very positive. The Dove “Real
This is particularly true for conspicuous items (those Beauty” campaign was named the number one ad of
that others can easily see) such as clothes, jewelry, the 21st century by Advertising Age. Under Armour’s “I
cars, and even mobile devices. These individuals have Will What I Want” ad also fared well for its portrayal of
a strong desire to avoid negative impressions in public women pushing back against the idea of perfection and
settings. For example, wearing the wrong bather suit at simply embracing themselves (see an example at www
the university swimming pool would be very distressing .youtube.com/watch?v=ZY0cdXr_1MA).
to this type of consumer. Trends in gender marketing are influenced by the
Consumers differ in their feelings of connect- changing roles of men and women in society. For ex-
edness to other consumers. A consumer with a ample, men used to
separated self-schema perceives himself as dis- rely on the women in separated self-schema a
tinct and separate from others. A person with a their lives to shop for perspective whereby a consumer
connected self-schema sees himself as an integral them. Today, however, sees himself or herself as distinct and
part of a group. Research has found that individuals who more men are shopping separate from others
feel connected respond more favorably to advertise- for themselves. More connected self-schema a
ments that promote group belonging and cohesion. than seventy percent of perspective whereby a consumer sees
The influence of other people on how a consumer men shop online and himself or herself as an integral part of
a group
behaves is strongest when that consumer knows or feels about 48 percent shop
from mobile devices. When doing so, men use smart- divorced parents, lifelong singles, and childless cou-
phones twice as often as they use tablets. Men are price- ples. Three decades ago, married couples with chil-
conscious, often scanning QR codes rather than typing dren under the age of 18 accounted for about half of
in URLs to retrieve promotional materials, coupons, and U.S. households. Today, such families make up only
product information. In fact, a Harris Interactive poll 23 percent of all households, while people living alone
found that, “men have become the chief coupon-cutters or with nonfamily members represent more than
of the mobile era.”21 thirty percent. Furthermore, according to the U.S.
Census Bureau, the number of single-mother house-
6-7b Age and Family Life Cycle Stage holds grew by 25 percent over the last decade. The
A consumer’s age and family life cycle stage can have shift toward more single-parent households is part of a
a significant impact on his or her behavior. How old a broader societal change that has put more women on
consumer is generally indicates what products he or she the career track.
may be interested in purchasing. Consumer tastes in
SINGLE PARENTS Careers often create a poverty
food, clothing, cars, furniture, and recreation are often
of time for single parents. To cope with the dual de-
age related.
mands of a career and raising children, single parents
Related to a person’s age is his or her place in the
are always on the lookout for time saving products
family life cycle. As Chapter 8 explains in more detail,
like quick-preparation foods and no-iron clothing.
the family life cycle is an orderly series of stages through
Rightly so, more and more marketers are catering to
which consumers’ attitudes and behavioral tendencies
the single parent market. eTargetMedia maintains a
evolve through maturity, experience, and changing in-
list of over 9,500,000 active single parents that it rents
come and status. Marketers often define their target
out for both e-mail and postal advertising campaigns.
markets in terms of family life cycle, such as “young
The firm says that the list is ideal for offers pertain-
singles,” “young married couples with children,” and
ing to education, childcare, insurance, photo sharing,
“middle-aged married couples without children.” For
parenting magazines and books, camps, and children’s
instance, young singles spend more than average on al-
recreation.22
coholic beverages, education, and entertainment. New
parents typically increase their spending on health care,
LIFE EVENTS Another way to look at the life cycle
clothing, housing, and food and decrease their spending
is to look at major events in one’s life over time. Life-
on alcohol, education, and transportation. Households
changing events can occur at any time. A few examples
with older children spend more on food, entertainment,
are death of a spouse, moving, birth or adoption of a
personal care products, and education, as well as cars
child, retirement, job loss, divorce, and marriage. Typi-
and gasoline. After their children leave home, spend-
cally, such events are quite stressful, and consumers will
ing by older couples on vehicles, women’s clothing, and
often take steps to minimize that stress. Many times, life-
health care typically increases. For instance, the pres-
changing events will mean new consumption patterns.
ence of children in the home is the most significant
For example, a recently divorced person may try to im-
determinant of the type of vehicle that’s driven off the
prove his or her appearance by joining a health club and
new car lot. Parents are the ultimate need-driven car
dieting. Someone moving to a different city will need
consumers, requiring larger cars and trucks to haul their
a new dentist, grocery store, auto service center, and
children and all their belongings. It comes as no sur-
doctor, among other things. Marketers realize that life
prise, then, that for all households with children, SUVs
events often mean a chance to gain a new customer. The
rank either first or second among new-vehicle pur-
Welcome Wagon offers free gifts and services for area
chases, followed by minivans.
newcomers. Lowe’s sends out a
NONTRADITIONAL LIFE discount coupon to those mov-
CYCLES Marketers should ing to a new community. And
also be aware of the many when you put your home on
nontraditional life cycle the market, you will quickly
paths that are common start receiving flyers from
today and provide in- moving companies promis-
sights into the needs and ing a great price on moving
wants of such consumers as your household goods.
Gelpi JM/Shutterstock.com
6-7c Personality, Self-Concept, will fill it up,” followed by “What if we made
and Lifestyle a minivan that changed the way people
think of minivans?”
Each consumer has a unique per- By influencing the degree
sonality. Personality is a broad to which consumers perceive
concept that can be thought of as a good or service to be self-
a way of organizing and group- relevant, marketers can affect
ing how an individual typically consumers’ motivation to learn
reacts to situations. Thus, per- about, shop for, and buy a cer-
sonality combines psychologi- toc
k
tain brand. Marketers also con-
ink s
/ Th
cal makeup and environmental Eur ob a n k s / i St o c k
sider self-concept important because
forces. It includes people’s underlying it helps explain the relationship between
dispositions, especially their most dominant charac- individuals’ perceptions of themselves and their con-
teristics. Although personality is one of the least use- sumer behavior.
ful concepts in the study of consumer behavior, some Many companies now use psychographics to bet-
marketers believe personality influences the types and ter understand their market segments. For many years,
brands of products purchased. For instance, the type of marketers selling products to mothers conveniently
car, clothes, or jewelry a consumer buys may reflect one assumed that all moms were fairly homogeneous and
or more personality traits. concerned about the same things—the health and
Self-concept , or self-perception, is how con- well-being of their children—and that they could all
sumers perceive themselves. Self-concept includes be reached with a similar message. But recent lifestyle
attitudes, perceptions, beliefs, and self-evaluations. research has shown that there are traditional, blended,
Although self-concept may change, the change is of- and nontraditional moms, and companies like Procter
ten gradual. Through self-concept, people define their & Gamble and Pillsbury are using strategies to reach
identity, which in turn provides for consistent and co- these different types of mothers. Psychographics is also
herent behavior. effective with other market segments. Psychographics
Self-concept combines the ideal self-image (the and lifestyle segmentation are discussed in more detail
way an individual would like to be perceived) and the in Chapter 8.
real self-image (how an individual actually perceives
himself or herself). Generally, we try to raise our real
self-image toward our ideal (or at least narrow the gap).
Consumers seldom buy products that jeopardize their
6-8 PSYCHOLOGICAL INFLUENCES ON
self-image. For example, someone who sees herself as a CONSUMER BUYING DECISIONS
trendsetter would not buy clothing that does not project
a contemporary image. An individual’s buying decisions are further in-
Human behavior depends largely on self-concept. fluenced by psychological factors: perception,
Because consumers want to protect their identity as indi- motivation, and learning. These factors are what
viduals, the products they buy, the stores they patronize, consumers use to interact with their world. They are
and the credit cards they carry support their self-image. the tools consumers
No other product quite reflects a person’s self-image as use to recognize their personality a way of organizing
and grouping the consistencies of an
much as the car he or she drives. For example, many feelings, gather and
individual’s reactions to situations
young consumers do not like family sedans like the analyze information,
Honda Accord or Toyota Camry and say they would formulate thoughts and self-concept how consumers
perceive themselves in terms of
buy one for their mom but not for themselves. Like- opinions, and take ac-
attitudes, perceptions,
wise, younger parents may avoid purchasing minivans tion. Unlike the other beliefs, and self-evaluations
because they do not want to sacrifice the youthful im- three influences on
age they have of themselves just because they have new consumer behavior, ideal self-image the way an
individual would like to be perceived
responsibilities. To combat decreasing sales, marketers psychological influ-
of the Nissan Quest minivan decided to reposition it as ences can be affected real self-image the way an
individual actually perceives himself or
something other than a “mom mobile” or “soccer mom by a person’s environ-
herself
car.” They chose the ad copy “Passion built it. Passion ment because they are
applied on specific occasions. For example, you will and comfort. Cutting-edge consumer research has
perceive different stimuli and process these stimuli in found that a cluttered, chaotic environment results
different ways depending on whether you are sitting in in consumers spending more. Why does this occur?
class concentrating on the instructor, sitting outside of The perception of a cluttered environment impairs
class talking to friends, or sitting in your dorm room self-control. Disorganized surroundings threaten one’s
streaming a video. sense of personal control, which in turn taxes one’s
self-regulatory abilities.23
The shape of a product’s packaging, such as Coca-
6-8a Perception Cola’s signature contour bottle, can influence percep-
The world is full of stimuli. A stimulus is any unit of tion. Color is another cue, and it plays a key role in
input affecting one or more of the five senses: sight, consumers’ perceptions. Packaged foods manufacturers
smell, taste, touch, and hearing. The process by which use color to trigger unconscious associations for grocery
we select, organize, and interpret these stimuli into a shoppers who typically make their shopping decisions in
meaningful and coherent picture is called perception. the blink of an eye. Think of the red and white Camp-
In essence, perception is how we see the world around bell’s soup can and the green and white Green Giant
us. We act based upon perceptions that may or may frozen vegetable box, for example.
not reflect reality. Suppose you are driving to the gro- Two other concepts closely related to selective ex-
cery and you see a house with smoke pouring from the posure are selective distortion and selective retention.
roof. Your perception is that the house is on fire, so Selective distortion occurs when consumers change
you quickly stop to warn any occupants and to call 911. or distort information that conflicts with their feelings or
As you approach the house, you hear laughter coming beliefs. For example, suppose a college student buys a
from the back yard. As you peek around the corner, you Dell tablet. After the purchase, if the student gets new
see a family burning a big pile of leaves and the wind information about an alternative brand, such as an Asus
carrying the smoke over the roof. There is no house Transformer, he or she may distort the information to
fire. When you get to the grocery, you see a big, beauti- make it more consistent with the prior view that the Dell
ful ripe pineapple and immediately put it in your cart. is just as good as the Transformer, if not better. Business
When you get home, you cut into the pineapple—only travelers who are Executive Platinum frequent flyers on
to find that it has a rotten core and is inedible. In both American Airlines may distort or discount information
cases, you acted based upon perceptions that did not about the quality of United Airlines’ business class ser-
reflect reality. vice. The frequent flyer may think to herself, “Yes, the
People cannot perceive every stimulus in their en- service is OK but the seats are uncomfortable and the
vironment. Therefore, they use selective exposure planes are always late.”
to decide which stimuli to notice and which to ignore. Selective retention is remembering only infor-
A typical consumer is exposed to nearly 3,000 advertis- mation that supports personal feelings or beliefs. The
ing messages a day but notices only between 11 and 20. consumer forgets all information that may be inconsis-
The familiarity of an tent. After reading a pamphlet that contradicts one’s po-
object, contrast, move- litical beliefs, for instance, a person may forget many of
perception the process by
which people select, organize, and ment, intensity (such as the points outlined in it. Similarly, consumers may see a
interpret stimuli into a meaningful increased volume), and news report on suspected illegal practices by their favor-
and coherent picture smell are cues that influ- ite retail store but soon forget the reason the store was
selective exposure a process ence perception. Con- featured on the news.
whereby a consumer notices certain sumers use these cues to Which stimuli will be perceived often depends on
stimuli and ignores others identify and define prod- the individual. People can be exposed to the same stim-
selective distortion a process ucts and brands. Double uli under identical conditions but perceive them very
whereby a consumer changes or Tree hotels always have differently. For example, two people viewing a televi-
distorts information that conflicts fresh chocolate chip cook- sion commercial may have different interpretations of
with his or her feelings or beliefs
ies at the reception desk the advertising message. One person may be thoroughly
selective retention a process and the entire area smells engrossed by the message and become highly motivated
whereby a consumer remembers like just-baked cookies. to buy the product. Thirty seconds after the ad ends, the
only that information that supports
For most travelers, this second person may not be able to recall the content of
his or her personal beliefs
cues feelings of warmth the message or even the product advertised.
MARKETING IMPLICATIONS OF PERCEPTION
EXHIBIT 6.6 MASLOW’S HIERARCHY OF NEEDS
Marketers must recognize the importance of cues,
or signals, in consumers’ perception of products.
Marketing managers first identify the important Self-actualization needs
Self-development,
attributes, such as price or quality, that the tar- self-realization
geted consumers want in a product and then de- Esteem needs
Self-esteem,
sign signals to communicate these attributes. For recognition,
example, consumers will pay more for candy in status
expensive-looking foil packages. But shiny labels
Social needs
on wine bottles signify less expensive wines; dull Sense of belonging, love
labels indicate more expensive wines. Marketers
also often use price as a signal to consumers that Safety needs
the product is of higher quality than competing Security, protection
products. Of course, brand names send signals to
consumers. The brand names of Close-Up tooth- Physiological needs
paste, DieHard batteries, and Caress moisturizing Hunger, thirst
soap, for example, identify important product qual-

ities. Names chosen for search engines and sites
on the Internet, such as Yahoo!, Amazon, and Bing, a basic two-door sedan before consumers start perceiv-
are intended to convey excitement and intensity and ing it as a sports car?
vastness. Marketing managers who intend to do business
Consumers also associate quality and reliability in global markets should be aware of how foreign
with certain brand names. Companies watch their consumers perceive their products. For instance, in
brand identity closely, in large part because a strong Japan, product labels are often written in English or
link has been established between perceived brand French, even though they may not translate into any-
value and customer loyalty. Brand names that con- thing meaningful. Many Japanese associate foreign
sistently enjoy high perceived value from consum- words on product labels with the exotic, the expen-
ers include Google, Disney, National Geographic, sive, and high quality.
Mercedes-Benz, and Fisher-Price. Naming a product
after a place can also add perceived value by associa-
tion. Brand names using the words Santa Fe, Dakota,
6-8b Motivation
or Texas convey a sense of openness, freedom, and By studying motivation, marketers can analyze the
youth, but products named after other locations might major forces influencing consumers to buy or not
conjure up images of pollution and crime. Marketing buy products. When you buy a product, you usually
managers are also interested in the threshold level of do so to fulfill some kind of need. These needs be-
perception, the minimum difference in a stimulus that come motives when they are aroused sufficiently. For
the consumer will notice. This concept is sometimes instance, suppose this morning you were so hungry
referred to as the “just-noticeable difference.” For ex- before class that you needed to eat something. In
ample, how much would Apple have to drop the price response to that need, you stopped at Subway for a
of its 15-inch MacBook Pro with Retina display before breakfast sandwich. In other words, you were moti-
consumers perceived it as a bargain—$100? $300? vated by hunger to stop at Subway. A motive is the
$500? Alternatively, how much could Hershey shrink driving force that causes a
its milk chocolate bar before consumers noticed that person to take action to sat- motive a driving force that
causes a person to take action to
it was smaller, but selling for the same price? isfy specific needs. satisfy specific needs
Besides changing such stimuli as price, package Why are people driven by
size, and volume, marketers can change the product particular needs at particular Maslow’s hierarchy of
needs a method of classifying
or attempt to reposition its image. But marketers must times? One popular theory human needs and motivations
be careful when adding features. How many new ser- i s Maslow ’s hierarchy into five categories in
vices will discounter Target need to add before consum- of needs , illustrated in ascending order of importance:
ers perceive it as a full-service department store? How Exhibit 6.6, which arranges physiological, safety, social,
esteem, and self-actualization
many sporty features will General Motors have to add to needs in ascending order of
importance: physiological, safety, social, esteem, and self- called simply “the black card,” requires a $5,000 initia-
actualization. As a person fulfills one need, a higher-level tion fee and carries an annual fee of $2,500.
need becomes more important.
The most basic human needs—that is, the needs
for food, water, and shelter—are physiological. Because
6-8c Learning
they are essential to survival, these needs must be satis- Almost all consumer behavior results from learning,
fied first. Ads showing a juicy hamburger or a runner which is the process that creates changes in behavior
gulping down Gatorade after a marathon are examples through experience and practice. It is not possible to
of appeals to satisfy the physiological needs of hunger observe learning directly, but we can infer when it has
and thirst. occurred by a person’s actions. For example, suppose
Safety needs include security and freedom from you see an advertisement for a new and improved cold
pain and discomfort. Marketers sometimes appeal to medicine. If you go to the store that day and buy that
consumers’ fears and anxieties about safety to sell their remedy, we infer that you have learned something about
products. For example, aware of the aging population’s the cold medicine.
health fears, the retail medical imaging centers Heart There are two types of learning: experiential and con-
Check America and HealthScreen America advertise ceptual. Experiential learning occurs when an experience
that they offer consumers a full body scan for early de- changes your behavior. For example, if the new cold med-
tection of health problems such as coronary disease and icine does not relieve your symptoms, you may not buy
cancer. Some companies or industries advertise to allay that brand again. Conceptual learning, which is not ac-
consumer fears. For example, in the wake of the Sep- quired through direct experience but based upon reason-
tember 11, 2001, terrorist attacks, the airline industry ing, is the second type of learning. Assume, for example,
found itself having to conduct an image campaign to re- that you are standing at a soft drink machine and notice a
assure consumers about the safety of air travel. new diet flavor with an artificial sweetener. Because some-
After physiological and safety needs have been one has told you that diet beverages leave an aftertaste,
fulfilled, social needs—especially love and a sense of you choose a different drink. You have learned that you
belonging—become the focus. Love includes accep- would not like this new diet drink without ever trying it.
tance by one’s peers, as well as sex and romantic love. Reinforcement and repetition boost learning. Re-
Marketing managers probably appeal more to this inforcement can be positive or negative. If you see
need than to any other. Ads for clothes, cosmetics, and a vendor selling frozen yogurt (stimulus), buy it (re-
vacation packages suggest that buying the product can sponse), and find the yogurt to be quite refreshing
bring love. (reward), your behavior has been positively rein-
Love is acceptance without regard to one’s contribu- forced. On the other hand, if you buy a new flavor of
tion. Esteem is acceptance based on one’s contribution yogurt and it does not taste good (negative reinforce-
to the group. Self-esteem needs include self-respect and ment), you will not buy that flavor of yogurt again (re-
a sense of accomplishment. Esteem needs also include sponse). Without positive or negative reinforcement, a
prestige, fame, and recognition of one’s accomplish- person will not be motivated to repeat the behavior pat-
ments. Montblanc pens, Mercedes-Benz automobiles, tern or to avoid it. Thus, if a new brand evokes neutral
and Neiman Marcus stores all appeal to esteem needs. feelings, some marketing activity, such as a price change
The highest human need is self-actualization. It or an increase in promotion, may be required to induce
refers to finding self-fulfillment and self-expression, further consumption. Learning theory is helpful in re-
reaching the point in life at which “people are what they minding marketers that concrete and timely strategies
feel they should be.” Maslow believed that very few peo- are what reinforce desired consumer behavior.
ple ever attain this level. Repetition is a key strategy in promotional cam-
learning a process that creates Even so, advertisements paigns because it can lead to increased learning. Most
changes in behavior, immediate may focus on this type of marketers use repetitious advertising so that consumers
or expected, through experience need. For example, Amer- will learn what their unique advantage is over the com-
and practice ican Express ads convey petition. Generally, to heighten learning, advertising
stimulus generalization a the message that acquiring messages should be spread out over time rather than
form of learning that occurs when an AmEx card is one of the clustered together.
one response is extended to a highest attainments in life. A related learning concept useful to marketing
second stimulus similar to the first
The Centurion card, often managers is stimulus generalization . In theory,
stimulus generalization occurs when one imitation conveys the notion that the store brand is as
response is extended to a second stimu- good as the national manufacturer’s brand.
lus similar to the first. Marketers often The opposite of stimulus generalization is
use a successful, well-known brand stimulus discrimination, which means
name for a family of products because learning to differentiate among similar
it gives consumers familiarity with and products. Consumers may perceive one
knowledge about each product in the product as more rewarding or stimulat-
family. Such brand name families spur ing, even if it is virtually indistinguishable
the introduction of new products and from competitors. For example, some
facilitate the sale of existing items. consumers prefer Miller Lite and others
OXO relies on consumers’ familiarity prefer Bud Light.
with its popular kitchen and household With some types of products—such
products to sell office and medical sup- as aspirin, gasoline, bleach, and paper
plies; Sony’s film division relies on name towels—marketers rely on promotion to
recognition from its home technology, point out brand differences that consum-
such as the PlayStation. Clorox bath- ers would otherwise not recognize. This
room cleaner relies on familiarity with process, called product differentiation,
Clorox bleach, and Dove shampoo relies is discussed in more detail in Chapter 8.
on familiarity with Dove soap. Branding is Dcwcreations/Shutterstock.com Usually, product differentiation is based on
examined in more detail in Chapter 10. superficial differences. For ex-
Another form of stimulus generalization occurs ample, Bayer tells consumers stimulus discrimination
when retailers or wholesalers design their packages to that it is the aspirin “doctors a learned ability to differentiate
among similar products
resemble well-known manufacturers’ brands. Such recommend most.”
STUDY
6
in marketing
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7 Business Marketing
LEARNING OUTCOMES
7-1 Describe business marketing 7-5 Explain the North American Industry Classification
System
7-2 Describe trends in B-to-B Internet marketing
7-6 Explain the major differences between business and
7-3 Discuss the role of relationship marketing and strategic consumer markets
Dusit /Shutterstock.com
alliances in business marketing
7-7 Describe the seven types of business goods and services
7-4 Identify the four major categories of business market
customers 7-8 Discuss the unique aspects of business buying behavior
7-1 WHAT IS BUSINESS MARKETING?

Business marketing (also called industrial, business-to-business, B-to-B, or B2B
marketing) is the marketing of goods and services to individuals and
organizations for purposes other than personal consumption. The
sale of a personal computer (PC) to your college or university is an
example of business marketing. A business product,
business marketing
(industrial, business-to- or industrial product, is used to manufacture other
business, B-to-B, or B2B
marketing) the marketing of
goods or services, to facilitate an organization’s
goods and services to individuals
and organizations for purposes other
operations, or to resell to other customers. A
than personal consumption consumer product is bought to satisfy an individual’s
business product
(industrial product) a
personal wants or needs. The key characteristic
product used to manufacture other
goods or services, to facilitate an
distinguishing business products from consumer
organization’s operations, or to resell products is intended use, not physical form.
to other customers
consumer product a product How do you distinguish be- A product that is purchased for personal or family con-
bought to satisfy an individual’s tween a consumer product sumption or as a gift is a consumer good. If that same
personal wants or needs
and a business product? product, such as a PC or a cell phone, is bought for use
114 PART TWO:
CHAPTER
Analyzing
in a business, it is a business product. Some common
items that are sold as both consumer goods and business
products are office supplies (e.g., pens, paper, and staple
The key characteristic
removers). Some items, such as forklifts, are more com- distinguishing business
monly sold as business products than as consumer goods.
The size of the business market in the United products from consumer
States and most other countries substantially exceeds
that of the consumer market. In the business market, a
products is intended use,
single customer can account for a huge volume of pur- not physical form.
chases. For example, IBM’s purchasing department
spends more than $40 billion annually on business
products. Procter & Gamble, Apple, Merck, Dell, and since emerging from bankruptcy in 2013. All of these
Kimberly-Clark each spend more than half of their an- companies have had to make organizational and
nual revenue on business products.1 marketing changes to expand into the new market
Some large firms that produce goods such as categories.
steel, computer memory chips, or production equip-
ment market exclusively to business customers. Other
firms market to both businesses and to consumers.
Hewlett-Packard marketed exclusively to business
7-2 TRENDS IN B-TO-B
customers in the past but now markets laser printers INTERNET MARKETING
and personal computers to consumers. Sony, tradi-
tionally a consumer marketer, now sells office auto- Over the past decade, marketers have become more and
mation products to businesses. Kodak used to sell more sophisticated in their use of the Internet. Compa-
its cameras exclusively to consumers, but has opted nies have had to transition from “We have a Web site
to sell its commercial printing services to businesses because our customer does” to having a site that attracts,
CHAPTER 7: Business Marketing 115
interests, satisfies, informs, and retains
customers. B-to-B companies are in-
creasingly leveraging the Internet as
an effective sales and promotion plat-
form (much like B-to-C companies
have done for decades). B-to-B com-
panies use the Internet in three major
ways. First, they use their Web sites to
facilitate communication and orders.
Second, they use digital marketing to
increase brand awareness. Third, they
Source:LinkedIn
use digital marketing—primarily in the
form of content marketing—to position
their businesses as thought leaders and
therefore generate sales leads. Com- Most B-to-B companies see LinkedIn as the most beneficial
panies selling to business buyers face platform through which to distribute content.
the same challenges as all marketers,
including determining the target market and deciding these new avenues are beneficial to (or used by) custom-
how best to reach it. ers. Generally, B-to-C marketers were faster to adopt
Every year, new applications that provide addi- social media as part of the promotional mix. B-to-B
tional information about customers are developed. marketers did not initially see the value in these tools.
These applications often also lower costs, increase However, that has changed as social media has become
supply chain efficiency, or enhance customer reten- more popular.
tion, loyalty, and trust. Increasingly, business custom- Content marketing is a strategic marketing ap-
ers expect suppliers to know them personally, monitor proach focused on creating and distributing valuable,
people’s movement within their company, and offer relevant, and consistent content. The goal of this con-
personal interaction through social media, e-mail, and tent is to attract and retain a clearly defined audience,
personal mailers. As such, we have seen B-to-B mar- and ultimately, drive profitable customer action. This
keters use technology like smartphones and tablets to strategy has played an important role for B-to-B market-
facilitate orders and enhance customer experiences. ers. Content marketing includes media such as videos,
A few years ago, many people thought the Internet podcasts, webinars, blog posts, white papers, e-books,
would eliminate the need for distributors. Why would slide decks, and more. Sharing valuable insights and
customers pay a distributor’s markup when they could interesting content can position a company as a though
buy directly from the manufacturer with a few mouse leader in an area. A 2014 study by the Content Market-
clicks? This has occurred less frequently than many ex- ing Institute and MarketingProfs found that 86 per-
pected because distributors often perform important cent of respondents use content marketing, but many
functions such as providing credit, aggregating supplies struggle with developing effective content. More than
from multiple sources, making deliveries, and process- 55 percent of respondents stated plans to increase their
ing returns. Many business customers, especially small content marketing usage in 2015.2 Most companies use
firms, depend on knowledgeable distributors for infor- content marketing to increase brand awareness and gen-
mation and advice that is not available to them online. erate leads. Increasing engagement comes in at a close
Social media usage has been the most pervasive B- third. Interestingly, while most B-to-C companies favor
to-B and B-to-C marketing trend of the past five years. Facebook as their primary social media platform, most
Most companies use e-mail marketing, search engine B-to-B companies see LinkedIn as the most beneficial
optimization, paid search, and display advertising to pull platform through which to distribute content. Regard-
customers to their Web sites. This field of marketing re- less of the platform used, the key to social media-based
quires vigilant adjustment content marketing for B-to-B marketers is to create
Content marketing a strategic to keep track of new ap- compelling and useful content for customers. For exam-
marketing approach that focuses on plications and platforms, ple, HubSpot and Marketo develop white papers and e-
creating and distributing content that as well as constant evalua- books on topics such as generating leads through social
is valuable, relevant and consistent.
tion to determine whether media for customers and potential customers.
As they build reputations in their business areas, percent. Global information and measurement company
many marketers use social media to increase awareness Nielsen recently launched Nielsen Online Campaign
and build relationships and community. Social media Ratings, a “much-anticipated advertising measurement
platforms like YouTube, LinkedIn, Twitter, and Face- solution.” 3 According to data collected through this new
book provide great conversational platforms for doing platform, less than half of all online advertisement im-
just that. While building community is important, B-to- pressions reach their intended audiences. Depending
B marketers are also using social media to gather leads on the medium used, customer targeting varies between
(as you may have gathered from the HubSpot and Mar- a 30 percent and 50 percent coverage rate.4 Some met-
keto white paper example). Other goals include product rics that are particularly useful for increasing the success
promotion, traffic building, search engine optimization of a social media campaign are awareness, engagement,
(SEO), competitive intelligence and listening, customer and conversion. Awareness is the attention that social
feedback and support, and product development. media attracts, such as the number of followers or fans.
As platforms such as mobile and streaming video Awareness is generally used as the first step in the mar-
grow, marketers must develop new ways to measure keting funnel, and social media is often paired with paid
campaign effectiveness. For example, after using social digital media like display advertising and text-based
analytics to determine the most effective hashtag from its ads to increase its effectiveness. Engagement refers to
“Internet of Everything” campaign, Cisco was able to in- the interactions between the brand and the audience,
crease usage of one particularly effective hashtag by 440 such as comments, retweets, shares, and searches. The
The Top Social Media Tools for B-to-B Marketers

BtoB Marketing Magazine
surveyed hundreds of B-
to-B marketers regarding
their social media usage,
©o
lex
and while LinkedIn, Face-

iu s
/ Sh
book, and Twitter were

ut t
er s
used by the majority of

toc
Twin Design/Shutterstock.com
k 14
respondents, LinkedIn was

973
701
the most used social me-

3
dia tool overall (chosen by

94 percent of respondents).
Runners up were Twitter
(89 percent), Facebook
(77 percent), YouTube (77 percent), and Google+ (61 percent). LinkedIn is so popular
because it drives more traffic and leads than other platforms for B-to-B marketers.
The company has only increased its favor among B-to-B marketers by adding new B-
to-B-friendly features like sponsored company updates, groups connected to topics,
products and services pages, and a thought leader blogging program.5
B-to-B marketers have begun making use of social advertising platforms such as
advertisement exchanges on LinkedIn and promoted tweets on Twitter. Video, used
for everything from product demonstrations to customer testimonials, is also prov-
ing to be an extremely compelling platform for many B-to-B marketers. After finding
that attorney profiles were the most viewed parts of its Web site, for example, law
firm Levenfeld Pearlstein decided to create a series of videos featuring attorney in-
terviews. In these videos, attorneys answered questions about themselves and the
firm, thereby telling a richer story about the company.6
purpose of engagement is to get cus-
tomers to respond to brand-led posts
and to start conversations themselves.
Conversions occur when action is taken
and include everything from down-
loading a piece of content (like a white
paper) to actually making a purchase.7
Each of these metrics affects the return
on investment.
7-3 RELATIONSHIP
mnoa357/Shutterstock.com
MARKETING AND
STRATEGIC ALLIANCES
As explained in Chapter 1, relation- H&R Block partnered with Arizona’s private, Catholic school
ship marketing is a strategy that system in a marketing campaign highlighting the Private
entails seeking and establishing on-
Education Tax Credit.
going partnerships with customers.
Relationship marketing has become an
important business marketing strategy as customers have news conglomerate Time formed a strategic alliance with
become more demanding and competition has become wireless carrier Sprint. Under the partnership, Time’s
more intense. Loyal customers are also more profitable content would automatically be delivered to Sprint’s
than those who are price sensitive and perceive little or SprintZone app, which comes preloaded on all Sprint
no difference among brands or suppliers. devices. According to Cyrus Beagley, general manager
Relationship marketing is increasingly important as of Time’s Advertising Sales & Marketing Group, the pur-
business suppliers use platforms like Facebook, Twitter, pose of the partnership was to “create a really compel-
and other social networking sites to advertise themselves ling daily content snacking experience that leverages the
to businesses. Social networking sites encourage busi- breadth of our brands.”9
nesses to shop around and research options for all their Sometimes alliance partners are fierce competitors.
needs. This means that, for many suppliers, retaining their Take, for example, the partnership between Amazon
current customers has become a primary focus, whereas and Netflix. In 2014, Amazon introduced the Fire TV
acquiring new customers was the focus in the past. Main- and the Fire TV Stick, both of which allow users to
taining a steady dialogue between the supplier and the stream digital media to their home televisions. This
customer is a proven way to gain repeat business.8 product supports several media services, including
Netflix, despite that Netflix offers competing services.
Instead of trying to compete with Netflix, Amazon
7-3a Strategic Alliances
included its services in order to offer its customers a
A strategic alliance, sometimes called a strategic satisfactory product.10
partnership, is a cooperative agreement between Other alliances are formed between companies
business firms. Strategic alliances can take the form of that operate in completely different industries. For
licensing or distribution agreements, joint ventures, re- example, tax preparation company H&R Block part-
search and development consortia, and partnerships. nered with Arizona’s private Catholic school system in
They may be between manufacturers, manufacturers a marketing campaign highlighting the Private Educa-
and customers, manufacturers and suppliers, and manu- tion Tax Credit, which allows low-income students to at-
facturers and channel intermediaries. tend the state’s high-performing Catholic schools. The
Business marketers partnership generated good publicity for H&R Block
strategic alliance (strategic form strategic alliances to while effectively serving the schools’ customers (the
partnership) a cooperative strengthen operations and students’ parents). In the first year of the partnership,
agreement between business firms
better compete. In 2013, H&R Block clients generated $167,000 in tax credit
EXHIBIT 7.1 STRATEGIC ALLIANCE: STARBUCKS AND GREEN MOUNTAIN
Gives Gets
Starbucks Branded Coffee Market Share
Starbucks ground coffee Starbucks worldwide recognition allows
has worldwide recognition Green Mountain to steal market share from
and a strong market share. other single-pod brands that don’t carry
Starbucks brand coffee.
Starbucks Customers Stronger Brand Recognition
Starbucks customers are will- By offering the high-value Keurig brewing
ing to brew at home and tend machine at Starbucks stores, Green Moun-
to be affluent. tain is able to give its Keurig line stronger
branding.
Wayne0216/Shutterstock.com; Jaimie Duplass/Shutterstock.com

Existing Green Mountain Market Share
Customers Focused access to Keurig machine users
Current Green Mountain cus- in homes and businesses increases
tomers own Keurig machines Starbucks presence in those markets.
and brew single-pod coffee.
Technology Expanded Product Offering

Keurig machines and single- By selling Keurig machines and coffee
pod brewing technology pods in retail stores, Starbucks can offer
more products and more ways to drink
Starbucks coffee.
gifts, sending ninety-two students to private Catholic off thousands of employees and left the company strug-
schools.11 Exhibit 7.1 demonstrates the benefits Star- gling to restructure its business.
bucks and Green Mountain Coffee receive from each
other through their strategic alliance.
For an alliance to succeed in the long term, it must
7-3b Relationships in Other Cultures
be built on commitment and trust. Relationship Although the terms relationship marketing and strategic
commitment means that a firm believes an ongo- alliances are fairly new and popularized mostly by Amer-
ing relationship with some other firm is so important ican business executives and educators, the concepts
that it warrants maximum efforts at maintaining it in- have long been familiar in other cultures. Businesses in
definitely. 12 A perceived breakdown in commitment China, Japan, Korea, Mexico, and much of Europe rely
by one of the parties often leads to a breakdown in the heavily on personal relationships.
relationship. In Japan, for example, exchange between firms
Trust exists when one party has confidence in an is based on personal relationships that are developed
exchange partner’s reliability and integrity.13 Some alli- through what is called amae, or indulgent dependency.
ances fail when participants lack trust in their trading Amae is the feeling of nurturing concern for, and de-
partners. Consider, for example, the failed partnership pendence upon, an-
between Phones 4U, an independent phone retailer other. Reciprocity and relationship commitment a
based in the United Kingdom, and Vodaphone, a British personal relationships firm’s belief that an ongoing relationship
telecommunications company. While the two companies contribute to amae. with another firm is so important that
the relationship warrants maximum
could have created a successful partnership, Vodaphone Relationships between efforts at maintaining it indefinitely
made the decision to cut ties with Phones 4U in 2014.14 companies can develop
Vodaphone claimed that Phones 4U refused to improve into a keiretsu—a net- trust the condition that exists when
one party has confidence in an exchange
upon the terms of their agreement when the contract work of interlocking cor- partner’s reliability and integrity
came up for renewal, but Phones 4U believed that it was porate affiliates. Within
misled during negotiations and that cutting ties was an a keiretsu, executives keiretsu a network of interlocking
corporate affiliates
unfair decision. This decision forced Phones 4U to lay may sit on the boards of
their customers or their suppliers. Members of a
keiretsu trade with each other whenever possible and
often engage in joint product development, finance,
and marketing activity. For example, the Toyota
Group keiretsu includes 14 core companies and an-
other 170 that receive preferential treatment. Toyota
holds an equity position in many of these 170 mem-
ber firms and is represented on many of their boards
Linda Parton/Shutterstock.com
of directors.
Many firms have found that the best way to
compete in Asian countries is to form relationships
with Asian firms. For example, Google Enterprise
has allied with several Asian tech companies to in-
troduce its mapping and location-based services in
new Asian markets. Through these partnerships, Organizations like General Motors are OEMs
Google will bring its Maps platform to Ramco Ser- because they buy business goods and incorporate
vices’ cloud-based resource planning services (In- them into the products they produce.
dia), Hyundai and Kia Motors’ navigation systems
(South Korea), HSR International Realtors’ property
comparisons (Singapore), and Nintendo’s Wii U video
General Motors that buy steel, paint, tires, and batteries
game console (Japan).15
are said to be OEMs.
Resellers
7-4 MAJOR CATEGORIES OF 7-4b
The reseller market includes retail and wholesale busi-
BUSINESS CUSTOMERS nesses that buy finished goods and resell them for a
profit. A retailer sells mainly to final consumers; whole-
The business market consists of four major catego- salers sell mostly to retailers and other organizational
ries of customers: producers, resellers, governments, customers. There are approximately 1.5 million retailers
and institutions. and 500,000 wholesalers operating in the United States.
Consumer product firms like Procter & Gamble, Kraft
7-4a Producers Foods, and Coca-Cola sell directly to large retailers and
retail chains and through wholesalers to smaller retail
The producer segment of the business market includes
units. Retailing is explored in detail in Chapter 14.
profit-oriented individuals and organizations that use pur-
Business product distributors are wholesalers
chased goods and services to produce other products, to
that buy business products and resell them to busi-
incorporate into other products, or to facilitate the daily
ness customers. They often carry thousands of items
operations of the organization. Examples of producers in-
in stock and employ sales forces to call on business
clude construction, manufacturing, transportation, finance,
customers. Businesses that wish to buy a gross of pen-
real estate, and food service firms. In the United States,
cils or a hundred pounds of fertilizer typically pur-
there are more than thirteen million firms in the producer
chase these items from local distributors rather than
segment of the business market. Some of these firms are
directly from manufacturers such as Empire Pencil or
small, and others are among the world’s largest businesses.
Dow Chemical.
Producers are often called original equipment
manufacturers, or OEMs. This term includes all in-
dividuals and organizations
7-4c Governments
original equipment that buy business goods A third major segment of the business market is gov-
manufacturers (OEMs)
individuals and organizations that and incorporate them into ernment. Government organizations include thousands
buy business goods and incorporate the products they produce of federal, state, and local buying units. Collectively,
them into the products they produce for eventual sale to other these government units account for the greatest vol-
for eventual sale to other producers producers or to consum- ume of purchases of any customer category in the
or to consumers
ers. Companies such as United States.16
called Commerce Business Daily) unorganized,
and it often arrived too late to be useful. The
online version (www.cbd-net.com) is timelier
and allows contractors to find leads using key
word searches. Other examples of publications
designed to explain how to do business with
the federal government include Doing Busi-
ness with the General Services Administration,
Selling to the Military, and Selling to the U.S.
Air Force.
AP Images/Al Behrman
STATE, COUNTY, AND CITY GOVERNMENT
Selling to states, counties, and cities can be less
frustrating for both small and large vendors
than selling to the federal government. Paper-
work is typically simpler and more manageable
Companies like Kroger are resellers of products than it is at the federal level. But vendors must
offered by P&G and Coca-Cola. decide which of the more than 89,000 govern-
ment units are likely to buy their wares. State
Marketing to government agencies can be an over- and local buying agencies include school districts, high-
whelming undertaking, but companies that learn how the way departments, government-operated hospitals, hous-
system works can position themselves to win lucrative con- ing agencies, and many other departments and divisions.
tracts and build lasting, rewarding relationships.17 Market-
ing to government agencies traditionally has not been an 7-4d Institutions
activity for companies seeking quick returns. The apho-
The fourth major segment of the business market con-
rism “hurry up and wait” is often cited as a characteristic
sists of institutions that seek to achieve goals other than
of marketing to government agencies. Contracts for gov-
the standard business goals of profit, market share, and
ernment purchases are often put out for bid. Interested
return on investment. This segment includes schools,
vendors submit bids (usually sealed) to provide specified
hospitals, colleges and universities, churches, labor
products during a particular time. Sometimes the lowest
unions, fraternal organizations, civic clubs, foundations,
bidder is awarded the contract. When the lowest bidder
and other so-called nonbusiness organizations. Some in-
is not awarded the contract, strong evidence must be pre-
stitutional purchasers operate similar to governments in
sented to justify the decision. Grounds for rejecting the
that the purchasing process is influenced, determined,
lowest bid include lack of experience, inadequate financ-
or administered by government units. Other institu-
ing, or poor past performance. Bidding allows all potential
tional purchasers are organized more like corporations.19
suppliers a fair chance at winning government contracts
and helps ensure that public funds are spent wisely.
FEDERAL GOVERNMENT Name just about any good
or service and chances are that someone in the federal
7-5 THE NORTH AMERICAN INDUSTRY
government uses it. The U.S. federal government buys CLASSIFICATION SYSTEM
goods and services valued at more than $875 billion per
year, making it the world’s largest customer.18 The North American Industry Classification
Although much of the federal government’s buying System (NAICS) is an industry classification system
is centralized, no single federal agency contracts for all introduced in 1997 to replace the standard indus-
the government’s requirements, and no single buyer in trial classification system (SIC). NAICS (pronounced
any agency purchases all that the agency needs. We can nakes) is a system for
view the federal government as a combination of sev- classifying North Amer- North American Industry
Classification System (NAICS)
eral large companies with overlapping responsibilities ican business establish- a detailed numbering system developed
and thousands of small independent units. One popular ments. The system, by the United States, Canada, and
source of information about government procurement is developed jointly by the Mexico to classify North American
FedBizOpps. Until recently, businesses hoping to sell to United States, Canada, business establishments by their main
production processes
the federal government found the document (previously and Mexico, provides
EXHIBIT 7.2 HOW NAICS WORKS 7-6a Demand
Consumer demand for products is quite
CANADA
different from demand in the business
market. Unlike consumer demand, busi-
The more digits in the NAICS U. S. A. ness demand is derived, inelastic, joint,
code, the more homogeneous and fluctuating.
the groups at that level. MEXICO
DERIVED DEMAND The demand

NAICS Level NAICS Code Description for business products is called derived
Sector 51 Information
demand because organizations buy
products to be used in producing their
Subsector 513 Broadcasting and
telecommunications
customers’ products. For instance, the
number of drills or lathes that a manu-
Industry group 5133 Telecommunications
facturing firm needs is derived from,
Industry 51332 Wireless telecommunications
or based upon, the demand for prod-
carriers, except satellite
ucts that are produced using these ma-
Industry subdivision 513321 Paging
chines. Following the Great Recession,
California timber harvests fell by over
a common industry classification system for the North 50 percent due to dramatic reductions in building con-
American Free Trade Agreement (NAFTA) partners. struction. Since hitting a record low in 2009, the indus-
Goods- or service-producing firms that use identical or try has rebounded each year, due in part to increased
similar production processes are grouped together. exports of whole logs to China and a slowly recovering
NAICS is an extremely valuable tool for business construction industry in the United States.20 Because
marketers engaged in analyzing, segmenting, and target- demand is derived, business marketers must carefully
ing markets. Each classification group is relatively homo- monitor demand patterns and changing preferences in
geneous in terms of raw materials required, components final consumer markets, even though their customers
used, manufacturing processes employed, and problems are not in those markets. Moreover, business market-
faced. Therefore, if a supplier understands the needs and ers must carefully monitor their customers’ forecasts
requirements of a few firms within a classification, re- because derived demand is based on expectations of
quirements can be projected for all firms in that category. future demand for those customers’ products.
The number, size, and geographic dispersion of firms can Some business marketers not only monitor final
also be identified. This information can be converted to consumer demand and customer forecasts, but also try
market potential estimates, market share estimates, and to influence final consumer demand. Aluminum pro-
sales forecasts. It can also be used for identifying poten- ducers use television and magazine advertisements to
tial new customers. NAICS codes can help identify firms point out the convenience and recycling opportunities
that may be prospective users of a supplier’s goods and that aluminum offers to consumers who can choose
services. The more digits in a code, the more homoge- to purchase soft drinks in either aluminum or plastic
neous the group. A sample of how NAICS codes func- containers.
tion is listed in Exhibit 7.2. For a complete listing of all
INELASTIC DEMAND The demand for many business
NAICS codes, see www.naics.com/search.htm.
products is inelastic with regard to price. Inelastic de-
mand means that an increase or decrease in the price of
7-6 BUSINESS VERSUS the product will not significantly affect demand for the
product. This will be discussed further in Chapter 19.
CONSUMER MARKETS The price of a product used in the production of,
or as part of, a final product is often a minor portion of
The basic philosophy and practice of marketing the final product’s total price. Therefore, demand for
are the same whether the customer is a business the final consumer product is not affected. If the price
organization or a consumer. Business markets do, of automobile paint or spark plugs rises significantly,
however, have charac- say, 200 percent in one year, do you think the num-
derived demand the demand teristics different from ber of new automobiles sold that year will be affected?
for business products
consumer markets. Probably not.
Boeing’s Big Blunder
The success or failure of one bid can make the
difference between prosperity and bankruptcy.
By early 2013, Boeing had delivered 50 of the
848 orders placed for its new, top-of-the-line 787
Dreamliner aircraft. But when reports of onboard
fires and emergency landings began to emerge, all
iStockPhoto.com/Michael Krinke
fifty Dreamliners were grounded pending investi-
gation of a potentially faulty lithium-ion battery.
These events spelled potential disaster for Boeing.
The 848 orders were placed by just 56 customers,
some ordering as many as 74 units. Each Dreamliner
costs approximately $225 million, so a loss of even
one of the orders would be devastating. Boeing Crowds look on as a Boeing 787 Dreamliner
pledged to fix the problem as quickly as possible taxies to the runway at the Air-Venture
and resume production and delivery, but irrepa- airshow in Oshkosh, Wisconsin.
rable damage may have already been done to the
company’s sales and image.21
©StudioM1
JOINT DEMAND Joint demand occurs when two grinders may be needed, and Cummins will not replace
or more items are used together in a final product. For the worn ones. However, suppose that next year de-
example, a decline in the availability of memory chips mand returns to previous levels plus a little more. To
will slow production of microcomputers, which will in meet the new level of demand, Cummins will need to
turn reduce the demand for disk drives. Likewise, the replace the two machines that wore out in the previ-
demand for Apple operating systems exists as long as ous year, the two that wore out in the current year, plus
there is demand for Apple computers. Sales of the two one or more additional machines. The multiplier effect
products are directly linked. works this way in many industries, producing highly
FLUCTUATING DEMAND The demand for busi- fluctuating demand for business products.
ness products—particularly new plants and equip-
ment—tends to be less stable than the demand for
7-6b Purchase Volume
consumer products. A small increase or decrease in Business customers tend to buy in large quantities.
consumer demand can produce a much larger change Just imagine the size of Kellogg’s typical order for the
in demand for the facilities and equipment needed wheat bran and raisins used to manufacture Raisin
to make the consumer product. Economists refer Bran. Or consider that in 2013, the Chicago Transit
to this phenomenon as the multiplier effect (or Authority (CTA) be-
accelerator principle). gan accepting bids to joint demand the demand for
two or more items used together in a
Cummins Inc., a producer of heavy-duty diesel fulfill a purchase order final product
engines, uses sophisticated surface grinders to make of 846 new rail cars to
parts. Suppose Cummins is using 20 surface grinders. replace its aging fleet. multiplier effect (accelerator
principle) phenomenon in which a
Each machine lasts about 10 years. Purchases have The purchase bud- small increase or decrease in consumer
been timed so two machines will wear out and be re- get was estimated at demand can produce a much larger
placed annually. If the demand for engine parts does $2 billion—quite a bit change in demand for the facilities
not change, two grinders will be bought this year. If larger than the CTA’s and equipment needed to make the
consumer product
the demand for parts declines slightly, only eighteen $2.25 ride fare.22
7-6c Number of Customers categories. The mission of Alibaba.com is to allow
suppliers to reach a global audience and to help buy-
Business marketers usually have far fewer customers
ers quickly find the products and services they need.24
than consumer marketers. The advantage is that it is a
lot easier to identify prospective buyers, monitor current 7-6f Nature of Buying
customers’ needs and levels of satisfaction, and person-
ally attend to existing customers. The main disadvantage Unlike consumers, business buyers usually approach
is that each customer becomes crucial—especially for purchasing rather formally. Businesses use profession-
those manufacturers that have only one customer. In ally trained purchasing agents or buyers who spend their
many cases, this customer is the U.S. government. entire career purchasing a limited number of items.
They get to know the items and the sellers well. Some
7-6d Concentration of Customers professional purchasers earn the designation of Certi-
fied Purchasing Manager (CPM) after participating in a
Manufacturing operations in the United States tend to rigorous certification program.
be more geographically concentrated than consumer
markets. More than half of all U.S. manufacturers con- 7-6g Nature of Buying Influence
centrate the majority of their operations in the follow-
Typically, more people are involved in a single business
ing eight states: California, New York, Ohio, Illinois,
purchase decision than in a consumer purchase. Experts
Michigan, Texas, Pennsylvania, and New Jersey.23 Most
from fields as varied as quality control, marketing, and
large metropolitan areas host large numbers of busi-
finance, as well as professional buyers and users, may be
ness customers.
grouped in a buying center (discussed later in this chapter).
7-6e Distribution Structure 7-6h Type of Negotiations
Many consumer products pass through a distribu-
Consumers are used to negotiating price on automobiles
tion system that includes the producer, one or more
and real estate. In most cases, however, American con-
wholesalers, and a retailer. In business marketing,
sumers expect sellers to set the price and other condi-
however, because of many of the characteristics al-
tions of sale, such as time of delivery and credit terms.
ready mentioned, channels of distribution for busi-
In contrast, negotiating is common in business market-
ness marketing are typically shorter. Direct channels,
ing. Buyers and sellers negotiate product specifications,
where manufacturers market directly to users, are
delivery dates, payment terms, and other pricing mat-
much more common. The use of direct channels
ters. Sometimes these negotiations occur during many
has increased dramatically in the past decade with
meetings over several months. Final contracts are often
the introduction of various Internet buying and
very long and detailed.
selling schemes. One such technique is called a
business-to-business online exchange , which 7-6i Use of Reciprocity
is an electronic trading floor that provides companies
with integrated links to their customers and suppliers. Business purchasers often choose to buy from their own
The goal of B-to-B exchanges is to simplify business customers, a practice known as reciprocity. For ex-
purchasing and to make it more efficient. Alibaba ample, General Motors buys engines for use in its auto-
.com is a B-to-B e-commerce portal based in China mobiles and trucks from BorgWarner, which in turn buys
that allows companies from all over the world to many of the automobiles and trucks it needs from General
purchase goods and services from Chinese sup- Motors. This practice is neither unethical nor illegal un-
pliers. Recently, the Web site has begun expand- less one party coerces the other and the result is unfair
ing to include suppliers competition. Reciprocity is generally considered a rea-
from countries outside sonable business practice. If all possible suppliers sell a
business-to-business
of China, including the similar product for about the same price, does it not make
online exchange an
electronic trading floor that provides United States. Alibaba. sense to buy from those firms that buy from you?
companies with integrated links to com serves buyers in
their customers and suppliers
more than 190 countries
7-6j Use of Leasing
reciprocity a practice whereby worldwide and has sup- Consumers normally buy products rather than
business purchasers choose to buy pliers representing more lease them. But businesses commonly lease expen-
from their own customers
than 40 major product sive equipment such as computers, construction
equipment and vehicles, and automobiles. Leasing al-
lows firms to reduce capital outflow, acquire a seller’s
latest products, receive better services, and gain tax
advantages.
The leaser, the firm providing the product, may
be either the manufacturer or an independent firm.
The benefits to the leaser include greater total reve-
TFoxFoto/Shutterstock.com
nue from leasing compared to selling and an opportu-
nity to do business with customers who cannot afford
to buy.
7-6k Primary Promotional Method

Business marketers tend to emphasize personal sell- The market tends to set the price of raw
ing in their promotion efforts, especially for expensive materials, and individual producers have
items, custom-designed products, large-volume pur- little pricing flexibility.
chases, and situations requiring negotiations. The sale
of many business products requires a great deal of per-
sonal contact. Personal selling is discussed in more de- accessories are more often standardized and are usually
tail in Chapter 17. bought by more customers. These customers tend to be
widely dispersed. For example, all types of businesses
buy microcomputers.
7-7 TYPES OF BUSINESS PRODUCTS Local industrial distributors (wholesalers) play an
important role in the marketing of accessory equipment
Business products generally fall into one of the because business buyers often purchase accessories
following seven categories, depending on their from them. Regardless of where accessories are bought,
use: major equipment, accessory equipment, raw advertising is a more vital promotional tool for accessory
materials, component parts, processed materials, equipment than for major equipment.
supplies, and business services.
7-7c Raw Materials
7-7a Major Equipment Raw materials are unprocessed extractive or agri-
Major equipment includes capital goods such as large cultural products—for example, mineral ore, timber,
or expensive machines, mainframe computers, blast fur- wheat, corn, fruits, vegetables, and fish. Raw materi-
naces, generators, airplanes, and buildings. (These items als become part of finished products. Extensive users,
are also commonly called installations.) Major equip- such as steel or lumber mills and food canners, gen-
ment is depreciated over time rather than charged as an erally buy huge quantities of raw materials. Because
expense in the year it is purchased. In addition, major there is often a large
equipment is often custom designed for each customer. number of relatively small
sellers of raw materials, major equipment
Personal selling is an important part of the marketing (installations) capital goods
strategy for major equipment because distribution chan- none can greatly influ- such as large or expensive machines,
nels are almost always direct from the producer to the e n c e p r i c e o r s u p p l y. mainframe computers, blast furnaces,
Thus, the market tends to generators, airplanes, and buildings
business user.
set the price of raw mate- accessory equipment goods,
rials, and individual pro- such as portable tools and office
7-7b Accessory Equipment ducers have little pricing equipment, that are less expensive
and shorter-lived than major
Accessory equipment is generally less expensive and flexibility. Promotion is
equipment
shorter-lived than major equipment. Examples include almost always via personal
portable drills, power tools, microcomputers, and com- selling, and distribution raw materials unprocessed
extractive or agricultural products,
puter software. Accessory equipment is often charged as channels are usually di-
such as mineral ore, lumber, wheat,
an expense in the year it is bought rather than depreci- rect from producer to corn, fruits, vegetables, and fish
ated over its useful life. In contrast to major equipment, business user.
7-7d Component Parts 7-7e Processed Materials
Component parts are either finished items ready for Processed materials are products used directly in
assembly or products that need very little processing manufacturing other products. Unlike raw materials,
before becoming part of some other product. Caterpil- they have had some processing. Examples include sheet
lar diesel engines are component parts used in heavy- metal, chemicals, specialty steel, treated lumber, corn
duty trucks. Other examples include spark plugs, tires, syrup, and plastics. Unlike component parts, processed
and electric motors for automobiles. A special feature materials do not retain their identity in final products.
of component parts is that they can retain their identity Timber, harvested from forests, is a raw material.
after becoming part of the final product. For example, Fluff pulp, a soft, white absorbent, is produced from
automobile tires are clearly recognizable as part of a car. loblolly pine timber by mills such as International Paper
Moreover, because component parts often wear out, Co. The fluff pulp then becomes part of disposable dia-
they may need to be replaced several times during the pers, bandages, and other sanitary products.26
life of the final product. Thus, there are two important Most processed materials are marketed to OEMs
markets for many component parts: the OEM market or to distributors servicing the OEM market. Processed
and the replacement market. materials are generally bought according to customer
The availability of component parts is often a key specifications or to some industry standard, as is the case
factor in OEMs meeting their production deadlines. In with steel and plywood. Price and service are important
September 2013, a massive fire at an SK Hynix factory factors in choosing a vendor.
in Wuxi, China halted the manufacture of much of the
world’s OEM-grade computer memory. This greatly re- 7-7f Supplies
duced the availability of memory and sent the price of
Supplies are consumable items that do not become
the remaining inventory through the roof. The price of
part of the final product—for example, lubricants,
a single stick of memory jumped nearly 42 percent over-
detergents, paper towels, pencils, and paper. Supplies
night, forcing many OEMs to halt production while an
are normally standardized items that purchasing agents
alternate source could be found.25
routinely buy. Supplies typically have relatively short
The replacement market is composed of organiza-
lives and are inexpensive compared to other business
tions and individuals buying component parts to replace
goods. Because supplies generally fall into one of
worn-out parts. Because components often retain their
three categories—maintenance, repair, or operating
identity in final products, users may choose to replace
supplies—this category is often referred to as MRO
a component part with the same brand used by the
items. Competition in the MRO market is intense.
manufacturer—for example, the same brand of automo-
Bic and Paper Mate, for example, battle for business
bile tires or battery. The replacement market operates
purchases of inexpensive ballpoint pens.
differently from the OEM market, however. Whether
replacement buyers are organizations or individuals,
they tend to demonstrate the characteristics of consumer 7-7g Business Services
markets that were discussed in the previous section. Con- Business services are expense items that do not be-
sider, for example, a re- come part of a final product. Businesses often retain
component parts either placement part for a piece outside providers to perform janitorial, advertising, le-
finished items ready for assembly of construction equipment gal, management consulting, marketing research, main-
or products that need very little such as a bulldozer or a tenance, and other services. Contracting an outside
processing before becoming part of crane. When a piece of provider makes sense when it costs less than hiring or
some other product
equipment breaks down, assigning an employee to perform the task, when an out-
processed materials it is usually important to side provider is needed for particular expertise, or when
products used directly in acquire a replacement the need is infrequent.
manufacturing other products
part and have it installed
supplies consumable items as soon as possible. Pur-
that do not become part of the final
product
chasers typically buy from 7-8 BUSINESS BUYING BEHAVIOR
local or regional dealers.
business services expense Negotiations do not occur, As you probably have already concluded, busi-
items that do not become part of a and neither reciprocity nor ness buyers behave differently from consumers.
final product
leasing is usually an issue. Understanding how purchase decisions are made in
organizations is a first step in developing a business sell- Technical personnel are especially important as
ing strategy. Business buying behavior has five impor- influencers.
tant aspects: buying centers, evaluative criteria, buying ● Gatekeepers are group members who regulate the
situations, business ethics, and customer service. flow of information. Frequently, the purchasing agent
views the gatekeeping role as a source of his or her
7-8a Buying Centers power. A secretary may also act as a gatekeeper by
In many cases, more than one person is involved in a determining which vendors get an appointment with
purchase decision. A salesperson must determine the a buyer.
buying situation and the information required from the ● The decider is the person who has the formal or infor-
buying organization’s perspective to anticipate the size mal power to choose or approve the selection of the
and composition of the buying center.27 supplier or brand. In complex situations, it is often
A buying center includes all those people in difficult to determine who makes the final decision.
an organization who become involved in the purchase ● The purchaser is the person who actually negotiates
decision. Membership and influence vary from company the purchase. It could be anyone from the president
to company. For instance, in engineering-dominated of the company to the purchasing agent, depending
firms like Bell Helicopter, the buying center may consist on the importance of the decision.
almost entirely of engineers. In marketing-oriented
firms like Toyota and IBM, marketing and engineering
● Users are members of the organization who will actu-
have almost equal authority. In consumer goods firms ally use the product. Users often initiate the buying
like Clorox Corporation, product managers and other process and help define product specifications.
marketing decision makers may dominate the buying
IMPLICATIONS OF BUYING CENTERS FOR THE
center. In a small manufacturing company, almost
MARKETING MANAGER Successful vendors realize
everyone may be a member.
the importance of identifying who is in the decision-
The number of people involved in a buying center
making unit, each member’s relative influence in the
varies with the complexity and importance of a purchase
buying decision, and each member’s evaluative criteria.
decision. The average buying center includes more than
Key influencers are frequently located outside of the
one person and up to four per purchase.28 The composi-
purchasing department. Successful selling strategies
tion of the buying group will usually change from one
often focus on determining the most important buying
purchase to another and sometimes even during vari-
influences and tailoring sales presentations to the evalu-
ous stages of the buying process. To make matters more
ative criteria most important to these buying center
complicated, buying centers do not appear on formal
members. An example illustrating the basic buying
organization charts.
center roles is shown in Exhibit 7.3.
For example, even though a formal committee may
Marketers are often frustrated by their inability to
have been set up to choose a new plant site, it is only
reach c-level (chief) executives who play important roles
part of the buying center. Other people, like the com-
in many buying centers. Marketers who want to build
pany president, often play informal yet powerful roles.
executive-level contacts must become involved in the
In a lengthy decision-making process, such as finding
buying process early on. This is when eighty percent of
a new plant location, some members may drop out of
executives get involved—when major purchase decisions
the buying center when they can no longer play a useful
are being made. Executives often ensconce themselves
role. Others whose talents are needed then become part
in the buying process because they want to understand
of the center. No formal announcement of “who is in”
current business issues, establish project objectives, and
and “who is out” is ever made.
set the overall project strategy.29 Senior executives are
ROLES IN THE BUYING CENTER As in family pur- typically not involved in the middle phases of the buying
chasing decisions, several people may each play a role in process but often get involved again later in the process
the business purchase process: to monitor the deal’s closing. Executives look for four
● The initiator is the person who first suggests making characteristics in sales representatives:
a purchase. ● The ability to marshal
● Influencers/evaluators are people who influence the resources buying center all those people
in an organization who become
buying decision. They often help define specifica- ● An understanding of the
involved in the purchase decision
tions and provide information for evaluating options. buyer’s business goals
EXHIBIT 7.3 BUYING CENTER ROLES FOR COMPUTER PURCHASES 7-8b Evaluative Criteria
Business buyers evaluate products and sup-
Role Illustration pliers against three important criteria: qual-
Initiator Division general manager proposes to replace company’s ity, service, and price.
computer network.
QUALITY In this case, quality refers to
Influencers/evaluators Corporate controller’s o ce and vice president of informa- technical suitability. A superior tool can do
tion services have an important say in which system and
vendor the company will deal with. a better job in the production process and
superior packaging can increase dealer and
Gatekeepers Corporate departments for purchasing and information
services analyze company’s needs and recommend likely consumer acceptance of a brand. Evalua-
matches with potential vendors. tion of quality also applies to the salesperson
Decider Vice president of administration, with advice from others, and the salesperson’s firm. Business buyers
selects vendor the company will deal with and system it want to deal with reputable salespeople and
will buy. companies that are financially responsible.
Purchaser Purchasing agent negotiates terms of sale. Quality improvement should be part of ev-
Users All division employees use the computers. ery organization’s marketing strategy.
SERVICE Almost as much as they want

satisfactory products, business buyers want
● Responsiveness to requests satisfactory service. A purchase offers several opportuni-
● Willingness to be held accountable ties for service. Suppose a vendor is selling heavy equip-
ment. Prepurchase service could include a survey of
Some firms have developed strategies to reach the buyer’s needs. After thorough analysis of the survey
executives throughout the buying process and during findings, the vendor could prepare a report and recom-
non-buying phases of the relationship. For example, mendations in the form of a purchasing proposal. If a
FedEx Corp. has initiated a marketing effort called purchase results, postpurchase service might consist of
“access” aimed at c-level executives. It includes direct installing the equipment and training those who will be
mail, e-mail, and a custom magazine prepared exclu- using it. Postsale services may also include maintenance
sively for c-level executives. It also hosts exclusive and repairs.
leadership events for these senior executives. Other Another service that business buyers seek is de-
firms have developed programs utilizing a combina- pendability of supply. They must be able to count on
tion of print, online, and events to reach the elusive delivery of what was ordered when it is scheduled to be
c-level audience.30 delivered. Buyers also welcome services that help them
sell their finished products. Services of this sort are es-
pecially appropriate when the seller’s product is an iden-
tifiable part of the buyer’s end product.
PRICE Business buyers want to buy at low prices—at
the lowest prices, under most circumstances. How-
ever, a buyer who pressures a supplier to cut prices to
a point at which the supplier loses money on the sale
almost forces shortcuts on quality. The buyer also may,
View Apart/Shutterstock.com
in effect, force the supplier to quit selling to him or her.

Then a new source of supply will have to be found.
7-8c Buying Situations

Often, business firms, especially manufacturers, must
Some firms have developed strategies decide whether to make something or buy it from an
to reach “c-level” executives, with FedEx outside supplier. The decision is essentially one of
leading the way. economics. Can an item of similar quality be bought
at a lower price elsewhere? If not, is manufacturing it
in-house the best use of limited company resources? STRAIGHT REBUY A straight rebuy is a situation
For example, Briggs & Stratton Corporation, a major vendors prefer. The purchaser is not looking for new
manufacturer of four-cycle engines, might be able to information or other suppliers. An order is placed and
save $150,000 annually on outside purchases by spend- the product is provided as in previous orders. Usually,
ing $500,000 on the equipment needed to produce a straight rebuy is routine because the terms of the
gas throttles internally. Yet Briggs & Stratton could purchase have been agreed to in earlier negotiations. An
also use that $500,000 to upgrade its carburetor as- example would be the previously cited manufacturing
sembly line, which would save $225,000 annually. If a company purchasing additional radios for new managers
firm does decide to buy a product instead of making it, from the same supplier on a regular basis.
the purchase will be a new buy, a modified rebuy, or a One common instrument used in straight rebuy sit-
straight rebuy. uations is the purchasing contract. Purchasing contracts
NEW BUY A new buy is a situation requiring the pur- are used with products that are bought often and in high
chase of a product for the first time. For example, sup- volume. In essence, the purchasing contract makes the
pose a manufacturing company needs a better way to buyer’s decision making routine and promises the sales-
page its managers while they are working on the shop person a sure sale. The advantage to the buyer is a quick,
floor. Currently, each of the several managers has a dis- confident decision, and to the salesperson, reduced or
tinct ring—for example, two short and one long—that eliminated competition. Nevertheless, suppliers must
sounds over the plant intercom whenever he or she is remember not to take straight rebuy relationships for
being paged by anyone in the factory. The company de- granted. Retaining existing customers is much easier
cides to replace its buzzer system of paging with hand- than attracting new ones.
held wireless radio technology that will allow managers
to communicate immediately with the department ini-
7-8d Business Ethics
tiating the page. This situation represents the greatest As we noted in Chapter 3, ethics refers to the moral
opportunity for new vendors. No long-term relationship principles or values that generally govern the conduct of
has been established for this product, specifications may an individual or a group. Ethics can also be viewed as
be somewhat fluid, and buyers are generally more open the standard of behavior by which conduct is judged.
to new vendors. Although we have heard a lot about corporate misbe-
If the new item is a raw material or a critical compo- havior in recent years, most people, and most companies,
nent part, the buyer cannot afford to run out of supply. follow ethical practices. To help achieve this, over half
The seller must be able to convince the buyer that the of all major corporations offer ethics training to employ-
seller’s firm can consistently deliver a high-quality prod- ees. Many companies also have codes of ethics that help
uct on time. guide buyers and sellers. For example, Home Depot has
a clearly written code of ethics available on its corporate
MODIFIED REBUY A modified rebuy is normally
Web site that acts as an ethical guide for all its employees.
less critical and less time-consuming than a new buy. In
a modified rebuy situation, the purchaser wants some
change in the original good or service. It may be a new
7-8e Customer Service
color, greater tensile strength in a component part, more Business marketers are increasingly recognizing the
respondents in a marketing research study, or additional benefits of developing a formal system to monitor cus-
services in a janitorial contract. tomer opinions and perceptions of the quality of cus-
Because the two parties are familiar with each other tomer service. Companies
and credibility has been established, the buyer and seller such as FedEx, IBM, and new buy a situation requiring the
can concentrate on the specifics of the modification. But Oracle build their strat- purchase of a product for the first time
in some cases, modified rebuys are open to outside bid- egies not only around modified rebuy a situation
ders. The purchaser uses this strategy to ensure that the products but also around in which the purchaser wants some
new terms are competitive. An example would be the highly developed service change in the original good or service
manufacturing company buying radios with a vibrating skills. These companies
31
straight rebuy a situation in
feature for managers who have trouble hearing the ring understand that keeping which the purchaser reorders the
over the factory noise. The firm may open the bidding to current customers satis- same goods or services without
examine the price, quality, and service offerings of sev- fied is just as important as looking for new information or
investigating other suppliers
eral suppliers. attracting new ones, if not
superior service, a firm is more likely to
keep them happy, hopefully increasing
retention of these high-value custom-
ers and maximizing the total business
value they generate over time.
To achieve this goal, the firm must
be able to divide customers into two or
more groups based on their value. It
Source: Andersen Corporation

must also create and apply policies that
govern how service will be allocated
among groups. Policies might estab-
lish which customers’ phone calls get
“fast tracked” and which customers are
directed to use the Web and/or voice
Andersen Windows and Doors assesses the loyalty of its self-service, how specific e-mail ques-
trade customers by their willingness to carry its windows tions are routed, and who is given ac-
and doors. cess to online chat and who is not.
Providing different customers
more so. Leading-edge firms are obsessed not only with with different levels of service is a very sensitive matter.
delivering high-quality customer service but also with It must be handled very carefully and very discreetly
measuring satisfaction, loyalty, relationship quality, and to avoid offending lesser-value, but still important,
other indicators of nonfinancial performance. Deliver- customers.
ing consistent, high-quality customer service is an im-
portant basis for establishing competitive advantage and
differentiating one’s company from competitors. Cisco
Systems uses a Web-based survey to determine the pre-
sale and postsale satisfaction of customers.32
Most firms find it necessary to develop measures
unique to their own strategies, value propositions, and
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8 Segmenting and
Targeting Markets
Scott Cunningham/Getty Images Sport /Getty Images

LEARNING OUTCOMES
8-1 Describe the characteristics of markets and market segments 8-6 List the steps involved in segmenting markets
8-2 Explain the importance of market segmentation 8-7 Discuss alternative strategies for selecting target markets
8-3 Discuss the criteria for successful market segmentation 8-8 Explain how CRM can be used as a targeting tool
8-4 Describe the bases commonly used to segment consumer 8-9 Explain how and why firms implement positioning strategies
markets and how product differentiation plays a role
8-5 Describe the bases for segmenting business markets
8-1 MARKETS AND MARKET SEGMENTS

The term market means different things to different people. We
are all familiar with the supermarket, stock market, labor market,
fish market, and flea market. All these types of markets share
several characteristics. First, they are composed of people (consumer
markets) or organizations (business markets). Second, these people or
organizations have wants and needs that can be satisfied by particular
product categories. Third, they have the ability to buy the products
they seek. Fourth, they are willing to exchange their resources, usually
money or credit, for desired products. In sum, a market is (1) people or
organizations with (2) needs or wants and with (3) the
market
people or organizations with ability and (4) the willingness to buy. A group of
needs or wants and the ability and
willingness to buy people or an organization that lacks any one of these
characteristics is not a market.
Within a market, a market segment is a subgroup one beverage and aimed it at the entire soft drink mar-
of people or organizations sharing one or more charac- ket. Today, Coca-Cola offers more than a dozen different
teristics that cause them to have similar product needs. products to market segments based on diverse consumer
At one extreme, we can define every person and every preferences for flavors, calorie, and caffeine content.
organization in the world as a market segment because Coca-Cola offers traditional soft drinks, energy drinks
each is unique. At the other extreme, we can define the (including POWERade), flavored teas, fruit drinks
entire consumer market as one large market segment (Minute Maid), and water (Dasani).
and the business market as another large segment. All Market segmentation plays a key role in the mar-
people have some similar characteristics and needs, as keting strategy of almost all successful organizations and
do all organizations. is a powerful marketing tool for several reasons. Most
From a marketing perspective, market segments can important, nearly all markets include groups of people
be described as somewhere between the two extremes. or organizations with different product needs and pref-
The process of dividing a market into meaningful, rela- erences. Market segmentation helps marketers define
tively similar, and identifiable segments, or groups, is customer needs and wants more precisely. Because mar-
called market segmentation. The purpose of market ket segments differ in size and potential, segmentation
segmentation is to enable the marketer to tailor marketing helps decision makers to more accurately define mar-
mixes to meet the needs of one or more specific segments. keting objectives and better allocate resources. In turn,
performance can be better
market segment
8-2 THE IMPORTANCE OF MARKET evaluated when objectives
are more precise.
a subgroup of people or
organizations sharing one or more
SEGMENTATION Jax & Bones has suc- characteristics that cause them to
cessfully appealed to af- have similar product needs
Until the 1960s, few firms practiced market seg- fluent customers with market segmentation
mentation. When they did, it was more likely a haphaz- high-end pet products. For the process of dividing a market into
ard effort than a formal marketing strategy. Before 1960, example, the company pro- meaningful, relatively similar, and
identifiable segments or groups
for example, the Coca-Cola Company produced only duces a $200 dog bed that
CHAPTER 8: Segmenting and Targeting Markets 133
it sells in upscale retailers such as Bloomingdale’s, Pot- care. Unless the agency can measure how many peo-
tery Barn, and Barneys New York. The company’s owner ple are willing, indifferent, or unwilling to partici-
creates pet beds that reflect the latest colors, fabrics, tex- pate, it will have trouble gauging whether there are
tures, and styles. When memory foam became popular enough people to justify setting up the service.
in human beds, Jax & Bones added memory foam to its 3. Accessibility: The firm must be able to reach mem-
beds. Last year, when gray, silver, and blue were popular bers of targeted segments with customized mar-
in home design, these colors were incorporated into Jax keting mixes. Some market segments are hard to
& Bones’ beds.1 reach—for example, senior citizens (especially those
with reading or hearing disabilities), individuals who
do not speak English, and the illiterate.
8-3 CRITERIA FOR SUCCESSFUL 4. Responsiveness: Markets can be segmented using
SEGMENTATION any criteria that seem logical. Unless one market seg-
ment responds to a marketing mix differently than
Marketers segment markets for three important other segments, however, that segment need not be
reasons. First, segmentation enables marketers to treated separately. For instance, if all customers are
identify groups of customers with similar needs and to equally price conscious about a product, there is no
analyze the characteristics and buying behavior of these need to offer high-, medium-, and low-priced ver-
groups. Second, segmentation provides marketers with sions to different segments.
information to help them design marketing mixes spe-
cifically matched with the characteristics and desires of
one or more segments. Third, segmentation is consistent 8-4 BASES FOR SEGMENTING
with the marketing concept of satisfying customer wants
and needs while meeting the organization’s objectives.
CONSUMER MARKETS
To be useful, a segmentation scheme must produce
Marketers use segmentation bases, or variables,
segments that meet four basic criteria:
which are characteristics of individuals, groups,
1. Substantiality: A segment must be large enough or organizations, to divide a total market into seg-
to warrant developing and maintaining a special ments. The choice of segmentation bases is crucial be-
marketing mix. This criterion does not necessar- cause an inappropriate segmentation strategy may lead
ily mean that a segment must have many potential to lost sales and missed profit opportunities. The key is to
customers. For example, marketers of custom- identify bases that will produce substantial, measurable,
designed homes and business buildings, commercial and accessible segments that exhibit different response
airplanes, and large computer systems typically de- patterns to marketing mixes.
velop marketing programs tailored to each potential Markets can be segmented using a single variable,
customer’s needs. In most cases, however, a market such as age group, or several variables, such as age
segment needs many potential customers to make group, gender, and education. Although it is less precise,
commercial sense. In the 1980s, home banking single-variable segmentation has the advantage of being
failed because not enough people owned personal simpler and easier to use than multiple-variable segmen-
computers. Today, a larger number of people own tation. The disadvantages of multiple-variable segmenta-
computers, and home banking is a thriving industry. tion are that it is often harder to use than single-variable
2. Identifiability and measurability: Segments must segmentation; usable secondary data are less likely to be
be identifiable and their size measurable. Data about available; and as the number of segmentation bases in-
the population within geographic boundaries, the creases, the size of individual segments decreases. Nev-
number of people in various age categories, and oth- ertheless, the current trend is toward using more rather
er social and demographic characteristics are often than fewer variables to segment most markets. Multiple-
easy to get, and they provide fairly concrete measures variable segmentation is clearly more precise than
of segment size. Suppose that a social service agency single-variable segmentation.
wants to identify segments Consumer goods marketers commonly use one or
segmentation bases by their readiness to par- more of the following characteristics to segment mar-
(variables) characteristics of ticipate in a drug and alco- kets: geography, demographics, psychographics, benefits
individuals, groups, or organizations
hol program or in prenatal sought, and usage rate.
8-4a Geographic Segmentation children are developing products and services to at-
tract this group. For example, high-intensity fit-
Geographic segmentation refers ness company CrossFit recently developed
to segmenting markets by region of a
a program for kids in an attempt to tackle
country or the world, market size, mar-
childhood obesity. The coaches
ket density, or climate. Market density
for these group fitness classes
means the number of people within
create special workouts and
a unit of land, such as a census
games like “Hungry, Hun-
tract. Climate is commonly
gry Hippos” and “Farmers and
used for geographic segmen-
Sze
f ei /
Lumberjacks” to make classes fun and
tation because of its dramatic is t o
ck /
T hi
nks
kid-friendly.3
impact on residents’ needs and purchasing behav- toc
k The tween and teenage cohort follow-
ior. Snowblowers, water and snow skis, clothing, and
ing the Millennials is sometimes called Gen-
air-conditioning and heating systems are products with
eration Z. This group accounts for 25.9 percent of the U.S.
varying appeal, depending on climate.
population and contributes $44 billion to the U.S. econo-
Consumer goods companies take a regional approach
my.4 Born after 1995, Gen Zers are incredibly tech savvy,
to marketing for four reasons. First, many firms need to
have short attention spans, and do not distinguish between
find new ways to generate sales because of sluggish and
their online and offline friends. To reach this cohort, mar-
intensely competitive markets. Second, computerized
keters must make sure that their brands are communicated
checkout stations with scanners give retailers an accurate
consistently across different channels.5 To attract Genera-
assessment of which brands sell best in their region. Third,
tion Z, Google is considering offering user accounts to chil-
many packaged-goods manufacturers are introducing new
dren under the age of 13. These accounts will include a way
regional brands intended to appeal to local preferences.
for parents to control account usage. Similarly, Facebook
Fourth, a more regional approach allows consumer
allows teens age 13 to 17 to post publicly on its site.6 In
goods companies to react more quickly to competition.
another effort to reach tween shoppers, Macy’s joined with
Macy’s localizes the merchandising and shopping experi-
the ABC Family television network to offer apparel seen on
ence for every U.S. geographic region in which it operates.
the popular series Pretty Little Liars. While they shopped
For example, Macy’s stocks its downtown Chicago location
on the store’s Web site for clothing, teens and tweens had
to meet a high demand for women’s shoes in larger sizes,
the opportunity to chat live with one of the show’s stars.7
while it stocks its Long Island location to meet high de-
The Millennial market makes up 25 percent of
mand for electric coffee percolators. Men in some, but
the adult population in the United States.8 This group
not all, of Macy’s districts shop primarily for cuffed pants,
is the most educated, diverse, and technology-proficient
so the company adjusts its product offerings accordingly.2
generation ever. Most of their media consumption is
8-4b Demographic Segmentation online, including reading news and watching television
shows. Millennials have formidable purchasing power,
Marketers often segment markets on the basis of demo- but they distrust advertising and are more likely to lis-
graphic information because it is widely available and often to their peers regarding product decisions.9 The
ten related to consumers’ buying and consuming behavior. top brand attributes important to Millennials include
Some common bases of demographic segmentation trustworthiness, creativity, intelligence, authenticity,
are age, gender, income, ethnic background, and family and confidence. Millennials are more likely than other
life cycle. generations to take a company’s social responsibility into
AGE SEGMENTATION Marketers use a variety of account before making a purchase decision.10 Brands
terms to refer to different age groups. Examples include like TOMS Shoes and
newborns, infants, young children, tweens, Millennials, Warby Parker appeal to
geographic segmentation
Generation X, baby boomers, and seniors. Age segmen- this group because they of- segmenting markets by region of a
tation can be an important tool, as a brief exploration of fer social value and align country or the world, market size,
the market potential of several age segments illustrates. their brands with a higher market density, or climate
Many companies have long targeted parents of purpose. These brands also demographic segmentation
babies and young children with products such as dis- invite participation and co- segmenting markets by age, gender,
posable diapers, baby food, and toys. Recently, other creation, both of which ap- income, ethnic background, and
peal to Millennials.11 family life cycle
companies that have not traditionally marketed to young
Generation X is smaller than both the Millennials passive time, but as an active time they use to explore new
and the baby boomers, making up only sixteen percent of knowledge, travel, volunteer, and spend time with family
the total population. Members of Generation X are at a and friends.16 However, as consumers age, they do require
life stage where they are often stuck between supporting some modifications in the way they live and the prod-
their aging parents and young children (earning Gen X ucts they purchase. According to gerontologist Stephen
the nickname “the sandwich generation”). They grew up Golant, for example, aging individuals may need to install
as latchkey kids, meaning that they spent time alone at “well-placed handrails or grab bars, ramps, easy-access
home while their (often divorced) parents worked long bathrooms, easy-access kitchens, stair lifts, widened
into the night. They are the best-educated generation— doors or hallways, and modified sink faucets or cabinets”
29 percent have earned a bachelor’s degree or better. in their homes.17
They tend to be disloyal to brands and skeptical of big GENDER SEGMENTATION In the United States, wom-
business. Many of them are parents, and they make en make 85 percent of purchases of consumer goods
purchasing decisions with thought for and input from each year.18 They are an experienced purchasing group
their families.12 Gen Xers desire an experience, not just with the responsibility of purchasing the majority of
a product. This desire has led to an increase in offbeat household items. They also are increasingly part of
events such as Vancouver, Canada’s Dine Out Vancouver what were once considered all-male markets, such as fi-
food festival. More than a series of tastings and nancial markets. Women tend to view money and wealth
tours, the 17-day festival features experiences such as differently than men do. They do not seek to accumulate
a drag queen cabaret and dinner show inspired money for the sake of accumulation, but rather asso-
by the film The Birdcage, a brunch ciate it with security, independence, and quality
crawl, the Grape Debate (where top of life for themselves and their fam-
wine experts debate contemporary ilies. They also tend to research
topics), and prix fixe menus at more investments in-depth more than
than 230 restaurants throughout men do. Thus, financial advisors
the city.13 need to use different strategies
Recall from Chapter 4 that to appeal to women.19 Freshness
people born between 1946 and Burger, Japan’s biggest ham-
1964 are often called baby boom- burger chain, recently unveiled
ers. Boomers make up 24.7 per- a burger wrapper with the bottom
cent of the total population and half of a woman’s face printed on it.
they constitute almost one-third of As a woman eats a burger, she can
the adult population. According to the U.S. cover the bottom half of her face with
Consumer Expenditure Survey, baby boom- Mayakova/Shutterstock.com
the wrapper, making it appear that she is
ers outspend other generations by approximately $400 not chowing down, but is instead smiling serenely. After
billion a year.14 They are living longer, healthier, more ac- Freshness Burger launched the wrapper, sales to women
tive and connected lives, and will spend time and money jumped more than 200 percent.20 Marketers of products
doing whatever is necessary to maintain vitality as they such as clothing, cosmetics, food, personal-care items,
age. This group spends more than other age brackets on magazines, jewelry, and gifts still commonly segment
dining out, housing, alcohol, and healthcare. Moreover, markets by gender, and many of these marketers are go-
boomers’ spending on vehicles is growing faster than any ing after the less-traditional male market. For example,
other demographic. Marketers should target boomers Kraft used to target its Velveeta Shells and Cheese ex-
based on their core values, such as healthy eating and ag- clusively at busy moms. While conducting market re-
ing well. General Mills’ Cheerios ads have long focused search, Kraft “found a segment of men already making
on heart health to reach boomers, for example.15 and cooking Shells and Cheese that we frankly weren’t
Consumers age seventy and older are part of the war talking to,” said Tiphanie Maronta, senior brand man-
generation and the Great Depression generation. To- ager for Velveeta meals. To reach this new market, Kraft
gether, this group is often called the silent generation for developed a series of humorous Eat Like That Guy You
its ability to quietly persevere through great hardships. Know television ads that featured slacker heroes such as
The smallest generation of the last 100 years, members of limo drivers and ham radio operators.21 Similarly, Proct-
this group tend to live modestly, save their money, and be er & Gamble sponsored “man-aisles” in some Walmart,
civic minded. Many in this group view retirement not as a Target, and Walgreen’s stores in the U.S. and Canada.
popular music portrayed America’s diverse population.
Until the 1970s, ethnic foods were rarely sold except in
specialty stores. Increasing numbers of ethnic minorities
and increased buying power have changed this. Hispanic
Americans, African Americans, and Asian Americans are
the three largest ethnic groups in the United States. In
the American Southwest, Caucasian populations com-
prise less than half the population and have become
the minority to other ethnic groups combined. To meet
the needs and wants of expanding ethnic populations,
some companies, such as McDonald’s and Kmart, make
products geared toward specific ethnic groups. For ex-
ample, Kmart has teamed up with Selena Gomez and
Sofia Vergara, both popular Hispanic actors, to develop
clothing lines that appeal to Latina consumers.26 Many
Source: Facebook
department stores carry Fashion Fair Cosmetics, a line
of beauty products created specifically for (and marketed
toward) African American women.27
FAMILY LIFE CYCLE SEGMENTATION The demo-
These aisles group all men’s products in one place and graphic factors of gender, age, and income often do
use shelf displays and small TV screens to guide men to not sufficiently explain why consumer buying behavior
skin-care items.22
INCOME SEGMENTATION Income is a popular demo-
graphic variable for segmenting markets because income
level influences consumers’ wants and determines their
buying power. Many markets are segmented by income,
including the markets for housing, clothing, automobiles,
and food. Dollar stores, traditionally targeted at lower-
income consumers, surged in growth as they began to target
middle-income consumers during the Great Recession. In
2012, Dollar General announced that its fastest-growing
customer segment was shoppers who earned more than
$70,000 a year.23 Wholesale clubs Costco and Sam’s Club
appeal to many income segments. High-income custom-
ers looking for luxury want outstanding customer service.
Because they spend large amounts of money, luxury con-
sumers expect to be treated extraordinarily well and to
feel a personal connection to a product or brand. Luxury
product showrooms and retail locations must constantly Bennett Raglin/WireImage/Getty Images
evolve to accommodate these customers’ needs and to

provide an exceptional, high-tech in-store experience.24
On the other hand, some companies have found success
in marketing to the very poor. People living in developing
nations are emerging as reliable customers for multina-
tional companies like Coca-Cola and McDonald’s.25
ETHNIC SEGMENTATION In the past, ethnic groups in
the United States were expected to conform to a homog- Kmart has teamed up with Hispanic
enized, Anglo-centric ideal. This was evident both in how actress, Sofia Vergara, in order to appeal
mass-produced products were marketed as well as in the their clothing to Latina consumers.
selective way that films, television, advertisements, and
varies. Frequently, consumption patterns among peo- The life cycle stage consisting of the married-couple
ple of the same age and gender differ because they household used to be considered the traditional family
are in different stages of the family life cycle. The in the United States. Today, however, married couples
family life cycle (FLC) make up less than half of households, down from nearly
is a series of stages deter- eighty percent in the 1950s. Single adults are increas-
family life cycle (FLC)
a series of stages determined by a mined by a combination ingly in the majority. Already, unmarried Americans
combination of age, marital status, of age, marital status, and make up 42 percent of the workforce, 40 percent of
and the presence or absence of the presence or absence of home buyers, and one of the most potent consumer
children children. groups on record. Exhibit 8.1 illustrates numerous FLC
EXHIBIT 8.1 FAMILY LIFE CYCLE

Usual flow
Recycled flow Middle-aged
divorced
Traditional without
flow children
Young Middle-aged
divorced married
without without
children children
Middle-aged
Young Young Middle-aged
married
Young married married married Older Older
without
single without with with married unmarried
dependent
children children children
children
Middle-aged
Young Middle-aged
divorced
divorced divorced
without
with with
dependent
children children
children
Young single Young married or Young married Middle-aged Middle-aged Older married Older
Few financial divorced without or divorced with married or married or Drastic cut in unmarried
burdens children children divorced with divorced income Drastic cut in
Fashion Better off Home purchas- or without without Keep home income
opinion financially ing at peak children dependent Buy: medical Special need for
leaders than they Liquid assets Financial children appliances; attention,
Recreation will be in low position still Home medical care; affection, and
oriented near future Dissatisfied with better ownership products that security
Buy: basic Highest financial More wives at peak aid health, Buy: same
kitchen purchase rate position and work Most satisfied sleep, and medical and
equipment, and highest amount of Some children with financial digestion product needs
basic average money saved get jobs position and as other
furniture, purchase of Interested in Hard to money saved older group
cars, durables new products influence Interested in
equipment Buy: cars, Like advertised with travel,
for dating refrigerators, products advertising recreation,
game, stoves, Buy: washers, High average self-education
vacations sensible and dryers, purchase of Make gifts and
durable televisions, durables contributions
furniture, baby food, Buy: new and Not interested in
vacations chest rubs, more tasteful new products
cough furniture, Buy: vacations,
medicine, auto travel, luxuries, home
vitamins, dolls, unnecessary improvements
wagons, sleds, appliances,
skates boats, dental
services,
magazines
patterns and shows how families’ needs, incomes, re- LEED-certified appliances appeal to environmental-
sources, and expenditures differ at each stage. The hori- ly conscious “green” consumers. PepsiCo is promot-
zontal flow shows the traditional FLC. The lower part ing its no-calorie, sugar-free flavored water, Aquafina
of the exhibit gives some of the characteristics and pur- FlavorSplash, to consumers who are health conscious.
chase patterns of families in each stage of the traditional
● Geodemographics: Geodemographic segmentation
life cycle. The exhibit also acknowledges that about half
clusters potential customers into neighborhood life-
of all first marriages end in divorce. If young marrieds
style categories. It combines geographic, demograph-
move into the young divorced stage, their consumption
ic, and lifestyle segmentations. Geodemographic
patterns often revert to those of the young single stage
segmentation helps marketers develop marketing
of the cycle.
programs tailored to prospective buyers who live in
About four out of five divorced persons remarry by
small geographic regions, such as neighborhoods,
middle age and reenter the traditional life cycle, as indi-
or who have very specific lifestyle and demographic
cated by the “recycled flow” in the exhibit. Consumers
characteristics. College students, for example, often
are especially receptive to marketing efforts at certain
share similar demographics and lifestyles and tend
points in the life cycle. For example, baby boomers have
to cluster around campus. Knowing this, marketing
increased needs for health care services, while families
teams for startups and tech companies like Google
with babies need diapers, toys, and baby clothes.
often launch ambassador programs at insular col-
lege campuses. Student brand ambassadors for the
8-4c Psychographic Segmentation
Google Pizza Program bought pizza for their com-
Age, gender, income, ethnicity, FLC stage, and other puter science peers during tough times and around
demographic variables are usually helpful in devel- deadlines. This helped the company create buzz
oping segmentation strategies, but often, they do not and form ties with talented programmers. Through
paint the entire picture. Demographics provide the these programs, students are transformed into
skeleton, but psychographics add meat to the bones. word-of-mouth marketers to their geodemographic
Psychographic segmentation is market segmenta- peers.28
tion on the basis of the following psychographic segmen- Psychographic variables can be used individually to
tation variables: segment markets or can be combined with other vari-
● Personality: Personality reflects a person’s traits, at- ables to provide more detailed descriptions of market
titudes, and habits. Clothing is the ultimate person- segments. One approach is for marketers and adver-
ality descriptor. Fashionistas wear high-end, trendy tisers to purchase information from a collector, such
clothes, and hipsters enjoy jeans and T-shirts with as eXelate Media, in order to reach the audience they
tennis shoes. People buy clothes that they feel rep- want. eXelate, part of consumer research firm Nielsen,
resent their personalities and give others an idea of gathers information about Web-browsing habits through
who they are. cookies placed on Web sites. Nielsen, using eXelate,
organizes groups according to this information. One
● Motives: Marketers of baby products and life in-
group, the “young digerati,” includes 25- to 45-year-
surance appeal to consumers’ emotional motives—
olds who:
namely, to care for their loved ones. Using appeals
to economy, reliability, and dependability, carmakers ● Are tech savvy
like Subaru and Suzuki target customers with ratio- ● Are affluent
nal motives. Carmakers like Mercedes-Benz, Jaguar,
● Live in trendy condos
and Cadillac appeal to customers with status-related
motives. ● Read the Economist
Have an annual income psychographic
● Lifestyles: Lifestyle segmentation divides people ●
segmentation segmenting
into groups according to the way they spend their of $88,000
markets on the basis of
time, the importance of the things around them, An automaker can personality, motives, lifestyles, and
their beliefs, and socioeconomic characteristics such purchase that list and the geodemographics
as income and education. For example, record stores list of people who visit car geodemographic
specializing in vinyl are targeting young people who blogs and then target ads segmentation segmenting
are listening to independent labels and often pride to the young digerati inter- potential customers into
neighborhood lifestyle categories
themselves on being independent of big business. ested in cars.29
8-4d Benefit Segmentation corporations require vast amounts of computer stor-
age, but these giant enterprises make up just a small
Benefit segmentation is the process of grouping cus- percentage of the data storage market. When storage
tomers into market segments according to the benefits
manufacturer Actifio found that eighty percent of
they seek from the product. Most types of market seg-
its customers were midsize enterprises that bought
mentation are based on the assumption that this variable
computer storage in relatively modest batches of 100
and customers’ needs are related. Benefit segmentation
terabytes (about 100,000 gigabytes), it developed the
is different because it groups potential customers on
Actifio 100T, a storage appliance that allowed midsize
the basis of their needs or wants rather than on some
enterprises to scale up to two petabytes (about two
other characteristic, such as age or gender. The snack-
million gigabytes) of capacity. In this way, Actifio’s
food market, for example, can be divided into six benefit
80 percent of low-demand customers could transi-
segments: nutritional snackers, weight watchers, guilty
tion over time toward its 20 percent of high-demand
snackers, party snackers, indiscriminate snackers, and
customers.31
economical snackers.
Developing customers into heavy users is the goal
Customer profiles can be developed by examin-
behind many frequency/loyalty programs like the air-
ing demographic information associated with people
lines’ frequent flyer programs. Most supermarkets and
seeking certain benefits. This information can be used
other retailers have also designed loyalty programs that
to match marketing strategies with selected markets.
reward the heavy-user segment with deals available only
Dish Network developed Sling TV, a streaming live
to them, such as in-store coupon dispensing systems, loy-
television service that is available on devices such
alty card programs, and special price deals on selected
as gaming consoles and mobile devices, to appeal
merchandise.
to people who want to get away from traditional TV
sets and cable boxes. The service costs $20 a month
for a basic package (additional channels can be pur-
chased), and there are no set-up fees or commitments.
8-5 BASES FOR SEGMENTING
Sling TV emphasizes family-friendly programming,
which is especially attractive to families with young
BUSINESS MARKETS
children.30 The business market consists of four broad seg-
ments: producers, resellers, government, and insti-
8-4e Usage-Rate Segmentation tutions. (For a detailed discussion of the characteristics
Usage-rate segmentation divides a market by the of these segments, see Chapter 7.) Whether marketers
amount of product bought or consumed. Categories focus on only one or on all four of these segments, they
vary with the product, but they are likely to include are likely to find diversity among potential customers.
some combination of the following: former users, po- Thus, further market segmentation offers just as many
tential users, first-time users, light or irregular users, benefits to business marketers as it does to consumer
medium users, and heavy users. Segmenting by usage product marketers.
rate enables marketers to focus their efforts on heavy
users or to develop multiple marketing mixes aimed
at different segments. Because heavy users often ac-
8-5a Company Characteristics
count for a sizable portion Company characteristics, such as geographic location,
benefit segmentation the of all product sales, some type of company, company size, and product use, can be
process of grouping customers into marketers focus on the important segmentation variables. Some markets tend
market segments according to the heavy-user segment. to be regional because buyers prefer to purchase from
benefits they seek from the product The 80/20 principle local suppliers, and distant suppliers may have difficul-
usage-rate segmentation holds that 20 percent of ty competing in terms of price and service. Therefore,
dividing a market by the amount of all customers generate 80 firms that sell to geographically concentrated industries
product bought or consumed percent of the demand. benefit by locating close to their markets.
80/20 principle a principle Although the percentag- Segmenting by customer type allows business mar-
holding that 20 percent of all es usually are not exact, keters to tailor their marketing mixes to the unique needs
customers generate 80 percent of the general idea often of particular types of organizations or industries. For ex-
the demand
holds true. Multinational ample, the Amazon Webstore platform allows businesses
from single-person operations to multinational corpora- style, tolerance for risk, confidence level, job respon-
tions to operate Amazon-hosted online shops. Entrepre- sibilities, and so on) influence their buying behavior
neurs can easily set up templatized shops featuring prod- and thus offer a viable basis for segmenting some busi-
ucts that are warehoused and fulfilled by Amazon, while ness markets.
enterprise-level corporations like Fruit of the Loom,
Spalding, and Bacardi can use the platform to manage
large-scale, customized Web stores. Amazon Webstore’s
Web site, http://webstore.amazon.com, caters to compa- 8-6 STEPS IN SEGMENTING
nies’ diverse needs with an array of hosting packages and
information pages segmented by both business size and
A MARKET
business type.32 The purpose of market segmentation, in both con-
Volume of purchase (heavy, moderate, light) is a sumer and business markets, is to identify market-
commonly used basis for business segmentation. An- ing opportunities.
other is the buying organization’s size, which may affect
its purchasing procedures, the types and quantities of 1. Select a market or product category for study:
products it needs, and its responses to different mar- Define the overall market or product category to be
keting mixes. Banks frequently offer different services, studied. It may be a market in which the firm already
lines of credit, and overall attention to commercial competes, a new but related market or product cat-
customers based on their size. Many products, espe- egory, or a totally new market.
cially raw materials like steel, wood, and petroleum, 2. Choose a basis or bases for segmenting the mar-
have diverse applications. How customers use a prod- ket: This step requires managerial insight, creativity,
uct may influence the amount they buy, their buying and market knowledge. There are no scientific
criteria, and their selection of vendors. For example, a procedures for selecting segmentation variables.
producer of springs may have customers who use the However, a successful segmentation scheme must
product in applications as diverse as making machine produce segments that meet the four basic criteria
tools, bicycles, surgical devices, office equipment, tele- discussed earlier in this chapter.
phones, and missile systems. 3. Select segmentation descriptors: After choos-
ing one or more bases, the marketer must select the
8-5b Buying Processes segmentation descriptors. Descriptors identify the
specific segmentation variables to use. For example,
Many business marketers find it helpful to segment cus- if a company selects demographics as a basis of seg-
tomers and prospective customers on the basis of how mentation, it may use age, occupation, and income
they buy. For example, companies can segment some as descriptors. A company that selects usage-rate
business markets by ranking key purchasing criteria, segmentation needs to decide whether to go after
such as price, quality, technical support, and service. heavy users, nonusers, or light users.
Atlas Overhead Door has developed a commanding
4. Profile and analyze segments: The profile should
position in the industrial door market by providing cus-
include the segments’ size, expected growth, pur-
tomized products in just 4 weeks, which is much faster
chase frequency, current brand usage, brand loy-
than the industry average of 12 to 15 weeks. Atlas’s pri-
alty, and long-term sales and profit potential. This
mary market is companies with an immediate need for
information can then be used to rank potential
customized doors.
market segments by profit opportunity, risk, con-
The purchasing strategies of buyers may provide
sistency with organi-
useful segments. Two purchasing profiles that have been
zational mission and satisficers business customers
identified are satisficers and optimizers. Satisficers who place an order with the first
objectives, and other
contact familiar suppliers and place the order with the familiar supplier to satisfy product
factors important to
first one to satisfy product and delivery requirements. and delivery requirements
the firm.
Optimizers consider numerous suppliers (both famil- optimizers business customers
iar and unfamiliar), solicit bids, and study all proposals 5. Select markets: Se- who consider numerous suppliers
carefully before selecting one. lecting markets is not (both familiar and unfamiliar), solicit
The personal characteristics of the buyers them- a part of but a natu- bids, and study all proposals carefully
before selecting one
selves (their demographic characteristics, decision ral outcome of the
with its 77 kids stores. However, some segments are
Too Many Cooks targeted by too many players, and choosing to enter
those kinds of segments can be particularly challeng-
ing. For example, there are so many online fashion
Campbell Soup Co. has classified home cooks stores using flash sales to attract bargain hunters that
into six distinct profile types: the passion- DailyWorth put together a list of nine that it thinks
ate kitchen master, the familiar taste pleaser, are actually worth visiting.34
the familiar taste pleaser (Mexican), the con-
strained wishful eater, the disciplined health
manager, and the uninvolved quick fixer. The
company uses these types as a foundation to
8-7 STRATEGIES FOR SELECTING
develop and market new products and create TARGET MARKETS
recipes. For example, the passionate kitchen
master loves to cook, usually has the time to So far, this chapter has focused on the market
do so, and knows how to make many dishes segmentation process, which is only the first
without a recipe. On the other end of the spec- step in deciding whom to approach about buy-
trum is the uninvolved quick fixer, who doesn’t ing a product. The next task is to choose one or
enjoy cooking and would be happy to snack all more target markets. A target market is a group
day. Campbell’s develops unique approaches of people or organizations for which an organization
for each, as members of one market will not designs, implements, and maintains a marketing mix
likely be persuaded to buy by a marketing mix intended to meet the needs of that group, resulting in
targeted at the other. 33 mutually satisfying exchanges.
Because most markets will include customers with
different characteristics, lifestyles, backgrounds, and
segmentation process. It is a major decision that income levels, it is unlikely that a single marketing mix
influences and often directly determines the firm’s will attract all segments of the market. Thus, if a mar-
marketing mix. This topic is examined in greater de- keter wishes to appeal to more than one segment of
tail later in this chapter. the market, it must develop different marketing mixes.
The three general strategies for selecting target mar-
6. Design, implement, and maintain appropriate
kets—undifferentiated, concentrated, and multisegment
marketing mixes: The marketing mix has been de-
targeting—are illustrated in Exhibit 8.2, which also il-
scribed as product, place (distribution), promotion,
lustrates the advantages and disadvantages of each tar-
and pricing strategies intended to bring about a mu-
geting strategy.
tually satisfying exchange relationship with a market.
These topics are explored in detail in Chapters 10
through 20. 8-7a Undifferentiated Targeting
Markets are dynamic, so it is important that com- A firm using an undifferentiated targeting
panies proactively monitor their segmentation strat- strategy essentially adopts a mass-market philoso-
egies over time. Often, once customers or prospects phy, viewing the market as one big market with no
have been assigned to a segment, marketers think individual segments. The firm uses one marketing
their task is done. Once customers are assigned to an mix for the entire market. A firm that adopts an undif-
age segment, for example, they stay there until they ferentiated targeting strategy assumes that individual
reach the next age bracket or category, which could be customers have similar needs that can be met with a
ten years in the future. Thus, the segmentation clas- common marketing mix.
sifications are static, but the customers and prospects The first firm in an industry sometimes uses an un-
are changing. Dynamic differentiated targeting strategy. With no competition,
target market a group of segmentation approaches the firm may not need to tailor marketing mixes to the
people or organizations for which an
organization designs, implements,
adjust to fit the changes preferences of market segments. Henry Ford’s famous
and maintains a marketing mix that occur in customers’ comment about the Model T is a classic example of
intended to meet the needs of lives. For example, Amer- an undifferentiated targeting strategy: “They can have
that group, resulting in mutually ican Eagle mainly targets their car in any color they want, as long as it’s black.”
satisfying exchanges
10-year-old boys and girls At one time, Coca-Cola used this strategy with a single
EXHIBIT 8.2 ADVANTAGES AND DISADVANTAGES OF TARGET MARKETING STRATEGIES
Targeting Strategy Advantages Disadvantages
Undifferentiated Targeting Potential savings on production/ Unimaginative product o erings
marketing costs
Company more susceptible to competition
Concentrated Targeting Concentration of resources Segments too small or changing
Can better meet the needs of a narrowly Large competitors may more e ectively market
defined segment to niche segment
Allows some small firms to better compete
with larger firms
Strong positioning
Multisegment Targeting Greater financial success High costs
Economies of scale in producing/ Cannibalization
marketing
product and a single size of its familiar green bottle. consumer market, the product is differentiated with
Marketers of commodity products, such as flour and designer print or no print, as cushioned or noncush-
sugar, are also likely to use an undifferentiated target- ioned, and as economy priced or luxury priced. Undif-
ing strategy. ferentiated marketing can succeed in certain situations,
One advantage of undifferentiated marketing is the though. A small grocery store in a small, isolated town
potential for saving on production and marketing. Be- may define all of the people who live in the town as
cause only one item is produced, the firm should be able its target market. It may offer one marketing mix and
to achieve economies of mass production. Also, market- generally satisfy everyone in town. This strategy is not
ing costs may be lower when there is only one product to likely to be as effective if there are three or four grocery
promote and a single channel of distribution. Too often, stores in town.
however, an undifferentiated strategy emerges by default
rather than by design, reflecting a failure to consider the
advantages of a segmented approach. The result is often
8-7b Concentrated Targeting
sterile, unimaginative product offerings that have little With a concentrated targeting strategy, a firm
appeal to anyone. selects a market niche (one segment of a market) for
Another problem associated with undifferentiated targeting its marketing efforts. Because the firm is ap-
targeting is that it makes the company more suscep- pealing to a single segment, it can concentrate on un-
tible to competitive inroads. Hershey lost a big share derstanding the needs, motives, and satisfactions of that
of the candy market to Mars and other candy com- segment’s members and on developing and maintain-
panies before it changed to a multisegment targeting ing a highly specialized marketing mix. Some firms find
strategy. Coca-Cola forfeited its position as the lead- that concentrating resources and meeting the needs of
ing seller of cola drinks in supermarkets to PepsiCo in a narrowly defined market
the late 1950s, when Pepsi began offering several sizes segment is more profitable undifferentiated targeting
of containers. than spreading resources strategy a marketing approach
You might think a firm producing a standard prod- over several different seg- that views the market as one big
market with no individual segments
uct such as toilet tissue would adopt an undifferenti- ments. and thus uses a single marketing mix
ated strategy. However, this market has industrial seg- Intelligentsia Coffee
ments and consumer segments. Industrial buyers want & Tea, a Chicago-based concentrated targeting
strategy a strategy used to
an economical, single-ply product sold in boxes of a coffee roaster/retailer, tar- select one segment of a market for
hundred rolls (or jumbo rolls a foot in diameter to use gets serious coffee drinkers targeting marketing efforts
in public restrooms). The consumer market demands a with hand-roasted, ground,
niche one segment of a market
more versatile product in smaller quantities. Within the and poured super-gourmet
marketing older children’s clothing, women’s
casual clothes, and maternity wear were
all abandoned. Recognizing it was in the
children’s wear business, the company ex-
panded into products such as kids’ shoes,
children’s eyewear, and plush toys.
A concentrated strategy can also be
disastrous for a firm that is not success-
ful in its narrowly defined target mar-
ket. Before Procter & Gamble (P&G)
introduced Head & Shoulders shampoo,
several small firms were already sell-
Daniel Acker/Bloomberg /Getty Images

ing antidandruff shampoos. Head &
Shoulders was introduced with a large
promotional campaign, and the new
brand captured over half the market im-
mediately. Within a year, several of the
firms that had been concentrating on this
market segment went out of business.
A bag of Intelligentsia coffee sits on a shelf before
being shipped from the company’s Chicago, Illinois 8-7c Multisegment Targeting
headquarters A firm that chooses to serve two or more
well-defined market segments and devel-
ops a distinct marketing mix for each has a
coffee or tea served by seriously educated baristas. The multisegment targeting strategy. P&G offers 18
company also offers training classes for the at-home different laundry detergents, each targeting a different
or out-of-town coffee aficionado. Starting price—$200 segment of the market. For example, Tide is a tough,
per class. powerful cleaner, and Era is good for stain treatment
Small firms often adopt a concentrated targeting and removal. Zipcar, a membership-based car sharing
strategy to compete effectively with much larger firms. company that provides car rentals to its members bill-
For example, Enterprise Rent-A-Car, number one in the able by the hour or day, shifted its targeting strategy
car rental industry, started as a small company catering from urban centers, adding services for business and
to people with cars in the shop. Some other firms use a universities like the University of Minnesota, which has
concentrated strategy to establish a strong position in a five Zipcar stations located around its campus. On cam-
desirable market segment. Porsche, for instance, targets puses across the nation, Zipcar targeting is further sub-
an upscale automobile market through “class appeal, not divided into faculty/staff and student markets.35
mass appeal.” Multisegment targeting offers many potential
Concentrated targeting violates the old adage benefits to firms, including greater sales volume,
“Don’t put all your eggs in one basket.” If the chosen seg- higher profits, larger market share, and economies
ment is too small or if it shrinks because of environmen- of scale in manufacturing and marketing. Yet it may
tal changes, the firm may suffer negative consequences. also involve greater product design, production, pro-
For instance, OshKosh motion, inventory, marketing research, and manage-
B’gosh was highly success- ment costs. Before deciding to use this strategy, firms
multisegment targeting
strategy a strategy that chooses ful selling children’s wear should compare the benefits and costs of multiseg-
two or more well-defined market in the 1980s. It was so ment targeting to those of undifferentiated and con-
segments and develops a distinct successful, however, that centrated targeting.
marketing mix for each the children’s line came to Another potential cost of multisegment targeting is
cannibalization a situation that define OshKosh’s image to cannibalization, which occurs when sales of a new
occurs when sales of a new product the extent that the com- product cut into sales of a firm’s existing products. For
cut into sales of a firm’s existing pany could not sell clothes example, as sales of Apple’s iPad mini have risen, sales
products
to anyone else. Attempts at of the 9.7-inch iPad have fallen—so much so that Sharp
As many firms have discovered,
a detailed and segmented under-
standing of customers can be ad-
vantageous. There are at least four
trends that will lead to the con-
tinuing growth of CRM: personal-
Stan Carroll/The Commercial Appeal/ZUMA Press, Inc/Alamy

ization, time savings, loyalty, and
technology.
● Personalization: One-size-fits-
all marketing is no longer rel-
evant. Consumers want to be
treated as the individuals they
are, with their own unique sets
of needs and wants. By its per-
sonalized nature, CRM can fulfill
this desire.
Zipcar representative Travis Reik explains the car sharing Time savings: Direct and per- ●
process to University of Mississippi junior, Abby Oliver, sonal marketing efforts will con-
shortly after Ole Miss accounced a partnership with the tinue to grow to meet the needs
of consumers who no longer have
company.
the time to spend shopping and
making purchase decisions. With
Corp had to significantly cut back its production of the personal and targeted nature of CRM, consum-
the larger iPad’s screens. Given that the tablet market ers can spend less time making purchase decisions
continues to grow rapidly, this trend suggests that buy- and more time doing the things that are important
ers may be choosing the less-expensive mini over the to them.
larger option—not opting for both, as Apple might have ● Loyalty: Consumers will be loyal only to those com-
hoped.36
panies and brands that have earned their loyalty and
reinforced it at every purchase occasion. CRM tech-
niques focus on finding a firm’s best customers, re-
8-8 CRM AS A TARGETING TOOL warding them for their loyalty, and thanking them for
their business.
Recall from Chapter 1 that CRM entails tracking ● Technology: Mass-media approaches will decline in
interactions with customers to optimize customer importance as advances in market research and da-
satisfaction and long-term company profits. Com- tabase technology allow marketers to collect detailed
panies that successfully implement CRM tend to cus- information on their customers. New technology of-
tomize the goods and services offered to their customers fers marketers a more cost-effective way to reach
based on data generated through interactions between customers and enables businesses to personalize their
carefully defined groups of customers and the compa- messages. For example, My.Yahoo.com greets each
ny. CRM can also allow marketers to target customers user by name and offers information in which the user
with extremely relevant offerings. Birchbox, a compa- has expressed interest. Similarly, RedEnvelope.com
ny that creates custom boxes of beauty, grooming, and helps customers keep track of special occasions and
lifestyle product samples, uses CRM to personalize the offers personalized gift recommendations. With the
customer experience. Birchbox reps get to know each help of database technology, CRM can track a busi-
customer via profile information, carefully monitoring ness’s customers as individuals, even if they number
product reviews, and general activity on the company’s in the millions.
Web site. They then put together customized samples
and editorial content that feels personal to customers. CRM is a huge commitment and often requires
If a customer likes a sample, he can use Birchbox to buy a 180-degree turnaround for marketers who spent
the full product. 37 the last half of the twentieth century developing and
implementing mass-marketing ef-
forts. Although mass marketing
will probably continue to be used,
especially to create brand aware-
ness or to remind consumers of a
product, the advantages of CRM
cannot be ignored.
8-9 POSITIONING
Marketers segment their mar-
kets and then choose which
segment, or segments, to
AP Images/Wilfredo Lee
target with their marketing
mix. Then, based on the target
market(s), they can develop the
product’s positioning, a pro-
cess that influences potential Unique menu items help Kentucky Fried Chicken differentiate
customers’ overall perception of
itself from other fast-food fried chicken restaurants.
a brand, product line, or organi-
zation in general. Position is the
place a product, brand, or group of products occupies rebrand and reposition ailing cable television channel
in consumers’ minds relative to competing offerings. G4 as the Esquire Network. Transitioning away from a
Consumer goods marketers are particularly concerned focus on nerd culture, video games, and immature hu-
with positioning. Coca-Cola has multiple cola brands, mor, the channel was repositioned to target men age 18
each positioned to target a different market. For exam- to 49 who are upwardly mobile and highly educated—a
ple, Coca-Cola Zero is positioned on its bold taste and demographic NBC Universal believes is underserved
zero calories, Caffeine Free Coca-Cola is positioned by current television offerings. While certain G4 pro-
as a no-caffeine alternative, and Tab is positioned as a grams like American Ninja Warrior were carried over
cola drink for dieters.38 to the new network, new programs focusing on cook-
Positioning assumes that consumers compare prod- ing and travel were added to appeal to an older, more
ucts on the basis of important features. Marketing efforts sophisticated demographic.39 One positioning strategy
that emphasize irrelevant features are therefore likely to that many firms use to distinguish their products from
misfire. For example, Crystal Pepsi and a clear version competitors is based on product differentiation.
of Coca-Cola’s Tab failed because consumers perceived The distinctions between products can be either real
the “clear” positioning as more of a marketing gimmick or perceived. For example, Kentucky Fried Chicken
than a benefit. differentiates itself from other fast-food fried chicken
Effective positioning restaurants with its secret blend of eleven herbs and
positioning developing a requires assessing the posi- spices (perceived), as well as unique offerings like the
specific marketing mix to influence
tions occupied by compet- Double Down, Famous Bowl, and Bucket & Bites
potential customers’ overall
perception of a brand, product line, ing products, determining Meal (real).40 However, many everyday products, such
or organization in general the important dimensions as bleaches, aspirin, unleaded regular gasoline, and
underlying these posi- some soaps, are differentiated by such trivial means
position the place a product,
brand, or group of products occupies tions, and choosing a posi- as brand names, packaging, color, smell, or “secret”
in consumers’ minds relative to tion in the market where additives. The marketer attempts to convince con-
competing offerings the organization’s market- sumers that a particular brand is distinctive and that
product differentiation a ing efforts will have the they should demand it.
positioning strategy that some firms greatest impact. In 2013, Some firms, instead of using product differentiation,
use to distinguish their products NBC Universal partnered position their products as being similar to competing
from those of competitors
with Esquire magazine to products or brands. Two examples of this positioning are
its products, Seventh Generation focuses
PERCEPTUAL MAP AND POSITIONING STRATEGY
EXHIBIT 8.3 on removing common toxins and chemi-
FOR SAKS DEPARTMENT STORES cals from household products to make
them safe for everyone in the household.
Positioning Bases
Spending Levels ● Price and quality: This positioning
BEST base may stress high price as a sig-
Chanel, Gucci, Louis Vuitton, nal of quality or emphasize low price
Oscar de la Renta, Bill Blass as an indication of value. Neiman
Marcus uses the high-price strategy;
Walmart has successfully followed
Positions
the low-price and value strategy. The
mass merchandiser Target has devel-
oped an interesting position based
on price and quality. It is an “upscale
“PARK AVENUE” discounter,” sticking to low prices
Preferred classic “UPTOWN” modern “SOHO” trendy
Styles but offering higher quality and de-
BETTER sign than most discount chains.
Piazza Sempione, Armani
Collezioni, Ralph Lauren ● Use or application: Stressing uses or
applications can be an effective means
of positioning a product with buyers.
Danone introduced its Kahlúa liqueur
using advertising to point out 228 ways
GOOD
to consume the product.
Dana Buchman, Ellen
Tracy, Lafayette, 148 Product user: This positioning base
●
focuses on a personality or type of

user. Gap Inc. has several different
artificial sweeteners advertised as tasting like sugar and brands: Gap stores offer basic casual pieces, such as
margarine as tasting like butter. jeans and T-shirts, to middle-of-the-road consum-
ers at mid-level prices; Old Navy offers low-priced,
trendy casual wear geared to youth and college-age
8-9a Perceptual Mapping groups; and Banana Republic is a luxury brand offer-
Perceptual mapping is a means of displaying or ing fashionable, luxurious business and casual wear
graphing, in two or more dimensions, the location of to twenty-five- to thirty-five-year-olds.41
products, brands, or groups of products in customers’ ● Product class: The objective here is to position the
minds. For example, Saks Incorporated, the department product as being associated with a particular category
store chain, stumbled in sales when it tried to attract a of products—for example, positioning a margarine
younger core customer. To recover, Saks invested in rebrand with butter. Alternatively, products can be dis-
search to determine its core customers in its fifty-four associated with a category.
stores across the country. The perceptual map in Exhibit
8.3 shows how Saks uses customer demographics such ● Competitor: Positioning against competitors is part
as spending levels and preferred styles to build a matrix of any positioning strategy. Apple positions the iPhone
that charts the best mix of clothes and accessories to as cooler and more up-to-date than Windows-based
stock in each store. smartphones, and Samsung positions the Galaxy se-
ries as cooler and more up-to-date than the iPhone.
8-9b Positioning Bases ● Emotion: Positioning

using emotion focuses
Firms use a variety of bases for positioning, including perceptual mapping a
on how the product means of displaying or graphing, in
the following: makes customers feel. two or more dimensions, the location
● Attribute: A product is associated with an attribute, A number of compa- of products, brands, or groups of
nies use this approach. products in customers’ minds
product feature, or customer benefit. In engineering
For example, Nike’s “Just Do It” campaign did not growth in slow markets or to correct positioning mis-
tell consumers what “it” is, but most got the emo- takes. Repositioning is changing consumers’ per-
tional message of achievement and courage. Luxu- ceptions of a brand in relation to competing brands.
ry smartphone manufacturer Vertu shifted from a For example, in its early years, the Hyundai brand
high-price message to an emotional one, position- was synonymous with cheap, low-quality cars. To re-
ing the $10,880 Ti model as the phone that will position its brand, Hyundai redesigned its cars to be
make “nothing else ever feel the same.”42 more contemporary-looking and started a supportive
warranty program. Consumer perceptions changed
8-9c Repositioning because customers appreciated the new designs and
repositioning changing Sometimes products or were reassured of the cars’ performance by the gener-
consumers’ perceptions of a brand in companies are reposi- ous warranties. Today, Hyundai’s brand reputation has
relation to competing brands
tioned in order to sustain vastly improved.43
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9 Marketing Research
LEARNING OUTCOMES
9-1 Define marketing research and explain its importance to 9-4 Describe the growing importance of mobile research
marketing decision making
9-5 Discuss the growing importance of scanner-based research
9-2 Describe the steps involved in conducting a marketing
IQoncept /Shutterstock.com
research project 9-6 Explain when marketing research should be conducted
9-3 Discuss the profound impact of the Internet on marketing 9-7 Explain the concept of competitive intelligence
research
9-1 THE ROLE OF MARKETING RESEARCH

Marketing research is the process of planning, collecting, and
analyzing data relevant to a marketing decision. The results of this
analysis are then communicated to management. Thus, marketing
research is the function that links the consumer, customer, and public
to the marketer through information. Marketing research plays a key
role in the marketing system. It provides decision makers with data
on the effectiveness of the current marketing mix and insights for
necessary changes. Furthermore, marketing research is a main data
source for management information systems. In other words, the
findings of a marketing research project become data for management
decision making.
marketing research the Marketing research has gathering and presenting factual statements. For example,
process of planning, collecting, three roles: descriptive, di- what is the historic sales trend in the industry? What are
and analyzing data relevant to a
agnostic, and predictive. consumers’ attitudes toward a product and its advertis-
marketing decision
Its descriptive role includes ing? Its diagnostic role includes explaining data, such as
150 PART TWO:

CHAPTER
Analyzing
determining the impact on sales of a change in the design concerns about wearable Internet-connected technol-
of the package. Its predictive function is to address “what ogy. However, half of these same consumers would be
if” questions. For example, how can the researcher use the willing to share personal data collected through such
descriptive and diagnostic research to predict the results devices if offered compensation such as a coupon or
of a planned marketing decision? discount. Consumers also report that they would like
information about better workouts to reach their goals
9-1a Management Uses (22 percent); the best foods to eat (22 percent); and
coupons for fitness gear (19 percent). 1 This market-
of Marketing Research ing research is critical for companies developing new
Marketing research can help managers in several ways. fitness tracking devices.
First, it improves the quality of decision making, allow- Marketing research also helps managers gauge
ing marketers to explore the desirability of various al- the perceived value of their goods and services, as
ternatives before arriving at a path forward. Second, it well as the level of customer satisfaction. Such satis-
helps managers trace problems. Was the initial decision faction research can be carried out at the individual
incorrect? Did an unforeseen change in the external product, product line, company, or industry level.
environment cause the plan to fail? How can the same Research has determined, for example, that the auto
mistake be avoided in the future? Questions like these repair business needs an overhaul. According to a new
can be answered through marketing research. Third, consumer survey from AutoMD.com, most consum-
marketing research can help managers understand ers (83 percent) feel overcharged in the auto repair
very detailed and complicated relationships. Most im- process and rank the experience of going to the repair
portantly, sound marketing research can help manag- shop/dealership on par with going to the dentist—and
ers serve their customers accurately and efficiently. In women respondents actually preferred the dentist. 2
order to be successful, manufacturers of fitness wear- While women have a more negative view of the re-
ables like Activité Pop need to understand consum- pair shop/service center experience than men do,
ers’ attitudes about their products. Marketing research consumers across the board report that a more trans-
has found that 80 percent of consumers have serious parent process would improve the experience. They
CHAPTER 9: Marketing Research 151
also report that not knowing what a repair should cost brand, segment, or buyer characteristic. Audi’s Amplifier
is the biggest challenge in the process and that they Index score of 2.51, for example, reflects high levels of
want real apples-to-apples repair job quotes. creating and nurturing brand advocacy. Audi beats out
second-place Mercedes-Benz (at 2.14) and is more than
9-1b Understanding the Ever- double the industry average of 1.22. Although this mate-
Changing Marketplace rial represents just a small section of the report, you can
see how it can help Audi’s promotion manager begin to
Marketing research helps managers understand what understand WOM’s role in auto purchases.
is going on in the marketplace and take advantage of
opportunities. Now, with big data analytics (discussed
later), we can understand the marketing environment
like never before. Historically speaking, marketing
9-2 STEPS IN A MARKETING
research has been practiced for as long as marketing RESEARCH PROJECT
has existed. The early Phoenicians carried out market
demand studies as they traded in the various ports of Virtually all firms that have adopted the market-
the Mediterranean Sea. Marco Polo’s diary indicates he ing concept engage in some marketing research
performed marketing research as he traveled to China. because it offers decision makers many benefits.
There is even evidence that the Spanish systematically Some companies spend millions on marketing research;
conducted “market surveys” as they explored the New others, particularly smaller firms, conduct informal, lim-
World, and there are examples of marketing research ited-scale research studies.
conducted during the Renaissance. Whether a research project costs $200 or $2 million,
Returning to the present, assume that you are the the same general process should be followed. The
North American manager of promotion for Audi. You marketing research process is a scientific approach to
are considering a significant increase in your social decision making that maximizes the chance of getting
media budget and wonder both what role word of accurate and meaningful results. Exhibit 9.1 traces the
mouth (WOM) advertising plays in the promotion seven steps in the research process, which begins with
process and how Audi compares with other brands. The the recognition of a marketing problem or opportu-
Foresight Research Word of Mouth Immersion Report nity. As changes occur in the firm’s external environ-
provides insights into these questions. The report shows ment, marketing managers are faced with the questions
that among auto owners, MINI, Subaru, and Volvo “Should we change the existing marketing mix?” and,
owners stand out as the most likely to recommend their if so, “How?” Marketing research may be used to
brands (all are 96 percent likely to do so). According to evaluate product, promotion, distribution, or pricing
Nancy Walter, vice president of business development alternatives.
at Foresight, “Word of mouth is a prominent influencer Biotechnology company Genentech gave its sales
in new auto purchases. Almost one-third of new force iPads loaded with iDetail, an app that facilitates
auto buyers say they were moderately or completely sales calls to the company’s clients. Genentech quickly
influenced by it, and that can go as high as 45 percent discovered, however, that many sales representatives
for a highly-influenced brand like Audi.”3 chose not to use the tablets in their presentations. To
Foresight calls the consumers most likely to give find the root of the problem, the company turned to
advice TalkersPlus. These highly influential buyers com- marketing research. This research found that the iDetail
prise 15 percent of the buyer population but gener- app was difficult to navigate and use, the font size was
ate 59 percent of the WOM. They are most likely to be too small, and the prescription and safety information
brand-loyal males who comment about their new vehicle was difficult to find. The sales force also needed better
purchases online. They spend $246 more on accessories information on how to effectively engage clients when
and are more likely to be influenced by social media, use using iDetail. Based on the findings of this market re-
a mobile device, and attend motorsports events. search, Genentech implemented additional training for
To put the giving and sales reps using the iDetail app.4
marketing research getting sides of WOM into The iDetail story illustrates an important point
problem determining what perspective, Foresight de- about problem/opportunity definition. The marketing
information is needed and how veloped the Amplifier In- research problem is information oriented. It in-
that information can be obtained
dex, a measure that shows volves determining what information is needed and
efficiently and effectively
the strength of WOM for a how that information can be obtained efficiently and
decision-making information. This
requires specific pieces of informa-
tion needed to solve the marketing
research problem. Managers must
combine this information with their
own experience and other infor-
mation to make proper decisions.
Genentech’s marketing research
Source: Thingee Corporation

problem was to gather specific in-
formation about why a number of
sales reps weren’t using iDetail. The
marketing research objective was to
determine exactly what the company
iDetail is an app that is designed to serve as an aid to should do to solve the problem.
companies and their sales force. In contrast, the management
decision problem is action ori-
ented. Management problems tend
effectively. The marketing research objective , to be much broader in scope and far more general
then, is the goal statement. The marketing research than marketing research problems, which must be
objective defines the specific information needed to narrowly defined and specific if the research effort
solve the marketing problem and provides insightful is to be successful. Sometimes several research stud-
ies must be conducted to solve a broad management
problem. For Genentech, the management decision
EXHIBIT 9.1 THE MARKETING RESEARCH PROCESS problem was determining how to make the sales force
more effective.
1
Identify and formulate
the problem/ 9-2a Secondary Data
opportunity.
A valuable tool throughout the research process, par-
2 Plan the research
ticularly in the problem/opportunity identification stage,
design and gather is secondary data—data previously collected for any
secondary data. purpose other than the one at hand. Secondary informa-
tion originating within the company includes the compa-
3 Specify the ny’s’ Web sites, annual reports, reports to stockholders,
sampling blogs, product testing results perhaps made available to
procedures. the news media, YouTube videos, social media posts, and
house periodicals composed by the company’s personnel
4 for communication to employees, customers, or others.
Collect primary
data. Often, this information is incorporated into a company’s
internal database.
5 Innumerable out-
marketing research objective
Analyze the side sources of second- the specific information needed to
data. ary information also solve a marketing research problem;
exist, some in the forms the objective should be to provide
6 of government depart- insightful decision-making information
Prepare and present
ments and agencies management decision
the report.
(federal, state, and lo- problem a broad-based problem
cal) that compile and that uses marketing research in order
7 post summaries of busi-
for managers to take proper actions
Follow up. ness data. Trade and in- secondary data data previously
dustry associations also collected for any purpose other than the
one at hand
publish secondary data.
Still more data are available in business periodicals and users. These Web sites’ databases tell their marketers a
other news media that regularly publish studies and lot about who you are and what you are like, though often
articles on the economy, specific industries, and even in- on an anonymous basis.
dividual companies. The unpublished summarized sec- In an effort to expand its information databases
ondary information from these sources corresponds to even further, Facebook now combines its social data
internal reports, memos, or special-purpose analyses with with third-party information from data brokerages
limited circulation. Competitive considerations in the or- like Acxiom, Datalogix, and Alliance Data Systems.
ganization may preclude publication of these summaries. Using data collected from loyalty card programs and
Secondary data save time and money if they help other mechanisms, these firms aggregate information
solve the researcher’s problem. Even if the problem about which items and brands consumers buy. Using
is not solved, secondary data have other advantages. software that obscures identifying information (such
They can aid in formulating the problem statement as e-mail addresses and phone numbers), they then
and suggest research methods and other types of data combine their databases with Facebook’s and group
needed for solving the problem. In addition, secondary users based on certain combinations of data. This data
data can pinpoint the kinds of people to approach and includes the Web sites that Facebook members visit,
their locations and serve as a basis of comparison for e-mail lists they may have signed up for, and the ways
other data. The disadvantages of secondary data stem they spend money, both online and offline—among
mainly from a mismatch between the researcher’s many, many other metrics.7 General Motors uses this
unique problem and the purpose for which the new type of data synthesis to target younger buyers
secondary data were originally gathered, which are who might be interested in its Chevrolet Sonic. Pepsi
typically different. For example, a company wanted to uses it to show different ads based on whether a user
determine the market potential for a fireplace log made regularly buys Pepsi, Diet Pepsi, or is a Pepsi switcher
of coal rather than compressed wood by-products. The (that is, a person who tends to switch soda brands and
researcher found plenty of secondary data about total is more price sensitive).
wood consumed as fuel, quantities consumed in each Another new Facebook tool allows advertisers to
state, and types of wood burned. Secondary data were calculate their return on investment (total profit minus
also available about consumer attitudes and purchase expenses divided by the investment made) on Facebook
patterns of wood by-product fireplace logs. The wealth ads by tallying the actions taken by ad viewers. These
of secondary data provided the researcher with many actions include click-throughs, registrations, shopping
insights into the artificial log market. Yet nowhere was cart checkouts, and other metrics. The tool also enables
there any information that would tell the firm whether marketers to deliver ads to people who are most likely to
consumers would buy artificial logs made of coal. make further purchases.8
The quality of secondary data may also pose a Even photos shared on sites such as Flickr, Instagram,
problem. Often, secondary data sources do not give and Pinterest provide data for researchers. More than
detailed information that would enable a researcher to 20 billion photos have already been shared in Instagram,
assess their quality or relevance. Whenever possible, a and users are adding about 60 million a day.9 Companies
researcher needs to address these important questions: like Ditto Labs and Piqora scan photos to glean insights
Who gathered the data? Why were the data obtained? about consumers. If a logo appears above a face, such as
What methodology was used? How were classifications Smith ski goggles in a picture of a skier, the software logs
(such as heavy users versus light users) developed and the brand of apparel. Visual analysis can also show correla-
defined? When was the information gathered? tions between products, such as which beverages people
drink while eating Kraft Macaroni and Cheese. Digital
THE GROWING IMPORTANCE OF SOCIAL MEDIA Labs’ software can detect more than 3,000 different brand
DATA Facebook owns and controls data collected from logos in pictures. Photos that were shot at a university,
890 million daily users and 1.4 billion monthly active a bar, the beach, or a snowy mountain give clues about
users.5 There are more than where and how customers use those brands.
big data the exponential growth 284 million active Twit-
in the volume, variety, and velocity ter users monthly, 80 per- THE INCREDIBLE WORLD OF BIG DATA Big data is
of information and the development cent of whom use mobile the exponential growth in the volume, variety, and ve-
of complex, new tools to analyze devices to tweet. 6 Insta- locity of information and the development of complex
and create meaning from such data
gram has over 300 million new tools to analyze and create meaning from such data.
In the past, the flow of data was slow, steady, and pre- sometimes contain billions of pieces of data, so the
dictable. All data was quantitative (countable)—many question quickly arose as to how big data could be pre-
firms collected sales numbers by store, by product line, sented in a meaningful way. The answer to this question
and at most, perhaps by a few other measures. Today, is data visualization. An example of data visualization is
data is constantly streaming in from social media, as well shown in Exhibit 9.2. Visualization acts as an engine for
as other sources. Advanced big data databases allow the bringing patterns to light—even the subtlest of patterns
analysis of unstructured data such as e-mails, audio files, woven into the largest of data sets
and YouTube videos. Specialty women’s apparel retailer Chicos uses big
In 2016, real-time advertising auctions are expected data analytics to find key brand influencers online and
to account for a third of the $25 billion spent on digital to determine how brand-related conversations impact
display advertising in the United States.10 Big data en- sales. Sprint’s Virgin Mobile uses analytics to tailor spe-
ables these auctions to take place in mere seconds. For cific phone offers to particular customer types. For ex-
example, suppose a bored woman sits waiting in an air- ample, one effort promoted higher-end contract-free
line lounge. She scrolls through her iPhone and taps on smartphones to individuals who could afford the monthly
a brightly colored icon to launch a free mobile game. contractual plan but were likely to prefer the company’s
In the instant before the app loads, predictive analytics prepaid option. This offer resulted in increased cus-
firm Flurry collects data about the woman: here we have tomer retention and higher profits for Virgin Mobile.
a new mother, business traveler, fashion follower, in her Online automotive market Edmunds.com uses big data
late 20s, and somewhere near JFK airport. Flurry then analytics to help auto dealers predict how long a given
holds an automated auction among potential advertisers car will remain on their lots. This helps dealers minimize
to fill an ad space that displays while the app is loading. In the number of days a car remains unsold. Macy’s adjusts
a fraction of a second, the mobile ad exchange picks the pricing in near-real time for 73 million items based on
highest bidder with the best-fitting parameters, and the demand and inventory. Walmart uses big data, including
woman’s screen flashes to an ad for Maui Jim sunglasses.11 semantic search and synonym mining, to produce rele-
Flurry provides an analytic tool that tells app devel- vant search results for online shoppers. Semantic search
opers how many people are using their apps. More than improves purchase completion by 10 to 15 percent—a
540,000 apps now use the tool, which in turn funnels figure that is worth billions to Walmart.
much of the user data back to Flurry. Flurry has a data One fast food chain is using cameras to determine
pipe into more than 1.2 million mobile devices glob- what to display on its digital drive-through menu boards.
ally and pulls data from seven to ten apps per device. When drive-through lines are longer, the menu board
Flurry’s analytic tool encrypts and combines identifying features products that can be served up quickly. When
pieces of data to create anonymous IDs for each mobile lines are shorter, the menu board features higher mar-
device.12 Mobile device users are then grouped into one gin items that take longer to prepare. Similarly, the Los
of more than one hundred profiles such as “business Angeles and Santa Cruz police departments are using
traveler” or “sports fanatic.” big data to predict where crime will occur down to 500
Along with advanced data analysis tools came a square feet. Los Angeles has seen a 33 percent reduc-
software program called Hadoop, developed by Apache tion in burglary and a 21 percent reduction in violent
and named for a child’s toy elephant. Traditionally, com- crime in areas where the software is being used.14
plex computer programs had to run on huge, expensive Big data analytics focuses very much on what. That
mainframe computers. Hadoop allows queries to be is, its primary purpose is to uncover what patterns and
split up and run much more efficiently. Using Hadoop, relationships exist in this database. Often, the insights
different analytic tasks are distributed among numerous gained from what are all a marketer needs to create a
inexpensive computer servers, each of which solves part strategy. Suppose that Amazon’s analytic software un-
of the problem before reassembling the queries when covers that hundreds of online customers who bought
the work is finished. Thus, with the aid of modern data- War and Peace also bought The Idiot. Amazon can use
bases, software, and hardware, big data can be analyzed this data to send promotional e-mails to customers who
faster and cheaper than ever before.13 bought one book but not the other. Why never comes
The ability to crunch numbers means nothing, how- into play when sending out these promotional e-mails.
ever, if humans cannot use or even access that informa- Still, marketers often do need to understand why, and
tion. Most people cannot remember a string of numbers that is where traditional marketing research comes into
longer than their phone numbers. Modern databases play. If Mars launches a new type of chocolate bar and
EXHIBIT 9.2 DATA VISUALIZATION (CONTAINS IMAGE OF SEARCHES IN CHINA)
AP Images/Lang lang/Imaginechina
Baidu Migrate, an interactive heat map developed by China’s largest search
engine, uses smartphone data to visualize migration during the company’s
40-day spring festival travel rush.
there are many initial purchases, but few repeat pur- how and when the data will be gathered, and how the
chasers, then the driving question becomes “why?” In data will be analyzed. Typically, the project budget is fi-
the following sections, we will return to the marketing nalized after the research design has been approved.
research process to explain how such a question can be Sometimes research questions can be answered by
answered. gathering more secondary data; otherwise, primary data
may be needed. Primary data, or information collected
9-2b Planning the Research Design for the first time, are used for solving the particular
problem under investigation. The main advantage of pri-
and Gathering Primary Data mary data is that they can answer specific research ques-
Good secondary data and big data can help research- tions that secondary data cannot answer. Suppose that
ers conduct a thorough situation analysis. With that Olive Garden is considering discontinuing about a third
information, researchers of its menu and adding an equal number of new items.
can list their unanswered All of the new dishes have done very well in taste tests.
research design specifies
which research questions must be questions and rank them. The research question is whether or not to make such a
answered, how and when the data Researchers must then major change in the menu. Primary data from a recent
will be gathered, and how the data decide the exact infor- research project found that almost 70 percent of restau-
will be analyzed mation required to an- rant patrons won’t try a new menu item (actual data).
primary data information that swer the questions. The Of the 30 percent willing to try a new menu item, only
is collected for the first time; used for research design speci- 17 percent will order a completely new dish. Consumers
solving the particular problem under fies which research ques- tend to replace their preplanned menu items (“I’m going
investigation
tions must be answered, to have lasagna”) with a new menu item only if the new
EXHIBIT 9.3 CHARACTERISTICS OF TRADITIONAL FORMS OF SURVEY RESEARCH
Central- Self-
In-Home Mall Location Administered
Personal Intercept Telephone and One-Time Mail Panel Executive Focus
Characteristic Interviews Interviews Interviews Mail Surveys Surveys Interviews Groups
Cost High Moderate Moderate Low Moderate High Low
Time span Moderate Moderate Fast Slow Relatively slow Moderate Fast
Use of interviewer Yes Yes Yes No Yes Yes Yes
probes
Ability to show con- Yes (also Yes (also No Yes Yes Yes Yes
cepts to respondent taste tests) taste tests)
Management control Low Moderate High N/A N/A Moderate High
over interviewer
General data quality High Moderate High to Moderate to low Moderate High Moderate
moderate
Ability to collect large High Moderate Moderate to Low to moderate Moderate Moderate Moderate
amounts of data low
Ability to High Moderate High, if com- Low Low High N/A
handle complex puter aided
questionnaires
dish is the same type of food as the product they had SURVEY RESEARCH The most popular technique for
originally planned to order.15 Thus, Olive Garden replac- gathering primary data is survey research, in which a
ing a third of its menu is not a good idea. Primary data researcher either interacts with people or posts a ques-
are current, and researchers know the source. Some- tionnaire online to obtain facts, opinions, and attitudes.
times researchers gather the data themselves rather than Exhibit 9.3 summarizes the characteristics of traditional
assign projects to outside companies. Researchers also forms of survey research.
specify the methodology of the research. Secrecy can
In-Home Personal Interviews Although in-home
be maintained because the information is proprietary.
personal interviews often provide high-quality informa-
In contrast, much secondary data is available to all inter-
tion, they tend to be very expensive because of the inter-
ested parties for relatively small fees or free.
viewers’ travel time and mileage costs. Therefore, they
Gathering primary data can be expensive; costs can
are rapidly disappearing from the American and Euro-
range from a few thousand dollars for a limited survey
pean researchers’ survey toolbox. They are, however,
to several million for a nationwide study. For instance,
still popular in many less developed countries around
a nationwide, 15-minute telephone interview with
the globe.
1,000 adult males can cost $50,000 or more for every-
thing, including a data analysis and report. Because pri- Mall Intercept Interviews The mall intercept
mary data gathering is so expensive, many firms do not interview is conducted in the common area of a shop-
bother to conduct in-person interviews. Instead, they ping mall or in a market research office within the mall.
use the Internet. Larger companies that conduct many To conduct this type of
research projects use another cost-saving technique. interview, the research
survey research the most
They piggyback studies, or gather data on two differ- firm rents office space popular technique for gathering
ent projects using one questionnaire. Nevertheless, the in the mall or pays a primary data, in which a researcher
disadvantages of primary data gathering are usually off- significant daily fee. interacts with people to obtain facts,
set by the advantages. It is often the only way of solv- One drawback is that it opinions, and attitudes
ing a research problem. And with a variety of techniques is hard to get a repre- mall intercept interview a
available for research—including surveys, observations, sentative sample of the survey research method that involves
and experiments—primary research can address almost population. One advan- interviewing people in the common
areas of shopping malls
any marketing question. tage is the ability of the
interviewer to probe when necessary—a technique used headsets, and sometimes monitoring equipment. The
to clarify a person’s response and ask for more detailed research firm typically will interview people nationwide
information. from a single location. The federal “Do Not Call” law
Mall intercept interviews must be brief. Only the does not apply to survey research.
shortest ones are conducted while respondents are Most CLT facilities offer computer-assisted inter-
standing. Often, researchers invite respondents into viewing. The interviewer reads the questions from a
the office for interviews, which are still generally less computer screen and enters the respondent’s data di-
than fifteen minutes long. The overall quality of mall rectly into the computer, saving time. Hallmark Cards
intercept interviews is about the same as telephone found that an interviewer administered a printed ques-
interviews. tionnaire for its Shoebox greeting cards in 28 minutes.
Marketing researchers use computer technology The same questionnaire administered with computer
to speed the mall interview process. One technique is assistance took only 18 minutes. The researcher can stop
computer-assisted personal interviewing . The the survey at any point and immediately print out the
researcher conducts in-person interviews, reads ques- survey results, allowing the research design to be refined
tions to the respondent off a computer screen, and as necessary.
directly keys the respondent’s answers into the com-
puter. A second approach is computer-assisted self- MAIL SURVEYS Mail surveys have several benefits:
interviewing. A mall interviewer intercepts and directs relatively low cost, elimination of interviewers and field
willing respondents to nearby computers. Each respon- supervisors, centralized control, and actual or prom-
dent reads questions off a com- ised anonymity for respondents (which may
puter screen and directly keys draw more candid responses). A disad-
his or her answers into the com- vantage is that mail question-
puter. A third use of computer naires usually produce low
technology is fully automated response rates. The result-
self-interviewing. Respondents ing sample may therefore
are guided by interviewers or not represent the surveyed
independently approach a cen- population. Another seri-
trally located computer station ous problem with mail sur-
veys is that no one probes
computer-assisted respondents to clarify or
personal interviewing an elaborate on their answers.
interviewing method in which the
If a respondent uses the
interviewer reads questions from
a computer screen and enters the or kiosk, read questions off word “convenience,” there is no way to clarify exactly
respondent’s data directly into the a screen, and directly key what he means. Convenience could refer to location,
computer their answers into the sta- store hours, or a host of other factors.
computer-assisted self- tion’s computer. Mail panels offer an alternative to the one-shot mail
interviewing an interviewing survey. A mail panel consists of a sample of households
method in which a mall interviewer Telephone Interviews recruited to participate by mail for a given period. Panel
intercepts and directs willing Telephone interviews cost members often receive gifts in return for their partici-
respondents to nearby computers less than personal inter-
where each respondent reads pation. Essentially, the panel is a sample used several
views, but cost is rapidly times. In contrast to one-time mail surveys, the response
questions off a computer screen and
directly keys his or her answers into increasing due to respon- rates from mail panels are high. Rates of 70 percent (of
the computer dent refusals to participate. those who agree to participate) are not uncommon.
Most telephone interview-
central-location telephone
(CLT) facility a specially ing is conducted from a Executive Interviews An executive interview
designed phone room used to specially designed phone involves interviewing businesspeople at their offices
conduct telephone interviewing room called a central- concerning industrial products or services, a process
executive interview a type location telephone (CLT) that is very expensive. First, individuals involved in the
of survey that involves interviewing facility. purchase decision for the product in question must be
businesspeople at their offices A CLT facility has identified and located, which can itself be expensive and
concerning industrial products
many phone lines, individ- time-consuming. Once a qualified person is located, the
or services
ual interviewing stations, next step is to get that person to agree to be interviewed
and to set a time for the interview. Finally, an inter- own words. Researchers get a rich array of information
viewer must go to the particular place at the appointed based on the respondent’s frame of reference (What
time. Long waits are frequently encountered; cancella- do you think about the new flavor?). In contrast, a
tions are not uncommon. This type of survey requires closed-ended question asks the respondent to make
the very best interviewers because they are frequently a selection from a limited list of responses. Closed-ended
interviewing on topics that they know very little about. questions can either be what marketing researchers call
dichotomous (Do you like the new flavor? Yes or No.)
Focus Groups A focus group is a type of personal
or multiple choice. A scaled-response question is
interviewing. Often recruited by random telephone
a closed-ended question designed to measure the inten-
screening, seven to ten people with certain desired
sity of a respondent’s answer.
characteristics form a focus group. These qualified con-
Closed-ended and scaled-response questions are
sumers are usually offered an incentive (typically $30
easier to tabulate than open-ended questions because
to $50) to participate in a group discussion. The meet-
response choices are fixed. On the other hand, unless
ing place (sometimes resembling a living room, some-
the researcher designs the closed-ended question very
times featuring a conference table) has audiotaping
carefully, an important choice may be omitted. For ex-
and perhaps videotaping equipment. It also likely has
ample, suppose a food study asked this question: “Be-
a viewing room with a one-way mirror so that clients
sides meat, which of the following items do you normally
(manufacturers or retailers) can watch the session.
add to tacos that you prepare at home?”
During the session, a moderator, hired by the research
company, leads the group discussion. Focus groups
Avocado 1 Olives (black/green) 6
can be used to gauge consumer response to a product
or promotion and are occasionally used to brainstorm Cheese (Monterey Jack/cheddar) 2 Onions (red/white) 7
new-product ideas or to screen concepts for new prod- Guacamole 3 Peppers (red/green) 8
ucts. Focus groups also represent an efficient way of Lettuce 4 Pimiento 9
learning how products are actually used in the home. Mexican hot sauce 5 Sour cream 0
Lewis Stone, former manager of Colgate-Palmolive’s
research and development division, says the following The list seems complete, doesn’t it? However, con-
about focus groups: sider the following responses: “I usually add a green,
If it weren’t for focus groups, Colgate-Palmolive Co. avocado-tasting hot sauce,” “I cut up a mixture of let-
might never know that some women squeeze their tuce and spinach,” “I’m a vegetarian—I don’t use meat
bottles of dishwashing soap, others squeeeeeze them, at all,” and “My taco is filled only with guacamole.” How
and still others squeeeeeeeeeze out the desired would you code these replies? As you can see, the ques-
amount. Then there are the ones who use the soap tion needs an “other” category.
‘neat.’ That is, they put the product directly on a A good question must be clear and concise and
sponge or washcloth and wash the dishes under run- avoid ambiguous language. The answer to the ques-
ning water until the suds run out. Then they apply tion “Do you live within ten minutes of here?” depends
more detergent. on the mode of trans-
portation (maybe the
Stone was explaining how body language, exhibited focus group seven to ten people
person walks), driving who participate in a group discussion
during focus groups, provides insights into a product speed, perceived time, led by a moderator
that are not apparent from reading questionnaires on and other factors. Lan-
habits and practices. Panelists’ descriptions of how they open-ended question an
guage should also be interview question that encourages
perform tasks highlight need gaps, which can improve clear. As such, jargon an answer phrased in the respondent’s
an existing product or demonstrate how a new product should be avoided, own words
might be received. and wording should closed-ended question an
QUESTIONNAIRE DESIGN All forms of survey re- be geared to the tar- interview question that asks the
search require a questionnaire. Questionnaires ensure get audience. A ques- respondent to make a selection from a
that all respondents will be asked the same series of tion such as “What is limited list of responses
questions. Questionnaires include three basic types the level of efficacy scaled-response question a
of questions: open-ended, closed-ended, and scaled- o f y o u r p r e p o n d e r- closed-ended question designed to
response (see Exhibit 9.4). An open-ended question ant dishwasher pow- measure the intensity of a respondent’s
answer
encourages an answer phrased in the respondent’s der?” would probably
EXHIBIT 9.4 TYPES OF QUESTIONS FOUND ON QUESTIONNAIRES FOR NATIONAL MARKET RESEARCH
Open-Ended Questions Closed-Ended Questions Scaled-Response Question
1. What advantages, if any, do Dichotomous Now that you have used the rug
you think ordering from a mail- 1. Did you heat the Danish product before serving It? cleaner, would you say that you . . .
order catalog offers compared Yes. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1 (Circle one.)
to shopping at a local retail No . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2 Would definitely buy it. . . . . . . . . . . . . . . 1
outlet? (Probe: What else?) Would probably buy it . . . . . . . . . . . . . . . 2
2. The federal government doesn’t care what people like me think.
2. Why do you have one or Agree . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1 Might or might not buy it. . . . . . . . . . . . 3
more of your rugs or carpets Probably would not buy it . . . . . . . . . . . . 4
Disagree . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
professionally cleaned rather Definitely would not buy it . . . . . . . . . . . 5
than cleaning them yourself Multiple Choice
or having someone else in the 1. I’d like you to think back to the last footwear of any kind that you
household clean them? bought. I’ll read you a list of descriptions and would like for you to
tell me which category they fall into.
3. What is it about the color of (Read list and circle proper category.)
the eye shadow that makes
Dress and/or formal. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
you like it the best?
Casual . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
Canvas/trainer /gym shoes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
Specialized athletic shoes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
Boots. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
2. In the last three months, have you used Noxzema skin cream . . . .
(Circle all that apply.)
As a facial wash. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
For moisturizing the skin. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
For treating blemishes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
For cleansing the skin. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
For treating dry skin. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
For softening skin. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
For sunburn. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
For making the facial skin smooth. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
be greeted by a lot of blank stares. It would be much OBSERVATION RESEARCH In contrast to survey re-
simpler to say “Are you (1) very satisfied, (2) somewhat search, observation research entails watching what
satisfied, or (3) not satisfied with your current brand of people do or using machines to watch what people do.
dishwasher powder?” Specifically, it can be defined as the systematic process
Stating the survey’s purpose at the beginning of the of recording the behavioral patterns of people, objects,
interview may improve clarity, but it may also increase and occurrences without questioning them. A market
the chances of receiving biased responses. Many times, researcher using the observation technique witnesses
respondents will try to provide answers that they believe and records information as events occur or compiles
are “correct” or that the interviewer wants to hear. To evidence from records of past events. Carried a step fur-
avoid bias at the question level, researchers should avoid ther, observation may involve watching people or phe-
leading questions and adjectives that cause respondents nomena and may be conducted by human observers or
to think of the topic in a certain way. machines. Examples of these various observational situ-
F i n a l l y, t o e n s u r e ations are shown in Exhibit 9.5.
observation research a clarity, the interviewer Some common forms of people-watching-people
research method that relies on should avoid asking two research are one-way mirror observations, mystery
four types of observation: people
watching people, people watching questions in one—for ex- shoppers, and behavioral targeting. A one-way mirror al-
an activity, machines watching ample, “How did you like lows the researchers to see the participants, but the par-
people, and machines watching the taste and texture of ticipants cannot see the researchers.
an activity the Pepperidge Farm cof-
mystery shoppers fee cake?” This should be Mystery Shoppers Mystery shoppers are re-
researchers posing as customers divided into two questions, searchers posing as customers who gather observational
who gather observational data one concerning taste and data about a store (for example, are the shelves neatly
about a store
the other texture. stocked?) and collect data about customer/employee
“participant observers,” ethnographers can use their in-
EXHIBIT 9.5 OBSERVATIONAL SITUATIONS timacy with the people they are studying to gain richer,
deeper insights into culture and behavior—in short,
Situation Example
what makes people do what they do?
People watching Observers stationed in supermarkets
Managers at Cambridge SoundWorks recently faced
people watch consumers select frozen Mexican
dinners; the purpose is to see how much a perplexing problem. Male customers stood wide-eyed
comparison shopping people do at the and wallets-ready when sales reps showed off the com-
point of purchase. pany’s hi-fi “blow-your-hair-back” stereo speakers in re-
People watching An observer stationed at an intersec- tail outlets across the country, but sales were slumping.
an activity tion counts tra c moving in various Why didn’t such unabashed enthusiasm for the product
directions. translate into more—and bigger ticket—sales?
Machines watching Movie or videotape cameras record be- To find out, the Andover, Massachusetts-based ste-
people havior as in the people-watching-people reo equipment manufacturer and retailer hired research
example above.
firm Design Continuum to follow a dozen prospective
Machines watching Tra c-counting machines monitor customers over the course of two weeks. After the two
an activity tra c flow.
weeks were up, the researchers concluded that the
high-end speaker market suffered from something they
interactions. The interaction is not an interview, and referred to as “the spouse acceptance factor.” While
communication occurs only so that the mystery shop- men adored the big black boxes, women hated their
per can observe the actions and comments of the em- unsightly appearance. Concerned about how speakers
ployee. Mystery shopping is, therefore, classified as an might look in the living room, women frequently talked
observational marketing research method even though their husbands out of buying the cool (but hideous) ste-
communication is often involved. Restaurant chains like reo equipment. Even those who purchased the products
Subway use mystery shoppers to evaluate store cleanli- had trouble showing them off. Men would attempt to
ness and quality of service. display the loudspeakers as trophies in their living rooms
Behavioral Targeting Behavioral targeting (BT), while women would hide them behind plants, vases,
sometimes simply called tracking, began as a simple pro- and chairs. “Women would come into the store, look
cess by placing cookies in users’ browsers or mobile apps at the speakers, and say, ‘that thing is ugly,’” said prin-
to track which Web sites they visited, how long they lin- cipal at Design Continuum Ellen Di Resta. “The men
gered, what they searched for, and what they bought. would lose the argument and leave the store without a
All of this information can be tracked anonymously—a stereo. The solution was to give the target market what
“fly on the wall” perspective. While survey research is men and women both wanted: a great sound system that
a great way to find out the “why” and the “how,” be- looks like furniture so you don’t have to hide it.”
havioral targeting lets the researcher find out the “how Armed with this knowledge, Cambridge Sound-
much,” the “how often,” and the “where.” Also, through Works unveiled a new line of spouse-friendly speakers.
social media monitoring, using automated tools to The furniture-like Newton Series of speakers and home
monitor online buzz, chatter, and conversations, a re- theater systems comes in an array of colors and finishes.
searcher can learn what is being said about the brand The result? The Newton Series is the fastest-growing
and the competition. Tracking is the basis for input into and best-selling prod-
online databases. Companies like Tapad track customers uct line in Cambridge behavioral targeting (BT)
across multiple devices—personal desktop computers, SoundWorks’ history.16 a form of observation marketing
research that combines a consumer’s
laptops, smartphones, and tablets, for example. If a cus- VIRTUAL SHOPPING online activity with psychographic
tomer is using multiple devices at the same time, Tapad Advances in computer and demographic profiles compiled
knows, and knows what she is doing on each. technology have enabled in databases
ETHNOGRAPHIC RESEARCH Ethnographic research researchers to simulate social media monitoring the
comes to marketing from the field of anthropology. The an actual retail store use of automated tools to monitor
technique is becoming increasingly popular in market- environment on a com- online buzz, chatter, and conversations
ing research. Ethnographic research, or the study puter screen. Depending ethnographic research the
of human behavior in its natural context, involves obser- on the type of simulation, study of human behavior in its natural
vation of behavior and physical setting. Ethnographers a shopper can “pick up” context; involves observation of
behavior and physical setting
directly observe the population they are studying. As a package by touching
tools—many telecom, financial, automotive, aviation,
and fast-food companies are using such tools to better
serve their customers.
EXPERIMENTS An experiment is a method a re-

searcher can use to gather primary data. The researcher
alters one or more variables—price, package design,
shelf space, advertising theme, advertising expendi-
tures—while observing the effects of those alterations
on another variable (usually sales). The best experi-
Sashkin/Shutterstock.com
ments are those in which all factors except one are held
constant. The researcher can then observe what changes
in sales, for example, result from changes in the amount
of money spent on advertising.
Holding all other factors constant in the external
Advances in computer technology have
environment is a monumental and costly, if not impos-
enabled researchers to simulate an actual
sible, task. Such factors as competitors’ actions, weather,
retail store environment.
and economic conditions are beyond the researcher’s
control. Yet market researchers have ways to account
its image on the monitor and rotate it to examine all sides. for the ever-changing external environment. Mars, the
Like buying on most online retailers, the shopper touches candy company, was losing sales to other candy com-
the shopping cart to add an item to the basket. During panies. Traditional surveys showed that the shrinking
the shopping process, the computer unobtrusively re- candy bar was not perceived as a good value. Mars won-
cords the amount of time the consumer spends shopping dered whether a bigger bar sold at the same price would
in each product category, the time the consumer spends increase sales enough to offset the higher ingredient
examining each side of a product, the quantity of the costs. The company designed an experiment in which
product the consumer purchases, and the order in which the marketing mix stayed the same in different markets
items are purchased. but the size of the candy bar varied. The substantial
A major apparel retailer using a computer simu- increase in sales of the bigger bar quickly proved that
lated environment recently found that men have trou- the additional costs would be more than covered by the
ble putting outfits together. Men also hesitate to pick additional revenue. Mars increased the bar size—along
up clothing items because they can’t fold them back with its market share and profits.
the same way. With this knowledge, the apparel chain
made two major changes: it began selling items together
as complete outfit solutions and folded shirts and other
9-2c Specifying the Sampling Procedures
clothes more simply. Sales of men’s clothes increased by Once the researchers decide how they will collect
40 percent.17 primary data, their next step is to select the sampling
Virtual shopping research is growing rapidly. Ac- procedures they will use. A firm can seldom take a
cording to the United States Department of Agriculture, census of all possible users of a new product, nor can
approximately 50,000 new consumer packaged goods they all be interviewed. Therefore, a firm must select a
are introduced each year.18 All are vying for very lim- sample of the group to be interviewed. A sample is a
ited retail shelf space. Any subset from a larger population.
experiment a method of process, such as virtual Several questions must be answered before a
gathering primary data in which shopping, that can speed sampling plan is chosen. First, the population, or
the researcher alters one or more product development time universe , of interest must be defined. This is the
variables while observing the
effects of those alterations on
and lower costs is always group from which the sample will be drawn. It should
another variable welcomed by manufac- include all the people whose opinions, behavior, pref-
turers. Some companies erences, attitudes, and so on, are of interest to the
sample a subset from a larger
population
outside of retail have even marketer. For example, in a study whose purpose is to
begun experimenting with determine the market for a new canned dog food, the
universe the population from virtual shopping and other universe might be defined to include all current buyers
which a sample will be drawn
simulated environment of canned dog food.
SAMPLE UNIVERSE
Guy Shapira/Shutterstock.com
Pashabo/Shutterstock.com
After the universe has been defined, the next ques- TYPES OF ERRORS Whenever a sample is used in mar-
tion is whether the sample must be representative of the keting research, two major types of errors may occur: mea-
population. If the answer is yes, a probability sample is surement error and sampling error. Measurement error
needed. Otherwise, a nonprobability sample might be occurs when there is a difference between the informa-
considered. tion desired by the researcher and the information pro-
vided by the measurement process. For example, people
PROBABILITY SAMPLES A probability sample is may tell an interviewer that they purchase Crest tooth-
a sample in which every element in the population has paste when they do not. Measurement error generally
a known statistical likelihood of being selected. Its most tends to be larger than sampling error.
desirable feature is that scientific rules can be used to Sampling error occurs when a sample somehow
ensure that the sample represents the population. does not represent the target population. Sampling error
One type of probability sample is a random can be one of several
sample—a sample arranged in such a way that every types. Nonresponse probability sample a sample in
element of the population has an equal chance of be- which every element in the population
error occurs when the has a known statistical likelihood of
ing selected as part of the sample. For example, sup- sample actually inter- being selected
pose a university is interested in getting a cross section viewed differs from
of student opinions on a proposed sports complex to random sample a sample arranged
the sample drawn. in such a way that every element of the
be built using student activity fees. If the university This error happens population has an equal chance of being
can acquire an up-to-date list of all the enrolled stu- because the original selected as part of the sample
dents, it can draw a random sample by using random people selected to be nonprobability sample any
numbers from a table (found in most statistics books) interviewed either re- sample in which little or no attempt is made
to select students from the list. Common forms of fused to cooperate or to get a representative cross section of the
probability and nonprobability samples are shown in were inaccessible.
population
Exhibit 9.6. Frame error , convenience sample a form of
NONPROBABILITY SAMPLES Any sample in which another type of sam- nonprobability sample using respondents
who are convenient or readily accessible to
little or no attempt is made to get a representa- pling error, arises if the researcher—for example, employees,
tive cross section of the population can be consid- the sample drawn friends, or relatives
ered a nonprobability sample . Therefore, the from a population
measurement error an error that
probability of selection of each sampling unit is not differs from the tar- occurs when there is a difference between
known. A common form of a nonprobability sample get population. For the information desired by the researcher
is the convenience sample , which uses respon- instance, suppose a and the information provided by the
dents who are convenient or readily accessible to telephone survey is measurement process
the researcher—for instance, employees, friends, or conducted to find sampling error an error that occurs
relatives. out Chicago beer when a sample somehow does not
represent the target population
Nonprobability samples are acceptable as long as the drinkers’ attitudes
researcher understands their nonrepresentative nature. toward Coors. If a frame error an error that occurs when
Because of their lower cost, nonprobability samples are Chicago telephone a sample drawn from a population differs
from the target population
sometimes used in marketing research. directory is used as
EXHIBIT 9.6 TYPES OF SAMPLES
Probability Samples
Simple Random Sample Every member of the population has a known and equal chance of selection.
Stratified Sample The population is divided into mutually exclusive groups (such as gender or age); then random samples are
drawn from each group.
Cluster Sample The population is divided into mutually exclusive groups (such as geographic areas); then a random sample
of clusters is selected. The researcher then collects data from all the elements in the selected clusters or from a
probability sample of elements within each selected cluster.
Systematic Sample A list of the population is obtained—e.g., all persons with a checking account at XYZ Bank—and a skip
interval is obtained by dividing the sample size by the population size. If the sample size is 100 and the bank
has 1,000 customers, then the skip interval is 10. The beginning number is randomly chosen within the skip
interval. If the beginning number is 8, then the skip pattern would be 8, 18, 28, ....
Nonprobability Samples
Convenience Sample The researcher selects the easiest population members from which to obtain information.
Judgment Sample The researcher’s selection criteria are based on personal judgment that the elements (persons) chosen will
likely give accurate information.
Quota Sample The researcher finds a prescribed number of people in several categories—e.g., owners of large dogs
versus owners of small dogs. Respondents are not selected on probability sampling criteria.
Snowball Sample Additional respondents are selected on the basis of referrals from the initial respondents. This method is
used when a desired type of respondent is hard to find—e.g., persons who have taken round-the-world
cruises in the last three years. This technique employs the old adage “Birds of a feather flock together.”
the frame (the device or list from which the respondents 9-2d Collecting the Data
are selected), the survey will contain a frame error. Not
Marketing research field service firms are used to collect
all Chicago beer drinkers have landline phones, and
some primary data. A field service firm specializes
many phone numbers are unlisted. An ideal sample (in
in interviewing respondents on a subcontracted basis.
other words, a sample with no frame error) matches all
Many have offices, often in malls, throughout the coun-
important characteristics of the target population to be
try. A typical marketing research study involves data col-
surveyed. Could you find a perfect frame for Chicago
lection in several cities, which may require the marketer
beer drinkers?
to work with a comparable number of field service firms.
Random error occurs when the selected sample
Besides conducting interviews, field service firms pro-
is an imperfect representation of the overall popula-
vide focus group facilities, mall intercept locations, test
tion. Random error represents how accurately the
product storage, and kitchen facilities to prepare test
chosen sample’s true average (mean) value reflects
food products.
the population’s true average (mean) value. For ex-
ample, we might take a random sample of beer drink-
ers in Chicago and find that 16 percent regularly
9-2e Analyzing the Data
drink Coors beer. The next day, we might repeat After collecting the data, the marketing researcher
the same sampling procedure and discover that 14 proceeds to the next step in the research process: data
percent regularly drink analysis. The purpose of this analysis is to interpret
random error an error that Coors beer. The differ- and draw conclusions from the mass of collected data.
occurs when the selected sample is ence is due to random The marketing researcher tries to organize and analyze
an imperfect representation of the error. Error is common to those data by using one or more techniques common to
overall population
all surveys, yet it is often marketing research: one-way frequency counts, cross-
field service firm a firm not reported or is underre- tabulations, and more sophisticated statistical analysis.
that specializes in interviewing ported. Typically, the only Of these three techniques, one-way frequency counts
respondents on a subcontracted
error mentioned in a writ- are the simplest. One-way frequency tables simply
basis
ten report is sampling error. record the responses to a question. For example, the
and simple explanation of the research
EXHIBIT 9.7 POPCORN CROSS-TABULATION
design or methodology employed. A
summary of major findings should
48%
Male come next. The conclusion of the re-
Purchase by gender
38% Female port should also present recommenda-

tions to management.
31%
Most people who enter marketing
23% will become research users rather than
18% research suppliers. Thus, they must
12% know what to notice in a report. As with
4% 7% 4% 8% many other items we purchase, quality
6% 0%
Orville T.V. Time Pop Rite Act Two Weight Other
is not always readily apparent. Nor does
Redenbacher Watchers a high price guarantee superior qual-
Brand ity. The basis for measuring the quality
of a marketing research report is the
research proposal. Did the report meet
answers to the question “What brand of microwave the objectives established in the proposal? Was the
popcorn do you buy most often?” would provide a one- methodology outlined in the proposal followed? Are the
way frequency distribution. One-way frequency tables conclusions based on logical deductions from the data
are always done in data analysis, at least as a first step, analysis? Do the recommendations seem prudent, given
because they provide the researcher with a general the conclusions?
picture of the study’s results. A cross-tabulation lets
the analyst look at the responses to one question in re- 9-2g Following Up
lation to the responses to one or more other questions.
The final step in the marketing research process is
For example, in Exhibit 9.7, what is the association
to follow up. The researcher should determine why
between gender and the brand of microwave popcorn
management did or did not carry out the recommen-
bought most frequently?
dations in the report. Was sufficient decision-making
Researchers can use many other more powerful and
information included? What could have been done
sophisticated statistical techniques, such as hypothesis
to make the report more useful to management? A
testing, measures of association, and regression analysis.
good rapport between the product manager, or who-
A description of these techniques goes beyond the scope
ever authorized the project, and the market researcher
of this book but can be found in any good marketing
is essential. Often, they must work together on many
research textbook. The use of sophisticated statistical
studies throughout the year.
techniques depends on the researchers’ objectives and
the nature of the data gathered.
9-2f Preparing and Presenting the Report

9-3 THE PROFOUND IMPACT
After data analysis has been completed, the researcher
OF THE INTERNET ON
must prepare the report and communicate the conclu- MARKETING RESEARCH
sions and recommendations to management. This is
a key step in the process. If the marketing researcher More than 90 percent of U.S. marketing research
wants managers to carry out the recommendations, he companies conduct some form of online research.
or she must convince them that the results are credible Paper questionnaires are going the way of the horse and
and justified by the data collected. buggy in marketing research Online survey research has
Researchers are usually required to present replaced computer-assisted telephone interviewing as the
both written and oral reports on the project. Today, most popular mode of
the written report is often no more than a copy of data collection. The ma- cross-tabulation a method of
the PowerPoint slides used in the oral presentation. jority of online research analyzing data that lets the analyst look
Both reports should be tailored to the audience. They is done through incen- at the responses to one question in
should begin with a clear, concise statement of the tivized panels (discussed relation to the responses to one or more
other questions
research objectives, followed by a complete but brief later in the chapter).
9-3a Advantages of Internet Surveys among the most surveyed on the planet and the most
difficult to reach. Many of these groups are well rep-
The huge growth in the popularity of Internet surveys
resented online. Internet surveys provide convenient
is the result of the many advantages offered by the In-
anytime/anywhere access that makes it easy for busy
ternet. The specific advantages of Internet surveys,
professionals to participate.
which are often sent to mobile devices, are many:
● Rapid development, real-time reporting: 9-3b Uses of the Internet by
Internet surveys can be broadcast to thousands of Marketing Researchers
potential respondents simultaneously. Respondents
complete surveys simultaneously; then results are Marketing researchers use the Internet to administer
tabulated and posted for corporate clients to view as surveys, conduct focus groups, and perform a variety of
the returns arrive. The effect: survey results can be in other types of marketing research.
a client’s hands in significantly less time than would METHODS OF CONDUCTING ONLINE SURVEYS
be required for traditional paper surveys. There are several basic methods for conducting online
● Dramatically reduced costs: The Internet can surveys: Web survey systems, survey design and Web
cut costs by 25 to 40 percent and provide results hosting sites, and online panel providers.
in half the time it takes to do traditional telephone
Web Survey Systems Web survey systems are soft-
surveys. Traditional survey methods are labor-
ware systems specifically designed for Web question-
intensive efforts incurring training, telecommunica-
naire construction and delivery. They consist of an
tions, and management costs. Electronic methods
integrated questionnaire designer, Web server, data-
eliminate these completely. While costs for tradi-
base, and data delivery program designed for use by
tional survey techniques rise proportionally with
nonprogrammers.
the number of interviews desired, electronic solici-
The Web server distributes the questionnaire and
tations can grow in volume with little increase in
files responses in a database. The user can query the
project costs.
server at any time via the Web for completion statistics,
● Personalized questions and data: Internet sur- descriptive statistics on responses, and graphical displays
veys can be highly personalized for greater relevance of data. Some popular online survey research software
to each respondent’s own situation, thus speeding packages are Sawtooth CiW, Infopoll, SurveyMonkey,
the response process. and SurveyPro.
● Improved respondent par-
Google Consumer Surveys
ticipation: Internet surveys
Google, with more than a
take half as much time
billion unique visitors
to complete as phone
worldwide, has entered
interviews, can be ac-
the do-it-yourself Web
complished at the
survey arena. It does
respondent’s con-
this in a rather unique
venience (for ex-
manner; see www
ample, after work
.google.com/insights
hours), and are
/consumersurveys
much more stim-
/home. Certain Web
ulating and en-
sites host premium
gaging. As a result,
content that usually
Internet surveys
requires a subscrip-
enjoy much higher
tion or access fee.
response rates.
With Google Consumer
● Contact with the Surveys, however, a visi-
hard-to-reach: Certain tor can gain access to the
groups—doctors, high-income lu e
b gb premium content by answer-
m/
co
professionals, top management h o t o. ing a couple of questions instead
kp
in Global 2000 firms—are oc
iS t of paying the fee. Surveys are limited
to two questions. The first is typically a screening ques- of interventions to detect poor quality online surveys.
tion such as, “Have you purchased anything online in the These include speed detection, straight-line response
past ninety days?” The second question is more substan- detection, challenge questions, IP address location
tive, such as “Which promotion would you be most inter- checking, digital fingerprinting to identify multiple reg-
ested in—free shipping, 15% off, free returns, or saving istrations, and analysis of aggregate responses.
$25 on your next purchase of $150?” Basic demographic ONLINE FOCUS GROUPS A number of research firms
and location information are inferred from Google’s big are currently conducting focus groups online. The pro-
data database. Google Consumer Surveys are fast and cess is fairly simple. The research firm builds a database
cheap, but some researchers have questioned the sam- of respondents via a screening questionnaire on its Web
pling methodology while others have suggested that the site. When a client comes to a firm with a need for a
two-question format is too restrictive.19 particular focus group, the firm goes to its database and
Online Panel Providers Often, researchers use on- identifies individuals who appear to qualify. It sends an
line panel providers for a ready-made sample popula- e-mail to these individuals, asking them to log on to a
tion. Online panel providers such as Survey Sampling particular site at a particular time scheduled for the
International and e-Rewards pre-recruit people who group. Many times, these groups are joined by respon-
agree to participate in online market research surveys. dents on mobile devices. The firm pays them an incen-
Some online panels are created for specific indus- tive for their participation.
tries and may have a few thousand panel members, The firm develops a discussion guide similar to the
while the large commercial online panels have millions one used for a conventional focus group, and a modera-
of people waiting to be surveyed. When people join on- tor runs the group by typing in questions online for all
line panels, they answer an extensive profiling question- to see. The group operates in an environment similar to
naire that enables the panel provider to target research that of a chat room so that all participants see all ques-
efforts to panel members who meet specific criteria. tions and all responses. The firm captures the complete
Some critics of online panels suggest that they are text of the focus group and makes it available for review
not representative of the target population. Others claim after the group has finished.
that offering incentives to join a panel leads to bias and Online focus groups also allow respondents to view
misleading results. One such critic called online panels things such as a concept statement, a mockup of a print
“a club of people who signed up to take point-and-click ad, or a short product demonstration video. The mod-
surveys for points redeemable for cash and gifts.”20 On- erator simply provides a URL for the respondents to go
line panel researchers contend that they use a number to in another browser window.
Benefits of Web Community Research

The popularity and marketing power of Web communities stems from several key
benefits:
©o
Provide cost-effective, flexible research.

lex i
●
us/ S
● Help companies create customer-focused organizations by putting employees

hu t t
into direct contact with consumers.

er s t
ock
Achieve customer-derived innovation.

14 9
●
737
Establish brand advocates who are emotionally invested in a company’s success.

0 13
● Engage customers in a space where they are comfortable, allowing clients to

interact with them on a deeper level.
● Offer real-time results, enabling clients to explore ideas that normal time
constraints prohibit.
More advanced virtual focus group software reserves
a frame (section) of the screen for stimuli to be shown.
Here, the moderator has control over what is shown
in the stimulus area. Many online groups are now con-
ducted with audio and video feeds as well. One advan-
tage of this approach is that the respondent does not have
Nopporn/Shutterstock.com
to do any work to see the stimuli. There are many other
advantages of online groups:
● Better participation rates: Typically, online focus
groups can be conducted over the course of days;
once participants are recruited, they are less likely to
Nearly one in four mobile surveys are taken
pull out due to time conflicts.
outside of the home—often at work.
● Cost-effectiveness: Face-to-face focus groups incur
costs for facility rental, airfare, hotel, and food. None
of these costs is incurred with online focus groups. for approximately 30 percent of interview responses.
● Broad geographic scope: Time is flexible online; Nearly one in four mobile surveys are taken outside of
respondents can be gathered from all over the world. the home—often at work.22
Mobile surveys are designed to fit into the brief
● Accessibility: Online focus groups allow access to in-
cracks of time that open up when a person waits for a
dividuals who otherwise might be difficult to recruit
plane, is early for an appointment, commutes to work
(for example, business travelers, senior executives,
on a train, or stands in a line. Marketers strive to engage
mothers with infants).
respondents “in the moment” because mobile research
WEB COMMUNITY RESEARCH A Web community provides immediate feedback when a consumer makes a
is a carefully selected group of consumers who agree decision to purchase, consumes a product, or experiences
to participate in an ongoing dialogue with a particular some form of promotion. As new and better apps make
corporation. All community interaction takes place on a the survey experience easier and more intuitive, the use
custom-designed Web site. During the life of the com- of mobile surveys will continue to rise. As screen size
munity—which may last anywhere from six months to a decreases, so do survey completion rates. Seventy-six
year or more—community members respond to ques- percent of surveys are completed on desktop; 70 percent
tions posed by the corporation on a regular basis. In on tablet; and 59 percent on mobile phone. 23 New
addition to responding to the corporation’s questions, responsive design technology automatically adjusts the
community members talk to one another about topics content and navigation of a Web site to fit the dimensions
that are of interest to them. When Procter & Gamble and resolution of any screen it is viewed on.24
was developing scents for a new product line, it asked One advertiser wanted to conduct a survey on the
members of its online community to record the scents televised advertisements that ran during the Super
that they encountered over the course of a day that Bowl. The client wanted to measure real-time reactions,
made them feel good. By week’s end, Procter & Gamble but most people do not sit in front of their desktop com-
had received images, videos, and simple text tributes puters during the big game. They do, however, multitask
to cut grass, fresh paint, Play Dough, and other aromas using their smartphones. Respondents were recruited
that revealed volumes about how scent triggers not just in advance of game day, and then during the game, sur-
nostalgia, but also feelings of competence, adventurous- veys were pushed out in real time to collect feedback on
ness, comfort, and other powerful emotions.21 commercials as they aired.25
An ethnography shop-along used to mean accompa-
nying a participant on a shopping trip, but with today’s
9-4 THE GROWING IMPORTANCE mobile qualitative research tools, shop-alongs can be
completely self-guided. Mondelez Canada recently set
OF MOBILE RESEARCH out to launch Potato Thins, a low-calorie snack food, in
the United States. Potato Thins are packaged in a re-
Although desktop and laptop computers are the primary sealable pouch, differentiating the product and allow-
devices used for completing online research, the picture ing customers to consume small portions of the bag at
is changing rapidly. Mobile survey traffic now accounts a time. Before the launch, Mondelez Canada set up a
research experiment to determine which grocery store to analyze the impact of the advertising on consumers’
shelf location would give Potato Thins the biggest boost. actual buying behavior.28
The key concern for Mondelez was to learn about shop- Another SymphonyIRI’s product is InfoScan, a
pers’ logic and motivations when it comes to in-store scanner-based sales-tracking service for the consumer
navigation and healthy snacking. Survey participants packaged-goods industry. Retail sales, detailed con-
were sent on a “snacking safari” whereby they recorded sumer purchasing information (including measurement
their shopping and purchase habits by taking photos on of store loyalty and total grocery basket expenditures),
their mobile devices. Researchers found that consumers and promotional activity by manufacturers and retailers
demonstrated one of two distinct behaviors when shop- are monitored and evaluated for all bar-coded products.
ping for snacks—hunting or browsing. Data are collected weekly from supermarkets, drug-
When hunting, consumers tended to ignore signage, stores, and mass merchandisers.
as they knew which aisles to head for. When browsing, Some companies have begun using neuromarket-
participants went up and down the aisles of the store, ing to study microscopic changes in skin moisture,
gathering the items they needed and keeping an eye out heart rate, brain waves, and other biometrics to see
for new items.26 how consumers react to things such as package designs
After the shopping safari, respondents were intro- and ads. Neuromarketing is the process of research-
duced to Potato Thins. Researchers asked whether they ing brain patterns and measuring certain physiological
should be placed in the chip or cracker aisle, and the ma- responses to marketing stimuli. It is a fresh attempt to
jority of participants picked the cracker aisle. One par- better understand consumers’ responses to promotion
ticipant said, “I could see them in the snack food area, and purchase motivations.
close to the chips. However, I would likely miss purchas-
ing them, as I tend to avoid going down that aisle as it’s
too tempting and not healthy. So I suppose that it would 9-6 WHEN SHOULD MARKETING
be better to merchandise them close to the crackers.”
Researchers also concluded that the bag may look out of RESEARCH BE CONDUCTED?
place on the chip aisle due to its size. One participant said,
“The size of the package is quite small, so if you wanted When managers have several possible solutions
to serve these rather than regular chips you would have to to a problem, they should not instinctively call for
purchase quite a number of packages.”27 marketing research. In fact, the first decision to make
is whether to conduct marketing research at all.
Some companies have been conducting research
in certain markets for many years. Such firms under-
9-5 SCANNER-BASED RESEARCH stand the characteristics of target customers and their
likes and dislikes about existing products. Under these
Scanner-based research is a system for gather- circumstances, further re-
ing information from respondents by continuously search would be repetitive scanner-based research
monitoring the advertising, promotion, and pric- and waste money. P&G, a system for gathering information
from a single group of respondents
ing they are exposed to and the things they buy. for example, has extensive
by continuously monitoring the
Scanner-based research also entails the aggrega- knowledge of the coffee advertising, promotion, and pricing
tion of scanner data from retailers, analysis, and market. After it conducted they are exposed to and the things
identification of sales trends by industry, company, initial taste tests with they buy
product line, and individual brand. The variables Folgers Instant Coffee, BehaviorScan a scanner-
measured are advertising campaigns, coupons, displays, P&G went into national based research program that tracks
and product prices. The result is a huge database of distribution without further the purchases of 3,000 households
through store scanners in each
marketing efforts and consumer behavior. research. Sara Lee followed
research market
The two major scanner-based suppliers are Sym- the same strategy with its
phonyIRI Group Inc. and the Nielsen Company. Each frozen croissants, as did InfoScan a scanner-based sales-
tracking service for the consumer
has about half of the market. However, SymphonyIRI Quaker Oats with Chewy
packaged-goods industry
is the founder of scanner-based research. Symphony- Granola Bars. This tac-
IRI’s first product is called BehaviorScan. It delivers tic, however, can backfire. neuromarketing a field of
marketing that studies the body’s
different TV advertisements to selected homes within Marketers may think they
responses to marketing stimuli
the same market and then uses scanner purchase data understand a particular
market thoroughly and so bypass market re-
A SIMPLE FLOW MODEL OF THE CUSTOMER
search for a product, only to have the product EXHIBIT 9.8
fail and be withdrawn from the market. RELATIONSHIP MANAGEMENT SYSTEM
If information were available and free,
managers would rarely refuse more, but be- Identify customer relationships
cause marketing information can require a
great deal of time and expense to accumulate,
they might decide to forgo additional informa-
tion. Ultimately, the willingness to acquire ad- Understand
Leverage customer
ditional decision-making information depends interactions with
information
current customer
on managers’ perceptions of its quality, price, base
and timing. Research should be undertaken
only when the expected value of the informa-
tion is greater than the cost of obtaining it.
Identify best Capture customer
9-6a Customer Relationship customers data based
on interactions
Management
Recall from the beginning of the chapter that
databases and big data play a key role in mar- Store and integrate
keting decision making. A key subset of data customer data
using information
management systems is a customer relation- technology
ship management (CRM) system. CRM was
introduced in Chapters 1 and 8. The key to
managing relationships with customers is the
CRM cycle (Exhibit 9.8). and unprofitable customers. Big data analytics compile
To initiate the CRM cycle, a company must identify actionable data about the purchase habits of a firm’s
customer relationships with the organization. This may current and potential customers. Essentially, analytics
simply entail learning who the customers are or where transform customer data into customer information a
they are located, or it may require more detailed infor- company can use to make managerial decisions. Big data
mation about the products and services they are using. analytics are examined in more detail in Chapter 14.
Next, the company must understand the interactions Once customer data are analyzed and transformed
with current customers. Companies accomplish this by into usable information, the information must be
collecting data on all types of communications a customer leveraged. The CRM system sends the customer infor-
has with the company. mation to all areas of a business because the customer
Using this knowledge of its customers and their interacts with all aspects of the business. Essentially, the
interactions, the company then captures relevant cus- company is trying to enhance customer relationships by
tomer data on interactions. Big data analytics are used getting the right information to the right person in the
not only to enhance the collection of customer data right place at the right time.
but also to store and integrate customer data through-
out the company, and ultimately, to “get to know”
customers on a more personal level. Customer data 9-7 COMPETITIVE INTELLIGENCE
are the firsthand responses that are obtained from
customers through investigation or by asking direct Derived from military intelligence, competitive in-
questions. telligence is an important tool for helping a firm
Every customer wants overcome a competitor’s advantage. Specifically,
to be a company’s main pri- competitive intelligence can help identify the advan-
competitive intelligence
(CI) an intelligence system ority. Yet not all customers tage and play a major role in determining how it was
that helps managers assess their are equally important in achieved. It also helps a firm identify areas where it can
competition and vendors in order to the eyes of a business. Con- achieve its own competitive advantages.
become more efficient and effective sequently, the company Competitive intelligence (CI) helps managers
competitors
must identify its profitable assess their competitors and their vendors in order to
become more efficient and effective competitors. Intel- policy consequences for management. CI and envi-
ligence is analyzed information. It becomes decision- ronmental scanning (see Chapter 2) combine to create
making intelligence when it has implications for the marketing intelligence.
organization. For example, a primary competitor may The Internet is an important resource for gathering
have plans to introduce a product with performance CI, but noncomputer sources can be equally valuable.
standards equal to those of the company gathering the Some examples include company salespeople, industry
information but with a 15 percent cost advantage. The experts, CI consultants, government agencies, Uniform
new product will reach the market in eight months. Commercial Code filings, suppliers, periodicals, the
This intelligence has important decision-making and Yellow Pages, and industry trade shows.
STUDY
9
□ Track your knowledge and understanding of key concepts
in marketing
experience
10 Product Concepts
LEARNING OUTCOMES
10-1 Define the term product 10-5 Describe marketing uses of packaging and labeling
10-2 Classify consumer products 10-6 Discuss global issues in branding and packaging
10-3 Define the terms product item, product line, and product mix 10-7 Describe how and why product warranties are important
Paket /Shutterstock.com
marketing tools
10-4 Describe marketing uses of branding
10-1 WHAT IS A PRODUCT?

The product offering, the heart of an organization’s marketing
program, is usually the starting point in creating a marketing mix.
A marketing manager cannot determine a price, design a promotion
strategy, or create a distribution channel until the firm has a product
to sell. Moreover, an excellent distribution channel, a persuasive
promotion campaign, and a fair price have no value when the product
offering is poor or inadequate.
A product may be defined as everything, both favorable the manufacturer’s reputation, and the way consumers be-
and unfavorable, that a person receives in an exchange. A lieve others will view the product.
product may be a tangible good like a pair of shoes, a ser- To most people, the term product means a tangible
vice like a haircut, an idea like “don’t litter,” or any combi- good. However, services and ideas are also products.
nation of these three. Packaging, style, color, options, and (Chapter 12 focuses specifically on the unique aspects
size are some typical prod- of marketing services.) The marketing process identi-
product everything, both uct features. Just as impor- fied in Chapter 1 is the same whether the product mar-
favorable and unfavorable, that a tant are intangibles such as keted is a good, a service, an idea, or some combination
person receives in an exchange
service, the seller’s image, of these.
172 PART THREE: Product Decisions
10-2 TYPES OF CONSUMER PRODUCTS A marketing manager cannot
Products can be classified as either business (in-
dustrial) or consumer, depending on the buyer’s
determine a price, design a
intentions. The key distinction between the two types promotion strategy, or create
of products is their intended use. If the intended use is a
business purpose, the product is classified as a business or a distribution channel until the
industrial product. As explained in Chapter 7, a business
product is used to manufacture other goods or services,
firm has a product to sell.
to facilitate an organization’s operations, or to resell to
other customers. A consumer product is bought to satisfy includes these four types: convenience products, shop-
an individual’s personal wants or needs. Sometimes the ping products, specialty products, and unsought products.
same item can be classified as either a business or a con- This approach classifies products according to how much
sumer product, depending on its intended use. Examples effort is normally used to shop for them.
include lightbulbs, pencils and paper, and computers.
We need to know about product classifications be-
10-2a Convenience Products
cause business and consumer products are marketed dif-
ferently. They are marketed to different target markets A convenience product is a relatively inexpensive item
and tend to use different distribution, promotion, and that merits little shopping effort—that is, a consumer is
pricing strategies. unwilling to shop extensively for such an item. Candy, soft
Chapter 7 examined seven categories of business drinks, aspirin, small hardware items, dry cleaning, and
products: major equipment, accessory equipment, com- car washes fall into the convenience product category.
ponent parts, processed materials, raw materials, supplies, Consumers buy con-
and services. This chapter examines an effective way of venience products regu- convenience product
categorizing consumer products. Although there are sev- larly, usually without much a relatively inexpensive item
that merits little shopping effort
eral ways to classify them, the most popular approach planning. Nevertheless,
CHAPTER 10: Product Concepts 173
consumers do know the brand names of popular conve-
nience products, such as Coca-Cola, Bayer aspirin, and
Old Spice deodorant. Convenience products normally re-
quire wide distribution in order to sell sufficient quantities
to meet profit goals. For example, the gum brand Extra is
available everywhere, including Walmart, Walgreens, gas
stations, newsstands, and vending machines.
karamysh/Shutterstock.com
10-2b Shopping Products
A shopping product is usually more expensive than a
convenience product and is found in fewer stores. Con-
sumers usually buy a shopping product only after com- Consumers perceive houses as
paring several brands or stores on style, practicality, price,
heterogeneous because of variety
and lifestyle compatibility. They are willing to invest some
and differences.
effort into this process to get the desired benefits.
There are two types of shopping products: homo-
geneous and heterogeneous. Consumers perceive ho- Marketers of specialty products often use selective,
mogeneous shopping products as basically similar—for status-conscious advertising to maintain a product’s ex-
example, washers, dryers, refrigerators, and televisions. clusive image. Distribution is often limited to one or a very
With homogeneous shopping products, consumers typi- few outlets in a geographic area. Brand names and quality
cally look for the lowest-priced brand that has the desired of service are often very important.
features. For example, they might compare Kenmore,
Whirlpool, and General Electric refrigerators. 10-2d Unsought Products
In contrast, consumers perceive heterogeneous shop-
ping products as essentially different—for example, fur- A product unknown to the potential buyer or a known
niture, clothing, housing, and universities. Consumers product that the buyer does not actively seek is referred
often have trouble comparing heterogeneous shopping to as an unsought product. New products fall into
products because the prices, quality, and features vary so this category until advertising and distribution increase
much. The benefit of comparing heterogeneous shopping consumer awareness of them.
products is “finding the best product or brand for me”; this Some goods are always marketed as unsought items,
decision is often highly individual. For example, it would especially needed products we do not like to think about
be difficult to compare a or care to spend money on. Insurance, burial plots, and
small, private college with similar items require aggressive personal selling and
shopping product a product a large, public university, or highly persuasive advertising. Salespeople actively seek
that requires comparison shopping leads to potential buyers. Because consumers usually do
because it is usually more expensive IKEA with La-Z-Boy.
than a convenience product and is
not seek out this type of product, the company must go
found in fewer stores directly to them through a salesperson, direct mail, or
10-2c Specialty direct response advertising.
specialty product a particular Products
item for which consumers search
extensively and are very reluctant to
accept substitutes
When consumers search ex-
tensively for a particular item
10-3 PRODUCT ITEMS, LINES,
unsought product a product and are very reluctant to ac- AND MIXES
unknown to the potential buyer or a cept substitutes, that item
known product that the buyer does
is a specialty product. Rarely does a company sell a single product. More
not actively seek
Omega watches, Rolls- often, it sells a variety of things. A product item
product item a specific version Royce automobiles, Bose is a specific version of a product that can be designated
of a product that can be designated
speakers, Ruth’s Chris Steak as a distinct offering among an organization’s products.
as a distinct offering among an
organization’s products House, and highly special- Campbell’s Cream of Chicken soup is an example of a
ized forms of medical care product item (see Exhibit 10.1).
product line a group of closely are generally considered A group of closely related product items is called a
related product items
specialty products. product line. For example, the column in Exhibit 10.1
titled “Soups” represents one of Campbell’s product product mix. Each product item in the product mix may
lines. Different container sizes and shapes also distin- require a separate marketing strategy.
guish items in a product line. Diet Coke, for example, is In some cases, however, product lines and even en-
available in cans and various plastic containers. Each size tire product mixes share some marketing strategy compo-
and each container are separate product items. nents. UPS promotes its various services by demonstrating
An organization’s product mix includes all the its commitment to its line of work with the tagline “We
products it sells. All Campbell’s products—soups, sauces, [heart] Logistics.” Organizations derive several benefits
frozen entrées, beverages, and biscuits—constitute its from organizing related items into product lines:
● Advertising economies: Product lines provide
economies of scale in advertising. Several products
can be advertised under the umbrella of the line.
Campbell’s can talk about its soups being “M’m, M’m,
Good!” and promote the entire line.
● Package uniformity: A product line can benefit
from package uniformity. All packages in the line may
have a common look and still keep their individual
identities. Again, Campbell’s soup is a good example.
● Standardized components: Product lines allow
firms to standardize components, thus reducing man-
ufacturing and inventory costs. For example, Gen-
eral Motors uses the same parts on many automobile
makes and models.
● Efficient sales and distribution: A product line en-
ables sales personnel for companies like Procter &
Gamble to provide a full range of choices to custom-
ers. Distributors and retailers are often more inclined to
stock the company’s products if it offers a full line. Trans-
Dcwcreations/Shutterstock.com
portation and warehousing costs are likely to be lower for

a product line than for a collection of individual items.
● Equivalent quality:
Purchasers usually product mix all products that an
organization sells
expect and believe
EXHIBIT 10.1 CAMPBELL’S PRODUCT LINES AND PRODUCT MIX
Width of the Product Mix

Frozen
Soups Sauces Entrées Beverages Biscuits
Cream of Chicken Cheddar Cheese Macaroni and Cheese Tomato Juice Arnott’s:
Cream of Mushroom Alfredo Golden Chicken V-Fusion Juices Water Cracker
Depth of the Product Lines
Vegetable Beef Italian Tomato Fricassee V8 Splash Butternut Snap

DEPTH
Chicken Noodle Hollandaise Traditional Lasagna Chocolate Ripple

Tomato Spicy Fruit Roll
Bean with Bacon Chocolate Wheaten
Minestrone
Clam Chowder
French Onion
and more
Karkas/ShutterStock.com
Women’s swimming suits are known for coming in wide varieties of styles from functional
to poolside lounging.
that all products in a line are about equal in quality. 10-3a Adjustments to Product Items, Lines,
Consumers expect that all Campbell’s soups and all and Mixes
Gillette razors will be of similar quality.
Over time, firms change product items, lines, and mixes
Product mix width (or breadth) refers to the
to take advantage of new technical or product devel-
number of product lines an organization offers. In
opments or to respond to changes in the environment.
Exhibit 10.1, for example, the width of Campbell’s prod-
They may adjust by modifying products, repositioning
uct mix is five product lines. Product line depth is the
products, or extending or contracting product lines.
number of product items in a product line. As shown
in Exhibit 10.1, the sauces product line consists of four PRODUCT MODIFICATION Marketing managers must
product items; the frozen entrée product line includes decide if and when to modify existing products. Product
three product items. modification is a change in one or more of a product’s
Firms increase the width of their product mix to characteristics:
diversify risk. To generate sales and boost profits, firms ● Quality modification: a change in a product’s de-
spread risk across many product lines rather than dependability or durability. Reducing a product’s quality
pend on only one or two. Firms also widen their prod- may let the manufacturer lower the price and appeal
uct mix to capitalize on established reputations. For to target markets unable to afford the original product.
example, in order to expand its portfolio of beverage- Conversely, increasing quality can help the firm com-
related businesses, Starbucks purchased specialty up- pete with rival firms. For example, Barnes & Noble of-
scale tea retailer Teavana, which sells loose-leaf teas, tea fers a color version of its Nook that runs Android apps,
accessories, and food items. With this purchase, Star- allowing it to compete with tablet and netbook mak-
bucks wants to position ers, such as Dell and Asus. Increasing quality can also
product mix width the tea as it does coffee—as a result in increased brand loyalty, greater ability to raise
number of product lines an luxury beverage rather than prices, or new opportunities for market segmentation.
organization offers a commodity. 1
● Functional modification: a change in a product’s ver-
product line depth the Firms increase the
satility, effectiveness, convenience, or safety. In 2015,
number of product items in a depth of their product
product line Cat’s Pride introduced a new litter, Fresh & Light
lines to attract buyers with
Ultimate Care, that has a unique ultra-lightweight
product modification different preferences, to
formula that is good for both cats and their owners. It
changing one or more of a product’s increase sales and prof-
characteristics weighs half as much as traditional scoopable clay cat
its by further segmenting
litters, has premium clumping ability, and features a
planned obsolescence the the market, to capitalize
dust-free formula.2
practice of modifying products on economies of scale in
so those that have already been production and marketing, ● Style modification: an aesthetic (how the product
sold become obsolete before they looks) product change rather than a quality or func-
and to even out seasonal
actually need replacement
sales patterns. tional change. Clothing and auto manufacturers
commonly use style modifications to motivate cus-
tomers to replace products before they are worn out.
Planned obsolescence is a term commonly used
to describe the practice of modifying products so that
those that have already been sold become obsolete be-
fore they actually need replacement. For example, prod-
ucts such as printers and cell phones become obsolete
Brendan Howard/Shutterstock.com
because technology changes so quickly.
Some argue that planned obsolescence is waste-
ful; some claim it is unethical. Marketers respond that
consumers favor style modifications because they like
changes in the appearance of goods such as clothing and
cars. Marketers also contend that consumers, not manu-
facturers and marketers, decide when styles are obsolete.
REPOSITIONING Repositioning, as Chapter 8 ex- Krispy Kreme developed a line of beverages
plained, involves changing consumers’ perceptions of a that it made available to sell in Walmart
brand. Known primarily for its fat-, sugar-, and salt-laden stores.
product offerings, McDonald has long fought to reposi-
tion itself as a healthy fast food alternative. The company
A company can add too many products, or demand
recently announced that it would no longer market some
can change for the type of products that were introduced
of its less nutritional options to children, and would in-
over time. When this happens, a product line is overex-
stead incorporate fruits and vegetables into combo meals
tended. Product lines can be overextended when:
for children and adults alike. Further, McDonald’s an-
nounced that it would utilize menu boards and national ● Some products in the line do not contribute to profits
television advertising to help consumers understand the because of low sales or they cannibalize sales of other
nutritional choices available to them.3 Changing demo- items in the line.
graphics, declining sales, and changes in the social envi- ● Manufacturing or marketing resources are dispropor-
ronment often motivate a firm to reposition an established tionately allocated to slow-moving products.
brand. Retailer Target, for example, plans to reposition ● Some items in the line are obsolete because of new-
its brand toward Hispanic shoppers. The company’s re-
product entries in the line or new products offered
search showed that while only 38 percent of its shoppers
by competitors.
said that the store was their favorite, 54 percent of His-
panic Millennials said that Target was their favorite store. PRODUCT LINE CONTRACTION Sometimes market-
Several departments, including the baby department, will ers can get carried away with product extensions. (Does
be renovated to focus on marketing to Hispanic moms. the world really need 31 varieties of Head & Shoulders
Target also plans to be the first brand to launch a Spanish- shampoo?) Contracting product lines is a strategic way
language ad campaign on an English-language network.4 to deal with overextension. In March 2013, Internet
PRODUCT LINE EXTENSIONS A product line pioneer Yahoo announced that it would be cutting
extension occurs when a company’s management de- seven products—the Yahoo BlackBerry app, Sports IQ,
cides to add products to an existing product line in order Yahoo Message Boards, Yahoo Avatars, Yahoo Clues,
to compete more broadly in the industry. Krispy Kreme Yahoo App Search, and Yahoo Updates. “Ultimately,
recently developed a new series of ready-to-drink iced we’re making these changes in an effort to sharpen our
coffees that it plans to sell in Walmart stores that carry focus,” said Jay Rossiter, Yahoo’s executive vice presi-
Krispy Kreme products. The drinks are relatively in- dent for platforms. “By continuing to hone in on our
expensive, convenient, and are offered in the signature core products and experiences, we’ll be able to make
Krispy Kreme donut flavors. The company hopes to at- our existing products the very best they can be.”6
tract more coffee drinkers, as well as Walmart custom- Indeed, three major
ers, to their products. In addition, Krispy Kreme will benefits are likely when product line extension
attempt to attract a bigger share of the home-brew con- a firm contracts an over- adding additional products to an
sumer market by selling packages of its coffee blends at existing product line in order to
extended product line.
compete more broadly in the industry
some Sam’s Clubs locations in the Southeast.5 First, resources become
A Rotting Apple?
Starbucks, Lexus, and Apple are companies that have traditionally had
high levels of brand equity. However, some reports indicate that Apple’s brand equity
may be slipping. In 2012, Apple’s online customer satisfaction dropped to its lowest
level in four years, and brand loyalty dropped 5 percent. In 2014, the company
dropped 2.5 percent from the previous year. Competitors such as Samsung and
Smit/Shutterstock.com
Google began to usurp Apple’s image as “cutting-edge cool.” While Apple’s brand
equity remains among the strongest in the nation, Apple executives will certainly
have these figures in mind as they position the company in coming years.7
©StudioM1
concentrated on the most important products. Second, 10-4a Benefits of Branding
managers no longer waste resources trying to improve
Branding has three main purposes: product identification,
the sales and profits of poorly performing products.
repeat sales, and new-product sales. The most important
Third, new-product items have a greater chance of being
purpose is product identification. Branding allows mar-
successful because more financial and human resources
keters to distinguish their products from all others. Many
are available to manage them.
brand names are familiar to consumers and indicate quality.
The term brand equity refers to the value of a
10-4 BRANDING company or brand name. A brand that has high aware-
ness, perceived quality, and brand loyalty among cus-
The success of any business or consumer product tomers has high brand equity—a valuable asset indeed.
depends in part on the target market’s ability to See Exhibit 10.2 for some classic examples of companies
distinguish one product from another. Branding is that leverage their brand equity to the fullest.
the main tool marketers The term global brand refers to a brand that ob-
brand a name, term, symbol, use to distinguish their tains at least one-third of its earnings from outside its
design, or combination thereof products from those of the home country, is recognizable outside its home base of
that identifies a seller’s products
and differentiates them from
competition. customers, and has publicly available marketing and fi-
competitors’ products A brand is a name, nancial data. Yum! Brands, which owns Pizza Hut, KFC,
term, symbol, design, or and Taco Bell, is a good example of a company that has
brand name that part of a
brand that can be spoken, including combination thereof that developed strong global brands. Yum! believes that it
letters, words, and numbers identifies a seller’s products must adapt its restaurants to local tastes and different
and differentiates them cultural and political climates. In Japan, for instance,
brand mark the elements of a
brand that cannot be spoken from competitors’ prod- KFC sells tempura crispy strips. In northern England,
ucts. A brand name is KFC focuses on gravy and potatoes, and in Thailand, it
brand equity the value of a
company or brand name
that part of a brand that can offers rice with soy or sweet chili sauce.
be spoken, including let- The best generator of repeat sales is satisfied cus-
global brand a brand that ters (GM, YMCA), words tomers. Branding helps consumers identify products
obtains at least a one-third of its
earnings from outside its home
(Chevrolet), and numbers they wish to buy again and avoid those they do not.
country, is recognizable outside its (WD-40, 7-Eleven). The Brand loyalty, a consistent preference for one brand
home base of customers, and has elements of a brand that over all others, is quite high in some product catego-
publicly available marketing and cannot be spoken are called ries. More than half the consumers in product catego-
financial data
the brand mark—for ries such as cigarettes, mayonnaise, toothpaste, coffee,
brand loyalty consistent example, the well-known headache remedies, bath soap, and ketchup are loyal
preference for one brand over all Mercedes-Benz and Delta to one brand. Many students go to college and pur-
others
Air Lines symbols. chase the same brands they used at home rather than
EXHIBIT 10.2 THE POWER OF BRAND EQUITY
Dominant Brand
Product Category Name
Children’s Entertainment Disney
Laundry Detergent Tide
Tablet Computer Apple
Toothpaste Crest
Microprocessor Intel
Soup Campbell’s
Bologna Oscar Meyer
Ketchup Heinz
Bleach Clorox
Greeting Cards Hallmark
Overnight Mail FedEx
Copiers Xerox
Gelatin Jell-O
Hamburgers McDonald’s
Baby Lotion Johnson & Johnson
Tissues Kleenex
Acetaminophen Tylenol
Co ee Starbucks
Information Search Google
YUM! believes that it must adapt its Source: Data from Chris Moorman.
restaurants to local tastes and different

cultural and political climates. manufacturer’s brand. Sometimes “national brand”
is used as a synonym for “manufacturer’s brand.” This
term is not always accurate, however, because many
choosing by price. Brand identity is essential to devel- manufacturers serve only regional markets. Using “man-
oping brand loyalty. ufacturer’s brand” precisely defines the brand’s owner.
The third main purpose of branding is to facilitate A private brand, also known as a private label
new-product sales. Having a well-known and respected or store brand, is a brand name owned by a wholesaler
company and brand name is extremely useful when in- or a retailer. Target’s Archer Farms brand is a popular
troducing new products. private label, for example. Private labels are increas-
ing in popularity and price as customers develop loyal-
10-4b Branding Strategies ties to store brands such as Archer Farms. According
to research conducted in the United Kingdom,
Firms face complex branding decisions. Firms may 44 percent of shoppers believe that private label
choose to follow a policy of using manufacturers’ brands, brands are simply repackaged national brands. Fifty-
private (distributor) brands, or both. In either case, they nine percent believe that national brands are more
must then decide among a policy of individual branding expensive only because more money is spent adver-
(different brands for different products), family brand- tising them. Seventy percent believe that private la-
ing (common names for different products), or a combi- bel foods are just as good
nation of individual branding and family branding. or better than national manufacturer’s brand the
MANUFACTURERS’ BRANDS VERSUS PRIVATE brand name of a manufacturer
brands. Today, private
8
BRANDS The brand name of a manufacturer—such label products have a private brand a brand name
as Kodak, La-Z-Boy, and Fruit of the Loom—is called a 23 percent unit share and owned by a wholesaler or a retailer
EXHIBIT 10.3 COMPARISON OF MANUFACTURER’S AND PRIVATE BRANDS FROM THE RESELLERS PERSPECTIVE
Key Advantages of Carrying Key Advantages of Carrying
Manufacturers’ Brands Private Brands
• Heavy advertising to the consumer by manufacturers such as Procter & • A wholesaler or retailer can usually earn higher profits on its own brand.
Gamble helps develop strong consumer loyalties. In addition, because the private brand is exclusive, there is less pressure
to mark down the price to meet competition.
• Well-known manufacturers’ brands, such as Kodak and Fisher-Price, • A manufacturer can decide to drop a brand or a reseller at any time or
can attract new customers and enhance the dealer’s (wholesaler’s or even become a direct competitor to its dealers.
retailer’s) prestige.
• Many manufacturers o er rapid delivery, enabling the dealer to carry • A private brand ties the customer to the wholesaler or retailer. A person
less inventory. who wants a DieHard battery must go to Sears.
• If a dealer happens to sell a manufacturer’s brand of poor quality, the • Wholesalers and retailers have no control over the intensity of
customer may simply switch brands and remain loyal to the dealer. distribution of manufacturers’ brands. Walmart store managers don’t
have to worry about competing with other sellers of Sam’s American
Choice products or Ol‘ Roy dog food. They know that these brands are
sold only in Walmart and Sam’s Club stores.
a nineteen percent dollar share of the food and bever- INDIVIDUAL BRANDS VERSUS FAMILY BRANDS
age market.9 Many companies use different brand names for different
Retailers love consumers’ greater acceptance of pri- products, a practice referred to as individual branding.
vate brands. Because overhead is low and there are no Companies use individual brands when their products
marketing costs, private label products bring 10 percent vary greatly in use or performance. For instance, it would
higher profit margins, on average, than manufacturers’ not make sense to use the same brand name for a pair of
brands. More than that, a trusted store brand can differen- dress socks and a baseball bat. Procter & Gamble targets
tiate a chain from its competitors. Exhibit 10.3 illustrates different segments of the laundry detergent market with
key issues that wholesalers and retailers should consider in Bold, Cheer, Dash, Dreft, Era, Gain, and Tide.
deciding whether to sell manufacturers’ brands or private In contrast, a company that markets several differ-
brands. Many firms offer a combination of both. ent products under the same brand name is practicing
Instead of marketing private brands as cheaper and in- family branding. Jack Daniel’s family brand includes
ferior to manufacturers’ brands, many retailers are creating whiskey, coffee, barbeque sauce, heat-and-serve meat
and promoting their own captive brands. These brands products like brisket and pulled pork, mustard, playing
carry no evidence of the store’s affiliation, are manufactured cards, and clothing lines.
by a third party, and are sold exclusively at the chains. This
strategy allows the retailer to ask a price similar or equal to COBRANDING Co-branding entails placing two or
manufacturers’ brands, and the captive brands are typically more brand names on a product or its package. Three
displayed alongside mainstream products. A recent study common types of co-branding are ingredient branding,
showed that 88 percent of consumers prefer store brands cooperative branding, and complementary branding.
over name brands. These Ingredient branding identifies the brand of a part that
captive brand a brand consumers believe that makes up the product. For example, Church & Dwight
manufactured by a third party for an many store brands are just co-branded an entire line of Arm & Hammer laundry de-
exclusive retailer, without evidence tergents with OxiClean, a popular household cleaner and
as good as, or better than,
of that retailer’s affiliation
their favorite name brands.10 stain remover. OxiClean is also co-branded with Kaboom
individual branding using For example, Simple Truth shower cleaner and Xtra detergent.12 Cooperative brand-
different brand names for different ing occurs when two brands receiving equal treatment (in
and Simple Truth Organic
products
are Kroger’s lines of natural the context of an advertisement) borrow from each other’s
family branding marketing and organic products de- brand equity. A promotional contest jointly sponsored by
several different products under the Ramada Inn, American Express, and United Airlines used
signed to meet consumer
same brand name
desire for upscale brands. in cooperative branding. Guests at Ramada who paid with
co-branding placing two or 2014, these private brands an American Express card were automatically entered in
more brand names on a product or a contest and were eligible to win more than 100 getaways
accounted for $1.2 billion in
its package
sales for Kroger.11 for two at any Ramada in the continental United States
● Shapes, such as the Jeep front grille
and the Coca-Cola bottle.
● Ornamental colors or designs, such
as the decoration on Nike tennis
shoes, the black-and-copper color
combination of a Duracell battery,
Levi’s small tag on the left side of the
rear pocket of its jeans, or the cutoff
Source: Sears Brand LLC

black cone on the top of Cross pens.
● Catchy phrases, such as Prudential’s
“Own a Piece of the Rock,” Mountain
Dew’s “This Is How We Dew,” and
Nike’s “Just Do It!”
Craftsman and Harley-Davidson have partnered together to
offer tool storage units.
● Abbreviations, such as Bud, Coke, or
the Met.
and round-trip airfare from United. In 2014, Bruegger’s It is important to understand that trademark
Bagels and Jamba Juice announced that five co-branded rights come from use rather than registration. An
and co-operated locations would be opened across intent-to-use application is filed with the U.S. Patent
Florida. “Pairing Bruegger’s Bagels with [Jamba Juice and Trademark Office, and a company must have a
parent company] Great Service Restaurants is a fantastic genuine intention to use the mark when it files and
match,” said Paul Carolan, chief development officer for must actually use it within three years of the granting
Le Duff America, which owns Bruegger’s Bagels. “Great of the application. Trademark protection typically lasts
Service Restaurants shares our passion for community, for ten years.15 To renew the trademark, the company
quality, and providing exceptional guest experiences.”13 must prove it is using the mark. Rights to a trademark
Finally, with complementary branding, products are ad- last as long as the mark is used. Normally, if the firm
vertised or marketed together to suggest usage, such as a does not use it for two years, the trademark is consid-
spirits brand (Seagram’s) and a compatible mixer (7Up). ered abandoned, and a new user can claim exclusive
Co-branding is a useful strategy when a combination ownership of the mark.
of brand names enhances the prestige or perceived value The Digital Millennium Copyright Act (DMCA) ex-
of a product or when it benefits brand owners and users. plicitly applies trademark law to the digital world. This
Co-branding may also be used to increase a company’s law includes financial penalties for those who violate
presence in markets where it has little room to differ- trademarks or register an otherwise trademarked term
entiate itself or has limited market share. For example, as a domain name. The DMCA has come under some
Doc Popcorn and Dippin’ Dots plan to join together to criticism for its more restrictive provisions. In 2013,
open their first co-branded store. The companies will sell controversy erupted over the reinstitution of a section pro-
sweet and savory flavors of popcorn as well as ice cream hibiting individuals from unlocking their smartphones—
products under the same roof. This move will allow both a consumer who disables her phone’s restriction to a specific
brands to continue to grow domestically and internation- carrier may be subject to a prison term of up to five years
ally over the coming years. 14 and a $500,000 fine.16
Companies that fail to protect their trademarks
10-4c Trademarks face the possibility that their product names will be-
come generic. A generic
A trademark is the exclusive right to use a brand or product name identifies
part of a brand. Others are prohibited from using the trademark the exclusive right to
a product by class or type use a brand or part of a brand
brand without permission. A service mark performs and cannot be trademarked.
the same function for services, such as H&R Block Former brand names that service mark a trademark for a
and Weight Watchers. Parts of a brand or other prod- service
were not sufficiently pro-
uct identification may qualify for trademark protection. tected by their owners and generic product
Some examples are: were subsequently declared name identifies a product by class
or type and cannot be trademarked
● Sounds, such as the MGM lion’s roar. to be generic product names
and loose imitations are found in some
reputable department stores as well.
Today, whole stores are faked in China.
Stores selling real iPhones and iPads
in stores with sparse décor and bright
lighting may seem like authentic Apple
stores but are frequently imitating the
real deal. Numerous fast-food restau-
rants have become victims of knockoff
stores throughout China: Pizza Huh
Source: Nike, Inc.

(Pizza Hut), Mak Dak (McDonald’s),
and Taco Bell Grande (Taco Bell) mim-
ic the American chains’ layouts and
Nike and Under Armour have file lawsuits against one products. FBC, KFG, KLG, MFC, and
another in the recent past for trademark infringement; one OFC all lift Kentucky Fried Chicken’s
instance being the use of the term “DRI-FIT”. iconic logo, color scheme, and menu.19
In Europe, you can sue coun-
terfeiters only if your brand, logo, or
by U.S. courts include aspirin, cellophane, linoleum, ther- trademark is formally registered. Formal registration
mos, kerosene, monopoly, cola, and shredded wheat. used to be required in each country in which a compa-
Companies such as Rolls-Royce, Cross, Xerox, Levi ny sought protection. However, today a company can
Strauss, Frigidaire, and McDonald’s aggressively enforce register its trademark in all European Union member
their trademarks. Rolls-Royce, Coca-Cola, and Xerox countries with one application.
even run newspaper and magazine ads stating that their
names are trademarks and should not be used as descrip-
tive or generic terms. In 2013, athletic apparel company
Under Armour filed a trademark infringement lawsuit
10-5 PACKAGING
against Nike over the company’s use of advertising phras- Packages have always served a practical function—
es “I Will” and “Protect this house.” According to Under that is, they hold contents together and protect
Armour, Nike’s use of phrases such as “I will protect my goods as they move through the distribution chan-
home court” in online and social media outlets infringed nel. Today, however, packaging is also a container for pro-
upon an Under Armour marketing campaign that used moting the product and making it easier and safer to use.
similar phrases. Ten years earlier, Nike filed a suit against
Under Armour over the use of the term “DRI-FIT.”17 10-5a Packaging Functions
To try to stem the number of trademark infringe-
ments, violations carry steep penalties. But despite the The three most important functions of packaging are to
risk of incurring a penalty, infringement lawsuits are still contain and protect products; promote products; and fa-
common. Serious conflict can occur when brand names cilitate the storage, use, and convenience of products. A
resemble one another too closely. Fashion brand Gu- fourth function of packaging that is becoming increas-
cci has accused Guess of trademark violations for years. ingly important is to facilitate recycling and reduce envi-
In 2015, a French court ruled in Guess’s favor, finding ronmental damage.
that no trademark infringement, counterfeiting, or un- CONTAINING AND PROTECTING PRODUCTS The
fair competition between the two brands occurred. The most obvious function of packaging is to contain products
court found that Guess had diluted Gucci’s logos, not that are liquid, granular, or otherwise divisible. Packaging
copied them. An American court ruled, however, that also enables manufacturers, wholesalers, and retailers to
Guess was guilty of copying four of Gucci’s five trade- market products in specific quantities, such as ounces.
marked logos. This example also illustrates that there is Physical protection is another obvious function of
no such thing as a global trademark. 18
packaging. Most products are handled several times be-
Companies must also contend with fake or unau- tween the time they are manufactured, harvested, or oth-
thorized brands. Knockoffs of trademarked clothing erwise produced and the time they are consumed or used.
lines are easy to find in cheap shops all over the world, Many products are also shipped, stored, and inspected
several times between production and consumption. complaints—especially when it comes to clamshell elec-
Some, like milk, need to be refrigerated. Others, like tronics packaging. Indeed, Quora users voted clamshell
beer, are sensitive to light. Still others, like medicines and packaging “the worst piece of design ever done.” There
bandages, need to be kept sterile. Packages protect prod- is even a Wikipedia page devoted to “wrap rage,” the an-
ucts from breakage, evaporation, spillage, spoilage, light, ger associated with trying to open clamshells and other
heat, cold, infestation, and many other conditions. poorly designed packages.22 As oil prices force the cost
PROMOTING PRODUCTS Packaging does more than of plastics used in packaging skyward, companies such as
identify the brand, list the ingredients, specify features, Amazon, Target, and Walmart are pushing suppliers to
and give directions. A package differentiates a product do away with excessive and infuriating packaging. Such
from competing products and may associate a new prod- packaging innovations as zipper tear strips, hinged lids,
uct with a family of other products from the same manu- tab slots, screw-on tops, simple cardboard boxes, and
facturer. However, some prod- pour spouts were introduced to solve these and other
ucts’ packaging lacks useful problems. Easy openings are especially im-
information. The FDA is portant for kids and aging baby boomers.
looking to remedy incon- Some firms use packaging to segment
sistent and incomplete food markets. For example, a C&H sugar car-
packaging information by ton with an easy-to-pour, re-
M ah at hir M
adding more facts to nutrition oh d Ya sin /S
hu tte rs to ck closable top is targeted to
.co m
labels. These changes include listing the num- consumers who do not do a
ber of servings in each container and printing the lot of baking and are willing
calorie count for each serving in larger, bolder type. to pay at least 20 cents more
The FDA hopes that these changes will catch con- for the package. Different-sized
sumers’ eyes and help them better manage their health.20 packages appeal to heavy, moderate,
Packages use designs, colors, shapes, and materials and light users. Campbell’s soup is packaged in single-
to try to influence consumers’ perceptions and buying serving cans aimed at the elderly and singles market seg-
behavior. For example, marketing research shows that ments. Packaging convenience can increase a product’s
health-conscious consumers are likely to think that any utility and, therefore, its market share and profits.
food is probably good for them as long as it comes in FACILITATING RECYCLING AND REDUCING ENVI
green packaging. Packaging can also influence consumer RONMENTAL DAMAGE One of the most important
perceptions of quality and/or prestige. England’s Broth- packaging issues today is eco-consciousness, a trend that
ers Cider recently revamped its label and can designs in has recently been in and out of consumer and media at-
a move to reposition Toffee Apple Cider, Festival Pear tention. Studies conflict as to whether consumers will
Cider, and other cider flavors as premium adult bever- pay more for eco-friendly packaging, though consumers
ages. The company replaced bright green bottles with repeatedly iterate the desire to purchase such products.
tinted brown ones, and swapped colorful graphic labels A 2013 Harris Interactive study found that 78 percent
for designs that employ a mix of classic and modern of customers buy green products and services, up from
typefaces. To bolster its new prestigious image, Brothers sixty-nine percent in 2012. Twenty percent of respon-
rolled out its package redesign alongside a $7.6 million dents said that they purchased eco-friendly products
countrywide marketing push.21 to improve their health, while 47 percent reported that
they did so to improve the environment.23
FACILITATING STORAGE, USE, AND CONVENIENCE
Wholesalers and retailers prefer packages that are easy
to ship, store, and stock on shelves. They also like pack-
10-5b Labeling
ages that protect products, prevent spoilage or breakage, An integral part of any package is its label. Labeling gen-
and extend the product’s shelf life. erally takes one of two forms: persuasive or informational.
Consumers’ requirements for storage, use, and Persuasive labeling focuses on a promotional theme
convenience cover many dimensions. Consumers are or logo, and consumer in-
constantly seeking items that are easy to handle, open, formation is secondary. persuasive labeling a type
and reclose, although some consumers want packages Note that the standard of package labeling that focuses on
that are tamperproof or childproof. Research indicates promotional claims—such a promotional theme or logo, and
consumer information is secondary
that hard-to-open packages are among consumers’ top as “new,” “improved,” and
the purchase. Most major furniture manufacturers affix
The Disappearing labels to their wares that explain the products’ construc-
tion features, such as type of frame, number of coils, and
Package fabric characteristics. The Nutritional Labeling and Edu-
cation Act of 1990 mandated detailed nutritional infor-
Some firms use innovative packaging to target mation on most food packages and standards for health
environmentally concerned market segments. claims on food packaging. An important outcome of this
Package designer Aaron Mickelson’s the Disap- legislation has been guidelines from the Food and Drug
pearing Package project showcased several inven- Administration for using terms such as low fat, light,
tive ways to make packaging more sustainable. reduced cholesterol, low sodium, low calorie, low carb,
Mickelson’s designs include bar soap packaging and fresh. Getting the right information is very impor-
that dissolves under shower water, trash bag tant to consumers, so some universities and corporations
packaging that doubles as a container and can are working on new technologies to help consumers
be used as a trash bag itself, perforated tea bag shop smart. For example, researchers at the Eindhoven
booklets (eliminating the need for a box), and a University of Technology, the Universitá di Catania,
rolled up tear-away detergent pod package with CEA-Liten, and STMicroelectronics have developed a
product information printed across the out- low-cost plastic converter that tests whether packaged
side of the conjoined pods.25 foods are safe to eat. The converter then displays informa-
tion about the food’s freshness directly on its packaging,
eliminating the need for “best before” dates that serve as
cautious estimates at best. This not only reassures cus-
tomers that they are buying fresh food; it prevents still-
edible food from being thrown away once it is bought.24
oto graph y
GREENWASHING There are numerous products in ev-

ap el Ho us e Ph
ery product category that use greenwashing to try and

sell products. Greenwashing is when a product or com-
pany attempts to give the impression of environmental
Co urt es y of Ch
friendliness whether or not it is environmentally friendly.

As consumer demand for green products appeared
to escalate, green certifications proliferated. Companies
could create their own certifications and logos, resulting in
more than 300 possible certification labels, ranging in price
Aaron Mickelson’s innovative packaging
from free to thousands of dollars. Consumer distrust and
project included concepts such as this
confusion caused the Federal Trade Commission to issue
one—a reusable container with a soap-
new rules. Starting in late 2011, new regulations apply
soluble label that rinsed off—allowing the to labeling products with green-certification logos. If the
container to be repurposed for other foods same company that produced the product performed the
or household items. certification, that relationship must be clearly marked.
This benefits organizations such as Green Seal, which uses
unbiased, third-party scientists and experts to verify claims
about emissions or biodegradability, and hopes to increase
“super”—are no longer
informational labeling a consumer confidence in green products.26
type of package labeling designed to
very persuasive. Consum-
ers have been saturated
help consumers make proper product 10-5c Universal Product Codes
selections and lower their cognitive with “newness” and thus
dissonance after the purchase discount these claims. The universal product codes (UPCs) that appear
universal product codes Informational on most items in supermarkets and other high-volume
(UPCs) a series of thick and thin labeling, by contrast, is outlets were first introduced in 1974. Because the nu-
vertical lines (bar codes) readable by designed to help consum- merical codes appear as a series of thick and thin verti-
computerized optical scanners that cal lines, they are often called bar codes. The lines are
ers make proper product
represent numbers used to track
products selections and lower their read by computerized optical scanners that match codes
cognitive dissonance after with brand names, package sizes, and prices. They also
print information on cash register tapes and help retail- labeled. Labeling is also harder in countries like Belgium
ers rapidly and accurately prepare records of customer and Finland, which require packaging to be bilingual.
purchases, control inventories, and track sales. The UPC Package aesthetics may also require some atten-
system and scanners are also used in scanner-based tion. Even though simple visual elements of the brand,
research (see Chapter 9). such as a symbol or logo, can be a standardizing element
across products and countries, marketers must stay at-
tuned to cultural traits in host countries. For example,
colors may have different connotations. Red is associated
10-6 GLOBAL ISSUES IN BRANDING with witchcraft in some countries, green may be a sign of
AND PACKAGING danger, and white may be symbolic of death. Such cul-
tural differences could necessitate a packaging change
if colors are chosen for another country’s interpreta-
When planning to enter a foreign market with an
tion. In the United States, green typically symbolizes
existing product, a firm has three options for han-
an eco-friendly product, but that packaging could keep
dling the brand name:
customers away in a country where green indicates dan-
● One brand name everywhere: This strategy is use- ger. Aesthetics also influence package size. Soft drinks
ful when the company markets mainly one product are not sold in six-packs in countries that lack refrigera-
and the brand name does not have negative con- tion. In some countries, products such as detergent may
notations in any local market. The Coca-Cola Com- be bought only in small quantities because of a lack of
pany uses a one-brand-name strategy in more than storage space. Other products, such as cigarettes, may
195 countries around the world. The advantages of a be bought in small quantities, and even single units, be-
one-brand-name strategy are greater identification of cause of the low purchasing power of buyers.
the product from market to market and ease of coor- Extreme climates and long-distance shipping neces-
dinating promotion from market to market. sitate sturdier and more durable packages for goods sold
● Adaptations and modifications: A one-brand- overseas. Spillage, spoilage, and breakage are all more
name strategy is not possible when the name cannot important concerns when products are shipped long dis-
be pronounced in the local language, when the brand tances or frequently handled during shipping and stor-
name is owned by someone else, or when the brand age. Packages may also need to ensure a longer product
name has a negative or vulgar connotation in the local life if the time between production and consumption
language. The Iranian detergent Barf, for example, lengthens significantly.
might encounter some problems in the U.S. market.
● Different brand names in different markets: Lo-
cal brand names are often used when translation or 10-7 PRODUCT WARRANTIES
pronunciation problems occur, when the marketer
wants the brand to appear to be a local brand, or Just as a package is designed to protect the prod-
when regulations require localization. Unilever’s Axe uct, a warranty protects the buyer and gives es-
line of male grooming products is called Lynx in Eng- sential information about the product. A warranty
land, Ireland, Australia, and New Zealand. PepsiCo confirms the quality or performance of a good or service. An
changed the name of its eponymous cola to Pecsi in express warranty is a written guarantee. Express warran-
Argentina to reflect the way the word is pronounced ties range from simple statements—such as “100-percent
with an Argentinian accent. cotton” (a guarantee of quality) and “complete satisfaction
In addition to global branding decisions, companies guaranteed” (a statement of performance)—to extensive
must consider global packaging needs. Three aspects of documents written in tech-
packaging that are especially important in international nical language. In contrast, warranty a confirmation of the
an implied warranty is quality or performance of a good or
marketing are labeling, aesthetics, and climate consider- service
ations. The major labeling concern is properly translating an unwritten guarantee that
ingredient, promotional, and instructional information on the good or service is fit for express warranty a written
the purpose for which it guarantee
labels. Care must also be employed in meeting all local
labeling requirements. Several years ago, an Italian judge was sold. All sales have an implied warranty an unwritten
ordered that all bottles of Coca-Cola be removed from implied warranty under the guarantee that the good or service is fit
Uniform Commercial Code. for the purpose for which it was sold
retail shelves because the ingredients were not properly
Congress passed the Magnuson-Moss Warranty– and without charge” of any defects and replacement of
Federal Trade Commission Improvement Act in 1975 the merchandise or a full refund if the product does not
to help consumers understand warranties and get action work “after a reasonable number of attempts” at repair.
from manufacturers and dealers. A manufacturer that Any warranty that does not live up to this tough pre-
promises a full warranty must meet certain minimum scription must be “conspicuously” promoted as a limited
standards, including repair “within a reasonable time warranty.
STUDY
10
in marketing
experience
LEARNING YOUR
LEARNING YOUR WAY
www.cengage.com/4ltrpress
11 Developing and
Managing Products
LEARNING OUTCOMES
11-1 Explain the importance of developing new products and describe the six categories
of new products After you finish
this chapter go
Luminaimages/Shutterstock.com
11-2 Explain the steps in the new-product development process
11-3 Understand why some products succeed and others fail to PAGE203 for
11-4 Discuss global issues in new-product development STUDY TOOLS.
11-5 Explain the diffusion process through which new products are adopted
11-6 Explain the concept of product life cycles
11-1 THE IMPORTANCE OF NEW PRODUCTS

New products are important to sustain growth, increase revenues
and profits, and replace obsolete items. Each year Fast Company rates
and ranks its most innovative companies, based on the ability to buck
tradition in the interest of reaching more people, building a better
business, and spurring mass-market appeal for unusual or highly
technical products or services. In 2015, the top five companies were
Warby Parker, Apple, Alibaba, Google, and Instagram.1 All of these firms
have reputations for relying heavily on technology.
11-1a Introduction of New Products Sometimes it is difficult to decide when to replace

a successful product. Gillette Co. has a history of intro-
Some companies spend a considerable amount of money ducing new shaving systems (razors and accompanying
each year developing new products. At Pfizer, the world’s blades) before the previous generation of products be-
largest research-based pharmaceutical company, approx- gins experiencing a sales decline. In fact, Gillette expects
imately $1.2 billion is spent on research and develop- to cannibalize the sales of older models with its newer
ment for every new product released.2 Other companies introductions. In early 2015, Apple reintroduced the
with large R&D spending include Toyota ($9.9 billion MacBook line of laptops, effectively replacing the popu-
per year), IBM ($6.3 billion per year), and Procter & lar MacBook Air line. Apple executives agreed that the
Gamble ($2 billion per year).3 MacBook Air needed to be replaced to keep customers
satisfied, but the design of the new MacBook required
complex decisions, tradeoffs, and risks. The new ver-
sion features a retina display, thinner design, and a
The average fast-moving
longer-lasting battery.4 Clearly, the introduction of a new consumer goods company
product is a monumental undertaking with a lot of open-
ended questions—even for an established, multi-billion introduces seventy to eighty
dollar company like Apple.
new products per year.
11-1b Categories of New Products ● New product lines: These products, which the firm has
The term new product is somewhat confusing because not previously offered, allow it to enter an established
its meaning varies widely. Actually, the term has several market. For example, Moleskine’s first products were
“correct” definitions. A product can be new to the world, to simple black-covered journals. Since then, the com-
the market, to the producer or seller, or some combination pany has expanded into pens, travel bags, and even digital
of these. There are six categories of new products: creative tools available on the iPhone and iPad.6
● New-to-the-world products (also called discon- ● Additions to existing product lines: This category in-
tinuous innovations): These products create an cludes new products that supplement a firm’s estab-
entirely new market. For example, in early 2013, lished line. Fast-food restaurant chain Taco Bell and
Taiwanese electronics company Polytron Technolo- snack food manufacturer Frito-Lay have a longstand-
gies unveiled a completely transparent smartphone ing partnership that has resulted in several product
prototype. The device’s new-to-the-world “Switch- line additions. After the nacho cheese-flavored Doritos
able Glass” technology employs liquid crystal mol- Locos taco proved to be
ecules that display images only when electric current the biggest launch in new product a product new to
is run through them. Without power, the smartphone Taco Bell history, CEO the world, the market, the producer,
is completely see-through.5 New-to-the-world prod- Greg Creed announced the seller, or some combination
of these
ucts represent the smallest category of new products. that Cool Ranch– and
CHAPTER 11: Developing and Managing Products 189
many conventional color copiers and much lower
than the combined price of the four items purchased
separately.
11-2 THE NEW-PRODUCT

DEVELOPMENT PROCESS
Bill Pugliano/Getty Images

The management consulting firm Booz Allen Ham-
ilton has studied the new-product development
process for more than 30 years. Analyzing five major
studies undertaken during this period, the firm has con-
New 2015 Ford F-150s feature high- cluded that the companies most likely to succeed in
strength, military-grade, aluminum-alloy developing and introducing new products are those that
bodies and beds. take the following actions:
● Make the long-term commitment needed to support
Flamas-flavored versions of the Doritos Locos taco innovation and new-product development.
would soon be added to Taco Bell’s product line. ● Use a company-specific approach, driven by corpo-
Indeed, in March 2013, the Cool Ranch Doritos Locos rate objectives and strategies, with a well-defined
taco was added to Taco Bell menus across America.7 new-product strategy at its core.
● Improvements or revisions of existing products: ● Capitalize on experience to achieve and maintain
The “new and improved” product may be significantly competitive advantage.
or only slightly changed. In May 2013, MillerCoors ● Establish an environment—a management style, orga-
announced a new Miller Lite bottle that would only nizational structure, and degree of top management
be available in bars and restaurants. According to the support—conducive to achieving company-specific
company, the new bottle shape featured “broad shoul- new-product and corporate objectives.
ders and a contoured grip.” While the beer inside did
not change, the revision was significant enough that Most companies follow a formal new-product de-
the bottle could be called a new product.8 velopment process, usually starting with a new-product
strategy. Exhibit 11.1 traces the seven-step process,
● Repositioned products: These are existing products
which is discussed in detail in this section. The exhibit is
targeted at new markets or market segments, or ones
funnel-shaped to highlight the fact that each stage acts as
repositioned to change the current market’s percep-
a screen to filter out unworkable ideas.
tion of the product or company, which may be done
to boost declining sales. Mercedes is repositioning its
ultra-luxurious Maybach line as a sub-brand to ap- 11-2a New-Product Strategy
peal to its most status-conscious customers. Although A new-product strategy links the new-product de-
Mercedes is already known for luxurious vehicles, the velopment process with the objectives of the marketing
Maybach line is intended to “set a new benchmark for department, the business unit, and the corporation. A
exclusivity.” The Mercedes-Maybach line will feature new-product strategy must be compatible with these ob-
exceptionally comfortable and spacious seating and jectives, and in turn, all three of the objectives must be
lavishly designed interiors.9 consistent with one another.
● Lower-priced products: This category refers to A new-product strategy is part of the organization’s
products that provide performance similar to compet- overall marketing strategy. It sharpens the focus and pro-
ing brands at a lower price. vides general guidelines for generating, screening, and
new-product strategy a
The HP LaserJet Color evaluating new-product ideas. The new-product strategy
plan that links the new-product
development process with the MFP is a scanner, copier, specifies the roles that new products must play in the
objectives of the marketing printer, and fax machine organization’s overall plan and describes the character-
department, the business unit, and combined. This new prod- istics of products the organization wants to offer and the
the corporation
uct is priced lower than markets it wants to serve.
EXHIBIT 11.1 NEW-PRODUCT DEVELOPMENT PROCESS 11-2b Idea Generation
New-product ideas come from many sources, including
customers, employees, distributors, competitors, research
and development (R&D), consultants, and other experts.
CUSTOMERS The marketing concept suggests that cus-
tomers’ wants and needs should be the springboard for
developing new products. Companies can derive insight
from listening to Internet chatter or reading blogs, which
often indicate early trends or areas consumers are inter-
ested in seeing develop or change. Another approach for
1 New-product strategy
generating new-product ideas is using what some com-
2 Idea generation panies are calling “customer innovation centers.” The
idea is to provide a forum for meeting with customers
3 Idea screening and directly involving them in the innovation process.
EMPLOYEES Sometimes employees know a company’s
4 Business analysis products and processes better than anyone else. Many
5 firms have formal and informal processes in place for
Development
employees to propose new product ideas. To encourage
6 Test marketing
participation, some companies run contests, hold votes,
and set up idea kiosks.10
7 PricewaterhouseCoopers uses a system called iPlace
Commercialization
to encourage employee innovation. The system is so suc-
cessful that 60 percent of employees participate in the
New product
idea-generation process; 140 of the 3,300 ideas have
already been implemented.11
For Havianas Customers, Customization is Key

In the saturated summer sandals market, flip-flop manufacturer Havianas utilizes
customization as a way to stand out. Havianas’ online customization tool allows
©o
customers to combine different patterns and colors to create their own unique pairs
lex i
us/ S
of flip flops.12
hu t t
er s t
ock
14 9
737
0 13
Source: Havaianas
Some firms reward employees for
coming up with creative new ideas. In an
effort to encourage risk-taking through
new ideas, companies like Google have
begun implementing rewards for employ-
ees who fail after taking a big risk. Some
of the most innovative Google ideas (such
as driverless cars and Google glass) were
developed through the Google X program.
In order to promote innovative thinking
and eliminate the fear of coming up with
bad ideas among Google X employees,
the company rewards failure. According
AP Images/Toby Talbot
to Google X employee Astro Teller, “You
must reward people for failing. If not, they
won’t take risks and make breakthroughs.
If you don’t reward failure, people will
hang on to a doomed idea for fear of the Jack Burton Carpenter (center) speaks at the Vermont Ski
consequences. That wastes time and saps and Snowboard Museum after Governor Peter Shumlin
an organization’s spirit.”13 (right of center) signed a bill declaring skiing and
snowboarding as the official state sports of Vermont.
DISTRIBUTORS A well-trained sales
force routinely asks distributors about
needs that are not being met. Because they are clos- other two ways are product development and product
er to end users, distributors are often more aware of modification. Product development goes beyond
customer needs than are manufacturers. The inspira- applied research by converting applications into mar-
tion for Rubbermaid’s Sidekick, a litter-free lunch box, ketable products. Product modification makes cosmetic
came from a distributor who suggested that the com- or functional changes to existing products. Many new-
pany place some of its plastic containers inside a lunch product breakthroughs come from R&D activities.
box and sell the box as an alternative to plastic wrap Founder and CEO of Burton Snowboards Jake
and paper bags. Burton Carpenter believes that his company has been
so successful because it invests considerably more in
COMPETITORS No firms rely solely on internally research and development than its competitors do. “We
generated ideas for new products. As discussed in have to continue to make the best product out there,”
Chapter 9, a big part of any organization’s market- says Carpenter. “The minute we get beat on an innovation
ing intelligence system should be monitoring the or make a mistake on quality we lose our lead.”15 While
performance of competitors’ products. One purpose the United States is the global leader in research and
of competitive monitoring is to determine which, if development, this lead is beginning to slip. The United
any, of the competitors’ products should be copied. States’ share has grown from 25 percent to 34 percent at
There is plenty of information about competitors on the same time as China’s share alone has jumped more
the Internet. Fuld & Company is a preeminent re- than sevenfold to 15 percent. Still, the United States
search and consulting firm in the field of competi- spends $429 billion per year on R&D—more than twice
tive intelligence. Its clients include more than half that spent by China ($208 billion) and nearly three times
of the U.S. Fortune 500 list and numerous interna- that spent by Japan ($147 billion).16
tional firms. 14
RESEARCH AND DEVEL CONSULTANTS Outside consultants are always avail-

product development
a marketing strategy that entails OPMENT R&D is carried able to examine a business and recommend product
the creation of marketable new out in four distinct ways. ideas. Examples include the Weston Group, Booz Allen
products; the process of converting You learned about basic Hamilton, and Management Decisions Inc. Traditionally,
applications for new technologies research and applied re- consultants determine whether a company has a bal-
into marketable products
search in Chapter 4. The anced portfolio of products and, if not, what new-product
ideas are needed to offset the imbalance. For example, or some other formally appointed group performs the
Continuum is an award-winning consultancy firm that screening review.
designs new goods and services, works on brand make- Concept tests are often used at the screening stage to
overs, and conducts consumer research. Clients include rate concept (or product) alternatives. A concept test
PepsiCo, Moen, American Express, Samsung, Reebok, evaluates a new-product idea, usually before any proto-
and Sprint.17 type has been created. Typically, researchers get consumer
reactions to descriptions and visual representations of a
OTHER EXPERTS A technique that is being used
proposed product. Concept tests are considered fairly
increasingly to generate new product ideas is called
good predictors of success for line extensions. They have
“crowdsourcing.” General information regarding ideas
also been relatively precise predictors of success for new
being sought is provided to a wide range of potential
products that are not copycat items, are not easily classi-
sources such as industry experts, independent research-
fied into existing product categories, and do not require
ers, and academics. These experts then develop ideas for
major changes in consumer behavior—such as Betty
the company. In addition to field experts, firms such as
Crocker Tuna Helper. However, concept tests are usu-
Quirky Inc. and General Electric Company have used
ally inaccurate in predicting the success of new products
crowdsourcing to generate ideas from the general public
that create new consumption patterns and require major
and freelance inventors. Lego is using crowdsourcing to
changes in consumer behavior—such as microwave ov-
develop new ideas for its building block sets. Lego fans
ens, digital music players, and computers.
and enthusiasts can suggest ideas for new concepts via
“Lego Ideas,” a program set up by the toymaker. In or-
der to qualify for a review by the marketing team, us-
11-2d Business Analysis
ers must submit photos and a description of their idea New-product ideas that survive the initial screening pro-
to the Lego Ideas Web site, where other users can view cess move to the business analysis stage, where pre-
and vote to support the idea. If the idea receives sup- liminary figures for demand, cost, sales, and profitability
port from 10,000 users, it is sent to the Lego marketing are calculated. For the first time, costs and revenues are
team.18 For a more thorough discussion of crowdsourc- estimated and compared. Depending on the nature of
ing, see Chapter 18. the product and the company, this process may be sim-
Creativity is the wellspring of new-product ideas, ple or complex.
regardless of who comes up with them. A variety of The newness of the product, the size of the market,
approaches and techniques have been developed and the nature of the competition all affect the accuracy
to stimulate creative thinking. The two considered of revenue projections. In an established market like soft
most useful for generating new-product ideas are drinks, industry estimates of total market size are avail-
brainstorming and focus group exercises. The goal of able. Forecasting market share for a new entry in a new,
brainstorming is to get a group to think of unlimited fragmented, or relatively
ways to vary a product or solve a problem. Group members small niche is a bigger brainstorming the process
avoid criticism of an idea, no matter how ridiculous it challenge. of getting a group to think of
may seem. Objective evaluation is postponed. The sheer Analyzing overall eco- unlimited ways to vary a product or
quantity of ideas is what matters. As noted in Chapter 9, nomic trends and their solve a problem
an objective of focus group interviews is to stimulate impact on estimated sales screening the first filter in the
insightful comments through group interaction. In the is especially important in product development process,
industrial market, machine tools, keyboard designs, product categories that are which eliminates ideas that are
inconsistent with the organization’s
aircraft interiors, and backhoe accessories have evolved sensitive to fluctuations in
new-product strategy or are
from focus groups. the business cycle. If con- obviously inappropriate for some
sumers view the economy other reason
as uncertain and risky, they
11-2c Idea Screening will put off buying durable
concept test a test to evaluate
a new-product idea, usually before
After new ideas have been generated, they pass through goods such as major home any prototype has been created
the first filter in the product development process. This appliances, automobiles,
business analysis the second
stage, called screening, eliminates ideas that are incon- and homes. Likewise, busi- stage of the screening process
sistent with the organization’s new-product strategy or ness buyers postpone ma- where preliminary figures for
are obviously inappropriate for some other reason. The jor equipment purchases demand, cost, sales, and profitability
are calculated
new-product committee, the new-product department, if they expect a recession.
Common Questions in the Business
Analysis Stage
These questions are commonly asked during the business analysis stage:
● What is the likely demand for the product?
● What impact would the new product probably have on total sales, profits, market share, and return
on investment?
● How would the introduction of the product affect existing products? Would the new product cannibalize
existing products?
● Would current customers benefit from the product?
● Would the product enhance the image of the company’s overall product mix?
● Would the new product affect current employees in any way? Would it lead to increasing or reducing the size
of the workforce?
● What new facilities, if any, would be needed?
● How might competitors respond?
● What is the risk of failure? Is the company willing to take the risk?
©StudioM1
Understanding the market potential is important because machine, 18 years to develop Minute Rice, and 51 years
costs increase dramatically once a product idea enters the to develop the television. Video game developer Ubi-
development stage. soft took more than five years to develop open-world
action game Watch Dogs and more than six years to
11-2e Development develop racing game The Crew. The time invested in
In the early stage of development, the R&D or en-

gineering department may develop a prototype of the
product. A process called 3D printing, or additive
manufacturing, is sometimes used to create three-
dimensional prototypes quickly and at a relatively low
cost. During this stage, the firm should start sketching a
marketing strategy. The marketing department should
Stefano Tinti/Shutterstock.com
decide on the product’s packaging, branding, labeling,

and so forth. In addition, it should map out preliminary
promotion, price, and distribution strategies. The fea-
sibility of manufacturing the product at an acceptable
cost should be thoroughly examined. The development
stage can last a long time and thus be very expensive. It
took ten years to develop 3D Printing (or additive manufacturing)
development the stage in the Crest toothpaste, fifteen is sometimes used to create three-
product development process in years to develop the Po- dimensional prototypes quickly and at a
which a prototype is developed and laroid Colorpack cam-
a marketing strategy is outlined relatively low cost.
era and the Xerox copy
development, however, can often have a tremendous Act of 1972 requires manufacturers to conduct a “rea-
payoff. Watch Dogs broke launch day sales for Ubisoft, sonable testing program” to ensure that their products
selling more than 4 million units during its first week.19 conform to established safety standards.
The development process works best when all the Many products that test well in the laboratory are
involved areas (R&D, marketing, engineering, produc- also tried out in homes or businesses. Examples of
tion, and even suppliers) work together rather than se- product categories well suited for such use tests in-
quentially, a process called simultaneous product clude human and pet food products, household clean-
development. This approach allows firms to shorten ing products, and industrial chemicals and supplies.
the development process and reduce costs. With simul- These products are all relatively inexpensive, and their
taneous product development, all relevant functional ar- performance characteristics are apparent to users. For
eas and outside suppliers participate in all stages of the example, P&G tests a variety of personal and home-care
development process. Rather than proceeding through products in the community around its Cincinnati, Ohio,
highly structured stages, the cross-functional team oper- headquarters.
ates in unison. Involving key suppliers early in the pro-
cess capitalizes on their knowledge and enables them to
11-2f Test Marketing
develop critical component parts.
The Internet is a useful tool for implementing si- After products and marketing programs have been
multaneous product development. On the Web, mul- developed, they are usually tested in the market-
tiple partners from a variety of locations can meet place. Test marketing is the limited introduction
regularly to assess new-product ideas, analyze markets of a product and a marketing program to determine
and demographics, and review cost information. Ideas the reactions of potential customers in a market situ-
judged to be feasible can quickly be converted into ation. Test marketing allows management to evaluate
new products. The best-managed global firms leverage alternative strategies and to assess how well the vari-
their global networks by sharing best practices, knowl- ous aspects of the marketing mix fit together. Even
edge, and technology.20 Without the Internet, it would established products are test marketed to assess new
be impossible to conduct simultaneous product devel- marketing strategies.
opment from different parts of the world. Some firms The cities chosen as test sites should reflect market
use online brain trusts to solve technical problems. conditions in the new product’s projected market area.
InnoCentive Inc. is a network of 80,000 self-selected Yet no “magic city” exists that can universally represent
science problem solvers in 173 countries. Its clients market conditions, and a product’s success in one city
include NASA, Popular Science, and The Economist. does not guarantee that it will be a nationwide hit. When
When one of InnoCentive’s partners selects an idea selecting test market cities, researchers should there-
for development, it no longer tries to develop the idea fore find locations where the demographics and pur-
from the ground up with its own resources and time. chasing habits mirror the overall market. The company
Instead, it issues a brief to its network of thinkers, re- should also have good distribution in test cities. Wendy’s
searchers, technology entrepreneurs, and inventors uses Columbus, Ohio as a test market for new burg-
around the world, hoping to generate dialogue, sug- ers. Because the city has a nearly perfect cross-section
gestions, and solutions. of America’s demographic breakdown, it is the perfect
Innovative firms are also gathering a variety of R&D testing ground for new products. Most recently, Wendy’s
input from customers online. Wheaties NEXT Chal- tested the reception of its Ciabatta Bacon Cheeseburg-
lenge allowed customers to vote for which elite athlete er.22 Moreover, test locations should be isolated from the
would be featured on the next Wheaties cereal box by media. If the television sta-
logging workouts through the MapMyFitness program. tions in a particular market
simultaneous product
For each workout that was logged, a vote was cast for the reach a very large area out- development a team-
participant’s favorite Wheaties athlete. More than 71,000 side that market, the ad- oriented approach to new-product
people participated in the challenge.21 vertising used for the test development
Laboratory tests are often conducted on prototype product may pull in many test marketing the limited
models during the development stage. User safety is an consumers from outside introduction of a product and a
important aspect of laboratory testing, which actually the market. The product marketing program to determine the
may then appear more suc- reactions of potential customers in a
subjects products to much more severe treatment than
market situation
is expected by end users. The Consumer Product Safety cessful than it really is.
The high cost of test marketing is not just finan-
cial. One unavoidable problem is that test marketing
exposes the new product and its marketing mix to com-
petitors before its introduction. Thus, the element of
surprise is lost. Competitors can also sabotage or “jam”
a testing program by introducing their own sales pro-
motion, pricing, or advertising campaign. The purpose
is to hide or distort the normal conditions that the test-
ing firm might expect in the market.
ALTERNATIVES TO TEST MARKETING Many firms

are looking for cheaper, faster, safer alternatives to
traditional test marketing. In the early 1980s, Infor-
mation Resources Inc. pioneered one alternative:
scanner-based research (discussed in Chapter 9). A
typical supermarket scanner test costs about $300,000.
Another alternative to traditional test marketing is
simulated (laboratory) market testing. Advertis-
ing and other promotional materials for several prod-
ucts, including the test product, are shown to members
of the product’s target market. These people are then
taken to shop at a mock or real store, where their pur-
Ken Wolter/Shutterstock.com
chases are recorded. Shopper behavior, including re-

peat purchasing, is monitored to assess the product’s
likely performance under true market conditions. Re-
search firms offer simulated market tests for $25,000 to
$100,000, compared to $1 million or more for full-scale
Wendy’s uses Columbus, Ohio, as a test test marketing.
The Internet offers a fast, cost-effective way to
market for new burgers and menu items.
conduct test marketing. P&G uses the Internet to as-
sess customer demand for potential new products. Many
products that are not available in grocery stores or drug-
stores can be sampled from P&G’s Web site devoted to
THE HIGH COSTS OF TEST MARKETING Test mar-
samples and coupons, www.pgeveryday.com.24
keting frequently takes one year or longer, and costs
Despite these alternatives, most firms still consider
can exceed $1 million. Some products remain in test
test marketing essential for most new products. The high
markets even longer. In an effort to expand its product
price of failure simply prohibits the widespread intro-
offerings, Starbucks launched the Dark Barrel Latte in
duction of most new products without testing.
select Ohio and Florida locations in September 2014.
Some describe this new latte as having a taste similar
to Guinness beer. As of this printing, the drink is yet to
11-2g Commercialization
become more widely available.23 The final stage in the new-product development process
Despite the cost, many is commercialization, the decision to market a prod-
simulated (laboratory) firms believe it is better to uct. The decision to commercialize the product sets sev-
market testing the
presentation of advertising and fail in a test market than eral tasks in motion: ordering production materials and
other promotional materials for in a national introduction. equipment, starting production, building inventories,
several products, including a Because test marketing is shipping the product to field distribution points, training
test product, to members of the so expensive, some com- the sales force, announcing the new product to the trade,
product’s target market
panies do not test line ex- and advertising to potential customers.
commercialization the tensions of well-known The time from the initial commercialization deci-
decision to market a product brands. sion to the product’s actual introduction varies. It can
range from a few weeks for simple products that use ex-
isting equipment to several years for technical products
that require custom manufacturing equipment. And the
Seven Characteristics
total cost of development and initial introduction can be of Successful Product
staggering.
Introductions
Firms that routinely experience success in new-
11-3 WHY SOME PRODUCTS SUCCEED product introductions tend to share the following
seven characteristics:
AND OTHERS FAIL ● A history of listening carefully to customers
Despite the amount of time and money spent on ● An obsession with producing the best product
developing and testing new products, a large pro- possible
portion of new product introductions fail. Prod- ● A vision of what the market will be like in the
ucts fail for a number of reasons. One common reason future
is that they simply do not offer any discernible benefit
● Strong leadership
compared to existing products. Another commonly cited
factor in new-product failures is a poor match between ● A commitment to new-product development
product features and customer desires. For example, ● A project-based team approach to new-product
there are telephone systems on the market with more development
than 700 different functions, although the average user ● Getting every aspect of the product develop-
is happy with just ten functions. Other reasons for failure
ment process right
include overestimation of market size, incorrect target-
ing or positioning, a price too high or too low, inade-
quate distribution, poor promotion, or simply an inferior
product.
Estimates of the percentages of new products that fail
but fails to achieve sales, profit, or market share goals.
vary. Many estimates range as high as 80 to 90 percent.25
Examples of product failures in 2014 include the Amazon
Failure can be a matter of degree, however. Absolute Fire Phone, detergent-free laundry systems, the Nike
failure occurs when a company cannot recoup its devel-
FuelBand, and Burger King’s Satisfries, a healthier alter-
opment, marketing, and production costs—the product native to regular fries.26
actually loses money for the company. A relative prod- High costs and other risks of developing and test-
uct failure results when the product returns a profiting new products do not stop many companies, such
as Newell Rubbermaid, Colgate-Pal-
molive, Campbell Soup Company,
and 3M, from aggressively develop-
ing and introducing new products.
These companies depend on new
products to increase revenues and
profits. The most important factor
in successful new-product introduc-
tion is a good match between the
product and market needs—as the
marketing concept would predict.
Successful new products deliver a
meaningful and perceivable benefit
to a sizable number of people or or-
Source: Nike, Inc.
High costs of new products do not stop large companies ganizations and are different in some
from aggressively developing them, even if they fail. meaningful way from their intended
substitutes.
11-4 GLOBAL ISSUES IN NEW- obsession. In addition to having higher incomes, they are
more worldly and more active outside their community
PRODUCT DEVELOPMENT than noninnovators. They rely less on group norms and
are more self-confident. Because they are well educated,
Increasing globalization of markets and competi- they are more likely to get their information from scien-
tion provides a reason for multinational firms to tific sources and experts. Innovators are characterized as
consider new-product development from a world- being venturesome.
wide perspective. A firm that starts with a global strategy EARLY ADOPTERS Early adopters are the next
is better able to develop products that are marketable 13.5 percent to adopt the product. Although early adopt-
worldwide. In many multinational corporations, every ers are not the very first, they do adopt early in the prod-
product is developed for potential worldwide distribu- uct’s life cycle. Compared to innovators, they rely much
tion, and unique market requirements are satisfied dur- more on group norms and values. They are also more
ing development whenever possible. oriented to the local community, in contrast to the in-
Some global marketers design their products to novators’ worldly outlook. Early adopters are more likely
meet regulations in their major markets and then, if than innovators to be opinion leaders because of their
necessary, meet smaller markets’ requirements country closer affiliation with groups. Early adopters are a new
by country. Nissan develops lead-country car models product’s best friends. Because viral, buzz, and word-of-
that, with minor changes, can be sold in most markets. mouth advertising is on the rise, marketers focus a lot
With this approach, Nissan has been able to reduce the of attention identifying the group that begins the viral
number of its basic models from 48 to 18. Some prod- marketing chain—the influencers. Part of the challenge
ucts, however, have little potential for global market is that this group of customers is distinguished not by
penetration without modification. Succeeding in some demographics but by behavior. Influencers come from
countries (such as China) often requires companies to all age, gender, and income groups, and they do not use
develop products that meet the unique needs of these media any differently than other users who are consid-
populations.27 In other cases, companies cannot sell their ered followers. The characteristic influencers share is
products at affordable prices and still make a profit in their desire to talk to others about their experiences with
many countries. goods and services. A desire to earn the respect of others
is a dominant characteristic among early adopters.
11-5 THE SPREAD EARLY MAJORITY The next 34 percent to adopt are
called the early majority. The early majority weighs the
OF NEW PRODUCTS pros and cons before adopting a new product. They are
likely to collect more information and evaluate more
Managers have a better chance of successfully brands than early adopters, thereby extending the adop-
marketing products if they understand how con- tion process. They rely on the group for information but
sumers learn about and adopt products. are unlikely to be opinion leaders themselves. Instead,
they tend to be opinion leaders’ friends and neighbors.
11-5a Diffusion of Innovation Consumers trust positive word-of-mouth reviews from
friends, family, and peers.28 In fact, 50 percent of pur-
An innovation is a product perceived as new by a po- chase decisions are influenced by word-of-mouth, and
tential adopter. It really does not matter whether the 92 percent of consumers trust recommendations from
product is “new to the world” or some other category of friends and family more than any other form of advertis-
new product. If it is new to a potential adopter, it is an ing.29 Product discussions often drive teen conversations,
innovation in this context. Diffusion is the process by so word-of-mouth marketing is particularly powerful
which the adoption of an innovation spreads. Five cat- among this demographic. According to Lauren Hutter,
egories of adopters participate in the diffusion process. group planning director at BBDO New York, “It’s their
INNOVATORS Innova- countercultural currency . . . It’s how to break into the
innovation a product perceived tors are the first 2.5 per- group, how you bring something into the mix.”30
as new by a potential adopter
cent of all those who adopt While word-of-mouth marketing is important to
diffusion the process by which the product. Innovators teens, actually getting them to discuss products concrete-
the adoption of an innovation are eager to try new ideas ly can be difficult. According to Eric Pakurar, executive
spreads
and products, almost as an director and head of strategy at G2 USA, “They kind of
ping-pong back and forth. They do a little research, then ● Complexity: the degree of difficulty involved in un-
talk to their friends, and then do a little more research derstanding and using a new product. The more com-
and check back with their friends and family.”31 Other plex the product, the slower is its diffusion.
groups, such as Millennials, also report word-of-mouth ● Compatibility: the degree to which the new product
as the most important source of product information.32 is consistent with existing values and product knowl-
Many feel a responsibility to help friends and family edge, past experiences, and current needs. Incompat-
make wise purchase decisions. ible products diffuse more slowly than compatible
All word of mouth is not positive. Four out of five products.
U.S. consumers report telling people around them about
negative customer service experiences. Forty-two per-
● Relative advantage: the degree to which a product
cent of consumers share customer service experiences is perceived as superior to existing substitutes. Be-
on social media, roughly half of which is negative.33 The cause it can store and play back thousands of songs,
early majority is an important link in the process of dif- the iPod and its many variants have a clear relative
fusing new ideas because they are positioned between advantage over the portable CD player.
earlier and later adopters. A dominant characteristic of ● Observability: the degree to which the benefits or
the early majority is deliberateness. other results of using the product can be observed by
LATE MAJORITY The late majority is the next 34 per- others and communicated to target customers. For
cent to adopt. The late majority adopts a new product instance, fashion items and automobiles are highly
because most of their friends have already adopted it. visible and more observable than personal-care items.
Because they also rely on group norms, their adoption ● “Trialability”: the degree to which a product can be
stems from pressure to conform. This group tends to be tried on a limited basis. It is much easier to try a new
older and below average in income and education. They toothpaste or breakfast cereal, for example, than a
depend mainly on word-of-mouth communication rath- new personal computer.
er than on the mass media. The dominant characteristic
of the late majority is skepticism.
11-5c Marketing Implications
LAGGARDS The final 16 percent to adopt are called
laggards. Like innovators, laggards do not rely on group
of the Adoption Process
norms. Their independence is rooted in their ties to tra- Two types of communication aid the diffusion process:
dition. Thus, the past heavily influences their decisions. word-of-mouth communication among consumers and
By the time laggards adopt an innovation, it has probably communication from marketers to consumers. Word-
been outmoded and replaced by something else. For ex- of-mouth communication within and across groups, in-
ample, they may have bought their first color television set cluding social media and viral communication, speeds
after flat screen televisions were already widely diffused. diffusion. Opinion leaders discuss new products with
Laggards have the longest adoption time and the lowest their followers and with other opinion leaders. Market-
socioeconomic status. They tend to be suspicious of new ers must therefore ensure that opinion leaders have the
products and alienated from a rapidly advancing society. types of information desired in the media that they use.
The dominant value of laggards is tradition. Marketers Suppliers of some products, such as professional and
typically ignore laggards, who do not seem to be motivated health care services, rely almost solely on word-of-mouth
by advertising or personal selling and are virtually impos- communication for new business.
sible to reach online. Many large-scale companies like Procter & Gamble,
Note that some product categories may never be Cisco Systems, and Salesforce.com seek out opinion
adopted by 100 percent of the population. The adopter leaders among their employees. Some companies con-
categories refer to all of those who will eventually adopt duct surveys to identify opinion leaders while others
a product, not the entire population. use technology to map connections between individuals
and postings. Once identified, these influential employ-
11-5b Product Characteristics ees are provided with specially tailored communication
training and are invited to attend senior management
and the Rate of Adoption briefings. The hope is that these opinion leaders will field
Five product characteristics can be used to predict and co-workers’ questions and build positive buzz. Influenc-
explain the rate of acceptance and diffusion of a new ers are frequently rewarded for their skills with promo-
product: tions and other forms of recognition.34
The second type of communication aiding the diffu- brand that was the first and last competitor in a product
sion process is communication directly from the marketer form market. In that situation, the brand and product
to potential adopters. Messages directed toward early form life cycles would be equal in length. Product cate-
adopters should normally use different appeals than gories have the longest life cycles. A product category
messages directed toward the early majority, the late ma- includes all brands that satisfy a particular type of need,
jority, or the laggards. Early adopters are more important such as shaving products, passenger automobiles, or soft
than innovators because they make up a larger group, drinks.
are more socially active, and are usually opinion leaders. The time a product spends in any one stage of the
As the focus of a promotional campaign shifts from life cycle may vary dramatically. Some products, such as
early adopters to the early majority and the late major- fad items, move through the entire cycle in weeks. Fads
ity, marketers should study the dominant characteris- are typically characterized by a sudden and unpredict-
tics, buying behavior, and media characteristics of these able spike in sales followed by a rather abrupt decline.
target markets. Then they should revise messages and Examples of fad items are Silly Bandz, Beanie Babies,
media strategy to fit. The diffusion model helps guide and Crocs. Other products, such as electric clothes wash-
marketers in developing and implementing promotion ers and dryers, stay in the maturity stage for decades.
strategy. Exhibit 11.2 illustrates the typical life cycle for a consumer
durable good, such as a washer or dryer. In contrast,
Exhibit 11.3 illustrates typical life cycles for styles (such
11-6 PRODUCT LIFE CYCLES as formal, business, or casual clothing), fashions (such
as miniskirts or baggy jeans), and fads (such as leopard-
The product life cycle (PLC) is one of the most print clothing). Changes in a product, its uses, its image,
familiar concepts in marketing. Few other general or its positioning can extend that product’s life cycle.
concepts have been so widely discussed. Although some The PLC concept does not tell managers the length
researchers and consultants have challenged the theo- of a product’s life cycle or its duration in any stage. It
retical basis and managerial value of the PLC, many be- does not dictate marketing strategy. It is simply a tool
lieve it is a useful marketing management diagnostic tool to help marketers forecast future events and suggest ap-
and a general guide for marketing planning in various propriate strategies.
life cycle stages.
The PLC is a biological metaphor that traces the 11-6a Introductory Stage
stages of a product’s acceptance, from its introduction
The introductory stage of the PLC represents the
(birth) to its decline (death). As Exhibit 11.2 shows, a
full-scale launch of a new product into the marketplace.
product progresses through four major stages: intro-
Computer databases for personal use, room-deodorizing
duction, growth, maturity, and
decline.
The PLC concept can be EXHIBIT 11.2 FOUR STAGES OF THE PRODUCT LIFE CYCLE
used to analyze a brand, a product
form, or a product category. The Introductory Growth Maturity Decline
stage stage stage stage
PLC for a product form is usually
longer than the PLC for any one Sales
brand. The exception would be a
Dollars
product life cycle (PLC)

a concept that provides a way to Profits
trace the stages of a product’s
acceptance, from its introduction
(birth) to its decline (death) 0
product category all brands
that satisfy a particular type of need
introductory stage the full-

scale launch of a new product into
Time
the marketplace
EXHIBIT 11.3 PRODUCT LIFE CYCLES FOR STYLES, FASHIONS, AND FADS
Style Fashion Fad
Sales
Sales
Sales
Time Time Time
air-conditioning filters, and wind-powered home electric convenience products often requires heavy consumer
generators are all product categories that have recently sampling and couponing. Shopping and specialty prod-
entered the PLC. A high failure rate, little competition, ucts demand educational advertising and personal sell-
frequent product modification, and limited distribution ing to the final consumer.
typify the introductory stage of the PLC.
Marketing costs in the introductory stage are nor-
mally high for several reasons. High dealer margins are
11-6b Growth Stage
often needed to obtain adequate distribution, and incen- If a product category survives the introductory stage, it
tives are needed to get consumers to try the new prod- then advances to the growth stage of the life cycle. In
uct. Advertising expenses are high because of the need this stage, sales typically grow at an increasing rate, many
to educate consumers about the new product’s benefits. competitors enter the market, and large companies may
Production costs are also often high in this stage, as prod- start to acquire small pioneering firms. Profits rise rapidly
uct and manufacturing flaws are identified and corrected in the growth stage, reach their peak, and begin declin-
and efforts are undertaken to develop mass production ing as competition intensifies. Emphasis switches from
economies. primary demand promotion (e.g., promoting e-readers)
Sales normally increase slowly during the intro- to aggressive brand advertising and communication of
ductory stage. Moreover, profits are usually negative the differences between brands (e.g., promoting Kindle
because of R&D costs, factory tooling, and high intro- versus Nook).
duction costs. The length of the introductory phase is Distribution becomes a major key to success during
largely determined by product characteristics, such as the growth stage, as well as in later stages. Manufactur-
the product’s advantages over substitute products, the ers scramble to sign up dealers and distributors and to
educational effort required to make the product known, build long-term relationships. Others are able to market
and management’s commitment of resources to the new direct to consumers using electronic media. Without ad-
item. A short introductory period is usually preferred to equate distribution, it is impossible to establish a strong
help reduce the impact of negative earnings and cash market position.
flows. As soon as the product gets off the ground, the As the economy recovers, more companies are en-
financial burden should begin to diminish. Also, a short tering the growth stage, and more workers are being
introduction helps dispel some of the uncertainty as to hired. Because of this employment boom, staffing agen-
whether the new product will be successful. cies are seeing a huge increase in revenues. On Assign-
Promotion strategy in the introductory stage fo- ment, a company that places temporary and permanent
cuses on developing product awareness and informing workers in several differ-
consumers about the product category’s potential ben- ent industries, ranked third growth stage the second
stage of the product life cycle when
efits. At this stage, the communication challenge is to on Fortune’s list of the fast- sales typically grow at an increasing
stimulate primary demand—demand for the product in est growing companies for rate, many competitors enter the
general rather than for a specific brand. Intensive per- 2014. In 2012, On Assign- market, large companies may start
sonal selling is often required to gain acceptance for the ment acquired IT staff- to acquire small pioneering firms,
and profits are healthy
product among wholesalers and retailers. Promotion of ing agency ApexSystems,
becoming the second largest infotech staffing agency in
the U.S. The company’s stock rose 26.6 percent the day
after the acquisition35
11-6c Maturity Stage

A period during which sales increase at a decreasing
Goran Bogicevic/Shutterstock.com
rate signals the beginning of the maturity stage of the
life cycle. New users cannot be added indefinitely, and
sooner or later the market approaches saturation. Nor-
mally, this is the longest stage of the PLC. Many major
household appliances are in the maturity stage of their
life cycles.
For shopping products such as durable goods and Startbucks targets its gourmet line at new,
electronics, and many specialty products, annual mod- young drinkers;—the only segment that is
els begin to appear during the maturity stage. Product growing.
lines are lengthened to appeal to additional market seg-
ments. Service and repair assume more important roles
as manufacturers strive to distinguish their products is an example of a product in the decline stage of the
from others. Product design changes tend to become product life cycle. Nearly 40 percent of American
stylistic (How can the product be made different?) homes do not have a landline, which represents a con-
rather than functional (How can the product be made tinued steady increase since 2010—and a steady drop
better?). in the use of landlines.36 People abandoning landlines to
As prices and profits continue to fall, marginal go wireless and households replacing landlines with In-
competitors start dropping out of the market. Dealer ternet phones have both contributed to this long-term
margins also shrink, resulting in less shelf space for decline.
mature items, lower dealer inventories, and a general Some firms have developed successful strategies
reluctance to promote the product. Thus, promotion to for marketing products in the decline stage of the PLC.
dealers often intensifies during this stage in order to They eliminate all nonessential marketing expenses and
retain loyalty. let sales decline as more and more customers discontin-
Heavy consumer promotion by the manufacturer is ue purchasing the products. Eventually, the product is
also required to maintain market share. Cutthroat com- withdrawn from the market.
petition during this stage can lead to price wars. Another
characteristic of the maturity stage is the emergence 11-6e Implications for Marketing
of “niche marketers” that target narrow, well-defined,
Management
underserved segments of a market. Starbucks Coffee
targets its gourmet line at new, young, affluent coffee The new-product development process, the diffusion
drinkers, the only segment of the coffee market that is process, and the PLC concept all have implications for
growing. marketing managers. The funnel shape of Exhibit 11.1
indicates that many new product ideas are necessary to
produce one successful new product. The new-product
11-6d Decline Stage development process is sometimes illustrated as a de-
A long-run drop in sales signals the beginning of the cay curve with roughly half of the ideas approved at
decline stage. The rate of decline is governed by how one stage rejected at the next stage. While the actual
rapidly consumer tastes change or substitute products numbers vary widely among firms and industries, the re-
are adopted. Many convenience products and fad items lationship between the stages can be generalized. This
lose their market over- reinforces the notion that an organized effort to gener-
maturity stage a period night, leaving large inven- ate many ideas from various sources is important for any
during which sales increase at a
tories of unsold items, such firm that wishes to produce a continuing flow of new
decreasing rate
as designer jeans. Others products.
decline stage a long-run drop die more slowly. Land- The major implication of the diffusion process to
in sales
line telephone service marketing managers is that the message may need to
EXHIBIT 11.4 RELATIONSHIPS BETWEEN THE DIFFUSION PROCESS AND THE PRODUCT LIFE CYCLE
Introduction Growth Maturity Decline
Product life
cycle curve
Early majority
34%
Sales
Late majority
34%
Early adopters
13.5% Diffusion
curve
Innovators
2.5% Laggards
16%
Time
change over time. The targeted adopter and media may Exhibit 11.4 shows the relationship between the
need to shift based on how various categories of adopters adopter categories and stages of the PLC. Note that the
gather product information. A message developed for various categories of adopters buy products in different
and targeted toward early adopters will not be perceived stages of the life cycle. Almost all sales in the maturity
similarly by late majority adopters. and decline stages represent repeat purchases.
STUDY
□
□
in marketing
experience
experience
12 Services and
Nonprofit Organization
Marketing
LEARNING OUTCOMES
12-1 Discuss the importance of services to the economy
12-2 Discuss the differences between services and goods
Eric Francis/Shutterstock.com
After you finish
12-3 Describe the components of service quality and the gap model of service quality this chapter go
12-4 Develop marketing mixes for services to PAGE216 for
12-5 Discuss relationship marketing in services STUDY TOOLS.
12-6 Explain internal marketing in services
12-7 Describe nonprofit organization marketing
12-8 Discuss global issues in services marketing
12-1 THE IMPORTANCE OF SERVICES

A service is the result of applying human or mechanical efforts to people
or objects. Services involve a deed, a performance, or an effort that cannot
be physically possessed. Today, the service sector substantially influences
the U.S. economy. According to the Office of the United States Trade
Representative, service industries accounted for 68 percent of U.S. gross
domestic product (GDP) in 2014. These industries are responsible for four
out of five U.S. jobs. Recent Census data shows that most service sectors
reported revenue growth in 2014. The largest gains came in the real estate,
administrative and support, and information services sectors.1
The marketing process described in Chapter 1 is the manufacturing and service firms. Indeed, many manufac-
same for all types of products, whether they are goods turing firms can point to service as a major factor in their
or services. In addition, although a comparison of success. For example, maintenance and repair services of-
goods and services mar- fered by the manufacturer are important to buyers of copy
service the result of applying keting can be beneficial, machines. Nevertheless, services have some unique char-
human or mechanical efforts to in reality it is hard to dis- acteristics that distinguish them from goods, and market-
people or objects
tinguish clearly between ing strategies need to be adjusted for these characteristics.
12-2 HOW SERVICES DIFFER consulting services are examples of services that exhibit
credence qualities.
FROM GOODS These characteristics also make it harder for mar-
keters to communicate the benefits of an intangible ser-
Services have four unique characteristics that dis- vice than to communicate the benefits of tangible goods.
tinguish them from goods. Services are intangible, Thus, marketers often rely on tangible cues to communi-
inseparable, heterogeneous, and perishable. cate a service’s nature and quality. For example, Travelers
Insurance Company uses an umbrella symbol as a tan-
12-2a Intangibility gible reminder of the protection that insurance provides.
The basic difference between services and goods is that The facilities that cus-
services are intangible performances. Because of their tomers visit, or from which
intangibility, they cannot be touched, seen, tasted, services are delivered, are intangibility the inability of
services to be touched, seen, tasted,
heard, or felt in the same manner that goods can be sensed. a critical tangible part of
heard, or felt in the same manner
Evaluating the quality of services before or even after the total service offering. that goods can be sensed
making a purchase is harder than evaluating the quality Messages about the orga-
search quality a characteristic
of goods because, compared to goods, services tend to ex- nization are communicated that can be easily assessed before
hibit fewer search qualities. A search quality is a char- to customers through such purchase
acteristic that can be easily assessed before purchase—for elements as the décor, the
experience quality
instance, the color of an appliance or automobile. At the clutter or neatness of ser- a characteristic that can be assessed
same time, services tend to exhibit more experience and vice areas, and the staff’s only after use
credence qualities. An experience quality is a char- manners and dress. Ho-
credence quality
acteristic that can be assessed only after use, such as the tels know that guests form a characteristic that consumers
quality of a meal in a restaurant. A credence quality opinions quickly and are may have difficulty assessing even
is a characteristic that consumers may have difficulty as- more willing than ever be- after purchase because they do
fore to tweet them within not have the necessary knowledge
sessing even after purchase because they do not have
or experience
the necessary knowledge or experience. Medical and the first fifteen minutes of
CHAPTER 12: Services and Nonprofit Organization Marketing 205
their stay. Some hotels go to great lengths to make their (and within) complex enterprise software systems. Certi-
guests feel at home right away. For example, employees fications such as the Cisco Certified Network Associate,
at Ritz-Carlton hotels are trained to greet guests, bid CompTIA Security1, and Microsoft Certified Professional
them goodbye, and always address them by name. If a ensure a consistency of knowledge and ability among those
guest asks for directions to another part of the hotel, em- who can pass these programs’ rigorous exams.3
ployees are required to escort them rather than pointing
or giving complicated verbal directions.2 12-2d Perishability
Perishability is the fourth characteristic of services.
12-2b Inseparability
Perishability refers to the inability of services to be
Goods are produced, sold, and then consumed. In con- stored, warehoused, or inventoried. An empty hotel
trast, services are often sold, produced, and consumed at room or airplane seat produces no revenue that day. The
the same time. In other words, their production and con- revenue is lost. Yet service organizations are often forced
sumption are inseparable activities. This inseparability to turn away full-price customers during peak periods.
means that, because consumers must be present during One of the most important challenges in many ser-
the production of services like haircuts or surgery, they vice industries is finding ways to synchronize supply and
are actually involved in the production of the services demand. The philosophy that some revenue is better
they buy. That type of consumer involvement is rare in than none has prompted many hotels to offer deep dis-
goods manufacturing. counts on weekends and during the off-season.
Simultaneous production and consumption also
means that services normally cannot be produced in
a centralized location and consumed in decentralized
12-3 SERVICE QUALITY
locations, as goods typically are. Services are also insepa-
rable from the perspective of the service provider. Thus, Because of the four unique characteristics of ser-
the quality of service that firms are able to deliver devices, service quality is more difficult to define and
pends on the quality of their employees. measure than is the quality of tangible goods. Busi-
ness executives rank the improvement of service quality
12-2c Heterogeneity as one of the most critical challenges facing them today.
One great strength of McDonald’s is consistency. Whether
customers order a Big Mac in Chicago or Seattle, they
12-3a Evaluating Service Quality
know exactly what they are going to get. This is not the case Research has shown that customers evaluate service
with many service providers. Because services have greater quality by the following five components:
heterogeneity, or variability of inputs and outputs, they ● Reliability: the ability to perform the service de-
tend to be less standardized and uniform than goods. For
pendably, accurately, and consistently. Reliability
example, physicians in a group practice or barbers in a bar-
is performing the service right the first time. This
bershop differ within each
group in their technical and
inseparability the inability of interpersonal skills. Because
the production and consumption of
a service to be separated; consumers services tend to be labor in-
must be present during the tensive and production and
production consumption are insepara-
heterogeneity the variability ble, consistency and quality
of the inputs and outputs of services, control can be hard to
Nejron Photo/Shutterstock.com
which causes services to tend to achieve.

be less standardized and uniform Standardization and
than goods
training help increase con-
perishability the inability of sistency and reliability. In
services to be stored, warehoused, the information technology
or inventoried
sector, a number of certifica-
reliability the ability to perform tion programs are available Quality service is a must if a company
a service dependably, accurately, to ensure that technicians
and consistently wants to keep the customers coming back.
are capable of working on
component has been found to be the one most impor- evaluations of service quality.5 These gaps are illustrated
tant to consumers. in Exhibit 12.1.
● Responsiveness: the ability to provide prompt ser- ● Gap 1: the gap between what customers want and
vice. Examples of responsiveness include calling the what management thinks customers want. This gap re-
customer back quickly, serving lunch fast to someone sults from a lack of understanding or a misinterpreta-
who is in a hurry, or mailing a transaction slip imme- tion of the customers’ needs, wants, or desires. A firm
diately. The ultimate in responsiveness is offering ser- that does little or no customer satisfaction research is
vice twenty-four hours a day, seven days a week. likely to experience this gap. To close gap 1, firms must
● Assurance: the knowledge and courtesy of employ- stay attuned to customer wishes by researching cus-
ees and their ability to convey trust. Skilled employees, tomer needs and satisfaction.
who treat customers with respect and make customers ● Gap 2: the gap between what management thinks cus-
feel that they can trust the firm, exemplify assurance. tomers want and the quality specifications that man-
● Empathy: caring, individualized attention to cus- agement develops to provide the service. Essentially,
tomers. Firms whose employees recognize customers this gap is the result of
management’s inability responsiveness the ability to
and learn their specific requirements are providing provide prompt service
empathy. to translate customers’
needs into delivery sys- assurance the knowledge and
● Tangibles: the physical evidence of the service. The tems within the firm. courtesy of employees and their
tangible parts of a service include the physical facili- ability to convey trust
For example, KFC used
ties, tools, and equipment used to provide the service, empathy caring, individualized
to rate its managers ac-
as well as the appearance of personnel.4 attention to customers
cording to “chicken ef-
Overall service quality is measured by combining ficiency,” or how much tangibles the physical evidence
customers’ evaluations for all five components. chicken they threw away of a service, including the physical
at closing; customers facilities, tools, and equipment used
to provide the service
who came in late would
12-3b The Gap Model of Service Quality either have to wait for gap model a model identifying
A model of service quality called the gap model chicken to be cooked or five gaps that can cause problems
in service delivery and influence
identifies five gaps that can cause problems in ser- settle for chicken sev- customer evaluations of service quality
vice delivery and influence customer eral hours old.
Has starbucks fallen into gap 3?

Starbucks used to stress
the importance of “leg-
©o
endary service” during

lex i
the company’s extensive

us/ S
hu t t
training program for new

er s t
ChameleonsEye/Shutterstock.com
hires. However, a rash of

ock
14 9
labor cuts in recent years

737
has both diminished

0 13
the quality of Starbucks’s

barista training and forced
employees to work longer
hours with less help and
resources—often resulting in a single stressed-out barista frantically working to serve a
growing line of customers. The creeping incompetence, inaccuracy, and inattentiveness
of Starbucks baristas was satirized in a Saturday Night Live skit in which even the auto-
mated Verismo espresso machine was neglectful and derisive toward its customers.6
EXHIBIT 12.1 GAP MODEL OF SERVICE QUALITY
Consumer Gap Model of Service Quality
Word-of-Mouth
Personal Needs Past Experience
Communications
Expected Service
GAP 5
Perceived Service
Marketer GAP 4
Service Delivery External
(Including pre- Communications
and post-contacts) to Consumers
GAP 3
Translation of
Perceptions into
GAP 1 Service Quality Specs
GAP 2
Management
Perceptions of
Consumer Expectations
The gap analysts model measures consumer perceptions of service quality. Managers use the model to ana-
lyze sources of quality problems and to understand how service quality can be improved.
Based on Valarie A. Zeithaml, Mary Jo Bitner, and Dwayne Gremler, Services Marketing, 4/e, © 2006 (New York: McGraw-Hill, 2006).
● Gap 3: the gap between the service quality specifica- clearly a communication gap. It may include mislead-
tions and the service that is actually provided. If both ing or deceptive advertising campaigns promising
gaps 1 and 2 have been closed, then gap 3 is due to the more than the firm can deliver or doing “whatever it
inability of management and employees to do what takes” to get the business. To close this gap, compa-
should be done. Management needs to ensure that nies need to create realistic customer expectations
employees have the skills and the proper tools to per- through honest, accurate communication about what
form their jobs. Other techniques that help to close the firms can provide.
gap 3 are training employees so they know what man- ● Gap 5: the gap between the service that customers
agement expects and encouraging teamwork. receive and the service they want. This gap can be
● Gap 4: the gap between what the company provides positive or negative. For example, if a patient expects
and what the customer is told it provides. This is to wait twenty minutes in the physician’s office before
seeing the physician but actually waits only ten min- in large part of a process or a series of processes. Prod-
utes, the patient’s evaluation of service quality will be uct strategies for service offerings include decisions on
high. However, a 40-minute wait would result in a the type of process involved, core and supplementary
lower evaluation. services, standardization or customization of the service
When one or more of these gaps is large, service qual- product, and the service mix.
ity is perceived as low. As the gaps shrink, service quality SERVICE AS A PROCESS Two broad categories of
perception improves. In early 2013, Fifth Third Bank things get processed in service organizations: people
joined a growing number of financial institutions working and objects. In some cases, the process is physical, or
quickly to close a persistent, gaping gap 1—customers’ tangible, while in others the process is intangible. Based
desire for full-featured mobile banking. To meet the on these characteristics, service processes can be placed
needs of highly mobile, technologically tuned-in custom- into one of four categories:
ers, Fifth Third launched a powerful mobile app where- ● People processing takes place when the service is di-
by customers can view transactions, pay bills, transfer rected at a customer. Examples are transportation
funds, or deposit checks simply by taking pictures of services and health care.
them with their smartphones. “The ways in which con-
● Possession processing occurs when the service is di-
sumers interact with their bank are constantly evolving,”
rected at customers’ physical possessions. Examples
said Larry McClanahan, vice president and director of
are lawn care, dry cleaning, and veterinary services.
Digital Delivery for Fifth Third Bank. “The enhance-
ments we’ve made . . . reflect this shift in consumer ● Mental stimulus processing refers to services directed
preference and expectations.”7 at people’s minds. Examples are theater performanc-
Several other companies consistently get their ser- es and education.
vice quality right. According to MSN, the top five com- ● Information processing describes services that use
panies in terms of great customer service are: technology or brainpower directed at a customer’s as-
1. Amazon sets. Examples are insurance and consulting.9
2. Hilton Worldwide Because customers’ experiences and involvement
3. Marriott International differ for each of these types of services, marketing strat-
egies may also differ. For example, people-processing
4. Chick-fil-A
services require customers to enter the service factory,
5. American Express8 which is a physical location, such as an aircraft, a phy-
These companies have three core beliefs in common: sician’s office, or a hair salon. In contrast, possession-
good service starts at the top, service is seen as a con- processing services typically do not require the presence
tinual challenge, and companies work best when people of the customer in the service factory. Marketing strat-
want to work for them. egies for the former would therefore focus more on an
attractive, comfortable physical environment and em-
ployee training on employee–customer interaction issues
12-4 MARKETING MIXES than would strategies for the latter.
FOR SERVICES CORE AND SUPPLEMENTARY SERVICE PRODUCTS

The service offering can be viewed as a bundle of ac-
tivities that includes the core service, which is the most
Services’ unique characteristics—-intangibility, in-
basic benefit the customer is buying, and a group of
separability of production and consumption, hetero-
supplementary services that support or enhance the
geneity, and perishability—make marketing more
core service. Exhibit 12.2 illustrates these concepts for a
challenging. Elements of the marketing mix (product,
luxury hotel. The core service is providing bedrooms for
place, promotion, and pricing) need to be adjusted to meet
rent which involves people
the special needs created by these characteristics.
processing. The supplemen-
core service the most basic
tary services, some of which
12-4a Product (Service) Strategy involve information process-
benefit the consumer is buying
A product, as defined in Chapter 10, is everything a per- ing, include food services, supplementary services a
group of services that support or
son receives in an exchange. In the case of a service orga- reservations, parking, phone,
enhance the core service
nization, the product offering is intangible and consists and television services.
in the marketplace by greatly reducing supplementary
CORE AND SUPPLEMENTARY SERVICES
EXHIBIT 12.2 services.
FOR A LUXURY HOTEL
CUSTOMIZATION/STANDARDIZATION An impor-
Reservation tant issue in developing the service offering is whether
to customize or standardize it. Customized services
Room Parking are more flexible and respond to individual custom-
Phone ers’ needs. They also usually command a higher price.
ivery P
Del ro Standardized services are more efficient and cost less.
re
ce
Co
Instead of choosing to either standardize or cus-
ss
Overnight
Room rental of a Check-in/ tomize a service, a firm may incorporate elements
Service bedroom Check-out of both by adopting an emerging strategy called
mass customization. Mass customization uses tech-
nology to deliver customized services on a mass basis,
Supplementary which results in giving each customer whatever she or
Services Porter he asks for. Application Programming Interface (API)
Pay TV
banking represents a new way to think about banking
Meal services and how to deliver these services to different
customer groups. For example, API banking could al-
Delivery Processes
for Supplementary Services
low a bank to offer Millennials a mobile banking app
with tools to pay down student debt while offering Baby
Source: Lovelock, Christopher H.; Wirtz, Jochen, Services Marketing, 7th, (c)2011. Boomers a similar app but with special services focused
Electronically reproduced by permission of Pearson Education, Inc., Upper Saddle
River, New Jersey.
on retirement planning.10
THE SERVICE MIX Most service organizations mar-
ket more than one service. For example, TruGreen
In many service industries, the core service becomes offers lawn care, shrub care, carpet cleaning, and in-
a commodity as competition increases. Thus, firms usu- dustrial lawn services. Each organization’s service mix
ally emphasize supplemen- represents a set of opportunities, risks, and challenges.
mass customization a tary services to create a Each part of the service mix should make a different
strategy that uses technology to competitive advantage. On contribution to achieving the firm’s goals. To succeed,
deliver customized services on a each service may also need a different level of financial
the other hand, some firms
mass basis
are positioning themselves support. Designing a service strategy, therefore, means
Joleon Lescott and

James Vaughn design
customized Nike
trainers in Liverpool,
England’s NikeTown
iD Studio. Nike iD
is an example of
mass customization,
employing
technology to deliver
customized shoes,
apparel and bags on a
mass basis.
Nike/Getty Images.com
deciding what new services to introduce to which tar- 12-4c Promotion Strategy
get market, what existing services to maintain, and what
Consumers and business users have more trouble evalu-
services to eliminate.
ating services than goods because services are less tan-
gible. In turn, marketers have more trouble promoting
12-4b Place (Distribution) Strategy intangible services than tangible goods. Here are four
Distribution strategies for service organizations must promotion strategies they can try:
focus on such issues as convenience, number of outlets, ● Stressing tangible cues: A tangible cue is a concrete
direct versus indirect distribution, location, and sched- symbol of the service offering. To make their intan-
uling. A key factor influencing the selection of a ser- gible services more tangible, hotels turn down the
vice provider is convenience. An interesting example of bedcovers and put mints on the pillows.
this is Mac & Mia, a premium trunk club for children’s
● Using personal information sources: A personal
clothing. This service targets parents of small children
information source is someone consumers are famil-
who have little or no time to shop. After a parent com-
iar with (such as a celebrity) or someone they admire
pletes a style profile for his or her child at Mac & Mia’s
or can relate to personally. Service firms may seek
Web site, a company representative fills a box with a
to simulate positive word-of-mouth communication
selection of hand-picked clothing and accessories and
among present and prospective customers by using
ships it out. Parents keep what they want and return
real customers in their ads.
what they don’t within five days using an included pre-
paid envelope. The company provides busy parents an ● Creating a strong organizational image: One
easy, fun, and convenient way to buy needed items for way to create an image is to manage the evidence,
their kids.11 including the physical environment of the service fa-
An important distribution objective for many service cility, the appearance of the service employees, and
firms is the number of outlets to use or the number of the tangible items associated with a service (such as
outlets to open during a certain time. Generally, the in- stationery, bills, and business cards). For example,
tensity of distribution should meet, but not exceed, the McDonald’s golden arches are instantly recognizable.
target market’s needs and preferences. Having too few Another way to create an image is through branding.
outlets may inconvenience customers; having too many ● Engaging in postpurchase communication: Post-
outlets may boost costs unnecessarily. Intensity of dis- purchase communication refers to the follow-up
tribution may also depend on the image desired. Hav-
ing only a few outlets may make the service seem more
exclusive or selective.
The next service distribution decision is whether
to distribute services to end users directly or indirectly
through other firms. Because of the intangible nature
of services, many service firms have to use direct distri-
bution or franchising. Examples include legal, medical,
accounting, and personal-care services. The newest
form of direct distribution is the Internet. Most ma-
jor airlines are now using online services to sell tickets
directly to consumers, which results in lower distribu-
AP Images/Susan Walsh
tion costs for the airlines. Other firms with standard-

ized service packages have developed indirect channels
using independent intermediaries. For example, Bank
of America offers teller and loan services to customers
in small satellite facilities at Albertsons grocery stores
in Texas. Celebrity is a powerful promotional tool for
The location of a service most clearly reveals the services and nonprofits alike. Here, actor and
relationship between its target market strategy and dis- Eastern Congo Initiative founder, Ben Affleck,
tribution strategy. For time-dependent service providers testifies before a Senate Foreign Relations
such as airlines, physicians, and dentists, scheduling is Committee hearing on the Congo.
often a more important factor.
activities that a service firm might engage in after a A firm may need to use more than one type of pric-
customer transaction. Postcard surveys, telephone ing objective. In fact, all three objectives probably need
calls, and other types of follow-up show customers to be included to some degree in a pricing strategy, al-
that their feedback matters. though the importance of each type may vary depending
on the type of service provided, the prices that competi-
12-4d Price Strategy tors are charging, the differing ability of various custom-
er segments to pay, or the opportunity to negotiate price.
Considerations in pricing a service are similar to the For customized services (such as construction services),
pricing considerations to be discussed in Chapter 19. customers may also have the ability to negotiate a price.
However, the unique characteristics of services present
two special pricing challenges.
First, in order to price a service, it is important to 12-5 RELATIONSHIP MARKETING
define the unit of service consumption. For example,
should pricing be based on completing a specific ser- IN SERVICES
vice task (cutting a customer’s hair), or should it be time
based (how long it takes to cut a customer’s hair)? Some Many services involve ongoing interaction between
services include the consumption of goods, such as food the service organization and the customer. Thus,
and beverages. Restaurants charge customers for food they can benefit from relationship marketing, the strat-
and drink rather than the use of a table and chairs. egy described in Chapter 1, as a means of attracting, de-
Second, for services that are composed of multiple veloping, and retaining customer relationships. The idea
elements, the issue is whether pricing should be based is to develop strong loyalty by creating satisfied custom-
on a “bundle” of elements or whether each element ers who will buy additional services from the firm and
should be priced separately. A bundled price may be are unlikely to switch to a competitor. Satisfied customers
preferable when consumers dislike having to pay “extra” are also likely to engage in positive word-of-mouth com-
for every part of the service (e.g., paying extra for bag- munication, thereby helping to bring in new customers.
gage or food on an airplane), and it is simpler for the firm Many businesses have found that it is more cost-
to administer. Alternatively, customers may not want to effective to hang on to the customers they have than to
pay for service elements they do not use. Many furniture focus only on attracting new ones. A bank executive, for
stores now have “unbundled” delivery charges from the example, found that increasing customer retention by
price of the furniture. Customers who wish to can pick two percent can have the same effect on profits as reduc-
up the furniture at the store, saving on the delivery fee. ing costs by 10 percent.
Marketers should set performance objectives when Services that purchasers receive on a continuing basis
pricing each service. Three categories of pricing objec- (e.g., cable television, banking, insurance) can be consid-
tives have been suggested: ered membership services. This type of service naturally
lends itself to relationship marketing. When services involve
● Revenue-oriented pricing focuses on maximizing the discrete transactions (e.g., in a movie theater, at a restau-
surplus of income over costs. This is the same ap- rant, or on public transportation), it may be more difficult
proach that many manufacturing companies use. A to build membership-type relationships with customers.
limitation of this approach is that determining costs Nevertheless, services involving discrete transactions may
can be difficult for many services. be transformed into membership relationships using mar-
● Operations-oriented pricing seeks to match supply keting tools. For example, the service could be sold in bulk
and demand by varying prices. For example, match- (e.g., a theater series subscription or a commuter pass on
ing hotel demand to the number of available rooms public transportation). Or a service firm could offer special
can be achieved by raising prices at peak times and benefits to customers who choose to register with the firm
decreasing them during slow times. (e.g., loyalty programs for hotels and airlines). The service
● Patronage-oriented pricing tries to maximize the firm that has a more formalized relationship with its cus-
number of customers using the service. Thus, prices tomers has an advantage because it knows who its custom-
vary with different market segments’ ability to pay, ers are and how and when they use the services offered.13
and methods of payment (such as credit) are offered Relationship marketing can be practiced at four
that increase the likelihood of a purchase. Senior citi- levels:
zen and student discounts at movie theaters and res- ● Level 1: Financial. The firm uses pricing incentives
taurants are examples of patronage-oriented pricing.12 to encourage customers to continue doing business
with it. Frequent-flyer programs are an example of
level 1 relationship marketing. This level of relation-
ship marketing is the least effective in the long term
because its price-based advantage is easily imitated by
other firms.
● Level 2: Social. This level of relationship marketing
also uses pricing incentives but seeks to build social
bonds with customers. The firm stays in touch with cus-
Turtix/Shutterstock.com
tomers, learns about their needs, and designs services
to meet those needs. Level 2 relationship marketing is
often more effective than level 1 relationship marketing.
● Level 3: Customization. A customization approach
encourages customer loyalty through intimate knowl- Companies like Google have designed and
edge of individual customers (often referred to as cus- instituted a wide variety of programs such
tomer intimacy) and the development of one-to-one as flextime, on-site daycare and concierge
solutions to fit customers’ needs. service for their employees.
● Level 4: Structural. At this level, the firm again
uses financial and social bonds but adds structural
bonds to the formula. Structural bonds are developed organic foods, free health and dental insurance, subsi-
by offering value-added services that are not readily dized massages, nap pods, and on-site phycians.16
available from other firms.14 The MGM Grand hotel
in Las Vegas offers an entire floor of Stay Well suites
that feature air purification systems to reduce aller- 12-7 NONPROFIT ORGANIZATION
gens and toxins in the air; healthy energizing light-
ing developed to reduce jet lag and regulate circadian MARKETING
rhythms; and vitamin C-infused water in showers to
neutralize chlorine and soften skin and hair.15 A nonprofit organization is an organization that
exists to achieve some goal other than the usual
business goals of profit, market share, or return on
12-6 INTERNAL MARKETING investment. Both nonprofit organizations and private-
sector service firms market intangible products, and both
IN SERVICE FIRMS often require the customer to be present during the pro-
duction process. Both for-profit and nonprofit services
Services are performances, so the quality of a firm’s vary greatly from producer to producer and from day to
employees is an important part of building long- day, even from the same producer.
term relationships with customers. Employees who Few people realize that nonprofit organizations ac-
like their jobs and are satisfied with the firm they work count for more than twenty percent of the economic ac-
for are more likely to deliver superior service to custom- tivity in the United States. The cost of government (i.e.,
ers. In other words, a firm that makes its employees hap- taxes), the predominant form of nonprofit organization,
py has a better chance of retaining customers. Thus, it is has become the biggest single item in the American fam-
critical that service firms practice internal marketing, ily budget—more than housing, food, or health care. To-
which means treating employees as customers and devel- gether, federal, state, and
oping systems and benefits that satisfy their needs. While local governments collect internal marketing treating
this strategy may also apply to goods manufacturers, it is tax revenues that amount to employees as customers and
even more critical in service firms. This is because in ser- more than one-third of the developing systems and benefits that
vice industries, employees deliver the brand promise— U.S. GDP. In addition to satisfy their needs
their performance as a brand representative—directly government entities, non- nonprofit organization an
to customers. To satisfy employees, companies have de- profit organizations include organization that exists to achieve
signed and instituted a wide variety of programs such as hundreds of thousands of some goal other than the usual
business goals of profit, market share,
flextime, on-site day care, and concierge services. Google private museums, theaters, or return on investment
offers its employees benefits such as free chef-prepared schools, and churches.
12-7a What Is Nonprofit Organization
Marketing?
Nonprofit organization marketing is the effort by
nonprofit organizations to bring about mutually satisfy-
ing exchanges with target markets. Although these or-
Joe Robbins/WireImage/Getty Images

ganizations vary substantially in size and purpose and
operate in different environments, most perform the
following marketing activities:
● Identify the customers they wish to serve or attract
(although they usually use other terms, such as clients,
patients, members, or sponsors)
● Explicitly or implicitly specify objectives Singer, Nick Lachey, volunteered his time at
● Develop, manage, and eliminate programs and services the Freestore Foodbank in Cincinnati, as he
● Decide on prices to charge (although they use other promoted the kick-off of The Everybody Wins
terms, such as fees, donations, tuition, fares, fines, or Tour. Having a celebrity as a spokesperson is
rates) something that organizations regularly do to
● Schedule events or programs, and determine where draw attention to their cause.
they will be held or where services will be offered
● Communicate their availability through brochures, The lack of a financial “bottom line” and the exis-
signs, public service announcements, or advertisements tence of multiple, diverse, intangible, and sometimes
Often, the nonprofit organizations that carry out these vague or conflicting objectives make prioritizing objec-
functions do not realize they are engaged in marketing. tives, making decisions, and evaluating performance
hard for nonprofit managers. They must often use ap-
12-7b Unique Aspects of Nonprofit proaches different from the ones commonly used in the
private sector.
Organization Marketing Strategies
TARGET MARKETS Three issues relating to target
Like their counterparts in business organizations, non-
markets are unique to nonprofit organizations:
profit managers develop marketing strategies to bring
about mutually satisfying exchanges with target markets.
● Apathetic or strongly opposed targets: Private-
However, marketing in nonprofit organizations is unique sector organizations usually give priority to developing
in many ways—including the setting of marketing objec- those market segments that are most likely to respond
tives, the selection of target markets, and the develop- to particular offerings. In contrast, nonprofit organiza-
ment of appropriate marketing mixes. tions must often target those who are apathetic about
or strongly opposed to receiving their services, such as
OBJECTIVES In the private sector, the profit motive is
vaccinations and psychological counseling.
both an objective for guiding decisions and a criterion
for evaluating results. Nonprofit organizations do not
● Pressure to adopt undifferentiated segmentation
seek to make a profit for redistribution to owners or strategies: Nonprofit organizations often adopt undif-
shareholders. Rather, their focus is often on generating ferentiated strategies (see Chapter 8) by default. Some-
enough funds to cover expenses. times they fail to recognize the advantages of targeting,
Most nonprofit organizations are expected to pro- or an undifferentiated approach may appear to offer
vide equitable, effective, and efficient services that economies of scale and low per-capita costs. In other
respond to the wants and preferences of multiple con- instances, nonprofit organizations are pressured or
stituencies. These include users, payers, donors, politi- required to serve the maximum number of people by
cians, appointed officials, targeting the average user.
nonprofit organization the media, and the general ● Complementary positioning: The main role of many
marketing the effort by public. Nonprofit organiza- nonprofit organizations is to provide services, with
nonprofit organizations to bring tions cannot measure their available resources, to those who are not adequately
about mutually satisfying exchanges success or failure in strictly served by private-sector organizations. As a result, the
with target markets
financial terms. nonprofit organization must often complement, rather
than compete with, the efforts of others. The position- Nonprofit organizations have a few special promotion
ing task is to identify underserved market segments resources to call on, however:
and to develop marketing programs that match their ● Professional volunteers: Nonprofit organizations
needs rather than target the niches that may be most often seek out marketing, sales, and advertising pro-
profitable. For example, a university library may see it- fessionals to help them develop and implement pro-
self as complementing the services of the public library motion strategies. In some instances, an advertising
rather than as competing with it. agency donates its services in exchange for potential
PRODUCT DECISIONS There are three product-related long-term benefits. Donated services create goodwill;
distinctions between business and nonprofit organizations: personal contacts; and general awareness of the do-
nor’s organization, reputation, and competency.
● Benefit complexity: Nonprofit organizations often
market complex behaviors or ideas. Examples include
● Sales promotion activities: Sales promotion activi-
the need to exercise or eat right and the need to quit ties that use existing services or other resources are
smoking. The benefits that a person receives are com- increasingly being used to draw attention to the offer-
plex, long term, and intangible, and therefore are ings of nonprofit organizations. Sometimes nonprofit
more difficult to communicate to consumers. charities even team up with other companies for pro-
motional activities.
● Benefit strength: The benefit strength of many non-
profit offerings is quite weak or indirect. What are the
● Public service advertising: A public service
direct, personal benefits to you of driving 55 miles per advertisement (PSA) is an announcement that
hour or donating blood? In contrast, most private- promotes a program of a federal, state, or local gov-
sector service organizations can offer customers direct, ernment or of a nonprofit organization. Unlike a com-
personal benefits in an exchange relationship. mercial advertiser, the sponsor of the PSA does not
pay for the time or space. Instead, it is donated by the
● Involvement: Many nonprofit organizations market medium. PSAs are used, for example, to help educate
products that elicit very low involvement (“Prevent students about the dangers of misusing and abusing
forest fires”) or very high involvement (“Stop smok- prescription drugs, as well as where to seek treatment
ing”). The typical range for private-sector goods is for substance abuse problems.
much narrower. Traditional promotional tools may
be inadequate to motivate adoption of either low- or
PRICING DECISIONS Five key characteristics distin-
high-involvement products.
guish the pricing decisions of nonprofit organizations
PLACE DISTRIBUTION DECISIONS A nonprofit or- from those of the profit sector:
ganization’s capacity for distributing its service offerings ● Pricing objectives: The main pricing objective in the
to potential customer groups when and where they want profit sector is revenue or, more specifically, profit
them is typically a key variable in determining the suc- maximization, sales maximization, or target return
cess of those service offerings. For example, many large on sales or investment. Many nonprofit organizations
universities have one or more satellite campus locations must also be concerned about revenue. Often, how-
to provide easier access for students in other areas. Some ever, nonprofit organizations seek to either partially or
educational institutions also offer classes to students at fully defray costs rather than to achieve a profit for dis-
off-campus locations through the use of interactive video tribution to stockholders. Nonprofit organizations also
technology or at home via the Internet. seek to redistribute income—for instance, through
The extent to which a service depends on fixed facili- taxation and sliding-scale fees. Moreover, they strive
ties has important implications for distribution decisions. to allocate resources fairly among individuals or house-
Services like rail transit and lake fishing can be delivered holds or across geographic or political boundaries.
only at specific points. Many nonprofit services, however,
● Nonfinancial prices: In many nonprofit situations,
do not depend on special facilities.
consumers are not charged a monetary price but instead
PROMOTION DECISIONS Many nonprofit organiza- must absorb nonmon-
tions are explicitly or implicitly prohibited from advertis- etary costs. The impor- public service advertisement
ing, thus limiting their promotion options. Most federal tance of those costs is (PSA) an announcement that
agencies fall into this category. Other nonprofit organiza- illustrated by the large promotes a program of a federal, state,
tions simply do not have the resources to retain advertis- number of eligible citi- or local government or of a nonprofit
organization
ing agencies, promotion consultants, or marketing staff. zens who do not take
Glynnis Jones/Shutterstock.com
MarcelClemens/Shutterstock.com
First Lady, Chirlane McCray announces
a $78 million budget proposed by her
husband, Mayor Bill de Blasio, for mental
health services at a press conference at the is increasing rapidly, but many U.S. service industries
Empire State Building. have been able to enter the global marketplace because
of their competitive advantages. U.S. banks, for exam-
ple, have advantages in customer service and collections
advantage of so-called “free” services for the poor. In management.
many public assistance programs, about half the people For both for-profit and nonprofit service firms, the
who are eligible do not participate. Nonmonetary costs first step toward success in the global marketplace is de-
include time, embarrassment, and effort. termining the nature of the company’s core products.
● Indirect payment: Indirect payment through taxes Then, the marketing mix elements (additional services,
is common to marketers of “free” services, such as li- place, promotion, pricing, and distribution) should be
braries, fire protection, and police protection. Indirect designed to take into account each country’s cultural,
payment is not a common practice in the profit sector. technological, and political environment.
● Separation between payers and users: By de-
sign, the services of many charitable organizations
are provided for those who are relatively poor and
are largely paid for by those who are better off
financially. Although examples of separation be-
tween payers and users can be found in the profit
STUDY
TOOLS 12
sector (such as insurance claims), the practice is
much less prevalent.
□ Rip out Chapter Review Card
● Below-cost pricing: An example of below-cost
pricing is university tuition. Virtually all private
and public colleges and universities price their LOCATED AT WWW.CENGAGEBRAIN.COM
services below full cost. □ Review Key Terms Flashcards and create your own
in marketing
12-8 GLOBAL ISSUES IN SERVICES □ Complete practice and graded quizzes to prepare for tests
MARKETING □ Complete interactive content within the MKTG Online
The international marketing of services is a experience
major part of global business, and the United □ View the chapter highlight boxes within the MKTG Online
States has become the world’s largest exporter experience
of services. Competition in international services
YOUR
FEEDBACK
MATTERS.
13 Supply Chain
Management and
Marketing Channels
LEARNING OUTCOMES
Bill Pugliano/Getty Images News/Getty Images

13-1 Define the terms supply chain and supply chain management 13-5 Discuss how new technology and emerging trends are
and discuss the benefits of supply chain management impacting the practice of supply chain management
13-2 Discuss the concepts of internal and external supply chain 13-6 Explain what marketing channels and channel intermediaries
integration and explain why each of these types of integration are and describe their functions and activities
is important
13-7 Describe common channel structures and strategies and the
13-3 Identify the eight key processes of excellent supply chain factors that influence their choice
management and discuss how each of these processes affects
the end customer 13-8 Discuss omnichannel and multichannel marketing in both
B-to-B and B-to-C structures and explain why these concepts
13-4 Understand the importance of sustainable supply chain are important
management to modern business operations
13-1 SUPPLY CHAINS AND SUPPLY CHAIN MANAGEMENT

Many modern companies are turning to supply chain management
for competitive advantage. A company’s supply chain includes all of the
companies involved in the upstream and downstream flow of products,
services, finances, and information, extending from initial suppliers (the
point of origin) to the ultimate customer (the point of
supply chain the connected consumption). The goal of supply chain management
chain of all of the business entities,
both internal and external to the is to coordinate and integrate all of the activities
company, that perform or support
the logistics function performed by supply chain members into a seamless
supply chain management process, from the source to the point of consumption,
a management system that
coordinates and integrates all of the ultimately giving supply chain managers “total
activities performed by supply chain
members into a seamless process, visibility and control” of the materials, processes,
from the source to the point of
consumption, resulting in enhanced money, and finished products both inside and outside
customer and economic value
the company they work for. The philosophy behind
218 PART FOUR:
CHAPTER
Distribution
13: 13 Decisions
supply chain management is
that by visualizing and exerting In today’s marketplace,
control over the entire supply products are being driven
chain, supply chain managers by customer demand, and
can balance supply and demand businesses’ need to balance
needs, maximize strengths, and demand with supply in order
increase efficiencies at each level to ensure economic profits.
of the chain. Understanding and
integrating supply and demand-related information at every level
enables supply chain managers to optimize their decisions, reduce
waste, and respond quickly to sudden changes in supply or demand.
Supply chain management, when performed well, re- demand. The focus of businesses has shifted to deter-
flects a completely customer-driven management phi- mining how products and services are being “pulled”
losophy. In the mass production era, manufacturers into the marketplace by customers, and on partnering
produced standardized products that were “pushed” with members of the supply chain to enhance customer
down through marketing channels to consumers, who value. For example, when Rolls-Royce launched its
were convinced by salespeople to buy whatever was Ad Personam customer value program, the company
produced. In today’s marketplace, however, custom- used a build-to-order system that allowed every cus-
ers who expect to receive product configurations and tomer to design his or her car with more than a million
services matched to their unique needs are driving combinations of leather, fabric, wood, and paint. 1 This
CHAPTER 13: Supply Chain Management and Marketing Channels 219
differed from the mass-manufacturing approach com- and both profitability and company value. Addition-
panies used historically, whereby a company’s focus on ally, because well-managed supply chains are able to
efficiency determined a far narrower range of cars and provide better value to customers with only marginal
custom options. incremental expenditure on company assets, best-in-
This reversal of the flow of demand from “push” to class supply chain companies such as Kimberly-Clark
“pull” has resulted in a radical reformulation of tradi- are becoming significantly more valuable investments
tional marketing, production, and distribution functions for investors. Kimberly-Clark re-organized its sup-
toward a philosophy of supply chain agility. Agile ply chains by reducing distribution centers, increasing
companies synchronize their activities through the shar- flexibility, and making its supply chain more “demand-
ing of supply and demand market information, spend driven.” As a result, the company decreased forecast-
more time than their competitors focusing on activities ing errors by up to 35 percent each week, reduced fuel
that create direct customer benefits, partner closely consumption by 2.4 million gallons per year, and re-
with suppliers and service providers to reduce customer duced overall supply chain costs by millions of dollars
wait times for products, and constantly seek to reduce per year2—all of which positively impact the company’s
supply chain complexity through the evaluation and re- bottom line.
duction (or elimination) of stock-keeping units (SKUs)
that customers aren’t buying, among other strategies. By
managing the product pipeline in this way, companies 13-2 SUPPLY CHAIN INTEGRATION
are able to reduce supply chain
costs while at the same time of- A key principle of supply chain management is
fering better service levels, and that multiple entities (firms and/or their func-
in doing so, deliver more desir- tional areas) should work together to perform
able products at better prices tasks as a single, unified system, rather than as
to customers. multiple individual units acting in isolation. Com-
panies in a world-class supply chain combine their re-
13-1a Benefits of sources, capabilities, and innovations across multiple
Effective Supply business boundaries so they are used for the
best interest of the entire supply chain as
Chain Management a whole. The goal is that the overall per-
Supply chain management is a key formance of the supply chain will be
means of differentiation for a firm, greater than the sum of its parts.
and therefore represents a critical As companies become increas-
component in marketing and corpo- ingly focused on supply chain man-
rate strategy. Companies that focus agement, they come to possess a
ges
ma
on supply chain management com- supply chain orientation. This means

ty I et
r t /G
monly report lower inventory, trans- that they develop management practices
Sp o
portation, warehousing, and packaging that are consistent with a “systems

ges
ma
costs; greater logistical flexibility; im- thinking” approach. Supply chain ori-
yI
et t
proved customer service; and higher ented firms possess five characteris-
G
us /
ham
revenues. Research has shown a tics that, in combination, set them

yS
gor
clear relationship between apart from their partners:

Gr e
supply chain performance 1. They are credible. They

have the capability to
supply chain agility an deliver on the promises
operational strategy focused on
they make.
creating inventory velocity and
operational flexibility simultaneously 2. They are benevolent.
in the supply chain In a supply chain, agility which They are willing to ac-
supply chain orientation involves being flexible, like star cept short-term risks
a system of management practices athletes, allows companies to on behalf of others; are
that are consistent with a “systems committed to others, and
adapt to customer needs.
thinking” approach
invest in others’ success.
220 PART FOUR: Distribution Decisions
3. They are cooperative. They work with rather than different ownership and interests, five types of external
against their partners when seeking to achieve goals. integration are sought by firms interested in providing
4. They have the support of top managers. These man- top-level service to customers:4
agers possess the vision required to do things that ● Relationship integration is the ability of two or more
benefit the entire supply chain in the short run so companies to develop social connections that serve
that they can enjoy greater company successes in to guide their interactions when working together.
the long run. More specifically, relationship integration is the capa-
bility to develop and maintain a shared mental frame-
5. They are effective at conducting and directing sup-
work across companies that describes how they will
ply chain activity. Thereby, they are better off in the
depend on one another when working together. This
long run financially than those who are not.
includes the ways in which they will collaborate on
Management practices that reflect a highly co- activities or projects so that the customer gains the
ordinated effort between supply chain firms or maximum amount of total value possible from the
across business functions within the same or dif- supply chain.
ferent firms are “integrated.” In other words, ● Measurement integration reflects the idea that per-
supply chain integration occurs when multiple formance assessments should be transparent and
firms or their functional areas in a supply chain coordi- measurable across the borders of different firms,
nate business processes so they are seamlessly linked to and should also assess the performance of the supply
one another. In a world-class supply chain, the customer chain as a whole while holding each individual firm or
may not know where the business activities of one com- business unit accountable for meeting its own goals.
pany or business unit end and where those of another ● Technology and planning integration refers to
begin—each actor keeps their own interests in mind, the creation and maintenance of information tech-
but all appear to be reading from the same script, and nology systems that connect managers across the
from time to time, each makes sacrifices that benefit the firms in the supply chain. It requires information
performance of the system as a whole. hardware and software systems that can exchange
In the modern supply chain, integration can be ei- information when needed between customers, sup-
ther internal or external to a specific company or, ide- pliers, and internal operational areas of each of the
ally, both. From an internal perspective, the very best supply chain partners.
companies develop a managerial orientation toward
● Material and service supplier integration requires
demand-supply integration (DSI) . Under the
firms to link seamlessly to those outsiders that pro-
DSI philosophy, those functional areas in a company
vide goods and services to them so that they can
charged with creating customer demand (such as mar-
streamline work processes and thereby provide
keting, sales, or research/development) communicate
smooth, high-quality customer experiences. Both
frequently and are synchronized with the parts of the
sides need to have a common vision of the total value
business charged with fulfilling the created demand
creation process and be willing to share the respon-
(purchasing, manufacturing, and logistics). This type of
sibility for satisfying customer requirements to make
alignment enhances customer satisfaction by ensuring
supplier integration successful.
that, for example, salespeople make promises to custom-
ers that can actually be delivered on by the company’s ● Customer integration
logistics arm, or that raw materials being purchased is a competency that supply chain integration
actually meet customer specifications before they are enables firms to offer when multiple firms or business
placed into production. Simultaneously, the company long-lasting, distinctive, functions in a supply chain
coordinate their activities and
gains efficiencies from ordering and using only those value-added offerings
processes so that they are seamlessly
materials that lead directly to sales. In short, companies to those customers who linked to one another in an effort to
operating under a DSI philosophy are better at their represent the greatest satisfy the customer
business because all of the different divisions within the value to the firm or supply
demand-supply integration
company “play from the same sheet of music.”3 chain. Highly customer- (DSI) a supply chain operational
Additionally, the practice of world-class supply integrated firms assess philosophy focused on integrating
chain management requires that different companies their own capabilities the supply-management and
act as if a single mission and leadership connect them. and then match them demand-generating functions of an
organization
To accomplish this task across companies that have to customers whose
cross-organizational integrated product
teams, and improved communication
between partners. These factors all aid in
integrating supply chain operations.5
13-3 THE KEY PROCESSES

OF SUPPLY CHAIN
MANAGEMENT
Max blain/ShutterStock.com
When firms practice good supply
chain management, their functional
departments or areas, such as mar-
keting, research and development,
and/or production, are integrated
Relationally integrated supply chains have sets of rules, both within and across the linked
policies, and/or procedures that dictate how firms will firms. Integration, then, is “how” excel-
work together and specify how conflicts among supply lent supply chain management works.
chain partners will be resolved. The business processes on which the
linked firms work together represent
the “what” of supply chain manage-
desires they can meet and who offer large enough ment—they are the objects of focus on which firms,
sales potential for the linkage to be profitable over departments, areas, and people work together when
the long term. seeking to reduce supply chain costs or to generate addi-
Success in achieving both the internal and external tional revenues. Business processes are composed of
types of integration is very important. Highly integrated bundles of interconnected activities that stretch across
supply chains (those that are successful in achieving firms in the supply chain; they represent key areas that
many or all of these types of integration) have been some or all of the involved firms are constantly working
shown to be better at satisfying customers, managing on to reduce costs and/or generate revenues for every-
costs, delivering high-quality products, enhancing pro- one throughout supply chain management. There are
ductivity, and utilizing company or business unit assets, eight critical business processes on which supply chain
all of which translate into greater profitability for the managers must focus:
firms and their partners working together in the supply 1. Customer relationship management
chain. 2. Customer service management
Integration involves a balance between barriers and
3. Demand management
enablers. Companies that work closely with their suppliers
encounter problems such as corporate culture, informa- 4. Order fulfillment
tion hoarding, and trust issues. For example, Häagen-Dazs 5. Manufacturing flow management
and General Mills share information with their vanilla sup-
6. Supplier relationship management
pliers to increase yields and
business processes bundles improve sustainability prac- 7. Product development and commercialization
of interconnected activities tices, but at the same time,
that stretch across firms in the
8. Returns management6
supply chain there is a danger. Giving
supply chain partners
customer relationship this information enables
13-3a Customer Relationship Management
management (CRM)
process allows companies to those partners to share it The customer relationship management (CRM)
prioritize their marketing focus on with competitors. On the process enables companies to prioritize their market-
different customer groups according other hand, integration ing focus on different customer groups according to each
to each group’s long-term value to can be improved through group’s long-term value to the company or supply chain.
the company or supply chain
long-term agreements, Once higher-value customers are identified, firms should
focus more on providing customized
products and better service to this
group than to others. The CRM pro-
cess includes customer segmentation
by value and subsequent generation of
customer loyalty for the most attrac-
Source: Red Wing Shoe Company

tive segments. This process provides
a set of comprehensive principles for
the initiation and maintenance of cus-
tomer relationships and is often carried
out with the assistance of specialized
CRM computer software. For exam-
ple, C. H. Briggs, a specialty building Sales and Operations Planning quickly became a valuable
materials distributor, integrated CRM asset to shoemaker, Red Wing Shoes—known for their
software as part of an effort to serve its rugged work boots.
customers better. With this software,
each company sales representative has
access to every customer’s purchasing history. With this 13-3c Demand Management
information, representatives can shape the sales process
for its most valuable customers and uncover opportu- The demand management process seeks to align
nities to improve service for them, thereby optimizing supply and demand throughout the supply chain by an-
decision-making throughout the company. 7 ticipating customer requirements at each level and cre-
ating customer-focused plans of action prior to actual
purchases being made. At the same time, demand man-
13-3b Customer Service Management
agement seeks to minimize the costs of serving multiple
Whereas the CRM process is designed to identify and types of customers who have variable wants and needs.
build relationships with good customers, the customer In other words, the demand management process al-
service management process is designed to ensure lows companies in the supply chain to satisfy customers
that those customer relationships remain strong. The in the most efficient and effective ways possible. Activi-
customer service management process pres- ties such as collecting customer data, forecasting future
ents a multi-company, unified response system to the demand, and developing activities that smooth out de-
customer whenever complaints, concerns, questions, mand help bring available inventory into alignment with
or comments are voiced. When the process is well exe- customer desires.
cuted, it can have a strong positive impact on revenues, Though it is very difficult to predict exactly what
often as a result of quick positive response to negative items and quantities customers will buy prior to pur-
customer feedback, and sometimes even in the form chase, demand management can ease pressure on the
of additional sales gained through the additional cus- production process and allow companies to satisfy most
tomer contact. Customers expect service from the mo- of their customers through
ment a product is purchased until it is disposed of, and greater flexibility in manufac- customer service
management process
the customer service management process allows for turing, marketing, and sales
presents a multi-company,
touch points between the buyer and seller through- programs. One key way this unified response system to the
out this life cycle. The use of customer care software occurs is through the sharing customer whenever complaints,
enables companies to enhance their customer service of customer demand forecasts concerns, questions, or
comments are voiced
management process. Dell’s customer support soft- and data during sales and op-
ware, Clear View, enables staff members at the tech erations planning (S&OP) demand management
company’s customer service command centers to view meetings. During these meet- process seeks to align supply
and demand throughout the
information from Dell’s internal systems (as well as ings, the demand-generating
supply chain by anticipating
that of its partners) in real-time. This information is functions of the business customer requirements at each
combined with a geographical system that allows Dell (marketing and sales) work level and creating demand-
to match each customer’s complaint with the proper together with the production related plans of action prior
to actual customer purchasing
service dispatch center, making its response both rapid side of the business (pro-
behavior
and effective.8 curement, production, and
logistics) in a collaborative arrangement designed to both 13-3e Manufacturing Flow Management
satisfy customers and minimize waste. When work boot
The manufacturing flow management process
manufacturer Red Wing Shoes implemented S&OP in
is concerned with ensuring that firms in the supply
2013, it was able to reduce inventory by 27 percent while
chain have the needed resources to manufacture with
simultaneously increasing customer service rates by 8 to
flexibility and to move products through a multi-stage
10 percent, leading to significant costs savings that were
production process. Firms with flexible manufacturing
passed along to customers.9
have the ability to create a wide variety of goods and/or
services with minimized costs associated with changing
13-3d Order Fulfillment production techniques. The manufacturing flow process
One of the most fundamental processes in supply includes much more than simple production of goods
chain management is the order fulfillment process, and services—it means creating flexible agreements
which involves generating, filling, delivering, and pro- with suppliers and shippers so that unexpected demand
viding on-the-spot service for customer orders. The bursts can be accommodated, without disruptions to
order fulfillment process is a highly integrated customer service or satisfaction.
process, often requiring persons from multiple compa- The goals of the manufacturing flow management
nies and multiple functions to come together and coor- process are centered on leveraging the capabilities held
dinate to create customer satisfaction at a given place by multiple members of the supply chain to improve
and time. The best order fulfillment processes reduce overall manufacturing output in terms of quality, de-
order cycle time—the time between order and cus- livery speed, and flexibility, all of which tie directly to
tomer receipt—as much as possible, while ensuring profitability. Depending on the product, supply chain
that the customer receives exactly what he or she wants. managers may choose between a lean or agile supply
The shorter lead times are beneficial in that they allow chain strategy. In a lean supply chain, products are built
firms to carry reduced inventory levels and free up cash before demand occurs, but managers attempt to reduce
that can be used on other projects. Overall, the order as much waste as possible. Lean supply chains first ap-
fulfillment process involves understanding and integrat- peared within the Toyota Production System (TPS) as
ing the company’s internal capabilities with customer early as the 1950s. Agile strategies lie on the other end
needs, and matching these together so that the supply of the continuum—they prioritize customer responsive-
chain maximizes profits ness more so than waste reduction. Instead of trying to
order fulfillment process a while minimizing costs and forecast demand and reduce waste, agile supply chains
highly integrated process, often waste. Amazon now uses wait for demand to occur and use communication and
requiring persons from multiple Kiva robots to help work- flexibility to fill that demand quickly.11
companies and multiple functions ers pack three to four times
to come together and coordinate
more orders per hour than
to create customer satisfaction at a
before. These robots bring
13-3f Supplier Relationship Management
given place and time
shelves of products to the The supplier relationship management process
order cycle time the time
delay between the placement of a
human packers based on is closely related to the manufacturing flow manage-
customer’s order and the customer’s what is in each customer’s ment process and contains several characteristics
receipt of that order order. The packers then that parallel the customer relationship management
manufacturing flow pick out the correct items, process. The manufacturing flow management pro-
management process pack them, and send the cess is highly dependent on supplier relationships for
concerned with ensuring that firms complete box off to an- flexibility. Furthermore, in a way similar to that found
in the supply chain have the needed other robot to be shipped. in the customer relationship management process,
resources to manufacture with
This process has greatly supplier relationship management provides structural
flexibility and to move products
through a multi-stage production increased the speed of support for developing and maintaining relationships
process Amazon’s order fulfillment with suppliers. Thus, by integrating these two ideas,
process: recent research supplier relationship management supports manufac-
supplier relationship
management process found that the work robots turing flow by identifying and maintaining relation-
supports manufacturing flow do at Amazon shaves more ships with highly valued suppliers.
by identifying and maintaining than an hour off the time Just as firms benefit from developing close-knit,
relationships with highly valued
needed to pick and pack integrated relationships with customers, close-knit, in-
suppliers
the average order.10 tegrated relationships with suppliers provide a means
through which performance advantages
can be gained. For example, careful man-
agement of supplier relationships is a key
step toward ensuring that firms’ manu-
facturing resources are utilized to their
maximum potential. It is clear, then, that
the supplier relationship management
process has a direct impact on each sup-
ply chain member’s bottom-line financial
David Paul Morris/Bloomberg/Getty Images

performance. In certain instances, it can
be advantageous for the supply chain to
integrate via a formal merger. American
pharmaceutical company Bayer Health-
Care recently purchased German-based
Steigerwald Arzneimittelwerk, a partner-
ing pharmacy supplier that specializes in
herbal medicines. Purchasing a supplier Titus Green assembles a recycled iPhone at a Green
gave Bayer HealthCare access to new Citizen recycling facility in Burlingame, California. Green
medications. At the same time, purchas-
Citizen collects and disposes old electronics in the San
ing a supplier based in Germany gave
Francisco Bay area, tracking each device to ensure that it is
Bayer HealthCare enhanced access to
recycled back into raw material or refurbished and resold.
European markets. Managing supplier
relationships not only gave Bayer Health-
Care better access to supplies, it also offered a chance to for quality and manufacturability. Research has shown
increase its customer base. The acquisition of one by the that when each supply chain partner shares responsi-
other simply sealed the deal by making the partnership bility for the design and manufacture of a new product,
permanent.12 more obstacles can be identified early and opportuni-
ties for cost reduction are made possible. For example,
13-3g Product Development Boeing involved a team of suppliers early in the devel-
and Commercialization opment phase of its 787 Dreamliner aircraft, leading to
a shift to a lighter composite material for the fuselage’s
The product development and commercialization outer shell. The lighter material is expected to make
process (discussed in detail in Chapter 11) includes the the aircraft substantially cheaper to operate on long
group of activities that facilitate the joint development haul flights.13
and marketing of new offerings among a group of supply
chain partner firms. In many cases, more than one sup-
13-3h Returns Management
ply chain entity is responsible for ensuring new product
success. Commonly, a multi-company collaboration is The final supply chain man-
used to execute new-product development, testing, and agement process deals with product development
and commercialization
launch, among other activities. The capability for de- situations in which custom-
process includes the group
veloping and introducing new offerings quickly is key ers choose to return a prod- of activities that facilitates
for competitive success versus rival firms, so it is often uct to the retailer or supplier, the joint development and
advantageous to involve many supply chain partners in thereby creating a reversed marketing of new offerings
among a group of supply chain
the effort. The process requires the close cooperation of flow of goods within the
partner firms
suppliers and customers, who provide input throughout supply chain. The returns
the process and serve as advisers and co-producers for management process returns management
the new offering(s). enables firms to manage vol- process enables firms to
manage volumes of returned
Designing a new product with the help of suppli- umes of returned product product efficiently while
ers and customers can enable a company to introduce efficiently while minimiz- minimizing returns-related costs
features and cost-cutting measures into final products. ing returns-related costs and and maximizing the value of the
Customers provide information about what they want maximizing the value of the returned assets to the firms in
the supply chain
from the product, while suppliers can help to design returned assets to the firms
in the supply chain. Returns have the potential to affect the organization both better addresses current busi-
a firm’s financial position in a major and negative way ness needs and develops long-term initiatives that
if mishandled. In certain industries, such as apparel e- allow it to mitigate risks and avail itself of future op-
retailing, returns can amount to as much as 40 percent portunities in ways that preserve resources for future
of sales volume. generations and ensure long-term viability. Such activ-
In addition to the value of managing returns from a ities include environmentally friendly materials sourc-
pure asset-recovery perspective, many firms are discov- ing; the design of products with consideration given to
ering that returns management also creates additional their social and environmental impact; and end-of-life
marketing and customer service touch points that can be product management that includes easy recycling and/
leveraged for added customer value above and beyond or clean disposal. By enacting sustainable supply chain
normal sales and promotion-driven encounters. Handling management principles, companies can simultane-
returns quickly creates a positive image, and gives the ously generate cost savings, protect the Earth’s natural
company an additional opportunity to please the customer, resources, and ensure that socially responsible busi-
and customers who have positive experiences with the ness practices are enacted.
returns management process can become very confident UPS works continuously to develop a more sustain-
buyers who are willing to reorder, since they know any able supply chain. By integrating new transportation
problems they encounter with purchases will be quickly technology into its fulfillment networks, UPS mechan-
and fairly rectified. In addition, the returns management ics and employees are able to facilitate package delivery
process allows the firm to recognize weaknesses in prod- in ways that are more fuel- and emissions-efficient—the
uct design and/or areas for potential improvement through proof lies in the more than 3 percent reduction in fuel
the direct customer feedback that initiates the process. use per package per year. UPS has logged more than
The mobile phone industry has been able to use 200 million miles on alternative fuel vehicles and offers
returns management to its advantage. In a typical carbon-neutral delivery in 36 countries.15
year, almost 100 million mobile phones are returned In addition to environmental sustainability, mod-
to manufacturers. With a return of between 35 and ern businesses are also balancing economic success with
75 percent of their original value in the secondary social sustainability practices like human rights, labor
market, reselling 250,000 out of the 100 million rights, employee diversity initiatives, and quality of life
returned phones would result in more than $20 million concerns. A common misconception surrounding both
in additional revenue. Returns management also allows environmental and social sustainability is that their prac-
mobile phone companies to reclaim rare materials, such tice increases supply chain costs disproportionately, and
as gold, silver, and palladium. For example, reclaimed therefore should be enacted only when business lead-
metals from one million mobile phones returned to one ers are willing to act altruistically or for the purposes
company brought in more than $2.8 million.14 of good public relations. However, recent research
on these subjects has demonstrated a strong business
case for supporting many sustainability initiatives. As
13-4 SUSTAINABLE SUPPLY examples, the recycling of used pallets is both an en-
vironmentally sustainable practice and cheaper than
CHAIN MANAGEMENT purchasing new ones, and the employment of disabled
workers in distribution operations ensures both social
In response to the need for firms to both reduce costs sustainability (via opportunities for economically dis-
and act as leaders in protecting the natural environ- advantaged people) and better overall performance for
ment, many are adopting sustainable supply chain the employer. The benefits of social sustainability efforts
management principles as a key part of their sup- have been demonstrated by retailers such as Lowe’s
ply chain strategy. Sustainable supply chain Home Improvement and Walgreen Stores, where the
management involves hiring and training of disabled workers has increased
the integration and bal- productivity in the host facilities by up to 20 percent.
sustainable supply chain
management a supply chain ancing of environmen- These companies have found that disabled workers are
management philosophy that tal, social, and economic far less likely to miss work and are often as effective at
embraces the need for optimizing thinking into all phases of performing job tasks as their abled counterparts—while
social and environmental costs in the supply chain manage- frequently exceeding them in terms of process execu-
addition to financial costs
ment process. In doing so, tion and safety standards.16
13-5 TRENDS IN SUPPLY
CHAIN MANAGEMENT
Several technological advances and
business trends are affecting the job of
the supply chain manager today. Some
of the business trends that are affecting
supply chain management include outsourc-
Ken James/Bloomberg/Getty Images

ing logistics, maintaining a secure supply
chain and minimizing supply chain risk,
and maintaining a sustainable supply chain.
While these trends exert pressure on man-
agers to change the way their supply chains
function, electronic distribution is being
used and changed frequently to help make
More than 100 new all-electric UPS delivery vehicles
supply chain management more integrated
were deployed in February 2013, eliminating the use of
and easier to track.
126,000 gallons of fuel per year.
13-5a Outsourcing Logistics Functions so they need to represent the needs and interests of
Partnering organizations are becoming increasingly the entire firm and supply chain. Developing and
efficient at dividing responsibility for supply chain training these firms’ employees to be empowered and
management. Outsourcing, or contract logistics, to respond to the customer’s needs in the best interest
is a rapidly growing initiative in which a manufacturer of the supply chain is becoming increasingly important.
or supplier turns over an entire logistical function (often Outsourcing enables companies to cut inventories,
buying and managing transportation, warehousing, and/ locate stock at fewer plants and distribution centers, and
or light postponed manufacturing) to an independent still provide the same level of service or even better. The
third-party logistics company (3PL) . These companies then can refocus investment on their core
service providers sell logistics solutions instead of business. In the hospitality industry, Avendra negotiates
physical products. Common 3PL products include with suppliers to obtain virtually everything a hotel might
warehouse space, transportation solutions, information need, from food and bever-
sharing, manufacturing postponement, and enhanced ages to golf course mainte- outsourcing (contract
technological innovations. When a firm’s order nance. For example, by relying logistics) a manufacturer’s
fulfillment process is managed diligently, the amount on Avendra to manage many or supplier’s use of an
independent third party to
of time between order placement and receipt of aspects of the supply chain,
manage an entire function of
the customer’s payment following order shipment companies like Fairmont the logistics system, such as
(known as the order-to-cash cycle) is minimized Hotels & Resorts and Inter- transportation, warehousing, or
as much as possible. Since many firms do not view Continental Hotels Group order processing
order fulfillment as a core competency (versus, for can concentrate on their core third-party logistics
example, product development or marketing), they function—providing hospi- company (3PL) a firm that
often outsource this function to a 3PL that specializes tality. The most progressive provides functional logistics
services to others
in the order fulfillment process. The 3PL becomes a companies are engaging in
semi-permanent part of the firm’s supply chain and is vested outsourcing relation- fourth-party logistics
assigned to manage one or more specialized functions.17 ships, whereby both parties company (4PL or
Other, more comprehensive partners, often known collaborate deeply to find logistics integrator) a
consulting-based organization
as fourth-party logistics companies (4PLs) mutually beneficial arrange- that assesses another’s entire
or logistics integrators, create and manage entire ments that allow both parties logistical service needs and
solutions for getting products where they need to be, to “win” by reducing overall provides integrated solutions,
when they need to be there. Many times 3PLs and 4PLs costs while achieving better often drawing on multiple 3PLs
for actual service
provide a firm’s only interaction with the customer, performance.18
products more closely to major de-
mand centers, it also gives the supplier
a chance to make its presence known
at a local level. Mexican-based IT firm
Rural Sourcing Inc. has long worked with
customers in Mexico, but an influx of
American partners has led the company
to grow an average of 150 percent annu-
ally over the last four years.19
13-5b Public-Private
Partnerships
Molpix/Shutterstock.com
Sometimes, the magnitude of a supply
chain dilemma is too great for a com-
pany and its suppliers or outsourcing
North American companies have been outsourcing partners to handle alone. Increasingly,
logistics and shipping to companies overseas. this is leading firms to work together
with government agencies in the form of
public-private partnerships (PPPs).
Because a logistics service provider is focused on PPPs are critical to the satisfaction of both company
logistical functions only, clients receive better service and societal interests and provide a mechanism by
in a timely, efficient manner, thereby increasing their which very-large scale problems or opportunities can be
customers’ satisfaction and boosting the perception addressed.
of added value to a company’s offerings. In many re- Though it is often assumed that industries and
cent instances, North American companies have been governments work poorly together (or in fact work
offshoring, or outsourcing logistics to service provid- against one another) when problems common to both
ers located in countries with lower labor costs, such as emerge, a number of successful PPPs have formed
Vietnam and Bangladesh. However, as fuel costs have over the past decade to diminish the negative impacts
risen and security issues become more prominent, of potentially hazardous supply chain situations. For
many companies have begun to
relocate outsourced operations
closer to home. Nearshoring to
locations such as Mexico or the
Caribbean nations ensures low
costs while reducing supply chain
risk. Nearshoring not only allows
a company to manufacture its
offshoring the outsourcing of a

business process from one country
to another for the purpose of
gaining economic advantage
nearshoring the transfer of an

A katz/Shutterstock.com
offshored activity from a distant to a

nearby country
public-private partnerships
(PPPs) Critical to the satisfaction
of both company and societal
interests and provide a mechanism Efforts involving PPPs, like the Red Cross, will likely factor into
by which very-large scale problems
or opportunities can be addressed the solution of future national and global supply chain.
example, immediately following the Sep-
tember 11, 2001, terror attacks on the
United States, representatives from both
industry and government collaborated
to develop the Customs-Trade Partner-
ship Against Terrorism (C-TPAT) in
an effort to protect U.S.-based supply
chains from terrorist disruption. The
program currently has more than 10,000
company participants and has, in gen-
RomboStudio/Shutterstock.com
eral terms, been successful at protect-
ing cargo inbound for the United States
while only minimally impacting the per-
formance of its members’ supply chains.
Similarly, governmental agencies like
the Federal Emergency Management
Agency (FEMA) and non-government Using 3DP technology, objects are built to precise
organizations like the Red Cross have specifications using raw materials at or near the location
benefitted from the inclusion of com- where they will be consumed.
mercial logistics expertise in their disas-
ter response systems.20 Efforts involving.
PPPs will likely factor into the solution of future successful in industries such as auto parts, biomedi-
national and global supply chain problems as well. For cal, and even fast food. Using 3DP technology, objects
example, the dangerous combination of population are built to precise specifications using raw materials
growth and overuse of aging infrastructure has led to a at or near the location where they will be consumed.
situation whereby congestion and deterioration of roads Charge Bikes prints customized titanium bicycle parts
imperils the timely shipment of goods. The U.S. Federal based on customer specifications, thus reducing the
Highway Administration is openly soliciting proposals need to transport complete frames around the world
that would take some of the stress off of the U.S. high- before they can be assembled and sold.22 Shipping raw
way network, including collaborating on building new materials such as powdered titanium is cheaper than
toll roads and extending railways dedicated to cargo. shipping finished bicycles because it can be packaged
These sorts of PPP-led advancements will play a critical in a perfectly cubic container, making transportation
role in the price of retail goods in upcoming years due to much more efficient and cost effective. Powdered
the costs associated with product and material delays.21 titanium is used only when it is needed, so virtually
no waste is produced during printing. Web sites like
3DLT.com offer consumers templates for toys, dishes,
13-5c Electronic Distribution
and furniture that can be
Electronic distribution is the most recent devel- printed using the 3DP technol- electronic distribution
a distribution technique that
opment in the logistics arena. Broadly defined, ogy that is becoming increas-
includes any kind of product or
electronic distribution includes any kind of prod- ingly available.23 service that can be distributed
uct or service that can be distributed electronically, Many industry experts electronically, whether over
whether over traditional forms such as fiber-optic cable project that 3DP (sometimes traditional forms such as
fiber-optic cable or through
or through satellite transmission of electronic signals. referred to as additive manu-
satellite transmission of
Companies like E*TRADE, Apple (iTunes), and Mov- facturing) will radically trans- electronic signals
ies.com have built their business models around elec- form the ways global supply
tronic distribution. chains work by changing the three-dimensional
printing (3DP) the
In the near future, however, electronic distri- basic platforms of business. creation of three-dimensional
bution will not be limited only to products and ser- With 3DP, smaller, localized objects via an additive
vices that are mostly composed of information that supply chains will become the manufacturing (printing)
can therefore be easily digitized. Experiments with norm and small manufactur- technology that layers raw
material into desired shapes
three-dimensional printing (3DP) have been ers will produce many more
custom products than ever before over very short become lackadaisical, and build brand equity. Compa-
lead times. And because such platforms will remove nies moving offshore must carefully consider the pros
much of the need for transportation of finished goods and cons, and build supply management systems that
to distribution centers and retailers, 3DP is expected can manage very diverse tasks. Logistically, it is criti-
to have a very positive impact on businesses’ carbon cal for importers of all sizes to understand and cope
footprints and the environment at large. At the same with the legalities of trade in other countries. Ship-
time, these platforms should make it possible to de- pers and distributors must be aware of the permits,
liver unique goods more quickly, creating perceptions licenses, and registrations they may need to acquire,
of better service.24 and depending on the types of product they are im-
porting, the tariffs, quotas, and other regulations that
apply in each country. Sometimes, the complexities of
13-5d Global Supply Chain Management
handling overseas logistics are too great to overcome.
Global markets present their own sets of challenges As companies lengthen their global supply chains in
for supply chain managers. Strategically, there are search of cost advantages, other less obvious risks
many reasons why a company might wish to global- emanating from outside the immediate supply chain
ize its supply chain. The allure of foreign markets is are also starting to come into play. Longer shipping
strong, due to increasing demand for imported prod- lanes can expose shipments to natural disasters and
ucts worldwide. Cheap labor advantages and trade extreme weather; political instability and trade restric-
barriers/tariffs have encouraged firms to expand tions can abruptly halt or slow shipments; fluctuations
their global manufacturing operations. At the same in currency values and border delays can diminish the
time, globalization has brought about great uncer- value of products while they are on the path to the
tainty for modern companies, and specifically, their customer; and theft and piracy can present a greater
supply chains. Moving operations offshore exposes threat due to increased time of exposure. For these
companies to risks associated with geopolitical con- reasons, many companies are now creating contin-
flict, foreign nationalization of assets and knowledge gency plans so they can react quickly when something
diffusion, and highly variable quality standards. For- goes wrong.25
eign suppliers are often less reliable, and due to the Indeed, as the world continues to globalize, supply
lengthening of the supply chain, variability in trans- chain management will undoubtedly continue to take
portation service can lead to service failures. It is im- on a globalized flavor. Worldwide, the resources needed
portant to consider how sourcing and logistics will be to manufacture and sell increasingly demanded goods
impacted by supply chain globalization. are becoming scarcer, and market boundar-
From a supply management stand- ies are melting together. Free trade is
point, it often makes sense to procure expanding, and consumers in nations
egd / S
goods and services from offshore hutters
tock .c
where demand has been
om
suppliers. From an economic per- traditionally low are
spective, lower labor rates, viewing goods and
government subsidies, placing orders via
and low materials the Internet. Efforts
costs are attractive, to achieve world-
but are sometimes class global supply
outweighed by the chain manage-
costs of quality vari- ment mean that
ation and loss of in- the balancing
tellectual property. of supply and
Still, moving off- demand—and the
shore also exposes Shippers and distributors must be aware of the permits, satisfaction of more
the company to licenses, and registrations they may need to acquire, and and more custom-
new technologies, depending on the types of product they are importing, ers worldwide—
introduces compe- the tariffs, quotas, and other regulations that apply in are becoming a
tition to domestic each country. reality for many
suppliers who have companies.
13-5e Supply Chain Analytics big data have great potential for
and Technology improving supply chain op-
erations. For example, the
In addition to outsourcing, use of bigger and better
globalization, PPPs, data should allow sup-
and 3D printing, ply chain forecasting
other advance- to become more ac-
ments in data curate; shipments
and technology are to be re-routed in
beginning to exert the event of traf-
an impact on the fic or bad weather;
effectiveness and and warehouses to
efficiency of the sup- be stocked with ex-
ply chain. First, a rap- actly the products cus-
idly increasing prevalence tomers want (and none
of powerful computers and they don’t want). Each of
methods for capturing customer, these ambitions, if realized, would
Makeitdouble/Shutterstock.com
supplier, and company information over offer lower prices for customers and lead to
the past two decades has resulted in the appearance of greater customer satisfaction.
big data, a colloquial term for the explosive availabil- Advanced technology enabled by big data is also
ity of data that has traditionally been hard to capture, improving supply chain operations. Fundamentally, the
store, manage, and analyze. The emergence of big data acquisition and analysis of big data allows a company to
has presented both great opportunities and significant replace human reasoning with faster and more efficient
problems for supply chain managers. There is indeed decision making that is based on information rather than
more information available about supply chain opera- intuition. As a result, and combined with supply chain
tions than ever before, but the challenge of extracting analytics, a company can automate many of its supply
usable date from this information is also very great. In chain processes rather than using human labor. Many
order to harvest more useful information, many compa- tasks that are done repetitively and require significant
nies are using cloud computing to collaborate on big precision can be accomplished more cheaply and ac-
data projects and analyze findings in a quick and cost- curately by robots. For example, scientists at the Uni-
effective manner. versity of California have developed robots—powered
As a result, many organizations are seeking to by cloud-based data about surgical patients—that are
develop capabilities for supply chain analytics . capable of performing basic hip and knee replacement
Supply chain analytics programs that can interpret surgery.26 Cloud-based robots are already being used
for large-scale production tasks like automobile and air-
plane manufacturing.
A final consideration
related to technological ad- big data the rapidly
vancement: sensory equip- collected and difficult-to-process
ment that connects physical large-scale datasets that have
recently emerged, and which
objects to decision-making push the limits of current
analytics via the Internet is analytical capability
beginning to emerge. Recall
cloud computing the
the Internet of Things (IoT), practice of using remote
which allows physical objects network servers to store,
to relay specific informa-
Mr Aesthetics/Shutterstock.com
manage, and process data

tion over the Internet with- supply chain analytics
out overt human interaction. data analyses that support
The potential impact of the the improved design
Internet of Things is tanta- and management of the
supply chain
lizing, but the technology is
currently in its infant stage. Connections between cargo in marketing channels. Channel members (also called
vessels or trucks and transportation networks may even- intermediaries, resellers, and middlemen) negotiate with
tually lead to the development of smart transportation one another, buy and sell products, and facilitate the
modes that re-route in real time based on local traffic change of ownership between buyer and seller in the
patterns, weather events, and accidents. Alternatively, course of moving finished goods from the manufacturer
the traffic grid could react to a need for emergency sup- into the hands of the final consumer. As products move
plies by enabling a sequence of green stoplights along a toward the final consumer, channel members facilitate
critical emergency route. The possibilities are essentially the distribution process by providing specialization and
endless for the IoT to positively impact the supply chain. division of labor, overcoming discrepancies, and provid-
Many companies have already launched projects related ing contact efficiency.
to the development of IoT-enabled supply chain man-
agement strategies. 13-6a How Marketing Channels Work
According to the concepts of specialization and di-
13-6 MARKETING CHANNELS AND vision of labor, breaking down a complex task into
smaller, simpler ones and assigning these to specialists
CHANNEL INTERMEDIARIES creates greater efficiency and lower average produc-
tion costs via economies of scale. Marketing channels
A marketing channel can be viewed as a canal attain economies of scale through specialization and
or pipeline through which products, their own- division of labor by aiding upstream producers (who
ership, communication, financing and payment, often lack the motivation, financing, or expertise) in
and accompanying risk flow to the consumer. marketing to end users or consumers. In most cases,
A marketing channel (also called a channel of such as for consumer goods like soft drinks, the cost
distribution ) is a business structure of interde- of marketing directly to millions of consumers—taking
pendent organizations that reaches from the point of and shipping individual orders—is prohibitive. For this
production to the consumer and facilitates the down- reason, producers engage other channel members such
stream physical movement of goods through the supply as wholesalers and retailers to do what the producers
chain. Channels represent the “place” or “distribution” are not well suited to do. Some channel members can
element of the market- accomplish certain tasks more efficiently than others
ing mix (product, price, because they have built strategic relationships with
marketing channel promotion, and place), in key suppliers or customers or have unique capabilities.
(channel of distribution) a
set of interdependent organizations that they provide a route Their specialized expertise enhances the overall per-
that eases the transfer of ownership for company products formance of the channel.
as products move from producer to and services to flow to the Because customers, like businesses, are specialized,
business user or consumer customer. In essence, they also rely on other entities for the fulfillment of most
channel members all parties the marketing channel is of their needs. Imagine what your life would be like if
in the marketing channel who the “downstream” portion you had to grow your own food, make your own clothes,
negotiate with one another, buy of the supply chain that produce your own television shows, and assemble your
and sell products, and facilitate the
change of ownership between buyer connects a producer with own automobile! Luckily, members of marketing chan-
and seller in the course of moving the customer. Whereas nels are available to undertake these tasks for us. How-
the product from the manufacturer “upstream” supply chain ever, not all goods and services produced by channel
into the hands of the final consumer members are charged with members exist in the form we’d most prefer, at least at
form utility the elements of the moving component parts first. Marketing channels are valuable because they aid
composition and appearance of a or raw materials to the producers in creating time, place, and exchange utility
product that make it desirable producer, members of the for customers, such that products become aligned with
time utility the increase in marketing channel propel their needs. Producers, who sit at the top of the supply
customer satisfaction gained by finished goods toward the chain, provide form utility when they transform oats
making a good or service available customer, and/or provide grown on a distant farm into the Cheerios that we like to
at the appropriate time
services that facilitate ad- eat for breakfast. Time and place utility are created
place utility the usefulness of a ditional customer value. by channel members, when, for example, a transport
good or service as a function of the Many different types company hired by the producer physically moves boxes
location at which it is made available
of organizations participate of cereal to a store near our homes in time for our next
1 5
Igor Strukov/Shutterstock.com Sheila Fitzgerald/Shutterstock.com MNStudio/Shutterstock. com
scheduled shopping trip. And the retailer, who is often brokers only facilitate sales and generally have little
the closest channel member to the customer, provides input into the terms of the sale. They do, however,
a desired product for some amount of money we are get a fee or commission based on sales volume. For
reasonably willing to give, creates exchange utility in example, grocery chains often employ the services
doing so. of food brokers, who provide expertise for a range
of products within a category. The broker facilitates
13-6b Functions and Activities the sale of many different manufacturers’ products to
of Channel Intermediaries the grocery chain by marketing the producers’ stocks,
but the broker never actually takes ownership of any
Intermediaries in a channel negotiate with one an- food products.
other, facilitate transfer of ownership for finished Many different variations in channel structures are
goods between buyers and sellers, and physically move possible, with choices made based in large part on the
products from the producer toward the final con- numbers and types of wholesaling intermediaries that
sumer. The most prominent difference separating in- are most desirable. Generally, product characteristics,
termediaries is whether they take title to the product. buyer considerations, and market conditions determine
Taking title means they actually own the merchandise the types and number of intermediaries the producer
and control the terms of the sale—for example, price should use, as follows:
and delivery date. Retailers and merchant wholesal-
ers are examples of intermediaries that take title to
● Customized or highly complex products such as
products in the marketing channel and resell them. computers, specialty foods, or custom uniforms are
Merchant wholesalers are organizations that facili- usually sold through an
tate the movement of products and services from the agent or broker, who may exchange utility the
manufacturer to producers, resellers, governments, in- represent one or multiple increased value of a product
stitutions, and retailers. All merchant wholesalers take companies. In contrast, that is created as its ownership
standardized product such is transferred
title to the goods they sell, and most of them operate
one or more warehouses where they receive finished as soda or toothpaste are merchant wholesaler
goods, store them, and later reship them to retailers, often sold through a mer- an institution that buys goods
chant wholesaler and from manufacturers and resells
manufacturers, and institutional clients. Since whole- them to businesses, government
salers do not dramatically alter the form of a good retailer channel. agencies, and other wholesalers
nor sell it directly to the consumer, their value hinges ● Buyer considerations such or retailers and that receives and
on their providing time and place utility and contact as purchase frequency or takes title to goods, stores them
in its own warehouses, and later
efficiency to retailers. customer wait time in- ships them
Other intermediaries do not take title to goods fluence channel choice.
and services they market but do facilitate ex- When there is no time agents and brokers
wholesaling intermediaries
changes of ownership between sellers and buyers. pressure, customers may who do not take title to a
Agents and brokers facilitate the sales of prod- save money on books by product but facilitate its sale
ucts downstream by representing the interests of re- ordering online and taking from producer to end user
tailers, wholesalers, and manufacturers to potential direct distribution from by representing retailers,
wholesalers, or manufacturers
customers. Unlike merchant wholesalers, agents or a wholesaler. However,
EXHIBIT 13.1 HOW MARKETING CHANNELS REDUCE THE NUMBER OF REQUIRED TRANSACTIONS
Samsung Asus Microsoft Apple Lenovo
Consumer 1 Consumer 2 Consumer 3 Consumer 4

Without an intermediary: 5 producers x 4 consumers = 20 transactions
Samsung Asus Microsoft Apple Lenovo
Best Buy
Consumer 1 Consumer 2 Consumer 3 Consumer 4

With an intermediary: 5 producers + 4 consumers = 9 transactions
if a book is needed immediately, it will have to be a retail intermediary like Best Buy, tablet manufac-
purchased at retail—at the school bookstore—and turers Samsung, Asus, Microsoft, Apple, and Lenovo
will include a markup. would each have to make four contacts to reach the four
● Market characteristics such as how many buyers are consumers who are in the target market, for a total of
in the market and whether they are concentrated in twenty transactions. But when Best Buy acts as an in-
a general location also influence channel design. In termediary between the producer and consumers, each
a home sale, the buyer and seller are localized in one producer needs to make only one contact, reducing the
area, which facilitates the use of a simple agent/bro- number to nine transactions. This benefit to customers
ker relationship, whereas mass-manufactured goods accrues whether the retailer operates in a physical store
such as automobiles may require parts from all over location or online format.
the world and therefore many intermediaries.
13-6c Channel Functions
Retailers are those firms in the channel that sell
directly to consumers as their primary function. A
Performed by Intermediaries
critical role fulfilled by retailers within the marketing Intermediaries in marketing channels perform three
channel is that they provide contact efficiency for con- essential functions that enable goods to flow between
sumers. Suppose you had to buy your milk at a dairy, producer and consumer. Transactional functions involve
your meat at a stockyard, and so forth. You would spend contacting and communicating with prospective buyers
a great deal of time, money, and energy just shopping to make them aware of existing products and to explain
for just a few groceries. Retailers simplify distribution their features, advantages, and benefits. Intermediaries
by reducing the number of transactions required by in the channel also provide logistical functions. Logisti-
consumers, and by making an assortment of goods avail- cal functions typically include transportation and storage
able in one location. Consider the example illustrated of assets, as well as their sorting, accumulation, consoli-
in Exhibit 13.1. Four con- dation, and/or allocation for the purpose of conform-
retailer a channel intermediary sumers each want to buy a ing to customer requirements. The third basic channel
that sells mainly to consumers
tablet computer. Without function, facilitating, includes research and financing.
Research provides information about channel members factory outlet stores—like Sherwin-Williams, Polo
and consumers by getting answers to key questions: Ralph Lauren, Oneida, and WestPoint Home—are also
Who are the buyers? Where are they located? Why do examples of direct channels.
they buy? Financing ensures that channel members By contrast, when one or more channel members
have the money to keep products moving through the are small companies lacking in marketing power, an
channel to the ultimate consumer. Although individual agent/broker channel may be the best solution. Agents
members can be added to or deleted from a channel, or brokers bring manufacturers and wholesalers to-
someone in the channel must perform these essential gether for negotiations, but they do not take title to mer-
functions. Producers, wholesalers, retailers, or con- chandise. Ownership passes directly from the producer
sumers can perform them, and sometimes nonmember to one or more wholesalers and/or retailers, who sell to
channel participants such as service providers elect to the ultimate consumer.
perform them for a fee. Most consumer products are sold through distribu-
tion channels similar to the other two alternatives: the
retailer channel and the wholesaler channel. A retailer
13-7 CHANNEL STRUCTURES channel is most common when the retailer is large and
can buy in large quantities directly from the manufac-
A product can take any of several possible turer. Walmart, Sears, and car dealers are examples of
routes to reach the final consumer. Marketers retailers that often bypass a wholesaler. A wholesaler
and consumers each search for the most efficient channel is commonly used for low-cost items that are
channel from many available alternatives. Construct- frequently purchased, such as candy, cigarettes, and
ing channels for a consumer convenience good such magazines.
as candy differs from doing the same for a specialty
good like a Prada handbag. Exhibit 13.2 illustrates 13-7a Channels for Business
four ways manufacturers can route products to con-
sumers. When possible, producers use a direct
and Industrial Products
channel to sell directly to consumers in order to keep As Exhibit 13.3 illustrates, five channel structures are
purchase prices low. Direct marketing activities— common in business and industrial markets. First, direct
including telemarketing, mail order and catalog shop- channels are typical in busi-
ping, and forms of electronic retailing such as online ness and industrial markets. direct channel a
shopping and shop-at-home television networks—are For example, manufacturers distribution channel in which
good examples of this type of channel structure. There buy large quantities of raw producers sell directly to
consumers
are no intermediaries. Producer-owned stores and materials, major equipment,
EXHIBIT 13.2 MARKETING CHANNELS FOR CONSUMER PRODUCTS

Direct channel Retailer channel Wholesaler channel Agent/broker channel
Producer Producer Producer Producer
Agents or brokers
Wholesalers Wholesalers
Retailers Retailers Retailers
Consumers Consumers Consumers Consumers
EXHIBIT 13.3 CHANNELS FOR BUSINESS AND INDUSTRIAL PRODUCTS
Agent/broker Agent/broker–
Direct channel Direct channel Industrial distributor channel industrial distributor
Producer Producer Producer Producer Producer
Agents or brokers Agents or brokers
Industrial distributors Industrial distributors
Industrial users Government buyers Industrial users Industrial users Industrial users
processed materials, and supplies directly from other strategies, which include the use of multiple distribu-
producers. Manufacturers that require suppliers to tion, nontraditional channels, and strategic channel al-
meet detailed technical specifications often prefer direct liances. When a producer selects two or more channels
channels. For instance, Apple uses a direct channel to to distribute the same product to target markets, this ar-
purchase high-resolution retina displays for its innova- rangement is called dual or multiple distribution.
tive iPad tablet line. To ensure sufficient supply for iPad Dual or multiple distribution systems differ from single
manufacturing, Apple takes direct shipments of screens channel systems, and managers should recognize the
from Sharp, LG, and Samsung.27 differences. Multiple distribution channels must be or-
Alternatively, companies selling standardized ganized and managed as a group, and managers must
items of moderate or low value often rely on industrial orchestrate their use in synchronization if whole system
distributors. In many ways, an industrial distributor is to work well. As consumers increasingly embrace on-
is like a supermarket for organizations. Industrial dis- line shopping, more retailers are employing a multiple
tributors are wholesalers and channel members that distribution strategy. This arrangement allows retailers
buy and take title to products. Moreover, they usually to reach a wider customer base, but may also lead to
keep inventories of their products and sell and ser- competition between distribution channels through can-
vice them. Often small manufacturers cannot afford nibalization (whereby one channel takes sales away from
to employ their own sales force. Instead, they rely on another). When multiple separate channels are used,
manufacturers’ representatives or selling agents to sell they must all complement each other. Some customers
to either industrial distributors or users. Additionally, use “showrooming” as a way of learning about products,
the Internet has enabled virtual distributors to emerge but may then also shop as a way of making price com-
and has forced traditional industrial distributors to ex- parisons. Regardless of which channel the customer
pand their business models. Many manufacturers and chooses when making the final purchase, they should
consumers are bypassing distributors and going direct, receive the same messages and “image” of the products.
often via the Internet. The use of nontraditional channels may help
differentiate a firm’s product from the competition by
dual distribution (multiple 13-7b Alternative providing additional information about products. Nontra-
distribution) the use of two Channel ditional channels include approaches such as mail-order
or more channels to distribute the television or video channels, or infomercials. Although
same product to target markets Arrangements nontraditional channels may limit a brand’s coverage, they
nontraditional channels Rarely does a producer use can give a producer serving a niche market a way to gain
non-physical channels that facilitate just one type of channel to market access and customer attention without having to
the unique market access of move its product. It usually establish physical channel intermediaries and can also
products and services
employs several different provide another sales avenue for larger firms.
countries, gray marketing channels
may be used to sell stolen or counter-
feited products, which could detract from
the profitability of the primary and sec-
ondary channels controlled by the busi-
ness. Counterfeit products such as North
Face outerwear, Rolex watches, and
Prada handbags can be very difficult to
distinguish from the real thing, and their
AP Photos/Michael Conroy
presence provides unintended competi-
tion for the producer when such products
are distributed through unauthorized
intermediaries.
Along with marketing channels that
Vera Bradley signed a deal with Mitsubishi Corporation move products downstream to end cus-
and its partner, Look, Inc., to distribute its handbags, tomers, retailers and manufacturers also
luggage and accessories. manage channels that move products
upstream, in the direction of the pro-
ducer. These reverse channels en-
Furthermore, companies often form strategic able consumers to return products to the retailer or
channel alliances that enable them to use another manufacturer in the event of a product defect, or at
manufacturer’s already-established channel. Alliances the end of the product’s useful life to the consumer.
are used most often when the creation of marketing The retailers or manufacturers can then recycle the
channel relationships may be too expensive and time product and use components to manufacture new
consuming. For example, U.S.-based Vera Bradley, Inc. products, or refurbish and resell the same product in a
signed a deal with Mitsubishi Corporation and its part- secondary market. Several large companies, including
ner Look, Inc. to distribute the former’s handbags, lug- Apple, Best Buy, and Walmart, offer opportunities to
gage, and accessories in the Japanese department stores recycle items ranging from plastic
and boutiques in their respective networks. This alliance bags and batteries to televisions
strategic channel
helps Vera Bradley reach new markets in foreign cities and Christmas trees. Consumers alliance a cooperative
and diversifies its revenue base, while minimizing its and companies alike view reverse agreement between
risks of going abroad.28 channels as not just a way to re- business firms to use the
other’s already established
In addition to using primary traditional and nontra- duce the firm’s environmental im-
distribution channel
ditional channels to flow products toward customer mar- pact, but also as a means to gain
kets, many businesses also employ secondary channels, some financial benefits as well. 29 gray marketing
using either an active or passive approach. For example, For example, Apple will pay con- channels secondary
channels that are
though most automobile manufacturers sell their fin- sumers for their old Apple prod- unintended to be used by
ished products to end users through networks of owned ucts if they qualify for resale, or the producer, and which
or franchised dealers, they also sell cars to rental agen- if their component parts are valu- often flow illegally obtained
cies such as Enterprise or Hertz, who then rent them to or counterfeit product
able for manufacturing new prod-
toward customers
potential customers. Similarly, fashion apparel compa- ucts. Drop and shop programs
30
nies might distribute their premium products, such as use convenience to get consumers reverse channels
silk ties or branded watches, through primary channels channels that enable
to recycle products, like batteries
customers to return
such as department stores or specialty stores, while using or cell phones, during a regular products or components for
an off-brand or discount outlet for distribution of low- trip to the store. reuse or remanufacturing
end products. In each case, the goal of the company is
drop and shop a
the same: to engage a segment of customers who might
13-7c Digital Channels system used by several
otherwise never experience the product by offering it at retailers that allow customers
a more easily affordable price or under trial conditions. With technology changing rapidly, to bring used products for
Marketers must also be aware, however, that some many companies are turning to return or donation at the
entrance of the store
unintended secondary channels also exist. In some digital channels to facilitate product
services using wireless mobile devices.
M-commerce users adopt the new
technology because it saves time and
offers more convenience in a greater
number of locations. The use of M-
commerce has become increasingly
important as users grow in both num-
Source: Uber Technologies, Inc.

ber and purchasing power. Consumers
have become more reliant on digital
technologies, as shown in the world’s
first fully digital generation, the Mil-
lennials, and firms that fail to react to
A key advantage of Uber and similar apps is their this trend risk losing a rapidly growing
group of M-commerce customers32.
frictionless payment interface.
Many major companies, ranging
from Polo Ralph Lauren to Sears,
already offer shopping on mobile
distribution. Digital channels are pathways for mov- phones, and the growth potential is huge. Along with
ing product and information toward customers such smartphone use, consumers are shopping with tablets
that they can be sent and/or received with electronic just as much, if not more, than with company Web
devices, such as computers, smartphones, tablets, or sites. One study even found that tablets accounted
video game consoles. Digital channels allow for either for twice as much in Web-based sales as smartphone
push- or pull-based information and product flows to purchases 33. M-commerce in the United States will
occur, and sometimes simultaneously. For example, a exceed $41 billion by 2017 and sales made on mobile
downloaded video game or music file purchased by a devices on a global scale will exceed $110 billion in the
customer can also include a digital ad for more games or same time frame.34 In the United States, 87 percent
a new music player. of adults own a cellphone, 45 percent own a smart-
In response to the growth of digital channels, cus- phone, 31 percent own a tablet, and 26 percent own
tomers are turning in droves to M-commerce, whereby an e-reader. 35 Fifty-five percent of adults use the In-
a mobile device is used to assess, compare, and/or buy ternet on their mobile devices, and 31 percent report
products. For example, suppose you need a ride from that they go online with their mobile device more
one point in Chicago to another. Instead of having to than they do with a desktop or laptop computer.36 The
hail a cab or walk to the nearest elevated train station, gap between the number of smartphones owned and
you can use Uber’s smartphone app to contact a local smartphones used for purchases is closing rapidly.
driver who will take you directly to your destination. A During the holiday season, about 30 percent of smart-
key advantage of Uber and similar apps is their friction- phone owners check prices using some kind of price
less payment interface. When you are done with your comparison app or read reviews online while inside a
ride, you just get out of the car and walk away while store, and almost 50 percent use their smartphones to
the app charges your credit or debit card and pays the call a friend or family member for purchase advice. 37
driver. M-commerce is currently experiencing the larg-
31
Overall, more than two-thirds of Americans use their
est growth in both retail and channel decision-making, in mobile devices to obtain shopping information.38
part because of its more than $20 billion annual revenue. Along with smartphone technology, companies are
M-commerce also starting to look into other digital channels with which
digital channels enables consumers using to connect with their customers. Social shopping allows
electronic pathways that allow wireless mobile devices multiple retailers to sell products to customers through
products and related information to to connect to the Internet social media sites. Aaramshop brings hundreds of neigh-
flow from producer to consumer and shop. Essentially, M- borhood grocery stores to customers through Facebook.
M-commerce the ability to commerce goes beyond Customers makes their purchases online and their spe-
conduct commerce using a mobile text message advertise- cific neighborhood stores take care of delivering the
device for the purpose of buying or ments to allow consum- items directly to customers’ homes. 39 Home delivery
selling goods or services
ers to purchase goods and extends beyond groceries in many heavily populated
areas. In China and India, McDonald’s has started of these groups. The geographic location and size of
delivering directly to its customers instead of making the market are also important factors guiding channel
consumers come to them. selection. As a rule, if the target market is concentrated
Firms are also using social media Web sites as digi- in one or more specific areas, then direct selling through
tal channels—even in some cases without offering a pur- a sales force is appropriate, whereas intermediaries
chasing opportunity. Companies create profiles on Web would be less expensive in broader markets.
sites like Pinterest or Facebook and use them not only
to give customers information about their products, but PRODUCT FACTORS Complex, customized, and ex-
also to collect customer information. According to one pensive products tend to benefit from shorter and more
recent study, 38 percent of all online customers follow direct marketing channels. These types of products sell
at least one retailer on a social networking site. Many better through a direct sales force. Examples include
customers use these Web sites to find product informa- pharmaceuticals, scientific instruments, airplanes, and
tion or get information on special deals, and those who mainframe computer systems. On the other hand, the
follow a company’s blog or profile on a social media site more standardized a product is, the longer its distribu-
often end up clicking through to the firm’s Web site.40 tion channel can be and the greater the number of inter-
While some services group retailers together in or- mediaries that can be involved without driving up costs.
der to bring products to customers, others allow consum- For example, with the exception of flavor and shape, the
ers to combine and order larger amounts. Web sites like formula for chewing gum is fairly standard from pro-
Groupon and Livingsocial give customers the opportunity ducer to producer. As a result, the distribution channel
to fulfill their individual needs at group prices. Many of for gum tends to involve many wholesalers and retailers.
these sites are organized and managed by intermediaries The product stage in the life cycle is also an im-
between manufacturers and customers, but others may portant factor in choosing a marketing channel. In fact,
be customer initiated or even created by firms to better the choice of channel may change over the life of the
promote their own products and manage demand.41 product. As products become more common and less in-
timidating to potential users, producers tend to look for
alternative channels. Similarly, perishable products such
13-7d Factors Affecting Channel Choice as vegetables and milk have a relatively short life span,
Marketing managers must answer many questions be- and fragile products like china and crystal require a
fore choosing a marketing channel. A book manufac- minimum amount of handling. Therefore, both require
turer must decide, for example, what roles
physical and electronic distribution will play
in the overall marketing strategy and how
these two paths will fare against each other. In
addition, managers must decide what level of
distribution intensity is appropriate and must
ensure that the channel strategy they choose
is consistent with product, promotion, and
pricing strategies. The choice of channels de-
pends on a holistic analysis of market factors,
product factors, and producer factors. digitalreflections/Shutterstock.com
MARKET FACTORS Among the most impor-

tant market factors affecting distribution
channel choices are market considerations.
Specifically, managers should answer the
following questions: Who are the potential
customers? What do they buy? Where do they
buy? When do they buy? How do they buy? Levi Strauss launched Signature, a line of low cost
Additionally, the choice of channel depends on jeans available exclusively at Wal-Mart. According to
whether the producer is selling to consumers the company, the Signature line offers superior fit,
directly, or through other industrial buyers, comfort, and style for less than $20.
due to differences in the buying routines
fairly short market- distribution, selective distribution,
ing channels. Online or exclusive distribution. Intensive
retailers such as eBay facilitate distribution is a form of dis-
the sale of unusual or tribution aimed at maximum
difficult-to-find products market coverage. Here, the
that benefit from a direct manufacturer tries to have the
channel. product available in every
outlet where potential
P R O D U C E R FA C T O R S customers might want to
Several factors pertaining buy it. If buyers are un-
to the producer itself are willing to search for
important to the selection a product, it must
of a marketing channel. be made very acces-
In general, producers sible to buyers. The
with large financial, managerial, and next level of distri-
marketing resources are better able bution, selective
to perform their own marketing, and distribution , is
thus will use more direct channels. achieved by screen-
These producers have the ability to ing dealers and re-
hire and train their own sales forces, tailers to eliminate
warehouse their own goods, and Source: Spotify AB, Source: Gilt Groupe, Inc., Source: JackThreads, Source: Netflix, Inc. all but a few in any
extend credit to their customers. single area. Because
Smaller or weaker firms, on the other hand, must rely only a few are chosen, the consumer must seek out the
on intermediaries to provide these services for them. product. For example, HBO selectively distributes its
Compared to producers with only one or two product popular television shows through a series of its own
lines, producers that sell several products in a related subscription-based channels (HBO, HBO on Demand,
area are able to choose channels that are more direct. and HBO Go for mobile devices) and sells subscrip-
Sales expenses then can be spread over more products. tions or single episodes through Apple, Amazon.com,
A producer’s desire to control pricing, positioning, and Sony’s online stores but does not stream them
brand image, and customer support also tends to in- through Netflix or Hulu Plus. The most restrictive
fluence channel selection. For instance, firms that sell form of market coverage is exclusive distribution,
products with exclusive brand images, such as designer which entails only one or a few dealers within a given
perfumes and clothing, usually avoid channels in which area. Because buyers may have to search or travel ex-
discount retailers are present. Manufacturers of upscale tensively to buy the product, exclusive distribution is
products, such as Gucci (handbags) and Godiva (choco- usually confined to consumer specialty goods, a few
lates), may sell their wares only in expensive stores in shopping goods, and major industrial equipment.
order to maintain an image of exclusivity. Many produc- Products such as Rolls-Royce automobiles, Chris-Craft
ers have opted to risk their image, however, and test powerboats, and Pettibone tower cranes are distrib-
sales in discount channels. uted under exclusive arrangements.
intensive distribution a For example, Levi Strauss
EMERGING DISTRIBUTION STRUCTURES In recent
form of distribution aimed at having expanded its distribution
years, rapid changes in technology and communication
a product available in every outlet network to include JCPen-
where target customers might have led to the emergence of new, experimental distri-
ney, Sears, and Walmart.
want to buy it bution methods and channel structures. For example,
selective distribution a fashion flash sale sites like Gilt, JackThreads, and Ru-
form of distribution achieved by 13-7e Levels of elala have recently boomed in popularity. On these
screening dealers to eliminate all but
Distribution sites, new designer clothing items are made available
a few in any single area every day—often at a discount from 15 to 80 percent,
Intensity and always for an extremely limited time. The average
exclusive distribution a
form of distribution that establishes Organizations have three fashion flash sale shopper is between 25 and 40 years of
one or a few dealers within a options for intensity of age and makes $100,000 a year—an ideal demographic
given area
distribution: intensive for many marketers.
Another emerging channel structure involves when browsing a catalog, then conduct research about
renting items that are usually only sold to end con- it on the company’s Web site. She might later go to a
sumers. For example, some Web sites allow customers physical retail location to try out the product, before
to rent and return high fashion products (renttherun- finally purchasing the device using a mobile app. Be-
way.com and fashionrenting.com), handbags and cause of these varying preferences through different
accessories (lovemeandleaveme.com), and even fur- stages of the shopping cycle, many companies have
niture (fashionfurniture.com). Rental versus retail begun to employ a multichannel marketing strategy,
channels open up an entirely new customer base for whereby customers are offered information, goods,
certain products that were once reserved for a much services, and/or support through one or more synchro-
smaller group. nized channels. Recent studies have demonstrated that
For many years, subscription services such as customers who use multiple channels when shopping
book-of-the-month clubs have provided customers become more engaged during the purchase process,
products periodically over time. More recently, sub- and tend to spend more than customers who shop one
scription services have expanded far beyond books and channel only. The exception is when customers are
magazines to include clothing (bombfell.com), shoes buying simple, utilitarian products that are well known
(shoedazzle.com), crafting kits (craftaholicsanony- and intended for frequent use. Since customers are al-
mous.net), and wine (www.clubw.com). Many Web ready familiar with these product types, single-channel
sites require subscriptions to view premium content, designs are just as effective.42
and streaming media services like Spotify, Netflix, Because con-
and OnLive offer a wholly new type of subscription sumers use multi-
service. ple channels
Digital marketplaces like Steam and the Google during the
Play Store constitute another recent trend in market- shopping ex-
AND-ONE/iStock/Thinkstock
ing channels. Digital licensing adds an interesting facet perience, it
to customer sales; instead of selling a tangible product, has become
digital marketplaces sell the rights to songs, movies, and important for
television shows through their Web sites and applica- channel mem-
tions. Instead of leaving home to purchase a physical bers to create
album, game, or movie, consumers can select specific a seamless
media and download them directly to their computers shopping
or mobile devices.
13-8 OMNICHANNEL VERSUS

MULTICHANNEL MARKETING
Marketing channels are valuable
because they provide a route for
products and services to reach
the customer. Customers have
different preferences, however,
as to which channels to use when
browsing, seeking information,
comparing products to one an-
other, and making a purchase. A
single customer may use differ-
ent channels for each of these
activities, including both tradi-
tional and digital channels! For
example, a customer might first
learn about a new smartwatch
experience across all physical and digital channels. retailers such as The Gap and Burberry allow custom-
Facilitating such customer activities as checking a store’s ers to reserve items online for pickup in nearby stores,
inventory online, purchasing an item through an app have employed a find-in-store feature on their Web sites
for in-store pickup, allowing online purchases to be that displays real-time stock information so customers
returned in-store, and enabling mobile payment while can avoid unnecessary trips to the mall, and are begin-
shopping in-store are only a few strategies that produc- ning to provide in-store computer terminals or iPads
ers and retailers are using to give customers the appear- for customers to search their Web sites for offerings the
ance that multiple channels are behaving as one.43 customer’s local store may not carry. By making their in-
However, it is important to understand that the mul- ventory data available to customers in real-time, these
tichannel design does create redundancy and complexity retailers have effectively merged their multiple distri-
in the firm’s distribution system. Selling through multiple bution channels in such a way that creates greater cus-
channels is typically accompanied by the construction of tomer control over the shopping experience, leading to
multiple, parallel supply chains, each with its own inventory, greater satisfaction and loyalty. We discuss further impli-
processes, and performance metrics. Multichannel systems cations of this strategy in Chapter 15.
typically have meant that each channel would operate dif-
ferent transportation and distribution systems, hold and
account for its own inventory, and otherwise act as indepen-
dent sales and profit centers, with little knowledge of the
operations of the other. This proved problematic for one
retailer who was selling its products both in physical stores
STUDY
TOOLS 13
and on its Web site. The company had a distribution center LOCATED AT BACK OF THE TEXTBOOK
in Kentucky for its Internet retailing business, and another
near Chicago for its physical stores located there. When a □ Rip out Chapter Review Card
customer in Chicago visited the local store looking for a cer-
tain product, the shelves were empty, and he was directed LOCATED AT WWW.CENGAGEBRAIN.COM
to order products from the company’s Web site if he wanted □ Review Key Terms Flashcards and create your own
one in time for the holidays. He did so, and the product
was shipped to his home—at significant expense—from □ Track your knowledge and understanding of key concepts
the Kentucky distribution center, while unused product sat in marketing
only miles from his home in the Chicago distribution center, □ Complete practice and graded quizzes to prepare for tests
waiting to be stocked on local store shelves.
Because of situations like these, many companies
are transitioning to an omnichannel distribution opera-
experience
tion that supports their multichannel retail operations □ View the chapter highlight boxes within the MKTG Online
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Interactive Resources! CH A PTER
CH A PTER

14 Retailing
LEARNING OUTCOMES
14-1 Explain the importance of the retailer within the channel 14-5 Explain how retail marketing strategies are developed
and the U.S. economy and executed
iStockphoto.com/kevinjeon00
14-2 List and understand the different types of retailers 14-6 Discuss how services retailing differs from goods retailing
14-3 Explain why nonstore retailing is on the rise and list the 14-7 Understand how retailers address product/service failures
advantages of its different forms and discuss the opportunities that service failures provide
14-4 Discuss the different retail operations models and 14-8 Summarize current trends related to customer data, analytics,
understand why they vary in strategy and format and technology
14-1 THE IMPORTANCE OF RETAILING

Retailing represents all the activities directly related to the sale
of goods and services to the ultimate consumer for personal,
nonbusiness use. Retailing has enhanced the quality of our daily
lives in countless ways. When we shop for groceries, hair care,
clothes, books, or other products and services, we are doing business
with retailers. The millions of goods and services provided by retailers
mirror the diverse needs, wants, and trends of modern society. The
U.S. economy depends heavily on the retail sector. Approximately
two-thirds of the U.S. gross domestic product comes from retail activity,
and retail sales account for nearly 30 percent of all
retailing all the activities directly consumer spending.1
related to the sale of goods and
services to the ultimate consumer
for personal, nonbusiness use Retailing affects everyone, employers in the United States, with almost 3.8 million
both directly and indi- U.S. retailers employing more than 29 million people—
retailer a channel intermediary rectly. The retailing indus- about one in five American workers. And the industry is
that sells mainly to consumers
try is one of the largest expected to grow to more than 16 million by 2018.2 In
244 PART FOUR:

CHAPTER
Distribution
14: 14 Decisions
addition, almost 10 percent of all businesses are classified be combined in several ways to create numerous unique
as retailers.3 Yet, retailing is still largely a mom-and-pop retail operating models. Exhibit 14.1 depicts the major
industry. Almost nine out of ten retail companies em- types of retailers and classifies them by their key differ-
ploy fewer than twenty employees, and according to the entiating characteristics.
National Retail Federation, over 95 percent of all re-
tailers operate just one store.4 Most retailers are quite 14-2a Ownership Arrangement
small, but a few giant organizations such as Walmart Depending on its ownership arrangement, a retailer
dominate the industry. Walmart’s annual U.S. sales are can gain advantages from having a broad brand iden-
greater than the combined sales of the four next largest tity, or from having the freedom to take risks and inno-
U.S. retailers. As the retail environment changes, so too vate. Retail ownership takes one of three forms—they
do retailers. Trends and innovations relating to customer can be independently owned, part of a chain, or a
data, social media, and alternative forms of shopping are franchise outlet.
constantly developing, and retailers have no choice but
to react. The best retailers actually lead the way by antic-
● An independent retailer is owned by a person or
ipating change and developing new and exciting ways to group and is not operated as part of a larger network.
interact with customers. We discuss each of these issues Around the world, most retailers are independent,
and more in this chapter. with each owner operating a singular store within a
local community.
● A chain store is a group
14-2 TYPES OF RETAILERS of retailers (of one or
more brand names)
independent retailer a
retailer owned by a single person or
AND RETAIL OPERATIONS owned and operated by partnership and not operated as part
of a larger retail institution
a single organization.
Retail establishments can be classified in several Under this form of own- chain store a store that is part
ways, such as type of ownership, level of service, ership, a home office for of a group of the same stores owned
and operated by a single organization
product assortment, and price. These variables can the entire chain handles
CHAPTER 14: Retailing 245
EXHIBIT 14.1 TYPES OF STORES AND THEIR CHARACTERISTICS
Type of Retailer Level of Service Product Assortment Price Gross Margin

Department store Moderately high to high Broad Moderate to high Moderately high
Specialty store High Narrow Moderate to high High
Supermarket Low Broad Moderate Low
Drugstore Low to moderate Medium Moderate Low
Convenience store Low Medium to narrow Moderately high Moderately high
Full-line discount store Moderate to low Medium to broad Moderately low Moderately low
Specialty discount Moderate to low Medium to broad Moderately low to low Moderately low
store
Warehouse club Low Broad Low to very low Low
Off-price retailer Low Medium to narrow Low Low
Restaurant Low to high Narrow Low to high Low to high
retail buying; creates unified operating, marketing, layaway, gift-wrapping, and personal shopping. By con-
and other administrative policies; and works to ensure trast, retailers such as factory outlets and warehouse
consistency across different locations. The Gap and clubs offer virtually no service. After stock is set out for
Starbucks are retail chains. sale, the customer is responsible for any information
● A franchise is a retail business where the operator gathering, acquisition, handling, use, and product as-
is granted a license to operate and sell a product un- sembly. At the extreme low end of the service contin-
der the brand name of a larger supporting organiza- uum, a retailer may take the form of a product kiosk or
tional structure, such as Subway or Supercuts. Under vending machine.
this arrangement, a franchisor originates the trade
name, product, methods of operation, and so on. A 14-2c Product Assortment
franchisee, in return, pays the franchisor for the
right to use its name, product, and business methods, Retailers can also be categorized by the width and depth
and takes advantage of the franchisor’s brand equity of their product lines. Width refers to the assortment
and operational expertise. The most successful fran- of products offered; depth refers to the number of dif-
chises are increasingly services retailers. Three of ferent brands offered within each assortment. Specialty
the top five franchises recognized by Entrepreneur stores such as Best Buy, Staples, and GameStop have
Magazine are primarily service rather than goods the thinnest product assortments, usually carrying single
providers.5 or narrow product lines that are considerably deep. For
example, a specialty pet store like PetSmart is limited to
pet-related products, but may carry as many as twenty
franchise a relationship in which 14-2b Level of Service brands of dog food in a large variety of flavors, shapes,
the business rights to operate and
sell a product are granted by the The service levels that re- and sizes. On the other end of the spectrum, full-line
franchisor to the franchisee tailers provide range from discounters typically carry very wide assortments of
franchisor the originator of a full-service to self-service. merchandise that are fairly shallow.
trade name, product, methods of Some retailers, such as Stores often modify their product assortments in
operation, and the like that grants exclusive clothing stores, order to accommodate factors in the external environ-
operating rights to another party
offer very high or even ment. Petitions started by concerned patrons in Aus-
to sell its product
customized service levels. tralia and the United States caused major retailers to
franchisee an individual or They provide alterations, remove the Grand Theft Auto 5 video game and action
business that is granted the right
credit, delivery, consult- figures from the popular television show Breaking Bad
to sell another party’s product
ing, liberal return policies, from store shelves. These patrons believed that the
products’ violent nature and association
with the illegal drug culture were harm-
ful to society.6 Similarly, food products
ranging from milk to vitamins to dog
treats have been excluded from retail
product lines in order to better ensure
customer safety.
AP Images/Casper Star-Tribune/Alan Rogers

14-2d Price
Price is the fourth way to position retail
stores. Traditional department stores and
specialty stores typically charge the full
“suggested retail price.” In contrast, dis-
counters, factory outlets, and off-price re-
tailers use low prices and discounts to lure
shoppers. The last column in Exhibit 14.1 This December 2012 photo shows a wall that typically
shows the typical gross margin—how displays about 25 military-style rifles. Like many gun
much the retailer makes as a percentage stores across American, Casper, Wyoming’s Rocky
of sales after the cost of the goods sold Mountain Discount Sports sold out of firearms after the
is subtracted. (Margins will be covered
Sandy Hook shootings in Newtown, Connecticut.
in more detail in Chapter 19.) Today,
prices in any store format might vary not
just from day to day, but from minute to minute! On- ● Specialty stores typically carry a deeper but nar-
line retailers and traditional brick-and-mortar stores rower assortment of merchandise within a single
that have invested in electronic tagging systems are category of interest. The specialized knowledge of
increasingly adopting dynamic pricing strategies that their salesclerks allows for more attentive customer
allow them to adjust to an item’s surging popularity or service. The Children’s Place, Williams-Sonoma, and
slow movement in real time.7 Foot Locker are well-known specialty retailers.
Supermarkets are large, departmentalized, self-
Types of In-Store Retailers
●
14-2e
service retailers that specialize in food and some
Traditionally, retailers fall into one of several distinct nonfood items. Some conventional supermarkets
types of retail stores, each of which features a prod- are being replaced by much larger superstores.
uct assortment, types of services, and price levels that Superstores offer one-
align with the intended customers’ shopping prefer- stop shopping for food
ences. Recently, however, retailers began experiment- gross margin the amount
and nonfood needs, as
of money the retailer makes as a
ing with alternative formats that blend the features well as services such percentage of sales after the cost
and benefits of the traditional types. For instance, as pharmacists, flo- of goods sold is subtracted
supermarkets are expanding their nonfood items and rists, salad bars, photo
department store a store
services, discounters are adding groceries, drugstores processing kiosks, and housing several departments
are becoming more like convenience stores, and de- banking centers. under one roof
partment stores are experimenting with smaller stores. Drugstores primar-
●
specialty store a retail store
Nevertheless, many stores still fall into the traditional ily provide pharmacy- specializing in a given type of
archetypes: related products and merchandise
● Department stores such as JCPenney and Macy’s services, but many also supermarket a large,
carry a wide range of products and specialty goods, carry an extensive se- departmentalized, self-service
including apparel, cosmetics, housewares, electron- lection of cosmetics, retailer that specializes in food
and some nonfood items
ics, and sometimes furniture. Each department acts health and beauty aids,
as a separate profit center, but central management seasonal merchandise, drugstore a retail store that
sets policies about pricing and the types of merchan- greeting cards, toys, and stocks pharmacy-related products
and services as its main draw
dise carried. some non-refrigerated
convenience foods. As other retailer types have be-
gun to add pharmacies and direct mail prescription
services have become more popular, drugstores have
competed by adding more services such as 24-hour
drive-through windows and low-cost health clinics
staffed by nurse practitioners.
● A convenience store resembles a miniature su-
permarket but carries a much more limited line of
high-turnover convenience goods. These self-service
stores are typically located near residential areas and
offer exactly what their name implies: convenient
locations, long hours, and fast service in exchange for
premium prices. In exchange for higher prices, how-
ever, customers are beginning to demand more from
convenience store management, such as higher qual-
ity food and lower prices
convenience store a on staple items such as
miniature supermarket, carrying
only a limited line of high-turnover gasoline and milk.
Ken Wolter/Shutterstock.com
convenience goods ● Discount stores com-
discount store a retailer that pete on the basis of low
competes on the basis of low prices, prices, high turnover,
high turnover, and high volume and high volume. Dis-
full-line discount store a counters can be classi-
discount store that carries a vast fied into several major Sam’s Club is an American chain of
depth and breadth of product within categories: membership-only retail warehouse
a single product category
● Full-line discount clubs owned and operated by Walmart.
supercenter a large retailer
that stocks and sells a wide variety
stores such as
of merchandise including groceries, Walmart offer con-
customers are drawn in by food but end up purchas-
clothing, household goods, and sumers very limited
other general merchandise ing other items from the full-line discount stock.
service and carry a
specialty discount store a vast assortment of ● Single-line specialty discount stores such as
retail store that offers a nearly well-known, nationally Foot Locker offer a nearly complete selection of
complete selection of single-line branded goods such as merchandise within a single category and use self-
merchandise and uses self-service, service, discount prices, high volume, and high
discount prices, high volume, and
housewares, toys, au-
tomotive parts, hard- turnover to their advantage. A category killer
high turnover
ware, sporting goods, such as Best Buy is a specialty discount store
category killer a large that heavily dominates its narrow merchandise
discount store that specializes in
garden items, and
clothing. segment.
a single line of merchandise and
becomes the dominant retailer in ● Supercenters ex-
● A warehouse club sells a limited selection of
its category brand name appliances, household items, and
tend the full-line
warehouse club a large, no- concept to include groceries. These are sold in bulk from warehouse
frills retailer that sells bulk quantities
groceries and a vari- outlets on a cash-and-carry basis to members only.
of merchandise to customers at Currently, the leading stores in this category are
volume discount prices in exchange ety of services, such
for a periodic membership fee as pharmacies, dry Sam’s Club, Costco, and BJ’s Wholesale Club.
off-price retailer a retailer

cleaning, portrait stu- ● Off-price retailers such as TJ Maxx, Ross, and
that sells at prices 25 percent or dios, photo finishing, Marshall’s sell at prices 25 percent or more below
more below traditional department hair salons, optical traditional department store prices because they
store prices because it pays cash for shops, and restaurants. buy inventory with cash and they don’t require
its stock and usually doesn’t ask for
For supercenter op- return privileges. These stores often sell manu-
return privileges
erators such as Target, facturers’ overruns, irregular merchandise, and/
or overstocks that they purchase at or be-
low cost. A factory outlet is an off-price
retailer that is owned and operated by a
single manufacturer and carries one line
of merchandise—its own. Manufacturers
can realize higher profit margins using fac-
tory outlets than they would by disposing of
the goods through independent wholesalers
and retailers. Used goods retailers turn
Laura Riquelme/Shutterstock.com
customers into suppliers: pre-owned items
bought back from customers are resold
to different customers. Used goods retail-
ers can be either brick-and-mortar loca-
tions (such as Goodwill stores) or electronic
marketplaces (such as eBay).
● Restaurants provide both tangible products— Tupperware, like the companies mentioned in the
food and drink—and valuable services—food
Direct Retailing section, directly markets itself
preparation and presentation. Most restaurants
to potential customers by offering a chance to
are also specialty retailers in that they concen-
purchase products inside the consumer’s home.
trate their menu offerings on a distinctive type
of cuisine—for example, Olive Garden Italian
restaurants and Starbucks coffeehouses. candy, or snack vending machines commonly found
in public places and office buildings. Retailers are
continually seeking new opportunities to sell via
14-3 THE RISE OF vending. As a result, modern vending machines to-
day sell merchandise such as DVDs, digital cameras,
NONSTORE RETAILING perfumes, and even ice cream. A key aspect of their
continuing success is the proliferation of cashless
The retailing formats discussed so far entail physi- payment systems in response to consumers’ diminish-
cal stores where merchandise is displayed and to ing preference for carrying cash.
which customers must travel in order to shop. In ● Self-service tech-
contrast, nonstore retailing enables customers to
nologies (SST) factory outlet an off-price
shop without visiting a physical store location. Non-
com prise a form of retailer that is owned and operated
store retailing adds a level of convenience for customers
automatic vending by a manufacturer
who wish to shop from their current locations. Due to
where services are the used goods retailer a retailer
broader changes in culture and society, nonstore retail-
primary focus. Auto- whereby items purchased from one of
ing is currently growing faster than in-store retailing.
matic teller machines, the other types of retailers are resold to
The major forms of nonstore retailing are automatic different customers
pay-at-the-pump gas
vending, direct retailing, direct marketing, and Inter-
stations, and movie restaurant a retailer that provides
net retailing (or e-tailing). In response to the recent
ticket kiosks allow both tangible products—food and
successes seen by nonstore retailers, traditional brick- drink—and valuable services—food
customers to make
and-mortar retailers have begun seeking a presence in preparation and presentation
purchases that once
limited nonstore formats. For example, Target has be- nonstore retailing shopping
required assistance
gun to heighten its Internet presence by offering mov- without visiting a store
from a company em-
ies via streaming video. The new Target Ticket platform
ployee. However, as automatic vending the use
allows customers to purchase movies and popular televi-
with any sort of self- of machines to offer goods for sale
sion shows cheaply and without subscription fees, which
service technology, self-service technologies
allows Target to compete with services such as Apple’s
automatic vending (SST) technological interfaces that
iTunes and Netflix.8
comes with failure allow customers to provide themselves
● Automatic vending entails the use of machines risks due to human with products and/or services without
the intervention of a service employee
to offer goods for sale—for example, the soft drink, or technological error.
Unless customers expect that they can easily recover geographic, and/or psychographic characteristics.
from such errors, they may end up shopping elsewhere. Direct mailers are becoming more sophisticated in
● Direct retailing representatives sell products door- targeting the right customers. Microtargeting
to-door, in offices, or at in-home sales parties. Com- based on data analytics of census data, lifestyle
panies like Avon, Mary Kay, and The Pampered Chef patterns, financial information, and past purchase
have used this approach for years. Man Cave, a new and credit history allows direct mailers to pick
home sales party developed for men, has been de- out those most likely to buy their products.11 U.S.
scribed as “like Mary Kay on steroids.” Man Cave companies spend more than $45 billion annually
representatives invite male friends and family over for on direct marketing—a larger share of advertising
testosterone-fueled parties at which Man Cave prod- expenditures than any other media except televi-
ucts are used and Man Cave foods are eaten. Affiliates sion. More than $11.5 billion of that is spent on
earn commissions for the sale of beer mugs, grilling data and software solutions intended to heighten
tools, frozen steaks, and other Man Cave products.9 customer responsiveness.12
● Direct marketing (DM) includes techniques used
● Shop-at-home television networks such
to elicit purchases from consumers’ homes, offices, as HSN and QVC produce television shows that
and other convenient locations. Common DM tech- display merchandise to home viewers. View-
niques include telemarketing, direct mail, and mailers can phone in their orders directly on toll-
order catalogs. Shoppers using these methods are free lines and shop with their credit cards. The
less bound by traditional shopping situations. Time- shop-at-home industry has quickly grown into a
strapped consumers and those who live in rural or multi-billion-dollar business with a loyal customer
suburban areas are most likely to be DM shoppers following and high customer penetration.
because they value the convenience and flexibility ● Online retailing, or e-tailing, enables a customer
it provides. DM occurs in to shop over the Internet and have items delivered
several forms: directly to her door. Global online shopping accounts
direct retailing the selling of
products by representatives who for more than $1.3 trillion in sales today and is ex-
● Telemarketing is a pected to reach $2.5 trillion by 2018.13 Interactive
work door-to-door, office-to-office,
or at home sales parties form of DM that em- shopping tools and live chats substitute for the in-
ploys outbound and store interactions with salespeople and product tri-
direct marketing (DM) inbound telephone con-
techniques used to get consumers als that customers traditionally use to make purchase
to make a purchase from their home, tacts to sell directly to decisions. Shoppers can look at a much wider variety
office, or other nonretail setting consumers. Telemarket- of products online because physical space restrictions
ing is a highly effective do not exist. While shopping, customers can take
telemarketing the use of
the telephone to sell directly to marketing technique; their time deciding what to buy.
consumers recent estimates in-
In addition to retailer Web sites, consumers are in-
dicate that 5,000 U.S.
direct mail the delivery of creasingly using social media applications as shopping
advertising or marketing material to companies will spend
platforms. Social networking sites such as Facebook,
recipients of postal or electronic mail over $15 billion on in-
Instagram, and Twitter enable users to immediately
bound and outbound
microtargeting the use purchase items recommended by their social connec-
of direct marketing techniques calls by 2015.10
tions, a phenomenon known as social shopping. Com-
that employ highly detailed data ● Alternatively, direct
analytics in order to isolate potential panies are eager to establish direct linkages between
customers with great precision mail can be a highly social networking platforms and their own Web sites
efficient or highly inef- due to the belief that a product or service recom-
shop-at-home television ficient retailing method,
network a specialized form mended by a friend will receive higher consideration
of direct response marketing depending on the qual- from the potential customer.
whereby television shows display ity of the mailing list
merchandise, with the retail price, to and the effectiveness of
home viewers the mailing piece. With 14-4 RETAIL OPERATIONS MODELS
online retailing (e-tailing) direct mail, market-
a type of shopping available to ers can precisely target The retail formats covered so far are co-aligned
consumers with personal computers their customers accord- with unique operating models that guide the de-
and access to the Internet
ing to demographic, cisions made by their managers. Each operating
Bugpha/iStock/Thinkstock; Thilak Piyadigama/iStock/Thinkstock
Back Stock Floor Stock
model can be summarized as a set of guiding principles. has the ancillary benefit of driving customers back to the
For example, off-price retailers de-emphasize customer store in order to see what new products have arrived,
service and product selection in favor of lower prices, and thus has the potential to increase repurchases.14
which are achieved through a greater focus on lean The tradeoffs inherent to retail operating models
inventory management. have both spurred the recent success of online-only re-
Alternatively, specialty shops generally adopt a tailers and led to a surge in online storefront develop-
high-service approach that is supported by an agile ap- ment among retailers who have traditionally operated in
proach to inventory. By keeping a greater amount of physical formats only. A key advantage of online retail is
floor stock (inventory displayed for sale to customers) that no physical retail store space is needed for display-
and back stock (inventory held in reserve for poten- ing and selling merchandise. Lower cost remote distri-
tial future sale in a retailer’s storeroom or stockroom) on bution centers can be used since all of the showcasing
hand, a broader range of customer demands can be ac- occurs on the company’s Web site. By moving online, a
commodated. This operating model also implies higher specialty store can gain the operational benefits of a mass
prices for customers, however, so retail managers must merchandiser. It can showcase exclusive or trendy items
make sure that they deliver on the promises their firms in an almost-free space to potential customers located
make to customers in order to secure their loyalty. At around the world, and can then fulfill demand from
the same time, these retail managers must control de- one of several localized distribution centers in a very
mand via promotions and other sales events in order to short time. Fulfillment times are specified by the cus-
sell off slow moving and perishable items, thereby mak- tomer (according to their willingness to pay for greater
ing more room for items that are more popular. shipping and delivery speed), and even this tradeoff is
These sorts of tradeoffs have been partially respon- becoming less of a sticking point every year. Amazon’s
sible for the recent emergence of hybrid retail operating Prime subscription program, for example, includes free
models. As an example of a hybrid strategy, the Spanish two-day shipping. The company recently revealed that it
women’s fashion retailer Zara employs a specialty retail is experimenting with same day delivery via unmanned
format with a twist: It uses a mass merchandising inven- drones, and is already offering same-day delivery by
tory strategy. Zara offers high quality products and excel- traditional means within several limited geographic ar-
lent customer service to draw customers into its stores eas.15 Startup company Deliv positioned itself in 2015
but never replenishes specific inventory items that are as a cutting-edge crowdsourced courier service. Deliv
sold. Rather, its designers and buyers are continually in- provides its more than 250 national and regional U.S.
troducing new products in small or medium quantities. retail partners (such
Once a product sells out, a new one replaces it, allow- as Macy’s and Foot-
ing for a very lean operation. This strategy not only low- locker) a means of com- floor stock inventory displayed
for sale to customers
ers inventory costs (and thereby increases profitability) peting with Amazon
but also creates an aura of exclusivity around each piece by offering same-day back stock inventory held in
that the retailer sells: Each skirt, blouse, and accessory home delivery.16 It will reserve for potential future sale in
a retailer’s storeroom or stockroom
is effectively a limited edition item. This strategy also be very exciting to see
how these advances continue to change retail strategies lifespans, and it is important for retailers to be sensitive
and operations in the years to come. to these changes by migrating them to new and different
Today, most retail stores remain operationally and products as their buying patterns evolve.
tactically similar to those that have been in business for Target markets in retailing are often defined
hundreds of years; with one or more physical locations by demographics, geographic boundaries, and
that the customer must visit in order to purchase a psychographics. For example, Blaze Pizza targets
stocked product, and with strategies in place to attract Millennial shoppers by providing a “build your own”
customers to visit. The sorts of differences we have pizza experience that mirrors the personal food design
described among retail operating models imply that processes of Subway and Chipotle. This technique
managing one type of store instead of another can appeals to the Millennial psychographic characteristics
involve very different experiences. But most of the of achievement and creativity.17 Determining a target
decisions that retail managers make can be distilled down market is a prerequisite to creating the retailing mix.
to six categories of activity, referred to as the retailing For example, Target’s merchandising approach for
mix. These categories, described in the next section, sporting goods is to match its product assortment to the
are relatively universal to all forms of retailing, but are demographics of the local store and region.
applied in different ways based on the retail format.
14-5b Choosing the Retailing Mix
14-5 EXECUTING A RETAIL As previously noted, defining a retail operation entails
combining the elements of the retailing mix to come
MARKETING STRATEGY up with a single retailing method to attract the tar-
get market. The retailing mix consists of six Ps: the
Retail managers develop marketing strategies four Ps of the marketing mix (product, promotion,
based on the goals established by stakeholders and place, and price) plus presentation and personnel (see
the overall strategic plans developed by company Exhibit 14.2). The combination of the six Ps projects a
leadership. Strategic retailing goals typically focus on store’s (or Web site’s) image and influences customers’
increasing total sales, reducing costs of goods sold, and perceptions. Using these impressions, shoppers position
improving financial ratios such as return on assets or one store or Web site against another. Managers must
equity. At the store level, more tactical retailing goals make sure that the positioning is aligned with target
include increased store traffic, higher sales of a specific customers’ expectations.
item, developing a more upscale image, and creating PRODUCT The first element in the retailing mix is the
heightened public awareness of the retail operation product offering, also called the product assortment or
and its products or services. The tactical strategies merchandise mix. Developing a product offering is es-
that retailers use to obtain their goals include having a sentially a question of the width and depth of the prod-
sale, updating décor, and launching a new advertising uct assortment. Price, store/Web site design, displays,
campaign. The key strategic tasks that precede these and service are important to customers in determining
tactical decisions are defining and selecting a target where to shop, but the most critical factor is merchan-
market and developing the retailing mix to successfully dise selection. This reasoning also holds true for online
meet the needs of the chosen target market. retailers. Amazon.com, for instance, offers enormous
width in its product assortment with millions of differ-
14-5a Defining a Target Market ent items, including books, music, toys, videos, tools
The first and foremost task in developing a retail strat- and hardware, health and beauty aids, electronics, and
egy is to define the target market. This process begins software. Conversely, online specialty retailers such as
with market segmentation, the topic of Chapter 8. Suc- Lemon and Mint and Bridge 55 focus on a single cat-
cessful retailing has always been based on knowing the egory of merchandise, hoping to attract loyal custom-
customer. Sometimes retailing chains flounder when ers with a larger depth of products at lower prices and
management loses sight of excellent customer service. Many online retailers pur-
retailing mix a combination the customers the stores posely focus on single product line niches that could
of the six Ps—product, promotion, should be serving. Cus- never attract enough foot traffic to support a traditional
place, price, presentation, and tomers’ desires and pref- brick-and-mortar store. For instance, Web sites such
personnel—to sell goods and erences change over their as bugbitingplants.com and petflytrap.com sell and
services to the ultimate consumer
personal and professional ship live carnivorous plants in the United States. After
to stockouts of the promoted
EXHIBIT 14.2 THE RETAILING MIX
brand and financial losses from
Product discounting surplus inventory of
Width and depth of
product assortment the cannibalized brand. The latter
types of losses can sometimes be
significantly greater than the cost
of the promotion itself. Therefore,
Personnel
Customer service Place (distribution) retail managers should design their
and personal Location and
selling promotional activities carefully,
hours
with gaining new customers being
the primary objective.
Target
Much retail advertising is fo-
market cused on the local level. Local
advertising by retailers usually pro-
vides specific information about
Presentation Promotion their stores, such as location, mer-
Layout and Advertising, chandise, hours, prices, and special
atmosphere publicity, and
public relations sales. In contrast, national retail
advertising generally focuses on
image. For example, Target uses
Price advertisements similar to designer
fashion advertisements to depict
determining what products will satisfy target customers’ high-quality goods. Paired with the ubiquitous red tar-
desires, retailers must find sources of supply and evalu- get and tag line “Expect more. Pay less,” Target is dem-
ate the products. When the right products are found, onstrating that it sells products that consumers normally
the retail buyer negotiates a purchase contract. aspire to own at prices they can afford.
Target’s advertising campaigns also take advantage
PROMOTION Retail promotion strategy includes of cooperative advertising, another popular retail ad-
advertising, public relations and publicity, and sales vertising practice. Traditionally, marketers would pay
promotion. The goal is to help position the store retailers to feature their products in store mailers, or a
or Web site in customers’ minds. Retailers design marketer would develop a television campaign for the
intriguing ads, stage special events, and develop product and simply tack on several retailers’ names at
promotions aimed at their target markets. Today’s the end. But Target’s advertising uses a more collabora-
grand-openings are a carefully orchestrated blend of tive trend by integrating products such as Tide laundry
advertising, merchandising, goodwill, and glitter. All detergent or Coca-Cola into the actual campaign. An-
the elements of an opening—press coverage, special other common form of cooperative advertising involves
events, media advertising, and store displays—are promotion of exclusive products. For example, Target
carefully planned. Other promotions that are often hires famous trendy designers for temporary partner-
used successfully include sales events, coupons, and ships, during which they develop reasonably priced
discounts for certain products or customer groups. product lines available exclusively at Target stores. Re-
One risk associated with store promotions, however, cently, Target teamed up with Neiman Marcus to offer a
is brand cannibalization : a situation whereby collection of holiday luxury items. These items were sold
the promotion intended to draw in new customers both at Target and Neiman Marcus stores, as well as on
simply shifts current customers from buying one both stores’ outlet Web stores.
brand to another brand. For example, when TGI
Fridays began offering $10 appetizers to boost unit PLACE The retailing
sales, sales of some main course items decreased. 18 axiom “location, loca-
Brand cannibalization is dangerous to the retailer tion, location” has long brand cannibalization the
reduction of sales for one brand as
for two reasons. First, the retailer incurs significant emphasized the impor- the result of the introduction of a new
expense in executing the promotion itself. Second, tance of place to the product or promotion of a current
the promotion creates inaccurate sales forecasts for retail mix. The physi- product by another brand
both the promoted and cannibalized products, leading cal location decision is
transportation. A particular site’s visibility,
parking, entrance and exit locations, ac-
cessibility, and safety and security issues
are also important considerations.
A retailer should consider how its
store fits into the surrounding environ-
ment. Retail decision makers probably
would not locate a Dollar General store
next door to a Neiman Marcus depart-
ment store. Furthermore, brick-and-
FashionStock.com/Shutterstock.com
mortar retailers have to decide whether to
have a freestanding unit or to become a
tenant in a shopping center or mall. Large
retailers like Target and sellers of shop-
ping goods like furniture and cars often
use an isolated, freestanding location. A
The Victoria’s Secret Fashion Show is a major part of the freestanding store location may have the
company’s marketing strategy. Their “Angels” serve as advantages of low site cost or rent and no
key members of the company’s marketing team. nearby competitors. On the other hand,
it may be hard to attract customers to a
freestanding location, and no other retail-
important first because the retailer is making a large, ers are around to share costs. To be successful, stores in
semi-permanent commitment of resources that can re- isolated locations must become “destination stores.” A
duce its future flexibility. Second, the physical location destination store is a store consumers seek out and
will almost inevitably affect the store’s future growth and purposely plan to visit. Web sites can also be destina-
profitability. Many retailers work with consultants and/ tions for shoppers. Amazon is a destination Web site for
or city planners to determine the best sites for current a wide variety of products, and Google is a destination
sales as well as potential growth in the future. Web site for search information.
Physical site location begins by choosing a com- Freestanding units are increasing in popularity as
munity. Important factors to consider are the area’s brick-and-mortar retailers strive to make their stores
economic growth potential, the amount of competition, more convenient to access, more enticing to shop,
and geography. For instance, retailers like TJ Maxx and and more profitable. Freestanding sites now account
Walmart often build stores in new communities that are for more than half of all retail store construction starts
still under development. Fast-food restaurants tend to in the United States as more and more retailers are
place a priority on locations with other fast-food restau- deciding not to locate in pedestrian malls. Perhaps
rants because being located in clusters helps to draw the greatest reason for developing a freestanding site
customers for each restaurant. Even after careful re- is greater visibility. Retailers often feel they get lost
search, however, the perfect location can be elusive in in huge shopping centers and malls, but freestanding
the face of changing markets. Mobile food trucks cir- units can help stores develop an identity with shoppers.
cumvent this problem by being able to relocate at will. Also, an aggressive expansion plan may not allow time
By moving from spot to spot over the course of a day to wait for shopping centers to be built. Drugstore
and parking outside events and heavily trafficked areas, chains like Walgreens have been purposefully relocating
mobile food trucks can maximize their exposure and their existing shopping center stores to freestanding
adapt to changing markets. sites, especially street corner sites for drive-through
After identifying a geographic region or commu- accessibility.
nity, retailers must choose a specific site. In addition to Shopping centers first appeared in the 1950s when
growth potential, the important factors to consider are the U.S. population started migrating to the suburbs.
neighborhood socioeco- The first shopping centers were strip centers, typically
destination store a store that nomic characteristics, traf- located along busy streets. They usually included a
consumers purposely plan to visit fic flows, land costs, zoning supermarket, a variety store, and perhaps a few specialty
prior to shopping
regulations, and public stores. Then community shopping centers emerged,
with one or two small department stores, more specialty Marcus. On the other hand, discounters and off-price
stores, a couple of restaurants, and several apparel retailers, such as Target and TJ Maxx, offer a good value
stores. These community shopping centers provided for the money.
off-street parking and a broader variety of merchandise.
PRESENTATION The presentation of a retail store
Regional malls offering a much wider variety of
helps determine the store’s image and positions the retail
merchandise started appearing in the mid-1970s.
store in consumers’ minds. For instance, a retailer that
Regional malls are either entirely enclosed or roofed
wants to position itself as an upscale store would use a
to allow shopping in any weather. Most are landscaped
lavish or sophisticated presentation. The main element of
with trees, fountains, sculptures, and the like to enhance
a store’s presentation is its atmosphere, the overall im-
the shopping environment. They have acres of free
pression conveyed by a store’s physical layout, décor, and
parking. The anchor stores or generator stores (often
surroundings. The atmosphere might create a relaxed
major department stores) are usually located at opposite
or busy feeling, a sense of luxury or efficiency, a friendly
ends of the mall to create heavy foot traffic.
or cold attitude, a sense of organization or clutter, or a
According to shopping center developers, lifestyle
fun or serious mood. Urban Outfitters stores, targeted
centers are emerging as the newest generation of shop-
to Generation Y consumers, use raw concrete, original
ping centers. Lifestyle centers typically combine outdoor
brick, rusted steel, and unfinished wood to convey an ur-
shopping areas composed of upscale retailers and restau-
ban feel. These are the most influential factors in creat-
rants, with plazas, fountains, and pedestrian streets. They
ing a store’s atmosphere:
appeal to retail developers looking for an alternative to
the traditional shopping mall, a concept rapidly losing ● Employee type and density: Employee type refers to
favor among shoppers. Though shopping malls bring an employee’s general characteristics—for instance,
multiple retail locations together, location is often not neat, friendly, knowledgeable, or service oriented.
the most important motivator for a customer to choose a Density is the number of employees per thousand
specific store. Instead, most shoppers look for stores that square feet of selling space. Whereas low employee
guarantee product availability, more service employees, density creates a do-it-yourself, casual atmosphere,
and time saving opportunities. high employee density denotes readiness to serve the
Many smaller specialty lines are opening shops customer’s every whim.
inside larger stores to expand their retail opportuni- ● Merchandise type and density: A prestigious re-
ties without risking investment in a separate store. tailer like Nordstrom or Neiman Marcus carries the
Toys“R”Us worked with Macy’s to open stores-within-a- best brand names and displays them in a neat, un-
store at numerous Macy’s locations. The 1,500-square- cluttered arrangement. Discounters and off-price
foot toy sections offered dolls, puzzles, and other retailers often carry seconds or out-of-season goods
potential stocking stuffers.19 The Toys“R”Us modules re- crowded into small spaces and hung on long racks by
flect a popular trend of pop-up shops—tiny, temporary category—tops, pants, skirts, and so on—creating the
stores that stay in one location for only a few months. impression that “We’ve got so much stuff, we’re prac-
Pop-up shops help retailers reach a wide market while tically giving it away.”
avoiding high rent at retail locations. They have become ● Fixture type and density: Fixtures can be elegant
the marketing tool du jour for large companies. (rich woods) or trendy (chrome and smoked glass);
they can even consist of old, beat-up tables, as in an
PRICE Another important element in the retailing mix antiques store. The fixtures should be consistent with
is price. Retailing’s ultimate goal is to sell products to the general atmosphere the store is trying to create.
consumers, and the right price is critical to ensure sales.
Because retail prices are usually based on the cost of the
● Sound: Sound can be pleasant or unpleasant for a
merchandise, an essential part of pricing is efficient and customer. Music can entice some customers to stay in
timely buying. Another pricing strategy is “value-based the store longer and buy more or to eat quickly and
pricing,” which focuses on the value of the product to leave a table for others. It can also control the pace
the customer more than the cost of the product to the of the store traffic, create an image, and attract or
supplier. Price is also a key element in a retail store’s direct the shopper’s
positioning strategy. Higher prices often indicate a attention. atmosphere the overall impression
level of quality and help reinforce the prestigious image ● Odors: Smell can conveyed by a store’s physical layout,
décor, and surroundings
of retailers, as they do for Lord & Taylor and Neiman either stimulate or
detract from sales. Research suggests that people Retail salespeople serve another important selling
evaluate merchandise more positively, spend more function: They persuade shoppers to buy. They must
time shopping, and are generally in a better mood therefore be able to persuade customers that what they
when an agreeable odor is present. Retailers use fra- are selling is what the customer needs. Salespeople
grances as an extension of their retail strategy. are trained in two common selling techniques: trading
● Visual factors: Colors can create a mood or focus up and suggestion selling. Trading up means persuad-
attention and therefore are an important factor in ing customers to buy a higher-priced item than they
atmosphere. Red, yellow, and orange are considered originally intended to purchase. To avoid selling cus-
warm colors and are used when a feeling of warmth and tomers something they do not need or want, however,
closeness is desired. Cool colors like blue, green, and salespeople should take care when practicing trading-
violet are used to open up closed-in places and create up techniques. Suggestion selling, a common practice
an air of elegance and cleanliness. Many retailers have among most retailers, seeks to broaden customers’ orig-
found that natural lighting, either from windows or inal purchases with related items. For example, if you
skylights, can lead to increased sales. Outdoor lighting buy a new printer at Office Depot, the sales representa-
can also affect a customer’s choice of retailer. tive will ask if you would like to purchase paper, a USB
cable, and/or extra ink cartridges. Suggestion selling by
The layout of retail stores is also a key factor in sales or service associates should always help shoppers
their success. The goal is to use all of the store’s space recognize true needs rather than sell them unwanted
effectively, including aisles, fixtures, merchandise dis- merchandise.
plays, and non-selling areas. In addition to making Providing great customer service is one of the most
shopping easy and convenient for the customer, an ef- challenging elements in the retail mix because customer
fective layout has a powerful influence on traffic patterns expectations for service vary greatly. What customers
and purchasing behavior. Layout also includes where expect in a department store is very different from what
products are placed in the store. Many technologically they expect in a discount store. Customer expectations
advanced retailers are using a technique called market- also change. Ten years ago, shoppers wanted personal,
basket analysis to sift through the data collected by their one-on-one attention. Today, many customers are happy
point-of-purchase scanning equipment. The analysis to help themselves as long as they can easily find what
looks for products that are commonly purchased together they need.
to help retailers find ideal locations for each product.
Walmart uses market-basket analysis to determine where
in the store to stock products for customer convenience. 14-6 RETAILING DECISIONS
Kleenex tissues, for example, are in the paper-goods aisle
and also beside the cold medicines.
FOR SERVICES
Retailers can better acquire and use assets when
The fastest-growing part of our economy is the ser-
they customize store layouts and merchandise mixes
vice sector. Although distribution in the service sector
to the tastes of local consumer bases. For example,
is difficult to visualize, the same skills, techniques, and
O’Reilly Auto Parts designs each of its retail outlets with
strategies used to manage inventory can also be used to
the wants and needs of local auto drivers in mind, creat-
manage service inventory, such as hospital beds, bank
ing a neighborhood-specific strategy for each location.
accounts, or airline seats. The quality of the planning
By customizing layout and product mix to the vehicles
and execution of distribution can have a major impact
owned and operated in a particular area, the company
on costs and customer satisfaction.
can simultaneously provide greater levels of availability
Because service industries are so customer ori-
and reduce inventory, creating savings that the company
ented, service quality is a priority. To manage customer
passes along to customers.20
relationships, many service providers, such as insurance
PERSONNEL People are a unique aspect of retailing. carriers, physicians, hair salons, and financial services,
Most retail sales involve a customer–salesperson use technology to schedule appointments, manage ac-
relationship, if only briefly. Sales personnel provide counts, and disburse information. Service distribution
their customers with the focuses on four main areas:
layout the internal design and amount of service pre- ● Minimizing wait times: Minimizing the amount of
configuration of a store’s fixtures scribed by the retail strategy time customers wait in line is a key factor in main-
and products
of the store. taining the quality of service.
reactions to mistakes such as
product stockouts and unex-
pectedly poor quality products
can range widely. Some may
simply leave the store, while
Andrey_Popov/Shutterstock.com
others will respond with an-
ger or even revenge behaviors
intended to prevent other cus-
tomers from visiting the store.21
The best retailers have
plans in place not only to re-
cover from inevitable lapses
Quality of service is directly tied to how long people have
in service but perhaps even to
to wait in line.
benefit from them. For these
top-performing stores, service
recovery is handled proactively
● Managing service capacity: If service firms don’t have as part of an overarching plan to maximize the customer
the capacity to meet demand, they must either turn experience. Actions that might be taken include:
down some prospective customers, let service levels ● Notifying customers in advance of stockouts and ex-
slip, or expand capacity. plaining the reasons why certain products are not
● Improving service delivery: Service firms are now ex- available
perimenting with different distribution channels for ● Implementing liberal return policies designed to en-
their services. Choosing the right distribution channel sure that the customer can bring back any item for
can increase the times that services are available or any reason (if the product fails to work as planned, or
add to customer convenience. even if the customer simply doesn’t like it)
● Establishing channel-wide network coherence: ● Issuing product recalls in conjunction with pro-
Because services are to some degree intangible, ser- motional offers that provide future incentives to
vice firms also find it necessary to standardize their repurchase
service quality across different geographic regions to
maintain their brand image. In short, the best retailers treat customer disap-
pointments as opportunities to interact with and im-
prove relations with their customers. Evidence indicates
that successful handling of such failures can sometimes
14-7 ADDRESSING RETAIL PRODUCT/ yield even higher levels of customer loyalty than if the
SERVICE FAILURES failure had never occurred at all.
In spite of retailers’ best intentions and efforts to

satisfy each and every customer, all retailers in-
14-8 RETAILER AND RETAIL CUSTOMER
evitably disappoint a subset of their customers. In TRENDS AND ADVANCEMENTS
some cases, customer disappointment occurs by design.
No retailer can be everything to every customer, and by Though retailing has been around for thousands
making strategic decisions related to targeting, segmen- of years, it continues to change every day. Retail-
tation, and the retailing mix, retailers implicitly decide ers are constantly innovating. They are always looking
which customers will be delighted and which will prob- for new products and services (or ways to offer them)
ably leave the store unsatisfied. In other cases, service that will attract new customers or inspire current ones
failures are unintentional. A product may be located to buy in greater quantities or more frequently. Many
where customers cannot easily find it (or it may remain of the most interesting and effective retail innovations
in the stockroom, entirely out of customer view), or an that have recently taken hold are related to the use of
employee may provide mistaken information about a purchase and shopping data to better understand cus-
product’s features or benefits. Customers are generally tomer wants and needs. Finding new and better ways to
indifferent to the reasons for retailer errors, and their entice customers into a store—and then to spend more
money once there—is another hotbed of
innovation. This chapter concludes with
an examination into emerging trends and
recent advancements in retailing.
It is important to recognize that, fun-
damentally, retailers decide what to sell
on the basis of what their target market
wants to buy. They base these decisions on
market research, past sales, fashion trends,
customer requests, and other sources.
Recently, the need for more and better
information has led many retailers to use
big data analytics, a process whereby
Sergey Yechikov/Shutterstock.com
retailers use complex mathematical mod-
els to make better product mix decisions.
Dillard’s, Target, and Walmart use big data
analytics to determine which products
to stock and at what prices, how to man-
age markdowns, and how to advertise to
draw target customers. The data these and
Big retailers like Target use big data analytics to determine
other companies collect at the point of sale
which products to stock and at what price.
and throughout their stores enable retail-
ers and suppliers alike to gain better cus-
tomer insights. For example, instead of simply unloading designed beacons can even have an aesthetic appeal. At
products into the distribution channel and leaving mar- some retailers, cameras and beacons are built into man-
keting, sales and relationship building to local dealers, nequins located inside the store and in window displays.
auto manufacturers use Web sites to keep in touch with These beacons not only act as data collection devices,
customers and prospects. They inquire about lifestyles, but also as primary displays for the clothing and jewelry
hobbies, and vehicle needs in an effort to develop long- that appeal to customers’ eyes. 22
lasting relationships in the hopes that these consumers
will reward them with brand loyalty in the future.
14-8a Shopper Marketing and Analytics
Retailers are increasingly using beacons—devices
that send out connecting signals to customers’ smart- Shopper marketing is an emerging retailing trend
phones and tablets. These that employs market data to best serve customers as they
devices recognize when prepare to make a purchase. Shopper marketing focuses
big data analytics the a customer is in or near first on understanding how a brand’s target consumers
process of discovering patterns
in large data sets for the purposes the store and indicate to behave as shoppers in different channels and formats,
of extracting knowledge and an automated system that and then using this information in business-based
understanding human behavior the customer is ripe to re- strategies and initiatives that are carefully designed
beacon a device that sends ceive a marketing message to deliver balanced benefits to all stakeholders—
out connecting signals to customers’ via e-mail or text. Beacons brands, channel members, and customers. It may
smartphones and tablets in can also notify sales associ- sound simple, but it is anything but. Whereas brand
order to bring them into a retail
ates to offer (or not offer) a manufacturers used to advertise widely and tried to
store or improve their shopping
experience coupon at the point of sale. ensure that their products were available wherever
Some retailers are using an consumers shopped, now they are placing far more
shopper marketing app called Swarm to map emphasis on partnering with specific retailers or Web
understanding how one’s target
consumers behave as shoppers, customer foot traffic data, sites. Brand manufacturers work with retailers on ev-
in different channels and formats, which they use to make erything from in-store initiatives to customized retailer-
and leveraging this intelligence better decisions about specific products. Shopper marketing brings brand
to generate sales or other positive product placement within managers and account managers together to connect
outcomes
the floor grid. Carefully with consumers along the entire path-to-purchase,
whether it be at home, on the go via mobile marketing, or is a more focused marketing effort and a three-way win
in the store. Both manufacturers and retailers now think for brands, channel members, and customers.
about consumers specifically while they are in shopping Shopper marketing also has significant implications
mode. They use shopper analytics to dig deeply into for retailers’ supply chains. As in-store initiatives be-
customers’ shopping attitudes, perceptions, emotions, come more unique and short-term and products become
and behaviors—and are thereby able to learn how the more customized, supply chains must react more quickly
shopping experience shapes these differences. More to customer demand changes. Thus, shopper marketing
and more companies are conducting or participating has increased the need for sophisticated analytics and
in large-scale data analytics projects to better under- metrics. As with many modern business efforts, shopper
stand how shoppers think when they shop at a store or marketing forces managers to coordinate better, mea-
on a Web site and what factors influence their thought sure more, think more creatively, and move faster.
processes.
Shopper marketing is becoming increasingly popu- 14-8b Future Developments
lar as businesses see the implications of this new method
of customer research. One implication is the strategic
in Retail Management
alignment of customer segments. Brands’ core target A retailing trend with great growth potential is the le-
consumers are compared to retailers’ most loyal shop- veraging of technology to increase touchpoints with
pers in an effort to find intersecting areas where brands customers and thereby generate greater profitability.
and retailers can pool their resources. The ideal outcome The use of mobile devices and social media while brows-
ing, comparison shopping, and
actually making a purchase is
becoming extremely pervasive,
leading retailers to rethink how
they should appeal to shoppers
in the decision-making mode.
Recall that customers who
“showroom” visit a physical re-
tail store to examine product
features or quality firsthand,
but then eventually make the
purchase online. This practice
has motivated a showrooming
response from retailers them-
selves, who reduce the amount
of stock kept on hand, rent or
lease smaller spaces, and ramp
up their fulfillment capabilities
at distribution centers. Show-
rooming and data analytics
have even led to the develop-
ment of virtual reality apps
that enable customers to see
themselves wearing articles of
desired clothing without physi-
Source:Toysrus.com
cally putting them on! These
shopper analytics searching for

National toy store chain Toys’R’Us offers a click-and-collect and discovering meaningful patterns
in shopper data for the purpose of
service whereby customers can make purchases online and then
fine-tuning, developing, or changing
pick their items up in-store. market offerings
approaches have led some retailers to pursue a strat- retailers themselves benefit from the fact that custom-
egy of retail channel omnification (recall Chapter ers must enter their stores in order to claim their pur-
13’s discussion of omnichannel distribution operations). chases. Once inside, customers can be marketed to,
Retailers like Nordstrom used to treat their physical increasing the likelihood that they will purchase add-on
stores as entirely different businesses from their online items or otherwise engage in impulse buying. It remains
stores, with each channel having a unique distribution to be seen whether one or both of these strategies will
system and a dedicated inventory. Now, retailers are stand the test of time, but it is certain that retailers are
combining these ventures into a single system that is preparing for the inevitability of the Internet as an im-
responsible for delivering on customer demand regard- portant shopping and purchasing medium for the fore-
less of whether it originated in a physical store or in seeable future.
cyberspace.23 This single system avoids redundancies in
inventory and transportation, saving costs and enabling
STUDY
14
retailers to offer competitive prices across their vari-
ous outlets. Customers of Nordstrom, Nordstrom Rack,
Nordstrom.com, hautelook.com, and nordstromrack TOOLS
.com can seamlessly transition between each of these
channels when shopping, returning purchased goods or
scheduling services such as alterations.
However, not all retailers are embracing omnifica- □ Rip out Chapter Review Card
tion as the way of the future. The alternative strategy,
click-and-collect, also enables customers to make LOCATED AT WWW.CENGAGEBRAIN.COM
their purchases online. □ Review Key Terms Flashcards and create your own
retail channel omnification Rather than waiting for
the reduction of multiple retail orders to arrive at their □ Track your knowledge and understanding of key concepts
channel systems into a single,
homes, customers drive in marketing
unified system for the purpose
of creating efficiencies or to physical stores to pick □ Complete practice and graded quizzes to prepare for tests
saving costs their orders up. 24 When
retailers use this strategy,
click-and-collect the practice experience
of buying something online and customers benefit from
then traveling to a physical store greater speed of delivery □ View the chapter highlight boxes within the MKTG Online
location to take delivery of the (in fact, they become the experience
merchandise
delivery vehicle), while
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15 Marketing
Communications
LEARNING OUTCOMES
15-1 Discuss the role of promotion in the marketing mix
15-2 Describe the communication process

After you finish
this chapter go
iStockphoto.com/Uschools
15-3 Explain the goals and tasks of promotion
to PAGE279 for
15-4 Discuss the elements of the promotional mix
15-5 Discuss the AIDA concept and its relationship to the promotional mix
STUDY TOOLS.
15-6 Discuss the concept of integrated marketing communications
15-7 Describe the factors that affect the promotional mix
15-1 THE ROLE OF PROMOTION IN THE MARKETING MIX

Few goods or services, no matter how well developed, priced,
or distributed, can survive in the marketplace without effective
promotion—communication by marketers that informs, persuades,
and reminds potential buyers of a product in order to influence an
opinion or elicit a response.
promotion communication by Promotional strategy marketing manager determines the goals of the com-
marketers that informs, persuades, is a plan for the optimal pany’s promotional strategy in light of the firm’s overall
and reminds potential buyers of use of the elements of goals for the marketing mix—product, place (distribu-
a product in order to influence an
opinion or elicit a response promotion: advertising, tion), promotion, and price. Using these overall goals,
public relations, personal marketers combine the elements of the promotional
promotional strategy a plan selling, sales promotion, strategy (the promotional mix) into a coordinated plan.
for the optimal use of the elements
of promotion: advertising, public and social media. Promo- The promotion plan then becomes an integral part of
relations, personal selling, sales tion is a vital part of the the marketing strategy for reaching the target market.
promotion, and social media marketing mix, inform- The main function of a marketer’s promotional
competitive advantage one ing consumers of a prod- strategy is to convince target customers that the goods
or more unique aspects of an uct’s benefits and thereby and services offered provide a competitive advantage
organization that cause target positioning the product over the competition. A competitive advantage is
consumers to patronize that firm in the marketplace. As the set of unique features of a company and its products
rather than competitors
Exhibit 15.1 shows, the that are perceived by the target market as significant
262 PART FIVE:

CHAPTER
Promotion
15: 15 and Communication Strategies
and superior to those of the competition. Such fea- television advertisements are no longer enough, forcing
tures can include high product quality, rapid delivery, marketers to think more creatively. Most modern cam-
low prices, excellent service, or a feature not offered by paigns utilize a variety of newer tactics—such as digital
the competition. Promotional strategies have changed a paid media, social media, and influencer marketing—in
great deal over the years as many targeted customer seg- addition to more traditional media like television and
ments have become more difficult to reach. Informative print. Dodge, for example, chose fictitious Anchorman
character Ron Burgundy (played by Will Ferrell) as its
ROLE OF PROMOTION IN THE pitchman for the Durango SUV. The promotional strat-
EXHIBIT 15.1
MARKETING MIX egy, which involved more than 80 Web and television
ads, drove a 59 percent sales boost in the first month
and an 80 percent increase in Web traffic for Dodge.
Overall marketing Lower-level Web activities such as selecting automo-
objectives
bile options and searching for a dealer rose more than
100 percent. Dodge’s YouTube video views topped
Promotional mix
15 million within two months, prompting guest appear-
Advertising ances on several CNN programs and dozens of local
Marketing mix Public relations
Sales promotion newscasts in selected states. This campaign led some to
Product Personal selling feel that the Ron Burgundy character was overexposed,
Place (distribution) Social media
but the strategy proved extremely successful for Dodge.1
Promotion
Price
Promotion plan
15-2 MARKETING COMMUNICATION
Target market Promotional strategy is closely related to the pro-
cess of communication. As humans, we assign mean-
ing to feelings, ideas, facts, attitudes, and emotions.
CHAPTER 15: Marketing Communications 263
Communication is the process by
which meanings are exchanged or shared
through a common set of symbols. When a
company develops a new product, changes
an old one, or simply tries to increase sales
of an existing good or service, it must com-
municate its selling message to potential
customers. Marketers communicate in-
formation about the firm and its products
to the target market and various publics
through their promotional programs.
Radu Bercan/Shutterstock.com
15-2a Interpersonal
Communication
Communication can be divided into two
major categories: interpersonal com-
munication and mass communication.
Interpersonal communication is Salespeople for Sephora are trained on the company’s
direct, face-to-face communication be- most popular products, this enables them to be more
tween two or more people. When com- helpful to customers.
municating face-to-face, people see the
other person’s reaction and can respond
almost immediately. Salespeople for French cosmetics mass-communication effort. Continuing the previous
store chain Sephora are trained on the company’s most example, Sephora uses many different mass media vehi-
popular products, enabling them to assist customers and cles (including magazines, the Internet, and television)
answer questions directly. A salesperson speaking di- to reach its target audience.
rectly with a customer is an example of an interpersonal
marketing communication. 15-2c The Communication Process
15-2b Mass Communication Marketers are both senders and receivers of messages.
As senders, marketers attempt to inform, persuade, and
Mass communication involves communicating a remind the target market to take actions compatible with
concept or message to large audiences. A great number the need to promote the purchase of goods and services.
of marketing communications are directed to consum- As receivers, marketers listen to the target market in
ers as a whole, usually through a mass medium such as order to develop the appropriate messages, adapt existing
television or newspapers. When a company advertises, it messages, and spot new communication opportunities.
generally does not person- In this way, most marketing communication is a two-way,
communication the process ally know the people with rather than one-way, process. The two-way nature of the
by which we exchange or share whom it is trying to com- communication process is shown in Exhibit 15.2.
meaning through a common set municate. Furthermore,
of symbols the company often cannot THE SENDER AND ENCODING The sender is the
interpersonal respond immediately to originator of the message in the communication process.
communication direct, face- consumers’ reactions to its In an interpersonal conversation, the sender may be a
to-face communication between messages (unless they are parent, a friend, or a salesperson. For an advertisement,
two or more people
using social media or other press release, or social media campaign, the sender is
mass communication the Internet-based marketing the company or organization itself. It can sometimes be
communication of a concept or tools). Any clutter from difficult to tell who the sender of a promotional message
message to large audiences
competitors’ messages or is, especially in the case of bold, avant-garde advertise-
sender the originator of the other distractions in the ments. Sometimes, senders intentionally cover up their
message in the communication environment can reduce identities in order to build buzz around an advertise-
process
the effectiveness of the ment. For example, a video titled “Elevator Murder
264 PART FIVE: Promotion and Communication Strategies
EXHIBIT 15.2 COMMUNICATION PROCESS
Noise
Other advertisements
News articles
Other store displays
Encoding the Message Decoding the

Sender Receiver
message channel message
Marketing Advertisement Media Receiver Customers

manager Sales presentation Salesperson interpretation Viewers/
Advertising Store display Retail store of message listeners
manager Coupon Local news show News media
Advertising Press release Clients
agency Social media
Other Feedback
consumers channel
Market research
Sales results
Change in market share
Social media
Experiment” recently went vital after mysteriously social media as the primary channel on which it dis-
being uploaded to YouTube. In the video, the reactions tributed the advertisement. After marketers posted the
of unsuspecting bystanders are secretly filmed as they video to YouTube, individuals fascinated by the social
witness a staged strangulation in a public New York City experiment ran with it. They shared the video with their
elevator. After the video went viral, it was revealed to be friends in person, posted it to Facebook and Twitter, and
an advertisement for the Colin Farrell film Dead Man shared it through several other unorthodox channels.
Down. The film’s grim themes, extreme violence, and Eventually, local and national media outlets published
gritty settings were incorporated into the elevator prank print articles and ran television segments about the
video, which even used one of the film’s plot points— video, creating new channels for the campaign as they
murder in an elevator. did so.3 The response to these viral activities clearly cre-
Encoding is the conversion of the sender’s ideas ated a lot of free publicity.
and thoughts into a message, usually in the form of Reception occurs when the message is detected by
words or signs. A basic principle of encoding is that the receiver and enters his or her frame of reference.
what the source says is not what matters, but what the In a two-way conversation such as a sales pitch given by
receiver hears. In the case of “Elevator Murder Experi- a sales representative to a potential client, reception is
ment,” the video encoded sentiments such as “you won’t normally high. Similarly,
know what to expect” and “difficult ethical choices will when the message is a encoding the conversion of a
need to be made”—provocative selling points for a grue- recommendation from a sender’s ideas and thoughts into
some action thriller.2 One way of conveying a message friend, the reception is a message, usually in the form of
the receiver will hear properly is to use concrete words high as well. By contrast, words or signs
and pictures. the desired receivers channel a medium of
may or may not detect communication—such as a voice,
MESSAGE TRANSMISSION Transmission of a mes- the message when it is radio, or newspaper—for transmitting
a message
sage requires a channel—a voice, radio, newspaper, mass communicated
computer, smartphone, or other communication because most media are noise anything that interferes with,
medium. A facial expression or gesture can also serve as cluttered by noise — distorts, or slows down the transmission
of information
a channel. The Dead Man Down’s marketing team used anything that interferes
with, distorts, or slows down the transmission of Marketers targeting consumers in foreign countries
information. In some media overcrowded with must also worry about the translation and possible mis-
advertisers, such as newspapers and television, the noise communication of their promotional messages by other
level is high and the reception level is low. cultures. Global marketers must decide whether to stan-
dardize or customize the message for each global mar-
THE RECEIVER AND DECODING Marketers commu- ket in which they sell.
nicate their message through a channel to customers, or
receivers, who will decode the message. It is important FEEDBACK In interpersonal communication, the
to note that there can be multiple receivers as consum- receiver’s response to a message is direct feedback
ers share their experiences and their recommendations to the source. Feedback may be verbal, as in saying
online through social networks and other types of social “I agree,” or nonverbal, as in nodding, smiling, frowning,
media, as happened when the “Elevator Murder Experi- or gesturing. Feedback can also occur digitally, as in
ment” video went viral. Online conversations are becom- a Facebook like. Mass communicators are often cut
ing an increasingly influential way to promote products off from direct feedback, so they must rely on market
and services. Indeed, this new empowerment of the research, social media, or analysis of viewer responses for
receiver has transformed marketing and advertising. indirect feedback. They might use such measurements
Receivers can easily share new information with their as the percentage of television viewers who recognized,
friends and followers on social media, and those new recalled, or stated that they were exposed to the
receivers can then share that information as well. This company’s messages. Indirect feedback enables mass
leads to a more diverse interrelationship between send- communicators to decide whether to continue, modify,
ers and receivers of social media messages. Decoding or drop a message.
is the interpretation of the language and symbols sent Some people who observed the video (receivers)
by the source through a channel. Common understand- found the “Elevator Murder Experiment” advertising
ing between two communicators, or a common frame stunt tasteless and macabre, while others praised it as an
of reference, is required for effective communication. ingenious use of social media. YouTube users provided
Therefore, marketing managers must ensure a proper direct feedback by commenting on the video’s page
match between the message to be conveyed and the tar- and clicking either the “Like” or “Dislike” button (the
get market’s attitudes and ideas. video garnered nearly 10,000 likes, versus approximately
Even though a message has been received, it may 700 dislikes). Regardless of receivers’ responses and
not necessarily be properly decoded because of selec- feedback, the video was effective, garnering more than
tive exposure, distortion, and retention. When people 2.6 million views in just three days.4
receive a message, they tend to manipulate it to reflect With the increase in online advertising, marketers
their own biases, needs, experiences, and knowledge. are able to get more feedback than before the Internet
Therefore, differences in age, social class, education, became such a driving social force. Using Web analyt-
culture, and ethnicity can lead to miscommunication. ics, marketers can see how long customers stay on a
Further, because people do not always listen or read Web site and which pages they view. Moreover, social
carefully, they can easily misinterpret what is said or media enable companies such as Dell and Comcast
written. In fact, researchers have found that consum- to provide instant feedback by responding to con-
ers misunderstand a large proportion of both printed sumers’ posts on Facebook and to complaints posted
and televised communications. YouTubers who watched on Twitter.
the “Elevator Murder Experiment” and simply clicked The Internet and social media have had an impact
away without absorbing that it was an advertisement for on the communication model in two major ways. First,
Dead Man Down received the message but could not consumers are now able to become senders (as opposed
decode it because they did to only brands being senders). A consumer who makes
not have adequate infor- a recommendation on Facebook or Yelp is essentially a
receiver the person who
decodes a message mation. Bright colors and sender, meaning that the communication model is much
bold graphics have been more complicated today than it was just a few years ago.
decoding interpretation of the shown to increase con- Second, the communication model shows the feedback
language and symbols sent by the
source through a channel sumers’ comprehension of channel as primarily impersonal and numbers driven.
marketing communication. In the traditional communication process, marketers
feedback the receiver’s response Even these techniques are can see the results of customer behavior (for example,
to a message
not foolproof, however. a drop or rise in sales) but are able to explain those
15-3a Informing
Informative promotion seeks to con-
vert an existing need into a want or to
stimulate interest in a new product. It
is generally more prevalent during the
early stages of the product life cycle.
People typically will not buy a product
or service or support a nonprofit orga-
nization until they know its purpose
and its benefits to them. Informative
Source: Twitter
messages are important for promot-
ing complex and technical products
Social media enable companies to provide instant feedback such as automobiles, computers, and
investment services. For example,
by responding to consumers’ posts on Twitter.
shortly after Google unveiled the
Google Glass wearable computer
changes only by using their judgment. Today, customers and display, it released a series of commercials show-
use social media platforms like Facebook and Twitter ing various practical uses for the device. A commercial
to comment publically on marketing efforts. These titled “How It Feels” demonstrated point-of-view video
platforms enable marketers to personalize the feedback and photo capture, messaging, video chatting, search,
channel by opening the door for direct conversations weather, mapping, and more. Even though it did not
with customers. However, because social media overtly explain the device’s functions, the ad informed
conversations occur in real time and are public, any viewers how the device could record once-in-a-lifetime
negative posts or complaints are highly visible. Thus, moments and provide the perfect solutions for life’s
many companies have crisis communication strategies little problems.5 Informative promotion is also impor-
to deal with negative information and promote good tant for a “new” brand being introduced into an “old”
brand reputations. product class. When the upstart video game console
Ouya began its Kickstarter campaign, it used a video to
inform backers about its unique benefits (such as its low
15-3 THE GOALS OF PROMOTION cost, open development, free-to-play games, and Web-
based game market). 6 When it launched, Ouya again
People communicate with one another for many used informative promotion to distinguish itself from
reasons. They seek amusement, ask for help, give seasoned competitors. New products cannot establish
assistance or instructions, provide information, and themselves against more mature products unless poten-
express ideas and thoughts. Promotion, on the other tial buyers are aware of them, value their benefits, and
hand, seeks to modify behavior and thoughts in understand their positioning in the marketplace.
some way. For example, promoters may try to per-
suade consumers to eat at Burger King rather than at
15-3b Persuading
McDonald’s. Promotion also strives to reinforce exist-
ing behavior—for instance, getting consumers to con- Persuasive promotion is designed to stimulate a pur-
tinue dining at Burger King once they have switched. chase or an action. Persuasion typically becomes the
The source (the seller) hopes to project a favorable main promotion goal when the product enters the
image or to motivate purchase of the company’s goods growth stage of its life cycle. By this time, the target
and services. market should have general product awareness and
Promotion can perform one or more of four some knowledge of how the product can fulfill its wants.
tasks: inform the target audience, persuade the target Therefore, the promotional task switches from inform-
audience, remind the target audience, or connect with ing consumers about the product category to persuad-
the audience. The ability to connect to consumers is ing them to buy the company’s brand rather than that of
one task that can be facilitated through social media. the competitor. At this time, the promotional message
Often a marketer will try to accomplish two or more of emphasizes the product’s real and perceived competitive
these tasks at the same time. advantages, often appealing to emotional needs such as
and techniques can be too persuasive,
causing consumers to buy products
and services they don’t really need.
15-3c Reminding
Reminder promotion is used to keep
the product and brand name in the
public’s mind. This type of promotion
prevails during the maturity stage of
the life cycle. It assumes that the target
Crystal Eye Studio/Shutterstock.com

market has already been persuaded of
the merits of the good or service. Its
purpose is simply to trigger a memory.
Colgate toothpaste and other consumer
products often use reminder promo-
tion. Companies that produce products
like automobiles and appliances ad-
The ALS Association received a boost to awareness thanks vertise throughout the year in order to
to pro golfer Chris Kennedy kicking off the campaign. remind people about the brands when
they are looking to purchase.
love, belonging, self-esteem, and ego satisfaction. For 15-3d Connecting

example, advertisers of Android-based smartphones try
The idea behind social media is to form relationships
to persuade users to purchase their companies’ devices
with customers and potential customers through tech-
instead of an iPhone (or even instead of another brand
nological ties such as Facebook, Twitter, YouTube, or
of Android phone). Advertising messages, therefore,
other social media platforms. Indeed, some compa-
highlight the unique technological benefits of Android
nies, such as Starbucks, have their own social networks
phones such as a faster processors and larger screens.
that allow customers to share ideas, information, and
Persuasion is important when the goal is to inspire
feedback. By facilitating this exchange of information
direct action. In 2014, the ALS Association experienced
through a transparent process, brands are increasingly
a huge influx of donations through its “Ice Bucket Chal-
connecting with their customers in hopes they become
lenge” campaign. Pro Golfer Chris Kennedy kicked the
brand advocates that promote the brand through their
vital hit off on his social network by pouring ice water
own social networks. Tools for connection include so-
over his head and then challenging others to do the same.
cial networks, social games, social publishing tools, as
The campaign spread all over Facebook and Twitter, was
well as social commerce. The ALS Association’s “Ice
reported on cable television news shows, and eventu-
Bucket Challenge” can also be considered an example
ally became part of popular culture. The effort raised
of connecting since many people used videos posted to
$115 million, more than 20 times the usual donations
Facebook and Twitter to issue their challenges.
received for that period of time. The “Ice Bucket Chal-
lenge” currently ranks as the largest social media fun-
draiser ever.7 Persuasion can also be an important goal
for very competitive mature product categories such 15-4 THE PROMOTIONAL MIX
as household items and soft drinks. In a marketplace
characterized by many Most promotional strategies use several ingre-
competitors, the promo- dients—which may include advertising, public
promotional mix the tional message often en- relations, sales promotion, personal selling, and
combination of promotional
tools—including advertising, public courages brand switching social media—to reach a target market. That com-
relations, personal selling, sales and aims to convert some bination is called the promotional mix. The proper
promotion, and social media—used buyers into loyal users. promotional mix is the one that management believes
to reach the target market and fulfill Critics believe that some will meet the needs of the target market and fulfill the
the organization’s overall goals
promotional messages organization’s overall goals. Data plays a very important
role in how marketers distribute funding among their social media). However, as the Internet becomes a more
promotional mix tactics. The more funds allocated to vital component of many companies’ promotion and mar-
each promotional ingredient and the more managerial keting mixes, consumers and lawmakers are increasingly
emphasis placed on each technique, the more important concerned about possible violations of consumers’ privacy.
that element is thought to be in the overall mix. Social networking sites like Facebook and Google1 are
having to re-examine their privacy policies.
15-4a Advertising One of the primary benefits of advertising is its
ability to communicate to a large number of people at
Almost all companies selling a good or a service use ad-
one time. Cost per contact, therefore, is typically very
vertising, whether in the form of a multi-million-dollar
low. Advertising has the advantage of being able to
campaign or a simple classified ad in a newspaper.
reach the masses (for example, through national televi-
Advertising is any form of impersonal paid commu-
sion networks), but it can also be microtargeted to small
nication in which the sponsor or company is identified.
groups of potential customers, such as television ads on
Traditional media—such as television, radio, newspapers,
a targeted cable network. Although the cost per contact
magazines, pay-per-click online advertising, display ad-
in advertising is very low, the total cost to advertise is
vertising, direct mail, billboards, and transit advertising
typically very high. This hurdle tends to restrict adver-
(such as on buses and taxis and at bus stops)—are most
tising on a national basis. Chapter 16 examines advertis-
commonly used to transmit advertisements to consum-
ing in greater detail.
ers. Other options include Web sites, e-mail, blogs, videos,
and interactive games. Marketers’ budgets are shifting
more and more toward these digital options (including 15-4b Public Relations
Concerned about how they are perceived by their
target markets, organizations often spend large sums
to build a positive public image. Public relations is
the marketing function that evaluates public attitudes,
identifies areas within the organization the public may
be interested in, and executes a program of action to
earn public understanding and acceptance. Public
relations helps an organization communicate with
its customers, suppliers, stockholders, government
officials, employees, and the community in which it
operates. Marketers use public relations not only to
maintain a positive image but also to educate the public
about the company’s goals and objectives, introduce
new products, and help support the sales effort.
A public relations program can generate favor-
able publicity—public information about a company,
product, service, or issue appearing in the mass media
as a news item. Social
advertising impersonal, one-way
Helga Esteb/Shutterstock.com
media sites like Twitter

can provide large mass communication about a product
or organization that is paid for by a
amounts of publicity marketer
quickly. Organizations
generally do not pay public relations the marketing
function that evaluates public attitudes,
for the publicity and identifies areas within the organization
Adverising can show up in any are not identified as the the public may be interested in, and
way, shape or form. Here, a movie source of the informa- executes a program of action to earn
tion, but they can ben- public understanding and acceptance
premier backdrop is used to
promote products and sponsors efit tremendously from publicity public information about
(pictured are Kimberly Williams- it. However, although a company, product, service, or issue
organizations do not di- appearing in the mass media as a
Paisley and Brad Paisley). news item
rectly pay for publicity,
it should not be viewed as free. Preparing
news releases, staging special events, and
persuading media personnel to broadcast
or print publicity messages costs money.
Public relations and publicity are exam-
ined further in Chapter 16.
15-4c Sales Promotion

Sales promotion consists of all market-
ing activities—other than personal selling,
advertising, and public relations—that
Source: Facebook
stimulate consumer purchasing and dealer
effectiveness. Sales promotion is generally
a short-run tool used to stimulate immedi-
ate increases in demand. Sales promotion Many companies are using Facebook as a platform to run
can be aimed at end consumers, trade cus- contests and promote their products and services.
tomers, or a company’s employees. Sales
promotions include free samples, contests,
premiums, trade shows, vacation giveaways, and coupons. communication between two people in an attempt to in-
It also includes experiential marketing whereby market- fluence each other. In this dyad, both the buyer and the
ers create events that enable customers to connect with seller have specific objectives they wish to accomplish.
brands. Increasingly, companies such as LivingSocial and The buyer may need to minimize cost or assure a quality
Groupon have combined social networks and sales pro- product, for instance, while the salesperson may need to
motions. Facebook is a growing platform through which maximize revenue and profits.
companies run sweepstakes. For example, JPMorgan Traditional methods of personal selling include a
Chase ran a sweepstakes where Facebook users entered planned presentation to one or more prospective buyers
a drawing for a $1,000 grocery store gift card by “liking” for the purpose of making a sale. Whether it takes place
the Chase Freedom Facebook page. In the past, Chase face-to-face or over the phone, personal selling attempts
Freedom has run other Facebook sweepstakes where to persuade the buyer to accept a point of view. For
players could “like” the page to win $1 million. In addi- example, a car salesperson may try to persuade a car buyer
tion to being entered into the large drawing, players were that a particular model is superior to a competing model
entered for a chance to win $500 every hour. The com- in certain features, such as gas mileage. Once the buyer
pany runs this type of sweepstakes to educate potential is somewhat convinced, the salesperson may attempt to
customers about its cash-back rewards program available elicit some action from the buyer, such as a test drive or a
through the Chase Freedom credit card.8 purchase. Frequently, in this traditional view of personal
Marketers often use sales promotion to improve the selling, the objectives of the salesperson are at the expense
effectiveness of other ingredients in the promotional of the buyer, creating a win-lose outcome.
mix, especially advertising and personal selling. Research More current notions on personal selling emphasize
shows that sales promotion complements advertising by the relationship that develops between a salesperson
yielding faster sales responses. In many instances, more and a buyer. Initially, this concept was more typical in
marketing money is spent business-to-business selling situations, involving the sale
sales promotion marketing on sales promotion than on of products like heavy machinery or computer systems.
activities—other than personal
selling, advertising, and public advertising. More recently, both business-to-business and business-
relations—that stimulate consumer to-consumer selling focus on building long-term rela-
buying and dealer effectiveness
15-4d Personal tionships rather than on making a one-time sale.
personal selling a purchase Relationship selling emphasizes a win-win out-
Selling come and the accomplishment of mutual objectives
situation involving a personal, paid-
for communication between two Personal selling is a that benefit both buyer and salesperson in the long
people in an attempt to influence purchase situation involv- term. Rather than focusing on a quick sale, relation-
each other
ing a personal, paid-for ship selling attempts to create a long-term, committed
relationship based on trust, increased customer loy- 15-4f The Communication Process
alty, and a continuation of the relationship between and the Promotional Mix
the salesperson and the customer. Personal selling,
like other promotional mix elements, is increasingly The Internet has changed how businesses promote their
dependent on the Internet. Most companies use their brands. Traditionally, marketing managers have been
Web sites to attract potential buyers seeking informa- in charge of defining the essence of the brand. This
tion on products and services and to drive customers included complete brand control and mostly one-way
to their physical locations where personal selling can communication between the brand and customers. All
close the sale. Personal selling is discussed further in of the content and messages were focused on defin-
Chapter 17. ing and communicating the brand value. The focus for
many campaigns was pure entertainment, and the brand
created all of the content for campaigns—from the Web
15-4e Content Marketing and Social Media site to television spots to print ads.
As promotional strategies change, and given brands’ That approach has now changed. The consumer has
newfound ability to become publishers, content market- much more control (which makes some brands quite ner-
ing has become a crucial part of promotion. Recall from vous!). The communication space is increasingly controlled
Chapter 7 that content marketing entails developing by the consumer, as is the brand message. Perception is
valuable content for interested audience members and reality as consumers have more control to adapt the brand
then using e-mail marketing, search engine optimiza- message to fit their ideas. Instead of repetition, social
tion, paid search, and display advertising to pull custom- media rely on the idea of customization and adaption of
ers to the company’s Web site or social media channel the message. Information is positioned as more valuable
so that they can learn about the brand or to make a pur- as opposed to being strictly entertaining. Probably the
chase. Content created by brands is typically distributed most important aspect is the idea of consumer-generated
through social media. content, whereby consumers are able to both take existing
Recall that social media are promotion tools used content and modify it or to create completely new content
to facilitate conversations and other interactions among for a brand. For example, Doritos has the “Crash the Super
people online. When used by marketers, these tools Bowl” promotion, where ordinary people are invited to
facilitate consumer empowerment. For the first time, create television commercials for Doritos that are then up-
consumers are able to speak directly to other consum- loaded to www.crashthesuperbowl.com and voted on by
ers, the company, and Web communities. Social media millions of Doritos fans. The winning spots then run dur-
include blogs, microblogs (such as Twitter), video plat- ing the Super Bowl.
forms (such as You Tube, Twitch, and Vine), podcasting As a result of the impact of social media as well
(online audio and video broadcasts), and social networks as the proliferation of new platforms, tools, and ideas,
(such as Tumblr, Pinterest, Yik Yak, and Snapchat). promotional tactics can also be categorized according
Initially, these tools were used primarily by indi- to media type—paid, earned, or owned, as shown in
viduals for self-expression. For example, a lawyer might Exhibit 15.3. Paid media is based on the traditional
develop a blog to talk about politics because that is her advertising model, whereby a brand pays for media
hobby. Or a college freshman might develop a profile on space. Traditionally, paid media has included televi-
Facebook to stay in touch with his high school friends. sion, magazine, outdoor, radio, or newspaper advertis-
But soon, businesses saw that these tools could be ing. Paid media also includes display advertising on Web
used to engage with consumers as well. Indeed, social sites, pay-per-click advertising on search engines, and
media have become a “layer” in promotional strategy. even promoted tweets
Social media are ubiquitous—it just depends on how on Twitter. Paid media
paid media a category of
deep that layer goes for each brand. The rise of stream- is quite important, es- promotional tactic based on the
ing video, for example, has created a completely new pecially as it migrates to traditional advertising model, whereby
way for marketers to manage their image, connect with the Web. Paid media is a brand pays for media space
consumers, and generate interest in and desire for their used with other media earned media a category of
companies’ products. Now marketers are using social types to develop an in- promotional tactic based on a public
media as integral aspects of their campaigns and as a way tegrated message strat- relations or publicity model that gets
to extend the benefits of their traditional media. Social egy. Earned media customers talking about products
or services
media are discussed in more detail in Chapter 18. is based on a public
for example, sharing a movie review on a social media
EXHIBIT 15.3 DIGITAL MEDIA TYPES
site, is growing rapidly. Earned media is often created
Social media is con- when people talk and share content on social media. Ad-
centrated here, between ditionally, search engine optimization (SEO), whereby
owned and earned media,
Owned Media companies embed key words into content to increase
with some (but not much)
Web sites paid media depending on their positioning on search engine results pages (SERPs),
Blogs the strategy. can also be considered earned media. Owned media
Social media presence
is a new form of promotional tactic where brands are be-
coming publishers of their own content in order to maxi-
mize the brand’s value to customers as well as increase
Earned Media their search rank in Google. Owned media includes the
Paid Media Media coverage
Banner ads company’s Web sites as well as its official presence on
SEO
Sponsored posts
Publicity activities
Facebook, Twitter, YouTube channels, blogs, and other
platforms. This media is controlled by the brand but
continuously keeps the customer and his or her needs
in mind as it creates videos, blog posts, contests, photos,
Adapted from Dave Fleet, “Why Paying Bloggers for Posts Changes The Game,” and other pieces of content. Owned media is often used
DaveFleet.com, December 12, 2010, http://davefleet.com/2010/12/bloggers as another term for content marketing, which is impor-
-money-posts-game, (Accessed March 2015).
tant to both B-to-B and B-to-C companies.
The elements of the promotional mix differ in their
relations or publicity model. The idea is to get people ability to affect the target audience. For instance, pro-
talking about the brand—whether through media cover- motional mix elements may communicate with the con-
age (as in traditional public sumer directly or indirectly. The message may flow one
owned media a new category relations) or through word way or two ways. Feedback may be fast or slow, a little
of promotional tactic based on of mouth (WOM). Word of or a lot. Likewise, the communicator may have varying
brands becoming publishers of their mouth traditionally occurs degrees of control over message delivery, content, and
own content in order to maximize face-to-face. Electronic flexibility. Exhibit 15.4 outlines characteristics among
the brands’ value to customers
word of mouth (EWOM), the promotional mix elements with respect to mode of
EXHIBIT 15.4 CHARACTERISTICS OF THE ELEMENTS IN THE PROMOTIONAL MIX

Public Sales Personal Social
Advertising Relations Promotion Selling Media
Mode of Communication Indirect and Usually indirect and Usually indirect Direct and Indirect but instant
impersonal impersonal and impersonal face-to-face
Communicator Control Low Moderate to low Moderate to low High Moderate
over Situation
Amount of Feedback Little Little Little to moderate Much Much
Speed of Feedback Delayed Delayed Varies Immediate Intermediate
Direction of Message One-way One-way Mostly one-way Two-way Two-way,
multiple ways
Control over Yes No Yes Yes Varies,
Message Content generally no
Identification of Sponsor Yes No Yes Yes Yes
Speed in Reaching Fast Usually fast Fast Slow Fast
Large Audience
Message Flexibility Same message to Usually no direct Same message Tailored to Some of the
all audiences control over message to varied targets prospective most targeted
audiences buyer opportunities
communication, marketer’s control over the communi- a consumer’s attention by training a salesperson to use a
cation process, amount and speed of feedback, direction friendly greeting and approach or by using loud volume,
of message flow, marketer’s control over the message, bold headlines, movement, bright colors, and the like in
identification of the sender, speed in reaching large au- an advertisement. Next, a good sales presentation, dem-
diences, and message flexibility. onstration, or advertisement creates interest in the prod-
From Exhibit 15.4, you can see that most elements uct and then, by illustrating how the product’s features
of the promotional mix are indirect and impersonal will satisfy the consumer’s needs, arouses desire. Finally,
when used to communicate with a target market, pro- a special offer or a strong closing sales pitch may be used
viding only one direction of message flow. For example, to obtain purchase action.
advertising, public relations, and sales promotion are The AIDA concept assumes that promotion pro-
generally impersonal, one-way means of mass commu- pels consumers along the following four steps in the
nication. Because they provide no opportunity for direct purchase-decision process:
feedback, it is more difficult to adapt these promotional 1. Attention: The advertiser must first gain the atten-
elements to changing consumer preferences, individual tion of the target market. A firm cannot sell some-
differences, and personal goals. thing if the market does not know that the good or
Personal selling, on the other hand, entails direct service exists. When Apple introduced the iPad, it
two-way communication. The salesperson receives im- quickly became one of the largest electronics prod-
mediate feedback from the consumer and can adjust the uct launches in history. To create awareness and
message in response. Unlike other promotional tools, gain attention for its revolutionary tablet computer,
personal selling is very slow in dispersing the market- Apple not only used traditional media advertising
er’s message to large audiences. Because a salesperson but also contacted influential bloggers and jour-
can communicate to only one person or a small group nalists so that they would write about the product
of persons at one time, it is a poor choice if the mar- in blogs, newspapers, and magazines. Because the
keter wants to send a message to many potential buyers. iPad was a brand extension of the Apple computer,
Social media are also considered two-way communica- it required less ef-
tion, though not quite as immediate as personal selling. fort than an entirely
Social media can disperse messages to a wide audience AIDA concept a model that
new brand would outlines the process for achieving
and allow for engagement and feedback from customers have. At the same promotional goals in terms of stages
through Twitter, Facebook, and blog posts. time, because the of consumer involvement with the
iPad was an inno- message; the acronym stands for
attention, interest, desire, and action
vative new product
15-5 PROMOTIONAL GOALS
AND THE AIDA CONCEPT
iStockphotos.com/Hocus-focus
The ultimate goal of any promotion is to get some-
one to buy a good or service or, in the case of
nonprofit organizations, to take some action (for
example, donate to a cause organization like Susan
G. Komen). A classic model for reaching promotional
goals is called the AIDA concept.9 The acronym AIDA
stands for attention, interest, desire, and action—the
stages of consumer involvement with a promotional mes-
sage. It mimics many “funnel-like” models that require
audiences to move through a set of steps or stages.
15-5a The AIDA Model

This model proposes that consumers respond to
marketing messages in a cognitive (thinking), af-
fective (feeling), and conative (doing) sequence.
First, a promotion manager may focus on attracting
line, the promotion had to get customers’ attention or desire, perhaps when a low-involvement product
and create awareness of a new idea from an estab- is bought on impulse. Regardless of the order of the
lished company. stages or consumers’ progression through these stages,
the AIDA concept helps marketers by suggesting which
2. Interest: Simple awareness of a brand seldom leads
promotional strategy will be most effective.11
to a sale. The next step is to create interest in the
product. A print ad cannot tell potential customers
all the features of the iPad. Therefore, Apple had 15-5b AIDA and the Promotional Mix
to arrange iPad demonstrations and target messages Exhibit 15.5 depicts the relationship between the pro-
to innovators and early adopters to create interest motional mix and the AIDA model. It shows that al-
in the new tablet computer. To do this, Apple used though advertising does have an impact in the later
both online videos on YouTube and personal dem- stages, it is most useful in gaining attention for goods
onstrations in Apple Stores. The iPad also received or services. By contrast, personal selling reaches fewer
extensive media coverage from both online and tra- people at first. Salespeople are more effective at creat-
ditional media outlets. ing customer interest for merchandise or a service and
3. Desire: Potential customers for the Apple iPad may at creating desire. For example, advertising may help
like the concept of a portable tablet computer, but a potential computer purchaser gain knowledge about
they may not necessarily think that it is better than a competing brands, but the salesperson may be the one
laptop or smartphone. Therefore, Apple had to create who actually encourages the buyer to decide a particular
brand preference with the iTunes Music Store, spe- brand is the best choice. The salesperson also has the
cialty apps, multiple functionality, and features such as advantage of having the computer physically there to
better power management and a lighter weight unit. demonstrate its capabilities to the buyer.
Specifically, Apple had to convince potential custom- Public relations’ greatest impact is as a method of
ers that the iPad was the best solution to their desire gaining attention for a company, good, or service. Many
for a combination tablet computer and smartphone. companies can attract attention and build goodwill by
sponsoring community events that benefit worthy causes
4. Action: Some potential target market customers
such as an anti-bullying campaign or a global poverty
may have been persuaded to buy an iPad but had
program. Such sponsorships project a positive image of
yet to make the actual purchase. To motivate them
the firm and its products into the minds of consumers
to take action, Apple continued advertising to com-
and potential consumers. Book publishers push to get
municate the features and benefits more effectively.
their titles on the best-seller lists of major publications,
And the strategy worked—more than 250 million
such as Publishers Weekly or the New York Times. Book
people own an iPad.10
authors make appearances on talk shows and at book-
Most buyers involved in high-involvement purchase stores to personally sign books and speak to fans. They
situations pass through the four stages of the AIDA also frequently engage with fans on social media like
model on the way to making a purchase. The promot- Facebook and Twitter.
er’s task is to determine where on the purchase ladder Sales promotion’s greatest strength is in creating
most of the target consumers are located and design strong desire and purchase intent. Coupons and other
a promotion plan to meet their needs. For example, if price-off promotions are techniques used to persuade
Apple learned from its market research that many po-
tential customers were in the desire stage but had not
EXHIBIT 15.5 THE PROMOTIONAL MIX AND AIDA
yet bought an iPad for some reason, it could place ad-
vertising on Facebook and Google, and perhaps in video Attention Interest Desire Action
games, to target younger individuals and professionals Advertising
with messages motivating them to buy an iPad.
The AIDA concept does not explain how all pro- Public Relations
motions influence purchase decisions. The model sug- Sales Promotion
gests that promotional effectiveness can be measured in Personal Selling
terms of consumers progressing from one stage to the
Social Media
next. However, the order of stages in the model, as well
as whether consumers go through all steps, has been Very effective Somewhat effective Not effective
much debated. A purchase can occur without interest
customers to buy new products. Frequent-buyer sales monitored to improve future use of the promotional mix
promotion programs, popular among retailers, allow tools. Typically, a marketing communications director is
consumers to accumulate points or dollars that can be appointed who has overall responsibility for integrating
redeemed for goods. Frequent buyer programs tend the company’s marketing communications.
to increase purchase intent and loyalty and encourage The IMC concept has been growing in popularity
repeat purchases. for several reasons. First, the proliferation of thousands
Social media are a strong way to gain attention and of media choices beyond traditional television has made
interest in a brand, particularly if content goes viral. It promotion a more complicated task. Instead of promot-
can then reach a massive audience. Social media are ing a product just through mass-media options, like tele-
also effective at engaging with customers and enabling vision and magazines, promotional messages today can
companies to maintain interest in the brand if properly appear in many varied sources.
managed. Further, the mass market has also fragmented—
more selectively segmented markets and an increase
in niche marketing have replaced the traditional broad
15-6 INTEGRATED MARKETING market groups that marketers promoted to in years past.
COMMUNICATIONS Finally, marketers have slashed their advertising spend-

ing in favor of promotional techniques that generate im-
mediate sales responses and those that are more easily
Ideally, marketing communications from each measured, such as direct marketing. Online advertising
promotional mix element (personal selling, adver-
has earned a bigger share of the budget as well due to
tising, sales promotion, social media, and public its measurability. Thus, the interest in IMC is largely a
relations) should be integrated. That is, the message reaction to the scrutiny that marketing communications
reaching the consumer should be the same regardless has come under and, particularly, to suggestions that un-
of whether it is from an advertisement, a salesperson in coordinated promotional activity leads to a strategy that
the field, a magazine article, a Facebook fan page, or a is wasteful and inefficient.
coupon in a newspaper insert.
From the consumer’s standpoint, a company’s com-
munications are already integrated. Consumers do not
think in terms of the five elements of promotion: per-
15-7 FACTORS AFFECTING
sonal selling, advertising, sales promotion, public rela- THE PROMOTIONAL MIX
tions, and social media. Instead, everything is an “ad.” The
only people who recognize the distinctions among these Promotional mixes vary a great deal from one
communications elements are the marketers themselves. product and one industry to the next. Normally, ad-
Unfortunately, many marketers neglect this fact when vertising and personal selling are used to promote goods
planning promotional messages and fail to integrate their and services. These primary tools are often supported
communication efforts from one element to the next. The and supplemented by sales promotion. Public relations
most common rift typically occurs between personal sell- help develop a positive image for the organization and
ing and the other elements of the promotional mix. the product line. Social media have been used more for
This unintegrated, disjointed approach to promo- consumer goods, but business-to-business marketers are
tion has propelled many companies to adopt the concept increasingly using these media. A firm may choose not
of integrated marketing communications (IMC). to use all five promotional elements in its promotional
IMC is the careful coordination of all promotional mix, or it may choose to use them in varying degrees.
messages—traditional advertising, direct marketing, The particular promotional mix chosen by a firm for a
social media, interactive, public relations, sales promo- product or service depends on several factors: the nature
tion, personal selling, event marketing, and other com- of the product, the stage
munications—for a product or service to assure the in the product life cycle,
consistency of messages at every contact point where a target market character- integrated marketing
communications (IMC) the
company meets the consumer. Following the concept istics, the type of buying careful coordination of all promotional
of IMC, marketing managers carefully work out the decision, funds avail- messages for a product or a service to
roles that various promotional elements will play in the able for promotion, and ensure the consistency of messages at
marketing mix. Timing of promotional activities is coor- whether a push or a pull every contact point at which a company
meets the consumer
dinated, and the results of each campaign are carefully strategy will be used.
15-7a Nature of the Product time and effort unless the potential volume is high. On the
other hand, expensive and complex machinery, cars, and
Characteristics of the product itself can influence the
new homes represent a considerable investment. A sales-
promotional mix. For instance, a product can be classi-
person must assure buyers that they are spending their
fied as either a business product or a consumer product.
money wisely and not taking an undue financial risk.
(Refer to Chapters 7 and 10.) As business products are
Social risk is an issue as well. Many consumer goods
often custom-tailored to the buyer’s exact specifications,
are not products of great social importance because they
they are often not well suited to mass promotion. There-
do not reflect social position. People do not experience
fore, producers of most business goods rely more heavily
much social risk in buying a loaf of bread. However, buy-
on personal selling than on advertising, but advertising
ing many specialty products such as jewelry and clothing
still serves a purpose in the promotional mix. Advertising
involves a social risk. Many consumers depend on sales
in trade media can also help locate potential customers
personnel for guidance in making the “proper” choice.
for the sales force. For example, print media advertising
often includes coupons soliciting the potential customer
to “fill this out for more detailed information.”
15-7b Stages in the Product Life Cycle
By contrast, because consumer products generally are The product’s stage in its life cycle is a big factor in de-
not custom-made, they do not require the selling efforts signing a promotional mix (see Exhibit 15.6). During
of a company representative who can tailor them to the the introduction stage, the basic goal of promotion is to
user’s needs. Thus, consumer goods are promoted mainly inform the target audience that the product is available.
through advertising or social media to create brand famil- Initially, the emphasis is on the general product class—
iarity. Television and radio advertising, consumer-oriented for example, smartphones. This emphasis gradually
magazines, and increasingly the Internet and other highly changes to gaining attention for a particular brand, such
targeted media are used to promote consumer goods, es- as Apple, Nokia, Samsung, Sony Ericsson, or Motorola.
pecially nondurables. Sales promotion, the brand name, Typically, both extensive advertising and public relations
and the product’s packaging are about twice as important inform the target audience of the product class or brand
for consumer goods as for business products. Persuasive and heighten awareness levels. Sales promotion encour-
personal selling is important at the retail level for goods ages early trial of the product, and personal selling gets
such as automobiles and appliances. retailers to carry the product.
The costs and risks associated with a product also When the product reaches the growth stage of the life
influence the promotional mix. As a general rule, when cycle, the promotion blend may shift. Often a change is
the costs or risks of buying and using a product or service necessary because different types of potential buyers are
increase, personal selling becomes more important. Inex- targeted. Although advertising and public relations con-
pensive items cannot support the cost of a salesperson’s tinue to be major elements of the promotional mix, sales
promotion can be reduced because consumers
need fewer incentives to purchase. The pro-
motional strategy is to emphasize the product’s
differential advantage over the competition.
Persuasive promotion is used to build and main-
tain brand loyalty during the growth stage. By
this stage, personal selling has usually succeeded
in getting adequate distribution for the product.
As the product reaches the maturity stage
of its life cycle, competition becomes fiercer,
Stock Creative/Shutterstock.com
and thus persuasive and reminder advertising

are emphasized more strongly. Sales promo-
tion comes back into focus as product sellers
try to increase their market share.
All promotion, especially advertising, is
reduced as the product enters the decline
Print media advertising often includes coupons stage. Nevertheless, personal selling and sales
soliciting the potential customer. promotion efforts may be maintained, particu-
larly at the retail level.
EXHIBIT 15.6 PRODUCT LIFE CYCLE AND THE PROMOTIONAL MIX
Maturity
Decline
Sales ($)
Growth
Introduction
Time
Preintroduction Heavy advertising Heavy advertising Advertising slightly Advertising and

publicity; small and public relations and public relations decreased—more public relations
amounts of to build awareness; to build brand persuasive and drastically decreased;
advertising near sales promotion loyalty; decreasing reminder in nature; sales promotion
introduction to induce trial; use of sales increased use of sales and personal selling
personal selling to promotion; promotion to build maintained
obtain distribution personal selling market share; personal at low levels
to maintain selling to maintain
distribution distribution
15-7c Target Market Characteristics promotion, are the most productive promotion tools to
use for routine decisions.
A target market characterized by widely scattered poten-
If the decision is neither routine nor complex, ad-
tial customers, highly informed buyers, and brand loyal re-
vertising and public relations help establish awareness
peat purchasers generally requires a promotional mix with
for the good or service. Suppose a man is looking for a
more advertising and sales promotion and less personal
bottle of wine to serve to his dinner guests. As a beer
selling. Sometimes, however, personal selling is required
drinker, he is not familiar with wines, yet he has read an
even when buyers are well informed and geographically
article in a popular magazine about Silver Oak Cabernet
dispersed. Although industrial installations may be sold
and has seen an advertisement for the wine. He may be
to well-educated people with extensive work experience,
more likely to buy this brand because he is already aware
salespeople must be present to explain the product and
of it. Online reviews are often important in this type of
work out the details of the purchase agreement.
buying decision as well because the consumer has any
Often firms sell goods and services in markets
number of other consumers’ reviews easily accessible.
where potential customers are hard to locate. Print
By contrast, consumers making complex buying de-
advertising can be used to find them. The reader is
cisions are more extensively involved. They rely on large
invited to go online, call, or mail in a reply card for
amounts of information to help them reach a purchase
more information. As the online queries, calls, or
decision. Personal selling is most effective in helping
cards are received, salespeople are sent to visit the
these consumers decide. For example, consumers think-
potential customers.
ing about buying a car typically research the car online
using corporate and third party Web sites like Kelley
15-7d Type of Buying Decision Blue Book. However, few people buy a car without vis-
The promotional mix also depends on the type of iting the dealership. They depend on a salesperson to
buying decision—for example, a routine decision or provide the information they need to reach a decision.
a complex decision. For routine consumer decisions In addition to online resources, print advertising may
like buying toothpaste, the most effective promotion also be used for high-involvement purchase decisions
calls attention to the brand or reminds the consumer because it can often provide a large amount of informa-
about the brand. Advertising, and especially sales tion to the consumer.
advertising and social media reach, they have
a very low cost per contact. Usually, there is a
trade-off among the funds available, the num-
ber of people in the target market, the quality
of communication needed, and the relative
costs of the promotional elements. There are
plenty of low-cost options available to com-
panies without a huge budget. Many of these
include online strategies and public relations
efforts, in which the company relies on free
Imaginechina via AP Images

publicity.
15-7f Push and Pull Strategies

The last factor that affects the promotional mix
is whether a push or a pull promotional strat-
Despite a myriad of car advertisements, such as this egy will be used. Manufacturers may use ag-
one for Infiniti, most people rely on sales personnel gressive personal selling and trade advertising
for guideance when purchasing a car. to convince a wholesaler or a retailer to carry
and sell their merchandise. This approach
is known as a push strategy (see Exhibit 15.7). The
wholesaler, in turn, must often push the merchandise
15-7e Available Funds forward by persuading the retailer to handle the goods.
Money, or the lack of it, may easily be the most impor- The retailer then uses advertising, displays, and other
tant factor in determining the promotional mix. A small, forms of promotion to convince the consumer to buy the
undercapitalized manufacturer may rely heavily on free “pushed” products. Walmart uses aggressive discounts to
publicity if its product is unique. If the situation warrants push products out of its stores. For example, First Lady
a sales force, a financially strained firm may turn to manu- Michelle Obama praised the retailer for using drastically
facturers’ agents, who work on a commission basis with no reduced prices to push fresh meat, produce, and other
advances or expense accounts. Even well capitalized or- healthy options to consumers in low-income areas. The
ganizations may not be able to afford the advertising rates move proved to be a win-win strategy. Fresh foods gen-
of publications like Time, Sports Illustrated, erated 70 percent of Walmart’s sales growth in recent
and the Wall Street Journal, or the cost of run-
ning television commercials during Modern
Family, The Voice, or the Super Bowl. The
price of a high-profile advertisement in these
media could support several salespeople for
an entire year.
When funds are available to permit a mix
of promotional elements, a firm will generally
PepsiCo Inc./Frito-Lay North America
try to optimize its return on promotion dollars

while minimizing the cost per contact, or the
cost of reaching one member of the target
market. In general, the cost per contact is very
high for personal selling, public relations, and
sales promotions
like sampling
push strategy a marketing
strategy that uses aggressive
and demonstra- Lay’s calls attention to its commitment to natural
personal selling and trade tions. On the ingredients as a distinguishing attribute in order to
advertising to convince a wholesaler other hand, given help customers make a routine buying decision—
or a retailer to carry and sell the number of
particular merchandise purchasing Lay’s snack food.
people national
EXHIBIT 15.7 PUSH STRATEGY VERSUS PULL STRATEGY
Push strategy
Manufacturer Wholesaler Retailer Consumer

promotes to promotes promotes to buys from
wholesaler to retailer consumer retailer
Orders to manufacturer
Pull strategy
Manufacturer Consumer Retailer Wholesaler

promotes to demands demands demands
consumer product from product from product from
retailer wholesaler manufacturer
years, and customers have saved more than $2.3 billion sampling, introductory consumer advertising, cents-off
on fresh fruits and vegetables by shopping at Walmart.12 campaigns, and couponing are part of a pull strategy.
This concept also applies to services. Rarely does a company use a pull or a push strategy
At the other extreme is a pull strategy, which exclusively. Instead, the mix will emphasize one of these
stimulates consumer demand to obtain product dis- strategies. For example, pharmaceutical companies gen-
tribution. Rather than trying to sell to the wholesaler, erally use a push strategy (personal selling and trade
the manufacturer using a pull strategy focuses its pro- advertising) to promote their drugs and therapies to phy-
motional efforts on end consumers or opinion lead- sicians. Sales presentations and advertisements in medi-
ers. Social media and content marketing are the most cal journals give physicians the detailed information they
recent (and best) example of pull strategy. The idea is need to prescribe medication to their patients. Most
that social media content does not interrupt a consum- pharmaceutical companies supplement this push pro-
er’s experience with media (like a commercial interrupts motional strategy with a pull strategy targeted directly
your favorite television program). Instead, the content to potential patients
invites customers to experience it on social media or a through advertisements pull strategy a marketing strategy
that stimulates consumer demand to
Web site. Consumer demand pulls the product through in consumer magazines
obtain product distribution
the channel of distribution (see Exhibit 15.7). Heavy and on television.
STUDY
15
in marketing
experience
16 Advertising, Public
Relations, and
Sales Promotion
Joshua Rainey Photography/Shutterstock.com

LEARNING OUTCOMES
16-1 Discuss the effects of advertising on market share and consumers

After you finish
16-2 Identify the major types of advertising
this chapter go
16-3 Discuss the creative decisions in developing an advertising campaign to PAGE301 for
16-4 Describe media evaluation and selection techniques STUDY TOOLS.
16-5 Discuss the role of public relations in the promotional mix
16-6 Define and state the objectives of sales promotion and the tools used to achieve them
16-1 THE EFFECTS OF ADVERTISING

Advertising was defined in Chapter 15 as impersonal, one-way mass
communication about a product or organization that is paid for by a
marketer. It is a popular form of promotion, especially for consumer
packaged goods and services. Increasingly, as more and more marketers
consolidate their operations, advertising is seen as an international
endeavor. Promotion makes up a large part of most brands’ budgets.
Typically, promotional spending is divided into measured and unmeasured
media. Measured media ad spending includes network and cable TV,
newspapers, magazines, radio, outdoor, and Internet (though paid
search and social media are not included). Spending must be estimated
for unmeasured media, which includes direct marketing, promotions,
co-op, coupons, catalogs, product placement, and event marketing.
Global advertising expenditures increase by almost 5 percent per year.
In 2015, they reached almost $550 billion. The United States is, by far,
280 PART FIVE:

CHAPTER
Promotion
the largest spender ($182 billion, representing a full third of spending
globally). China, Japan, Germany, and the United Kingdom round
out the top five countries in terms of advertising spending. Latin
America is the fastest growing market, recently increasing by almost
10 percent annually.1
The top 25 largest U.S. advertisers spend more than marketing, the more unique positions within the indus-
$50 billion each year. Procter & Gamble is by far the larg- try become apparent. One particular area that has con-
est advertiser, spending almost $5 billion annually on its tinued to see rapid growth is the data side of marketing.
wide variety of brands. Telecommunications companies Companies are collecting huge amounts of information
like AT&T ($3.3 billion) and Verizon ($2.4 billion) are and need skilled, creative, Web-savvy people to inter-
other top spenders. Automotive companies also spend pret the data coming in from Web, mobile, and other
a great deal of money on advertising in the U.S.—GM digital ad campaigns. One Microsoft study estimates that
alone spends $3.1 billion a year.2 ninety percent of enterprise companies have a dedicated
Advertising and marketing services, agencies, and budget for addressing data analytics. Forty-nine percent
other firms that provide marketing and communications of the demand for data analytics is driven by sales and
services employ millions of people across America. Just marketing departments. According to IDC program vice
as the producers of goods and services need marketers president Dan Vesset, “A lot of the ultimate potential is
to build awareness of their products, media outlets such in the ability to discover potential connections, and to
as magazines and Web sites need marketing teams to co- predict potential outcomes in a way that wasn’t really
ordinate with producers and transmit those messages to possible before. Before, you only looked at these things
customers. The longer one thinks about the business of in hindsight.”3
CHAPTER 16: Advertising, Public Relations, and Sales Promotion 281
16-1a Advertising and Market Share 16-1b The Effects of Advertising
The five most valuable U.S. brands are Apple ($124 on Consumers
billion), Microsoft ($63 billion), Google ($57 billion), Advertising affects peoples’ daily lives, informing them
Coca-Cola ($56 billion), and IBM ($48 billion). These about products and services and influencing their atti-
were all top brands the year before and all gained value, tudes, beliefs, and ultimately, their purchases. Advertis-
but Google jumped from fifth to third place. Most of ing affects the television programs people watch, the con-
these brands were built tent of the newspapers
over many years by they read, the politicians
heavy advertising and they elect, the medi-
marketing investments cines they take, and the
long ago. Google is toys their children play
the only exception—its with. Consequently, the
brand value was built influence of advertising
using digital platforms.4 on the U.S. socioeco-
Today’s advertising dol- nomic system has been
lars for successful con- the subject of extensive
sumer brands are spent debate in nearly all cor-
on maintaining brand ners of society.
awareness and market Interestingly, despite
share. a proliferation of new
New brands with technology options, con-
a small market share tend to spend sumers still spend a lot of time con-
proportionately more for advertis- Eric Milos/Shutterstock.com
suming traditional media (where much
ing and sales promotion than those with of advertising exists). The average person, for
a large market share, typically for two reasons. First, example, spends about 273 minutes a day watching
beyond a certain level of spending for advertising and television.5 Americans report an average of 5.3 leisure
sales promotion, diminishing returns set in. That is, hours a day, and most of it is spent watching TV. As a
sales and market share improvements slow down and result, American consumers are exposed to thousands
eventually decrease no matter how much is spent on of advertising messages each year.6
advertising and sales promotion. This phenomenon is Though advertising cannot change consumers’
called the advertising response function. Un- deeply rooted values and attitudes, advertising may suc-
derstanding the advertising response function helps ceed in transforming a person’s negative attitude toward
marketers use budgets wisely. A market leader like a product into a positive one. For instance, serious or
Johnson & Johnson’s Neutrogena typically spends pro- dramatic advertisements are more effective at changing
portionately less on advertising than a newer line such consumers’ negative attitudes. Humorous ads, on the
as Unilever’s Vaseline Spray & Go brand. Neutrogena other hand, have been shown to be more effective at
has already captured the attention of the majority of shaping attitudes when consumers already have a posi-
its target market. It only needs to remind customers tive image of an advertised brand.
of its product. Advertising also reinforces positive attitudes toward
The second reason new brands tend to require higher brands. A brand with a distinct personality is more likely
spending for advertising and sales promotion is that a cer- to have a larger base of loyal customers and market share.
tain minimum level of exposure is needed to measurably The more consistent a brand’s personality, the more like-
affect purchase habits. If Vaseline advertised its Spray & ly a customer will build a relationship with that brand
Go moisturizers in only one or two publications and bought over his or her lifetime. Consider Apple, for example.
only one or two television Sixty percent of iPhone users report they would switch
advertising response spots, it would not achieve
function a phenomenon in which to Apple’s latest iPhone without considering any other
spending for advertising and sales
the exposure needed to options, admitting to “blind loyalty.”7 This is why market
promotion increases sales or market penetrate consumers’ per- leaders spend billions of dollars annually to reinforce and
share up to a certain level but then ceptual defenses and affect remind their loyal customers about the benefits of their
produces diminishing returns purchase intentions. products.
Advertising can also affect the way consumers rank express their views on controversial issues. For example,
a brand’s attributes. In years past, car ads emphasized in celebration of the one-year anniversary of New York’s
such brand attributes as roominess, speed, and low Marriage Equality Act, Nabisco’s Oreo posted a gay
maintenance. Today, however, car marketers have added pride-themed image (an Oreo cookie with six rainbow-
technology, safety, versatility, customization, and fuel ef- colored layers of cream filling) on its Facebook page.
ficiency to the list. Accompanying the image were the phrases “Pride” and
“Proudly support love!” Responses to the images were
mixed: “I’m never eating Oreos again. This is just dis-
gusting,” wrote one commenter, while another replied,
16-2 MAJOR TYPES OF ADVERTISING “I didn’t think it was possible for me to love Oreo’s more
than I already did!!” Though controversial, the post drew
A firm’s promotional objectives determine the a considerable amount of support from fans, generating
type of advertising it uses. If the goal of the pro- approximately 15,000 shares and 87,000 “likes.”9 Alter-
motion plan is to improve the image of the com- natively, a firm’s advocacy campaign might react to criti-
pany or the industry, institutional advertising cism or blame, or to ward off increases in regulation,
may be used. In contrast, if the advertiser wants damaging legislation, or the unfavorable outcome of a
to enhance the sales of a specific good or service, lawsuit.
product advertising should be used.
16-2b Product Advertising
16-2a Institutional Advertising
Unlike institutional advertising, product advertising
Historically, advertising in the United States has been promotes the benefits of a specific good or service. The
product and service oriented. Today, however, compa- product’s stage in its life cy-
institutional advertising
nies market multiple products and need a different type cle often determines which a form of advertising designed to
of advertising. Institutional advertising, or corporate ad- type of product advertising enhance a company’s image rather than
vertising, is designed to establish, change, or promote is used: pioneering adver- promote a particular product
the corporation’s identity as a whole. It usually does not tising, competitive adver- product advertising a form
ask the audience to do anything but maintain a favorable tising, or comparative ad- of advertising that touts the benefits of
attitude toward the advertiser and its goods or services. vertising. a specific good or service
A beer company running a series of television spots ad- advocacy advertising a form
vocating designated driving is an example of institutional PIONEERING ADVERTIS of advertising in which an organization
advertising. ING Pioneering adver- expresses its views on controversial
A form of institutional advertising called advocacy tising is intended to issues or responds to media attacks
advertising is typically used to safeguard against nega- stimulate primary demand pioneering advertising
tive consumer attitudes and to enhance the company’s for a new product or prod- a form of advertising designed to
credibility among consumers who already favor its po- uct category. Heavily used stimulate primary demand for a new
product or product category
sition. Corporations often use advocacy advertising to during the introductory
Big Spenders
The top advertising spenders (measured and unmeasured) in the United States include: Procter & Gamble
($4.99 billion); AT&T ($3.3 billion), General Motors ($3.1 billion); Comcast ($3 billion); Ford Motor ($2.5 billion);
Verizon ($2.4 billion), L’Oreal ($2.3 billion); American Express ($2.1 billion); Toyota ($2 billion); and Fiat Chrysler
($1.7 billion).8
©StudioM1
stage of the product life cycle, pioneering advertis-
ing offers consumers in-depth information about
the benefits of the product class. Pioneering adver-
tising also seeks to create interest and, as such, can
be quite innovative in its own right. For example,
Motorola placed an ad for its new flagship smart-
phone, the Moto X, in Wired. The Moto X is highly
customizable, featuring more than twenty different
back plate and accent colors. Built in Austin, Texas,
the Moto X is the first smartphone of its kind to be
so customizable. Using an embedded LED array, mi-
crochip, and battery, the print ad allows the reader to
push eleven different colored buttons, changing the
color of the Moto X Smartphone pictured in the ad. A
demonstration of the ad can be seen at www.youtube
.com/watch?v=iMrZmSPpIRw.10
Miro Vrlik Photography/Shutterstock.com

COMPETITIVE ADVERTISING Firms use competi-
tive or brand advertising when a product enters the
growth phase of the product life cycle and other com-
panies begin to enter the marketplace. Instead of
building demand for the product category, the goal of
competitive advertising is to influence demand for
a specific brand. Often, promotion becomes less infor-
mative and appeals more to emotions during this phase.
Generally, this is where an emphasis on branding be- GEICO uses competitive advertising that
gins. Advertisements focus on showing subtle differ- discusses attributes of the brand.
ences between brands, building recall of a brand name,
and creating a favorable attitude toward the brand.
GEICO uses competitive advertising that discusses the does not explicitly mention any other insurance company,
attributes of the brand, how little time it takes to get 21st Century Insurance takes on its major competitors
a quote, how much customers can save, and the ease directly in its “Shopping Carts” television ad campaign.
of submitting a claim. All of its campaigns use humor The ad features two cars, one labeled GEICO, the other
to promote the brand above others in the industry but 21st Century. As shopping carts pour down on the cars
without actively comparing GEICO with other insur- like rain, a voiceover explains that since both cars are
ance companies. covered, both get the same repairs.11 Then the commer-
cial goes on to explain that 21st Century Insurance cus-
COMPARATIVE ADVERTISING Comparative tomers who switch from GEICO save an average of $508
advertising directly or indirectly compares two or a year.12 21st Century is explicitly comparing its insur-
more competing brands on one or more specific attri- ance rates with those of its main competitors and capi-
butes. Some advertisers even use comparative adver- talizing on customers’ desire for great coverage at the
tising against their own brands. Products experienc- lowest prices.
ing slow growth or those Before the 1970s, comparative advertising was al-
entering the marketplace lowed only if the competing brand was veiled and
competitive advertising
a form of advertising designed to against strong competi- unidentified. In 1971, however, the Federal Trade Com-
influence demand for a specific tors are more likely to em- mission (FTC) fostered the growth of comparative
brand ploy comparative claims advertising by saying that the advertising provided in-
comparative advertising in their advertising. In formation to the customer and that advertisers were
a form of advertising that compares contrast to GEICO’s “Fif- more skillful than the government in communicating
two or more specifically named or teen minutes can save you this information. Federal rulings prohibit advertisers
shown competing brands on one or 15 percent or more on car from falsely describing competitors’ products and allow
more specific attributes
insurance” tagline that competitors to sue if ads show their products or mention
depend on the overall corporate objectives and the prod-
uct being advertised.
®, TM, © 2010 KELLOGG NA CO. PILLSBURY®, TOASTER STRUDEL® and the Doughboy are trademarks of the Pillsbury Company, LLC.
The DAGMAR approach (Defining Advertising
Goals for Measured Advertising Results) is one method
of setting objectives. According to this method, all adver-
tising objectives should precisely define the target audi-
ence, the desired percentage change in some specified
measure of effectiveness, and the time frame in which
that change is to occur.
Once objectives are defined, creative work can
begin on the advertising campaign. Advertising cam-
paigns often follow the AIDA model, which was dis-
cussed in Chapter 15. Depending on where consumers
are in the AIDA process, the creative development of
an advertising campaign might focus on creating atten-
tion, arousing interest, stimulating desire, or ultimately
leading to the action of buying the product. Specifically,
creative decisions include identifying product benefits,
developing and evaluating advertising appeals, execut-
ing the message, and evaluating the effectiveness of the
campaign.
16-3a Identifying Product Benefits

A well-known rule of thumb in the advertising industry
What form of advertising is the Kellogg is “Sell the sizzle, not the steak”—that is, in advertising,
Company using in this Pop-Tarts the goal is to sell the benefits of the product, not its at-
advertisement? What does that say about tributes. Customers do not buy attributes, they buy ben-
the Pop-Tarts brand? efits. An attribute is simply a feature of the product such
as its easy-open package, special formulation, or new
lower price. A benefit is what consumers will receive
their brand names in an incorrect or false manner. FTC or achieve by using the product, such as convenience
rules also apply to advertisers making false claims about or ease of use. A benefit should answer the consumer’s
their own products. question “What’s in it for me?” Benefits might be such
things as pleasure, improved health, savings, or relief. A
quick test to determine whether you are offering attri-
16-3 CREATIVE DECISIONS butes or benefits in your advertising is to ask “So?” Con-
IN ADVERTISING sider this example:

● Attribute: “DogsBestFriend is an all-natural skin
Advertising strategies are typically organized care lotion for dogs that combines traditional medi-
around an advertising campaign. An advertising cines and Nigella sativa seed oils with the newest ex-
campaign is a series of related advertisements focus- traction technology.” “So . . . ?”
ing on a common theme, slogan, and set of advertising ● Benefit: “So . . . Dogs-
appeals. It is a specific advertising effort for a particular BestFriend acts as a
advertising campaign a
product that extends for a defined period of time. natural replacement for series of related advertisements
Before any creative work can begin on an adver- hydrocortisone, antihis- focusing on a common theme,
tising campaign, it is important to determine what tamines, and topical an- slogan, and set of advertising appeals
goals or objectives the advertising should achieve. An tibiotics that is powerful advertising objective a
advertising objective identifies the specific com- enough to combat in- specific communication task that a
munication task that a campaign should accomplish for flammation, itching, and campaign should accomplish for
a specified target audience during a specified period. pain, yet safe enough to a specified target audience during
a specified period
The objectives of a specific advertising campaign often use on dogs of all ages.”13
16-3b Developing and Evaluating EXHIBIT 16.1 COMMON ADVERTISING APPEALS
Advertising Appeals
Appeal Goal
An advertising appeal identifies a reason for
Profit Lets consumers know whether the product will save
a person to buy a product. Developing advertis- them money, make them money, or keep them from
ing appeals, a challenging task, is typically the losing money.
responsibility of the creative team (e.g., art direc- Health Appeals to those who are body conscious or who want
tors and copywriters) in the advertising agency. to be healthy; love or romance is used often in selling
Advertising appeals typically play off consumers’ cosmetics and perfumes.
emotions or address some need or want consum- Fear Can center around social embarrassment, growing old,
or losing one’s health; because of its power, requires
ers have. advertiser to exercise care in execution.
Advertising campaigns can focus on one or
Admiration Frequently highlights celebrity spokespeople.
more advertising appeals. Often the appeals are
Convenience Is often used for fast-food restaurants and microwave
quite general, thus allowing the firm to develop foods.
a number of subthemes or mini campaigns us-
Fun and Pleasure Are the keys to advertising vacations, beer, amusement
ing both advertising and sales promotion. Sev- parks, and more.
eral possible advertising appeals are listed in Vanity and Egotism Are used most often for expensive or conspicuous
Exhibit 16.1. items such as cars and clothing.
Choosing the best appeal from those devel- Environmental Centers around protecting the environment and being
oped usually requires market research. Criteria Consciousness considerate of others in the community.
for evaluation include desirability, exclusive-
ness, and believability. The appeal first must
make a positive impression on and be desir-
16-3c Executing the Message
able to the target market. It must also be exclusive
or unique. Consumers must be able to distinguish Message execution is the way an advertisement port-rays
the advertiser’s message from competitors’ messages. its information. In general, the AIDA plan (see Chap-
Most importantly, the appeal should be believable. An ter 15) is a good blueprint for executing an advertising
appeal that makes extravagant claims not only wastes message. Any ad should immediately draw the reader’s,
promotional dollars but also creates ill will for the viewer’s, or listener’s attention. The advertiser must then
advertiser. use the message to hold interest, create desire for the
The advertising appeal selected for the campaign good or service, and ultimately motivate a purchase.
becomes what advertisers call its unique selling The style in which the message is executed is one
proposition. The unique selling proposition often of the most creative elements of an advertisement.
becomes all or part of the campaign’s slogan. High-end Exhibit 16.2 lists some examples of executional styles
leather goods manufacturer Saddleback Leather uses its used by advertisers. Executional styles often dictate what
Web site to build brand personality and convey the com- type of media is to be employed to convey the message.
pany’s unique selling proposition: its products are ex- For example, scientific executional styles lend them-
tremely tough and rugged—just like the consumers who selves well to print advertising, where more information
buy them. First-person narratives recount trips to Mexi- can be conveyed. Testimonials by athletes are one of the
can bullfighting rings, shark diving in Bora Bora, back- more popular executional styles.
packing along the red sand dunes of Texas, and other Injecting humor into an advertisement is a popular
adventures in exotic, often perilous locations. Of course, and effective executional style. Humorous executional
Saddleback Leather’s messenger bags and luggage are styles are more often used in radio and television adver-
up to the task, accompanying their sojourning owner tising than in print or magazine advertising, where hu-
everywhere he goes— mor is less easily communicated. Recall that humorous
advertising appeal a reason even into the ocean. Sad- ads are typically used for lower-risk, low-involvement,
for a person to buy a product dleback Leather’s slogan routine purchases such as candy, cigarettes, and casual
unique selling proposition drives home its products’ jeans than for higher-risk purchases or for products that
a desirable, exclusive, and believable unique selling proposition: are expensive, durable, or flamboyant.15
advertising appeal selected as the “They’ll fight over it when Sometimes an executional style must be modified
theme for a campaign
you’re dead.”14 to make a marketing campaign more effective. Nowhere
EXHIBIT 16.2 ELEVEN COMMON EXECUTIONAL STYLES FOR ADVERTISING
Executional Style Description
Slice-of-Life Depicts people in normal settings, such as at the dinner table or in their car. McDonald’s often uses slice-of-life styles
showing youngsters munching on french fries from Happy Meals on family outings.
Lifestyle Shows how well the product will fit in with the consumer’s lifestyle. As his Volkswagen Jetta moves through the streets
of the French Quarter, a Gen X driver inserts a techno music CD and marvels at how the rhythms of the world mimic the
ambient vibe inside his vehicle.
Spokesperson/ Can feature a celebrity, company official, or typical consumer making a testimonial or endorsing a product. Sheryl Crow
Testimonial represented Revlon’s Colorist hair coloring, while Beyoncé Knowles was named the new face of American Express. Dell Inc.
founder Michael Dell touts his vision of the customer experience via Dell in television ads.
Fantasy Creates a fantasy for the viewer built around use of the product. Carmakers often use this style to let viewers fantasize
about how they would feel speeding around tight corners or down long country roads in their cars.
Humorous Advertisers often use humor in their ads, such as Snickers’ “Not Going Anywhere for a While”campaign featuring
hundreds of souls waiting, sometimes impatiently, to get into heaven.
Real/Animated Creates a character that represents the product in advertisements, such as the Energizer Bunny or Starkist’s Charlie the
Product Symbols Tuna. GEICO’s suave gecko and disgruntled cavemen became cult classics for the insurance company.
Mood or Image Builds a mood or image around the product, such as peace, love, or beauty. De Beers ads depicting shadowy silhouettes
wearing diamond engagement rings and diamond necklaces portrayed passion and intimacy while extolling that “a
diamond is forever.”
Demonstration Shows consumers the expected benefit. Many consumer products use this technique. Laundry detergent spots
are famous for demonstrating how their product will clean clothes whiter and brighter. Fort James Corporation
demonstrated in television commercials how its Dixie Rinse & ReUse disposable stoneware product line can stand up to
the heat of a blowtorch and survive a cycle in a clothes washer.
Musical Conveys the message of the advertisement through song. For example, Nike’s ads depicted a marathoner’s tortured feet and a
surfer’s thigh scarred by a shark attack while strains of Joe Cocker’s “You Are So Beautiful” could be heard in the background.
Uses research or scientific evidence to give a brand superiority over competitors. Pain relievers like Advil, Bayer, and
Excedrin use scientific evidence in their ads.
is this more evident than in the political realm, where assess if the campaign led to an increase in sales or mar-
advertisements for issues and candidates must account ket share or elevated awareness of the product? Many
for ever-changing poll numbers and public sentiments. advertising campaigns aim to create an image for the
In Barack Obama’s second presidential election, cam- good or service instead of asking for action, so their real
paign advertisements taking aim at the president shifted effect is unknown. So many variables shape the effective-
in tone from sharply combative and accusatory to con- ness of an ad that advertisers often must guess whether
cerned—even mournful—about the state of the econo- their money has been well spent. Nonetheless, market-
my. According to Republican pollster Frank Luntz, focus ers spend considerable time studying advertising effec-
group research revealed that ads that attacked Obama tiveness and its probable impact on sales, market share,
too personally turned people off in ways that kept them or awareness.
turned off. The Republican campaign shifted its execu- Testing ad effectiveness can be done before and/
tional style, opting for advertisements that appealed to or after the campaign. Before a campaign is released,
citizens’ worries and frustrations. In one ad, a forlorn- marketing managers use pretests to determine the best
looking woman declares, “I supported President Obama advertising appeal, layout, and media vehicle. After ad-
because he spoke so beautifully. But since then, things vertisers implement a campaign, they use several moni-
have gone from bad to much worse.”16 toring techniques to determine whether the campaign
has met its original goals. Even if a campaign has been
highly successful, advertisers still typically do a post-
16-3d Post-Campaign Evaluation campaign analysis to identify how the campaign might
Evaluating an advertising campaign can be the most de- have been more efficient and what factors contributed
manding task facing advertisers. How can an advertiser to its success.
16-4 MEDIA DECISIONS
IN ADVERTISING Best of the Best
A major decision for advertisers is the choice of According to Advertising Age, these are the best
medium—the channel used to convey a message advertising campaigns in recent years:
to a target market. Media planning, therefore, is 1. Newcastle’s “If We Made It”
the series of decisions advertisers make regarding the 2. Save the Children’s “Most Shocking Second a Day”
selection and use of media, enabling the marketer to op-
timally and cost-effectively communicate the message to 3. Coca Cola Life’s “Parents”
the target audience. Specifically, advertisers must deter- 4. Wren’s “First Kiss”
mine which types of media will best communicate the 5. John Lewis’ “Monty the Penguin17
benefits of their product or service to the target audience
and when and for how long the advertisement will run.
Promotional objectives and the appeal and execu-
cinema.18 The remainder was spent on unmonitored me-
tional style of the advertising strongly affect the selection
dia such as direct mail, trade exhibits, cooperative adver-
of media. Both creative and media decisions are made
tising, brochures, coupons, catalogs, and special events.
at the same time: creative work cannot be completed
More than 38 percent of every media dollar goes toward
without knowing which medium will be used to convey
television ads (cable, syndicated, spot, and network); al-
the message to the target market. In many cases, the ad-
most 25 percent toward Internet ads; 12 percent toward
vertising objectives dictate the medium and the creative
newspaper ads; 10 percent toward magazine ads; 9 per-
approach to be used. For example, if the objective is to
cent toward radio ads; and 5 percent toward outdoor/
demonstrate how fast a product operates, a television
cinema ads.19 But these traditional mass-market me-
commercial that shows
dia are declining in usage as more targeted media are
this action may be the best
medium the channel used to emerging. Future growth lies primarily in the digital
choice.
convey a message to a target market realm, both in paid media (display ads, video ads, and
In 2015, U.S. advertis-
media planning the series search ads) and earned media (social media).
ers spent about $180 billion
of decisions advertisers make
on paid media monitored
regarding the selection and use
by national reporting ser- 16-4a Media Types
of media, allowing the marketer
to optimally and cost-effectively vices—newspapers, maga- Advertising media are channels that advertisers use in
communicate the message to the zines, radio, television, mass communication. The six major advertising media
target audience the Internet, and outdoor/ are newspapers, magazines, radio, television, the Inter-
net, and outdoor media. Exhibit 16.3 sum-
marizes the advantages and disadvantages
of some of these major channels. In recent
years, however, alternative media channels
have emerged that give advertisers innova-
tive ways to reach their target audience and
avoid advertising clutter.
NEWSPAPERS Newspapers are one of the
oldest forms of media. The advantages of
Source: Hubbard Radio, LLC
newspaper advertising include geographic

flexibility and timeliness. Although there has
been a decline in circulation as well as in the
number of newspapers, nationally, there are
still several major newspapers including the
Future growth in advertising lies in the digital realm; Wall Street Journal, USA Today, the New
this includes display ads, video ads, search ads and York Times, the Los Angeles Times, and the
Washington Post. But most newspapers are
banner ads.
local. Because newspapers are generally a
EXHIBIT 16.3 ADVANTAGES AND DISADVANTAGES OF MAJOR ADVERTISING MEDIA
Medium Advantages Disadvantages

Newspapers Geographic selectivity and flexibility; short-term advertiser Little demographic selectivity; limited color capabilities; low
commitments; news value and immediacy; year-round pass-along rate; may be expensive
readership; high individual market coverage; co-op and
local tie-in availability; short lead time
Magazines Good reproduction, especially for color; demographic Long-term advertiser commitments; slow audience
selectivity; regional selectivity; local market selectivity; buildup; limited demonstration capabilities; lack of urgency;
relatively long advertising life; high pass-along rate long lead time
Radio Low cost; immediacy of message; can be scheduled on No visual treatment; short advertising life of message;
short notice; relatively no seasonal change in audience; high frequency required to generate comprehension and
highly portable; short-term advertiser commitments; retention; distractions from background sound; commercial
entertainment carryover clutter
Television Ability to reach a wide, diverse audience; low cost per Short life of message; some consumer skepticism about
thousand; creative opportunities for demonstration; imme- claims; high campaign cost; little demographic selectivity
diacy of messages; entertainment carryover; demographic with network stations; long-term advertiser commitments;
selectivity with cable stations long lead times required for production; commercial clutter
Internet Fastest-growing medium; ability to reach a narrow target Most ad exposure relies on “click-through” from display ads;
audience; relatively short lead time required for creating measurement for social media needs much improvement;
Web-based advertising; moderate cost; ability to measure not all consumers have access to the Internet, and many
ad e ectiveness; ability to engage consumers through consumers are not using social media
search engine marketing, social media, display advertis-
ing, and mobile marketing
Outdoor Media Repetition; moderate cost; flexibility; geographic selectivity Short message; lack of demographic selectivity; high “noise”
level distracting audience
mass-market medium, however, they may not be the best brand. For example, Estée Lauder may split the cost of
vehicle for marketers trying to reach a very narrow market. an advertisement with Macy’s department store provid-
Newspaper advertising also encounters distractions from ed that the ad focuses on Estée Lauder’s products. One
competing ads and news stories. Therefore, one company’s reason manufacturers use cooperative advertising is the
ad may not be particularly visible. impracticality of listing all their dealers in national ad-
The main sources of newspaper ad revenue are local vertising. Also, cooperative advertising encourages re-
retailers, classified ads, and cooperative advertising. In tailers to devote more effort to the manufacturer’s lines.
cooperative advertising, the manufacturer and the MAGAZINES Magazines are another traditional medi-
retailer split the costs of advertising the manufacturer’s um that has been successful. Some of the top magazines
according to circulation include AARP, Better
Homes and Gardens, Reader’s Digest, National
Geographic, and Good Housekeeping. How-
ever, compared to the cost of other media, the
cost per contact in magazine advertising is usu-
ally high. The cost per potential customer may
be much lower, however, because magazines
are often targeted to specialized audiences and
thus reach more potential customers.
Brian A Jackson/Shutterstock.com
RADIO Radio has several strengths as an ad-

vertising medium: selectivity and audience seg-
mentation, a large
out-of-home au- cooperative advertising
an arrangement in which the
dience, low unit manufacturer and the retailer split
and production the costs of advertising the
costs, timeliness, manufacturer’s brand
and geographic flexibility. Local advertisers are the most to nonprogram material (ads, public service announce-
frequent users of radio advertising, contributing over 75 ments, and network promotions), so the popularity
percent of all radio ad revenue. Like newspapers, radio of DVRs among ad-weary viewers is hardly surpris-
also lends itself well to cooperative advertising. ing. Like marketers and advertisers, networks are also
highly concerned about ad skipping. If consumers
TELEVISION Television broadcasters include net-
are not watching advertisements, then marketers will
work television, independent stations, cable television,
spend a greater proportion of their advertising budgets
and direct broadcast satellite television. Network tele-
on alternative media, and a critical revenue stream for
vision reaches a wide and diverse market, and cable
networks will disappear.
television and direct broadcast satellite systems, such
as DIRECTV and DISH Network, broadcast a mul- THE INTERNET Online advertising has become a ver-
titude of channels devoted to highly segmented mar- satile medium to target specific groups. U.S. digital ad
kets. Because of its targeted channels, cable television revenues exceed $50 billion annually and are expected
is often characterized as “narrowcasting” by media to increase to $82 billion annually by 2018. This figure
buyers. DIRECTV is testing the ability to serve ads is projected to grow to more than $163 billion by 2016,
based on household data (as opposed to demograph- at which point it will represent 26 percent of all adver-
ic and geographic data). To stay relevant amidst new tising expenditures.23 Online advertising includes search
technologies, DIRECTV and other television-focused engine marketing (e.g., pay-per-click ads like Google
companies are beginning to recognize the need for AdWords), display advertising (e.g., banner ads, video
better audience targeting.20 ads), social media advertising (e.g., Facebook ads), e-mail
Advertising time on television can be very expen- marketing, and mobile marketing (including mobile ad-
sive, especially for network and popular cable chan- vertising and SMS). Some online channels like Google
nels. Special events and first-run prime-time shows for offer the ability to audience buy (whereby advertisers can
top-ranked television programs command the highest purchase ad space targeted to a highly specific group),
rates for a typical commercial. For example, running a but others, such as Turner Digital’s FunnyOrDie.com,
thirty-second spot during the sitcom How to Get Away believe the complex cookie-based strategy poses too
with Murder on ABC costs $146,113, while running one many risks.24
during NFL Sunday Football costs $627,300. Cable pro- Popular Internet sites and search engines gener-
grams like ESPN’s Monday Night Football command ally sell advertising space to marketers to promote their
similarly hefty price tags.20 A thirty-second spot during goods and services. Internet surfers click on these ads
the Super Bowl costs approximately $4.5 million.21 De- to be linked to more information about the advertised
spite its high cost, many brands feel that a Super Bowl product or service. Both leading advertisers and compa-
ad is a good investment given the earned media leading nies whose ad budgets are not as large have become big
up to the game, during the game, and after the game.22 Internet advertisers. Because of the relative low cost and
An alternative to a commercial spot is the infomercial, high targetability, search engines generate nearly half of
a 30-minute or longer advertisement, which is relatively all Internet ad revenue. Display and banner ads are the
inexpensive to produce and air. Advertisers say the in- next largest source of Internet revenue, followed by clas-
fomercial is an ideal way to present complicated infor- sifieds, mobile, and digital video.25
mation to potential customers, which other advertising Another popular Internet advertising format is
vehicles typically do not allow time to do. Beachbody’s advergaming, whereby companies put ad messag-
P90X and Insanity exercise DVDs are advertised through es in Web-based, mobile, console, or handheld video
infomercials. games to advertise or promote a product, service, or-
Probably the most ganization, or issue. Gamification, the process of using
infomercial a 30-minute or significant trend of con- game mechanics and a gaming mindset to engage an
longer advertisement that looks cern to television adver- audience, is increasingly important for marketers to
more like a television talk show than
a sales pitch tising is the rise in popu- know about and utilize. Challenges, rewards, incen-
larity of digital video tives, and competition are all important aspects in so-
advergaming placing recorders (DVRs) and cial media games like Candy Crush Saga and Candy
advertising messages in Web-based,
mobile, console, or handheld video on-demand viewing. For Crush Soda Saga.26 Some games amount to virtual
games to advertise or promote a every hour of television commercials; others encourage players to buy in-game
product, service, organization, programming, an average items and power-ups to advance; and still others al-
or issue of 20 minutes is dedicated low advertisers to sponsor games or buy ad space for
product placements. Many of these are social games, grocery stores, computer screen savers, interactive ki-
played on Facebook or mobile networks, where play- osks in department stores, advertisements run before
ers can interact with one another. Social gaming has movies at the cinema, posters on bathroom stalls, and
a huge audience—according to Facebook CEO Mark advertainments—mini movies that promote a product
Zuckerberg, 235 million people play social games on and are shown online.
Facebook every month. The Facebook gaming mar- Marketers are looking for more innovative ways
ket is projected to more than double in the next three to reach captive and often bored commuters. For
years, attracting 554 million people and generating instance, subway systems are now showing ads via
$5.6 billion.27 lighted boxes installed along tunnel walls. Other ad-
More than three-fourths of Americans have mo- vertisers seek consumers at home. Some marketers
bile phones, and over one-third of those are smart- have begun replacing hold music on customer service
phones. Fifty-five percent of mobile phone owners lines with advertisements and movie trailers. This
access the Web on their phones, making mobile Web strategy generates revenue for the company being
sites and apps more important.28 Mobile advertising called and catches undistracted consumers for ad-
has substantial upside potential given that there are vertisers. The trick is to amuse and interest this cap-
more than six billion cell phone users in the world, and tive audience without annoying them during their
an increasing number of those users have smartphones ten- to fifteen-minute wait. After Yahoo! CEO Ma-
or tablets with Internet access. Mobile advertising rissa Mayer called her company’s on-hold message
is finally reaching its tipping point, reaching almost “garbage,” audio production startup Jingle Punks
$24 billion annually. This accounts for nearly all growth hired Canadian rapper Snow (known for his 1992 hit
in digital advertising. The primary reason is that people “Informer”) to write a humorous on-hold jingle for
are spending more of their time (19.4 percent) on mo- Yahoo! (you can hear the jingle at www.youtube.com
bile devices rather than on desktops and laptops.29 As /watch?v=vRmVDADlnOU). Yahoo! has yet to imple-
devices such as the iPad continue to grow in popular- ment the jingle, however.30
ity, mobile advertising spending will continue to grow
worldwide.
OUTDOOR MEDIA Outdoor or out-of-home advertis-
ing is a flexible, low-cost medium that may take a variety
of forms. Examples include billboards, skywriting, giant
inflatables, mini billboards in malls and on bus stop shel-
ters, signs in sports arenas, and lighted moving signs in
bus terminals and airports, as well as ads painted on cars,
trucks, buses, water towers, manhole covers, drinking
glass coasters, and even people, called “living advertis-
ing.” The plywood scaffolding surrounding downtown
construction sites often holds ads, which in places like
Manhattan’s Times Square, can reach over a million
viewers a day.
Outdoor advertising reaches a broad and diverse
PureSolution/Shutterstock.com
market and is therefore ideal for promoting convenience
products and services as well as directing consumers to
local businesses. One of outdoor advertising’s main ad-
vantages over other media is that its exposure frequency
is very high, yet the amount of clutter from competing
ads is very low. Outdoor advertising also can be cus-
tomized to local marketing needs, which is why local There are a number of factors to
businesses are the leading outdoor advertisers in any
consider before committing to any sort
given region.
of advertising medium; this includes
ALTERNATIVE MEDIA To cut through the clutter flexibility of the medium, noise level, and
of traditional advertising media, advertisers are de- the life span of the medium.
veloping new media vehicles, like shopping carts in
16-4b Media Selection Considerations first three months of the campaign. Reach is related to a
medium’s ratings, generally referred to in the industry as
An important element in any advertising campaign is the
gross ratings points, or GRP. A television program with a
media mix, the combination of media to be used. Me- higher GRP means that more people are tuning in to the
dia mix decisions are typically based on several factors:
show and the reach is higher. Accordingly, as GRP in-
cost per contact, cost per click, reach, frequency, target
creases for a particular medium, so does cost per contact.
audience considerations, flexibility of the medium, noise
Because the typical ad is short-lived, and often only
level, and the life span of the medium.
a small portion of an ad may be perceived at one time,
Cost per contact, also referred to as advertisers repeat their ads so that potential customers
cost per thousand (CPM), is the cost of reaching one will remember the message. Frequency is the number
member of the target market. Naturally, as the size of
of times an individual is exposed to a given message dur-
the audience increases, so does the total cost. Cost per
ing a specific period. Advertisers use average frequency
contact enables an advertiser to compare the relative
to measure the intensity of a specific medium’s coverage.
costs of specific media vehicles (such as television ver-
For example, Coca-Cola might want an average expo-
sus radio or magazine versus newspaper), or more spe-
sure frequency of five for its Powerade television ads.
cifically, within a media category (such as People versus
That means that each of the television viewers who saw
US Weekly). Thus, an advertiser debating whether to
the ad saw it an average of five times.
spend local advertising dollars for television spots or
Media selection is also a matter of matching the
radio spots could consider the cost per contact of each.
advertising medium with the product’s target market. If
Alternatively, if the question is which magazine to ad-
marketers are trying to reach teenage females, they might
vertise in, she might choose the one with the greater
select Teen Vogue magazine. A medium’s ability to reach
reach. In either case, the advertiser can pick the vehicle
a precisely defined market is its audience selectivity.
with the lowest cost per contact to maximize advertising
Some media vehicles, like general newspapers and net-
punch for the money spent. Cost per click is the cost
work television, appeal to a wide cross section of the
associated with a consumer clicking on a display or ban-
population. Others—such as Brides, Popular Mechanics,
ner ad. Although there are several variations, this option
Architectural Digest, Lucky, MTV, ESPN, and Christian
enables the marketer to pay only for “engaged” consum-
radio stations—appeal to very specific groups.
ers—those who opted to click on an ad.
The flexibility of a medium can be extremely im-
Reach is the number of target customers who are portant to an advertiser. For example, because of layouts
exposed to a commercial at least once during a specific
and design, the lead time for magazine advertising is
period, usually four weeks. Media plans for product in-
considerably longer than for other media types and so is
troductions and attempts
less flexible. By contrast, radio and Internet advertising
media mix the combination of at increasing brand aware-
provide maximum flexibility. If necessary, an advertiser
media to be used for a promotional ness usually emphasize
can change a radio ad on the day it is aired.
campaign reach. For example, an ad-
Noise level is the level of distraction experienced by
cost per contact (cost per vertiser might try to reach
the target audience in a medium. Noise can be created by
thousand or CPM) the cost seventy percent of the tar-
competing ads, as when a street is lined with billboards
of reaching one member of the get audience during the
or when a television program is cluttered with competing
target market
cost per click the cost

associated with a consumer clicking
on a display or banner ad
reach the number of target

consumers exposed to a commercial
Zealot /Shutterstock.com
at least once during a specific

period, usually four weeks
frequency the number of times

an individual is exposed to a given
message during a specific period
audience selectivity the There are many ways for viewers to avoid watching
ability of an advertising medium to
reach a precisely defined market commercials; this includes the use of a DVR.
ads. Whereas newspapers and magazines have a high Unified, a pioneering approach to cross-media adver-
noise level, direct mail is a private medium with a low tising, is quickly gaining popularity among ABC’s more
noise level. Typically, no other advertising media or news than 200 advertisers.31
stories compete for direct mail readers’ attention.
Media have either a short or a long life span, which
means that messages can either quickly fade or persist as
16-4c Media Scheduling
tangible copy to be carefully studied. A radio commer- After choosing the media for the advertising campaign,
cial may last less than a minute, but advertisers can over- advertisers must schedule the ads. A media schedule
come this short life span by repeating radio ads often. In designates the medium or media to be used (such as
contrast, a magazine has a relatively long life span, which magazines, television, or radio), the specific vehicles
is further increased by a high pass-along rate. (such as People magazine, the show Scandal on televi-
Media planners have traditionally relied on the sion, or Rush Limbaugh’s national radio program), and
above factors in selecting an effective media mix, with the insertion dates of the advertising.
reach, frequency, and cost often the overriding criteria. There are four basic types of media schedules:
Well-established brands with familiar messages, howev- ● A continuous media schedule allows the ad-
er, probably need fewer exposures to be effective, while vertising to run steadily throughout the advertising
newer or unfamiliar brands likely need more exposures period. Examples include Ivory soap and Charmin
to become familiar. In addition, today’s media planners toilet tissue, which may have an ad in the newspaper
have more media options than ever before. (Today, there every Sunday and a television commercial on NBC
are over 1,600 television networks across the country, every Wednesday at 7:30 p.m. over a three-month
whereas forty years ago there were only three.) time period. Products in the later stages of the prod-
The proliferation of media channels is causing uct life cycle, which are advertised on a reminder
media fragmentation and forcing media planners to pay basis, often use a continuous media schedule.
as much attention to where they place their advertising as
● With a flighted media schedule, the advertiser
to how often the advertisement is repeated. That is, mar-
may schedule the ads heavily every other month or
keters should evaluate reach and frequency in assessing
every two weeks to achieve a greater impact with an
the effectiveness of advertising. In certain situations, it
increased frequency and reach at those times. Mov-
may be important to reach potential consumers through
ie studios might schedule television advertising on
as many media vehicles as possible. When this approach
Wednesday and Thursday nights, when moviegoers
is considered, however, the budget must be large enough
are deciding which films
to achieve sufficient levels of frequency to have an im-
to see that weekend. media schedule designation
pact. In evaluating reach versus frequency, therefore, the of the media, the specific
media planner ultimately must select an approach that ● A pulsing media publications or programs, and the
is most likely to result in the ad being understood and schedule combines insertion dates of advertising
remembered when a purchase decision is being made. continuous scheduling continuous media
Advertisers also evaluate the qualitative factors in- with flighted schedul- schedule a media scheduling
volved in media selection. These include such things as ing. It is continuous ad- strategy in which advertising is run
steadily throughout the advertising
attention to the commercial and the program, involve- vertising that is simply period; used for products in the later
ment, program liking, lack of distractions, and other heavier during the best stages of the product life cycle
audience behaviors that affect the likelihood that a com- sale periods. A retail
flighted media schedule a
mercial message is being seen and, hopefully, absorbed. department store may media scheduling strategy in
While advertisers can advertise their product in as many advertise on a year- which ads are run heavily every
media as possible and repeat the ad as many times as round basis but place other month or every two weeks to
achieve a greater impact with an
they like, the ad still may not be effective if the audience more advertising dur-
increased frequency and reach at
is not paying attention. Additional research highlights ing certain sale periods those times
the benefits of cross-media advertising campaigns. Ac- such as Thanksgiving,
pulsing media schedule a
cording to Rick Mandler, VP of Digital Ad Sales at televi- Christmas, and back-to- media scheduling strategy that uses
sion network ABC, running an ad both on television and school. Or beer may be continuous scheduling throughout
online delivers a lower median age, but delivers greater advertised more heavily the year coupled with a flighted
frequency and reach in the 18 to 24 age range, as well during the summer schedule during the best sales
periods
as greater overall reach for adults ages 18 to 49. ABC months and football
season given the higher consumption
levels at those times.
● Certain times of the year call for a
seasonal media schedule. Prod-
ucts like Sudafed cold tablets and
Coppertone sunscreen, which are used
more during certain times of the year,
tend to follow a seasonal strategy.
Research comparing continuous me-
AP Images/John Shearer/Invision
dia schedules and flighted ones suggests
that continuous schedules are more ef-
fective than are flighted ones at driving
sales through television advertisements.
This research suggests that it may be im-
portant to reach a potential customer as
close as possible to the time at which he
makes a purchase. Therefore, the advertis- Big Mama’s and Papa’s Pizzeria received more than $10
er should maintain a continuous schedule million in free publicity after Ellen DeGeneres placed
over as long a period of time as possible. an order with the restaurant during the 2014 Academy
Often called recency planning, this theory Awards broadcast.
of scheduling is now commonly used for
scheduling television advertising for fre-
quently purchased products such as Coca-Cola and Tide maintain a positive image of the corporation in the eyes
detergent. Recency planning’s main premise is that ad- of the public. As such, they should capitalize on the fac-
vertising works by influencing the brand choice of peo- tors that enhance the firm’s image and minimize the fac-
ple who are ready to buy. Mobile advertising may be one tors that could generate a negative image. The concept of
of the most promising tactics for contacting consumers earned media is based on public relations and publicity.
when they are thinking about a specific product. For ex- Publicity is the effort to capture media attention—
ample, a GPS-enabled mobile phone can get text mes- for example, through articles or editorials in publications
sages for area restaurants around lunchtime to advertise or through human-interest stories on radio or televi-
specials to professionals working in a big city. sion programs. Corporations usually initiate publicity
through press releases that further their public relations
plans. A company about to introduce a new product or
16-5 PUBLIC RELATIONS open a new store may send press releases to the media
in the hope that the story will be published or broadcast.
Public relations is the element in the promotional Savvy publicity can often create overnight sensations or
mix that evaluates public attitudes, identifies issues build up a reserve of goodwill with consumers. Corpo-
that may elicit public rate donations and sponsorships can also create favor-
seasonal media schedule a
media scheduling strategy that runs
concern, and executes able publicity.
advertising only during times of the programs to gain public
year when the product is most likely understanding and ac- 16-5a Major Public Relations Tools
to be used ceptance. Public relations
public relations the element in is a vital link in a forward- Public relations professionals commonly use several tools,
the promotional mix that evaluates thinking company’s market- many of which require an active role on the part of the
public attitudes, identifies issues public relations professional, such as writing press releas-
that may elicit public concern, and
ing communication mix.
Marketing managers plan es and engaging in proactive media relations. Sometimes,
executes programs to gain public
understanding and acceptance solid public relations cam- however, these techniques create their own publicity.
publicity an effort to capture paigns that fit into overall NEWPRODUCT PUBLICITY Publicity is instrumen-
media attention, often initiated marketing plans and fo- tal in introducing new products and services. Publicity
through press releases that further a cus on targeted audiences. can help advertisers explain what’s different about their
corporation’s public relations plans
These campaigns strive to new product by prompting free news stories or positive
word of mouth about it. During the introductory pe- Global product placement expenditures total
riod, an especially innovative new product often needs about $8 billion annually ($4.3 billion in the Unit-
more exposure than conventional, paid advertising af- ed States alone).32 More than two-thirds of product
fords. Public relations professionals write press releases placements are in movies and television shows, but
or develop videos in an effort to generate news about placements in other alternative media are grow-
their new product. They also jockey for exposure of their ing, particularly on the Internet and in video games.
product or service at major events, on popular television Digital technology now enables companies to “virtu-
and news shows, or in the hands of influential people. ally” place their products in any audio or video pro-
Consider the publicity Apple generated for the release of duction. Virtual placement not only reduces the cost
the iPad Air, which included press coverage in traditional of product placement for new productions but also
media as well as online blogs and forums. That was a enables companies to place their products in previ-
small part of the entire marketing campaign. ously produced programs, such as reruns of television
PRODUCT PLACEMENT Marketers are increasingly shows. Overall, companies obtain valuable product
using product placement to reinforce brand awareness exposure, brand reinforcement, and increased sales
and create favorable attitudes. Product placement is through product placement.
a strategy that involves getting one’s product, service, or CONSUMER EDUCATION Some major firms believe
name to appear in a movie, television show, radio pro- that educated consumers are more loyal customers.
gram, magazine, newspaper, video game, video or audio Financial planning firms
clip, book, or commercial for another product; on the In- often sponsor free educa- product placement a public
ternet; or at special events. Including an actual product, tional seminars on money relations strategy that involves
such as a can of Pepsi, adds a sense of realism to a movie, management, retirement getting a product, service, or
television show, video game, book, or similar vehicle that planning, and investing in company name to appear in a movie,
television show, radio program,
cannot be created by a can simply marked “soda.” Prod- the hope that the seminar magazine, newspaper, video
uct placements are arranged through barter (trade of participants will choose game, video or audio clip, book, or
product for placement), through paid placements, or at the sponsoring organiza- commercial for another product; on
no charge when the product is viewed as enhancing the tion for their future finan- the Internet; or at special events
vehicle it is placed in. cial needs.
The Many Duties of Public Relations Departments

Public relations departments may perform any or all of the following functions:
● Press relations: Placing positive, newsworthy information in the news media or
©o
in the hands of influential bloggers to attract attention to a product, a service, or a

lex i
us/ S
person associated with the firm or institution

hu t t
Product publicity: Publicizing specific products or services through a variety of

er s t
●
ock
traditional and online channels

14 9
737
● Corporate communication: Creating internal and external messages to promote

0 13
a positive image of the firm or institution

● Public affairs: Building and maintaining local, national, or global community relations
● Lobbying: Influencing legislators and government officials to promote or defeat
legislation and regulation
● Employee and investor relations: Maintaining positive relationships with em-
ployees, shareholders, and others in the financial community
● Crisis management: Responding to unfavorable publicity or a negative event
placement, often at a much lower cost than in mass media like television ads
SPONSORSHIP Sponsorships are in-
creasing both in number and as a propor-
tion of companies’ marketing budgets.
Currently sitting at about $32 billion annu-
ally, U.S. sponsorship spending is likewise
increasing.33 Probably the biggest reason
for the increasing use of sponsorships is
the difficulty of reaching audiences and
differentiating a product from competing
Joseph Sohm/Shutterstock.com
brands through the mass media.
With sponsorship, a company
spends money to support an issue, cause, or
event that is consistent with corporate ob-
jectives, such as improving brand awareness
or enhancing corporate image. The biggest
category of sponsorships is sports, which ac-
counts for almost 70 percent of spending in Corporations sponsor events in an attempt to market
sponsorships and has seen steady growth in their product. The yearly Rose Bowl game has been
recent years.34 Nonsports categories include sponsored by companies like Citi and Northwestern
entertainment tours and attractions, causes, Mutual.
arts, festivals, fairs and annual events, and
association and membership organizations. marketing involves engaging with consumers in a way that
Although the most popular sponsorship events are enables them to feel the brand—not just read about it. Expe-
still those involving sports, music, or the arts, companies riential and event marketing have increased in recent years,
have recently been turning to more specialized events with most of the growth coming from the world’s largest
such as tie-ins with schools, charities, and other com- brands. Examples of experiential marketing include Ameri-
munity service organizations. Marketers sometimes even can Express’s Small Business Saturday, which promotes shop-
create their own events tied around their products. For ping at local businesses, and Clear Channel’s effort to run a
example, energy drink manufacturer Red Bull hosted carnival-style dunk tank in New York City’s Times Square.36
Stratos, a multimillion-dollar event where Austrian Felix
Baumgartner skydived from the edge of space—nearly COMPANY WEB SITES Companies are increasingly
twenty-four miles above Earth’s surface. Baumgartner using the Internet in their public relations strategies.
became the first human to break the sound barrier in Company Web sites are used to introduce new products;
free fall, reaching 834 miles per hour before touching provide information to the media, including social media
down safely in New Mexico. A major marketing victory news releases; promote existing products; obtain con-
for Red Bull, Stratos set its own record as the most- sumer feedback; communicate legislative and regulatory
watched YouTube live stream of all time—more than information; showcase upcoming events; provide links
eight million viewers tuned in to the event. 35 to related sites (including corporate and non-corporate
Corporations sponsor issues as well as events. Sponsor- blogs, Facebook, and Twitter); release financial informa-
ship issues are quite diverse, but the three most popular are tion; interact with customers and potential customers;
education, health care, and social programs. Firms often and perform many more marketing activities. In addition,
donate a percentage of sales or profits to a worthy cause social media are playing a larger role in how companies
favored by their target market. interact with customers online, particularly through sites
like Facebook, Yelp, or Twitter. Indeed, online reviews
EXPERIENTIAL MARKET (good and bad) from opinion leaders and other consumers
ING While the Internet en- help marketers sway purchasing decisions in their favor.
sponsorship a public relations ables consumers to connect
strategy in which a company
with their favorite brands in
spends money to support an issue, 16-5b Managing Unfavorable Publicity
cause, or event that is consistent a virtual environment, there
with corporate objectives, such is often nothing like expe- Although marketers try to avoid unpleasant situa-
as improving brand awareness or riencing the real thing live tions, crises do happen. In our free-press environment,
enhancing corporate image
and in person. Experiential publicity is not easily controlled, especially in a crisis.
Crisis management is the coordinated effort to han- Sales promotion is usually cheaper than advertising
dle the effects of unfavorable publicity, ensuring fast and and easier to measure. A major national television adver-
accurate communication in times of emergency. tising campaign often costs $10 million or more to create,
When the Villa Fresh Italian Kitchen ran “Dub the produce, and place. In contrast, promotional campaigns
Dew,” an online contest to name a green apple–flavored va- using the Internet or direct marketing methods can cost
riety of Mountain Dew exclusive to the restaurant, it was not less than half that amount. It is also very difficult to de-
long before Internet trolls descended. These digital prank- termine how many people buy a product or service as a
sters submitted absurd and offensive names (such as “dia- result of radio or television ads. With sales promotion,
beetus,” “gushing granny,” and “Hitler did nothing wrong”), marketers know the precise
and then voted their submissions to the top of the contest number of coupons redeemed
crisis management a
leaderboard en masse. The contest’s Web site was quickly or the number of contest en- coordinated effort to handle
taken offline, and Mountain Dew tweeted that the contest tries received. all the effects of unfavorable
“lost to the internet.” In an attempt to manage the crisis, the Sales promotion usually publicity or another unexpected
has more effect on behavior unfavorable event
Villa Fresh Italian Kitchen issued an apologetic statement:
“‘Dub the Dew,’ a local market promotional campaign that was than on attitudes. Giving the sales promotion
created by one of our customers—not Mountain Dew—was consumer an incentive to marketing communication
make an immediate purchase activities other than advertising,
compromised. We are working diligently with our customer’s
personal selling, and public
team to remove all offensive content that was posted and put- is the goal of sales promotion, relations, in which a short-term
ting measures in place to ensure this doesn’t happen again.”37 regardless of the form it takes. incentive motivates consumers
Sales promotion is usually or members of the distribution
targeted toward either of two channel to purchase a good
16-6 SALES PROMOTION distinctly different markets.
or service immediately, either
by lowering the price or by
Trade sales promotion adding value
In addition to using advertising and public relations, is directed to members of
trade sales promotion
marketing managers can use sales promotion to the marketing channel, such promotion activities directed
increase the effectiveness of their promotional as wholesalers and retailers. to members of the marketing
efforts. Sales promotion consists of marketing commu- Consumer sales promotion channel, such as wholesalers
nication activities other than advertising, personal sell- is targeted to the ultimate and retailers
ing, and public relations, in which a short-term incen- consumer market. The objec- consumer sales
tive motivates consumers or members of the distribution tives of a promotion depend promotion promotion
channel to purchase a good or service immediately, ei- on the general behavior of tar- activities targeted to the ultimate
consumer market
ther by lowering the price or by adding value. geted customers Exhibit 16.4.
EXHIBIT 16.4 TYPES OF CONSUMERS AND SALES PROMOTION GOALS

Type of Buyer Desired Results Sales Promotion Examples
Loyal customers Reinforce behavior, increase Loyalty marketing programs, such as frequent buyer cards or frequent
People who buy your product most consumption, change purchase shopper clubs
or all of the time timing
Bonus packs that give loyal consumers an incentive to stock up or
premiums offered in return for proofs of purchase
Competitor’s customers Break loyalty, persuade to switch Sampling to introduce your product’s superior qualities compared
People who buy a competitor’s to your brand to their brand
product most or all of the time
Sweepstakes, contests, or premiums that create interest in the product
Brand switchers Persuade to buy your brand Any promotion that lowers the price of the product, such as coupons,
People who buy a variety of products more often price-off packages, and bonus packs
in the category
Trade deals that help make the product more readily available than
competing products
Price buyers Appeal with low prices or supply Coupons, price-off packages, refunds, or trade deals that reduce
People who consistently buy the added value that makes price less the price of the brand to match that of the brand that would have
least expensive brand important been purchased
From Sales Promotion Essentials, 2nd ed., by Don E. Schultz, William A. Robinson, and Lisa A. Petrison, published by McGraw-Hill Education.
For example, marketers who are targeting loyal users personnel if the product is rather complex—as
of their product need to reinforce existing behavior or frequently occurs in the computer and telecom-
increase product usage. An effective tool for strengthen- munications industries. For example, representa-
ing brand loyalty is the frequent buyer program, which tives of major pharmaceutical companies receive
rewards consumers for repeat purchases. Other types of extensive training because they need to provide
promotions are more effective with customers who are accurate information to doctors and nurses.
prone to brand switching or with those who are loyal to ● Free merchandise: Often a manufacturer offers
a competitor’s product. A cents-off coupon, free sample, retailers free merchandise in lieu of quantity dis-
or eye-catching display in a store will often entice shop- counts. Occasionally, free merchandise is used as
pers to try a different brand. payment for trade allowances normally provided
Once marketers understand the dynamics occurring through other sales promotions. Instead of giving
within their product category and determine the particu- a retailer a price reduction for buying a certain
lar customers and behaviors they want to influence, they quantity of merchandise, the manufacturer may
can then go about selecting promotional tools to achieve throw in extra merchandise “free” (i.e., at a cost
these goals. that would equal the price reduction).
● Store demonstrations: Manufacturers can also
16-6a Tools for Trade Sales Promotion arrange with retailers to perform an in-store dem-
onstration. Food manufacturers often send repre-
As we’ll discuss in section 16-6b, consumer promotions
sentatives to grocery stores and supermarkets to
pull a product through the channel by creating demand.
let customers sample a product while shopping.
However, trade promotions push a product through the
distribution channel (see Chapter 13). When selling to ● Business meetings, conventions, and trade
members of the distribution channel, manufacturers shows: Trade association meetings, conferences,
use many of the same sales promotion tools used in con- and conventions are an important aspect of sales
sumer promotions, such as sales contests premiums and promotion and a growing, multi-billion-dollar
point-of-purchase displays. Several tools, however, are market. At these shows, manufacturers, distribu-
unique to manufacturers and intermediaries: tors, and other vendors have the chance to display
their goods or describe their services to potential
● Trade allowances: A trade allowance is a price
customers. Companies participate in trade shows
reduction offered by manufacturers to intermediaries
to attract and identify new prospects, serve cur-
such as wholesalers and retailers. The price reduction
rent customers, introduce new products, enhance
or rebate is given in exchange for doing something
corporate image, test the market response to new
specific, such as allocating space for a new product
products, enhance corporate morale, and gather
or buying something during special periods. For ex-
competitive product information.
ample, a local Best Buy outlet could receive a special
discount for running its own promotion on Sony sur- Trade promotions are popular among manufactur-
round sound systems. ers for many reasons. Trade sales promotion tools help
manufacturers gain new distributors for their products,
●Push money: Intermediaries receive push money as obtain wholesaler and retailer support for consumer
a bonus for pushing the manufacturer’s brand through sales promotions, build or reduce dealer inventories,
the distribution channel. Often the push money is di- and improve trade relations. Car manufacturers annually
rected toward a retailer’s salespeople. LinoColor, the sponsor dozens of auto shows for consumers. The shows
leading high-end scanner company, produces a Picture attract millions of consumers, providing dealers with in-
Perfect Rewards catalog creased store traffic as well as good leads.
trade allowance a price filled with merchandise
reduction offered by manufacturers
retailers can purchase
to intermediaries such as
wholesalers and retailers with points accrued for 16-6b Tools for Consumer Sales Promotion
every LinoColor scan-
push money money offered to Marketing managers must decide which consumer sales
ner they sell.
channel intermediaries to encourage promotion devices to use in a specific campaign. The
them to “push” products—that is, ● Training: Sometimes methods chosen must suit the objectives to ensure suc-
to encourage other members of the a manufacturer will cess of the overall promotion plan. The popular tools for
channel to sell the products
train an intermediary’s consumer sales promotion, discussed in the following
pages, have also been easily transferred to online ver- some proof of purchase, the reward is not
sions to entice Internet users to visit sites, as immediate. Manufacturers prefer re-
purchase products, or use services bates for several reasons. Rebates al-
on the Web. low manufacturers to offer price cuts
COUPONS AND REBATES A to consumers directly. Manufacturers
coupon is a certificate that en- have more control over rebate pro-
titles consumers to an immediate motions because they can be rolled
price reduction when the product out and shut off quickly. Further,
is purchased. Coupons are a particu- because buyers must fill out forms
ne z2
larly good way to encourage product with their names, addresses, and
o. co m /M ag
trial and repurchase. They are also other data, manufacturers use rebate
likely to increase the amount of a programs to build customer databas-
es. Perhaps the best reason of all to
iS to ck ph ot
product bought. Coupons can
be distributed in stores as instant offer rebates is that although rebates
coupons on packaging, on shelf American Express is are particularly good at enticing pur-
displays with pull-off coupon chase, most consumers never bother
experimenting with Twitter to
dispensers, and at cash registers, to redeem them—only about 40 per-
offer cardholders great deals at
printed based on what the cus- cent of consumers eligible for rebates
participating businesses.
tomer purchased; through free- collect them.40
standing inserts (FSIs); and through various Internet PREMIUMS A premium is an extra item offered to
daily deal sites. the consumer, usually in exchange for some proof that
FSIs, the promotional coupons inserts found in the promoted product has been purchased. Premiums
newspapers, are the traditional way of circulating print- reinforce the consumer’s purchase decision, increase
ed coupons. FSIs are used to distribute approximately consumption, and persuade nonus-
80 percent of coupons. Such traditional types of coupon ers to switch brands. A longstanding coupon a certificate
distribution, which also include direct mail and maga- example of the use of premiums is that entitles consumers
zines, have been declining for several years, as consumers the McDonald’s Happy Meal, which to an immediate price
reduction when the
use fewer coupons. About 3 billion coupons are re- rewards children with a small toy.
product is purchased.
deemed annually. Mobile coupons have a much higher Premiums can also include more
redemption rate than paper coupons.38 product for the regular price, such rebate a cash refund
given for the purchase
The Internet is changing the face of coupons. In as two-for-the-price-of-one bonus
of a product during a
addition to Internet coupon sites such as Valpak.com packs or packages that include more specific period
and Coolsavings.com, and social coupon sites such as of the product. Some companies at-
premium an extra
Groupon and LivingSocial, there are also deal sites like tach a premium to the product’s
item offered to the
DealSurf.com that aggregate offers from different sites package, such as a small sample of consumer, usually in
for convenience. While daily deal sites have been quite a complementary hair product at- exchange for some
popular with consumers, sites like Groupon and Living- tached to a shampoo bottle. proof of purchase of the
promoted product
Social are coming under some fire as many small busi- LOYALTY MARKETING PRO
nesses claim they lose money or drown under the flood GRAMS A loyalty marketing loyalty marketing
of coupon redemptions. American Express is using program a
program builds long-term, mu- promotional program
Twitter to drive card use. After syncing their credit tually beneficial relationships be- designed to build long-
cards to their Twitter accounts, American Express cus- tween a company and its key term, mutually beneficial
tomers can send tweets using an approved hashtag (or customers. One of the most popu- relationships between
“cashtag”) to pay for items purchased through third- a company and its key
lar types of loyalty programs, the customers
party retailers. Cardholders can also receive automatic frequent buyer program, re-
discounts from partner businesses on Twitter when wards loyal consumers for making frequent buyer
they make purchases with their American Express program a loyalty
multiple purchases. The objective program in which loyal
cards.39 of loyalty marketing programs is to consumers are rewarded
A rebate is similar to a coupon in that a rebate of- build long-term, mutually beneficial for making multiple
fers the purchaser a price reduction; however, because relationships between a company purchases of a particular
the purchaser must mail in a rebate form and usually and its key customers.
good or service
There are almost three billion loy-
alty program memberships in the United
States; the average household has signed
up for 18 programs.41 Popularized by the
airline industry through frequent-flyer
programs, loyalty marketing enables com-
panies to strategically invest sales promo-
tion dollars in activities designed to capture
greater profits from customers already loy-
al to the product or company. Co-branded
credit cards are an increasingly popular
loyalty marketing tool. Most department
stores only offer loyalty programs if a cus-
tomer opens their branded credit card.
Source: Mead Johnson & Company

However, high-end chain Bloomingdales
recently changed its rewards program to
include anyone who will sign up. Mem-
bers of the new Loyalist program receive
one point for each dollar they spend and
receive a $25 gift card after earning 5,000
points. While Bloomingdale’s credit card
holders receive more points per dollar Baby formula companies like Enfamil, will send samples
spent, the company is hoping to monitor to expectant mothers or homes where baby’s were
a greater number of its shoppers’ spending recently born.
habits by enabling non-cardholders to join
Loyalist.42 instead of one huge prize to just one person often
Through loyalty programs, shoppers receive dis- will increase the effectiveness of the promotion, but
counts, alerts on new products, and other types of en- there is no denying the attractiveness of a jackpot-
ticing offers. In exchange, retailers are able to build type prize.
customer databases that help them better understand
customer preferences. SAMPLING Sampling allows the customer to try a
product risk-free. In a recent study, in-store sampling
CONTESTS AND SWEEPSTAKES Contests and proved to be the most successful promotional tactic
sweepstakes are generally designed to create interest in when researchers introduced a new dairy product to gro-
a good or service, often to encourage brand switching. cery stores. In-store sampling events increased sales 116
Contests are promotions in which participants use some percent, outperforming aisle displays (70 percent), ad
skill or ability to compete for prizes. A consumer contest circulars (63 percent), and temporary price reductions
usually requires entrants to answer questions, complete (48 percent).43
sentences, or write a paragraph about the product and Samples can be directly mailed to the customer,
submit proof of purchase. Winning a sweepstakes, on the delivered door-to-door, packaged with another prod-
other hand, depends on chance, and participation is free. uct, or demonstrated or distributed at a retail store or
Sweepstakes usually draw about ten times more entries service outlet. Sampling at special events is a popular,
than contests do. effective, and high profile distribution method that per-
While contests and sweepstakes may draw con- mits marketers to piggyback onto fun-based consumer
siderable interest and publicity, generally they are activities—including sporting events, college fests, fairs
not effective tools for generating long-term sales. To and festivals, beach events, and chili cook-offs. Distrib-
increase their effectiveness, sales promotion manag- uting samples to specific location types, such as health
ers must make certain clubs, churches, or doctors’ offices, is also one of the
sampling a promotional the award will appeal to most efficient methods of sampling. Online sampling is
program that allows the consumer the target market. Of- catching up in popularity, however, with the growth of
the opportunity to try a product or fering several smaller social media. Branded products not only run contests
service for free
prizes to many winners through Facebook, but also connect with fans, show
commercials, and offer samples of new products in ex- products. The redemption rate of online coupons has
change for “liking” the brand. been growing substantially while total coupon redemp-
POINTOFPURCHASE PROMOTION A point-of- tion has remained steady.45 Online coupons can help
purchase (P-O-P) display includes any promotional marketers lure new customers, and with the speed of on-
display set up at the retailer’s location to build traf- line feedback, marketers can track the success of a cou-
fic, advertise the product, or induce impulse buying. pon in real time and adjust it based on changing market
P-O-P displays include shelf “talkers” (signs attached conditions.46
to store shelves), shelf extenders (attachments that Online versions of loyalty programs are also pop-
extend shelves so products stand out), ads on grocery ping up, and although many types of companies have
carts and bags, end-aisle and floor-stand displays, tele- these programs, the most successful are those run by
vision monitors at supermarket checkout counters, in- hotel and airline companies. A final major trend in sales
store audio messages, and audiovisual displays. One promotion is the utilization of sales promotions on so-
big advantage of the P-O-P display is that it offers cial media and at the point of purchase. Google’s Zero
manufacturers a captive audience in retail stores. Ac- Moment of Truth (ZMOT) in-
cording to POPAI’s Shopper Engagement Study, ap- sights illustrate how important
point of purchase
proximately 76 percent of all retail purchase decisions consumer feedback is to con- (P-O-P) display a
are made in-store. Fifty-seven percent of shoppers sumer purchases, highlighting promotional display set up at
buy more than they anticipated once in the store, so the importance of behavioral the retailer’s location to build
data when serving up a targeted traffic, advertise the product,
P-O-P displays can be very effective.44 Other strate- or induce impulse buying
gies to increase sales include adding cards to the tops sales promotion.47
of displays, changing messages on signs on the sides
16
or bottoms of displays, adding inflatable or mobile dis-
plays, and using signs that advertise the brand’s sports, STUDY
movie, or charity tie-in. TOOLS
16-6c Trends in Sales Promotion
The biggest trend in sales promotion on both the trade
and consumer side has been the increased use of the □ Rip out Chapter Review Card
Internet. Social media-, e-mail-, and Web site–based
promotions have expanded dramatically in recent years. LOCATED AT WWW.CENGAGEBRAIN.COM
Marketers are now spending billions of dollars annu- □ Review Key Terms Flashcards and create your own
ally on such promotions. Sales promotions online have
proved both effective and cost-efficient—generating □ Track your knowledge and understanding of key concepts
response rates three to five times higher than off-line in marketing
promotions. The most effective types of online sales pro- □ Complete practice and graded quizzes to prepare for tests
motions are free merchandise, sweepstakes, free ship-
ping with purchases, and coupons. One major goal of
retailers is to add potential customers to their databases
experience
and expand marketing touch points. □ View the chapter highlight boxes within the MKTG Online
Marketers have discovered that online coupon dis- experience
tribution provides another vehicle for promoting their
17 Personal Selling
and Sales
Management
LEARNING OUTCOMES
17-1 Understand the sales environment

After you finish
17-2 Describe personal selling this chapter go
Angela Waye/Shutterstock.com
17-3 Discuss the key differences between relationship selling and traditional selling
to PAGE320 for
17-4 List and explain the steps in the selling process
STUDY TOOLS.
17-5 Understand the functions of sales management
17-6 Describe the use of customer relationship management in the selling process
17-1 THE SALES ENVIRONMENT

Many people around the world work in some form of selling.
Traditionally, salespeople engage in direct face-to-face contact with
customers. This can take place either at the salesperson’s place of
business or at a secondary location (such as when a salesperson travels
door-to-door or meets a customer at her office or home). Salespeople
can be consumer-focused (as in the case of retail) or business-focused.
In many cases, consumer-focused salespeople require custom- As previously discussed, some consumer-focused
ers to come directly to a retail store, shortening the sales pro- salespeople travel to their customers’ locations. For
cess time. Even though many retailers use multiple customer example, many home improvement and maintenance
relationship management processes (including information salespeople meet potential customers at their homes.
kiosks, Web sites, and self-check outs), one-to-one interac- Certain cosmetics, small appliances, and magazine
tions are often key to retail success. Most major retailers use subscriptions are sold directly to customers at their
trained salespeople—not just order takers—to enhance the homes. These salespeople are considered direct sales-
customer experience. Nordstrom’s, for example, offers a retail people. Companies such as CUTCO Cutlery, AVON,
management internship that provides both hands-on selling and Mary Kay Cosmetics have been very successful in
experience and classroom learning for students looking for direct selling.
careers in retail management and sales.1 By having knowl- Business-focused salespeople call on other compa-
edgeable salespeople, retailers can help their customers select nies to sell their products. These business-to-business
the products or services that are best for them. salespeople often spend a good deal of time traveling
302 PART FIVE:

CHAPTER
Promotion
to customer locations to make sales calls, and the sales applicants must “sell” themselves to prospective employ-
process generally takes a longer period of time. Often, ers in an interview. Personal selling offers several advan-
business-to-business salespeople have more extensive tages over other forms of promotion:
sales training, are required to travel more, and receive a ● Personal selling provides a detailed explanation or
higher level of compensation.
demonstration of the product. This capability is espe-
The sales environment changes constantly as new
cially needed for complex or new goods and services.
competitors enter the market and old competitors leave.
The ways that customers interact with salespeople and ● The sales message can be varied according to the mo-
learn about products and suppliers are changing due to tivations and interests of each prospective customer.
the rapid increase in new sales technologies. In order for Moreover, when the prospect has questions or raises
companies to successfully sell products or services using objections, the salesperson is there to provide expla-
a sales force, they must be very effective at personal sell- nations and guidance. By contrast, advertising and
ing, sales management, customer relationship manage- sales promotion can respond only to the questions
ment, and technology—all of which play critical roles in and objections that the copywriter thinks are impor-
building strong long-term relationships with customers. tant to customers.
● Personal selling should only be directed toward quali-
fied prospects. Other forms of promotion include
17-2 PERSONAL SELLING some unavoidable waste because many people in the
audience are not prospective customers.
As mentioned in Chapter 15, personal selling is a
● Costs can be controlled by adjusting the size of the sales
purchase situation involving a personal, paid-for
force (and resulting expenses) in one-person incre-
communication between two people in an attempt
ments. On the other hand, advertising and sales promo-
to influence each other. In a sense, all businesspeo-
tion must often be purchased in fairly large amounts.
ple are salespeople. An individual may become a plant
manager, a chemist, an engineer, or a member of any ● Perhaps the most important advantage is that per-
profession and yet still have to sell. During a job search, sonal selling is considerably more effective than other
CHAPTER 17: Personal Selling and Sales Management 303
forms of promotion in obtaining a sale and gaining a the customer’s style and specified need. Bloomingdales’
satisfied customer. personal shoppers help customers select gifts for others,
● Personal selling also has several limitations compared provide guidance tailored to the individual’s personal
to other forms of promotion: tastes, coordinate gift wrapping and alterations, help
navigate the entire store from clothing to home goods,
● Cost per contact is much greater than for mass and even schedule reminders for special occasions.2
forms of communication, leading companies to be Technology plays an increasingly important role in
highly selective about where and when they use personal selling. Instead of being handed traditional sales
salespeople. pamphlets and brochures, consumers are now able to
● If the sales force is not properly trained, the mes- easily learn about products and services by searching the
sage provided can be inconsistent and inaccurate. Internet before entering a store. Many consumers com-
Continual sales force management and training are pare product features, prices, and quality online before
necessary. even deciding which store to visit. Even after entering a
● Salespeople can convince customers to buy un- store, consumers use their smartphones to browse com-
needed products or services. This can lead to in- petitors’ Web sites while evaluating products. In addition
creased levels of cognitive dissonance among buy- to their own research, consumers are being bombarded
ers if a salesperson is being pushed to meet certain with in-store messages, coupons, and sale information
quotas. using beacon technology like Apple’s iBeacon. Suffice to
say, consumers are more educated about products and
Personal selling often works better than other forms services today than they’ve ever been before.
of promotion given certain customer and product char- This shift in technology has changed the dynamic of
acteristics. Generally speaking, personal selling becomes how information is obtained. If salespeople do not stay
more important as the number of potential customers well informed about the products they’re selling, con-
decreases, as the complexity of the product increases, sumers may enter the store knowing even more than
and as the value of the product grows (see Exhibit 17.1). they do. This reduces the ability of the salesperson to
For highly complex goods such as business jets and pri- build trust and confidence. Salespeople are increasingly
vate communication systems, a salesperson is needed to turning to social media like LinkedIn, Facebook, blogs,
determine the prospective customer’s needs and wants, and Twitter to help establish their expertise within a
explain the product’s benefits and advantages, and pro- field. With more than 300 million members, LinkedIn
pose the exact features and accessories that will best positions itself as the world’s largest professional net-
meet the client’s needs. Many upscale clothing retailers work.3 In addition to its networking function, LinkedIn
offer free personal shopping, whereby consultants se- offers sales solutions to help salespeople find prospects,
lect and suggest designer clothing they believe will fit qualify leads, and make product recommendations to
decision makers.4 LinkedIn also provides free advice on
how to effectively sell using social media, including a
COMPARISON OF PERSONAL SELLING six-step guide to aid salespeople in successful social sell-
EXHIBIT 17.1
AND ADVERTISING/SALES PROMOTION ing.5 LinkedIn also provides actionable social selling tips,
making it a great resource for salespeople looking to har-
Advertising and sales ness the power of technology themselves.6
Personal selling is promotion are more
more important if . . . important if . . .
The product has a high value. The product has a low value. 17-3 RELATIONSHIP SELLING
It is a custom-made product. It is a standardized product.
There are few customers. There are many customers. Historically, marketing theory and practice con-
cerning personal selling have focused almost en-
The product is technically The product is easy to
complex. understand. tirely on planned presentations to prospective
Customers are concentrated. Customers are geographically customers for the sole purpose of making sales.
dispersed. Marketers were mostly concerned with making one-time
Examples: Insurance policies, Examples: Soap, magazine sales and then moving on to the next prospect. Tradi-
custom windows, airplane subscriptions, cotton T-shirts tional personal selling methods attempted to persuade
engines the buyer to accept a point of view or convince the buyer
to take some action. Frequently, the objectives of the
consultative selling, is a multistage process that em-
phasizes personalization, win-win outcomes, and empathy
as key ingredients in identifying prospects and develop-
ing them as long-term, satisfied customers. The focus,
therefore, is on building mutual trust between the buyer
and seller through the delivery of long-term, value-added
benefits that are anticipated by the buyer.
Relationship or consultative salespeople, therefore,
become consultants, partners, and problem solvers for
their customers. They strive to build long-term relation-
ships with key accounts by developing trust over time.
The emphasis shifts from a one-time sale to a long-term
relationship in which the salesperson works with the
customer to develop solutions for enhancing the cus-
tomer’s bottom line. The end result of relationship sell-
ing tends to be loyal customers who purchase from the
company time after time, often with an increased share-
Jack Frog/Shutterstock.com
of-purchase. A relationship selling strategy focused on
retaining customers is often less expensive to a company
than having to constantly prospect for and sell to new
customers. Relationship selling provides many advantag-
es over traditional selling in the consumer goods market.
Still, relationship selling is more often used in selling situ-
Technology is leading the way in
ations for industrial-type goods, such as heavy machinery
selling in all forms of business. and computer systems, and
services, such as airlines
salesperson were at the expense of the buyer, creating a and insurance, than in sell- relationship selling
win–lose outcome. Although this type of sales approach ing situations for consumer (consultative selling) a
sales practice that involves building,
has not disappeared entirely, it is being used less and less goods. Exhibit 17.2 lists maintaining, and enhancing
often by professional salespeople. the key differences be- interactions with customers in order
By contrast, modern views of personal selling tween traditional personal to develop long-term satisfaction
emphasize the relationship that develops between a selling and relationship or through mutually beneficial
partnerships
salesperson and a buyer. Relationship selling, or consultative selling.
EXHIBIT 17.2 KEY DIFFERENCES BETWEEN TRADITIONAL SELLING AND RELATIONSHIP SELLING
Traditional Personal Selling Relationship or Consultative Selling
Sell products (goods and services) Sell advice, assistance, and counsel
Focus on closing sales Focus on improving the customer’s bottom line
Limited sales planning Consider sales planning as top priority
Spend most contact time telling customers about product Spend most contact time attempting to build a problem-solving environ-
ment with the customer
Conduct “product-specific” needs assessment Conduct discovery in the full scope of the customer’s operations
“Lone wolf” approach to the account Team approach to the account
Proposals and presentations based on pricing and Proposals and presentations based on profit impact and strategic benefits to
product features the customer
Sales follow-up is short term, focused on product delivery Sales follow-up is long term, focused on long-term relationship enhancement
Source: Robert M. Peterson, Patrick, L. Schul, and George H. Lucas Jr., “Consultative Selling: Walking the Walk in the New Selling Environment, “National Conference on Sales
Management Proceedings, March 1996; and Ari Walker, 7 Ways to Stop “Selling” and Start Building Relationships, http://marketing.about.com/od/salestraining/a/stopselling
.htm (Accessed March 2015).
17-4 STEPS IN THE SELLING PROCESS steps. They differ in the relative importance placed on
key steps in the process. Traditional selling efforts are
transaction oriented, focusing on generating as many
Completing a sale requires multiple steps. The
leads as possible, making as many presentations as pos-
sales process, or sales cycle, is simply the set of steps
sible, and closing as many sales as possible. Minimal
a salesperson goes through to sell a particular product or
effort is placed on asking questions to identify customer
service. The sales process can be unique for each prod-
needs and wants or matching these needs and wants to
uct or service offered. The actual sales process depends
the benefits of the product or service. Often, traditional
on the features of the product or service, characteristics
selling efforts allow little time for following up and en-
of customer segments, and internal processes in place
suring that customers are satisfied with the products
within the firm (such as how leads are gathered).
or services they received. Again, these types of sales
Some sales take only a few minutes to complete, but
generally generate lower levels of customer satisfac-
others may take much longer. Sales of technical products
tion and can result in more win-lose transactions for
like a Boeing or Airbus airplane and customized goods
salespeople.
and services typically take many months, perhaps even
By contrast, salespeople practicing relationship sell-
years, to complete. On the other end of the spectrum,
ing emphasize a long-term investment in the time and
sales of less technical products like stationery are gener-
effort needed to uncover each customer’s specific needs
ally more routine and often take less than a day to com-
and wants and meet them with the product or service
plete. Whether a salesperson spends a few minutes or
offering. By doing their homework up front, salespeo-
a few years on a sale, there are seven basic steps in the
ple often create the conditions necessary for a relatively
personal selling process:
straightforward close. In general, customers are more
1. Generating leads satisfied, engage in more repeat business, and provide
2. Qualifying leads higher shares-of-purchase over longer periods of time
with relationship salespeople. In the following sections,
3. Approaching the customer and probing needs we will examine each step of the personal selling process.
4. Developing and proposing solutions
5. Handling objections 17-4a Step 1: Generating Leads
6. Closing the sale Initial groundwork must precede communica-
7. Following up tion between the potential buyer and the salesper-
son. Lead generation, or prospecting, is the
Like other forms of promotion, the steps of selling
follow the AIDA concept discussed in Chapter 16. Once
a salesperson has located and qualified a prospect with
the authority to buy, he or she tries to get the prospect’s
attention. A thorough needs assessment turned into an
effective sales proposal and presentation should gener-
ate interest. After developing the customer’s initial desire
(preferably during the presentation of the sales proposal),
the salesperson seeks action in the close by trying to
get an agreement to buy. Follow-up after the sale, the
final step in the selling process, not only lowers cognitive
Julia Tim/Shutterstock.com
dissonance (refer to Chapter 6) but also may open up

opportunities for repeat
sales process (sales
cycle) the set of steps a business, cross-sales of
salesperson goes through in a related products and ser-
particular organization to sell a vices, and new customer
particular product or service referrals.
lead generation (prospecting) Traditional selling
identification of those firms and people and relationship selling
most likely to buy the seller’s offerings follow the same basic
identification of those firms and people most likely to 17-4b Step 2: Qualifying Leads
buy the seller’s offerings. These firms or people become
When a prospect shows interest in learning more about
“sales leads” or “prospects.”
a product, the salesperson has the opportunity to follow
Sales leads can be obtained in many different ways,
up, or qualify, the lead. Typically, unqualified prospects
most notably through advertising, trade shows and con-
give vague or incomplete answers to a salesperson’s spe-
ventions, social media, webinars, or direct mail and tele-
cific questions, try to evade questions on budgets, and
marketing programs. Favorable publicity also helps to
request changes in standard procedures like prices and
create leads. Company records of past client purchases
terms of sale. In contrast, qualified leads are real pros-
are another excellent source of leads. Many sales profes-
pects who answer questions, value the salesperson’s
sionals are also securing valuable leads from their firm’s
time, and are realistic about money and when they are
Web site.
prepared to buy.
A basic unsophisticated method of lead genera-
tion is done through cold calling—a form of lead
Lead qualification involves determining whether
the prospect has three things:
generation in which the salesperson approaches po-
tential buyers without any prior knowledge of the 1. A recognized need: The most basic criterion for
prospects’ needs or financial status. Although cold determining whether someone is a prospect for
calling is still used in generating leads, many sales a product is a need that is not being satisfied. The
managers have realized the inefficiencies of having salesperson should first consider prospects who are
their top salespeople use their valuable selling time aware of a need but should not disregard prospects
searching for the proverbial “needle in a haystack.” who have not yet recognized that they have one.
Passing the job of cold calling to a lower-cost em- With a little more information about the product,
ployee, typically an internal sales support person, al- they may decide they do have a need for it. Prelimi-
lows salespeople to spend more time and use their nary questioning can often provide the salesperson
relationship-building skills on prospects who have al- with enough information to determine whether
ready been identified. there is a need.
Another way to gather a lead is through a referral— 2. Buying power: Buying power involves both au-
a recommendation from a customer or business associ- thority to make the purchase decision and access to
ate. The advantages of referrals over other forms of funds to pay for it. To avoid wasting time and money,
prospecting are highly qualified leads, higher closing the salesperson needs to identify the purchasing au-
rates, larger initial transactions, and shorter sales cycles. thority and his or her ability to pay before making a
Referrals are often as much as ten times more produc- presentation. Organizational charts and information
tive in generating sales than are cold calls. Unfortunately, about a firm’s credit
although many clients are willing to give referrals, most standing can provide
salespeople do not ask for them. Effective sales training valuable clues. cold calling a form of lead
can help to overcome this reluctance to ask for referrals. generation in which the salesperson
3. Receptivity and ac- approaches potential buyers
To increase the number of referrals, some companies
cessibility: The pros- without any prior knowledge of the
even pay or send small gifts to customers or suppliers
pect must be willing prospects’ needs or financial status
that provide referrals. Generating referrals is one area
to see the salesperson referral a recommendation to
that social media and technology can usually make much
and be accessible to a salesperson from a customer or
more efficient.
the salesperson. Some business associate
Salespeople should build strong networks to help
prospects simply re- networking a process of
generate leads. Networking is using friends, business
fuse to see salespeo- finding out about potential clients
contacts, coworkers, acquaintances, and fellow mem-
ple. Others, because from friends, business contacts,
bers in professional and civic organizations to identify coworkers, acquaintances, and
of their stature in their
potential clients. Indeed, a number of national net- fellow members in professional
organization, will see
working clubs have been started for the sole purpose and civic organizations
only a salesperson or
of generating leads and providing valuable business lead qualification
sales manager with
advice. Increasingly, sales professionals are also using determination of a sales prospect’s
similar stature.
online networking sites like LinkedIn to connect with (1) recognized need, (2) buying
targeted leads and clients around the world, 24 hours Often the task of lead power, and (3) receptivity and
accessibility
a day. qualification is handled by
a telemarketing group or a sales support person who a personal visit, a phone call, a letter, or some other form
prequalifies the lead for the salesperson. Prequalifica- of communication. Note that the preapproach applies to
tion systems free sales representatives from the time- most business-to-business sales and outside consumer
consuming task of following up on leads to determine sales, but it is usually not possible when consumers ap-
need, buying power and receptiveness. Prequalification proach salespeople in the retail store environment.
systems may even set up initial appointments with the During the sales approach, the salesperson either
prospect for the salesperson. The result is more time for talks to the prospect or secures an appointment to probe
the sales force to spend in front of interested customers. the prospect further about his or her needs. Relation-
Companies are increasingly using their Web sites ship selling theorists suggest that salespeople should be-
and other software to qualify leads. When qualifying gin developing mutual trust with their prospect during
leads online, companies want visitors to register, indi- the approach. Salespeople must sell themselves before
cate the products and services they are interested in, and they can sell the product. Small talk that projects sincer-
provide information on their time frames and resources. ity and some suggestion of friendship is encouraged to
Leads from the Internet can then be prioritized (those build rapport with the prospect, but remarks that could
indicating short time frames, for instance, are given a be construed as insincere should be avoided.
higher priority) and then transferred to salespeople. En- The salesperson’s ultimate goal during the approach
ticing visitors to register also enables companies to cus- is to conduct a needs assessment to find out as much
tomize future electronic interactions. as possible about the prospect’s situation. The salesper-
Personally visiting unqualified prospects wastes son should be determining how to maximize the fit be-
valuable salesperson time and company resources. Many tween what he or she can offer and what the prospective
leads often go unanswered because salespeople are given customer wants. As part of the needs assessment, the
no indication as to how qualified the leads are in terms consultative salesperson must know everything there is
of interest and ability to purchase. Inside salespeople to know about the following:
and sales support staff assess leads to maximize success- ● The product or service: Product knowledge is the
ful meetings, while CRM systems provide resources to cornerstone for conducting a successful needs analy-
increase lead follow-up rates. Still, according to Salisify, sis. The consultative salesperson must be an expert
salespeople only follow up on 10 percent of leads.7 on his or her product or service, including technical
specifications, features and benefits, pricing and bill-
17-4c Step 3: Approaching the Customer ing procedures, warranty and service support, per-
and Probing Needs formance comparisons with the competition, other
Before approaching customers, the salesperson should customers’ experiences with the product, and cur-
learn as much as possible about the prospect’s or- rent advertising and promotional campaign messages.
ganization and its buyers. This process, called the For example, a salesperson who is attempting to sell
preapproach, describes the “homework” that must be a Canon copier to a doctor’s office should be very
done by the salesperson before contacting the prospect. knowledgeable about Canon’s selection of copiers,
This may include visiting company Web sites, consulting their attributes, capabilities, technological specifica-
standard reference sources such as Moody’s, Standard & tions, and postpurchase servicing.
Poor’s, or Dun & Bradstreet, or contacting acquaintances ● Customers and their needs: The salesperson
or others who may have information about the prospect. should know more about customers than he knows
Reading the prospect’s social media sites (following the about himself. That’s the secret to relationship and
company’s Twitter feed and consultative selling, where the salesperson acts not
reading its Facebook page, only as a supplier of products and services but also
preapproach a process that for example) is a great way as a trusted consultant and adviser. The professional
describes the “homework” that must
to get to know the com- salesperson brings each client business-building ideas
be done by a salesperson before he
or she contacts a prospect pany culture, become ac- and solutions to problems. For example, if the Canon
quainted with customer salesperson is asking the “right” questions, then he
needs assessment a
needs, and learn more or she should be able to identify copy-related areas
determination of the customer’s
specific needs and wants and the about daily activities.8 An- where the doctor’s office is losing or wasting money.
range of options the customer has other preapproach task is Rather than just selling a copier, the Canon salesper-
for satisfying them to determine whether the son can act as a consultant on how the doctor’s office
actual approach should be can save money and time.
● The competition: The salesperson must know as ● The industry: Knowing the industry requires active
much about the competitor’s company and products research by the salesperson. This means attending
as he or she knows about his or her own company. industry and trade association meetings, reading arti-
Competitive intelligence includes many factors: who cles published in industry and trade journals, keeping
the competitors are and what is known about them, track of legislation and regulation that affect the in-
how their products and services compare, advantag- dustry, being aware of product alternatives and inno-
es and disadvantages, and strengths and weaknesses. vations from domestic and foreign competition, and
For example, if the competitor’s Xerox copy machine having a feel for economic and financial conditions
is less expensive than the Canon copier, the doctor’s that may affect the industry. It is also important to be
office may be leaning toward purchasing the Xerox. aware of economic downturns, as businesses may be
But if the Canon salesperson can point out that the looking for less expensive financing options.
cost of long-term maintenance and toner cartridges Creating a customer profile during the approach
is lower for the Canon copier, offsetting its higher helps salespeople optimize their time and resources. This
initial cost, the salesperson may be able to persuade profile is then used to help develop an intelligent analysis
the doctor’s office to purchase the Canon copier. of the prospect’s needs in preparation for the next step,
The Real Deal

Firms that sell complex products generally offer the most extensive training programs. Once applicants are
hired at General Electric, they enter one of the many “rotational” training programs depending on their interest
and major. For example, the Sales and Marketing Commercial Leadership Program (CLP) is geared toward de-
veloping skills needed for a successful career at GE. The program ranges from one to two years, depending on
which GE business area the employee selects, and includes several rotations between business headquarters
and the field. On completing the program, the new employees are better prepared to sell GE products because
of their high level of product knowledge and on-the-job experience interacting with customers.9
Courtesy of Chapel House Photography
©StudioM1
developing and proposing solutions. Customer profile in- the next step is to determine whether her company’s
formation is typically stored and manipulated using sales products or services match the needs of the prospec-
force automation software packages designed for use on tive customer. The salesperson then develops a solution,
laptop computers, smartphones, or tablets. Sales force or possibly several solutions, in which the salesperson’s
automation software provides sales reps with a comput- product or service solves the client’s problems or meets a
erized and efficient method of collecting customer infor- specific need.
mation for use during the entire sales process. Further, These solutions are typically presented to the cli-
customer and sales data stored in a computer database ent in the form of a sales proposal presented at a sales
can be easily shared among sales team members. The in- presentation. A sales proposal is a written document
formation can also be appended with industry statistics, or professional presentation that outlines how the com-
sales or meeting notes, billing data, and other informa- pany’s product or service will meet or exceed the client’s
tion that may be pertinent to the prospect or the pros- needs. The sales presentation is the formal meeting
pect’s company. The more in which the salesperson has the opportunity to
salespeople know about present the sales proposal. The presen-
their prospects, the better tation should be explicitly tied to
they can meet their needs. the prospect’s expressed needs.
A salesperson should Further, the prospect should
wrap up the sales approach be involved in the presenta-
and need-probing mission tion by being encouraged
by summarizing the pros- to participate in demon-
pect’s need, problem, and strations or by exposure to
interest. The salesperson computer exercises, slides,
should also get a commit- video or audio, flip charts,
ment from the customer to photographs, and the like.
some kind of action, wheth- Technology has become an
er it is reading promotional important part of presenting
material or agreeing to a IQoncept /Shutterstock.com solutions for many salespeo-
demonstration. This com- ple. In the past, salespeople
mitment helps to qualify the prospect further and justify took desktop PCs with them to make presentations.
additional time invested by the salesperson. When doing Today, they increasingly carry iPads and other tablets
so, however, the salesperson should take care not to be because they are lighter, more flexible, and can easily
too pushy or overbearing—a good salesperson will read a access information stored in the cloud.
customer’s social cues. The salesperson should reiterate Because the salesperson often has only one oppor-
the action he or she promises to take, such as sending tunity to present solutions, the quality of both the sales
information or calling back to provide answers to ques- proposal and the presentation can make or break the
tions. The date and time of the next call should be set at sale. Salespeople must be able to present the proposal
the conclusion of the sales approach as well as an agenda and handle any customer objections confidently and
for the next call in terms of what the salesperson hopes professionally. For a powerful presentation, salespeople
to accomplish, such as providing a demonstration or pre- must be well prepared, use direct eye contact, ask open-
senting a solution. ended questions, be poised, use hand gestures and voice
inflection, and focus on the customer’s needs. Incorpo-
rating visual elements that impart valuable information,
17-4d Step 4: knowing how to operate the audio/visual or computer
sales proposal a formal
written document or professional Developing equipment being used for the presentation, and making
presentation that outlines how the and Proposing sure the equipment works will make the presentation
salesperson’s product or service will flow smoother. Nothing loses customers faster than a
meet or exceed the prospect’s needs Solutions boring or ill-prepared presenter, and equipment mishaps
sales presentation a formal Once the salesperson has can consume valuable (often limited) time for both the
meeting in which the salesperson gathered the appropri- salesperson and customer. Often, customers are more
presents a sales proposal to a
ate information about the likely to remember how salespeople present themselves
prospective buyer
client’s needs and wants, than what they say.
17-4e Step 5: Handling
Objections
Rarely does a prospect say “I’ll buy it” right
after a presentation. Instead, the prospect
often raises objections or asks questions
about the proposal and the product. The
potential buyer may insist that the price is
Edhar/Shutterstock.com
too high or that the good or service will not
satisfy the present need.
One of the first lessons every salesper-
son learns is that objections to the product
should not be taken personally as confron-
tations or insults. A good salesperson con- Closing and negotiating requires courage and skill.
siders objections a legitimate part of the It is often a team effort when companies complete
purchase decision. To handle objections business deals.
effectively, the salesperson should antici-
pate specific objections (such as concerns
about price), fully investigate the objection with the cus- Negotiation often plays a key role in the closing of the
tomer, be aware of what the competition is offering, and, sale. Negotiation is the process during which both the
above all, stay calm. salesperson and the prospect offer special concessions in
Often salespeople can use objections to close the sale. an attempt to arrive at a sales agreement. For example,
The customer may try to pit suppliers against each other the salesperson may offer a price cut, free installation, or
to drive down the price, so the salesperson should be pre- a trial order. Effective negotiators, however, avoid using
pared to point out weaknesses in the competitor’s offer and price as a negotiation tool and are able to show increased
stand by the quality and value of his or her own proposal. value in their products or services. Because companies
spend millions on advertising and product development
17-4f Step 6: Closing the Sale
to create value, when salespeople give in to price nego-
At the end of the presentation, the salesperson should tiations too quickly, it decreases the value of the product.
ask the customer how he or she would like to proceed. If Salespeople should also be prepared to ask for trade-offs
the customer exhibits signs that he or she is ready to pur- and try to avoid giving unilateral concessions. More-
chase, all questions have been answered, and objections over, if the customer asks for a 5 percent discount, the
have been met, then the salesperson can try to close the salesperson should ask for something in return, such as
sale. Customers often give signals during or after the higher volume or more flexibility in delivery schedules.
presentation that they are ready to buy or are not inter- More and more U.S. companies are expanding their
ested. Examples include changes in facial expressions, marketing and selling efforts into global markets. Sales-
gestures, and questions asked. The salesperson should people selling in foreign markets should tailor their pre-
look for these signals and respond appropriately. sentations and closing styles to each market. Different
Closing requires courage and skill. A salesperson personalities and skills will be successful in some coun-
should keep an open mind when asking for the sale and tries and absolute failures in others. For instance, if a
be prepared for both a yes and a no. Often, a salesperson salesperson is an excellent closer and always focuses on
will be told no flat out. In such a case, the salesperson the next sale, doing business in Latin America might be
must be resilient and must be able to handle this type difficult because people there want to take a long time
of rejection gracefully and effectively. The typical sales- building a personal relationship with their suppliers.
person makes several hundred sales calls a year, many of Similarly, personal space and physical contact are treated
which are repeat calls to the same client in an attempt to differently in different cultures. In many European and
make a single sale. Building and developing a good rela- South American cultures,
negotiation the process during
tionship with the customer is very important. Often, if it is customary to kiss a which both the salesperson and the
the salesperson has developed a strong relationship with business associate on both prospect offer special concessions
the customer, only minimal efforts are needed to close a cheeks instead of shaking in an attempt to arrive at a sales
hands.10 agreement
sale (increasing the salesperson’s closure rate).
17-4g Step 7: Following Up RELATIVE AMOUNT OF TIME SPENT IN THE KEY STEPS
EXHIBIT 17.3
A salesperson’s responsibilities OF THE SELLING PROCESS
do not end with making the sale
and placing the order. One of the
er
most important aspects of the job
s m
op pi eed sto
is follow-up—the final step in
ns
ns
n cu
tio
tio
ds
g e
s
g d
le
De bin g th
ad
ec
a
lu
in an
the selling process, in which the
sa
le
up
le
so
ob
pr in
os ng
g
e
g
th
in
g
d ach
salesperson must ensure delivery
g
in
in
t
lin
g
o
y
ra
pr lo
w
an o
in
lif
nd
ne
ve
pr
llo
os
schedules are met, goods or ser-
ua
Ap
Ha
Ge
Fo
Cl
Q
vices perform as promised, and High Relationship/
buyers’ employees are properly Consultative selling
trained to use the products.
In the traditional sales ap-
proach, follow-up with the custom-
er is generally limited to successful
product delivery and performance.
Low Traditional selling
A basic goal of relationship selling
is to motivate customers to come
back again and again by develop- Source: Data from Robert M. Peterson, Patrick L. Schul, and George H. Lucas Jr., “Consultative Selling: Walking the Walk
in the New Selling Environment, “National Conference on Sales Management Proceedings, March 1996; and Mark
ing and nurturing long-term rela-
Ellwood, How Sales Reps Spend Their Time, http://paceproductivity.com/files/How_Sales_Reps_Spend_Their_Time.pdf
tionships. Exhibit 17.3 depicts the (Accessed March 2015).
time involved in the sales process
and how those elements relate to
the traditional and relationship selling approaches. fingertips eliminate the need for salespeople? Experts
Most businesses depend on repeat sales, and repeat agree that a relationship between the salesperson
sales depend on thorough and continued follow-up by and customer will always be necessary. Technol-
the salesperson. When customers feel abandoned, cog- ogy, however, can certainly help to improve that
nitive dissonance arises and repeat sales decline. Today, relationship. Cell phones, laptops, text messaging,
this issue is more pertinent than ever because customers e-mail, and electronic organizers allow salespeople to
are far less loyal to brands and vendors. Buyers are more be more accessible to both clients and the company.
inclined to look for the best deal, especially when they Moreover, the Internet provides salespeople with vast
experience poor postsale follow-up. Automated e-mail resources of information on clients, competitors, and
follow-up marketing—a combination of sales automation the industry.
and Internet technology—is one tool that some market- E-business—buying, selling, marketing, collab-
ers are using in an effort to enhance customer satisfaction orating with partners, and servicing customers elec-
and bring in more business. After the initial contact with a tronically using the Internet—has had a significant
prospect, a software program automatically sends a series impact on personal selling. Virtually all large com-
of personalized e-mail messages over a period of time. panies and most medium and small companies are
Another approach is to use contact software like GoTo- involved in e-commerce and consider it to be neces-
Meeting, which facilitates live face-to-face exchanges sary to compete in today’s marketplace. For custom-
via video conferencing and direct access to cloud-based ers, the Web has become a powerful tool, providing
datacenters. accurate and up-to-date information on products,
pricing, and order status. The Internet also facili-
17-4h The Impact of tates cost-effective processing of orders and ser-
Technology vice requests. Although on the surface the Internet
follow-up the final step of might appear to be a threat to the job security of
the selling process, in which the
on Personal
salespeople, the Web is actually freeing sales reps
salesperson ensures delivery Selling from tedious administrative tasks like shipping cata-
schedules are met, goods or services
perform as promised, and the buyers’ Will the increasingly logs, placing routine orders, or tracking orders. This
employees are properly trained to use sophisticated technology leaves them more time to focus on the needs of their
the products now available at marketers’ clients.
17-5 SALES MANAGEMENT Individual salespeople are also assigned goals in the form
of quotas. A quota is a statement of the salesperson’s
sales goals, usually based on sales volume alone, but some-
There is an old adage in business that nothing hap-
times including other focuses such as key accounts (those
pens until a sale is made. Without sales, there is no
with greatest potential), new account generation, volume
need for accountants, production workers, or even a
of repeat sales, profit margin, and specific product
company president. Sales provide the fuel that keeps the
mixes sold.
corporate engines humming. Companies such as Cisco
Systems, International Paper, Johnson Controls, and
thousands of other manufacturers would cease to exist
17-5b Determining the Sales
without successful salespeople. Even companies such Force Structure
as Procter & Gamble and Kraft Foods, which mainly Because personal selling is so costly, no sales department
sell consumer goods and use extensive advertising cam- can afford to be disorganized. Proper design helps the
paigns, still rely on salespeople to move products through sales manager organize and delegate sales duties and
the channel of distribution. Thus, sales management provide direction for salespeople. Sales departments
must be one of every firm’s most critical specialties. Ef- are most often organized by geographic regions, prod-
fective sales management stems from a success-oriented uct lines, marketing functions performed (such as ac-
sales force that accomplishes its mission economically count development or account maintenance), markets,
and efficiently. Poor sales management can lead to un- industries, individual clients, or accounts. For example,
met sales and profit objectives or even to the downfall of the sales force for Hewlett-Packard (HP) could be orga-
the corporation. nized into sales territories covering New England, the
Just as selling is a personal relationship, so is sales Midwest, the South, and the West Coast or into distinct
management. Although the sales manager’s basic job is groups selling different product lines. HP salespeople
to maximize sales at a reasonable cost while also maxi- might also be assigned to specific industries or markets
mizing profits, he or she also has many other important (such as the telecommunications industry), or to key cli-
responsibilities and decisions: ents (such as AT&T, Virgin Mobile, and Verizon).
Market or industry-based structures and key account
1. Defining sales goals and the sales process
structures are gaining popularity in today’s competitive
2. Determining the sales force structure selling environment, especially with the emphasis on
3. Recruiting and training the sales force relationship selling. Being
4. Compensating and motivating the sales force familiar with one industry quota a statement of the
or market allows sales reps salesperson’s sales goals, usually
5. Evaluating the sales force to become experts in their
based on sales volume
17-5a Defining Sales Goals

and the Sales Process
Effective sales management begins with a deter-
mination of sales goals. Without goals to achieve,
salesperson performance would be mediocre at
best, and the company would likely fail. Like any
marketing objective, sales goals should be
stated in clear, precise, and measurable
iStockphoto.com/Hocus-focus
terms and should always specify a time

frame for their completion. Overall sales
force goals are usually stated in terms of
desired dollar sales volume, market share,
and/or profit level. For example, a life in-
surance company may have a goal to sell
$50 million in life insurance policies annu- Part of sales management is defining sales goals for the
ally, to attain a twelve percent market share,
sales force.
and/or to achieve $1 million in profits.
fields and thereby offer better solutions and service. and practices, selling techniques, product knowledge,
Further, by organizing the sales force around specific industry and customer characteristics, and nonselling
customers, many companies hope to improve customer duties such as filling out sales and market information
service, encourage collaboration with other arms of the reports and using a sales automation computer program.
company, and unite salespeople in customer-focused Continuous training then keeps salespeople up-to-date
sales teams. on changes in products and services, technology, the com-
petitive landscape, and sales techniques, among other
17-5c Recruiting and Training issues. Continuous training can occur during sales meet-
the Sales Force ings, annual meetings, or during the course of everyday
business.
Sales force recruitment should be based on an accurate, Training can take place in a classroom environment,
detailed description of the sales task as defined by the in the field, or using online modules. When conducting
sales manager. For example, General Electric (GE) uses job training in the field via a live sales call, the trainer
its Web site to provide prospective salespeople with ex- should be a more experienced salesperson or sales man-
planations of different career entry paths and video ac- ager. This type of training provides real world experience
counts of what it is like to have a career at GE. Aside for the trainee, but may reduce the effectiveness of the
from the usual characteristics such as level of experience call because it often entails a reduced selling time. An-
or education, what traits should sales managers look for other form of training involves the trainee working in in-
in applicants? side sales, primarily phone-based sales, for an extended
● Ego strength: Great salespeople should have a period of time before being given an outside territory to
strong, healthy self-esteem and the ability to bounce cover. This enables the trainee to develop selling skills
back from rejection. with less-important and/or less-established accounts be-
fore facing the challenges of outside sales.
● Sense of urgency and competitiveness: These
traits push their sales to completion, as well as help
17-5d Compensating and Motivating
them persuade people.
the Sales Force
● Assertiveness: Effective salespeople have the abil-
ity to be firm in one-to-one negotiations, to lead the Compensation planning is one of the sales manager’s
sales process, and to get their point across confidently toughest jobs. Only good planning will ensure that com-
without being overbearing or aggressive. pensation attracts, motivates, and retains good sales-
people. Generally, companies and industries with lower
● Sociable: Wanting to interact with others is a neces-
levels of compensation suffer higher turnover rates.
sary trait for great salespeople.
This increases costs (including training and recruiting
● Risk takers: Great salespeople are willing to put costs), decreases sales effectiveness, and harms rela-
themselves in less-than-assured situations, and in do- tionship management. Therefore, compensation needs
ing so, often are able to close unlikely sales. to be competitive enough to attract and motivate the
● Capable of understanding complex concepts best salespeople. Firms sometimes take profit into ac-
and ideas: Quick thinking and comprehension allow count when developing their compensation plans. In-
salespeople to quickly grasp and sell new products or stead of paying salespeople on overall volume, they pay
enter new sales areas. according to the profitability achieved from selling each
● Creativity: Great salespeople develop client solu- product.
tions in creative ways. Still other companies tie a part of the salesperson’s
total compensation to customer satisfaction. As the
● Empathetic: Empathy—the ability to place oneself emphasis on relationship selling increases, many sales man-
in someone else’s shoes—enables salespeople to un- agers believe that a portion of a salesperson’s compensa-
derstand the client. tion should be tied to a client’s satisfaction. To determine
In addition to these traits, almost all successful sales- this, sales managers can survey clients on a salesperson’s
people say their sales style is relationship oriented rather ability to create realistic expectations and his or her re-
than transaction oriented.11 sponsiveness to customer needs. At PeopleSoft, a divi-
After the sales recruit has been hired and given a sion of Oracle, structure, culture, and strategies are all
brief orientation, initial training begins. A new salesper- built around customer satisfaction. Sales force com-
son generally receives instruction in company policies pensation is tied to both sales quotas and a satisfaction
metric that enables clients to voice their opinions on the
services provided.12
17-6 CUSTOMER RELATIONSHIP
Although a compensation-based plan motivates a MANAGEMENT AND THE
salesperson to sell, sometimes it is not enough to pro-
duce the volume of sales or the profit margin required
SALES PROCESS
by sales management. Sales managers therefore often
As we have discussed throughout the text, custom-
offer rewards or incentives, such as recognition at cer-
er relationship management (CRM) is the ultimate
emonies, plaques, and/or monetary-based rewards such
goal of a new trend in marketing that focuses on
as vacations, merchandise, pay raises, and cash bonuses.
understanding customers as individuals instead of
Cash awards are the most popular sales incentive and are
as part of a group. To do so, marketers are making
used by virtually all companies. Mary Kay Cosmetics of-
their communications more customer specific using the
fers a unique type of incentive whereby salespeople can
CRM cycle, covered in Chapter 8, and by developing
earn the use of different types of vehicles—from a lowly
relationships with their customers through touch points
Ford Fiesta all the way up to the coveted pink Mary Kay
and data mining. CRM was initially popularized as one-
Cadillac. To qualify for these vehicles, salespeople must
to-one marketing. But CRM is a much broader approach
reach certain sales quotas.13
to understanding and serving customer needs than is
Recognition and rewards may help increase overall
one-to-one marketing.
sales volume, add new accounts, improve morale and
Throughout the text, our discussion of a CRM sys-
goodwill, move slow items, and bolster slow sales. They
tem has assumed two key points. First, customers take
can also be used to achieve short- and long-term objec-
center stage in any organization. Second, the business
tives such as reducing overstocked inventory and meet-
must manage the customer relationship across all points
ing a monthly or quarterly sales goal. In motivating their
of customer contact throughout the entire organization.
sales force, however, sales managers must be careful not
By identifying customer relationships, understanding
to encourage unethical behavior.
the customer base, and capturing customer data, mar-
keters and salespeople can leverage the information not
17-5e Evaluating the Sales Force only to develop deeper relationships but also to close
The final task of sales managers is evaluating the ef- more sales with loyal customers in a more efficient
fectiveness and performance of the sales force. To manner.
evaluate the sales force, the sales manager needs feed-
back—that is, regular information from salespeople.
17-6a Identify Customer Relationships
Typical performance measures include sales volume,
contribution-to-profit, calls per order, sales or prof- Companies that have CRM systems follow a customer-
its per call, or percentage of calls achieving specific centric focus or model. Customer-centric is an in-
goals such as sales of products that the firm is heavily ternal management philosophy similar to the marketing
promoting. concept discussed in Chapter 1. Under this philosophy,
Performance information helps the sales manager the company customizes its product and service offering
monitor a salesperson’s progress through the sales cycle based on data generated through interactions between
and pinpoint where breakdowns might be occurring. the customer and the company. This philosophy tran-
For example, by learning the number of prospects an scends all functional areas of the business, producing an
individual salesperson has in each step of the sales cycle internal system where all of the company’s decisions and
process and determining where prospects are falling out actions are a direct result of customer information.
of the sales cycle, a manager can determine how effec- Each unit of a business typically has its own way of re-
tive a salesperson might be at lead generation, needs as- cording what it learns, and perhaps even has its own cus-
sessment, proposal generation, presenting, closing, and tomer information system. The departments’ different
follow-up stages. This information can then tell a man- interests make it difficult
ager which sales skills might need to be reassessed or to pull all of the customer
customer-centric a philosophy
retrained. For example, if a sales manager notices that information together in
under which the company customizes
a sales rep seems to be letting too many prospects slip one place using a common its product and service offerings
away after presenting proposals, it might mean he or she format. To overcome this based on data generated through
needs help with developing proposals, handling objec- problem, companies using interactions between the customer
and the company
tions, or closing sales. CRM rely on knowledge
management. Knowledge management
CUSTOMER-CENTRIC APPROACH FOR MANAGING
is a process by which customer information EXHIBIT 17.4
is centralized and shared in order to enhance CUSTOMER INTERACTIONS
the relationship between customers and the
Current
organization. Information collected includes transaction
experiential observations, comments, cus-
tomer actions, and qualitative facts about the
customer.
As Chapter 1 explained, empowerment
involves delegating authority to solve cus-
tomers’ problems. Usually, organizational
Channel Past relationship
representatives, salespeople for example,
are able to make changes during interactions
with customers through phone, fax, e-mail,
social media, or face-to-face. Customer
An interaction occurs when a custom-
er and a company representative exchange
information and develop learning relation-
Requested
ships. With CRM, the customer—not the service
organization—defines the terms of the inter-
action, often by stating his or her preferenc-
es. The organization responds by designing
products and services around customers’ desired experi-
manage knowledge about them, negotiate mutually sat-
ences. Social media have created numerous new ways for
isfying commitments, and build long-term relationships.
companies to interact with customers—see Chapter 18
Exhibit 17.4 illustrates the customer-centric ap-
for more on this topic.
proach for managing customer interactions. Following
The success of CRM—building lasting and profit-
a customer-centric approach, an interaction can occur
able relationships—can be directly measured by the
through different communication channels, such as a
effectiveness of the interaction between the customer
phone, the Internet, or a salesperson. Any activity or
and the organization. In fact, what further differentiates
touch point a customer has with an organization, either
CRM from other strategic initiatives is the organization’s
directly or indirectly, constitutes an interaction.
ability to establish and manage interactions with its cur-
Companies that effectively manage customer in-
rent customer base. The more latitude (empowerment)
teractions recognize that data provided by custom-
a company gives its representatives, the more likely
ers affect a wide variety of touch points. In a CRM
the interaction will conclude in a way that satisfies the
system, touch points are all areas of a business where
customer.
customers have contact with the company and data
might be gathered. Touch points might include: a cus-
interaction the point at 17-6b Understand tomer registering for a particular service; a customer
which a customer and a company Interactions communicating with customer service for product in-
representative exchange information formation; a customer completing and returning the
and develop learning relationships of the Current
warranty information card for a product; or a cus-
touch points areas of a business
Customer Base tomer talking with salespeople, delivery personnel,
where customers have contact with The interaction between and product installers. Data gathered at these touch
the company and data might be
gathered
the customer and the or- points, once interpreted, provide information that af-
ganization is the founda- fects touch points inside the company. Interpreted in-
knowledge management tion on which a CRM sys- formation may be redirected to marketing research to
the process by which customer
information is centralized and shared
tem is built. Only through develop profiles of extended warranty purchasers, to
in order to enhance the relationship effective interactions can production to analyze recurring problems and repair
between customers and the organizations learn about components, to accounting to establish cost-control
organization the expectations of their models for repair service calls, and to sales for better
customers, generate and customer profiling and segmentation.
WEBBASED INTERACTIONS Web-based interac- paradigm includes a new customer recommendation val-
tions are an increasingly popular touch point for cus- ue called the net promoter score. The net promoter score
tomers to communicate with companies on their own measures how much a customer influences the behavior
terms. Web users can evaluate and purchase products, of other customers through recommendations on social
make reservations, input preferential data, and pro- media. Its ultimate purpose is to gather all consumer in-
vide customer feedback on services and products. Data teractions into a single database so that they can be ana-
from these Web-based interactions are then captured, lyzed and used to improve communication. Social CRM
compiled, and used to segment customers, refine mar- also enables marketers to focus more on the relationship
keting efforts, develop new products, and deliver a de- aspect of CRM. For example, REI empowers custom-
gree of individual customization to improve customer ers to “carve your own adventure” through its YouTube
relationships. channel. JetBlue uses Facebook and Twitter to provide
SOCIAL CRM As social media have become more pop- advice and updates to travelers. To use social CRM effec-
ular, many companies have begun to use these media for tively, companies must understand which sites custom-
“social CRM.” ZDNet journalist Paul Greenberg recent- ers use, whether they post opinions, and who the major
ly named Salesforce, Microsoft, Blackbaud, Xactly, In- influencers in the category are. They can then marry this
fusionsoft, Accenture, and EY as companies to watch in information with behavioral data like purchases and pur-
the field of social CRM.14 Essentially, social CRM takes chase frequency.
the most successful aspects of traditional CRM, such as POINTOFSALE INTERACTIONS Another touch point
behavioral targeting, and expands them to include ways is through point-of-sale interactions in stores or at
to engage customers through social media. This new information kiosks. Many point-of-sale software programs
enable customers to easily provide information about
themselves without feeling violated. The information is
then used for marketing and merchandising activities and
to accurately identify the store’s best customers and the
types of products they buy. Data collected at point-of-sale
interactions are also used to increase customer satisfac-
tion through the development of in-store services and
customer recognition promotions.
17-6c Capture Customer Data

Vast amounts of data can be obtained from the interac-
tions between an organization and its customers. There-
fore, in a CRM system, the issue is not how much data
can be obtained, but rather what types of data should be
acquired and how the data can effectively be used for
relationship enhancement.
The traditional approach for acquiring data from
customers is through channel interactions. Channel in-
L’Oreal Paris/Advertising Archive
teractions include store visits, conversations with sales-

people, interactions via the Web, traditional phone
conversations, and wireless communications. In a CRM
system, channel interactions are viewed as prime infor-
mation sources based on the channel selected to initi-
ate the interaction rather than on the data acquired. In
some cases, companies use
This advertisement for L’Oreal directs a online chat to answer ques-
point-of-sale interactions
highly segmented group of customers to tions customers have about a touch point in stores or information
its Facebook page, where the company products they are looking kiosks that uses software to
will continue to engage them through for. For example, 24 Hour enable customers to easily provide
Fitness has an online chat information about themselves
social CRM. without feeling violated
window that opens when a
potential customer begins to review the Web site. If the
COMMON CRM MARKETING
visitor remains on the site, the online chat window asks if EXHIBIT 17.5
he or she needs help finding something specific. DATABASE APPLICATIONS
Interactions between the company and the cus-
tomer facilitate the collection of large amounts of data. Campaign
Companies can obtain not only simple contact informa- management
tion (name, address, phone number) but also data per-
taining to the customer’s current relationship with the
organization—past purchase history, quantity and fre- Retaining loyal
quency of purchases, average amount spent on purchas- customers
es, sensitivity to promotional activities, and so forth.
In this manner, a large amount of information can
be captured from one individual customer across several Cross-selling
other products or
touch points. Multiply this by the thousands of custom- services
ers across all of the touch points within an organization,
and the volume of data can rapidly become unmanage-
able for company personnel. The large volume of data Designing
targeted marketing
resulting from a CRM initiative can be managed effec- communications
tively only through technology. Once customer data are CRM
Marketing
collected, the question of who owns those data becomes
Database
extremely salient. In its privacy statement, Toysmart.
Reinforcing customer
com declared that it would never sell information reg- purchase decisions
istered at its Web site—including children’s names and
birth dates—to a third party. When the company filed
for bankruptcy protection, it said that the information Inducing product
it collected constituted a company asset that needed trial by new
customers
to be sold off to pay creditors. Despite the outrage at
this announcement, many dot-coms closing their doors
found they had little in the way of assets and followed
Toysmart’s lead. of distribution
channel marketing
17-6d Leverage Customer Information

Data mining identifies the most profitable customers and Improving customer
service
prospects. Managers can then design tailored marketing
strategies to best appeal to the identified segments. In
CRM, this is commonly referred to as leveraging cus-
tomer information to facilitate enhanced relationships
with customers. Exhibit 17.5 shows some common CRM
interactions. Campaign management includes monitor-
marketing database applications.
ing the success of the communications based on customer
CAMPAIGN MANAGEMENT Through campaign man- reactions through sales, orders, callbacks to the compa-
agement, all areas of the company participate in the ny, and so on. If a campaign appears unsuccessful, it is
development of programs targeted to customers. evaluated and changed to better achieve the company’s
Campaign management involves monitoring and desired objective.
leveraging customer inter- Campaign management involves developing cus-
campaign management actions to sell a company’s tomized product and service offerings for the appropriate
developing product or service
offerings customized for the
products and to increase customer segment, pricing these offerings attractively,
appropriate customer segment and customer service. Cam- and communicating these offers in a manner that en-
then pricing and communicating paigns are based directly hances customer relationships. Customizing product
these offerings for the purpose of on data obtained from and service offerings requires managing multiple inter-
enhancing customer relationships
customers through various actions with customers, as well as giving priority to those
products and services that are viewed as most desirable CROSSSELLING OTHER PRODUCTS AND SERVICES
for a specifically designated customer. Even within a CRM provides many opportunities to cross-sell relat-
highly defined market segment, individual customer ed products. Marketers can use the database to match
differences will emerge. Therefore, interactions among product profiles and consumer profiles so that they
customers must focus on individual experiences, expec- can cross-sell customers products that match their
tations, and desires. demographic, lifestyle, or behavioral characteristics.
RETAINING LOYAL CUSTOMERS If a company has The financial services industry uses cross-selling bet-
identified its best customers, then it should make every ter than most other industries do. Cross selling is a
effort to maintain and increase their loyalty. When a com- key part of Wells Fargo’s strategy, for example, and
pany retains an additional five percent of its customers is a large contributor to the company’s success in the
each year, profits will increase by as much as 125 percent. industry. After engaging with customers to determine
What’s more, improving customer retention by a mere two their financial needs and aspirations, Wells Fargo reps
percent can decrease costs by as much as ten percent.15 work to determine how the company’s wide range of
Loyalty programs reward loyal customers for making products can synergize to meet or exceed those finan-
multiple purchases. The objective is to build long-term, cial goals.17
mutually beneficial relationships between a company and Internet companies use product and customer pro-
its key customers. More than 4,000 small- and medium- filing to reveal cross-selling opportunities while custom-
sized businesses across thirty-five states have teamed up ers surf their sites. Past purchases, tracking programs,
with reward management firm Belly to develop unique and the site a surfer is referred from give online mar-
rewards programs, such as getting to throw eggs at a food keters clues about the surfer’s interests and what items
truck after a specified number of purchases or having the to cross-sell. Amazon, for example, has used profiling
owner of your favorite bagel store sing to you after buy- to better meet customer needs for years. The company
ing 100 bagels. The individualized rewards reflect each systematically compares individuals’ shopping habits and
business’s personality and (ideally) those of its custom- online activities to other Amazon customers to make bet-
ers, making the rewards programs highly motivating.16 In ter tailored recommendations. Customers are also able
addition to rewarding good customers, loyalty programs to proactively rate products, review products, add prod-
provide businesses with a wealth of information about ucts to wishlists, recommend products, and save prod-
their customers and shopping trends, which can be used ucts for a later purchase—all of which make for a more
to make future business decisions. customized customer experience.18
A small company,
such as this
Gorilla Cheese
food truck, may
use the services
of Belly to reward
customers for
their loyalty.
iStockphoto.com/ Wdstock
DESIGNING TARGETED MARKETING
COMMUNICATIONS Using transaction
and purchase data, a database allows mar-
keters to track customers’ relationships to
the company’s products and services and
modify the marketing message accordingly.
Customers can also be segmented
into infrequent users, moderate users, and
heavy users. A segmented communications
strategy can then be developed based on
which group the customer falls into. Com-
munications to infrequent users might
encourage repeat purchases through a di-
rect incentive such as a limited-time price
discount for ordering again. Online mar-
keters for retailers like GNC and Newegg
Source: General Nutrition Center

send out periodic e-mails with discounts to
customers who made previous purchases.
Communications to moderate users may
use fewer incentives and more reinforce-
ment of past purchase decisions. Com-
munications to heavy users would be
designed around loyalty and reinforcement
of the purchase rather than around price Online marketers for retailers like GNC will use email as
promotions. a way to reach out to previous customers.
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CHAPTER QUIZZES
Chapter 1
Chapter 2
Chapter 3
Chapter 4

18 Social Media
and Marketing
LEARNING OUTCOMES
18-1 Describe social media, how they are used, and their relation 18-5 Describe the social media tools in a marketer’s toolbox
to integrated marketing communications and how they are useful
18-2 Explain how to create a social media campaign 18-6 Describe the impact of mobile technology on social media
18-3 Evaluate the various methods of measurement 18-7 Understand the aspects of developing a social media plan
Source: Twitter, Inc.

for social media
18-4 Explain consumer behavior on social media
18-1 WHAT ARE SOCIAL MEDIA?

The most exciting thing to happen to marketing and promotion in
recent years is the increasing use of online technology to promote
brands, particularly using social media. Social media have changed
the way that marketers can communicate with their brands—from
mass messages to intimate conversations. As marketing moves
into social media, marketers must remember that for most people,
social media are meant to be a social experience, not a marketing
experience. In fact, the term social media means different things
to different people, though most people think it refers to digital
technology. The American Bar Association uses a definition developed
by social media expert Brian Solis. According to Solis, social media
is “any tool or service that uses the Internet to
social media any tool or service
that uses the Internet to facilitate
facilitate conversations.”1 However, social media can
conversations
also be defined relative to traditional advertising like
322 PART FIVE:

CHAPTER
Promotion
television and magazines: whereas
traditional marketing media offer a “Interaction and engagement
mass media method of interacting [on social media] is
with consumers, social media offer something that you don’t
more one-to-one ways to meet necessarily see in traditional
consumers. media. That’s why we [at
Social media have several implications for marketers
Ford] continue to accelerate
and the ways that they interact with their customers. our digital advertising
First, marketers must realize that they often do not con-
trol the content on social media sites. Consumers are investment to more than 25%
sharing their thoughts, wishes, and experiences about
brands with the world through social media. Because of
of our media dollars.”3
this level of visibility and discussion, marketers must re- — J I M FA R L E Y, F O R D G L O B A L S A L E S
alize that having a great ad campaign is not enough—the AND MARKETING VICE PRESIDENT
product or service must be great, too.
Second, the ability to share experiences quickly
and with such large numbers of people amplifies the Coca-Cola is the most liked brand on Facebook with
impact of word of mouth in ways that can affect a almost 90 million fans.4 The total reach of these brands
company’s bottom line. Singer Katy Perry has more is difficult to quantify, but it is unquestionably massive.
than 66 million Twitter followers, and as such, has a very Many companies use mascots to drive their marketing
large reach.2 YouTube is the company with the largest messages on social media. For example, Progressive auto
Twitter presence (more than 50 million followers), and insurance’s perky saleswoman Flo has almost 5.5 million
CHAPTER 18: Social Media and Marketing 323
customers. Social media offer a form of re-
lationship building that will ultimately bring
the customer and brand closer. Indeed, the
culture of participation that social media
foster may well prove to be a fifth “P” for
marketing.
At the basic level, consumers of social
media want to exchange information, col-
laborate with others, and have conversations.
Social media are designed for people to so-
A.Ricardo/Shutterstock.com
cialize with each other. They have changed
how and where conversations take place,
even globalizing human interaction through
rapidly evolving technology. Google1
Hangouts, a popular facet of the fledgling
Due to her more than 65 million Twitter followers, Google1social network, allows individuals
singer Katy Perry has a very large reach on around the world to video chat in real time.
Competing with products such as Apple’s
social media.
FaceTime and Microsoft’s Skype, Hang-
outs offers unique innovations such as live
Facebook fans that read her posts about Progressive streaming and recording. Various companies have used
products. According to the company, since Flo began Hangouts to conduct team meetings and webinars, of-
appearing in ads, the company has seen yearly gains in fer consulting services, and host live press conferences.
the number of policies taken out. 5
Bakespace.com has successfully utilized Hangouts as
Third, social media allow marketers to listen. a potent marketing platform. The company interacts
Domino’s Pizza listened to what was being posted about with customers, shares recipes, and hosts chats with ce-
its products (much of which was not nice) and decided to lebrity chefs using Hangouts. And as a chef might say,
use that information to change its product. Social media, the proof is in the pudding—Bakespace.com has more
along with traditional marketing research, allowed than 450,000 people in its Hangouts circle, compared
Domino’s to gain the insight needed to completely to just 14,000 fans on Facebook.7 Clearly, conversations
reinvent its pizza. Dell and Gatorade have taken social are happening online; it is up to the marketer to decide
media monitoring to a whole new level as they literally if engaging in those conversations will be profitable
put social media at the center of their marketing efforts. and to find the most effective method of entering the
Premium sportswear company Lululemon was forced to conversation.
acknowledge manufacturing problems after comments Companies are beginning to understand the impli-
critical of the company’s product quality were posted cations of their employees’ activities on social media.
across its social media sites.6 In fact, there have been several examples of employees
Fourth, social media provide more sophisticated getting fired for airing their personal feelings on social
methods of measuring how marketers meet and interact media platforms. To combat this, many companies have
with consumers than traditional advertising does. begun developing social media policies as to what can be
Currently, social media include tools and platforms posted and what is inappropriate. Some companies have
like social networks, blogs, microblogs, and media rules concerning corporate blogs, Facebook, Twitter,
sharing sites, which can be accessed through a growing LinkedIn, comments, and even passwords. Adidas has
number of devices including smartphones, e-readers, adopted an “encouraging but strict” approach whereby
televisions, tablets, video game consoles, and netbooks. employees may state their affiliation with Adidas but
This technology changes daily, offering consumers new must also state that any personal views are just that—
ways to experience social media platforms. As such, personal. Obviously, employees are still prohibited from
social media must constantly innovate to keep up with sharing sensitive information. Similarly, Best Buy has a
consumer demands. clear set of social media guidelines stating that any nega-
Finally, social media allow marketers to have tive posts regarding religion, race, or ethnicity will not
much more direct and meaningful conversations with be tolerated.8 Having a social media policy can certainly
help mitigate risk, but it is not a guarantee that employ- Videos are another of the most popular tools by
ees won’t occasionally slip up. which marketers reach consumers, and YouTube is by
Marketers are interested in online communication far the largest online video repository—it has more
because it is wildly popular: brands, companies, individ- content than any major television network. Twitter’s
uals, and celebrities all promote their messages online. Vine, which limits videos to six seconds in length, is also
In fact, some social media are becoming so important widely popular. Flickr, Twitter, and blogs—all of which
that celebrities, sports stars, and even hotels are hiring will be discussed in more detail later on—are some of
coaches to help them strike the correct tone. Britney the other most popular social media destinations among
Spears, Carly Rae Jepsen, and Will.I.Am all have consumers. In 2015:
coaches that help them navigate the perilous landscape ● Instagram grew by 50 percent to more than 300 mil-
of Twitter. Coaches instruct clients on best practices lion users; it is larger than Twitter and has one of the
and advise them how to leverage their personal brands highest engagement levels of any social platform.
in online spaces. They also monitor clients’ Twitter
● Millennials spent more than two hours per day on
feeds in real time, acting as editor, security guard, and
their smartphones and used an average of six apps
advisor all at once. Some celebrities have social media
during that time.
advisors accompany them to galas and award shows, but
coaches are often underutilized by the entertainment ● Facebook had more video views (12.3 billion) than
elite. As one celebrity coach noted, “It can get really YouTube (11.3 billion).
busy if you’re doing interviews on the red carpet, and ● Snapchat grew by 56 percent.12
it’s just nice to have someone with you who can say, ● Tumblr added 120,000 new users per day.13
‘Hey, you should take a picture with your other-famous-
person friend right now. Here you go, now you should The bottom line, according to Universal McCann’s
tweet it.’”9 Comparative Study on Social Media Trends, is that “if
Some companies go so far as to require Facebook you are online, you are using social media.”14
and Twitter training for high-profile employees. Approxi- Increased usage of alternative platforms like smart-
mately thirty percent of Adobe’s employees have gone phones and tablet computers has further contributed to
through some form of social media training. According the proliferation of social media usage. In the United
to Cory Edwards, head of Adobe’s Social Business Cen- States, ninety percent of American adults own a cell
ter of Excellence, Adobe’s social media training “helps phone, while forty-five percent own a smartphone.
employees understand key principles such as disclosure These numbers jump to ninety-three percent and sixty-
and who to contact with questions. Guided by a set of three percent for adults age eighteen to twenty-nine.
core Adobe principles, the program aims to build em- Among all adults, 55 percent access the Internet on a
ployee social media fluency through awareness, empow- mobile phone, and forty percent have accessed a so-
erment, and excellence.”10 cial media Web site.15 Tablet usage has hit critical mass
among mobile surfers—one in four smartphone us-
ers owns a tablet as well. According to Mark Donovan,
18-1a How Consumers Use Social Media senior vice president of mobile at ComScore, “Tablets
Before beginning to understand how to leverage social are one of the most rapidly adopted consumer technolo-
media for brand building, it is important to understand gies in history and are poised to fundamentally disrupt
which social media consumers are using and how they the way people engage with the digital world both on-
are using them. It is safe to assume that many of your the-go and perhaps most notably, in the home.”16 The
customers are active on Facebook. Targeting can be ac- overall impact of tablet computing on social media (and
complished by using less ubiquitous platforms. Qzone thus the discipline of marketing) is yet to be seen, but
and Sina Weibo are two of the largest social media plat- given the incredible impact that the smartphone has had
forms in China, for example. Match.com, OkCupid, in its short life span, tablets could indeed prove to be
and Tinder are great platforms to reach young adult game changing.
social commerce a subset
singles. Y8 and Big Fish Games offer a wide variety of SOCIAL COMMERCE A of e-commerce that involves the
social games. Teens tend to use platforms like Snapchat, new area of growth in interaction and user contribution
Instagram, Twitch, Yik Yak, and Tumblr. While Facebook social media is social aspects of social online media to
is used widely by older teens and adults, its popularity commerce, which com- assist online buying and selling of
products and services
among younger consumers is decreasing.11 bines social media with the
basics of e-commerce. Social commerce is a subset ● Group buying platforms (like Groupon and Social
of e-commerce that involves the interaction and user Living)
contribution aspects of social online media to assist ● P e e r r e c o m m e n d a t i o n s i t e s ( l i k e Ye l p a n d
online buying and selling of products and services. 17 JustBoughtIt)
Basically, social commerce relies on user-generated
● User-curated shopping sites (like The Fancy and
content on Web sites to assist consumers with pur-
Lyst)
chases. Pinterest lets users collect ideas and products
from all over the Web and “pin” favorite items to indi- ● Participatory commerce platforms (like Kickstarter
vidually curated pinboards. Other users browse boards and Threadless)
by theme, keyword, or product; click on what they like; ● Social shopping sites (like Motilo and GoTryItOn).19
and either visit the originating sites or re-pin the items
As companies migrate to social commerce sites
on their own pinboards. Social commerce sites often
such as Pinterest, consumer interactions across the
include ratings and recommendations (as Amazon.
sites may change. One way that companies are leverag-
com does) and social shopping tools (as Groupon
ing Pinterest’s user base is by running promotions. For
does). In general, social commerce sites are designed
example, Favorite Family Recipes offered two iPads
to help consumers make more informed decisions on
as prizes for users who followed and pinned the logos
purchases and services.
of thirteen associated Pinterest boards. 20 This type of
Social commerce generated almost $24 billion in
promotion can undermine the authenticity that many
sales in 2014, with nearly half of all online sales com-
consumers rely on when using social commerce sites.
ing through social media sites.18 There are seven types of
However, some companies hope to cultivate authentic
social commerce:
relationships by staying away from promotions. Whole
● Peer-to-peer sales platforms (like eBay and Etsy) Foods pins items that relate to the company’s values but
● Social networking Web sites driven by sales (like are not promotional or linked back to the Whole Foods
Pinterest and Twitter) site. Customers have built a relationship with Whole
Foods based on upcycled products and
recipes, rather than free products.21
18-1b Social Media and

Integrated Marketing
Communications
While marketers typically employ a so-
cial media strategy alongside traditional
channels like print and broadcast, many
budget pendulums are swinging toward
social media. Forrester Research pre-
dicts that mobile marketing, social media,
e-mail marketing, display advertising, and
search marketing will grow to more than
thirty-five percent of spending in the next
few years, equaling spending on televi-
sion today. The bulk of this budget will
still go to search marketing and display
advertising, but substantial investments
will also be made in mobile marketing
Source: Groupon
and social media.22

A unique consequence of social
media is the widespread shift from one-
Social commerce sites are designed to help consumers to-many communication to many-to-many
make more informed decisions on purchases and services. communication. Instead of simply putting
a brand advertisement on television with
heavy users of a brand and receive input,
which in turn increases those users’ brand
advocacy and lessens the likelihood that
a change will be disliked enough to drive
away loyal customers.
18-2 CREATING AND

LEVERAGING A
Source: Talenthouse
SOCIAL MEDIA
CAMPAIGN
Talenthouse asks customers for their input when it
comes to album art, performer wardrobes, etc. A winner Social media is an exciting new field,
is selected through social media voting. and its potential for expanding a
brand’s impact is enormous. Because
the costs are often minimal and the
no means for feedback, marketers can use social media learning curve is relatively low, some organizations
to have conversations with consumers, forge deeper rela- are tempted to dive headfirst into social media. As with
tionships, and build brand loyalty. Social media also allow any marketing campaign, however, it is always important
consumers to connect with each other, share opinions, to start with a strategy. For most organizations, this
and collaborate on new ideas according to their interests. means starting with a marketing or communications
With social media, the audience is often in control plan. Important evaluative areas such as situation
of the message, the medium, the response, or all three. analysis, objectives, and evaluation are still essential.
This distribution of control is often difficult for com- It is important to link communication objectives (for
panies to adjust to, but the focus of social marketing is example, improving customer service) to the most
unavoidably on the audience, and the brand must adapt effective social media tools (for example, Twitter) and
to succeed. The interaction between producer and con- to be able to measure the results to determine if the
sumer becomes less about entertaining and more about objectives were met. It is also important to understand
listening, influencing, and engaging. the various types of media involved.
Using consumers to develop and market products is The new communication paradigm created by a
called crowdsourcing. Crowdsourcing describes how shift to social media marketing raises questions about
the input of many people can be leveraged to make de- categorization. In light of the convergence of tradi-
cisions that used to be based on the input of only a few tional and digital media, researchers have explored
people.23 Companies get feedback on marketing cam- different ways that interactive marketers can catego-
paigns, new product ideas, and other marketing decisions rize media types, namely owned, earned, and paid
by asking customers to weigh in. One company called media (recall these concepts from Chapter 15). The
Talenthouse is offering up the crowd to help musicians purpose of owned media is to develop deeper rela-
fulfill all sorts of needs—for example, someone to design tionships with customers. A brand’s Facebook pres-
album art or sew a dress for a lead singer. Talenthouse ence, YouTube channel, Twitter presence, Pinterest
has users submit work to be voted on by Facebook and presence, and presence on other social platforms
Twitter peers. The winner gets the job (though the musi- constitute owned media. Additional content such as
cian has the final say in who wins). Some musicians see videos, webinars, recommendations, ratings, and blog
Talenthouse as a way to gain publicity or to help aspiring posts are also considered owned media since they are
artists. English singer-songwriter Ellie Goulding set up sharable on social media platforms. In an interactive
a contest for Talenthouse competitors to submit a pho- space, media are earned through word of mouth or on-
tograph that showed people connecting with music at a line buzz about something the brand is doing. Earned
concert or festival. The winner received £1,000 (about media include viral videos, retweets, comments on
$1,500), a new laptop, special promotion, and a job as blogs, and other forms of
the official photographer for an Ellie Goulding concert.24 customer feedback result- crowdsourcing using consumers
to develop and market products
Crowdsourcing offers a way for companies to engage ing from a social media
of product being sold and the customer’s propensity to
participate in social media.
To leverage all three types of media, marketers
must follow a few key guidelines. First, they must
maximize owned media by reaching out beyond their
existing Web sites to create portfolios of digital touch
points. This is especially true for brands with tight
budgets, as the organization may not be able to afford
much paid media. Second, marketers must recognize
that public and media relations no longer translates
into earned media. Instead, marketers must learn
how to listen and respond to stakeholders. This will
stimulate word of mouth. Finally, marketers must
understand that paid media must serve as a catalyst
Dcwcreations/Shutterstock.com
to drive customer engagement and expand into
emerging channels.26 If balanced correctly, all three
types of media can be powerful tools for interactive
marketers.
18-2a The Listening System

Companies with an established brand The first action a marketing team should take when
recognition have deeper layers of social initiating a social media campaign is simple—it should
media—customers know and recognize just listen. Customers are on social media and assume
instantly. that the brand is there as well. They expect a new level
of engagement with brands. Developing an effective
listening system is necessary to both understanding
presence. When consumers pass along brand informa- and engaging an online audience. Marketers must not
tion in the form of retweets, blog comments, or ratings only hear what is being said about the brand, the in-
and recommendations, this is an example of earned dustry, the competition, and the customer, but they
media. In other words, the word of mouth is spread must also pay attention to who is saying what and act
online rather than face-to-face. Paid media are similar upon that information. The specific ways that custom-
to marketing efforts that utilize traditional media, like ers and noncustomers rate, rank, critique, praise, de-
newspaper, magazine, and television advertisements. ride, recommend, snub, and generally discuss brands
In an interactive space, paid media include display ad- are all important. Thus, social media have created a
vertising, paid search words, and other types of direct new method of market research: customers telling
online advertising. 25 Ads purchased on Facebook, for marketers what they want and need (and do not want
example, are considered paid media since the brand is and do not need).
paying for the text-based or visual ad that shows up on Once a company has started listening, it typi-
the right-hand side of Facebook profiles. cally wants to develop a more formalized approach.
As a result, social media can really be thought Social media monitoring is the process of iden-
of as an additional “layer” that many brands decide to tifying and assessing what is being said about a com-
develop. Some layers are quite deep—Doritos, Old pany, individual, product, or brand. It can involve
Spice, and Nike can be said to have deeper layers of so- sentiment analysis and text mining specific key words
cial media since these are brands that people talk about. on social networking Web sites, blogs, discussion fo-
Other brands, for example, many B-to-B brands, may rums, and other social media. Negative comments
have a more shallow social and complaints are of particular importance, both be-
social media monitoring media layer and provide cause they can illuminate unknown brand flaws and
the process of identifying and access on only one or two because they are the comments that tend to go viral.
assessing what is being said about social media platforms. At Listening is important because consumers believe
a company, individual, product, the end of the day, it re- that if negative comments about a brand go unan-
or brand
ally depends on the type swered, that brand is insincere, and consumers will
take their business elsewhere. Failure to respond to positive. Use social media to search out displeased
criticism typically leads to a larger crisis. Online tools customers and engage them directly in order to solve
such as Google Alerts, Google Blog Search, Twitter their service issues.
Search, Social Mention, Social Bakers and Socialcast
are extremely helpful in monitoring social media.
Larger companies typically use an enterprise system 18-3 EVALUATION AND MEASUREMENT
such as Salesforce.com’s Radian6 CRM software to
monitor social media. OF SOCIAL MEDIA
Social media have the potential to revolution-
18-2b Social Media Objectives ize the way organizations communicate with
After establishing a listening platform, the organiza- stakeholders. Given the relative ease and efficiency
tion should develop a list of objectives for its social with which organizations can use social media, a posi-
media team to accomplish. These objectives must be tive return on investment (ROI) is likely for many—if
developed with a clear understanding of how social not most—organizations. A Forrester Research report
media change the communication dynamic with and found that ninety-five percent of marketers planned to
for customers. Remember, attempting to reach a mass increase or maintain their investments in social media.
audience with a static message will never be as suc- However, though they understand that it is a worthwhile
cessful as influencing people through conversation. investment, most marketers have not been able to figure
Marketing managers must set objectives that reflect out how to measure the benefits of social media.
this reality. Here are some practical ideas that mar- As with traditional advertising, marketers lack
keting managers should consider when setting social hard evidence as to the relative effectiveness of these
media objectives: tools. Some marketers accept this unknown variable
and focus on the fact that social media are less
● Listen and learn: Monitor what is being said about
about ROI than about deepening relationships with
the brand and competitors, and glean insights about
customers; others work tirelessly to better understand
audiences. Use online tools and do research to im-
the measurement of social media’s effectiveness. A
plement the best social media practices. If you have
recent Ragan/NASDAQ OMX Corporate Solutions
established a listening strategy, this objective should
survey found that forty percent of marketers are
already be accomplished.
unsure of what evaluative tools to use, and about
● Build relationships and awareness: Open dia- seventy percent are only “somewhat satisfied” or “not
logues with stakeholders by giving them compelling satisfied at all” with how their companies measure
content across a variety of media. Engage in conver- social media. “I’m not sure what to measure or how,”
sations, and answer customers’ questions candidly. said one survey participant. “I know it’s important,
This will both increase Web traffic and boost your but I can’t show my boss how many retweets a post
search engine ranking. This is where crowdsourcing received and expect him to care.”27
can be useful for product development and commu- While literally hundreds of metrics have been de-
nication campaign feedback. veloped to measure social media’s value, these metrics
● Promote products and services: The clearest path are meaningless unless they are tied to key perfor-
to increasing the bottom line using social media is to mance indicators.28 For example, a local coffee shop
get customers talking about products and services, manager may measure the success of her social me-
which ultimately translates into sales. dia presence by the raw number of friends on Face-
book and followers on Twitter she has accumulated.
● Manage your reputation: Develop and improve But these numbers depend entirely on context. The
the brand’s reputation by responding to comments rate of accumulation, investment per fan and follower,
and criticism that appear on blogs and forums. Ad- and comparison to similarly sized coffee shops are all
ditionally, organizations can position themselves as important metrics to consider. Without context, mea-
helpful and benevolent by participating in other fo- surements are meaningless. This is a hot topic, and
rums and discussions. Social media make it much several marketing blogs cover the areas of social media
easier to establish and communicate expertise. measurement. Jim Sterne’s book Social Media Metrics
● Improve customer service: Customer comments is one of the best sources information on monitoring
about products and services will not always be and using social media metrics.
18-4 SOCIAL BEHAVIOR
OF CONSUMERS Which Metrics Are
Most Effective?
Social media have changed the way that people
interact in their everyday lives. Some say that so- Many social media marketers will simply need
cial media have made people smarter by giving people to start with good measurable objectives, deter-
(especially children) access to so much information and mine what needs to be measured, and figure it
interactivity. Social media allow people to stay in touch out. Still, some social media metrics to consider
in ways never before experienced. Social media have include:
also reinvented civic engagement (recall that the ALS
Association’s ”Ice Bucket Challenge” grew worldwide
● Buzz: volume of consumer-created buzz for
through social media like Facebook and Twitter). Social a brand based on posts and impressions,
media have drastically changed the advertising business by social channel, by stage in the purchase
from an industry based on mass-media models (for ex- channel, by season, and by time of day.
ample, television) to an industry based on relationships ● Interest: number of “likes,” fans, followers,
and conversations. This all has implications for how and friends; growth rates; rate of virality
consumers use social media and the purposes for which or pass along; and change in pass along
they use those media.29 over time.
Once objectives have been determined and mea- ● Participation: number of comments,
surement tools have been implemented, it is impor- ratings, social bookmarks, subscriptions,
tant to identify the consumer the marketer is trying page views, uploads, downloads, embeds,
to reach. Who is using social media? What types of retweets, Facebook posts, pins, and time
spent with social media platform.
● Search engine ranks and results: increases
and decreases on searches and changes in
key words.
● Influence: media mentions, influences of
bloggers reached, influences of customers
reached, and second-degree reach based
on social graphs.
● Sentiment analysis: positive, neutral, and
negative sentiment; trends of sentiment;
and volume of sentiment.
● Web site metrics: clicks, click-through rates,
and percentage of traffic.
Marcos Mesa Sam Wordley/Shutterstock.com
social media do they use? How do they use social me-

dia? Are they just reading content, or do they actu-
ally create it? Does Facebook attract younger users?
Do Twitter users retweet viral videos? These types
of questions must be considered because they deter-
mine not only which tools will be most effective but
also, more importantly, whether launching a social
media campaign even makes sense for a particular
Social media has reinvented civic organization.
engagement—see the ALS Ice Bucket Understanding an audience necessitates un-
Challenge as a prime example. derstanding how that audience uses social media.
In Groundswell, Charlene Li and Josh Bernoff of
Forrester Research identify six categories of social and platforms that can be employed as part of an
media users: organization’s social media strategy. Blogs, microb-
1. Creators: Those who produce and share online logs, social networks, media creation and sharing sites,
content like blogs, Web sites, articles, and videos social news sites, location-based social networking
sites, review sites, and virtual worlds and online gam-
2. Critics: Those who post comments, ratings, and re- ing all have their place in a company’s social market-
views of products and services on blogs and forums ing plan. These are all tools in a marketing manager’s
3. Collectors: Those who use RSS feeds to collect in- toolbox, available when applicable to the marketing
formation and vote for Web sites online plan but not necessarily to be used all at once. Because
4. Joiners: Those who maintain a social networking of the breakneck pace at which technology changes,
profile and visit other sites this list of resources will surely look markedly differ-
ent five years from now. More tools emerge every day,
5. Spectators: Those who read blogs, listen to pod-
and branding strategies must keep up with the ever-
casts, watch videos, and generally consume media
changing world of technology. For now, the resources
6. Inactives: Those who do none of these things30 highlighted in this section remain a marketer’s stron-
A Forrester Research study determined that gest set of platforms for conversing and strengthening
twenty-four percent of social media users function relationships with customers.
as creators, 36 percent function as critics, 23 percent
function as collectors, 68 percent function as joiners, 18-5a Blogs
73 percent function as spectators, and 14 percent func- Blogs have become staples in many social media strate-
tion—or rather, do not function—as inactives.31 Partici- gies and are often a brand’s social media centerpiece. A
pation in most categories has slowed slightly, prompting blog is a publicly accessible Web page that functions as
analysts to recommend that marketers re-examine how an interactive journal, whereby readers can post com-
they are engaging with their customers online. ments on the author’s entries. Some experts believe that
Despite the apparent slowdown, research also every company should have a blog that speaks to cur-
shows that more social networking “rookies” are rent and potential customers, not as consumers, but as
classified as joiners. Another bright spot is a new people.33 Blogs allow marketers to create content in the
category, “conversationalists,” or people who post status form of posts, which ideally build trust and a sense of
updates on social networking sites and microblogging authenticity in customers. Once posts are made, audi-
services such as Twitter. Conversationalists represent ence members can provide feedback through com-
36 percent of users.32 This type of classification gives ments. Because it opens a dialogue and gives customers
marketers a general idea of who is using social media a voice, the comments section of a blog post is one of
and how to engage them. It is similar to any type of the most important avenues of conversation between
market segmentation—especially the 80/20 rule. Those brands and consumers.
who are creating content and active on social media Blogs can be divided into two broad categories:
could be those consumers most likely to actively engage corporate and professional blogs, and noncorporate
with a brand as well as actively post negative comments blogs such as personal blogs. Corporate blogs are
on social media. The critics and collectors make up most sponsored by a company or one of its brands and are
of this group. However, it is important not to miss the maintained by one or more of the company’s employ-
joiners and spectators, because they are eager to follow ees. They disseminate marketing-controlled information
and act on the comments of their fellow customers. and are effective platforms for developing thought lead-
ership, fostering better relationships with stakeholders,
maximizing search engine
18-5 SOCIAL MEDIA TOOLS: optimization, attracting blog a publicly accessible Web
CONSUMER- AND CORPORATE- new customers, endearing
the organization with an-
page that functions as an interactive
journal, whereby readers can post
GENERATED CONTENT ecdotes and stories about comments on the author’s entries
brands, and providing an corporate blogs blogs that are
Given that it is important for marketers to engage active forum for testing sponsored by a company or one of
with customers on social media for the reasons new ideas. Many compa- its brands and maintained by one or
more of the company’s employees
mentioned earlier, there are a number of tools nies, however, have moved
away from corporate blogs, replacing the
in-depth writing and comment monitor-
ing that come with blog maintenance with
the quick, easy, and more social Facebook,
Twitter, or Tumblr. Coca Cola, Walmart,
and AllState operate some of the best big
company corporate blogs. All are known
for their creative and engaging content
and the authenticity of their tone.34
Source: Tumblr
On the other hand, noncorporate
blogs are independent and not associ-
ated with the marketing efforts of any
particular company or brand. Because Some social media platforms allow users to post longer
these blogs contain information not con- pieces of text, videos, images and links.
trolled by marketers, they are perceived
to be more authentic than corporate
blogs. Mommy bloggers, women who review children’s these platforms allow users to post longer pieces of
products and discuss family-related topics on their text, videos, images, and links. While some microb-
personal blogs, use noncorporate blogs. The goal of logs (such as Tumblr) do not have text length limits,
mommy blogs is to share parenting tips and experi- their multimedia-based cultures discourage tradi-
ences and become part of a community. Food blogs tional blog-length text posts. The content posted on
are especially popular, particularly those posting res- microblogs ranges from five-paragraph news stories
taurant reviews, diet and exercise tips, and recipes. to photos of sandwiches with the ingredients as cap-
Because of the popularity of these and other types tions (scanwiches.com). While Tumblr is growing
of blogs, many bloggers receive products and/or money rapidly, Twitter, originally designed as a short messag-
from companies in exchange for a review. Many blog- ing system used for internal communication, is wildly
gers disclose where they received the product or if they popular and is used as a communication and research
were paid, but an affiliation is not always clear. Because tool by individuals and brands around the world.
of this, bloggers must disclose any financial relationship Twitter is effective for disseminating breaking news,
with a company per Federal Trade Commission rules. promoting longer blog posts and campaigns, sharing
Marketing managers need to understand the rules be- links, announcing events, and promoting sales. By
hind offering complimentary products to bloggers before following, retweeting, responding to potential cus-
using them as a way to capitalize on the high potential tomers’ tweets, and tweeting content that inspires
for social buzz; four out of five noncorporate bloggers customers to engage the brand, corporate Twitter
post brand or product reviews. Even if a company does users can lay a foundation for meaningful two-way
not have a formal social media strategy, chances are the conversation quickly and effectively. Celebrities also
brand is still out in the blogosphere, whether or not a flock to Twitter to interact with fans, discuss tour
marketing manager approached a blogger. dates, and efficiently promote themselves directly
to fans. Research has found that when operated cor-
rectly, corporate Twitter accounts are well respected
18-5b Microblogs
and well received. Twitter can be used to build com-
Microblogs are blogs that entail shorter posts than munities, aid in customer service, gain prospects,
traditional blogs. Twitter, the most popular microb- increase awareness, and, in the case of nonprofits,
logging platform, requires raise funds.
noncorporate blogs that posts be no more than The ways a business can use microblogs to success-
independent blogs that are not 140 characters in length. fully engage with customers are almost limitless. A wide
associated with the marketing However, there are several variety of companies find Tumblr’s easy and customiz-
efforts of any particular company
other platforms, includ- able format a great way to promote an individual brand.
or brand
ing Tumblr, Plurk, and, of Mashable uses its Tumblr to give a glimpse inside the
microblogs blogs with strict course, Facebook’s status offices and share the company’s sense of humor. Ace
post length limits
updates. Unlike Twitter, Hotel, located in New York, Portland, Seattle, and Palm
Springs, shows off its properties and local art exhibits on
EXHIBIT 18.1 FACEBOOK LINGO
a spare, gallery-like Tumblr. Lure Fishbar shows off its
delectable food on its Tumblr.35 Non-Individual
(Usually Corporate) Individual
18-5c Social Networks Page Profile
Fan of a page, tells fan’s Friend a person, send private
Social networking sites allow individuals to friends that the user is a fan, messages, write on the Wall,
connect—or network—with friends, peers, and busi- creates mini viral campaign see friend-only content
ness associates. Connections may be made around Public, searchable Privacy options, not searchable
shared interests, shared environments, or personal unless user enabled
relationships. Depending on the site, connected in-
dividuals may be able to send each other messages,
track each other’s activity, see each other’s personalFACEBOOK Facebook originated as a community for
information, share multimedia, comment on each college students that opened to the general public as its
other’s blog and microblog posts—or do all of these popularity grew. It now has almost 1.5 billion monthly ac-
things. Depending on a marketing team’s goals, sev- tive users, making it the largest social networking site by
eral social networks might be engaged as part of a far. Growth in new profiles is highest among baby boom-
social media strategy: Facebook is the largest social ers using Facebook as a way to connect with old friends
network; Instagram and Snapchat are popular among and keep up with family. Facebook is popular not only
younger audiences; LinkedIn is geared toward profes- with individuals, but also with groups and companies.
sionals and businesses who use it to recruit employ- How an individual uses Facebook differs from the way
ees; and niche networks like Twitch, SoundCloud, a group or company uses Facebook, as you can see in
Grindr, BlackPlanet, and ChristianMingle.com cater Exhibit 18.1. Individual Facebook users create profiles,
to specialized markets. There is a niche social net- while brands, organizations, and nonprofit causes operate
work for just about every demographic and interest. as pages. As opposed to individual profiles, all pages are
Beyond those already established, an organization public and are thus subject to search engine indexing.
may decide to develop a brand-specific social network By maintaining a popular Facebook page, a brand
or community. Although each social networking site is not only increases its social media presence, it also helps
different, some marketing goals can be accomplished to optimize search engine results. Pages often include
on any such site. Given the right strategy, increas- photo and video albums, brand information, and links to
ing awareness, targeting audiences, promoting prod- external sites. One of the most useful page features is
the Timeline. The Timeline allows a brand to communi-
ucts, forging relationships, highlighting expertise and
leadership, attracting event participants, performing cate directly with fans via status updates, which enables
research, and generating new business are attainable marketers to build databases of interested stakeholders.
marketing goals on any social network. When an individual becomes a fan of your organization
or posts on your Timeline, that informa-
tion is shared with the individual’s friends,
creating a mini viral marketing campaign.
Other Facebook marketing tools include
groups, applications, and ads. Facebook is
an extremely important platform for social
marketers.
Facebook has proved to be fertile
Source: Spark Networks, Inc.
ground for new marketing ideas and cam-

paigns. Many companies use Facebook as
a way to share
photos of the social networking sites
business they Web sites that allow individuals
There is a niche social network for just about every are doing, to connect—or network—with
whether that is friends, peers, and business
demographic and interest. associates
images of the
plant where the product is 18-5d Media
made or finished construc- Sharing Sites
tion on a new project. Of-
Rvlsoft/Shutterstock.com
fering guides relevant to a Media sharing sites al-
company’s product or service low users to upload and
as a way to educate interested distribute multimedia con-
customers has worked well tent like videos and photos.
for Kitchen Cabinet Kings, YouTube, Flickr, Pinterest,
which found that educated Video creation and distribution have Instagram, Vine, and Snap-
customers make more pur- gained popularity among marketers chat are particularly useful
chases. Threadless’ Voting because of video’s rich ability to to brands’ social market-
Hub Facebook page allows tell stories. ing strategies because they
fans to share, promote, and add a vibrant interactive
vote on new t-shirt designs.36 channel on which to dis-
seminate content. Suffice to say, the distribution of user-
LINKEDIN LinkedIn is used primarily by professionals generated content has changed markedly over the past
who wish to build their personal brands online and busi- few years. Today, organizations can tell compelling brand
nesses that are recruiting employees and freelancers. stories through videos, photos, and audio.
LinkedIn features many of the same services as Face- Photo sharing sites allow users to archive and share
book (profiles, status updates, private messages, com- photos. Flickr, Picasa, Twitpic, Photobucket, Facebook,
pany pages, and groups) but is oriented around business and Imgur all offer free photo hosting services that can
and professional connections—it is designed to be in- be utilized by individuals and businesses alike. Insta-
formation-rich rather than multimedia-rich. LinkedIn gram is often used by brands to engage younger audi-
serves as a virtual rolodex, providing recruiters and job ence members. Snapchat is also useful, but since photos
seekers alike a network to connect and conduct busi- and videos are only visible for a few seconds, complex
ness. LinkedIn’s question-and-answer forum, endorse- marketing messages cannot easily be conveyed.
ment system, job classifieds platform, and acquisition Video creation and distribution have also gained
of presentation-hosting Web site SlideShare set it apart popularity among marketers because of video’s rich abil-
from Facebook as a truly business-oriented space. 37 ity to tell stories. YouTube, the highest-trafficked video-
LinkedIn is the most effective social media platform based Web site and the third-highest-trafficked site
for B-to-B marketing, as many use it for lead genera- overall, allows users to upload and stream their videos
tion. Some companies use LinkedIn for recruiting, and to an enthusiastic and active community.38 YouTube is
others use it for thought leadership. Indeed, company not only large (in terms of visitors), but it also attracts a
pages on LinkedIn can diverse base of users: age and gender demographics are
media sharing sites Web serve as an effective hub remarkably balanced.
sites that allow users to upload and for products and services, Many entertainment companies and movie market-
distribute multimedia content like
promotional videos, and ers have used YouTube as a showcase for new products,
videos and photos
company news. specials, and movie trailers. User-generated content can
Ask Me Anything
0 13
737
14 9
Politicians, celebrities, and business leaders from all walks of life have used Reddit’s
ock
er s t
Ask Me Anything (AMA) series to promote their issues, projects, and products. After
hu t t
an AMA is posted, Reddit users ask questions—sometimes complex or controversial

us/ S
lex i
questions—and the poster answers them as he or she chooses. Some of the site’s
©o
most popular AMAs have included Bill Gates, Molly Ringwald, Snoop Lion, Neil de-
Grasse Tyson, Louis C.K., and President Barack Obama.39
also be a powerful tool for brands that can use it
effectively. While YouTube is still the champ, Vine
is quickly becoming another popular platform for
corporate promotion.
A podcast, another type of user-generated
media, is a digital audio or video file that is distrib-
uted serially for other people to listen to or watch.
Podcasts can be streamed online, played on a com-
Denys Prykhodov/Shutterstock.com
puter, uploaded to a portable media player, or down-
loaded onto a smartphone. Podcasts are like radio
shows that are distributed through various means
and not linked to a scheduled time slot. While they
have not experienced the exponential growth rates
of other digital platforms, podcasts have amassed a
steadily growing number of loyal devotees. For ex-
Since location site technology is relatively new,
ample, Etsy, an online marketplace for handmade
and vintage wares, offers a podcast series introduc- many brands are still figuring out how to best
ing favorite craftspeople to the world—driving busi- utilize Foursquare.
ness for those individuals.
18-5e Social News Sites the fun of social networking with the utility of location-
based GPS technology. Foursquare, one of the most pop-
Social news sites allow users to decide which content ular location sites, treats location-based micronetworking
is promoted on a given Web site by voting that content as a game: Users earn badges and special statuses based
up or down. Users post news stories and multimedia on on their number of visits to particular locations. Users can
crowdsourced sites such as Reddit for the community write and read short reviews and tips about businesses, or-
to vote on. The more interest from readers, the higher ganize meet-ups, and see which Foursquare-using friends
the story or video is ranked. Marketers have found that are nearby. Foursquare updates can also be posted to
these sites are useful for promoting campaigns, creating linked Twitter and Facebook accounts for followers and
conversations around related issues, and building Web friends to see. Location sites such as Foursquare are par-
site traffic. ticularly useful social marketing tools for local businesses,
If marketing content posted to a crowdsourced site especially when combined with sales promotions like cou-
is voted up, discussed, and shared enough to be listed pons, special offers, contests, and events. Location sites
among the most popular topics of the day, it can go viral can be harnessed to forge lasting relationships with and
across other sites, and eventually, the entire Web. Social deeply ingrained loyalty from customers.41 For example, a
bookmarking sites such as Delicious and StumbleUpon local restaurant can allow consumers to check in on Four-
are similar to social news sites but the objective of their square using their smartphones and receive coupons for
users is to collect, save, and share interesting and valu- that day’s purchases. Since the location site technology
able links. On these sites, users categorize links with is relatively new, many brands are still figuring out how
short, descriptive tags. Users can search the site’s data- best to utilize Foursquare. Facebook added Places to
base of links by specific tags or can add their own tags to capitalize on this location-based technology, which allows
others’ links. In this way, tags serve as the foundation for people to “check in” and share
information gathering and sharing on social bookmark- their location with their online
ing sites.40 social news sites Web
friends. It will be interesting to sites that allow users to decide
see how use of this technology which content is promoted on
18-5f Location-Based Social grows over time. a given Web site by voting that
content up or down
Networking Sites
18-5g Review Sites location-based social
Considered by many to be the next big thing in so- networking sites Web sites
cial marketing, location sites like Foursquare and Individuals tend to trust that combine the fun of social
networking with the utility of
Loopt should be on every marketer’s radar. Essentially, other people’s opinions when
location-based GPS technology
location-based social networking sites combine it comes to purchasing.
sites certainly serve as useful tools for local and
national businesses.
18-5h Virtual Worlds and Online Gaming

Virtual worlds and online gaming present addi-
tional opportunities for marketers to engage with
consumers. These include massive multiplayer on-
line games (MMOGs) such as League of Legends,
Destiny, and The Elder Scrolls Online as well as
GongTo/Shutterstock.com
online communities (or virtual worlds) such as Sec-
ond- Life, Poptropica, and Habbo Hotel. Although
virtual worlds are unfamiliar to and even intimidat-
ing for many traditional marketers, the field is an
important, viable, and growing consideration for
Giving marketers the opportunity to respond social media marketing. Consultancy firm KZero
their customers directly and put their business Worldwide reported that almost 800 million peo-
in a positive light, is why review sites like Yelp ple participate in some sort of virtual world experi-
have thrived. ence, and the sector’s annual revenue approaches
$1 billion. Some of the most popular and profit-
able games, including Diamond Dash and Farm-
According to Nielsen Media Research, more than sev- Ville 2, are built on the Facebook platform. Much of these
enty percent of consumers said that they trusted online games’ revenue comes from in-game advertising—virtual
consumer opinions. This percentage is much higher world environments are often fertile grounds for branded
than that of consumers who trust traditional advertis- content. Organizations such as IBM and the American
ing. Based on the early work of Amazon.com and eBay Cancer Society have developed profitable trade presences
to integrate user opinions into product and seller pages, in Second Life, but others have abandoned the persistent
countless Web sites allowing users to voice their opin- online community as its user base has declined—the aver-
ions have sprung up across every segment of the Inter- age number of users logged into Second Life has dropped
net market. Review sites allow consumers to post, almost 25 percent in the last four years.43
read, rate, and comment on opinions regarding all kinds One area of growth is social gaming. Nearly twenty-
of products and services. For example, Yelp, the most five percent of people play games like Words with
active local review directory on the Web, combines cus- Friends and Trivia Crack, either within social network-
tomer critiques of local businesses with business infor- ing sites like Facebook or on mobile devices. Interest-
mation and elements of social networking to create an ingly, the typical player is a forty-five-year-old woman
engaging, informative experience. On Yelp, users scruti- with a full-time job and college education (while us-
nize local restaurants, fitness centers, tattoo parlors, and ers who play on mobile devices tend to be younger).
other businesses, each of which has a detailed profile Women are most likely to play with real-world friends
page. Business owners and representatives can edit their or relatives as opposed to strangers. Most play multiple
organizations’ pages and respond to Yelp reviews both times per week, and more than thirty percent play daily.
privately and publicly. Yelp even rewards its most popu- Facebook is by far the largest social network for gaming,
lar (and prolific) reviewers with Elite status. Businesses though hi5 is hoping to win over more users with its large
like Worthington, Ohio’s Pies & Pints will throw Elite- variety of games. The top five games on Facebook are
only parties to allow these esteemed Yelpers to try out Candy Crush Saga, FarmVille 2, Texas HoldEm Poker,
their restaurant, hoping to receive a favorable review. A Pet Rescue Saga, and Dragon City. 44 King’s Candy
Tiki Beach Party for Yelp Elites at Montreal, Canada’s Le Crush Saga entices more than ninety-three million us-
Lab garnered thirteen reviews averaging five stars out of ers a day. These games are attractive because they can
five.42 By giving marketers be played in just five minutes, perhaps while waiting for
review sites Web sites that the opportunity to respond the train.45 Many mobile games use mobile ads to gener-
allow consumers to post, read, rate, to their customers directly ate revenue for the game-makers. As long as the ads are
and comment on opinions regarding
and put their businesses not overly intrusive, most users opt to play the free game
all kinds of products and services
in a positive light, review with ads over the paid version that does not have ads.
Another popular strategy is to give an ad-free game away Mobile advertising has grown as much as 80 percent
for free and then charge small sums of money for in- per year in the U.S., but that rate is expected to slow
game items and power-ups. These microtransactions ac- to about 50 percent per year over the next few years.
count for 21 percent of all mobile profits.46 Though Kim Digital advertising accounted for almost 34 percent of
Kardashian: Hollywood is free to download and play, for all U.S. ad spending in 2015, and mobile advertising
example, the game has earned more than $200 million alone made up about a third of that.49 There are several
from in-game microtransactions.47 reasons for the recent popularity of mobile marketing.
Another popular type of online gaming targets a dif- First, an effort to standardize mobile platforms has re-
ferent group—MMOGs tend to draw eighteen to thirty- sulted in a low barrier to entry. Second, especially given
four-year-old males. In MMOG environments, thousands mobile marketing’s younger audiences, there are more
of people play simultaneously, and the games have rev- consumers than ever acclimating to once-worrisome pri-
enues of more than $400 billion annually. Regardless of vacy and pricing policies. Third, because most people
the type of experience, brands must be creative in how carry their smartphones with them at all times, mobile
they integrate into games. Social and real-world-like titles marketing is uniquely effective at garnering customer
are the most appropriate for marketing and advertising attention in real time. Fourth, mobile marketing is mea-
(as opposed to fantasy games), and promotions typically surable: metrics and usage statistics make it an effective
include special events, competitions, and sweepstakes. tool for gaining insight into consumer behavior. Fifth,
In some games (like The Sims), having ads increases the in-store notification technology such as Apple’s iBeacon
authenticity. For example, Nike offers shoes in The Sims can send promotional messages based on real-time in-
Online that allow the player to run faster. teractions with customers. Finally, mobile marketing’s
response rate is higher than that of traditional media
types like print and broadcast advertisement. Some
18-6 SOCIAL MEDIA AND common mobile marketing tools include:
MOBILE TECHNOLOGY ● SMS (short message service): 160-character text
messages sent to and from cell phones. SMS is typi-
While much of the excitement in social media has cally integrated with other tools.
been based on Web sites and new technology uses,
● MMS (multimedia messaging service): Similar
much of the growth lies in new platforms. These
to SMS but allows the attachment of images, videos,
platforms include the multitude of smartphones as well
ringtones, and other multimedia to text messages.
as iPads and other tablets. The major implication of this
development is that consumers now can access popular ● Mobile Web sites (MOBI and WAP Web sites):
Web sites like Facebook, Mashable, Twitter, and Four- Web sites designed specifically for viewing and navi-
square from all their various platforms. gation on mobile devices.
● Mobile ads: Visual advertisements integrated into
18-6a Mobile and Smartphone Technology text messages, applications, and mobile Web sites.
Worldwide, there are more than six billion mobile Mobile ads are often sold on a cost-per-click basis.
phones in use, seventeen percent of which are smart- ● Bluetooth marketing: A signal is sent to Bluetooth-
phones.48 It is no surprise, then, that the mobile plat- enabled devices, allowing marketers to send tar-
form is such an effective marketing tool—especially geted messages to users based on their geographic
when targeting a younger audience. Smartphones up locations.
the ante by allowing individuals to do nearly everything
● Smartphone applications (apps): Software de-
they can do with a computer—from anywhere. With a
signed specifically for mobile and tablet devices.
smartphone in hand, reading a blog, writing an e-mail,
scheduling a meeting, posting to Facebook, playing a A popular use for barcode scanning apps is the
multiplayer game, watching a video, taking a picture, reading and processing of Quick Response (QR) codes.
using GPS, and surfing the Internet might all occur dur- When scanned by a smartphone’s QR reader app, a QR
ing one ten-minute bus ride. Smartphone technology, code takes the user to a specific site with content about
often considered the crowning achievement in digital or a discount for products or services. Uses range from
convergence and social media integration, has opened donating to a charity by scanning the code to simply
the door to modern mobile advertising as a viable mar- checking out the company’s Web site for more infor-
keting strategy. mation. For example, Modify Watches offers a watch
face with no hands. Instead it has a QR code that, when allow customers to display company information (such
scanned, shows the correct time.50 as current promotions, coupons, or news) on their own
Another smartphone trend is called “near field com- Web sites or smartphone home screens. Widgets are often
munication” (NFC), which uses small chips hidden in or cheaper than apps to develop, can extend an organization’s
behind products that, when touched by compatible de- reach beyond existing platforms, will broaden the listening
vices, will transfer the information on the chip to the device. system, and can make an organization easier to find.53
Barnes & Noble is hoping to work with publishers to ship
hardcover books containing NFC chips to Barnes & Noble
stores. The chips will be embedded with editorial reviews
about that book from Barnes & Noble’s Web site. When a
18-7 THE SOCIAL MEDIA PLAN
NOOK user touches the hardcover with her NOOK, the
book reviews will display on her tablet, helping her make a To effectively use the tools in the social media
purchase decision.51 The Samsung Galaxy S6 smartphone toolbox, it is important to have a clearly outlined
can track users’ eye movements and shift screen content social media plan. The social media plan is linked
depending on where they are looking. While a relatively to larger plans such as a promotional plan or market-
new technology, eye tracking has interesting implications ing plan and should fit appropriately into the objectives
for mobile marketing in the near future.52 and steps in those plans (for more information, review
Finally, mobile marketing is particularly power- Chapters 2 and 16). It is important to research through-
ful when combined with geo-location platforms such as out the development of the social media plan to keep
Foursquare, whereby people can “check in” to places abreast of the rapidly changing social media world.
and receive benefits and special offers. These platforms There are six stages involved in creating an effective
allow retailers and other businesses to incentivize mul- social media plan:
tiple visits, visits at certain times of the day, and positive 1. Listen to customers: This is covered in more
customer reviews. detail in section 18-2a.
2. Set social media objectives: Set objectives that
18-6b Apps and Widgets can be specifically accomplished through social me-
Given the widespread adoption of Apple’s iPhone, An- dia, with special attention to how to measure the
droid-based phones, and other smartphones, it is no results. Numerous metrics are available, some of
surprise that millions of apps have been developed for which are mentioned throughout the chapter.
the mobile market. Dozens of new and unique apps that 3. Define strategies: This includes examining trends
harness mobile technology are added to mobile market- and best practices in the industry.
places every day. While many apps perform platform- 4. Identify the target audience: This should line up
specific tasks, others convert existing content into a with the target market defined in the marketing plan,
mobile-ready format. Whether offering new or existing but in the social media plan, pay special attention to
content, when an app is well branded and integrated how that audience participates and behaves online.
into a company’s overall marketing strategy, it can create
buzz and generate customer engagement. 5. Select the tools and platforms: Based on the re-
Web widgets, also known as gadgets and sult of Step 4, choose the social media tools
badges, are software applications that run and platforms that will be most rele-
entirely within existing online plat- vant. These choices are based on
forms. Essentially, a Web the knowledge of where the
widget allows a developer to target audience partici-
embed a simple application pates on social media.
such as a weather forecast, 6. Implement and monitor
horoscope, or stock mar- the strategy: Social me-
ket ticker into a Web site, dia campaigns can be fluid,
Twin Design/Shutterstock.com
even if the developer did so it is important to keep a

not write (or does not un- close eye on what is successful
derstand) the application’s and what is not. Then, based on
source code. From a mar- the observations, make changes as
keting perspective, widgets needed. It also becomes important,
EXHIBIT 18.2 SOCIAL MEDIA TRENDS
Trend Change Where Is It Now?
Yik Yak Anonymous geolocated messaging
Microsoft Office 365, Google Drive Integration with file hosting
Ello Challengers to Facebook's dominance
Bing Rewards program offers prizes for using Bing Search
The Internet of Things Integration into wearables, appliances, apparel, and more
Apple Pay, Google Wallet, Bitcoin, and
Replace credit cards with various forms of digital payment
NFC- enabled payment options
Loot Crate, Trunk Club, and NatureBox Online and subscription-based personal shopping
Twitch, Meerkat, and Periscope Live video streaming for everybody
Tinder and Grindr The mainstreaming of geolocated dating apps
therefore, to go back to the listening stage to inter- 18-7a The Changing World of Social Media
pret how consumers are perceiving the social media
As you read through the chapter, some of the trends that
campaign.
are noted may already seem ancient to you. The rate of
Listening to customers and industry trends, as well change in social media is astounding—usage statistics
as continually revising the social media plan to meet the change daily for sites like Facebook and Twitter. Some
needs of the changing social media market, are keys to things that are in the rumor mill as we write this may
successful social media marketing. There are numerous have exploded in popularity; others may have fizzled out
industry leaders sharing some of their best practices, without even appearing on your radar. In Exhibit 18.2,
and sources such as Fast Company and the Wall Street we have listed some of the items that seem to be on the
Journal report regularly on how large and small compa- brink of exploding on to the social media scene. Take a
nies are successfully using social media to gain market moment to fill in the current state of each in the third
share and sales. A good example of using social media column. Have you heard of it? Has it come and gone?
strategies is HubSpot, a company that practices what Maybe it is still rumored, or maybe it has petered out.
it preaches. HubSpot advocates the benefits of build- This exercise highlights not only the speed with which
ing valuable content online and then using social media social media change but also the importance of keeping
to pull customers to its Web site. Social engine profiles tabs on rumors. Doing so may give you a competitive
have increased HubSpot’s Web site traffic, which has advantage by being able to understand and invest in the
made its lead generation program much more effective. next big social media site.
STUDY
18
in marketing
experience
19 Pricing Concepts
LEARNING OUTCOMES
19-1 Discuss the importance of pricing decisions to the economy 19-6 Demonstrate how the product life cycle, competition,
and to the individual firm distribution and promotion strategies, customer demands,
the Internet and extranets, and perceptions of quality can
19-2 List and explain a variety of pricing objectives affect price
little Whale/Shutterstock.com
19-3 Explain the role of demand in price determination 19-7 Describe the procedure for setting the right price
19-4 Understand the concepts of dynamic pricing and yield 19-8 Identify the legal constraints on pricing decisions
management systems
19-9 Explain how discounts, geographic pricing, and other pricing
19-5 Describe cost-oriented pricing strategies tactics can be used to fine-tune a base price
19-1 THE IMPORTANCE OF PRICE

Price means one thing to the consumer and something else to the
seller. To the consumer, it is the cost of something. To the seller, price
is revenue—the primary source of profits. In the broadest sense, price
allocates resources in a free-market economy. Marketing managers are
frequently challenged by the task of price setting, but they know that
meeting the challenge of setting the right price can have a significant
impact on the firm’s bottom line. Organizations that successfully
manage prices do so by creating a pricing infrastructure within the
company. This means defining pricing goals, searching for ways to
create greater customer value, assigning authority and responsibility for
pricing decisions, and creating tools and systems to continually improve
pricing decisions.
340 PART SIX:

CHAPTER
Pricing19:Decisions
19
19-1a What Is Price?
Price is that which is given up in an exchange to acquire “Trying to set the right price is
a good or service. Price also plays two roles in the evalu-
ation of product alternatives: as a measure of sacrifice
one of the most stressful and
and as an information cue. To some degree, these are pressure-filled tasks of the
two opposing effects.
THE SACRIFICE EFFECT OF PRICE Price is, again,
marketing manager.”
“that which is given up,” which means what is sacrificed
to get a good or service. In the United States, the sacri-
fice is usually money, but it can be other things as well. VALUE IS BASED UPON PERCEIVED SATISFACTION
It may also be time lost while waiting to acquire the Consumers are interested in obtaining a “reasonable
good or service. Price might also include lost dignity for price.” “Reasonable price” really means “perceived rea-
individuals who lose their jobs and must rely on charity. sonable value” at the time of the transaction. When high-
THE INFORMATION EFFECT OF PRICE Consumers do end housewares retailer Williams-Sonoma launched a
not always choose the lowest-priced product in a category, $279 bread maker, the company garnered only mediocre
such as shoes, cars, or wine, even when the products are returns. Undeterred, Williams-Sonoma released a sec-
otherwise similar. One explanation of this behavior, based ond, slightly larger bread maker with similar features for
upon research, is that we infer quality information from $429. The more expensive model flopped, but when it
price. That is, higher quality equals higher price. The in- was released, sales of the smaller, less expensive model
formation effect of price may also extend to favorable skyrocketed. Though nothing changed about the smaller
price perceptions by others because higher prices can con- model’s features or marketing mix, the $429 model
vey the prominence and status of the purchaser to other affected people’s percep-
people. Thus, both a Swatch and a Rolex can tell time actions, making the $279
curately, but they convey different meanings. The price– model look like a much price that which is given up in an
exchange to acquire a good or service
quality relationship will be discussed later in the chapter. better value.
CHAPTER 19: Pricing Concepts 341
19-1b The Importance of Price product’s perceived value. Sometimes managers
to Marketing Managers say that their company is trying to maximize
profits—in other words, trying to make as
As noted in the chapter introduction, much money as possible. Although this goal
prices are the key to revenues, which may sound impressive to stockholders, it
in turn are the key to profits for an is not good enough for planning.
organization. Revenue is the price In attempting to maximize prof-
charged to customers multiplied by its, managers can try to expand
the number of units sold. Revenue revenue by increasing customer
is what pays for every activity of the satisfaction, or they can attempt to
company: production, finance, sales, reduce costs by operating more effi-
distribution, and so on. What is left ciently. A third possibility is to attempt
over (if anything) is profit. Managers to do both. Some companies may focus
usually strive to charge a price that will too much on cost reduction at the expense
earn a fair profit. of the customer. Lowe’s lost market share
Price 3 Units 5 Revenue when it cut costs by reducing the number
of associates on the floor. Customer service
To earn a profit, managers must choose a declined—and so did revenue. When firms
co m
price that is not too high or too low—a price

tt er st oc k.
rely too heavily on customer service, how-

that equals the perceived value to target con- ever, costs tend to rise to unacceptable lev-
36 0b /S hu
sumers. If, in consumers’ minds, a price is set els. United States’ airlines used to serve full
too high, the perceived value will be less than meals on two-hour flights and offered pillows
the cost, and sale opportunities will be lost. and blankets to tired customers. This proved
to be unsustainable. A company can maintain or slightly
cut costs while increasing customer loyalty through cus-
19-2 PRICING OBJECTIVES tomer service initiatives, loyalty programs, customer
relationship management programs, and allocating
To survive in today’s highly competitive market- resources to programs that are designed to improve
place, companies need pricing objectives that are efficiency and reduce costs.
specific, attainable, and measurable. Realistic pric-
ing goals then require periodic monitoring to determine
the effectiveness of the company’s strategy. For conve-
nience, pricing objectives can be divided into three cat-
egories: profit oriented, sales oriented, and status quo.
19-2a Profit-Oriented Pricing Objectives

Profit-oriented pricing objectives include profit maxi-
mization, satisfactory profits, and target return on
investment.
PROFIT MAXIMIZATION Profit maximization means
setting prices so that total revenue is as large as pos-
sible relative to total costs. Profit maximization does
Chinaview/Shutterstock.com
not always signify unreasonably high prices, however.

Both price and profits depend on the type of competi-
tive environment a firm faces, such as whether it is in
a monopoly position (be-
ing the only seller) or in a
revenue the price charged to
customers multiplied by the number
much more competitive Airlines use to offer full meals on flights of
of units sold situation. Also, remember two hours or more. Now, you are lucky to get
that a firm cannot charge a drink and peanuts.
profit revenue minus expenses
a price higher than the
342 PART SIX: Pricing Decisions
SATISFACTORY PROFITS Satisfactory prof-
TWO WAYS TO MEASURE MARKET SHARE
its are a reasonable level of profits. Rather than EXHIBIT 19.1
maximizing profits, many organizations strive (UNITS AND REVENUE)
for profits that are satisfactory to the stockhold-
ers and management—in other words, a level of Unit Revenue
Units Unit Total Market Market
profits consistent with the level of risk an orga- Company Sold Price Revenue Share Share
nization faces. In a risky industry, a satisfactory A 1,000 $1.00 $1,000 50 25
profit may be thirty-five percent. In a low-risk
B 200 4.00 800 10 20
industry, it might be seven percent.
C 500 2.00 1,000 25 25
TARGET RETURN ON INVESTMENT The D 300 4.00 1,200 15 30
most common profit objective is a target Total 2,000 $4,000
return on investment (ROI) , sometimes
called the firm’s return on total assets. ROI
measures management’s overall effectiveness in
generating profits with the available assets. The higher MARKET SHARE Market share is a company’s prod-
the firm’s ROI, the better off the firm is. Many companies uct sales as a percentage of total sales for that industry.
use a target ROI as their main pricing goal. In summary, Sales can be reported in dollars or in units of product. It is
ROI is a percentage that puts a firm’s profits into perspec- very important to know whether market share is expressed
tive by showing profits relative to investment. in revenue or units because the results may be different.
Return on investment is calculated as follows: Consider four companies competing in an industry with
Net profits after taxes 2,000 total unit sales and total industry revenue of $4,000
Return on investment 5 (see Exhibit 19.1). Company A has the largest unit market
Total assets
share at fifty percent, but it has only twenty-five percent
Assume that in 2017 Johnson Controls had assets of of the revenue market share. In contrast, Company D has
$4.5 million, net profits of $550,000, and a target ROI of only a fifteen percent unit share but the largest revenue
ten percent. This was the actual ROI: share: thirty percent. Usually, market share is expressed in
$550,000 terms of revenue and not units.
ROI 5 5 12.2 percent Many companies believe that maintaining or in-
$4,500,000
creasing market share is an indicator of the effective-
As you can see, the ROI for Johnson Controls exceeded its
ness of their marketing mix. Larger market shares
target, which indicates that the company prospered in 2017.
have indeed often meant higher profits, thanks to
Comparing the 12.2 percent ROI with the industry
greater economies of scale, market power, and abil-
average provides a more meaningful picture, however.
ity to compensate top-quality management. Conven-
Any ROI needs to be evaluated in terms of the competi-
tional wisdom also says that market share and ROI are
tive environment, risks in the industry, and economic
strongly related. For the most part they are; however,
conditions. Generally speaking, firms seek ROIs in the
many companies with low market share survive and
ten to thirty percent range. In some industries, such as
even prosper. To succeed with a low market share,
the grocery industry, however, a return of under five
companies often need to compete in industries with
percent is common and acceptable.
slow growth and few product changes—for instance,
A company with a target ROI can predetermine its
industrial supplies. Otherwise, they must vie in an in-
desired level of profitability. The marketing manager can
dustry that makes frequently bought items, such as
use the standard, such as ten percent ROI, to determine
consumer convenience goods.
whether a particular price and marketing mix are feasible.
The conventional wisdom about market share and
In addition, however, the manager must weigh the
profitability is not always reliable, however. Because of
risk of a given strategy even if the return is in the accept-
extreme competition in
able range. return on investment
some industries, many
market share leaders ei- (ROI) net profit after taxes divided
19-2b Sales-Oriented Pricing Objectives ther do not reach their
by total assets
Sales-oriented pricing objectives are based on market target ROI or actually lose market share a company’s
product sales as a percentage of total
share as reported in dollar or unit sales. Firms strive for money. Procter & Gamble
sales for that industry
either market share or to maximize sales. switched from market share
to ROI objectives after realizing competition’s prices. This third category of pricing
that profits do not au- objectives has the major advantage of requiring little
tomatically follow planning. It is essentially a passive policy.
from a large mar- Often, firms competing in an industry with an es-
ket share. tablished price leader simply meet the competition’s
SALES MAXIMI prices. These industries typically have fewer price wars
k .c o m
Z AT I O N R a t h e r than those with direct price competition. In other cases,
r s to c
than strive for mar- managers regularly shop competitors’ stores to ensure
hu t te
ket share, some- that their prices are comparable.
.u a / S
times companies try to
r. k ie v Status quo pricing often leads to suboptimal pric-
maximize sales. A firm ing. This occurs because the strategy ignores customers’
make
with the objective of perceived value of both the firm’s goods or services and
P h o to
maximizing sales ignores those offered by its competitors. Status quo pricing also
profits, competition, ignores demand and costs. Although the policy is simple
and the marketing en- to implement, it can lead to a pricing disaster.
vironment as long as
sales are rising.
If a company is 19-3 THE DEMAND DETERMINANT
strapped for funds or
faces an uncertain future, OF PRICE
it may try to gen-
After marketing managers establish pricing goals,
erate a maximum
The 5.7 inch Galaxy Round, they must set specific prices to reach those goals.
amount of cash
released in October 2013, The price they set for each product depends mostly on
in the short run.
iterates on Samsung’s two factors: the demand for the good or service and the
M a n a g e m e n t ’s
Galaxy Note line of cost to the seller for that good or service. When pricing
task when using
goals are mainly sales oriented, demand considerations
phablets by introducing a this objective is
usually dominate. Other factors, such as distribution and
curved display. to calculate which
promotion strategies, perceived quality, needs of large
price–quantity
customers, the Internet, and the stage of the product
relationship generates the greatest cash revenue. Sales
life cycle, can also influence price.
maximization can also be effectively used on a temporary
basis to sell off excess inventory. It is not uncommon to
find Christmas cards, orna- 19-3a The Nature of Demand
ments, and other seasonal
status quo pricing a pricing
Demand is the quantity of a product that will be sold in
items discounted at 50 to
objective that maintains existing the market at various prices for a specified period. The
70 percent off retail prices
prices or meets the competition’s quantity of a product that people will buy depends on
prices after the holiday season has its price. The higher the price, the fewer goods or ser-
ended.
demand the quantity of a vices consumers will demand. Conversely, the lower the
Maximization of cash price, the more goods or services they will demand.
product that will be sold in the
should never be a long-
market at various prices for a Supply is the quantity of a product that will
specified period run objective because cash be offered to the market by a supplier or suppliers at
maximization may mean
supply the quantity of a product various prices for a specified period. At higher prices,
that will be offered to the market little or no profitability. manufacturers earn more capital and can produce more
by a supplier at various prices for a
products.
specified period
19-2c Status Quo
elasticity of demand
consumers’ responsiveness or
Pricing 19-3b Elasticity of Demand
sensitivity to changes in price Objectives To appreciate the concept of demand , you should un-
elastic demand a situation in Status quo pricing derstand elasticity. Elasticity of demand refers to
which consumer demand is sensitive seeks to maintain exist- consumers’ responsiveness or sensitivity to changes in
to changes in price
ing prices or to meet the price. Elastic demand is a situation in which consumer
demand is sensitive to price changes.
Conversely, inelastic demand means
that an increase or a decrease in price will
not significantly affect demand for the
product.
FACTORS THAT AFFECT ELASTICITY

Several factors affect elasticity of demand,
including the following:
● Availability of substitutes: When
Everett Collection/Shutterstock.com
many substitute products are avail-
able, the consumer can easily switch
from one product to another, making
demand more elastic. The same is
true in reverse: A person with com-
plete renal failure will pay whatever
is charged for a kidney transplant be-
cause there is no substitute. The Rolling Stones are still selling out concerts with
tickets priced at up to $400.
● Price relative to purchasing power:
If a price is so low that it is an
inconsequential part of an individ-
ual’s budget, demand will be inelastic. If the price concert events is highly inelastic. The Rolling Stones
of pepper doubles, for example, people won’t stop are still selling out concerts with tickets priced at up to
putting pepper on their eggs or buying more when $400. Hershey, maker of Kisses, Milk Chocolate bars,
they run out. and other classic candies, recently raised a majority of
its products’ prices by 8 percent. Chocolate consump-
● Product durability: Consumers often have the op-
tion has historically been very inelastic; people tend to
tion of repairing durable products (like cars and
indulge even when prices spike.1
washing machines) rather than replacing them,
thus prolonging their useful life. In other words,
people are sensitive to the price increase, and de-
mand is more elastic.
19-4 THE POWER OF DYNAMIC
● A product’s other uses: The greater the number PRICING AND YIELD
of different uses for a product, the more elastic de-
mand tends to be. If a product has only one use,
MANAGEMENT SYSTEMS
as may be true of a new medicine, the quantity
When competitive pressures are high, a company
purchased probably will not vary as price varies. A
must know when it can raise prices to maximize
person will consume only the prescribed quantity,
its revenues. More and more companies are turning to
regardless of price. On the other hand, a product
dynamic pricing to help adjust prices. Dynamic pric-
like steel has many possible applications. As its
ing is most useful when two product or service charac-
price falls, steel becomes more economically feasi-
teristics co-exist. First, the product/service expires at
ble in a wider variety of applications, thereby mak-
a given point in time. Airline flights and vacant hotel
ing demand relatively elastic.
rooms eventually lose their ability to make money, as do
Examples of both elastic and inelastic demand products with “sell before”
abound in everyday life. The slow recovery of the hous- dates such as meat and inelastic demand a situation
ing market following the Great Recession was in part dairy items. Second, capac- in which an increase or a decrease
a function of elasticity of demand. Housing prices ity is fixed well in advance in price will not significantly affect
demand for the product
dropped forty percent or more in cities like Phoenix, and can only be increased
Las Vegas, and Miami. Ultimately, these low prices beat a high cost. For example, dynamic pricing a strategy
gan bringing buyers back into the marketplace. On the Delta has eight flights a day whereby prices are adjusted over time
to maximize a company’s revenues
other hand, demand for tickets to certain sporting and to Chicago. To increase
Dynamic Pricing to the Extreme
Pioneered by Amazon but adopted by countless online retailers, database- and cookie-based dynamic pricing
uses a customer’s purchase history, location, Internet history, and usage statistics to arrive at a final sale price.
For example, Home Depot displays products to mobile device users that are often $100 more expensive than
those displayed to desktop computer users.
Hotel-booking Web sites Cheaptickets and Orbitz charge
users an average $12 more per night if they aren’t logged in;
Travelocity charges users $15 less per night if they access
.c o m
the site from an Apple mobile device; and Expedia and
tt er st o ck
Hotels.com steer users at random to pricier products.2
so n /S hu
Safeway’s “Just for U” app uses dynamic pricing to
create exclusive personalized offers for users. At check-
R ob W il
out, users scan a club card to redeem their unique
discounts.3
The city of San Francisco recently installed sen-
sors in 18,250 parking spots. The city uses traffic data
to adjust meter and garage parking prices to match
demand. While parking rates were previously static no
matter how many spots were available, they now range
from 25 cents to $6.00 an hour depending on demand. San Francisco also
provides real-time parking availability maps via the SFpark app. The city esti-
mates that the sensors and app have reduced the total distance driven looking for parking spots by 30 percent.4
Freshplum’s machine learning algorithm can predict which customers will leave a Web site without buying
anything with 99 percent-plus accuracy. When integrated into an e-commerce platform, the program can offer
this group of customers a steeper discount than normal to entice them to purchase before leaving. Visitors to
sites with active Freshplum promotions are 36 percent more likely to buy.5
©StudioM1
that number to twelve flights would probably be very hotels are not entirely applicable to other industries, how-
expensive. A Hyatt hotel in Denver has 120 rooms avail- ever, because plane seats and hotel beds are perishable—
able for February twenty-sixth. To increase the number if they go empty, the revenue opportunity is lost forever.
to 160 would involve huge construction costs. So it makes sense to slash prices to move toward capacity
D e v e l o p e d i n t h e a i r l i n e i n d u s t r y, yield if it’s possible to do so without reducing the prices that
management systems (YMS) use complex math- other customers pay. Cars and steel are not so perishable,
ematical software to profitably fill unused capacity. The but the capacity to make them is. An underused factory is
software employs techniques such as discounting early a lost revenue opportunity. So it makes sense to cut prices
purchases, limiting early sales at these discounted prices, to use up capacity if it is possible to do so while getting
and overbooking capacity. One of the key inputs in air- other customers to pay full price.
lines’ yield management
systems is what has been
yield management
systems (YMS) a technique for
the historical pattern of de-
mand for a specific flight.
19-5 THE COST DETERMINANT
adjusting prices that uses complex
mathematical software to profitably Now dynamic pricing OF PRICE
fill unused capacity by discounting and YMS are spreading be-
early purchases, limiting early sales yond service industries as Sometimes companies minimize or ignore the
at these discounted prices, and
their popularity increases. importance of demand and decide to price their
overbooking capacity
The lessons of airlines and products largely or solely on the basis of costs.
Prices determined strictly on the basis of costs may be financial reports, such as gross sales and revenues, are
too high for the target market, thereby reducing or elim- sales figures, not cost figures.
inating sales. On the other hand, cost-based prices may To use markup based on cost or selling price ef-
be too low, causing the firm to earn a lower return than fectively, the marketing manager must calculate an
it should. Nevertheless, costs should generally be part of adequate gross margin—the amount added to cost to
any price determination, if only as a floor below which a determine price. The margin must ultimately provide
good or service must not be priced in the long run. adequate funds to cover selling expenses and profit.
The idea of cost may seem simple, but it is actually a Once an appropriate margin has been determined, the
multifaceted concept, especially for producers of goods markup technique has the major advantage of being
and services. A variable cost is a cost that varies with easy to employ.
changes in the level of output; an example of a variable Markups are often based on experience. For exam-
cost is the cost of materials. In contrast, a fixed cost ple, many small retailers markup merchandise 100 per-
does not change as output is increased or decreased. Ex- cent over cost. (In other words, they double the cost.)
amples include rent and executives’ salaries. Costs can This tactic is called keystoning. Some other factors
be used to set prices in a variety of ways. While markup that influence markups are the merchandise’s appeal
pricing is relatively simple, break-even pricing uses to customers, past response to the markup (an implicit
more complicated concepts of cost. demand consideration), the item’s promotional value, the
seasonality of the good, its fashion appeal, the product’s
19-5a Markup Pricing traditional selling price, and competition. Most retailers
avoid any set markup because of such considerations as
Markup pricing, the most popular method used by
promotional value and seasonality.
wholesalers and retailers to establish a selling price,
does not directly analyze the costs of production. In-
stead, markup pricing uses the cost of buying the 19-5b Break-Even Pricing
product from the producer, plus amounts for profit and Now, let’s take a closer look at the relationship between
for expenses not otherwise accounted for. The total de- sales and cost. Break-even analysis determines what
termines the selling price. sales volume must be reached before the company
A retailer, for example, adds a certain percentage to breaks even (its total costs equal total revenue) and no
the cost of the merchandise received to arrive at the retail profits are earned.
price. An item that costs the retailer $1.80 and is sold for The typical break-even model assumes a given
$2.20 carries a markup of forty cents, which is a markup of fixed cost and a constant average variable cost (total
twenty-two percent of the cost ($0.40 4 $1.80). Retailers cost divided by quantity of output). Suppose that Uni-
tend to discuss markup in terms of its percentage of the versal Sportswear, a hypothetical firm, has fixed costs of
retail price—in this example, eighteen percent ($0.40 4 $2,000 and that the cost of labor and materials for each
$2.20). The difference between the retailer’s cost and the unit produced is fifty cents. Assume that it can sell up
selling price (forty cents) is the gross margin. to 6,000 units of its prod-
The formula for calculating the retail price given a uct at $1 without having to variable cost a cost that varies
certain desired markup is as follows: lower its price. with changes in the level of output
Cost Exhibit 19-2a illus- fixed cost a cost that does not
Retail price 5 trates Universal Sports- change as output is increased or
1 2 Desired return on Sales
wear’s break-even point. decreased
$1.80 As Exhibit 19.2b indicates,
5 markup pricing the cost of
1.00 2 0.18 Universal Sportswear’s total buying the product from the producer,
variable costs increase by plus amounts for profit and for
5 $2.20
expenses not otherwise accounted for
fifty cents every time a new
If the retailer wants a 30 percent return, then: unit is produced, and total keystoning the practice of
$1.80 fixed costs remain constant marking up prices by 100 percent, or
Retail price 5 doubling the cost
1.00 2 0.30 at $2,000 regardless of the
level of output. Therefore, break-even analysis a method
5 $2.57 of determining what sales volume
for 4,000 units of output,
must be reached before total revenue
The reason that retailers and others speak of mark- Universal Sportswear has
equals total costs
ups on selling price is that many important figures in $2,000 in fixed costs and
EXHIBIT 19.2 COSTS, REVENUES, AND BREAK-EVEN POINT FOR UNIVERSAL SPORTSWEAR
(a) Break-even point
6,000
Total revenue
o fit
Pr Total costs
4,000
Break-even point
Dollars ss
Lo
2,000
Fixed costs
0 1,000 2,000 3,000 4,000 5,000 6,000 7,000 8,000 9,000 10,000
Quantity
(b) Costs and revenues
Total Average Total Average Average

fixed variable variable total revenue Total Total Profit
Output costs costs costs costs (price) revenue costs or loss
500 $2,000 $0.50 $ 250 $4.50 $1.00 $ 500 $2,250 ($1,750)

1,000 2,000 0.50 500 2.50 1.00 1,000 2,500 (1,500)
1,500 2,000 0.50 750 1.83 1.00 1,500 2,750 (1,250)
2,000 2,000 0.50 1,000 1.50 1.00 2,000 3,000 (1,000)

2,500 2,000 0.50 1,250 1.30 1.00 2,500 3,250 (750)
3,000 2,000 0.50 1,500 1.17 1.00 3,000 3,500 (500)
3,500 2,000 0.50 1,750 1.07 1.00 3,500 3,750 (250)

*4,000 2,000 0.50 2,000 1.00 1.00 4,000 4,000 0
4,500 2,000 0.50 2,250 0.94 1.00 4,500 4,250 250
5,000 2,000 0.50 2,500 0.90 1.00 5,000 4,500 500

5,500 2,000 0.50 2,750 0.86 1.00 5,500 4,750 750
6,000 2,000 0.50 3,000 0.83 1.00 6,000 5,000 1,000
*Break-even point
$2,000 in total variable costs (4,000 units 3 $0.50), or that simple break-even analysis ignores demand. How
$4,000 in total costs. does Universal Sportswear know it can sell 4,000 units at
The advantage of break-even analysis is that it pro- $1? Could it sell the same 4,000 units at $2 or even $5?
vides a quick estimate of how much the firm must sell
to break even and how much profit can be earned if a
higher sales volume is obtained. If a firm is operating
close to the break-even point, it may want to see what
19-6 OTHER DETERMINANTS
can be done to reduce costs or increase sales. OF PRICE
Break-even analysis is not without several important
limitations. Sometimes it is hard to know whether a cost Other factors besides demand and costs can influ-
is fixed or variable. If labor wins a tough guaranteed- ence price. For example, the stages in the product life
employment contract, are the resulting expenses a fixed cycle, the competition, the product distribution strat-
cost? More important than cost determination is the fact egy, the promotion strategy, guaranteed price matching,
demands of large customers, and the perceived quality to stabilize. In fact, prices may eventually rise dra-
can all affect pricing. matically if the product survives and moves into the
specialty goods category, as horse-drawn carriages
19-6a Stages in the Product Life Cycle and vinyl records have.
As a product moves through its life cycle (see Chapter 11),
the demand for the product and the competitive condi- 19-6b The Competition
tions tend to change: Competition varies during the product life cycle, of
● Introductory stage: Management usually sets prices course, and so at times it may strongly affect pricing de-
high during the introductory stage. One reason is that cisions. Although a firm may not have any competition
it hopes to recover its development costs quickly. In at first, the high prices it charges may eventually induce
addition, demand originates in the core of the mar- another firm to enter the market.
ket (the customers whose needs ideally match the One way to counter a competitor’s prices is through
product’s attributes) and thus is relatively inelastic. price matching. Recall that showrooming is inspecting
On the other hand, if the target market is highly price a product in a retail store and then buying it online.
sensitive, management often finds it better to price Seventy-two percent of male buyers and 56 percent
the product at the market level or lower. When com- of female buyers engage in showrooming when buy-
panies introduce highly innovative products such as ing electronics. Forty-seven percent of female buyers
consumer electronics, medical devices, and pharma- engage in showrooming when buying apparel, cloth-
ceuticals, they must properly estimate the elasticity or ing, and accessories. Four out of ten showrooming con-
demand for those products. This is particularly true sumers plan to buy online from the outset but want to
today, when some life cycles are measured in months, check the product out in person before ordering.6 Fed
not years. up with losing sales, Best Buy announced in late 2013
that it would match the prices of all local competitors
● Growth stage: As the product enters the growth
as well as online retailers such as Amazon, Apple, and
stage, prices generally begin to stabilize for several
Walmart.com. By 2015, Best Buy’s sales had increased
reasons. First, competitors have entered the market,
significantly.
increasing the available supply. Second, the product
Another way that Best Buy gets around price match-
has begun to appeal to a broader market. Finally,
ing problems is to carry exclusive versions of products
economies of scale are lowering costs, and the sav-
that have similar specifications to ones carried in other
ings can be passed on to the consumer in the form of
stores but have different model or serial numbers. Best
lower prices.
● Maturity stage: Maturity usually brings further
price decreases as competition increases and inef-
ficient, high-cost firms are eliminated. Distribution
channels become a significant cost factor, however,
because of the need to offer wide product lines for
highly segmented markets, extensive service require-
ments, and the sheer number of dealers necessary to
absorb high-volume production. The manufacturers
that remain in the market toward the end of the ma-
turity stage typically offer similar prices. At this stage,
Sergey Yechikov/Shutterstock.com
price increases are usually cost initiated, not demand

initiated. Nor do price reductions in the late phase of
maturity stimulate much demand. Because demand
is limited and producers have similar cost structures,
the remaining competitors will probably match price
reductions.
● Decline stage: The final stage of the life cycle may In late 2013, Best Buy announced it would
see further price decreases as the few remaining match the prices of its major competitors,
competitors try to salvage the last vestiges of demand. Amazon, Apple, and Walmart.com.
When only one firm is left in the market, prices begin
Buy’s premium collection of laptops, which includes ap- retailers to limit bot trawls. Still, shopping bots remain a
proximately thirty popular models from brands such as powerful and impactful marketing tool to this day.
Dell and Samsung, are carried exclusively and therefore INTERNET AUCTIONS The Internet auction business
cannot be price matched. is huge. Among the most popular consumer auction sites
are the following:
19-6c Distribution Strategy ● www.ubid.com: Offers a large range of product
An effective distribution network can sometimes over- categories. “My page” consolidates all of the user’s
come other minor flaws in the marketing mix. For exam- activity in one place.
ple, although consumers may perceive a price as being
● www.ebay.com: The most popular auction site.
slightly higher than normal, they may buy the product
anyway if it is being sold at a convenient retail outlet. ● www.bidz.com: Buys closeout deals in very large
Adequate distribution for a new product can often lots and offers them online in its no-reserve auctions.
be attained by offering a larger-than-usual profit mar- Even though consumers are spending billions on
gin to distributors. A variation on this strategy is to give Internet auctions, business-to-business auctions are
dealers a large trade allowance to help offset the costs likely to be the dominant form in the future. Recently,
of promotion and further stimulate demand at the retail Whirlpool began holding online auctions. Participants
level. bid on the price of the items that they would supply
to Whirlpool but with a twist: they had to include the
19-6d The Impact of the Internet date when Whirlpool would have to pay for the items.
and Extranets The company wanted to see which suppliers would of-
fer the longest grace period before requiring payment.
The Internet, extranets (private electronic networks),
Five auctions held over five months helped Whirlpool
and wireless setups are linking people, machines, and
uncover savings of close to $2 million and more than
companies around the globe—and connecting sellers
doubled the grace period.
and buyers as never before. These links are enabling
Whirlpool’s success is a sign that the business-to-
buyers to quickly and easily compare products and
business auction world is shifting from haggling over
prices, putting them in a better bargaining position. At
prices to niggling over parameters of the deal. Warran-
the same time, the technology allows sellers to collect
ties, delivery dates, transportation methods, customer
detailed data about customers’ buying habits, prefer-
support, financing options, and quality have all become
ences, and even spending limits so that sellers can tailor
bargaining chips.
their products and prices.
USING SHOPPING BOTS A shopping bot is a program
that searches the Web for the best price for a particular
item that you wish to purchase. Bot is short for robot.
Shopping bots theoretically give pricing power to the
consumer. The more information that the shopper has,
the more efficient his or her purchase decision will be.
There are two general types of shopping bots. The
first is the broad-based type that searches (trawls) a wide
range of product categories such as Google Shopping,
Nextag, and PriceGrabber. These sites operate using a
Yellow Pages type of model in that they list every retailer
they can find. The second is the niche-oriented type that
searches for prices for only one type of product such
as consumer electronics (CNET), event tickets (Seat-
Geek), or travel-related services (Kayak).
Source: eBay, Inc.
Shopping bots have

been around for quite
extranet a private electronic some time, and security
network that links a company with protocols have been de-
its suppliers and customers Ebay is the most popular internet auction site.
veloped by some Internet
19-6e Promotion Strategy price to drive business. Some companies, like ConAgra,
are struggling to lower costs while grain and other in-
Price is often used as a promotional tool to increase con-
gredients are steadily increasing in price. Other compa-
sumer interest. In many cases, consumer perceptions of
nies, like Kraft, have been steadily lowering costs and
a store’s prices are more impactful than the actual prices
are having an easier time meeting Walmart’s demands.
themselves. Walmart, for example, has always promoted
Walmart’s demands are not all about keeping prices
low prices. Many consumers view Target as a higher
low, however. The company recently instituted a policy
priced store than Walmart even though a recent study
requiring suppliers to evaluate and disclose the full en-
tracking prices on 55 items, both food and nonfood, re-
vironmental costs of their products.10 The risk of not
vealed that Target’s prices are consistently as low as or
working with Walmart? Either your product is impor-
lower than Walmart’s.7 At the other end of the spectrum,
tant enough to drive traffic that Walmart keeps the item,
Whole Foods is perceived as significantly more expen-
or you lose the world’s biggest sales outlet.
sive than other grocery stores despite having prices that
are largely in line with competitors. Whole Foods has
19-6g The Relationship of Price to Quality
made a concerted effort to change its pricing image by
promoting lower prices and adding new lower-priced As mentioned at the beginning of the chapter, when a
options. Similarly, Nordstrom is perceived as a pricier purchase decision involves uncertainty, consumers tend
alternative to Macy’s even though it has similar prices to rely on a high price as a predictor of good quality. Re-
in many categories and lower prices in other categories. liance on price as an indicator of quality seems to oc-
Clearly, price promotion alone does not always create a cur for all products, but it reveals itself more strongly
low price image. Upscale ambiance, expensive specialty for some items than for others. Among the products
offerings, premier locations, a high level of service, and that benefit from this phenomenon are coffee, aspirin,
a lack of price matching contribute to a high price image shampoo, clothing, furniture, whiskey, education, and
as well.8 many services. In the absence of other information,
Often, the amount saved is the most important in- people typically assume that prices are higher because
formation when promoting a discount. For example, the products contain better materials, because they are
starting with a retail price of $80, a 40 percent discount made more carefully, or, in the case of professional ser-
creates a savings of $32 for a net sale price of $58. Of vices, because the provider has more expertise. A 2014
these four numbers—80, 40, 32, and 58—the most ef- MIT study found that passengers of premier airlines like
fective one to promote is the absolute savings of $32.9 Delta and United Airlines complain about service fail-
ures ten times more often than do customers of low-cost
19-6f Demands of Large Customers airlines like Frontier and Southwest. Customers expect
more from higher-cost airlines, so they are more likely
Manufacturers find that their large customers such as
to become upset when their expectations are not met.11
department stores often make specific pricing demands
that the suppliers must agree to. Department stores are
making greater-than-ever demands on their suppliers to
cover the heavy discounts and markdowns on their own
selling floors. They want suppliers to guarantee their
stores’ profit margins, and they insist on cash rebates if
the guarantee is not met. They are also exacting fines for
violations of ticketing, packing, and shipping rules. Cu-
mulatively, the demands are nearly wiping out profits for
Markus Mainka/Shutterstock.com
all but the very biggest suppliers, according to fashion

designers and garment makers.
Walmart is the largest retailer in the world, and the
company uses that size to encourage companies to meet
its needs. When Walmart decided that its grocery de-
partment needed to have everyday low prices instead of
periodic rollbacks, it talked to its major suppliers, such Customers expect more from higher-cost
as ConAgra, General Mills, and McCormick & Co., to airlines.
discuss the possibility of offering a consistently lower
Researchers have found that price promotions of
STEPS IN SETTING THE RIGHT PRICE
higher priced, higher quality brands tend to attract more EXHIBIT 19.3
business than do similar promotions of lower priced and ON A PRODUCT
lower quality brands. Higher prices increase expectation
and set a reference point against which people can evalu- Establish pricing goals.
ate their consumption experiences (as was demonstrated
in the recent airliner example). A bad experience with
a higher priced product tends to increase the level of Estimate demand, costs,
disappointment.12 Finally, products that generate strong and profits.
emotions, such as perfumes and fine watches, tend to
get more “bang for the buck” in price promotions.13
Choose a price strategy to help
determine a base price.
19-7 HOW TO SET A PRICE
ON A PRODUCT Fine-tune the base price with
pricing tactics.
Setting the right price on a product is a four-step
process, as illustrated in Exhibit 19.3 and discussed
throughout this chapter: Results lead to
the right price.
1. Establish pricing goals.
2. Estimate demand, costs, and profits.
3. Choose a price strategy to help determine a base
price. and costs, the life cycle stage, and other considerations?
4. Fine-tune the base price with pricing tactics. When creating pricing objectives, managers must con-
sider these trade-offs in light of the target customer, the
environment, and the company’s overall objectives.
19-7a Establish Pricing Goals
The first step in setting the right price is to establish 19-7b Estimate Demand, Costs, and Profits
pricing goals. Recall that pricing objectives fall into
three categories: profit oriented, sales oriented, and sta- Recall that total revenue is a function of price and quantity
tus quo. These goals are derived from the firm’s overall demanded and that quantity demanded depends on elas-
objectives. A good understanding of the marketplace ticity. Elasticity is a function of the perceived value to
and of the consumer can sometimes tell the buyer relative to the price. The types of ques-
a manager very quickly whether a goal tions managers consider when conducting market-
is realistic. ing research on demand and elasticity
All pricing objectives have trade- are key. Some questions for market
offs that managers must weigh. A research on demand and elasticity are:
profit maximization objective may re- ● What price is so low that consum-
quire a bigger initial investment than ers would question the product’s
the firm can commit to or wants to quality?
commit to. Reaching the desired ● What is the highest price at which
market share often means sacrific-
the product would still be per-
ing short-term profit because
ceived as a bargain?
without careful manage-
ment, long-term profit ● What is the price at which the
goals may not be met. product is starting to be per-
Meeting the competi- ceived as expensive?
tion is the easiest pricing goal ock .
com ● What is the price at which the prod-
ut t er s t
to implement. But can manag- b ako
u/ Sh uct becomes too expensive for the
Ka
sim
ers really afford to ignore demand M ak target market?
After establishing pricing goals, managers should PRICE SKIMMING Price skimming is sometimes
estimate total revenue at a variety of prices. This usually called a “market-plus” approach to pricing because it
requires marketing research. Next, they should deter- denotes a high price relative to the prices of competing
mine corresponding costs for each price. They are then products. The term price skimming is derived from the
ready to estimate how much profit, if any, and how much phrase “skimming the cream off the top.” Companies of-
market share can be earned at each possible price. Man- ten use this strategy for new products when the product
agers can study the options in light of revenues, costs, is perceived by the target market as having unique advan-
and profits. In turn, this information can help determine tages. Often companies will use skimming and then lower
which price can best meet the firm’s pricing goals. prices over time. This is called “sliding down the demand
curve.” Manufacturers sometimes maintain skimming
19-7c Choose a Price Strategy prices throughout a product’s life cycle. A manager
of the factory that produces Chanel purses (retailing
The basic, long-term pricing framework for
for over $2,000 each) told one of your authors that
a good or service should be a logical exten-
it takes back unsold inventory and destroys it rather
sion of the pricing objectives. The marketing
than selling it at a discount.
manager’s chosen price strategy defines the
Price skimming works best when there is
initial price and gives direction for price
strong demand for a good or service. Apple, for
movements over the product life cycle.
example, uses skimming when it brings out a
The price strategy sets a competitive
new iPhone or iPad. As new models are un-
price in a specific market segment based
veiled, prices on older versions are normally
on a well-defined positioning strategy.
lowered. Firms can also effectively use price
Changing a price level from premium to
skimming when a product is well protected
super premium may require a change in
legally, when it represents a technological
the product itself, the target customers
breakthrough, or when it has in some other
served, the promotional strategy, or the
way blocked the entry of competitors. Man-
distribution channels.
agers may follow a skimming strategy when
Sheila Fitzgerald/Shutterstock.com
A company’s freedom in pricing a new

production cannot be expanded rapidly be-
product and devising a price strategy de-
cause of technological difficulties, shortages,
pends on the market conditions and the
or constraints imposed by the skill and time
other elements of the marketing mix. If
required to produce a product (such as fine
a firm launches a new item resembling
china, for example).
several others already on the market, its
A successful skimming strategy enables
pricing freedom will be restricted. To suc-
management to recover its product develop-
ceed, the company will probably have to charge
ment costs quickly. Even if the market perceives an in-
a price close to the average market price. In contrast, a
troductory price as too high, managers can lower the
firm that introduces a totally new product with no close
price. Firms often believe it is better to test the market
substitutes will have considerable pricing freedom.
at a high price and then lower the price if sales are too
The conventional wisdom is that store brands such
slow. Successful skimming
as Target’s Archer Farms and Kroger’s Simple Truth
strategies are not limited to
should be priced lower than manufacturer’s national price strategy a basic, long-term
products. Well-known ath- pricing framework that establishes
brands. In fact, private label products are priced an
letes, lawyers, and celeb- the initial price for a product and
average of twenty-nine percent less than their national the intended direction for price
rity hairstylists are experts
brand counterparts. 14 However, savvy retailers doing movements over the product life cycle
at price skimming. Natu-
pricing strategy research have found that store brands
rally, a skimming strategy price skimming a pricing
do not necessarily have to be cheap. When store brands policy whereby a firm charges a high
will encourage competitors
are positioned as gourmet or specialty items, consumers introductory price, often coupled with
to enter the market.
will even pay more for them than for gourmet national heavy promotion
brands. PENETRATION PRICING penetration pricing a pricing
Companies that do serious planning when creat- Penetration pricing is policy whereby a firm charges a
ing a price strategy usually select from three basic ap- at the opposite end of the relatively low price for a product when
proaches: price skimming, penetration pricing, and spectrum from skimming. it is first rolled out as a way to reach
the mass market
status quo pricing. Penetration pricing means
charging a relatively low price a/ Shut ter sto
ck .co m means gearing up
Carlo s Yu dic
for a product when it is first for mass produc-
rolled out as a way to tion to sell a large
reach the mass mar- volume at a low
ket. The low price is de- price. If the volume
signed to capture a large share of a fails to materialize, the com-
substantial market, resulting in lower production costs. pany will face huge losses from building or
If a marketing manager has made obtaining a large mar- converting a factory to produce the failed product.
ket share the firm’s pricing objective, penetration pric- STATUS QUO PRICING The third basic price strategy
ing is a logical choice. a firm may choose is status quo pricing. Recall that this
Penetration pricing does mean lower profit per unit, pricing strategy means charging a price identical to or
however. Therefore, to reach the break-even point, it re- very close to the competition’s price. Although status quo
quires a higher volume of sales than would a skimming pricing has the advantage of simplicity, its disadvantage
policy. The recovery of product development costs may is that the strategy may ignore demand or cost or both.
be slow. As you might expect, penetration pricing tends If the firm is comparatively small, however, meeting the
to discourage competition. competition may be the safest route to long-term survival.
A penetration strategy tends to be effective in a
price-sensitive market. Price should decline more rap-
idly when demand is elastic because the market can
be expanded through a lower price. The ultra-low-cost
19-8 THE LEGALITY OF PRICE
airline Spirit is now the most profitable U.S. airline. Its STRATEGY
cut-rate fares include little more than a seat—nearly
everything else is sold à la carte (adding an average As mentioned in Chapter 4, some pricing decisions
$54.00 to the ticket price). The only complimentary are subject to government regulation. Among the is-
item in the cabin is ice. If you want water with your sues that fall into this category are unfair trade practices,
ice, it costs $3.00. Yet this airline maintains the highest price fixing, price discrimination, and predatory pricing.
load numbers in the industry and it continues its rapid
growth. Clearly, price matters.15 19-8a Unfair Trade Practices
If a firm has a low fixed cost structure and each
In more than half of the United States, unfair trade
sale provides a large contribution to those fixed costs,
practice acts put a floor under wholesale and re-
penetration pricing can boost sales and provide large
tail prices. Selling below cost in these states is illegal.
increases in profits—but only if the market size grows
Wholesalers and retailers must usually take a certain
or if competitors choose not to respond. Low prices can
minimum percentage markup on their combined mer-
attract additional buyers to the market. The increased
chandise cost and transportation cost. The most com-
sales can justify production expansion or the adoption of
mon markup figures are 6 percent at the retail level and
new technologies, both of which can reduce costs. And,
2 percent at the wholesale level. If a specific wholesaler
if firms have excess capacity, even low-priced business
or retailer can provide conclusive proof that operat-
can provide incremental dollars toward fixed costs.
ing costs are lower than the minimum required figure,
Penetration pricing can also be effective if an ex-
lower prices may be allowed.
perience curve will cause costs per unit to drop signifi-
The intent of unfair trade practice acts is to protect
cantly. The experience curve proposes that per-unit costs
small local firms from giants like Walmart, which oper-
will go down as a firm’s production experience increases.
Manufacturers that fail to take advantage of these effects ates very efficiently on razor-thin profit margins. State
will find themselves at a competitive cost disadvantage enforcement of unfair trade practice laws has generally
relative to others that are been lax, however, partly because low prices benefit
further along the curve. local consumers.
unfair trade practice acts The big advantage of
laws that prohibit wholesalers and 19-8b Price Fixing
penetration pricing is that
retailers from selling below cost
it typically discourages or Price fixing is an agreement between two or more
price fixing an agreement blocks competition from en- firms on the price they will charge for a product. Sup-
between two or more firms on the tering a market. The disad- pose two or more executives from competing firms meet
price they will charge for a product
vantage is that penetration to decide how much to charge for a product or to decide
which of them will submit the lowest bid on a certain
contract. Such practices are illegal under the Sherman
Act and the Federal Trade Commission Act. Offenders
have received fines and sometimes prison terms. Price
fixing is one area where the law is quite clear, and the
U.S. Justice Department’s enforcement is vigorous.
Markus Mainka/Shutterstock.com
19-8c Price Discrimination
The Robinson-Patman Act of 1936 prohibits any firm
from selling to two or more different buyers, within
a reasonably short time, commodities (not services)
of like grade and quality at different prices where the
result would be to substantially lessen competition. The American Airlines went after low-cost
act also makes it illegal for a seller to offer two buyers competitors in the Dallas area by using
different supplementary services and for buyers to use predatory pricing.
their purchasing power to force sellers into granting dis-
criminatory prices or services.
The Robinson-Patman Act provides three defenses American Airlines. The Department of Justice argued
for a seller charged with price discrimination (in each that the definition should be updated and that the test
case the burden is on the seller to prove the defense): should be whether there was any business justification,
● Cost: A firm can charge different prices to differ- other than driving away competitors, for American’s
ent customers if the prices represent manufactur- aggressive pricing. Under that definition, the Depart-
ing or quantity discount savings. ment of Justice attorneys thought they had a great case.
Whenever a fledgling airline tried to get a toehold in the
● Market conditions: Price variations are justified Dallas market, American would meet its fares and add
if designed to meet fluid product or market condi- flights. As soon as the rival retreated, American would
tions. Examples include the deterioration of perish- jack its fares back up.
able goods, the obsolescence of seasonal products, Under the average variable cost definition, however,
a distress sale under court order, and a legitimate the case would have been almost impossible to win. The
going-out-of-business sale. reason is that, like a high-tech industry, the airline indus-
● Competition: A reduction in price may be necessary try has high fixed costs and low marginal costs. Once a
to stay even with the competition. Specifically, if a flight is scheduled, the marginal cost of providing a seat
competitor undercuts the price quoted by a seller to a for an additional passenger is almost zero. Thus, it is very
buyer, the law authorizes the seller to lower the price difficult to prove that an airline is pricing below its aver-
charged to the buyer for the product in question. age variable cost. The judge was not impressed by the
Department of Justice’s argument, however, and kept
19-8d Predatory Pricing the average variable cost definition of predatory pricing.
Predatory pricing is the practice of charging a very

low price for a product with the intent of driving com-
petitors out of business or out of a market. Once com-
19-9 TACTICS FOR FINE-TUNING
petitors have been driven out, the firm raises its prices. THE BASE PRICE
This practice is illegal under the Sherman Act and the
Federal Trade Commission Act. To prove predatory After managers under-
pricing, the Justice Department must show that the stand both the legal and predatory pricing the practice of
predator—the destructive company—explicitly tried to the marketing conse- charging a very low price for a product
with the intent of driving competitors
ruin a competitor and that the predatory price was be- quences of price strate- out of business or out of a market
low the predator’s average variable cost. gies, they should set a
Prosecutions for predatory pricing suffered a ma- base price —the gen- base price the general price level
at which the company expects to sell
jor setback when a federal judge threw out a predatory eral price level at which the good or service
pricing suit filed by the Department of Justice against the company expects
to sell the good or service. The general price level price that applies to a single order rather than to
is correlated with the pricing policy: above the market the total volume of orders placed during a certain
(price skimming), at the market (status quo pricing), or period. It is intended to encourage orders in large
below the market (penetration pricing). The final step, quantities.
then, is to fine-tune the base price. ● Cash discounts: A cash discount is a price reduc-
Fine-tuning techniques are approaches that do not tion offered to a consumer, an industrial user, or a
change the general price level. They do, however, result marketing intermediary in return for prompt pay-
in changes within a general price level. These pricing ment of a bill. Prompt payment saves the seller car-
tactics allow the firm to adjust for competition in certain rying charges and billing expenses and allows the
markets, meet ever-changing government regulations, seller to avoid bad debt.
take advantage of unique demand situations, and meet
● Functional discounts: When distribution channel
promotional and positioning goals. Fine-tuning pricing
intermediaries, such as wholesalers or retailers,
tactics include various sorts of discounts, geographic
perform a service or function for the manufac-
pricing, and other pricing strategies.
turer, they must be compensated. This compen-
sation, typically a percentage discount from the
19-9a Discounts, Allowances, Rebates, base price, is called a functional discount (or
and Value-Based Pricing trade discount ). Functional discounts vary
greatly from channel to channel, depending on the
A base price can be lowered through the use of dis- tasks performed by the intermediary.
counts and the related tactics of allowances, rebates, low
● Seasonal discounts: A seasonal discount is
or zero percent financing, and value-based pricing. Man-
a price reduction for buying merchandise out of
agers use the various forms
season. It shifts the storage function to the pur-
quantity discount a price of discounts to encourage
reduction offered to buyers buying chaser. Seasonal discounts also enable manufac-
customers to do what they
in multiple units or above a specified turers to maintain a steady production schedule
would not ordinarily do,
dollar amount year-round.
such as paying cash rather
cumulative quantity than using credit, taking ● Promotional allowances: A promotional
discount a deduction from list
price that applies to the buyer’s total delivery out of season, or allowance (also known as a trade allowance)
purchases made during a specific performing certain func- is a payment to a dealer for promoting the manu-
period tions within a distribution facturer’s products. It is both a pricing tool and a
noncumulative quantity channel. The following are promotional device. As a pricing tool, a promotional
discount a deduction from list the most common tactics: allowance is like a functional discount. If, for exam-
price that applies to a single order ple, a retailer runs an ad for a manufacturer’s prod-
rather than to the total volume of ● Quantity discounts:
uct, the manufacturer may pay half the cost.
orders placed during a certain period When buyers get a lower
cash discount a price reduction price for buying in mul- ● Rebates: A rebate is a cash refund given for the
offered to a consumer, an industrial tiple units or above a purchase of a product during a specific period. The
user, or a marketing intermediary in specified dollar amount, advantage of a rebate over a simple price reduction
return for prompt payment of a bill for stimulating demand is that a rebate is a temporary
they are receiving a
functional discount (trade quantity discount. A inducement that can be taken away without altering
discount) a discount to the basic price structure. A manufacturer that uses
wholesalers and retailers for
cumulative quantity
discount is a deduc- a simple price reduction for a short time may meet
performing channel functions
tion from list price that resistance when trying to restore the price to its origi-
seasonal discount a price
applies to the buyer’s nal, higher level.
reduction for buying merchandise
out of season total purchases made ● Zero percent financing: To get consumers into
promotional allowance during a specific pe- automobile showrooms, manufacturers sometimes
(trade allowance) a payment riod; it is intended to offer zero percent financing, which enable purchas-
to a dealer for promoting the encourage customer ers to borrow money to pay for new cars with no
manufacturer’s products
loyalty. In contrast, interest charge. This tactic creates a huge increase in
rebate a cash refund given for a n o n c u m u l a t i ve sales, but is not without its costs. A five-year interest-
the purchase of a product during a
specific period
quantity discount free car loan typically represents a loss of more than
is a deduction from list $3,000 for the car’s manufacturer.
the value of alternatives. In value-based
pricing, therefore, the price of the prod-
uct is set at a level that seems to the cus-
tomer to be a good price compared with
the prices of other options.
Research has found that loyal cus-
tomers become even more loyal when
they receive discounts. Also, customers
who are loyal because of superior service
and quality are less likely to bargain over
price.18
19-9b Geographic Pricing

Because many sellers ship their wares to
a nationwide or even a worldwide mar-
ket, the cost of freight can greatly affect
the total cost of a product. Sellers may
Source: L.L. Bean, Inc.

use several different geographic pricing
tactics to moderate the impact of freight
costs on distant customers. The follow-
ing methods of geographic pricing are the
LL Bean offers free shipping to its customers, with no most common:
minimum amount.
FOB origin pricing: FOB origin
●
pricing, also called FOB factory or

FOB shipping point, is a price tactic
● Free shipping: Free shipping is another method of that requires the buyer to absorb the freight costs
lowering the price for purchasers. Zappos, Nordstrom, from the shipping point (“free on board”). The far-
and L.L. Bean offer free shipping with no minimum ther buyers are from sellers, the more they pay, be-
order amount. However, since shipping is an expense cause transportation costs generally increase with the
to the seller, it must be built into the cost of the prod- distance merchandise is shipped.
uct. Amazon spends about $6.6 billion on shipping ● Uniform delivered pricing: If the marketing man-
but brings in only about $3.1 billion in payments for
ager wants total costs, including freight, to be equal
shipping.16 Amazon, Best Buy, and Gap recently raised
for all purchasers of identical products, the firm will
their minimum order requirements to receive free
adopt uniform delivered pricing, or “postage stamp”
shipping. Based on a study of 113 major retailers, a
pricing. With uniform delivered pricing , the
customer must spend an average of $82 on merchan-
seller pays the actual freight charges and bills every
dise to qualify for free shipping.17
purchaser an identical, flat freight charge. This is
sometimes called post-
VALUEBASED PRICING Value-based pricing ,
age stamp pricing be- value-based pricing setting
also called value pricing, is a pricing strategy that has
cause a person can send the price at a level that seems to the
grown out of the quality movement. Value-based pricing customer to be a good price compared
a letter across the street
starts with the customer, considers the competition and to the prices of other options
or across the country for
associated costs, and then determines the appropriate
the same price. FOB origin pricing a price
price. The basic assumption is that the firm is customer tactic that requires the buyer to
driven, seeking to understand the attributes customers ● Zone pricing: A mar- absorb the freight costs from the
want in the goods and services they buy and the value of keting manager who shipping point (“free on board”)
that bundle of attributes to customers. Because very few wants to equalize to- uniform delivered pricing
firms operate in a pure monopoly, however, a marketer tal costs among buyers a price tactic in which the seller pays
using value-based pricing must also determine the value within large geographic the actual freight charges and bills
of competitive offerings to customers. Customers deter- areas—but not neces- every purchaser an identical, flat
freight charge
mine the value of a product (not just its price) relative to sarily all of the seller’s
market area—may modify the base price with a zone-
pricing tactic. Zone pricing is a modification of uni-
form delivered pricing. Rather than using a uniform
freight rate for the entire United States (or its total
market), the firm divides it into segments or zones
Pavel L Photo and Video/Shutterstock.com

and charges a flat freight rate to all customers in a
given zone.
● F r e i g h t a b s o r p t i o n p r i c i n g : I n freight
absorption pricing, the seller pays all or part of
the actual freight charges and does not pass them
on to the buyer. The manager may use this tactic in
intensely competitive areas or as a way to break into
new market areas.
Flexible pricing allows a seller to close a
● Basing-point pricing: With basing-point pricing, sale with price-conscious consumers.
the seller designates a location as a basing point and
charges all buyers the freight cost from that point, re-
gardless of the city from which the goods are shipped. successful. The 280-store chain 99 Cents Only sold for
Thanks to several adverse court rulings, basing-point $1.6 billion.19
pricing has waned in popularity. Freight fees charged
FLEXIBLE PRICING Flexible pricing (or
when none were actually incurred, called phantom
variable pricing) means that different customers pay
freight, have been declared illegal.
different prices for essentially the same merchandise
bought in equal quantities. This tactic is often found
19-9c Other Pricing Tactics in the sale of shopping goods, specialty merchandise,
Unlike geographic pricing, other pricing tactics are and most industrial goods except supply items. Car
unique and defy neat categorization. Managers use dealers and many appliance retailers commonly follow
these tactics for various the practice. It allows the seller to adjust for compe-
zone pricing a modification reasons—for example, to tition by meeting another seller’s price. Thus, a mar-
of uniform delivered pricing that stimulate demand for spe- keting manager with a status quo pricing objective
divides the United States (or the cific products, to increase might readily adopt the tactic. Flexible pricing also
total market) into segments or zones store patronage, and to of- enables the seller to close a sale with price-conscious
and charges a flat freight rate to all
customers in a given zone
fer a wider variety of mer- consumers.
chandise at a specific price The obvious disadvantages of flexible pricing are
freight absorption pricing point. Such pricing tactics the lack of consistent profit margins, the potential ill will
a price tactic in which the seller
pays all or part of the actual freight
include a single-price tac- of high-paying purchasers, the tendency for salespeople
charges and does not pass them on tic, flexible pricing, pro- to automatically lower the price to make a sale, and the
to the buyer fessional services pricing, possibility of a price war among sellers.
basing-point pricing a price price lining, leader pric- PROFESSIONAL SERVICES PRICING Professional
tactic that charges freight from a ing, bait pricing, odd–even services pricing is used by people with lengthy experi-
given (basing) point, regardless of pricing, price bundling, ence, training, and often certification by a licensing
the city from which the goods are and two-part pricing.
shipped board—for example, lawyers, physicians, and family
SINGLEPRICE TACTIC counselors. Professionals sometimes charge customers
single-price tactic a price A merchant using a at an hourly rate, but sometimes fees are based on the
tactic that offers all goods and
services at the same price (or single-price tactic of- solution of a problem or performance of an act (such
perhaps two or three prices) fers all goods and services as an eye examination) rather than on the actual time
at the same price (or per- involved.
flexible pricing (variable
pricing) a price tactic in which haps two or three prices). Those who use professional pricing have an ethi-
different customers pay different Dollar Tree and Dollar cal responsibility not to overcharge a customer. Because
prices for essentially the same Bill chains sell every- demand is sometimes highly inelastic, such as when a
merchandise bought in equal thing for $1 or less. Such person requires heart surgery to survive, there may be a
quantities
a strategy can be quite temptation to charge “all the traffic will bear.”
PRICE LINING When a seller establishes a series of This is bait. When a customer goes in to see the
prices for a type of merchandise, it creates a price line. machine, a salesperson says that it has just been sold or
Price lining is the practice of offering a product line else shows the prospective buyer a piece of junk. Then
with several items at specific price points. Wireless pro- the salesperson says, “But I’ve got a really good deal on
viders use price lining for cell phones that are purchased this fine new model.” This is the switch that may cause a
with a two-year contract. The top tier is usually priced at susceptible consumer to walk out with a $400 machine.
$299 (the highest the market will pay), and subsequent The Federal Trade Commission considers bait pricing a
tiers are $249, $199, $149, $99, and $49. deceptive act and has banned its use in interstate com-
Price lining reduces confusion for both the sales- merce. Most states also ban bait pricing, but sometimes
person and the consumer. The buyer may be offered a enforcement is lax.
wider variety of merchandise at each established price. ODDEVEN PRICING Odd–even pricing (or
Price lines may also enable a seller to reach several mar- psychological pricing ) means pricing at odd-
ket segments. For buyers, the question of price may be numbered prices to connote a bargain and pricing
quite simple: all they have to do is find a suitable prod- at even-numbered prices to imply quality. For years,
uct at the predetermined price. Moreover, price lining is many retailers have priced their products in odd
a valuable tactic for the marketing manager, because the numbers—for example, $99.95—to make consum-
firm may be able to carry a smaller total inventory than it ers feel they are paying a lower price for the product.
could without price lines. The results may include fewer Even-numbered pricing is often used for “prestige”
markdowns, simplified purchasing, and lower inventory items, such as a fine perfume at $100 a bottle or a
carrying charges. good watch at $1,000. The demand curve for such
Price lines also present drawbacks, especially if costs items would also be sawtoothed, except that the out-
are continually rising. Sellers can offset rising costs in side edges would represent even-numbered prices
three ways. First, they can begin stocking lower-quality and, therefore, elastic demand.
merchandise at each price point. Second, sellers can
PRICE BUNDLING Price bundling is marketing two
change the prices, although frequent price line changes
or more products in a single package for a special price.
confuse buyers. Third, sellers can accept lower profit
For example, Microsoft offers “suites” of software that
margins and hold quality and prices constant. This third
bundle spreadsheets, word processing, graphics, e-mail,
alternative has short-run benefits, but its long-run handi-
Internet access, and groupware for networks of micro-
caps may drive sellers out of business.
computers. Price bundling can stimulate demand for
LEADER PRICING Leader pricing (or loss-leader the bundled items if the
pricing) is an attempt by the marketing manager to at- target market perceives price lining the practice of
tract customers by selling a product near or even below the price as a good value. offering a product line with several
cost in the hope that shoppers will buy other items once Services like hotels items at specific price points
they are in the store. This type of pricing appears weekly and airlines sell a perish- leader pricing (loss-leader
in the newspaper advertising of supermarkets. Leader able commodity (hotel pricing) a price tactic in which a
pricing is normally used on well-known items that con- rooms and airline seats) product is sold near or even below cost
sumers can easily recognize as bargains. with relatively fixed costs. in the hope that shoppers will buy other
Leader pricing is not limited to products. Health items once they are in the store
Bundling can be an im-
clubs offer a one-month free trial as a loss leader. portant income stream for bait pricing a price tactic that tries
BAIT PRICING In contrast to leader pricing, which is a these businesses because to get consumers into a store through
false or misleading price advertising
genuine attempt to give the consumer a reduced price, the variable costs tend to and then uses high-pressure selling
bait pricing is deceptive. Bait pricing tries to get con- be low—for instance, the to persuade consumers to buy more
sumers into a store through false or misleading price cost of cleaning a hotel expensive merchandise
advertising and then uses high-pressure selling to per- room. To account for this odd-even pricing
suade them to buy more expensive merchandise. You variability, hotels some- (psychological pricing) a
may have seen this ad or a similar one: times charge a resort fee price tactic that uses odd-numbered
that covers things like use prices to connote bargains and even-
numbered prices to imply quality
of the gym, pool, and WiFi.
REPOSSESSED . . . Singer slant-needle sewing
Bundling is also price bundling marketing
machine . . . take over 8 payments of $5.10 per month . . . two or more products in a single
widely used in the tele-
ABC Sewing Center. package for a special price
communications industry.
Companies offer local service, long dis- revenue would provide a base of $180,000, with some
tance, DSL Internet service, wireless, and additional usage fees throughout the year.
even cable television in various bundled PAY WHAT YOU WANT To many peo-
configurations. Telecom companies ple, paying what you want or
use bundling as what you think something is
a way to pro- worth is a very risky tactic.
tect their market Obviously, it would not work
share and fight for expensive durables like
off competition automobiles. Imag-
by locking cus- ine someone pay-
tomers into a group ing $1 for a new
of services. For con- B M W ! Ye t t h i s
sumers, comparison shop- model has worked
.c o m
ping may be difficult since they rs to c k
a n / S hu tt e in varying degrees in
rM
may not be able to determine how H a m s te
digital media marketplaces,
much they are really paying for each restaurants, and other service businesses. One of your
component of the bundle. authors has patronized a restaurant close to campus that
You inevitably encounter bundling when asks diners to pay what they think their meals are worth.
you go to a fast food restaurant. McDonald’s Happy After several years, the restaurant is still in business. The
Meals and Value Meals are bundles, and customers owner says that the average lunch donation is around $8
can trade up these bundles by super sizing them. Su- for lunch. Social pressures can come into play in a “pay
per sizing provides a greater value to the customer what you want” environment because an individual does
and creates more profits for the fast food chain. not want to appear poor or cheap to his or her peers.
TWOPART PRICING Two-part pricing means es-
tablishing two separate charges to consume a single
good or service. Consumers sometimes prefer two-part
19-9d Consumer Penalties
pricing because they are uncertain about the number More and more businesses are adopting consumer
and the types of activities they might use at places like penalties—extra fees paid by consumers for violating
an amusement park. Also, the people who use a service the terms of a purchase agreement. Airlines often charge
most often pay a higher total price. Two-part pricing a fee for changing a return date on a ticket. Businesses im-
can increase a seller’s revenue by attracting consum- pose consumer penalties for two reasons: they will alleg-
ers who would not pay a high fee even for unlimited edly (1) suffer an irrevocable revenue loss and/or (2) incur
use. For example, a health club might be able to sell significant additional transaction costs should customers
only 100 memberships at $700 annually with unlim- be unable or unwilling to complete their purchase obliga-
ited use of facilities, for a total revenue of $70,000. tions. For the company, these customer payments are part
However, it could sell of doing business in a highly competitive marketplace.
two-part pricing a price tactic 900 memberships at $200 With profit margins in many companies increasingly com-
that charges two separate amounts with a guarantee of using ing under pressure, organizations are looking to stem
to consume a single good or service
the racquetball courts ten losses resulting from customers not meeting their obliga-
consumer penalty an times a month. Every use tions. Some medical professionals charge a penalty fee if
extra fee paid by the consumer for over ten would require you don’t show up for an appointment. However, the per-
violating the terms of the purchase
the member to pay a $5 ceived unfairness of a penalty may affect some consum-
agreement
fee. Thus, membership ers’ willingness to patronize a business in the future.
STUDY
19
in marketing
experience
ENDNOTES
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Back by Popular Demand and Brand New Honey
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Wants In,” New York Times, March 25, 2012, /www/popclock.html (Accessed February 20, 2015). 2015).
362
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/yelp-pays-450000-ftc-fine-coppa-violation/204977
14. Matthew Garrahan, “Dr Dre Beats New Paths 18. “Code of Conduct,” Google, http://investor.
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in Music,” Financial Times, January 11, 2013, www google.com/corporate/code-of-conduct.html
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/2014/12/google-to-launch-kid-friendly-versions
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20. Joe Mont, “Ethics Survey Finds Historically
_mMMCFUok7A.od.xQAJw (Accessed
15. “Ben & Jerry’s Ice Cream - Ben & Jerry’s Low Rate of Workplace Misdeeds.”
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Tech Buyout Ever,” Forbes.com, October 30, 2013, .bio.davidson.edu/people/kabernd/indep/carainbow
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December 12, 2014, www.edn.com/electronics-blogs
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26. “Here’s What You Don’t Know About Microsoft,
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Today’s Best Dow Stock,” The Motley Fool, March
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February 12, 2015). August 20, 2014, 21-24. Investing,” Morningstar, January 7, 2015, http://news.
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Gas?,” U.S. News & World Report, January 10, Carol Gilligan,” Academia.edu, www.academia 28. Christian Homburg, Marcel Stierl, and Torsten
2013, www.usnews.com/news/articles/2013/01/10 .edu/7829090/Moral_Development_Lawrence Bornemann, “Corporate Social Responsibility in
/should-the-us-export-natural-gas (Accessed _Kohlberg_and_Carol_Gilligan (Accessed January Business-to-Business Markets: How Organizational
February 12, 2015). 11, 2015). Customers Account for Supplier Corporate Social
19. David Aaker, “Why Uniqlo is Winning,” 13. Anusorn Singhapakdi, Scott Vitell, and Kenneth Responsibility Engagement,” Journal of Marketing,
Marketing News, January 2015, p. 24. Kraft, “Moral Intensity and Ethical Decision Making November 2013, 53-72; Daniel Korschun, C.B.
20. “Blue Bell History,” www.bluebell.com/the of Marketing Professionals,” Journal of Business Bhattacharya, and Scott Swain, “Corporate Social
_little_creamery/our_history.html (Accessed Research, 36, no. 3, (1996): 245–255; Ishmael Akaah Responsibility, Customer Orientation, and the Job
February 12, 2015). and Edward Riordan, “Judgments of Marketing Performance of Frontline Employees,” Journal of
21. “Our Story,” The Chef’s Garden, www.chefs Professionals about Ethical Issues in Marketing Marketing, May 2014, 20-37.
-garden.com/our-story (Accessed January 5, 2014); Research: A Replication and Extension,” Journal of 29. “Made Greener Coffee Refill Tumbler, 16 fl. oz.”
“Research and Development,” The Chef’s Garden, Marketing Research, 26, no. 1, (1989): 112–120; see Starbucks, http://store.starbucks.com/made-greener
www.chefs-garden.com/research-and-development also Shelby Hunt, Lawrence Chonko, and James -coffee-refill-tumbler/011039302, default,pd.html
(Accessed February 12, 2015). Wilcox, “Ethical Problems of Marketing Researchers,” (Accessed January 18, 2015).
Journal of Marketing Research, 21, no. 3, (1984):
22. Claire Atlinson, “Redbox Instant to Allow 309–324; Kenneth Andrews, “Ethics in Practice,” 30. “Questions for Rick Ridgeway,” Fortune,
Subscribers to Stream Movies Straight to TVs,” Harvard Business Review, September 1989, 99–104; September 16, 2013, 25.
New York Post, January 10, 2013, www.nypost Thomas Dunfee, Craig Smith, and William T. Ross, 31. Danielle Sacks, “Any Fight Worth Fighting –
.com/p/news/business/up_stream_swim Jr., “Social Contracts and Marketing Ethics,” Journal That’s the Attitude We Take,” Fast Company,
_SbrwwvfABL6e2EDfPJ7n2H (Accessed of Marketing, 63, no. 3, (1999): 14–32; Jay Handelman February 2015, 34-36.
February 12, 2015). and Stephen Arnold, “The Role of Marketing Actions 32. Ibid.
23. “How to Play the Email Game,” The Email with a Social Dimension: Appeals to the Institutional 33. Ibid.
Game, http://emailgame.baydin.com/index.html Environment,” Journal of Marketing, 63, no. 3
(Accessed February 12, 2015). (1999): 33–48; David Turnipseed, “Are Good Soldiers 34. “It Pays to be Green: Corporate Social Respon-
Good? Exploring the Link between Organizational sibility Meets the Bottom Line,” Nielsen, June 17,
24. ”Does Google’s Lean Management Structure
Citizenship Behavior and Personal Ethics,” Journal of 2014, www.nielsen.com/us/en/insights/news/2014
Make Them Even More Competitive?” Collabora-
Business Research, 55, no. 1, (2002): 1–15; and O.C. (Accessed January 19, 2015).
tion, February 23, 2014, www.collaboration-llc.com
/blog/2014/02/23/does-googles-lean-management Ferrell, John Fraedrich, and Linda Ferrell, Business 35. Ibid.
ENDNOTES 363
36. “UN Global Compact Participants,” United 3. “Travelers Research Hotels With Smartphones 26. Ibid.
Nations, www.unglobalcompact.org/Participant- But Don’t Book With Them,” Quirk’s Marketing 27. Ibid.
sandStakeholders/index.html (Accessed January Research Review, October 2014, 8.
28. “Why Teens Are the Most Elusive and Valuable
19, 2015). 4. “T-Mobile Continues to Steal Customers from Customers in Tech,” Inc., www.inc.com/issie
37. “Certified B Corporations,” B Corporation, Rivals,” CNET, January 7, 2015, www.cnet.com/news -lapowsky/inside-massive-tech-land-grab-teenabers
www.bcorporation.net (Accessed January 18, 2015). /t-mobile-continues-to-steal-customers-from-rivals .html (Accessed January 22, 2015).
38. “Marketing to the Green Consumer,” Mintel, (Accessed January 20, 2015).
29. Ian Johnston, “Consumer Buying Behavior of
www.mintel.com/marketing-to-the-green-consumers 5. ”Internet of Things (IoT),” Cisco, www.cisco Teenagers & How to Market to Them,” AZCentral,
-us-March-2014 (Accessed January 18, 2015). To .com/web/solutions/trends/iot/overview.html http://yourbusiness.azcentral.com/consumer-buying
better understand the notion of “greenness” see: (Accessed February 23, 2015). -behavior-teenagers-market-27398.html (Accessed
Andrew Gershoff and Judy Frels, “What Makes It 6. “Digital Social & Mobile Worldwide in 2015,” September 22, 2014).
Green? The Role of Centrality of Green Attributes Wearesocial.net, January 21, 2015, http://wearesocial 30. Ibid.
in Evaluations of the Greenness of Products,” .net/blog/2015/01 (Aaccessed January 21, 2015).
Journal of Marketing, January 2015, 97-110. 31. http://www.posttrib.chicagotribune.com/lifestyles
7. “Social Networking Fact Sheet,” Pew, www /29705481-423 (Accessed January 22, 2015).
39. Amy Merrick, “Restoration Hardware’s Mail- .pewinternet.org/fact-sheets/ (Accessed January 21,
Order Extravagance,” August 7, 2014, New Yorker, 32. “Piper Jaffray Completes 27th Semi-Annual
2015).
www.newyorker.com/business/currency/restoration Taking Stock With Teens Marketing Research
8. “Digital Social & Mobile Worldwide in 2015.” Project,” Piper Jaffray, April 9, 2014, www.piperjaffray
-hardwares-mail-order-extravagance (Accessed
January 17, 2015); Barbara Wood, “Residents 9. “Social Media Update 2014,” Pew, January 9, .com/2col.aspx?id=287&releaseid=1917315&title
Return Stacks of Catalogs to Palo Alto Restoration 2015, www.pewinternet.org/2015/01/09/social-media =Piper+Jaffray+completes+27th+semi-annual
Hardware,” June 18, 2014, Palo Alto Online, www -update-2014/ (Accessed January 21, 2015). +Taking+stock+with+teens+Market+Research
.paloaltoonline.com/news/2014/06/18/drowning 10. Heidi Cohen, “Video Becomes the Content +Project (Accessed January 22, 2015).
-in-restoration-hardware-catalogs (Accessed January of Choice,” Video Media Examiner, www 33. “The 23-Year-Olds Will Save America,”
17, 2015); Ben Elgin, “Cataloging Restoration .videomediaexaminer.com/social-media Businessweek, June 30 – July 6, 2014, 14–16.
Hardware’s Cleanup of Its 17-Pound Delivery,” June -marketing-predictions-for-2015 (Accessed 34. Ibid.
20, 2014, Bloomberg Business, www.bloomberg. January 21, 2015.
35. “A Life Well Photographed,” Marketing News,
com/bw/articles/2014-06-20/inside-restoration 11. “Social Media Campaign on the Year: WestJet May 2014, 12-13; “Millennials-Best Friends,
-hardwares-messy-cleanup-of-its-17-pound-catalog Christmas Miracle,” CIO, www.cio.com/article Gurus and One-Night Stands,” Quirk’s Marketing
-delivery (Accessed January 17, 2015); “Weaker /2369784/social-media/155992-14-Must-See-Social Research Review, February 2014, 28–31.
Certification Schemes,” March 3, 2014, Greenpeace, -Media-Marketing-success-stories.html (Accessed
www.greenpeace.org/international/en/campaigns 36. Ibid.
January 21, 2015).
/forests/solutions/alternatives-to-forest-destruc 37. “With Millennials, Trust Opens Doors,” Quirk’s
12. “Wendy’s Pretzel Bacon Cheeseburger Love
/Weaker-Certification-Schemes/ (Accessed January Marketing Research Review, October 2014, 12–14.
Songs,” CIO, www.cio.com/article/2369784/social
17, 2015). 38. Ibid.
-media/155992-14-Must-See-Social-Media-Marketing
40. “CR’s 100 Best Corporate Citizens 2014,” CR -success-stories.html (Accessed January 21, 2015). 39. Dune Lawrence and Nora Zimmett, “Generation
Magazine, www.thecro.com/files/100bestlist.pdf X Stymied by Boomers,” Bloomberg, September 15,
13. Lindsey Havansek, “It’s Not Social Media Mar-
(Accessed January 18, 2015). 2013, www.bloomberg.com/news/2011/09/15
keting, It’s DiGiorno,” Social Media Today, January
41. “Bristol-Myers Squibb Corporate Responsibility 21, 2015, www.socialmediatoday.com/content/its /generation-x-stymied-by-baby-boomers-refusing
Report,” Bristol-Myers Squibb, www.bms.com -not-social-media-marketing-its-digiorno (Accessed -to-give-up-jobs.html (Accessed January 22, 2015).
/Documents/foundation/BMS-Corporate January 21, 2015). 40. Rieva Lesonsky, “Gen X: How to Market to
-Responsibility-Report.pdf (Accessed January 18, the Forgotten Generation,” American Express,
14. Ibid.
2015). September 15, 2014, www.AmericanExpress.com
15. Ibid.
42. “Sustainability Report,” Johnson & Johnson, /us/small-business/openforum/articles/gen-x-how
www.jnj.com/sites/default/files/JNJ-Citizenship 16. Ibid. -to-market-to-the-forgotten-generation (Accessed
-Sustainability-Highlights-Report.pdf (Accessed 17. “Top Population by Country,” Photius, www January 22, 2015).
January 18, 2015). .photius.com/rankings/world2050_rank.html 41. Ibid.
43. “2014 Citizenship Report,” Microsoft, www (Accessed January 21, 2015).
42. Ibid.
.microsoft.com/About/corporatecitizenship/en-us 18. “Fracking and Retirees Drive U.S. Population
43. “Generation X: America’s Neglected Middle
/reporting (Accessed January 19, 2015). Growth,” Businessweek, March 27, 2014, www
Child,” Pew, June 5, 2014, www.pewresearch.org
44. Andrew Czaplewski, Eric Olson, and Peggy .businessweek.com/articles/2014-03-27 (Accessed
/fact-tank/2014/06/05/generation-x-america’s-
McNulty, “Going Green Puts Chipotle in the January 21, 2015).
neglected-middle-child/ (Accessed January 22, 2015).
Black,” Marketing News, March 2014, 31-37; 19. “Proof Young Americans Are Still Hurting
44. “The Baby Boom Cohort in the United States:
“Good Business,” Marketing News, July 2014, From the Recession,” Huffington Post, September
2012 to 2060,” United States Census Bureau, May
27-29. 16, 2004, www.huffingtonpost.com/2014/09/16
2014, www.census.gov/prod/2014pubs/p25-1141.pdf
45. Michelle Andrews, Xueming Luo, Zheng Fang, /multigenerational-homes-pew_N_5594440.html
(Accessed January 22, 2015).
and Jaakko Aspara, “Cause Marketing Effectiveness (Accessed January 21, 2015).
45. “Resources: 50+Facts & Fiction,” Immersion
and the Moderating Role of Price Discounts,” 20. “Tweens By the Numbers: A Rundown of
Active, November 12, 2014, www.immersionactive.
Journal of Marketing, November 2014, 120-142. Recent Stats,” Chicago Now, February 20, 2014,
com/resources/50-plus-facts-and-fiction/ (Accessed
46. “Cause Related Marketing on Facebook: 3 Com- www.chicagonow.com/tween-us/2014/12 (Accessed
January 22, 2015).
panies Doing Back to School Right,” Social Media January 22, 2015).
46. Ibid.
Today, September 3, 2014, www.socialmediatoday 21. Ibid.
.comcontent/ (Accessed January 14, 2015). 47. Ibid.
22. Jon Louis, “Tweens and Pre-Tweens Fastest
47. “The Right to R&R”, Marketing News, November Growing Users of Mobile Games & Facebook App,” 48. “Are They Really Different?” Quirk’s Marketing
2014, 12-14. Avant, May 7, 2013, http://blog.avantexperience Research Review, February 2014, 32-36.
48. Ibid. .com/tweens-and-pre-tweens-fastest-growing-users 49. “4 Tips for Marketing to Baby Boomers in the
-of-mobile-games-facebook-app/ (Accessed Digital Age,” Contently, July 16, 2014, www.contently
January 22, 2015). .com/strategist/2014/07/16/4-tips-for-marketing
4 23. “Move Over Avon Lady, the Tweens Are Here,”

Wall Street Journal, June 17, 2014, B1-B2.
-to-baby-boomers-in-the-digital-age/ (Accessed
January 23, 2015).
1. “When the Chips Are Down,” Economist, 24. ”Children Around the World Are Connected, 50. Ibid.
January 10, 2015, www.economist.com/node Informed, and Concerned,” Quirk’s Marketing 51. “Are You Ready For the ‘Majority-Minority
/21638115/print (Accessed January 29, 2015). Research Review, November 2013, 16. Demographic?” Media Post, April 10, 2014, www
2. “Why Consumers are Hatin’ McDonald’s New 25. “The Digital World of Teens,” Pinterest, www .mediapost.com/publications/article/223044/are
Slogan,” CBS, October 29, 2014, www.cbsnews .pinterest.com/pin/16466354861535005 (Accessed -you-ready-for-the-majority-minority-demographis
.com/news (Accessed January 20, 2015). January 22, 2015). .html (Accessed January 23, 2015).
364 ENDNOTES
52. “Focus on Faith and Family,” Quirk’s Marketing 76. Ibid. 2. “GE Works,” GE, February 27, 2014, www.ge
Research Review, February 2013, 16. 77. ”20 Tips on Google’s 20 Percent Time in .com/ar2013/pdf/GE_AR13.pdf (Accessed January 25,
53. “Looking From a Different Perspective,” Your Classroom,” Learning Personalized, www 2015).
Quirk’s Marketing Research Review, August 2014, .learningpersonalized.com/2015/01/06/20-tips 3. “Exports of Goods and Services (% of GDP),”
46, 64–66. -on-googles-20-percent-time-in-your-classroom The World Bank, www.data.worldbank.org/indicator
54. Ibid. / (Accessed January 24, 2015). /NE.EXP.GNFS.2S (Accessed January 25, 2015).
55. “A One-Two Punch,” Marketing News, 78. “Zara Builds Its Business Around RFID,” Wall 4. “U.S. Exports 1950-2015,” Trading Economics,
December 2014, 12–13 Street Journal, September 19, 2014, B1-B2. www.tradingeconomics.com/united-states/exports
56. Ibid. 79. Ibid. (Accessed January 25, 2015).
57. Ibid. 80. “Benefits of ObamaCare: Advantage of 5. “Export-Related Jobs,” International Trade
ObamaCare,” Obamacare Facts, http://obamacarefacts Administration, September 2014, www.trade.gov
58. “Ad Ages’ 2014 Hispanic Fact Pack Is Out
.com/benefitsofobamacare/ (Accessed January 24, /MAS/IAN/employment (Accessed January 25,
Now,” Advertising Age, July 29, 2014, http://
2015. 2015).
adage.com/article/hispanic-marketing/ad-age-s
-2014-hispanic-fact-pack/294335/ (Accessed 81. “CFPB-2014 in Review–And What’s Ahead 6. “Exports of Goods and Services,” International
January 23, 2015). for 2015,” Paul Hastings, January 20, 2015, www Trade Administration, www.trade.gov/MAS/IAN
.paulhastings.com/publications (Accessed January 24, /employment (Accessed January 25, 2015).
59. Ibid.
2015).
60. “Connecting Through Culture: African 7. “U.S. Exports Reach $2.37 Trillion, Set New
82. “Bureau of Consumer Protection,” Federal Record for Fourth Straight Year,” United States
Americans Favor Diverse Advertising,” Nielsen,
Trade Commission, www.ftc.gov/about-ftc/bureaus Department of Commerce, February 6, 2014, www
October 20, 2014, www.nielsen.com/us/en/insights
-offices/bureau-consumer-protection (Accessed .commerce.gov/news/press-releases/2014/02/06
/news/2014/connecting-through-culture-african
January 24, 2015). /us-exports-reach-23-trillion-2013-set-record
-americans-favor-diverse-advertising.html
(Accessed January 23, 2015). 83. “US Total Media Ad Spend Inches Up, Pushed -fourth-straight-year (Accessed January 25, 2015).
by Digital,” eMarketor, www.emarketor.com 8. “Ex-ImBank Finishes Fiscal Year Strong, Provid-
61. Ibid.
/Article/10101 (Accessed January 24, 2015). ing Over 20.5 Billion to Finance US Small Business
62. Ibid.
84. Natasha Singer, “Mapping, and Sharing, the Exports and Supporting Over 160,000 American
63. “How Blacks Are Influencing Media, Marketing Consumer Genome,” New York Times, June 16, Jobs,” Export-Import Bank of the United States,
and Advertising,” BET, www.bet.com/news/national 2012, www.nytimes.com/2012/06/17/technology November 5, 2014, www.exim.gov/newsandevents
/photos/Nielsen-company/ (Accessed January 23, /acxiom-the-quiet-giant-of-consumer-database /releases/2014/Fiscal/Year/Strong.cfm (Accessed
2015). -marketing.html; “Acxiom InfoBase Consumer List January 25, 2015).
64. “Usher’s Honey Nut Commercial Knows Its Mailing List,” NextMark, http://Lists.nextmark.com
9. “Five Myths about Imports,” Wall Street
Audience,” Businessweek, August 21, 2014, /market?page=order/online/datacard&id=131838
Journal, May 20, 2014, A11.
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/ushers-honey-nut-cheerios-commercial 10. Ibid.
85. “Personic X Lifestage Analysis,” Lab 3
-knows-its-audience (Accessed January 23, Marketing, http://Lab3marketing.com/direct 11. “Pitching to Walmart: Made in U.S.,” Wall
2015). -marketing/data-analytics/personicX-lifestage Street Journal, October 7, 2013, B1, B2.
65. “U.S. Hispanic and Asian Populations Growing, -analysis (Accessed January 24, 2015). 12. Aaron Flaaen, “Multinational Firms in
But For Different Reasons,” Pew, June 26, 2014, 86. “Give Me Back My Privacy,” Wall Street Context,” Federal Reserve Bank of Atlanta,
www.pewresearch.org/fact-tank/2014/06/26 Journal, March 24, R1-R2. August 30, 2013, www.frbatlanta.org/documents
(Accessed September 23, 2014). /news/conferences/13rdc/s1_p1_intl_topics_Flaaen
87. Ibid.
66. “Median Household Income in the United .pdf (Accessed January 26, 2015).
88. “AVG PrivacyFix,” AVG, www.avg.com/ww-en
States in 2013, by Race or Ethnic Group (in U.S. 13. “Bangladesh Factory Collapse,” Huffington
/privacyfix (Accessed January 24, 2015).
Dollars),” The Statistics Portal, www.statista.com Post, January 11, 2015, www.huffingtonpost.com
/statistics/233324/median-household-income-in-the 89. “Privowny,” Privowny, http://privowny.com
/news/bangladesh-factory-collapse (Accessed
-united-states-by-race (Accessed January 23, 2015). (Accessed January 24, 2015).
January 26, 2015).
67. Author’s projection; ”14 Important Statistics About 90. “DuckDuckGo,” DuckDuckGo, https://
duckduckgo.com (Accessed January 24, 2015). 14. “As Foreign Aid Dries Up, Companies Take the
Asian Americans,” Asian Nation, www.asian-nation
Lead in Global Development,” Fortune, July 24,
.org/14-statistics.shtml (Accessed January 23, 2015). 91. http://2015newyear.org/tag/startpage-ixquick
2014, 46.
68. “State of the Asian American Consumer: -passed-4-million-daily-searches-on-monday
(Accessed January 24, 2015). 15. Theodore Levitt, “The Globalization of Markets,”
Growing Market, Growing Impact Report,” Nielsen,
Harvard Business Review, May 1983, 92–100.
www.nielsen.com/asians (Accessed January 23, 2015). 92. Daniel Kline, “How Many Customers Does
69. “What’s Next in Advertising to Asian Americans?” Amazon Have?” The Motley Fool, May 24, 2014, 16. “The Gentle Art of Crossing Borders,”
Asian Fortune News, April 30, 2014, http:// www.fool.com/investing/general/2014/05/24 Marketing Insights, July/August 2014, 10-11.
asianfortunenews.com/2014/04/what’s-next-in /how-many-customers-does-amazon-have.aspx 17. “Gross National Income Per Capita,” The
-advertising-to-asian-americans (Accessed (Accessed January 25, 2015). World Bank, December 16, 2014, http://data.world
January 23, 2015). 93. Susan Adams, “America’s Most Reputable .bank.org/data-catalog/GNI-per-capita-Atlas-and
70. “Incomes End a 6-Year Decline, Just Barely,” Companies, 2014,” Forbes, May 13, 2014, www -PPR-table (Accessed March 19, 2015).
Wall Street Journal, September 17, 2014, A2. .forbes.com/sites/susanadams/2014/05/13/americas 18. Ibid.
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71. “Labor Force Statistics From the Current 19. “The 10 Most Expensive Cities in the World,”
January 25, 2015).
Population Survey,” Bureau of Labor Statistics, Business Insider, March 3, 2015, www
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Competitor,” Slate, www.slate.com/articles/business (Accessed January 26, 2015).
72. ”Fast Facts: Income of Young Adults,” Institute
/moneybox/2014/10/google_amazon_competition
of Education Sciences, http://nces.ed.gov/fastfacts 20. “In Search of the Middle,” Marketing News,
_how_amazon_prime_delivery_hurts_google_s_ad
/display.asp?id=77 (Accessed January 23, 2015). August 2014, 24.
_business.html (Accessed January 25, 2015).
73. “Current US Inflation Rates: 2014-2015,” U.S. 21. Ibid.
Inflation Calculator, www.usinflationcalculator.com
5
/inflation/current-inflation-rates/ (Accessed 22. Ibid.
January 24, 2015). 23. “Doing Business 2014: Understanding Regula-
74. “Innovation: A Look Inside the Idea Factory,” tions for Small and Medium-Size Enterprises,” The
1. “2015 Global Economic Outlook: Better Than
Wired, www.wired.co.uk/promotions/shell-lets-go World Bank, http://openknowledge.worldbank.org
2014 – But Not By Much,” Bloomberg Business-
/innovation/the-idea-factory (Accessed January 24, /bitstream/handle/10986/16204/19984.pdf?sequence
week, November 6, 2014, wwwbusinessweek.com
2015). =1 (Accessed January 17m 2015).
/articles/2014-11-06/2015-global-economic-outlook
75. Josh Bernoff, “Strategic Thinking for the Mobile -better-than-2014-but-not-by-much (Accessed 24. “The New Cold War on Business,” Fortune,
Mind Shift,” Marketing News, July 2014, 24–25. January 25, 2015). October 8, 2014, 77-80.
ENDNOTES 365
25. “Beijing Pulls Back the Welcome Mat,” Fortune, -oil-prices-offer-a-bonanza-to-us-workers.html? 71. “H&M Pushes Sales With Versatility Campaign
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26. “Wal-Mart Fights Back in China,” Wall Street 46. “The Costs of Expanding Overseas,” Wall July 8, 2014, www.mobilecommercedaily.com/hm
Journal, April 14, 2014, A1-A14. Street Journal, February 27, 2014, B6. -pushes-sales-with-versatility-campaign-on-twitter
-facebook/ (Accessed January 31, 2015).
27. “The Putin Paradox,” Fortune, October 8, 2014, 47. Ibid.
82-86. 72. “Red Bull Ad Sparks Social Media Outburst
48. Ibid.
From Kenyans,” Jambonewspot, January 15, 2015,
28. “Five Myths about Imports,” A11. 49. Ibid. www.jambonewspot.com/video-redbull-ad-sparks
29. “Tariff Deal Is Big Step for Trade, Tech Firms,” 50. Author’s estimate. -social-media-outburst-kenyans/ (Accessed
Wall Street Journal, November 12, 2014, B1, B4. January 31, 2015).
51. “Exhibit A in GE’s Case for Alston Deal,” New
30. “New Balance, Saucony Vying for Soles of York Times, May 23, 2014, www.nytimes.com 73. Ibid.
Military Recruits,” Boston Globe, www.bostonglobe /2014/05/26/business/international/generalelectric 74. Ibid.
.com/business101/06/2015/new-balance-saucony _joint_venture_in_France.html (Accessed January
-two-way-race-build-all-american-shoe/cqH1DMoy 29, 2015).
FKbninQ7Y9E5N/story.html (Accessed January 29,
2015).
31. “Uruguay Found Final Act Should Produce
52. “Direct Investment Positions: Country and
Industry Detail, July 2014, Bureau of Economic 6
Analysis, www.bea.gov/scb/pdf/2014/07%20 1. The material on hedonic and utilitarian value
Overall U.S. Gains,” U.S. Government Account- July/0714_direct_investment_positions.pdf was partially adapted from Barry Babin and Eric
ability Office, www.gao.gov/products/GAO/GGD-94 (Accessed January 30, 2015). Harris, CB 6th ed., Cengage Learning, 2015, 28–29.
-836 (Accessed January 29, 2015).
53. “2015 Select USA Investment Summit is Now 2. Craig Smith, “By the Numbers: 60 Amazing
32. “Beijing Faces Setback in Rare-Earth Spat,” Open for Business,” United States Department of Google Search Statistics and Facts,” Expanded Ram-
Wall Street Journal, March 27, 2014, A12. Commerce, January 8, 2015, www.commerce.gov blings, January 22, 2015, http://expandedramblings
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Agenda at WTO in 2015,” India Times, December 54. Ibid. -google-stats-and-facts/ (Accessed February 17, 2015).
18, 2014, http://articles.economictimes.indiatimes
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.com/2014-12-18/news/57196109_1_doha-round
American Marketing Association, July/August 2014, December 2014, 14.
-trade-facilitation-agreement-doha-agenda (Accessed
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January 29, 2015).
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34. “For a Fair, Transparent and Effective ISDS in January 30, 2015). tomers, and Deception,” Journal of Marketing
TTIP,” EurActive, January 16, 2015, http://euractiv
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.com/sections/trade-society/fair-transparent-and
Emerging Markets,” The Motley Fool, www.fool 5. “Good Tidings For Retail,” Marketing News,
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.com/investing/general/2013/10/27/how-procter December 2014, 14.
2015).
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(Accessed January 30, 2015).
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57. “What is Selling Where? Pringles Chips,” Wall
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Street Journal, April 24, 2013, D3
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Trade Accord,” Wall Street Journal, February 11,
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2014, A10.
59. Ibid. February 17, 2015).
37. “NAFTA Triumphant: Assessing Two Decades
of Gains in Trade, Growth, and Jobs,” U.S. 60. “Pick Up. Your Ad Is Calling,” Business Week, 8. von Bommel, et al, “Digitizing the Consumer
Chamber of Commerce, www.uschamber.com April 21-27, 2014, 19. Decision…”
/sites/default/files/legacy/reports/1112_INTL 61. “How Convenient: In Taiwan, the 24/7 Store 9. “Survey: 3 in 4 Americans Make Impulse
_NAFTA_20years.pdf (Accessed January 20, 2015). Does It All,” Wall Street Journal, May 17-18, 2014, Purchases,” CreditCards.com, November 23, 2014,
38. “Dominican Republic-Central America- A1, A9. www.creditcards.com/credit-card-news/impulse
United States Free Trade Agreement (CAFTA- 62. “How Domino’s Won…,” 56. -purchase-survey.php (Accessed February 17, 2015).
DR),” Export.gov, http://export.gov/FTA/cafta-dr 63. “A Continent Goes Shopping,” The Economist, 10. Sam Hui, Yanliu Huang, Jacob Suher, and
/index.asp (Accessed March 19, 2015). August 18, 2013, www.economist.com/node Jeff Inman, “Deconstructing the First Moment of
39. “Countries,” European Union, http://europa /21560582 (Accessed January 30, 2015). Truth: Understanding Unplanned Consideration
.eu/about-eu/countries/index_en.htm (Accessed and Purchase Conversion Using In-Store Video
64. “Why Wal-Mart Hasn’t Conquered Brazil,”
January 28, 2015). Tracking,” Journal of Marketing Research,
Business Week, May 8, 2014, 25.
August 2013, 445–462.
40. “Why the Greek Elections Might be the Begin- 65. Ibid.
ning of the End for the Euro,” Fortune, January 26, 11. Crystal Collier and Gavin Sinter, “Meet Them
66. “Russian Rubles to 1 US Dollar,” Exchange- Where They Want To Be,” Quirk’s Marketing
2015, http://fortune.com/2015/01/26/greek-elections rates.org, January 29, 2015, www.exchange-rates.org
-euro-end/ (Accessed January 28, 2015). Research Review, October 2014, 58–62.
/history/RUB/USD/T (Accessed January 30, 2015).
41. “2014 Autumn Economic Forecast: Slow 12. “McDonald’s Ad Campaign Banks On A
67. “Commerce Department Declares Anti New Payment Method: Love,” Christian Science
Recovery with Very Low Inflation,” Europea, -dumping Duties,” TireReview.com, January 21,
November 4, 2014, http://europea.eu/rapid/press Monitor, February 2, 2015, www.csmonitor.com
2015, www.tirereview.com/commerce-department /Business/The-Bite/2015/0202/McDonald-s-ad
-release_IP_14_1362_en.htm (Accessed January 29, -declares-anti-dumping-duties/ (Accessed January
2015). -campaign-banks-on-a-new-payment-method-love
30, 2015). (Accessed February 18, 2015).
42. “Countries and Regions: United States,” 68. “Suggested Reading about Countertrade,”
European Commission, January 9, 2013, http:// 13. Julio Sevilla and Joseph Redden, “Limited
Exporter-Sources.com, http://exporters-sources.com Availability Reduces the Rate of Satiation,” Journal
ec.europa.eu/trade/creating-opportunities/bilateral /suggested-reading-about-countertrade (Accessed
-relations/countries/united-states/ (Accessed of Marketing Research, April 2014, 205–217.
January 30, 2015).
January 29, 2015). 14. Samantha Cross and Mary Gilly, “Cultural
69. “Countertrade,” All About Countertrade, Competence and Cultural Compensatory
43. “G20 Leaders’ Communique Brisbane Summit, http://allaboutcountertrade.blogspot.com (Accessed
15-16 November 2014,” G-20, https://g20.org Mechanisms in Binational Households,” Journal
January 30, 2015). of Marketing, May 2014, 121–139.
/wp-content/uploads/2014/12/brisbane_g20_leaders
_summit_communique1.pdf (Accessed January 29, 70. “Air France Launches the Upgrade 15. “Most Expensive Cars in the World: Top 10
2015). Challenge Social Game,” Creative Guerrilla List 2014-2015,” The Supercars, www.thesupercars
Marketing, January 28, 2015, www .org/top-cars/most-expensive-cars-in-the-world-top
44. “Global Wealth,” Economist, October 18, 2014, 93. .creativeguerrillamarketing.com/guerrilla-marketing -10-list/ (Accessed February 18, 2015).
45. “Lower Oil Prices Provide Benefits to US /air-france-launches-the-upgrade-challenge-social
Workers,” New York Times, January 17, 2015, www 16. “2015 Poverty Guidelines,” January 22, 2015,
-game/ (Accessed January 30, 2015).
.nytimes.com/2015/01/18/business/economy/lower United States Department of Health and Human
366 ENDNOTES
Services, http://aspe.hhs.gov/poverty/15poverty.cfm 11. “H&R Block Saluted for Partnership with www.forbes.com/sites/halahtouryalai/2013/12/24
(Accessed February 18, 2015). Arizona Catholic Schools,” Ahwatukee Foothills /how-macys-is-winning-the-retail-battle-hint-it
17. “Sphere of Influence,” Marketing News, News, February 6, 2013, www.ahwatukee.com -knows-which-u-s-cities-love-cuffed-pants
November 2014, 16–17. /money/article_bb3dc05e-6f26-11e2-b270 (Accessed February 2, 2015).
-001a4bcf887a.html (Accessed March 22, 2015). 3. Rebecca Spera, “CrossFit for Kids Focuses on
18. Hans Risselada, Peter Verdoef, and Tammo
Bijmolt, “Dynamic Effects of Social Influence 12. Robert M. Morgan and Shelby D. Hunt, “The Fun,” ABC, January 21, 2015, http://abc13.com
and Direct Marketing on the Adoption of High- Commitment-Trust Theory of Relationship Market- /health/crossfit-for-kids-focuses-on-fun/482997/
Technology Products,” Journal of Marketing, ing,” Journal of Marketing, 58, no. 3, 1994, 23. (Accessed February 26, 2015).
March 2014, 52–68. 13. Ibid. 4. Sheila Shayton, “Never Mind Millennials – Gen Z
19. This section was partially adapted from Babin 14. Nils Pratley, “Phones 4U Has Only Itself to May be the Hardest Marketing Nut to Crack,” Brand
and Harris, 156–157. Blame,” The Guardian, September 15, 2014, Channel, August 20, 2014, www.brandchannel
20. “Is Women’s Empowerment Marketing the www.theguardian.com/business/nils-pratley-on .com/home/post/2014/08/20/140820-Gen-Z
New ‘Pink It and Shrink It’?” Entrepreneur, -finance/2014/sep/15/phones-4u-administrators -Marketing (Accessed February 21, 2015).
February 9, 2015, www.entrepreneur.com/article (Accessed March 22, 2015). 5. Christine Birkner, “Z Marks the Spot,” Market-
/242677 (Accessed February 20, 2015). 15. Jamie Yap, “Maps, LBS Bolster Google ing News, December 2013, 14, www.ama.org
21. “Industry Statistics Shows Growth in Men Enterprise’s Asia Roadmap,” ZDNet, February 1, /publications/MarketingNews/Pages/generation
Engaging in Online Shopping,” Mobile Commerce 2013, www.zdnet.com/maps-lbs-bolster-google -z-digital-channels-innovation.aspx (Accessed
Insider, June 18, 2013, www.mobilecommerceinsider -enterprises-asia-roadmap-7000010671/ (Accessed February 21, 2015).
.com/topics/mobileecommerceinsider/articles March 22, 2015). 6. Sheila Shayton, “Never Mind Millennials–Gen Z
/342484-industry-statistics-show-growth-men 16. “Doing Business with the US Government,” May be the Hardest Marketing Nut to Crack.”
-engaging-online-shopping.html (Accessed iSquare, September 19, 2013, www.isquare.com 7. Christine Birkner, “Attention, Shoppers,”
January 29, 2014). /fhome18.cfm (Accessed March 22, 2015). Marketing News, December 2013, 26–33, www
22. “Reach Over 45 Million American Families,” 17. Hutt and Speh, 7. .ama.org/publications/MarketingNews/Pages
eTarget Media, www.etargetmedia.com/family 18. Ibid. /tweens-consumer-research-brand-management
-lists.html (Accessed February 20, 2015). 19. Ibid. .aspx (Accessed February 21, 2015).
23. “Messes and Wrong Guesses,” Wall Street 20. “California Timber Industry Bussing Post- 8. “Who are Millennials?” Millennial Marketing,
Journal, February 15-16, 2014, C4. Recession,” Lake Tahoe News, March 22, 2013, http://www.millennialmarketing.com/who-are
www.laketahoenews.net/2013/03/california-timber -millennials/ (Accessed February 23, 2015).
-industry-buzzing-post-recession/ (Accessed 9. Tom Ryan, “Are Retailers Ready for the
7 March 22, 2015).

21. Alan Levin and Susanna Ray, “Boeing 878
Dreamlines Is Grounded Worldwide by Regulators,”
Millennial Takeover?” RetailWire, November 4,
2013, www.retailwire.com/discussion/17128
/are-retailers-ready-for-the-millennial-takeover
1. Michael D. Hutt and Thomas W. Speh, Busi-
Bloomberg, January 17, 2013, www.bloomberg (Accessed February 22, 2015).
ness Marketing Management, 12th ed. (Boston:
.com/news/2013-01-16/boeing-787-dreamliner-fleet 10. “Which Brand Attributes Matter Most to
Cengage, 2017).
-grounded-by-u-s-after-emergency.html (Accessed Millennials?” RetailWire, September29, 2014, www
2. Jeffrey Cohen “20 Most Important Stats from March 22, 2015). .retailwire.com/discussion/17807/which-brand
the 2015 B2B Content Marketing Report,” Social
22. Jon Hilkevitch, “CTA to Spend $2 Billion for -attributes-matter-most-to-millennials (Accessed
Media B2B, October 6, 2014, www.socialmediab2b
846 New Rail Cars,” Chicago Tribune, February 6, February 21, 2015).
.com/2014/10/b2b-content-marketing-report
2013, www.chicagotribune.com/news/local/breaking 11. Jeff Fromm, “‘Idea brands’ Will Win Big with
-statistics-2015.com (Accessed February 20,
/chi-cta-to-spend-2-billion-for-846-new-rail-cars Millennials: Here’s How to Attract Them,”
2015).
-20130206,0,1482382.story (Accessed March 22, Retail Customer Experience, September 5, 2013,
3. Autumn Truong, “5 B2B Social Media Lessons 2015). www.retailcustomerexperience.com/blog
Cisco Learned in 2014,” Social Media B2B, January
23. Hutt and Speh, 6. _print/11101 (Accessed February 21, 2015).
20, 2015 www.socialmediab2b.com (Accessed
February 20, 2015). 24. Paul Demery, “Alibaba.com Looks for Growth 12. William F. Schroer, “Generations X, Y, Z and the
Among U.S. Suppliers,” Internet Retailer, February 4, Others,” The Social Librarian, www.socialmarketing
4. “Online Measurement,” Nielsen, www.nielsen.
2015, www.internetretailer.com/2015/02/04 .org/newsletter/features/generation3.htm (Accessed
com/us/en/nielsen-solutions/nielsen-measurement
/alibabacom-looks-growth-among-us-suppliers February 22, 2015).
/nielsen-online-measurement.html (Accessed
(Accessed March 22, 2015).
March 22, 2015). 13. “Save the Date: Vancouver Turns Into Culinary
25. Cyril Kowaliski, “SK Hynix Fire Sends Memory Central During Dine Out Vancouver Festival 2015,”
5. “2014 Social Media Benchmarking Report,”
Prices Soaring,” The Tech Report, Septermber 24, Tourism Vancouver, www.tourismvancouver.com
B2B Marketing Magazine, www.b2bmarketing.net
2013, http://techreport.com/news/25416/sk-hynix /articles/view/SAVE-THE-DATE-VANCOUVER
/magazine (Accessed February 27, 2015).
-fire-sends-memory-prices-soaring (Accessed -TURNS-INTO-CULINARY-CENTRAL-DURING
6. Jeffrey Cohen, “7 Examples of B2B Content March 22, 2015). -DINE-OUT-VANCOUVER-FESTIVAL-2015/652
Marketing,” Social Media B2B, September 18, 26. Cameron McWhirter, “Chinese Diapers /541/ (Accessed February 22, 2015).
2013, www.socialmediab2b.com/category/social Save U.S. Paper Mill,” The Wall Street Journal,
-media-101/ (Accessed February 19, 2015). 14. Janet Eveleth, “Baby Boomers Are Shopping
August 13, 2012, B1. and Spending,” Examiner, July 11, 2013, www
7. Chris Lee, “Why Online Marketing Is as Simple 27. Hutt and Speh, 52. .examiner.com/article/baby-boomers-are-shopping
as Five-a-side Football,” Econsultancy, February 1,
28. Ibid. -and-spending (Accessed February 22, 2015).
2013, http://econsultancy.com/us/blog/62018-why
-online-marketing-is-as-simple-as-five-a-side-football 29. Stuart Leung, “Selling to Executives: Bringing 15. Christine Birkner, “Senior Moment,” Market-
(Accessed March 22, 2015). Your Sales “A” Game to the C-Level,” SalesForce ing News, September 2014, 12-13.
Blog, February 24, 2014, http://blogs.salesforce.com 16. S. E. Smith, “What Is the Silent Generation?”
8. “The Best Repeat Business Practices,” eLocal.
/company/2014/02/selling-to-c-level-executives wiseGEEK, January 23, 2013, www.wisegeek.com
com, March 8, 2012, www.elocal.com/content
.html (Accessed March 22, 2015). /what-is-the-silent-generation.htm (Accessed
/home-expert-network/repeat-business-practices
-2547 (Accessed March 22, 2015). 30. Ibid. February 1, 2014).
9. TJ Raphael, “Time Inc. Forms Strategic Alliance 31. Hutt and Speh, 231. 17. Stephen M. Golant, “Aging in the American
with Sprint Nextel Corp.,” Folio, May 7, 2013, 32. Ibid. Suburbs: A Changing Population,” Aging Well,
www.foliomag.com/2013/time-inc-forms-strategic www.agingwellmag.com/news/ex_06309_01.shtml
8
-alliance-sprint-nextel-corp (Accessed March 22, (Accessed February 22, 2015).
2015). 18. Lauren Stiller Rikleen, “Not Buying Offensive
10. Eric Griffin, “12 Amazon Fire TV Tips for Super Bowl Ads,” Boston Globe, February 4, 2013,
Streaming Fans,” PC Mag, February 19, 2015, 1. “Biting Off the High End of the Market,” Inc., http://bostonglobe.com/opinion/2013/02/04
www.pcmag.com/slideshow/story/332129/12 February 2015, 25. /not-buying-offensive-super-bowl-ads
-amazon-fire-tv-tips-for-streaming-fans (Accessed 2. Halah Touryalai, “How Macy’s Is Winning the /1eNEMBDxLyLWFnHS7jKI2I/story.html
March 22, 2015). Retail Battle,” Forbes, December 24, 2013, (Accessed February 22, 2015).
ENDNOTES 367
19. “Men, Women and Money: How We View 35. Janice Bitters, “Mpls. To Expand Car Sharing,” 13. “What is Apache Hadoop?” Apache, www
Finances Differently,” TransAmerica, www Minnesota Daily, February 13, 2013, www.mndaily. .hadoop.apache.org/#What+Is+Apache
.transamerica.com/yourlife/retirement/education com/2013/02/13/mpls-expand-car-sharing (Accessed +Hadoop%3F (Accessed February 23, 2015).
/men-women-money-how-we-view-finances February 25, 2015). 14. “Ten Big Data Case Studies in a Nutshell,”
-differently (Accessed February 23, 2015). 36. Erik Sherman, “Is iPad Mini Cannibalizing its SearchCIO, http://searchcio.techtarget.com
20. Renee Montagne, “Japanese Burger Chain Bigger Sibling?” CBS, January 18, 2013, www /opinion/Ten-big-data-case-studies-in-a-nutshell
Finds Way to Appeal to Women,” NPR, November .cbsnews.com/8301-505124_162-57564708/is-ipad (Accessed February 23, 2015).
5, 2013, www.npr.org/2013/11/05/243185594 -mini-cannibalizing-its-bigger-sibling (Accessed 15. “More of the Same Please, Quirk’s Marketing
/japanese-burger-chain-finds-way-to-appeal-to February 25, 2015). Research Review, March 2014, 14.
-women (Accessed February 22, 2015). 37. Laura Fagan, “How Birchbox Used CR to 16. Carl McDaniel and Roger Gates, Marketing
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Guy Thing,” Wall Street Journal, October 16, 2013, http://blogs.salesforce.com/company/2014/04
17. “The Science of Shopping,” Indiana University,
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52702303680404579139422972891330 (Accessed 38. “All Brands,” Coca-Cola, www.thecoca /shopability1.htmp (Accessed February 24, 2015).
February 23, 2015). -colacompany.com/brands/brandlist.html
18. “Viva Vantage Named 2015 Product of the Year,”
22. Ana Swanson, “What Super Bowl Manvertis- (Accessed February 24, 2015).
PR Newswire, www.prnewswire.com/news-releases
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.washingtonpost.com/blogs/wonkblog/wp/2015/02/02 .com/article/media/nbc-universal-rebrands-g4
/what-super-bowl-manvertising-says-about-mens 19. “Google Consumer Surveys,” Google, www
-esquire-network/239727/ (Accessed February 25,
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2015).
(Accessed February 25, 2015).
23. Marylouise Smith, “Dollar Stores Making a 40. “Nutrition Guide,” Kentucky Fried Chicken,
Buck in the Lebanon Valley,” Lebanon Daily News, 20. “Election Reopens Debate Over Online
January 22, 2013, www.kfc.com/nutrition/pdf
March 9, 2013, www.ldnews.com/ci_22749059 Polling,” National Journal, www.nationaljournal
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/dollar-stores-making-buck-lebanon-valley .com/politics/election-reopens-debate-over-online
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/content/gapinc/html/aboutus/ourbrands.html
24. Erin Shea, “How Luxury Retailers Can Take 21. “Character Counts, Characters Count,” Quirk’s
On Showrooming Threat,” Luxury Daily, Marketing Research Review, July 2013, 48–51.
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January 29, 2013, www.luxurydaily.com/how 22. “Brand + TV + iPad: The New Research
tional Positioning,” MarketingWeek, February 12,
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2013, www.marketingweek.co.uk/news/vertu
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25. Judy Bankman, “Junk Food Marketing Makes ing/4005671.article (Accessed February 23, 2015). 23. “Screen Size Correlates with Completion
Big Moves in Developing Countries,” Civil Eats, Rates,” Quirk’s Marketing Research Review,
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Nicki Minaj Designing Clothes for Kmart,” Yahoo, 2013, 46–49.
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April 3, 2014, http://thenextweb.com/entrepreneur
/2014/04/03/need-brand-ambassador-program-
4-companies-right (Accessed February 23, 2015).
3. “Report Identifies Auto Marques with Gabbiest
Owners,” Quirk’s Marketing Research Review,
10
January 2015, 19. 1. Jessica Whol, “Starbucks Rolling Out Upscale
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4. A Detailed Exploration,” Quirk’s Marketing
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February 17, 2015, www.pcmag.com/article2 6. “30+ # Twitter Marketing Stats: 2015 - #info-
graphic,” Digital Information World, January 24, www.heraldonline.com/incoming/article12692651
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/twitter-marketing-stats-and-facts-you-should 3. Stephanie Strom, “McDonald’s Moves toward
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of Fashionista,” DailyWorth, April 24, 2013, www 12. “Adopt the Industry Standard, For Free,” 5. “Krispy Kreme Hopes Iced Beverages Bring
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368 ENDNOTES
/business_news/local/article/f55f0020-8dc7-11e3 March 19, 2015); “Counterfeit Combat,” Inc., 2013, www.ohio.com/blogs/the-beer-blog/the-beer
(Accessed March 19, 2015). March 2015, 68–69. -blog-1.273124/miller-lite-releases-new-bottle-in
6. Sam Laird, “Yahoo Killing Message Boards Site 19. “11 Ridiculous Fast Food Chain Ripoffs in -bars-and-restaurants-1.396902 (Accessed April 21,
and Other Products,” Mashable, March 2, 2013, China,” Hardware Zone, http://forums.hardwarezone 2015).
http://mashable.com/2013/03/01/yahoo-kills .com.sg/eat-drink-man-woman-16/11-ridiculous 9. Steven J. Erwing, “Mercedes Renames Utility
-properties (Accessed February 9, 2014). -fast-food-food-chain-ripoffs-china-4281444.html Vehicles, Repositions Maybach as Sub-brand,”
7. Ashraf Eassa, “Google Stole Apple’s Mojo,” (Accessed February 9, 2014). Autoblog, November 11, 2014, www.autoblog.com
Seeking Alpha, March 3, 2013, http://seekingalpha 20. Molly Soat, “Misunderstood Measures,” /2014/11/11/mercedes-name-changes-gl-maybach/
.com/article/1242371-google-stole-apple-s-mojo Marketing News, January 2015, 18-19. (Accessed April 21, 2015).
(Accessed February 9, 2014); Darcy Travlos, “Is 21. Gemma Charles, “Brothers Cider Unveils 10. Jacob Morgan, “Five Uncommon Internal
Apple Losing Its Brand Equity?” Forbes, January 19, Premium Packaging,” Marketing, February 28, Innovation Examples,” Forbes, April 8, 2015, www
2013, www.Forbes.com/sites/darcytravlos 2013, www.marketingmagazine.co.uk/news .forbes.com/sites/jacobmorgan/2015/04/08/five
/2013/01/19/is-apple-losing-its-brand-equity /1172938/Brothers-Cider-unveils-new-premium -uncommon-internal-innovation-examples/ (Accessed
(Accessed February 9, 2015); Jordan Kahn, -packaging (Accessed February 9, 2014). April 21 ,2015).
“Despite Declining Sales, Samsung Somehow 22. Nathan Rao, “‘Wrap Rage’ Soars Over Packag- 11. Rachel Emma Silverman, “For Bright Ideas,
Beats Apple in Cell Phone Customer Satisfaction,” ing We Can’t Open,” Express, January 28, 2014, Ask the Staff,” Wall Street Journal, October 17,
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/03/Kroger_succeeding_with_Simple.aspx?ID 26. “About Green Seal,” Green Seal, www February 2014, http://scitation.aip.org/content/aip
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& Dwight, www.churchdwight.com/brands-and continuuminnovation.com/about/company-profile
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18. Jen Hansegard, “Lego’s Plan to Find the Next
13. “Bruegger’s Bagels Co-branding with Jamba 1. “The World’s 50 Most Innovative Companies,” Big Hit: Crowdsource It,” Wall Street Journal,
Juice,” Fast Casual, February 12, 2014, www Fast Company, www.fastcompany.com/section February 25, 2015, http://blogs.wsj.com/digits
.fastcasual.com/article/227795/Bruegger-s-Bagels /most-innovative-companies-2015 (Accessed /2015/02/25/legos-plan-to-find-the-next-big-hit
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(Accessed February 17, 2014). 2. “Phases of Development,” Pfizer, www.pfizer 19. Eddie Makuch, “Ubisoft’s Open-world Racer
14. “Doc Popcorn, Dippin’ Dots to Debut First .com/research/clinical_trials/phases_of_development The Crew Has Been in Development for Six Years,”
Co-Brand Store,” Business Wire, February 10, (Accessed April 21, 2015). Gamespot, May 15, 2014, www.gamespot.com
2015, www.businesswire.com/news/home /articles/ubisoft-s-open-world-racer-the-crew-has
3. “10 Companies Spending Most on R&D in the
/20150210005273/en/Doc-Popcorn-Dippin’-Dots -been-in-development-for-six-years/1100-6419658/
World,” Rediff, March 15, 2013, www.rediff.com
-Debut-Co-Brand-Store (Accessed match 19, 2015). (Accessed April 21, 2015); Eddie Makuch, “Watch
/business/slide-show/slide-show-1-10-companies
Dogs Sells 4 Million Copies in First Week, Needs
15. T. Thompson, “What Is the Difference between -spending-most-on-r-and-d-in-the-world/20130315
2 Million More to Match Assassin’s Creed Lifetime
a Copyright, Trademark, and Patent?” WiseGEEK, .htm (Accessed April 21, 2015).
Tally,” Gamespot, June 3, 2014, www.gamespot
February 9, 2013, www.wisegeek.com/what-is-the 4. Dieter Bohn, “Hands-on With the new 12-inch .com/articles/watch-dogs-sells-4-million-copies-in
-difference-between-a-copyright-trademark-and MacBook with Retina Display,” The Verge, March 9, -first-week-needs-2-million-more-to-match-assassin
-patent.htm (Accessed February 9, 2014). 2015, www.theverge.com/2015/3/9/8173685 -s-creed-s-lifetime-tally/1100-6420059/ (Accessed
16. Edward Wyatt, “F.C.C. Backs Consumers in /macbook-retina-display-usb-type-c-hands-on April 21, 2015).
Unlocking of Cellphones,” New York Times, March -video (Accessed April 21, 2015).
20. Michael D. Hutt and Thomas W. Speh, Busi-
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/fcc-urges-a-right-to-unlock-cellphones.html Finally Arrived?” The Verge, February 15, 2013, Cengage Learning, 2015).
(Accessed February 9, 2014). www.theverge.com/2013/2/15/3966950/will-we-see
21. “Wheaties™ Fans Select Anthony Pettis as
17. Monte Burke, “Under Armour Files Lawsuit -a-transparent-phone-polytron-prototype-display
America’s NEXT Bow Chanpion,” PR Newswire,
against Nike for Trademark Infringement,” (Accessed April 21, 2015).
September 3, 2014, www.prnewswire.com/news
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/monteburke/2013/02/21/under-armour-files .com/moleskine_world (Accessed April 21, 2015). -americas-next-box-champion-273732841.html
-lawsuit-against-nike-for-trademark-infringement 7. Ben Popken, “Taco Bell’s Cool Ranch Tacos: (Accessed April 21, 2015).
(Accessed February 9, 2014). Co-branding Genius,” Today, January 10, 2013, 22. Mary Vanac, “Meet Wendy’s Ciabatta Bacon
18. Chantal Fernandez, “Gucci Loses Trademark http://lifeinc.today.com/_news/2013/01/10/16430586 Cheeseburger,” Columbus Dispatch, January 27,
Infringement Case Against Guess in France,” -taco-bells-cool-ranch-tacos-co-branding-genius 2014, www.dispatch.com/content/blogs/the-bottom
Fashionista, February 2, 2015, http://fashionista.com (Accessed April 21, 2015). -line/2014/01/wendys-bringing-bacon-cheeseburger
/2015/02/french-court-rejects-gucci-trademark 8. Rick Armon, “Miller Lite Releases New Bottle -back-with-ciabatta-bun.html (Accessed April 21,
-claims-against-guess-paris-france (Accessed in Bars and Restaurants,” Ohio Breweries, May 11, 2015).
ENDNOTES 369
23. John Dodge, “Dark Barrel Latte: Starbucks Think, February 1, 2015, http://customerthink.com Making Supply Chain Integration a Reality, Oak
Has No Immediate Plan To Serve Beer-Flavored /demystifying-the-ritz-carlton-secret-of-legendary Brook, IL: Council of Logistics Management, 1999;
Drink In Chicago,” CBS Chicago, September 24, -customer-service (Accessed April 24, 2015). Barbara Flynn, Michiya Morita, and Jose Machuca,
2014, http://chicago.cbslocal.com/2014/09/24/dark 3. Ed Jones, “Top 10 IT Certifications to Target in Managing Global Supply Chain Relationships:
-barrel-latte-starbucks-has-no-immediate-plan-to 2015,” Cloud Computing Intelligence, January 5, Operations, Strategies and Practices, Business
-serve-beer-flavored-drink-in-chicago/ (Accessed 2015, www.cloudcomputingintelligence.com Science, Hershey, New York, 2010; and David Sims,
April 21, 2015). /item/1733-the-top-it-certifications-to-target-in “Integrated Supply Chains Maximize Efficiencies
24. “P&G Everyday,” Procter & Gamble, www -2015 (Accessed April 24, 2015). and Savings,” ThomasNet, July 23, 2013, http://news
.pgeveryday.com/pgeds/index.jsp (Accessed .thomasnet.com/imt/2013/07/23/integrated-supply
4. Dwayne Gremler, Mary Jo Bitner, and Valarie
April 21, 2015). -chains-maximize-efficiencies-and-savings (Accessed
Zeithaml, Services Marketing (New York:
March 2015).
25. Copernicus Marketing Consulting and Research, McGraw-Hill, 2012).
“Top 10 Reasons for New Product Failure,” Green- 5. Häagen-Dazs and General Mills to Help
5. Ibid.
Book, www.greenbook.org/marketing-research.cfm Smallholder Vanilla Farmers Increase Yields and
6. Simon Dumenco, “Venti, Venti Annoying: So Improve Sustainability Practices in Madagascar,”
/top-10-reasons-for-new-product-failure (Accessed
How Does Starbucks Misspell Your Name?” Adver- CSRwire, February 20, 2013, www.csrwire.com
April 21, 2015).
tising Age, March 5, 2013, http://adage.com/article /press_releases/35228-H-agen-Dazs-and-General
26. Sage McHugh, “8 Biggest Product Fails of /the-media-guy/starbucks-pop-song-head/240104 -Mills-to-Help-Smallholder-Vanilla-Farmers-Increase
2014,”Alternet, December 5, 2014 www.alternet (Accessed February 21, 2015). -Yields-and-Improve-Sustainability-Practices-in
.org/economy/8-biggest-product-fails-2014 (Accessed
7. Jim Harger, “New App Lets Fifth Third Bank -Madagascar (Accessed January 2015).
April 21, 2015).
Customers Deposit Checks via their Smartphones,” 6. Much of this and the following sections are
27. Alex Pigliucci, “Wealth Management for Michigan Live, February 7, 2013, www.mlive.com based on material adapted from the edited volume
China’s Richest: An Industry with a Great Future,” /business/west-michigan/index.ssf/2013/02 Douglas M. Lambert, ed., Supply Chain Manage-
Forbes, January 28, 2013, www.Forbes.com/sites /new_app_lets_fifth_third_bank.html (Accessed ment: Processes, Partnerships and Performance,
/Forbesleadershipforum/2013/01/28/wealth February 24, 2015). Sarasota, FL: Supply Chain Management Institute,
-management-for-chinas-richest-an-industry-with
8. Douglas A. McIntyre, Alexander Kent, Alexander 2004; and “The Supply Chain Management
-a-great-future/ (Accessed April 21, 2015).
E.M. Hess, Thomas C. Frohlich, and Ashley C. Allen, Processes,” Supply Chain Management Institute,
28. Susan Gunelius, “Data Proves Word-of- “Customer Service Hall of Fame, http://247wallst www.ijlm.org/Our-Relationship-Based-Business
Mouth Marketing Works—Infographic,” Newstex, .com/special-report/2014/07/18/customer-service -Model.htm (Accessed March 2015).
February 12, 2014, http://newstex.com/2014/02/12 -hall-of-fame, (Accessed March14, 2015). 7. “C.H. Briggs Builds a Better Relationship with
/data-proves-word-of-mouth-marketing-works
9. Much of the material in this section is based its Customers,” IBM, October 16, 2012, www-01
-infographic/ (Accessed April 21, 2015).
on Christopher H. Lovelock and Jochen Wirtz, .ibm.com/software/success/cssdb.nsf/CS/STRD
29. Ibid. Services Marketing, 7th ed. (Upper Saddle River, -8YWGWZ (Accessed March 2015).
30. Mercedes Cardona, “Word-of-mouth Drives NJ: Prentice Hall, 2011). 8. James A. Cooke, “Inside Dell’s Global Command
Teen Conversations,” Direct Marketing News, 10. Zac Townsend, “Era of Mass Customization Centers,” DC Velocity, September 24, 2012, www
July 1, 2012, www.dmnews.com/word-of-mouth in Banking,” Bank Innovation, April 17, 2014, .dcvelocity.com/articles/20120924-inside-dells-global
-drives-teen-conversions/article/247170 (Accessed http://bankinnovation.net/2014/04/era-of-mass -command-centers (Accessed January 2015).
April 21, 2015). -customization-in-banking (Accessed March 16, 9. Stephanie Grothe, “How They Did It: Red Wing
31. Ibid. 2015). Shoes’ Journey to S&OP,” Supply Chain Management
32. “Millennials Depend on Word-of-Mouth More 11. Wendy Donahue, “Mac & Mia Trunk Club Review, May/June 2014.
than Boomers,” RetailWire, January 21, 2014, www for Kids Makes Shopping Easy for Busy Moms,” 10. John Letzing, “Amazon Adds That Robotic
.retailwire.com/discussion/17280/millennials-depend The Charlotte Observer, February 11, 2015, www Touch,” Wall Street Journal, March 20, 2012,
-on-word-of-mouth-more-than-boomers (Accessed .charlotteobserver.com/incoming/article10430567 http://online.wsj.com/article/SB10001424052702304
April 21, 2015). .html (Accessed April 24, 2015). 724404577291903244796214.htm (Accessed
33. “Survey Reveals U.S. Consumers Feel Businesses 12. Lovelock and Wirtz, Services Marketing. March 2015); Donna Tam, “Meet Amazon’s Busiest
Lead in Recognizing the Value of Listening to 13. Ibid. Employee – The Kiva Robot,” CNET, November
Feedback,” BusinessWire, January 28, 2014, www 20, 2014, http://www.cnet.com/news/meet-amazons
14. Much of the material in this section is based
.businesswire.com/news/home/20140128005598/en -busiest-employee-the-kiva-robot/ (Accessed
on Dwayne Gremler, Mary Jo Bitner, and Valarie
/Survey-Reveals-U.S.-Consumers-Feel-Businesses March 2015).
Zeithaml, Services Marketing, (New York:
-Lead (Accessed April 21, 2015).
McGraw-Hill), 2012. 11. Tony Hines, Supply Chain Strategies: Demand
34. Rachael Feintzeig, “Boss’s Next Demand: Make Driven and Customer Focused, 2nd ed., New York:
15. Mia Taylor, “5 Hotels Opening in 2015 that
Lots of Friends,” Wall Street Journal, February 12, Routledge, 2013.
Embody Latest Travel Trends,” MainStreet,
2014, B1.
December 24, 2014, www.mainstreet.com/article 12. “Bayer HealthCare to Purchase Pharmacy
35. Vivian Giang, “100 Fastest-Growing Compa- /5-hotels-opening-in-2015-that-embody-latest Supplier Steigerwald Arzneimittelwerk,” Zenopa,
nies,” Fortune, http://fortune.com/100-fastest -travel-trends (Accessed March 17, 2015). May 17, 2013, www.zenopa.com/news/801587313
-growing-companies/on-assignment-3/ (Accessed /bayer-healthcare-to-purchase-pharmacy-supplier
16. “100 Best Companies to Work For 2015,”
April 21, 2015). -steigerwald-arzneimittelwerk (Accessed March 3,
Fortune, http://fortune.com/best-companies/
36. Robert Channick, “40% of Homes Now (Accessed April 14, 2015). 2015).
Without a Landline” Chicago Tribune, July 8, 2014, 13. Kenneth J. Petersen, Robert Handfield, and
www.chicagotribune.com/business/breaking/chi
13
Gary Ragatz, “Supplier Integration into New Product
-landlines-survey-20140708-story.html (Accessed Development: Coordinating Product, Process, and
April 21, 2015). Supply Chain Design,” Journal of Operations Man-
1. Hannah Elliott, “Rolls Royce’s Bespoke Program agement, 23, no. 3-4, (2005): 371-388; and Stephen
Puts Virtually No Limits on Customization,” Trimble, “Analysis: US South Rises on Airbus,
12 Pittsburgh Post-Gazette, February 20, 2015.

2. Heather Clancy, “Kimberly-Clark Makes
Boeing Expansion,” Flight Global, www.flightglobal
.com (Accessed February 2015).
1. Aidan Smith, Roderick Asekhauno, Harold Sense of Demand,” Consumer Goods Technology, 14. Curtis Greve and Jerry Davis, “Recovering Lost
Laney, and Rebecca Hutchins, “Quarterly Estimates October 11, 2012, http://consumergoods.edgl.com Profits by Improving Reverse Logistics,” UPS, www
for Selected Service Industries 4th Quarter 2014,” /case-studies/Kimberly-Clark-Makes-Sense-of .ups.com/media/en/Reverse_Logistics_wp.pdf
U. S. Census Bureau, www.census.gov/services/qss -Demand82520 (Accessed February 2015). (Accessed February 2015).
/qss-current (Accessed March 11, 2015); “Services,” 3. Mark A. Moon, Demand and Supply Integra- 15. UPS, “Logistics of Sustainability,” Compass,
Office of the United States Trade Representative, tion: The Key to World-Class Demand Forecasting. Spring 2012, 10.
August 28, 2014, https://ustr.gov/issue-areas/services New York: Financial Times Press, 2013. 16. Steve Szilagyi, keynote address, Warehousing
-investment/services (Accessed March 11, 2015). 4. Much of this section is based on material Education and Research Council Annual Conference,
2. Flavio Martins, “Demystifying the Ritz-Carlton adapted from Donald J. Bowersox, David J. Closs, Atlanta GA, May 2012; and Judy Owen, “Lowe’s
Secret of Legendary Customer Service,” Customer and Theodore P. Stank, 21st Century Logistics: Ramps Up Disability Inclusion,” Forbes, April 2013.
370 ENDNOTES
17. Martin Christopher, Logistics and Supply jumpthecurve.net/retail-marketing/the-future-of -holiday-delivery-woes-send-in-the-drones/
Chain Management, 4th ed. (New York: Prentice -retail-isnt-so-foreign/ (Accessed January 2015). (Accessed March 2015).
Hall/Financial Times, 2010). 40. “Survey Finds Consumers Using Pinterest 16. Lydia Dishman, “The Entrepreneur Who
18. Kate Vitasek and Karl Manrodt, Vested: How to Engage With Retailers More Than Facebook, Is Beating Amazon at Same-day Delivery,” Fast
P&G, McDonalds, and Microsoft are Redefining Twitter,” Retailing Insight, http://retailinginsight Company, www.fastcompany.com/3042207/strong
Winning in Business Relationships (New York: .com/industrynews9.html (Accessed January 2015). -female-lead/the-entrepreneur-who-is-beating
Palgrave MacMillan, 2012). 41. Wang, J. J., Zhao, X., and Li, J. J. (2013). -amazon-at-same-day-delivery (Accessed March 13,
19. Dinah Wisenberg Brin, “Need Technology “Group Buying: A Strategic Form of Consumer 2015).
Experts? Try Rural America,” CNBC, February 20, Collective,” Journal of Retailing 89(3), 338-351. 17. Sarah Favot, “Two Build-your-own Pizza
2013, www.cnbc.com/id/100470457 (Accessed 42. Taurn Kushwaha and Venkatesh Shankar, “Are Restaurants Opening in Monrovia,” Pasadena
March 2015). multichannel customers really more valuable? The Star-News, March 21, 2014.
20. Wesley S. Randall, “Public-Private Partnerships moderating role of product category characteristics,” 18. Gabrielle Karol, “TGI Fridays Offering $10
in Supply Chain Management,” Journal of Business Journal of Marketing, 77, no. 4, 67-85. Unlimited Appetizers Promotion,” Fox Business,
Logistics, December 2013. 43. Jennifer Lonoff Schiff, “Eight Ways to Create July 7, 2014, www.foxbusiness.com/industries
21. “Federal Highway Administration,” U.S. a Successful Multichannel Customer Experience,” /2014/07/07/tgi-fridays-offering-10-unlimited
Department of Transportation, www.fhwa.dot.gov/ CIO Magazine, February 23, 2015. -appetizers-promotion/ (Accessed January
(Accessed March 3, 2015). 2015).
14
22. “Printing Titanium Bicycle Parts. A Charge 19. Tiffany Hsu, “Toys R Us to Open Holiday
Bikes Collaboration with EADS,” Vimeo, August Pop-up Shops in Macy’s,” Los Angeles Times,
14, 2012, http://vimeo.com/47522348 (Accessed October 10, 2012, http://articles.latimes.com
January 2015). 1. “Monthly & Annual Retail Trade,” United States /2012/oct/10/business/la-fi-mo-toys-r-us-holiday
Census Bureau, March 12, 2015, www.census.gov -popup-macys-20121010 (Accessed January
23. “Home,” 3DLT, www.3dlt.com (Accessed
/retail (Accessed February 2015). 2015).
March 2015).
2. “Retail’s Impact Report,” National Retail 20. Adam Blair, “The Drive to Localize,” RIS
24. Hans-Georg Kaltenbrunner, “How 3D Printing
Federation, www.nrf.com/advocacy/retails-impact News, May 7, 2011, http://risnews.edgl.com/retail
is Set to Shake Up Manufacturing Supply Chains,”
(Accessed March 2015). -news/The-Drive-to-Localize72436 (Accessed
The Guardian, November 25, 2014.
3. C. Brett Lockard and Michael Wolf, “Occupa- March 2015).
25. J. Paul Dittmann, Managing Risk in the Global
tional Employment Projections to 2020,” Bureau of 21. Haithem Zourrig, Jean-Charles Chebat, and
Supply Chain, Global Supply Chain Institute:
Labor Statistics Monthly Labor Review, 135, no. 1, Roy Toffoli, “Consumer Revenge Behavior: A
Knoxville, TN, 2014.
(2012): 84–108. Cross-Cultural Perspective,” Journal of Business
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4. “Retail Firms by Employment Size,” National
Develop Second Generation of Surgical Robots,”
Retail Federation, www.nrf.com (Accessed 22. Christopher Ratcliff, “iBeacons: The Hunt for
The New York Times, October 23, 2014.
February 2015). Stats,” Econsultancy.com, August 26, 2014; Rachel
27. Eric Savitz, “Apple Screens for iPad3 in Short Abrams, “Psst! It’s Me, the Mannequin,” New York
5. Jason Daley, “The 2015 Franchise 500,” Entre-
Supply,” Forbes, March 1, 2012, 9. Times, 2015, A8.
preneur, December 16, 2014.
28. “Vera Bradley Strikes International Agreement,” 23. Ben Kersey, “Wal-Mart Tries a Blended Channel
6. Paul Tassi, “GTA 5 and the Ethics of Mass
Inside Indiana Business, June 4, 2014, www Approach to Survive in a Digital World,” The
Murder,” Forbes, December 11, 2014; “Toys R
.insideindianabusiness.com/newsitem.asp?id Verge, November 23, 2012, www.theverge.com
Us Pulls Breaking Bad Dolls After Florida Mom’s
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Petition,” Tampa Bay Times, October 21, 2014,
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ment of Health and Environmental Control, www -breaking-bad-dolls-after-florida-moms-petition 24. Stuart Miller, “Customers Have High Expecta-
.scdhec.gov/environment/lwm/recycle/e-cycle -w-video/2203155 (Accessed March 13, 2015). tions for Click and Collect,” Real Business,
/takeback_programs.htm (Accessed February 2015). November 28, 2013, http://realbusiness.co.uk
7. Susan Johnston, “Beware These Online Retail
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Recycling Program,” Apple, www.apple.com June 24, 2013. -for-click-and-collect (Accessed March 2015).
/recycling/includes/recycling-faq.html (Accessed
8. Alaric Dearment, “Target Tackles Movie Stream-
January 2015).
31. Aaron Strout, “Frictionless Mobile Commerce:
5 Examples of Companies that are Leading,” Mar-
ing,” Retailing Today, September 25, 2013, http://
retailingtoday.com/article/target-tackles-movie
-streaming (Accessed February 2015).
15
keting Land, www.marketingland.com (Accessed 1. McCarthy, Michael, “Sick of Ron Burgundy?
9. “Man Cave – Home Parties for Men,” Man
January 2015). Durango Certainly Isn’t,” Advertising Age,
Cave, www.mancaveworldwide.com (Accessed
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March 2015).
Figures to Explode,” TechRadar, www.techradar /sick-ron-burgundy-durango/245586/ (Accessed
10. “Telemarketing in the 21st Century,” March 2015).
.com (Accessed February 2015).
BusinessTM, http://businesstm.com/home
33. “Retailers Leveraging Tablets to Elevate Brand, 2. Michael Blaustein, “Watch: Ad for Colin Farrell
-based/telemarketing-in-the-21st-century.html
Boost Sales,” Retailing Insight, http://retailinginsight Movie Goes Too Far with ‘Elevator Murder’
(Accessed January 2015).
.com/industrynews8.html, Accessed January 2015. Video,” New York Post, March 5, 2013, www.nypost
11. Tianyi Jiang and Alexander Tuzhilin, .com/p/entertainment/movies/watch_marketing
34. “What Is the Size of the M-Commerce Market “Dynamic Microtargeting: Fitness-based Approach _elevator_collin_NOOBhxqXYHO3QXW8W4SjII
In the US?” Quora, www.quora.com/Mobile to Predicting Individual Preferences,” Knowledge (Accessed March 2015); Emily Verona, “True
-Commerce-1/What-is-the-size-of-the-m-commerce and Information Systems 19, no. 3, (2009): 337–60. Detective Season 2 News: HBO Hit Giving Colin
-market-in-the-US (Accessed January 2015).
12. Al Urbanski, “Big Money for Big Data: Market- Farrell’s Career A Boost?,” Enstarz, January 19,
35. Joanna Brenner, “Pew Internet: Mobile,” Pew ers will Spend $11.5B in 2015,” Direct Marketing 2015, www.enstarz.com/articles/60607/20150119
Mobile, September 13, 2013, http://pewinternet News, www.dmnews.com (Accessed February 2015). /true-detective-season-2-news-hbo-hit-giving-colin
.org/Commentary/2012/February/Pew-Internet -farrells-career-a-boost-video.htm (Accessed
13. “Market Research on Digital Media, Internet
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36. Ibid. (Accessed March 2015). 3. Ibid.
37. Aaron Smith, “In-store Mobile Commerce 14. Ashley Lutz, “Zara’s Genius Business Model 4. “Elevator Murder Experiment,” YouTube, March
During the 2012 Holiday Shopping Season,” Pew Could Destroy JCPenney and Sears,” Business 4, 2013, www.youtube.com/watch?v=qo6Jzh7SHRA
Internet, January 31, 2013, http://pewinternet.org Insider, March 4, 2013, www.businessinsider.com (Accessed March 2015).
/Reports/2013/in-store-mobile-commerce.aspx /zaras-genius-business-model-2013-3 (Accessed 5. Steve Dent, “Google Glass’ Now-like UI Finally
(Accessed January 2015). April 1, 2015). Revealed, Just Accept and Say ‘Ok,’” Engadget,
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39. Jack Uldrich, “The Future of Retail Isn’t So Woes: Send in the Drones,” Time, December 26, /google-glass-how-it-feels-video (Accessed
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ENDNOTES 371
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TIME, March 1, 2013, http://techland.time.com/2013 11. “‘Shopping Carts’ Commercial—21st Century 28. Joanna Brenner, “Pew Internet: Mobile,”
/03/01/ouya-ships-march-28-to-kickstarter-backers Auto Insurance: Same Great Coverage for Less,” Pew Research Center, January 31, 2013, http://
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7. Ice Bucket Challenge, ALS Association, www.alsa /watch?v=CDoAmgIfj_U (Accessed March 2015). -Internet-Mobile.aspx (Accessed March 2015).
.org/fight-als/ice-bucket-challenge.html (Accessed 12. Ibid. 29. Alex Kantrowitz, “Mobile Ad Revenue Explodes,
March 2015). Finally,” Advertising Age, December 16, 2013, 6.
13. John Babish, “Ithaca, NY Company, Bionexus,
8. Andrew Johnson, “As Card Firms Try Social Introduces First Natural Skin Care Lotion for Dogs 30. Owen Thomas, “New Marissa Mayer’s Com-
Media, Critics Keep Watch,” Wall Street Journal, Containing Standardized Nigella Sativa Extracts,” plaint about Yahoo’s Hold Music Has Turned into a
March 23, 2012, http://online.wsj.com/article PRNewswire, April 17, 2012, www.facebook.com Music Video,” Business Insider, February 4, 2013,
/SB10001424052702304724404577297860607013698 /permalink.php?id=118344488181338&story_fbid www.businessinsider.com/yahoo-earnings-hold
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14. “Bag Designer Uses Video to Teach Counter-
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research of E. K. Strong Jr. as theorized in The -uses-video-to-teach-counterfeiters/ (Accessed 2013, www.v-net.tv/abc-proves-the-value-of-the
Psychology of Selling and Advertising (New York: March 2015); “The Saddleback Story,” Saddleback -unified-tvdigital-ad-buy/ (Accessed March 2015).
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Global Ad Spend In 2013 $503B,” TechCrunch,
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September 20, 2013, http://www.convergemg.com
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372 ENDNOTES
45. Don Davis, “Consumers Redeem 141% More 16. Heather Clancy, “7 Apps to Take Your .com/8-useful-social-media-statistics-for-2015/
Digital Coupons in 2013,” Internet Retailer, Customer Loyalty Program Mobile,” ZDNet, (Accessed April 7, 2015).
January 16, 2014, www.internetretailer.com/2014 January 27, 2014, www.zdnet.com/7-apps-to-take 13. Ibid.
/01/16/consumers-redeem-141-more-digital-coupons -your-customer-loyalty-program-mobile-7000025654/
14. “SBANC Newsletter—June 5th, 2012,” Inter-
-2013 (Accessed March 2015). (Accessed February 19, 2014); Jessica Bruder, “A
national Council for Small Business, June 5, 2012,
46. Rachel King, “Google Trying out Real-time, Customer Loyalty Program (From Some of the
www.icsb.org/article.asp?messageID=983 (Accessed
Targeted Digital Coupons with Zavers,” ZDNet, Folks Who Brought You Groupon),” New York
March 2015).
January 11, 2013, www.zdnet.com/google-trying Times, February 21, 2012, http://boss.blogs.nytimes
.com/2012/02/21/a-customer-loyalty-program-from 15. Joanna Brenner, “Pew Internet: Mobile,” Pew
-out-real-time-targeted-digital-coupons-with
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-zavers-7000009722/ (Accessed March 2015).
(Accessed March 2015). .org/Commentary/2012/February/Pew-Internet
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18
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Schechner, “Facebook Gains Two Big Advertisers’
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51. “The Samsung Galaxy Tab 4 NOOK 7.0,”
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38. “Top Sites,” Alexa, www.alexa.com/topsites (Accessed February 27, 2015).
52. “The Next Big Thing is Almost Here –
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39. Rob Walker, “How Reddit’s Ask Me Anything /cell-phones/samsung-galaxy-s-6-edge.html Strongbrands, February 2, 2015, http://timcalkins
Became Part of the Mainstream Media Circuit,” (Accessed March 2015). .com/branding-insights/spirit-airlines-power-clear
Yahoo, March 13, 2013, http://news.yahoo.com -strategy/ (Accessed February 28, 2015).
53. Daniel Howley, “The Best iPhone Widgets
/how-reddit-s-ask-me-anything-became-part-of-the You’re Not Using,” January 24, 2015, www.yahoo 16. “Free Shipping Is Getting More Expensive,”
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IAmA,” Reddit, www.reddit.com/r/IAmA/top/ -more-1414003507 (Accessed February 28, 2015).
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40. Tony Nguyen, “The Importance of Social
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“Willing to Pay More, Eager to Pay Less: The Role
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March 2015). Street Journal, July 18, 2014, http://blog.wsj.com 19. “The Psychology Behind the Sweet Spots of
41. Jordan Slabaugh, “4 Ways to Get Customers on /moneybeat/2014/07/18/hershey-price-hike-tests Pricing,” Fast Company, www.fastcompany.com
Your Side,” iMedia Connection, January 29, 2014, -theory-that-americans-love-chocolate-at-any-price /1826172/psychology-behind-sweet-spots-pricing
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-party-at-le-lab-montr%C3%A9al (Accessed 2014, 47–48; Koert van Ittersum, Brian Wansink,
March 2015).
374 ENDNOTES
INDEX
3D printing Advertising objective, 285 American values, 49

use of for electronic distribution, Advertising response function, 282 Amplifier Index (Foresight), 152
229–230 Advocacy advertising, 283 Anchor stores, 255
use of to create prototypes, 194 Aetna, improved customer satisfaction, 8 Andersen Corporation, 130
3DLT.com, 229 African Americans Ansoff’s strategic opportunity matrix, 16
3M, innovation at, 60 market segmentation for, 137 Anti-bribery laws, 38
80/20 principle, 140 marketing to, 56 Apple, 4–5, 188
Age, influence of on consumer buying brand equity of, 178
A decisions, 108
Age segmentation, 135–136
brand value of, 282
efforts by to reduce cognitive
Aaramshop, 238 Agents, 233 dissonance, 96
Abbott Laboratories, 74 Agile strategies, 224 FaceTime, 324
Accelerator principle, 123 AIDA model, 273 iBeacon, 337
Accessibility, 307 action, 274 introduction of new products by,
market segments, 134 advertising campaigns, 285 188–189
Accessory equipment, 125 attention, 273–274 presence of in China, 73
ACG PrivacyFix, 64 desire, 274 strategic alternatives of, 18–19
Actifio, usage-rate segmentation interest, 274 use of distribution channels by, 236
strategy of, 140 promotional mix and, 274–275 use of reverse channels by, 237
Acxiom, 64 Airlines, loyal customers, 48 Applied research, 59
Additive manufacturing Alibaba.com, 124, 188 Apps
use of for electronic distribution, Allocation of resources, 18–19 use of for mobile marketing, 337–338
229–230 Allowances, 356 use of for online tracking, 63–64
use of to create prototypes, 194 ALS Association, persuasive Asian Americans, marketing to, 56–57
Adidas, social media policy of, 324 promotional campaign of, 268 Aspirational reference groups, influence
Adjacent innovation, 17 Alternative channel arrangements, 236 of on consumer buying decisions,
Adobe Alternative media, use of for 104–105
presence of in China, 73 advertising, 291 Assurance, 207
social media training, 325 Amae (indulgent dependency), 119 AT&T, advertising spending by, 281
Adoption of new products Amazon Atag Holdings NV, 77–78
marketing implications of, 199–200 competition and, 65 Atmosphere, 255–256
product characteristics and rate of, 199 order fulfillment process at, 224 Audience selectivity, 292
Advergaming, 290 segmentation strategy of for business Automatic vending, 249
Advertainments, 291 customers, 141 Available funds, promotional mix
Advertising, 269 service quality of, 209 and, 278
comparison of personal selling with, 304 strategic alliance with Netflix, 118 Avendra, 227
creative decisions in, 285–287 strategic planning of, 16 Awareness, 117
effects of, 280–281 use of profiling by, 319
effects of on consumers, 282–283
executional styles for, 287
Amedisys Home Health, 10
American Association of Advertising B
major types of, 283–285 Agencies (AAAA), standards, 31 B Corp movement, 42
media decisions in, 288–294 American Express, 6 B-to-B auctions, 350
product life cycle and, 276–277 advertising spending by, 283 B-to-B marketing, 114–115
U.S. top spenders, 283 cooperative branding strategy of, major categories of business
Advertising appeals, developing and 180–181 customers, 120–121
evaluating, 286 service quality of, 209 promotional mix, 272
Advertising campaigns, 285 American Marketing Association social media tools for, 117
best of the best, 288 code of conduct, 31 trends in, 115–118
post-campaign evaluation, 287 definition of marketing of, 6 B-to-B online exchanges, 124
375
B-to-C marketing. See also marketing Boston Consulting Group model, 17–19 Business analysis, 193–194
comparison of with B-to-B Botox, adjacent innovation, 17 common questions, 194
marketing, 116 Boycotts, 74 Business buying behavior, 126–127
B2B marketing. See B-to-B marketing Brainstorming, 193 business ethics, 129
Baby boomers, 54–55 Brand, 178 buying centers, 127–128
market segmentation and, 136 Brand cannibalization, 253 buying situations, 128–129
Back stock, 251 Brand equity, 178–179 evaluative criteria, 128
Bad Ad program (FDA), 63 power of, 179 Business customers
Baidu Migrate, 156 Brand extensions, 94 governments, 120–121
Bait pricing, 359 Brand identity, 111 institutions, 121
Bakespace.com, 324 Brand loyalty, 56, 178–179, 282 producers, 120
Bargain pricing, 8 Brand mark, 178 resellers, 120
Barnes & Noble, use of near field Brand name, 178 Business ethics
communication by, 338 Branding, 178 B-to-B interactions, 129
Barter, 86 benefits of, 178–179 morality and, 35
Base price, tactics for fine tuning, global issues in, 185 Business marketing, 114. See also
355–360 strategies for, 179–181 B-to-B marketing
Basic research, 59 trademarks, 181–182 Business markets, bases for
Basing-point pricing, 358 Brazil, role of in global economy, 73 segmenting, 141
Baydin, 27 Break-even analysis, 347 Business position, 19
Bayer HealthCare, use of supplier Break-even pricing, 347–348 Business product distributors, 120
relationship management process Bribery, 38 Business products, 114
at, 224–225 BRIC countries, role of in global accessory equipment, 125
Beacons, 258, 304, 337 economy, 73 business services, 126
Beats Electronics Bristol-Myers Squibb, corporate social channels for, 235–236
product development strategy of, 16 responsibility of, 43–44 component parts, 126
strategic planning of, 19–20 Britannica, 11 major equipment, 125
Behavioral norms, 30 Broadcast media, advertising on, processed materials, 126
Behavioral targeting, 63, 161 289–290 raw materials, 125
BehaviorScan, 169 Brokers, 233 supplies, 126
Belly, 319 Brothers Cider, packaging changes Business services, 126
Ben & Jerry’s, 42 of, 183 Business vs. consumer markets, 122
mission of, 21–22 Bruegger’s Bagels, cooperative branding concentration of customers, 124
Benefit segmentation, 140 strategy of, 181 demand, 122–123
Best Buy, 249 Buick, market orientation of, 5–6 distribution structure, 124
price match program of, 349 Build, 19 nature of buying in, 124
social media policy of, 324 Building relationships, 9 negotiations, 124
use of reverse channels by, 237 Building scenarios, 59–60 number of customers, 124
Bidz, 350 Bureau of Competition (FTC), 63 primary promotion method, 125
Big data, 154–155 Bureau of Consumer Protection purchase volume, 123
analyzing, 155–156 (FTC), 63 reciprocity, 124
improving supply chain operations Bureau of Economics (FTC), 63 use of leasing, 124–125
using, 231–232 Burger King, global product Business-focused salespeople, 302–303
use of analytics by retailers, 258 adaptation, 83 Business-to-business marketing. See
Big Fish Games, 325 Burton Snowboards, 192 B-to-B marketing
BlackBerry, 6 Business Buyer behavior
strategic strategy of, 18 cultural considerations, 72 defining the target market, 26
Blind loyalty, 282 defining the mission, 21–22 values and, 49
Blitz, George, 23 defining the primary goal, 12 Buyer for export, 81
Blogs, 331–332 ethical behavior in, 34–38 Buying centers, 124, 127
Blue Bell ice cream, 24 global marketing by individual implications of for the marketing
Bluetooth marketing, 337 firms, 80–82 manager, 127–128
Boeing, 123 importance of marketing to, 13 roles in, 127–128
competition and, 65 most ethical companies, 37–38 Buying decisions, types of and the
Boomerang, 27 organizational definition of, 10–11 promotional mix, 277
BorgWarner, use of reciprocity by, 124 regulation of, 73 Buying power, 307
376 INDEX
Buying processes, market segmentation Chief customer officers (CCOs), 9 Company characteristics, market
based on, 141 Children, market segmentation and, 135 segmentation based on, 141
Buying situations, B-to-B interactions, Children’s Online Privacy Protection Company strength, 19–20
128–129 Act (COPPA), 31, 63 Company Web sites, use of for public
Buzz, 330 China relations, 296
adaptation of pricing strategies for, 85 Comparative advertising, 284–285
C international marketing in, 72

oversight in, 73–74
Compatibility, 199
Compensation agreements, 86
C.H. Briggs, use of CRM process by, 223 role of in global economy, 73 Competition
Cadillac, market orientation of, 5–6 Church & Dwight, ingredient branding global, 66–67
Cambridge SoundWorks, ethnographic strategy of, 180 knowledge of, 309
research of, 161 City governments, marketing to, 121 organizational focus and, 7–10
Campaign management, 318–319 Click-and-collect, 259–260 pricing and, 349
Campbell’s soups, product mix of, 174–176 Climate change, societal marketing production orientation and, 4
CAN-SPAM Act, 63 orientation and, 6 understanding, 6, 48–49
Cannibalization, 144–145 Closed-ended questions, 159 Competitive advantage, 22, 262
Capital intensive, 70 Closing the sale, 311 cost, 23
Capper, Brian, 87 Cloud computing, improving supply niche, 24
Career opportunities, 13 chain operations using, 231–232 product/service differentiation, 23–24
Carpenter, Jack Burton, 192 CNET, 350 sustainability of, 24
Case-Mate, 8 Co-branding, 180–181 Competitive advertising, 284
Cash cow strategic business units, 18 Co-creation, 8 Competitive factors, 22, 64–65
Cash discounts, 356 Coach, strategic planning of, 14–15 Competitive intelligence (CI), 170–171
Categorization process, use of to make Coastal.com, 8 Competitors, new-products ideas from,
purchase decisions, 94 Coca-Cola 192
Category killer, 248 brand value of, 282 Complementary branding, 181
Cause-related marketing, 44 Facebook presence of, 323 Complexity, 199
Causist ethical theory, 33 global citizenship, 70–71 Component lifestyles, 49
Celebrity global marketing strategies of, 71 Component parts, 126
use of as promotional tool for market segmentation, 133 Computer-assisted interviewing, 158
services, 211–212 positioning strategies of, 146 Concentrated targeting strategy, 143–144
use of for nonprofit marketing, 214 Code of ethics, 36–38 Concept test, 193
Central America Free Trade Agreement Codes of conduct, 31 Conceptual learning, 112
(CAFTA), 77 Cognitive dissonance, 96 Conformity, 49
Central location telephone facilities Cold calling, 307 Connected self-schema, 107
(CLT), 158 Colgate-Palmolive Connection, 268
CFM International, joint venture with focus group research of, 159 Consequences
General Electric, 81–82 global marketing by, 71 ethical decision making and, 35
Chadwick Martin Bailey (CMB), 48 Collectors, 331 perceived risk of, 98
Chain stores, 245–246 Comcast, advertising spending by, 283 Consideration set, 93
Channel arrangements, alternative, Commercialization, 196–197 evaluation of alternatives from, 93–94
236–237 Common trade alliances, 74 Consultants, use of in new-product
Channel intermediaries Commonwealth Bank of Australia, development process, 192–193
channel functions performed by, on-demand marketing app of, 12 Consultative selling, 304–305
234–235 Communication, 264 sales process, 306–312
functions and activities of, 233–234 Communication process, 264 Consumer behavior, 88
Channel members, 232 decoding, 266 continuum of buying decisions, 97
Channel structures, 235 encoding, 265 decision-making process, 90–96
Channels of communication, 265 feedback, 266–267 influence of culture and values on
Channels of operation, 232. See also message transmission, 265 buying decisions, 101–104
Marketing channels promotional mix and, 271–273 postpurchase, 90–96
Charge Bikes, use of 3D printing by, 229 receivers, 266 Consumer buying decisions
Chase Freedom, 270 sender, 264–265 individual influences on, 107–109
Chef’s Garden, 24 Community, corporate social psychological influences on, 109–113
Chick-fil-A, service quality of, 209 responsibility to, 39 social influences on, 104–107
Chicos, use of big data analytics by, 155 Community shopping centers, 254–255 types of, 96–98
INDEX 377
Consumer cause fatigue, 44 Contests, 300 on-demand marketing, 11–12
Consumer decision-making process, 90 Continuous media schedule, 293 sales process and, 315–320
evaluation of alternatives, 93–94 Contract logistics, 227–228 social, 317
factors affecting, 100–104 Contract manufacturing, global use of as a targeting tool, 145–146
information search, 91–93 marketing and, 81 use of in services, 212–213
need recognition, 90–91 Control of marketing plan, 28 CRM process, 222–223
postpurchase behavior, 95–96 Convenience products, 173–174 Cross-media advertising, 293
purchase, 94–95 Convenience samples, 163 Cross-selling, 319
Consumer decisions, understanding, 48 Convenience stores, 248 Cross-tabulation, 165
Consumer education, 295 Conventional morality, 35 CrossFit, market segmentation
Consumer Financial Protection Bureau Conversationalists, 331 strategies, 135
(CFPB), 61 Conversions, 118 Crowdsourcing, 327
Consumer involvement Cooperation, 10 use of for new-product idea
buying decisions and, 96–98 Cooperative advertising, 253, 289 generation, 193
factors determining levels of, 98–99 Cooperative branding, 180–181 Cultural factors, consumer decision-
marketing implications of, 99–100 Core innovation, 17 making process and, 100
Consumer markets Core service, 209–210 Culture
bases for segmenting, 134 Corporate advertising, 283 global marketing and, 71–72
benefit segmentation, 140 Corporate blogs, 331–332 influence of on consumer buying
demographic segmentation, 135–139 Corporate communication, 295 decisions, 101
geographic segmentation, 135 Corporate social responsibility (CSR), 38 Cumulative quantity discounts, 356
psychographic segmentation, 139 arguments for and against, 39–40 Curated shopping sites, 7
usage-rate segmentation, 140 growth of, 41–42 Customer base, understanding
Consumer penalties, 360 industry leaders, 43–44 interactions of, 316–317
Consumer privacy, 63–64 pyramid of, 39–40 Customer data, capturing, 317–318
Consumer Product Safety Commission stakeholders and, 38–39 Customer databases, 16
(CPSC), 62–63 Corporate sponsorship, 296 Customer Experience Index (CxPi), 8
Consumer Product Safety Improvement Cost competitive advantage, 23 Customer information, leveraging,
Act, 63 Cost estimation, 352 318–320
Consumer products, 114 Cost of doing business, 73 Customer integration, 221–222
marketing channels for, 235 Cost per click, 292 Customer interactions, 316
types of, 173–174 Cost per contact, 292 Customer loyalty, 319. See also
Consumer sales promotion, 297–298 Cost per thousand (CPM), 292 Brand loyalty
tools for, 298–301 Counterfeit products, 237 Customer profiling, 319
Consumer vs. business markets, 122 Countertrade, 86 Customer relationship management.
concentration of customers, 124 County governments, marketing to, 121 See CRM
demand, 122–123 Coupons, 299 Customer relationships, identifying,
distribution structure, 124 Creative decisions in advertising 315–316
nature of buying in, 124 developing and evaluating advertising Customer satisfaction, 7–8
negotiations, 124 appeals, 286 Customer service, 8
number of customers, 124 executing the message, 286–287 addressing retail product/service
primary promotion method, 125 identifying product benefits, 285 failures, 257
purchase volume, 123 post-campaign evaluation, 287 B-to-B interactions, 129–130
reciprocity, 124 Creators, 331 retail operations, 256
use of leasing, 124–125 Credence quality, 205 Customer service management
Consumer-focused salespeople, 302 Creed, Greg, 189 process, 223
Consumer-generated content, 271 Crisco Systems, 130 Customer value, 7
blogs, 332 B-to-B marketing efforts of, 117 marketing for, 8
Consumers Crisis management, 295, 297 Customer-centric focus, 315
incomes of, 57–58 Critics, 331 Customer-oriented personnel, 9
primary U.S. laws protecting, 62 CRM, 11 Customers
social behavior of, 330–331 approach for managing customer corporate social responsibility to, 39
social media use of, 325–326 interactions, 316 identifying loyalty of, 48
Container Store, role of training at, 9 common marketing database marketing to specific targets, 11–12
Content marketing, 116–117 applications, 318 needs of, 308–310
social media and, 271 cycle of, 170 new-product ideas of, 191
378 INDEX
power of, 6–7 Design Continuum, 161 Drop and shop programs, 237
understanding, 47 Destination stores, 254 Drugstores, 247–248
Customization of services, 210 Development, new products, 194–195 Dual distribution, 236
relationship marketing and, 213 Diffusion of innovation, 198–199 DuckDuckGo, 64
Customs-Trade Partnership Against implications of for marketing Dumping, 85–86
Terrorist (C-TPAT), 229 management, 202–203 Dynamic pricing, 345–346
Cutoffs, 94 DiGiorno, use of social media by, 51
CVS, ethical decision making at, 35–36 Digital advertising, 337–338
Digital channels, 237–239 E
D Digital marketing, use of in B-to-B
transactions, 116
E-business, 312
E-commerce, social, 325–326
DAGMAR approach, 285 Digital marketplaces, 241 E-Rewards, 167
Data analysis, 164–165 Digital media, 272 E-tailing, 250
Data analytics, 281 advertising through, 291 E4X Inc., 86
Data collection, 164 Digital Millennium Copyright Act Early adopters, 60, 198
Data visualization, 155 (DMCA), 181 Early majority, 198–199
Decision makers, 106 Dine Out Vancouver, 136 Earned media, 271–272, 327–328
Decision making Direct channels, 235 Earning trust, 8
extensive, 97–98 Direct foreign investment, 82 Ebay, 350
limited, 97 Direct mail, 250 Economic factors, 22, 57
routine response behavior, 97 Direct marketing (DM), 250 consumers’ incomes, 57–58
Decline stage of PLC, 202 Direct retailing, 250 global marketing, 72–73
setting prices during, 349 Direct salespeople, 302 inflation, 58
Decoding, 266 Disappearing Package, 184 purchasing power, 58
Defining Advertising Goals for Discontinuous innovations, 189 recession, 59
Measured Advertising Results Discount stores, 248 Economic responsibility, 39–40
(DAGMAR) approach, 285 Discounts, 356 Edmunds.com, use of big data analytics
Delicious, 335 Dissonance, reducing, 96 by, 155
Dell Distribution channels, 235 Efficient labor, cost competitive
social media monitoring, 324 emerging structures, 240–241 advantage and, 23
SWOT analysis at, 22 market factors affecting choice of, 239 Elastic demand, 344–345
use of customer service management producer factors affecting choice Elasticity of demand, 344–345
at, 223 of, 240 factors affecting, 345
Demand, 344 product factors affecting choice of, Electronic distribution, 229–230
elastic, 344–345 239–240 “Elevator Murder Experiment” video,
estimating, 352 Distribution intensity, levels of, 240–241 264–265
inelastic, 345 Distribution strategies, 27 feedback, 266
Demand management process, 223–224 pricing and, 350 Emotional involvement, 99
Demand-supply integration (DSI), 221 services, 211 Empathy, 207
Demographic dividend, 79 Distributors, new-product ideas Employee and investor relations, 295
Demographic factors, 22, 51–52 from, 192 Employees
global marketing considerations, 79 Diversification, 16–17 activity of on social media, 324–325
population, 52–55 Divest, 19 corporate social responsibility to,
Demographic segmentation, 135 Division of labor, 232 38–39
age, 135–136 Dodge, promotional strategy of, 263 new-product ideas of, 191
ethnicity, 137 Dog strategic business unit, 18 Empowerment, 9–10, 316
family life cycle, 137–139 Doha Round, 76 Encoding, 265
gender, 136–137 Dominican Republic–Central America Enduring involvement, 99
income, 137 Free Trade Agreement (CAFTA), 77 Enfamil, use of sampling for sales
Demographics Domino’s promotion, 300
defining the target market, 26 distribution strategies for global Engagement, 117
social media, 50 markets, 84 Entrepreneurs, innovation and, 60
Deontological theory, 32–33 global product adaptation, 83 Environmental management, 49
Department stores, 247 use of social media by, 324 Environmental scanning, 22, 47
Depends, marketing strategy of, 55 Dove, marketing campaign of, 107 Environmental sustainability, 226
Derived demand, 122 Dow Chemical Company, 23 Errors, types of, 163–164
INDEX 379
Esquire Network, product positioning Export–Import Bank, 68 FedEx
strategy of, 146 Exporting, small companies, 81 B-to-B strategy of, 128
Esteem needs, 112 Exports, impact of, 68 ethical dilemma of, 34
Ethical behavior Express warranty, 185 Feedback, 266–267
in business, 34 Extensive decision making, 97–98 Fiat Chrysler, advertising spending
concept of, 32–34 External information search, 91–93 by, 283
decision making, 35–36 External marketing environment, Field service firm, 164
Foreign Corrupt Practices Act 46–47 Fifth Third Bank, 209
(FCPA), 38 competitive factors, 64–65 Final goods and services, 68
morality and business ethics, 35 demographic factors, 51–55 Financial relationship marketing,
Ethical guidelines, 36–37 economic factors, 57–59 212–213
Ethical leadership, 37–38 effect of social factors on, 49–51 Flexibility of media, 292
Ethical responsibility, 39–40 environmental management, 49 Flickr, 334
Ethical theories, 32 global marketers, 71–79 gathering data from, 154
causist, 33 growing ethnic markets, 55–57 Flighted media schedule, 293
deontology, 32–33 political and legal factors, 60–64 Floating exchange rates, effect of on
moral relativism, 33 technological factors, 59–60 pricing strategies, 85
utilitarianism, 33 understanding, 47–49 Floor stock, 251
virtue ethics, 33–34 External stimuli, 90 Fluctuating demand, 123
Ethics, 30 Extranets, impact of on pricing, 350 FOB origin pricing, 357
Ethics training, 36–37 Eye tracking, 338 Focus groups, 159
Ethnic markets, 55 online, 167–168
African Americans, 56
Asian Americans, 56–57 F Follow-up, 312
Food and Drug Administration
Hispanic Americans, 55–56 Facebook, 332, 333–334 (FDA), 63
Ethnic segmentation, 137 consumer use of, 325 Food blogs, 332
Ethnographic research, 161 gathering data from, 154 Ford Motor
Ethnography shop-along, 168–169 market segmentation strategies, 135 advertising spending by, 283
Etsy, 42, 335 sales promotion on, 270 digital advertising, 323
European Union, 77 training, 325 Foreign Corrupt Practices Act
Evaluation of alternatives, 93–94 use of apps for online tracking, 63–64 (FCPA), 38
Evaluation of marketing plan, 28 use of for B-to-B marketing, 117 Foresight Research Word of Mouth
Evaluative criteria, B-to-B use of for marketing, 50 Immersion Report, 152
interactions, 128 Facilitation functions, 234–235 Form utility, 232
Even-numbered pricing, 359 Factory outlets, 249 Forrester Research, Customer
Evoked set, 93 Family, influence of on consumer Experience Index (CxPi), 8
evaluation of alternatives from, buying behavior, 106–107 Fortune, 100 Best Companies to Work
93–94 Family branding, 180 For, 3, 9
Exchange, 3–4 Family life cycle Foursquare, 335, 338
conditions for, 4 influence of stages of on consumer Fourth-party logistics companies
Exchange control, 74 buying decisions, 108 (4PLs), 227
Exchange rates, effect of on pricing market segmentation for stages of, Fracking, 23
strategies, 85 137–139 Frame error, 163–164
Exchange utility, 233 Family vs. individual brands, 180 Franchises, 246
Exclusive distribution, 240 Farley, Jim, 323 Franchising, global marketing and, 81
Executive interviews, 158–159 Federal Emergency Management Franchisor, 246
Experience curves, 23 Agency (FEMA), partnership Fred & Farid Shanghai, global
Experience quality, 205 of with nongovernmental marketing using social media, 86
Experiential learning, 112 organizations, 229 Free-standing inserts (FSIs), 299
Experiential marketing, 296 Federal government, marketing to, 121 Freight absorption pricing, 358
Experiments, use of in market Federal legislation, 61 Frequency (advertising), 292
research, 162 Federal Trade Commission (FTC), 63 Frequent buyer programs, 299–300
Experts, use of in new-product green-certification of, 184 Freshness Burger, 136
development process, 193 growth of comparative advertising, Freshplum, 345–346
Export agents, 81 284–285 Friedman, Milton, 40
Export brokers, 81 Federal Trade Commission Act, 355 Frito-Lay, 189
380 INDEX
FTR Energy, 16 Global economy, 73 Green Mountain, strategic alliance with
Fuld & Company, 192 Global issues in branding and Starbucks, 119
Full-line discount stores, 248 packaging, 185 Greenberg, Paul, 317
Fully planned purchases, 95 Global kids, 52–53 Greenwashing, 184
Functional discounts, 356 Global marketing, 26, 66–67 Gross domestic product (GDP), 67–68
cultural considerations, 71–72 Gross margin, 247
G demographic considerations, 79
economic factors, 72–73
Gross national income (GNI), 73
Gross ratings points (GRP), 292
G-20, 78–79 impact of Internet on, 86–87 Group buying platforms, 326
Gamification, 290 importance of to the United States, Groupon, 239, 299
Gap, corporate social responsibility of, 67–69 Growth stage of PLC, 201–202
43–44 individual firms, 80–82 setting prices during, 349
Gap model of service quality, 207–209 natural resource considerations, 79 Gucci, 182
Gatorade, social media monitoring, 324 place (distribution) adaptation, 84 Guess, 182
GEICO pricing strategies for, 84–86
use of comparative advertising by, 284
use of competitive advertising by, 284
product adaptation, 83
product invention, 83 H
Gender promotion adaptation, 84 H&M
influence of on consumer buying standardization of, 71, 83 cause-related marketing, 44
decisions, 107–108 Global marketing mix, 82 global marketing using social media, 86
market segmentation based on, product decisions, 82–83 H&R Block, strategic alliance with Arizona
136–137 Global shipping, 86 Catholic school system, 118–119
Genentech, marketing research by, Global supply chain management, 230 Hadoop, 155
152–153 Global vision, 66–67 Hangouts (Google+), 324
General Agreement on Tariffs and Globalization, benefits of, 69 Harmful outcomes, ethical decision
Trade (GATT), 75–76 Godiva, product strategy, 27 making and, 35
General Electric Goods vs. services, 205–206 Harvest, 19
bartering by, 86 Google, 188 Havianas, 191
global vision of, 67 brand value of, 282 Hedonic value, 89–90
joint venture with CFM code of ethics, 36–37 Heinz, 18
International, 81–82 competition and, 65 Hello Products, ethical issues, 37–38
Sales and Marketing Commercial Consumer Surveys, 166–167 Hertz, use of mobile apps by, 60
Leadership Program (CLP), 309 COPPA compliance of, 31–32 Heterogeneity of services, 206
General Electric model, 19–20 Google Glass, 267 Heterogeneous shopping products, 174
General Motors Google+ Hangouts, 324 Hilton Worldwide, service quality of, 209
advertising spending by, 281 incentives at, 3 Hispanic Americans
bartering by, 86 innovation at, 60, 192 market segmentation for, 137
use of reciprocity by, 124 internal marketing programs, 213 marketing to, 55–56
General Tire, compensation market segmentation strategies, 135 Hold, 19
agreements, 86 presence of in China, 73 Homogeneous shopping products, 174
Generation X, 54 psychographic market segmentation Hospitality industry, outsourcing of
market segmentation and, 136 strategy of, 139 logistics functions by, 227
Generation Y, 54. See also Millennials Shopping, 350 Hotel chains, understanding consumer
Generation Z, market segmentation strategic partnerships of, 120 decision making, 48
and, 135 strategic planning at, 29 Hotels.com, cause-related marketing, 44
Generator stores, 255 Zero Moment of Truth (ZMOT), 301 HubSpot, 116, 339
Generic product name, 181 GoPro camera, transformational Hutter, Lauren, 198
Geo-location platforms, 338 innovation, 17 Hydraulic fracturing, 23
Geodemographics, 139 Goulding, Ellie, 327 Hyundai, brand repositioning strategy
Geographic pricing, 357–358 Government subsidies, cost competitive of, 148
Geographic segmentation, 135 advantage and, 23
Gillette Co., introduction of new
products by, 188
Governments, marketing to, 120–121
Gray marketing channels, 237 I
Glaxo Smith Kline, 74 Green marketing, 41, 43. See also IBM
Global brand, 178 Sustainability brand value of, 282
Global competition, 65 industry leaders, 43–44 R&D spending at, 188
INDEX 381
“Ice Bucket Challenge,” 268 Innovation matrix, 17 Interpersonal communication, 264
Idea Factory (Shell), 59 Innovative companies, 188 Introductory stage of PLC, 200–201
Idea screening, 193 Innovators, 198 setting prices during, 349
Ideal self-image, influence of on Inseparability of services, 206 Involvement of consumers
consumer buying decisions, 109 Inshoring, 69 buying decisions and, 96–98
Identifiability of market segments, 134 Instagram, 50, 188, 334 factors determining levels of, 98–99
Identifying product benefits, 285 consumer use of, 325 marketing implications of, 99–100
iDetail app, 152 gathering data from, 154 Ixquick, 64
Illegal payments, 38 Installations (major equipment), 125
Imitation, competitive advantage and,
24–25
Institutional advertising, 283
Institutions, marketing to, 121
J
Implementation of marketing plan, 28 Intangibility of services, 205 J.D. Powers and Associates, customer
Implied warranty, 185–186 Integrated marketing, 27 satisfaction ratings of, 5–6
Imports, 69 social media and, 326–327 Jack Daniel’s, family branding of, 180
Impulse purchases, 95 Integrated marketing communications Jamba Juice, cooperative branding
In-home personal interviews, 157 (IMC), 275 strategy of, 181
In-store retailers, types of, 247 Integration of the supply chain, 220–222 Jax & Bones, market segmentation,
Inactives, 331 Intelligentsia Coffee & Tea, 133–134
Incentives, 3 concentrated targeting strategy JetBlue, use of social CRM by, 317
Income segmentation, 137 of, 144 Job outsourcing, 68–69
Independent retailers, 245 Intensive distribution, 240 Johnson & Johnson, corporate social
India Interactions, 316 responsibility of, 43–44
product adaptation for, 83 point-of-sale, 317 Joiners, 331
role of in global economy, 73 understanding, 316 Joint demand, 123
Individual branding, 180 web-based, 317 Joint ventures, global marketing and,
Individual characteristics, influence of Interest 81–82
on consumer buying decisions, purchase involvement and, 98 Just-noticeable difference, 111
107–109 use of as a social media metric, 330
Individual vs. family brands, 180 Interfunctional coordination, 12 K
Industrial distributors, 236 Intermediaries, exporting, 81 Kayak, 350
Industrial marketing. See B-to-B Internal information search, 91 Keiretsu, 119–120
marketing Internal marketing, 213 Kentucky Fried Chicken, product
Industrial products, 114 Internal stimuli, 90 differentiation strategy of, 146
channels for, 235–236 International Monetary Fund (IMF), 78 Keystoning, 347
Industry knowledge, 309 International politics, effect of on Kickstarter, 267
Inelastic demand, 122 business laws, 73–74 Kimberly-Clark, effective supply chain
Inflation, 58 Internet management of, 220
Influence, 330 advantages of Internet surveys, 166 Klout, 106
Influencers, 106, 198 advertising on, 290–291 Knockoffs, 182
use of in diffusion process, 199 coupon sites, 299 Knowledge management, 316
Infomercials, 290 impact of on global marketing, 86–87 Kodak, 22
Information effect of price, 341 impact of on market research, 165–168 effect of external market on, 46–47
Information processing, 209 impact of on personal selling, 312 Kraft
Information search, 91–93 impact of on pricing, 350 market segmentation strategies,
marketing-controlled information power of, 6–7 136–137
sources, 92–93 use of by market researchers, Oreo cookie advertising, 283
Informational labeling, 184 166–168 product innovation for Oreos, 83
Informative promotion, 267 use of for nonmarketing-controlled Krispy Kreme
product life cycle and, 276–277 information searches, 92 product line extension, 177
InfoScan, 169 use of for simultaneous product use of mobile apps by, 60
Ingredient branding, 180 development, 195
Initiators, 106
InnoCentive Inc., 195
use of for test marketing, 196
Internet auctions, 350 L
Innovation Internet of Things (IoT), potential of L’Oreal
diffusion of, 198–199 for supply chain management, adaptation of pricing strategies for
stimulating, 59–60 231–232 global market, 85
382 INDEX
advertising spending by, 283 Lower class, consumer buying behavior scanner-based, 169
use of social CRM by, 317 of, 103 specifying the sampling procedures,
Labeling, 183–184 Loyalty marketing programs, 162–164
Labor costs, 23 299–300, 319 Market segmentation
Laffey, A.G., 6 Lululemon, 324 criteria for, 134
Laggards, 199 importance of, 133–134
Language
global marketing considerations, 72 M steps in, 141–142
Market segments, 133
promotion adaptation, 84 M-commerce, 238–239 Market share, 343–344
Late majority, 199 Mac & Mia, distribution strategy of, 211 advertising and, 282
Laws, 30 Macroenvironmental factors, 22 Market-based analysis, 256
Layout, retail operations, 256 Macy’s Marketing
Lead generation, 306–307 market segmentation strategies, 135 B-to-B, 114–115 (See also B-to-B
Lead qualification, 307–308 pricing image of, 351 marketing)
Leader pricing, 359 Magazines, advertising in, 289 cause-related, 44
Lean supply chains, 224 Mail surveys, 158 creating and leveraging social media
Learning, influence of on consumer Major equipment (installations), 125 campaigns, 327–328
buying behavior, 112–113 Mall intercept interviews, 157–158 definition of, 2–3
Leasing, use of in B-to-B market, Man Cave, 250 experiential, 296
124–125 Management, corporate social gender and, 107–108
Legal factors, 22, 60–61 responsibility to, 39 green, 43–44
consumer privacy, 63–64 Management decision problem, 153 implications of involvement,
federal legislation, 61 Manufacturers’ vs. private brands, 99–100
global marketing and, 74–79 179–180 management philosophies, 4–7
regulatory agencies, 62–63 Manufacturing flow management metrics for social media, 330
state and local laws, 61–62 process, 224 omnichannel vs. multichannel,
Legal responsibility, 39–40 Marcario, Rose, 41 241–242
Lego, use of crowdsourcing by, 193 March of Dimes, strategic planning primary U.S. laws affecting, 61–62
Levels of distribution intensity, 240–241 of, 14 reasons for studying, 13
Lever Brothers, 19 Marcosur, 74–75 ROI for use of social media, 329
Licensing, global marketing and, 81 Market, definition of, 132 sales vs. market orientations, 7–12
Life events, influence of on consumer Market attractiveness, 19–20 social class and consumer buying
buying decisions, 108 Market development, 16 behavior, 103–104
Lifestyle, influence of on consumer Market factors, distribution channel use of social media for, 50–51
buying decisions, 109 choice and, 239 Marketing audit, 28
Lifestyle centers, 255 Market grouping, 74 characteristics of, 29
Limited availability, consumer Market opportunity analysis (MOA), 26 Marketing channels, 232
involvement and, 100 Market orientation, 5–6 functioning of, 232–233
Limited decision making, 97 defining the business’s primary goal, 12 transaction reduction due to use
LinkedIn, 50, 334 defining the firm’s business, 10–11 of, 234
use of for B-to-B content efforts to reduce cognitive Marketing choice, factors affecting
marketing, 116 dissonance, 96 choice of, 239–240
use of for personal selling, 304 organizational focus, 7–10 Marketing communication, 263–267
Livingsocial, 239, 299 target customers, 11–12 designing, 320
Lobbying, 295 tools used with, 12 integrated, 275
Local community, corporate social Market penetration, 16 Marketing concept, 5
responsibility to, 39 Market research Marketing databases, 318
Local governments, marketing to, 121 analyzing the data, 164–165 Marketing managers, importance of
Local laws, 61–62 data collection, 164 price to, 342
Location-based social networking sites, deciding when to conduct, 169–170 Marketing mix (four Ps), 26–27, 46
335, 338 following up, 165 effect of social factors on, 49–51
Logistical functions, 234 impact of Internet on, 165–168 global, 82–86
Logistics integrators, 227 importance of mobile research, role of promotion in, 263
Loss-leader pricing, 359 168–169 services, 209–212
Lowe’s Home Improvement, social preparing and presenting the Marketing myopia, 21
sustainability efforts of, 226 report, 165 Marketing objectives, 25–26
INDEX 383
Marketing plans, 20 Media decisions in advertising, 288 Monitor Group, innovation matrix, 17
elements of, 20–21 major types of media, 288–291 Monitoring social media, 328–329
evaluation and control of, 28 scheduling, 293–294 Moore, Rob, 60
implementation of, 28 selection considerations, 292–293 Moral relativism, 33
post-audit tasks, 28–29 Media fragmentation, 293 Morality, business ethics and, 35
setting objectives, 25–26 Media mix, 292 Morals, 34
use of social media, 338–339 Media planning, 288 Mosley, Michael, 10
writing, 21 Media schedule, 293 Most ethical companies, 37–38
Marketing research, 60, 150 Media sharing sites, 334–335. See also Motivation, influence of on consumer
gathering primary data, 156–162 specific sites buying decisions, 111–112
management uses of, 151–152 Medium, 288 Motorola, use of pioneering advertising
planning design, 156 Mental stimulus processing, 209 by, 284
process of, 152–153 Merchandise mix, choosing for retail Mountain Dew, “Dub the Dew”
secondary data, 153–156 operations, 252–253 contest, 297
Marketing research objective, 153 Merchant wholesalers, 233–234 MSN.com, Customer Service Hall of
Marketing research problem, 152 Merlo, Larry, 35 Fame, 9
Marketing strategy Message execution, 286–287 Multi-company collaboration, 225
describing the target market, 26 Message transmission, 265 Multichannel vs. omnichannel
retail, 252–256 Messer, Hartley, 52 marketing, 241–242
Marketing-controlled information Method Products, 42 Multidomestic strategy, 71
sources, 92 Metrics for social media marketing, 330 Multinational corporations, 70
Marketo, 116 Microblogs, 332–333 controversial benefits of, 70–71
Marketplace, understanding, 152 Microsoft, 8 global marketing standardization, 71
Markup pricing, 347 brand value of, 282 Multiple distribution, 236
Marriott, 9 corporate social responsibility of, Multiple-variable segmentation, 134
service quality of, 209 43–44 Multiplier effect, 123
Mary Kay Cosmetics, sales force Skype, 324 Multisegment targeting strategy,
incentives, 315 Microtargeting, 250 144–145
Mascots, 323–324 Microtransactions, 337 Mystery shoppers, 160–161
Maslow’s Hierarchy of Needs, 111 Middle class, consumer buying behavior
Mass communication, 264
Mass customization, 210
of, 102–103
Millennials, 54 N
Massive multiplayer online games Hispanic, 56 Nagji, Bansi, 17
(MMOGs), 336–337 market segmentation and, 135 NAICS, 121–122
Match.com, 325 word-of-mouth marketing by, 198 National Association of
Material and service supplier MillerCoors, 190 Manufacturers, 31
integration, 221 Mission statement, 21–22 National Business Ethics Survey
Maturity stage of PLC, 202 MMS (multimedia message service), (NBES), 37
setting prices during, 349 use of for marketing, 337 Natural resources, global marketing
Maximization of profit, 342 MOBI Web sites, use of for considerations, 79
Maximization of sales, 344 marketing, 337 Nature of demand, 344
McDonald’s Mobile advertising, 291, 337 Near field communication (NFC), 338
changing the marketing mix, 47–48 Mobile apps, innovation in, 59–60 Nearshoring, 228
market development strategy of, 16 Mobile devices, usage of, 325 Need recognition, 90–91
marketing mix of, 26 Mobile marketing, 337–338 Needs assessment, 308
multidomestic strategy of, 71 Mobile research, importance of, Negotiation, 311
repositioning efforts of, 177 168–169 B-to-B markets, 124
strategic planning of, 14 Mobile technology, social media and, cultural considerations, 72
use of marketing to increase 337–338 Nestlé, 19
consumer involvement, 100 Mobile Web sites, use of for production distribution in global
Mead Johnson, 74 marketing, 337 markets, 84
Measurability of market segments, 134 Modified rebuy, 129 Net promoter score, 317
Measured media, 280 Moleskine, 189 Netflix
Measurement error, 163 Mommy bloggers, 332 strategic alliance with Amazon, 118
Measurement integration, 221 Mondelez, use of ethnography shop- sustainable competitive advantage
Media, social control of, 31 along by, 168–169 of, 24
384 INDEX
Networking, 307 retail management internship Order-to-cash cycle, 227
Neuromarketing, 169 program, 302 Organizational culture
New Balance, 74–75 Norms, 104–105 customer-oriented personnel, 9
New buys, 129 North American Free Trade Agreement Google, 3
New products, 188–189 (NAFTA), 76–77 Nordstrom, 8
categories of, 189–190 North American Industry Classification Organizational image, use of as
characteristics and rate of System (NAICS). See NAICS promotional tool for services, 211
adoption, 199 North American Steel Trade Original equipment manufacturers
development of, 194–195 Committee, 77 (OEMs), 120
global issues in development of, 198 Outdoor media, use of for
spread of, 198–199
success or failure of, 197 O advertising, 291
Outsourcing, 68–69
New Seasons Market, 42 O’Reilly Auto Parts, store layout, 256 logistic functions, 227–228
New-product development Obamacare, 61 Ouya, informational promotion
process, 190 Objectives, setting in marketing plans, campaign, 267
business analysis, 193–194 25–26 Owned media, 272, 327
commercialization, 196–197 Observability, 199 Owners, corporate social responsibility
idea generation, 191 Observation research, 160 to, 39
idea screening, 193 behavioral targeting, 161
implications of for marketing
management, 202–203
mystery shoppers, 160–161
Odd–even pricing, 359 P
test marketing, 195–196 Off-price retailers, 248–249 Pacific Alliance, 76
New-product publicity, 294–295 Office Depot, improved customer Packaging, 182
New-product strategy, 190 satisfaction, 8–9 functions of, 182–183
New-to-the-world products, 189 Offshoring, 228 global issues in, 185
Newspapers, advertising in, 288–289 OkCupid, 325 labeling, 183–184
Nextag, 350 Omnichannel vs. multichannel universal product codes (UPCs), 184
Niche competitive advantage, 24 marketing, 241–242 Paid media, 271, 327–328
Niche marketing, 143–144 On Assignment, 201–202 Pakurar, Eric, 198
Niche social networks, 333 On-demand marketing, 11–12 Partially planned purchases, 95
Nielsen, B-to-B marketing efforts of, 117 Online advertising, 290–291 Participation, 324
Nielsen Company, 169 Online communication, 325. See also use of as a social media metric, 330
Nike, 182 Social media Participatory commerce platforms, 326
iD Studio for mass customization, 210 Online crafts marketplace, 42 Patagonia, social responsibility, 41
No-frills goods and services, 23 Online focus groups, 167–168 Patient Protection and Affordable Care
Noise, 265 Online gaming, 336–337 Act, 61
Noise level, 292 Online panel providers, 167 Patronage-oriented pricing, 212
Nonaspirational reference groups, Online rental sites, 241 Pay what you want, 360
influence of on consumer buying Online retailing, 250 Peer recommendation sites, 326
decisions, 105 merchandise mix of, 252 Peer-to-peer sales platforms, 326
Noncorporate blogs, 332 use of dynamic pricing by, 346 Penetration pricing, 353–354
Nonmarketing-controlled information Online specialty retailers, merchandise People processing, 209
search, 91–92 mix of, 252–253 PeopleSoft, sales force compensation at,
Nonprobability samples, 163 Online surveys, methods of conducting, 314–315
Nonprofit organizations, 12 166–168 Per capita income, global marketing
market development strategies of, 16 Online tracking, 63–64 and, 73
marketing of, 213–214 Open-ended questions, 159 Perceived value, 89, 341
unique aspects of marketing Operations-oriented pricing, 212 Perception
strategies of, 214–216 Opinion leaders influence of on consumer buying
Nonstore retailing, 249–250 adoption of new products by, 198 decisions, 110
Nontraditional channels, 236 influence of on consumer buying marketing implications of, 111
Nontraditional life cycles, influence of behavior, 105–106 Perceptual mapping, 147
on consumer buying decisions, 108 use of in diffusion process, 199 Perry, Katy, 323
Nordstrom, 8 Optimizers, 141 Personal influence, 106
channel omnification, 260 Order cycle time, 224 Personal information source, use of as
pricing image of, 351 Order fulfillment process, 224 promotional tool for services, 211
INDEX 385
Personal interviews, 157 Population, 52 nonprofit organizational decisions,
computer-assisted, 158 baby boomers, 54–55 215–216
Personal selling, 12, 270–271, 303–304 Generation X, 54 objectives of, 342–344
comparison of with advertising/sales Millennials, 54 stages in product life cycle, 349
promotion, 304 specifying for marketing research, status quo, 344
impact of technology on, 312 162–163 strategies, 27
sales process, 306–312 teenagers, 53 strategies for global markets, 84–86
Personality, influence of on consumer tweens, 52–53 strategy for services, 212
buying decisions, 109 Porsche, concentrated targeting strategy unrealistic, 8
Personnel, retail operations, 256 of, 144 Primary data, 156–157
Persuasive labeling, 183–184 Portfolio matrix, 17–19 ethnographic research, 161
Persuasive promotion, 267–268 Positioning, 146–147 experiments, 162
product life cycle and, 276–277 Positioning bases, 147–148 observation research, 160–161
Pfizer, R&D spending at, 188 Possession processing, 209 survey research, 157–159
Philanthropic responsibility, 39–40 Post-audit tasks, 28 virtual shopping, 161–162
Philosophies of marketing, 4 Postconventional morality, 35 Primary membership groups,
market orientation, 5–6 Postpurchase communication, 211–212 influence of on consumer buying
production orientation, 4 Preapproach, 308 decisions, 104
sales orientation, 4–5 Preconventional morality, 35 Pringles, product invention, 83
sales vs. market orientations, 7–12 Predatory pricing, 355 Print media, advertising in, 288–289
societal orientation, 6 Premiums, 299 Privacy, online, 64
Phones 4U, 119 Presentation, retail operations, Private labels, 179–180
Photo sharing sites, 334 255–256 Private vs. manufacturers’ brands,
Physical distribution strategies, 27 Press relations, 295 179–180
Physiological needs, 112 Previous experience, purchase Privowny, 64
Piggybacking, 64 involvement and, 98 Probability samples, 163
Pinterest, 50, 334 Price, 7 Problem child strategic business units, 18
gathering data from, 154 cost determinant of, 346–348 Processed materials, 126
social commerce using, 326 defining, 341 Procter & Gamble (P&G)
Pioneering advertising, 283–284 demand determinant of, 344–345 advertising spending by, 281
Place (distribution) strategies, 27 importance of, 340 consideration of economic factors
adaptation for global markets, 84 importance of in B-to-B by, 58
nonprofit organizations and decisions interactions, 128 global marketing standardization, 83
regarding, 215 importance of to marketing individual branding practices of, 180
retail operations, 253–255 managers, 342 market segmentation strategies,
services, 211 relationship of to quality, 351–352 136–137
Place utility, 232–233 retail operations, 255 mission of, 21
Planned obsolescence, 177 setting on products, 352 multisegment targeting strategy
Planned purchases, 95 tactics for fine tuning, 355–360 of, 144
Planning, 20. See also Marketing plans; Price bundling, 359–360 R&D spending at, 188
Strategic planning Price discrimination, 355 use of Internet to assess customer
Plurk, 332 Price fixing, 354–355 demand, 196
Podcasts, 335 Price lining, 359 Producers
Point-of-purchase (P-O-P) display, 301 Price promotion, 351 factors affecting distribution channel
Point-of-sale interactions, 317 Price skimming, 353 choice, 240
Police departments, use of big data Price strategy, 353 marketing to, 120
analytics by, 155 PriceGrabber, 350 Product adaptation, global marketing
Political factors, 22, 60–61 PricewaterhouseCoopers (PwC), iPlace and, 83
consumer privacy, 63–64 employee innovation system, 191 Product advertising, 283–284
federal legislation, 61 Pricing Product benefits, identification of, 285
global marketing and, 73–79 break-even, 347–348 Product category, 200
regulatory agencies, 62–63 demand of large customers, 351 Product decisions
state and local laws, 61–62 distribution strategy and, 350 global marketing, 82–83
Polytron Technologies, Switchable Glass dynamic, 345–346 nonprofit organizations, 215
technology of, 189 establishing goals for, 352 Product design, cost competitive
Pop-up shops, 255 markup, 347 advantage and, 23
386 INDEX
Product development, 16, 192. See also Profit maximization, 342 Public relations, 269–270, 294
New-product development process Profit-oriented pricing, objectives of, major tools, 294–296
Product development and 342–343 managing unfavorable publicity,
commercialization process, 225 Progressive, Facebook presence, 296–297
Product differentiation, 77–78, 113, 323–324 Public relations departments, duties
146–147 Project Runway, 19 of, 295
Product factors, distribution channel Promotion, 12, 262 Public service advertisements
choice and, 239–240 adaptation of for global markets, (PSAs), 215
Product failures, 257 83–84 Public-private partnerships (PPPs),
Product identification, 178 AIDA model, 273–275 228–229
Product invention, global marketing ethics and small businesses, Publicity, 269–270, 294
and, 83 37–38 Pull strategy, 279
Product involvement, 99 goals of, 267–268, 273 Pulsing media schedule, 293
Product items, 174 point-of-purchase, 301 Purchase decisions, 94–95
Product life cycle (PLC), 200 price as a strategy for, 351 Purchase involvement, levels of, 98–99
decline stage, 202 product packaging, 183 Purchase volume, 123
growth stage, 201–202 resources for nonprofit Purchasers, 106
introductory stage, 200–201 organizations, 215 Purchasing agents, exporters, 81
maturity stage of, 202 retail, 253 Purchasing power, 58
stages of and pricing, 349 role of in marketing mix, 263 Pure research, 59
stages of and the promotional mix, strategies, 27 Purina, 25
276–277 strategies for services, 211–212 Push money, 298
Product lines, 174–175 strategy for in introductory stage of Push strategy, 278
contraction of, 177–178 PLC, 201 Push vs. pull strategy, 279
extensions of, 177 use of in B-to-B market, 125 Pyramid of corporate social
new, 189 Promotional allowance, 356 responsibility, 39–40
width and depth of in retail, 246–247 Promotional mix, 268–269
Product mix, 175–176
width and depth of, 175–176
advertising, 269
AIDA model and, 274–275 Q
Product modification, 176–177 characteristics of elements in, 272 Quaker Oats, cause-related marketing, 44
Product performance, 8 communication process and, Qualifying leads, 307–308
Product placement, 295 271–273 Quality
Product positioning, 146–147 content marketing and social importance of in B-to-B
Product publicity, 295 media, 271 interactions, 128
Product quality, global competition factors affecting, 275–279 modification, 176
and, 65 personal selling, 270–271 relationship of price to, 351–352
Product strategies, 27 public relations, 269–270 Quality of services, 205
services, 209–211 sales promotion, 270 evaluating, 206–207
Product warranties, 185–186 Promotional spending, 280 Quantity discounts, 356
Product/service differentiation, 23–24 Promotional strategy, 262 Question mark strategic business units, 18
Production innovations, cost Prospecting, 306–307 Questionable practices, ethical decision
competitive advantage and, 23 Protectionist movement, 78 making and, 35
Production orientation, 4 Prototypes, 194 Questionnaire design, 159–160
Products, 172 Prunier, Christy, 52 types of questions used for national
adjustments to, 176–178 Psychographic segmentation, 139 market research, 160
characteristics of, 199 variables of, 139 Quick Response (QR) codes, 337–338
choosing for retail operations, Psychographics, 109 Quotas, 74
252–253 defining the target market, 26 effect of protectionist movement on, 78
function of packaging of, 182–183 Psychological factors sales, 313
knowledge of, 308 influences of on consumer buying Qzone, 325
nature of and promotional mix, 276 decisions, 109–113
successful introduction of, 197
Professional services pricing, 358
learning, 112–113
motivation, 111–112 R
Profiling, 319 perception, 110–111 R&D, 192
Profit, 342 Psychological pricing, 359 spending on, 188
estimating, 352–353 Public affairs, 295 Radio, advertising on, 289–290
INDEX 387
Ramada Inn, cooperative branding Reminder promotion, 268 Ritz-Carlton, Service Values guidelines
strategy of, 180–181 product life cycle and, 276–277 of, 10
Random error, 164 Repositioned products, 190 Robinson-Patman Act of 1936, 355
Random samples, 163 Repositioning, 148, 177 Rolling Stones, 345
Raw materials, 125 Research, 59 Rossiter, Jay, 177
Reach (advertising), 292 Research and development. See R&D Routine response behavior, 97
Real self-image, influence of on Research design, 156 Russia
consumer buying decisions, 109 Research in Motion, 6 effect of international politics on
Reasonable price, 341 Resellers business laws in, 74
Rebates, 299, 356 comparison of private vs. effect of sanctions on exchange
Rebuys, 129 manufacturer brands, 180 rates, 85
Receivers, 266 marketing to, 120 role of in global economy, 73
Recency planning, 294 Resource allocation, 19
Receptivity, 307
Reciprocity
Responsiveness, 207
market segmentation and, 134 S
B-to-B markets, 124–125 Restaurants, 249 Sacrifice effect of price, 341
importance of for strategic alliances, Restoration Hardware, 43 Safety needs, 112
119–120 Restoring American Financial Stability Saks Incorporated, perceptual
Recognition, 3 Act, 61 mapping, 147
Recognized need, 307 Retail advertising, 253 Sales and operations planning (S&OP),
Recruiting sales force, 314 Retail channel omnification, 260 223–224
Red Bull Retail customers, trends and Sales cycle, 305
global marketing using social advancements, 257–260 Sales force
media, 87 Retail management, future compensating and motivating,
Stratos event, 296 developments in, 259–260 314–315
Red Wing Shoes, use of S&OP at, 224 Retail operations determining structure of, 313–314
Redbox, 24 defining a target market, 252 evaluation of, 315
Reddit, 335 in-store, 247–249 recruiting and training, 314
Ask Me Anything (AMA), 334 level of service, 246 Sales goals, defining, 313
Redman & Associates, 69 merchandise mix, 252–256 Sales management, 313
Reebok, distribution strategies for models of, 250–252 compensating and motivating sales
global markets, 84 nonstore, 249–250 force, 314–315
Reengineering, 23 ownership arrangement, 245–246 defining sales goals and sales
Reference groups price, 247 process, 313
influence of on consumer buying product assortment, 246–247 determining sales force structure,
decisions, 104–105 Retailer channels, 235 313–314
types of, 104 Retailers, 234, 244 evaluating sales force, 315
Referral, 307 shopper marketing and analytics, recruiting and training the sales
Regional malls, 255 258–259 force, 314
Regulatory agencies, 62 trends and advancements, 257–258 Sales maximization, 344
Consumer Product Safety types of, 245–249 Sales orientation, 4–5
Commission (CPSC), 62–63 use of markup pricing by, 347 defining the business’s primary goal, 12
Federal Trade Commission (FTC), 63 Retailing, 244 defining the firm’s business, 10–11
Food and Drug Administration Retailing mix (6Ps), choosing, 252–256 organizational focus, 7–10
(FDA), 63 Retaining loyal customers, 319 target customers, 11–12
REI, use of social CRM by, 317 Return on investment (ROI), 343 tools used with, 12
Relationship commitment, 119 social media marketing, 329 Sales presentations, 310
Relationship integration, 221 Returns management process, 225–226 Sales process, 306
Relationship marketing, 9 Revenue, 342 approaching the customer and
use of for B-to-B, 118–120 estimating, 353 probing needs, 308–310
use of in services, 212–213 Revenue-oriented pricing, 212 closing the sale, 311
Relationship selling, 304–305 Reverse channels, 237 customer relationship management
sales process, 306–312 Reverse engineering, 23 and, 315–320
Relative advantage, 199 Review sites, 335–336 defining, 313
Relative market share, 17–18 Reward engagement, 319 developing and proposing
Reliability of services, 206–207 Ridgeway, Rick, 41 solutions, 310
388 INDEX
following up, 312 Self-actualization, 112 Site location, choice of for retail
generating leads, 306–307 Self-concept, influence of on consumer operations, 254
handling objections, 311 buying decisions, 109 Situation analysis, conducting, 22
qualifying leads, 307–308 Self-esteem needs, 112 Situational involvement, 99
time spent in key steps of, 312 Self-interviewing, computer-assisted, 158 Small businesses
Sales promotion, 12, 270, 297–298 Self-regulation, 31 direct foreign investment, 82
comparison of personal selling Self-service technologies (SST), 249 ethics and, 37–38
with, 304 Self-sufficiency, 49 exporting, 80–81
tools for consumer sales promotion, Selling process. See Sales process global marketing by, 80
298–301 Semantic search, 155 joint ventures, 81–82
tools for trade sales promotion, 298 Sender, 264–265 licensing and franchising for the
trends in, 301 Sentiment analysis, 330 global market, 81
types of consumers and goals of, 297 Separated self-schema, 107 Smartphones
Sales proposals, 310 Service, importance of in B-to-B consumer use of, 325
Sales support, 8 interactions, 128 social media and, 337–338
Sales-oriented pricing, objectives of, Service as a process, 209 SMS (short message service), use of for
343–344 Service delivery, new methods of, 23 marketing, 337
Salespeople, 256 Service failures, 257 Snapchat, 334
focus of, 302 Service firms, internal marketing of, 213 consumer use of, 325
Samples, 162 Service mark, 181 Social class, influence of on consumer
Sampling, 300–301 Service mix, 210–211 buying decisions, 102–104
Sampling error, 163 Service quality Social commerce, 325–326
Sampling procedures, 162–163 evaluating, 206–207 Social consensus, 35
types of errors, 163–164 gap model of, 207–209 Social control, 30
types of samples, 163–164 Services Social CRM, 317
Satisfaction research, 151–152 global issues in marketing of, 216 Social factors, 22, 49
Satisfactory profits, 343 heterogeneity of, 206 American values, 49
Satisfiers, 141 importance of, 204 consumer decision-making process
Scaled-response questionnaire inseparability of, 206 and, 100
design, 159 intangibility of, 205–206 growth of component lifestyles, 49
Scanner-based research, 169 knowledge of, 308 Social groups
Screening, 193 marketing mixes for, 209–212 individual differences in susceptibility
Search engine, ranks and results, 330 perishability of, 206 to, 107
Search engine marketing, 290 retailing decisions for, 256–257 influence of on consumer buying
Search engine optimization (SEO), 272 Shell, Idea Factory, 59 decisions, 104–107
Search quality, 205 Sherman Act, 355 Social media
Season discounts, 356 Sherwin-Williams, marketing strategy advertising on, 290–291
Seasonal media schedule, 294 of, 55 categories of users of, 331
Seat-Geek, 350 Shop-at-home television networks, 250 consumers use of, 325–326
Second Life, 336 Shopper analytics, 259 content marketing and, 271
Secondary channels, 237 Shopper marketing, 258 creating and leveraging marketing
Secondary data, 153–156 Shopping bots, 350 campaigns on, 327–328
Secondary membership groups, Shopping centers, 254–255 defining, 322–323
influence of on consumer buying Shopping involvement, 99 effect of, 6–7
decisions, 104 Shopping products, 174 effect of on buying behavior, 50–51
Segmentation bases (variables), 134 Showrooming, 99, 349 evaluation and measurement
benefit segmentation, 140 Shumlin, Governor Peter, 192 of, 329
business markets, 141 Silent generation, market segmentation global marketing and, 86–87
demographic segmentation, 135–139 and, 136 importance of data from, 154
geographic segmentation, 135 Simulated (laboratory) market innovations, 324
psychographic segmentation, 139 testing, 196 integrated marketing communications
usage-rate segmentation, 140 Simultaneous product development, 195 and, 326–327
Selective distortion, 110 Sina Weibo, 325 marketing objectives, 329
Selective distribution, 240 Single parents, marketing to, 108 marketing plan, 338–339
Selective exposure, 110 Single-price tactic, 358 mobile technology and, 337–338
Selective retention, 110 Single-variable segmentation, 134 monitoring, 328–329
INDEX 389
Social media (Continued) Sprint Subscription services, 241
monitoring of for behavioral strategic alliance with Time, 118 Suggestion selling, 256
targeting, 161 use of big data analytics by, 155 Supercenters, 248
opinion leaders, 106 Stakeholder theory, 38 Supermarkets, 247
policies, 324–325 Standard industrial classification system Supplementary services, 209–210
tools, 331–337 (SIC), 121 Supplier relationship management
trends, 339 Standardization of global marketing, process, 224–225
use of as digital marketing 71, 83 Suppliers, corporate social responsibility
channels, 239 Standardization of services, 210 and, 39
use of by Millennials, 54 Standards, 31 Supplies, 126
use of by teenagers, 53 ethics of, 32 Supply, 344
use of for B-to-B marketing, 116–118 Star strategic business units, 18 Supply chain, 218
use of for nonmarketing-controlled Starbucks integration of, 220–222
information searches, 92 cause-related marketing, 44 Supply chain agility, 220
use of for personal selling, 304 corporate social responsibility, 40 Supply chain analytics, technology and,
use of for promotion, 268 service quality of, 207 231–232
use of for sales promotions, 301 strategic alliance with Green Supply chain management, 218–220
use of in promotional mix, 271–273 Mountain, 119 benefits of, 220
use of pull strategy on, 279 strategic planning of, 15 global, 230
Social needs, 112 strategies for global markets, 84 key processes of, 222–226
Social networking sites, 333–334. See test marketing strategy of, 196 sustainable, 226
also specific sites State governments, marketing to, 121 trends in, 227–232
location-based, 335 State laws, 61–62 Supply chain orientation, 220–221
Social news sites, 335 Status quo pricing, 344, 354 Survey research
Social relationship marketing, 213 Stew Leonard’s, 24 advantages of using Internet for, 166
Social responsibility Stimulating innovation, 59–60 executive interviews, 158–159
arguments for and against, 39–40 Stimuli, internal and external, 90 focus groups, 159
growth of, 41–42 Stimulus discrimination, 113 in-home personal interviews, 157
importance of for Millennials, 135 Stimulus generalization, 112–113 mail surveys, 158
industry leaders, 43–44 Store brands, 179–180, 356 mall intercept interviews, 157–158
stakeholders and, 38–39 pricing of, 353 Survey Sampling International, 167
Social shopping sites, 326 Straight rebuy, 129 Sustainability
Social sustainability, 226 Strategic alliances (strategic corporate social responsibility, 41
Social visibility, purchase involvement partnerships), 118–120 societal marketing orientation and, 6
and, 98 Strategic alternatives, 16 Sustainability of market segments, 134
Socialization process, effect of on allocation of resources, 18–19 Sustainable competitive advantage, 24
consumer buying decisions, Ansoff’s strategic opportunity matrix, Sustainable supply chain
106–107 16–17 management, 226
Societal marketing orientation, 6 Boston Consulting Group model, Swarm, 258
Society 17–19 Sweepstakes, 300
role of in molding corporate General Electric model, 19–20 SWOT analysis, 22
behavior, 32 innovation matrix, 17 SymphonyIRI Group Inc., 169
role of marketing in, 13 Strategic business units (SBU), 15
Solis, Brian, 322
Sono-Tek, 80
characteristics of, 15
use of General Electric model, 19–20 T
South Africa, product distribution use of the portfolio matrix, 17–19 T-Mobile, understanding the
in, 84 Strategic channel alliances, 237 competition, 48–49
Southwest Airlines Strategic planning, 14–15 Tablets, consumer use of, 325
cost competitive advantage of, 23 effective, 29 Taco Bell, 189
value of teamwork at, 10 marketing plan, 20–21 Taiwan, distribution adaptation for, 84
Specialization, 232 Strip centers, 254 Talenthouse, 327
Specialty discount stores, 248 Structural relationship marketing, 213 TalkersPlus, 152
Specialty products, 174 StumbleUpon, 335 Tangible cues, use of as promotional
Specialty stores, 247 Style modification, 176–177 tool for services, 211
Spectators, 331 Subculture, influence of on consumer Tangibles, 207
Sponsorship, 296 buying decisions, 101–102 Taobao, 72
390 INDEX
Target Toyota Production System (TPS), 224 Ubisoft, new-product development at,
advertising campaigns of, 253 Trade agreements, 74–75 194–195
pricing image of, 351 CAFTA, 77 UCG, diversification strategy of, 16–17
use of big data analytics by, 258 Doha Round, 76 Ultimate Fighting Championship
Target customers, 11–12 European Union, 77–78 (UFC), brand extensions, 94
Target market, 46, 142 NAFTA, 76–77 Under Armour
characteristics of and promotional Pacific Alliance, 76 marketing campaign of, 107
mix, 277 Trans-Pacific Partnership, 76 trademark suit of, 182
defining for retail operations, 252 Transatlantic Trade and Investment Undifferentiated targeting strategy, 143
describing, 26 Partnership, 76 Unfair trade practice acts, 354–355
nonprofit organizations, 214–215 Uruguay Round, 75–76 Unfair trade practices, 354
strategies for selecting, 142–145 Trade allowances, 298, 356 Uniform delivered pricing, 357
Target marketing strategies, advantages Trade discounts, 356 Unilever
and disadvantages of, 143 Trade sales promotion, 297–298 promotion adaptation for global
Target return on investment, 343 tools for, 298 markets, 84
Targeted marketing communications, 320 Trademarks, 181–182 societal marketing orientation of, 6
Tariffs, 74 violations of, 182 Uniqlo, product/service
Teamwork, 10 Trading up, 256 differentiation, 24
Technological factors, 22, 59 Traditional selling, comparison of with Unique selling proposition, 286
research, 59 relationship selling, 305 United Airlines, cooperative branding
stimulating innovation, 59–60 Training strategy of, 180–181
Technology ethics, 36–37 United Nations Global Compact
impact of on personal selling, 312 role of in relationship building, 9 (UNGC), 42
planning integration and, 221 sales force, 314 Universal product codes (UPCs),
use of for selling, 305 social media, 325 184–185
Technology products Trans-Pacific Partnership, 76 Universe, specifying for marketing
tarrifs on, 74 Transactional functions, 234 research, 162–163
use of to make purchase decisions, 95 Transatlantic Trade and Investment Unmeasured media, 280
Teenagers, 53 Partnership, 76 Unplanned purchases, 95
word-of-mouth marketing by, 198 Transformational innovation, 17 Unsought products, 174
Telemarketing, 250 Trialability, 199 Upper class, consumer buying behavior
Television, advertising on, 290 Trust of, 102
Test marketing, 195–196 earning, 8 UPS, environmental sustainability
alternatives to, 196 importance of to strategic alliances, 119 efforts of, 226
Text messaging, use of for marketing, 337 Tuff, Geoff, 17 Upward mobility, 49
Text mining, 328 Tumblr, 50, 332 Urban Outfitters, store atmosphere, 255
The Email Game, 27 consumer use of, 325 Uruguay Round, 75–76
Third-party logistics companies Tupperware, 249 Usage-rate segmentation, 140
(3PLs), 227 Tweens, 52–53 Used goods retailers, 249
Three-dimensional printing. See 3D market segmentation and, 135 User-curated shopping sites, 326
printing Twitch, 325 Utilitarian ethical theory, 33
Threshold level of perception, 111 Twitter, 323, 332 Utilitarian value, 89–90
Tide detergent, core innovation, 17 coaches, 325
Time, strategic alliance with Spring, 118
Time utility, 232–233
consumer use of, 325
conversationalists, 331 V
Tinder, 325 gathering data from, 154 Value, 7
TinyCo, 31 use of for B-to-B marketing, 117 consumer perception of, 89
Tobacco Control Act, 63 use of for marketing, 50–51 marketing for, 8
TOMS Shoes, 135 Vine, 325, 334–335 perception of, 341
Top management Two-part pricing, 360 Value-based pricing, 255, 357
actions on ethics, 35 Values, 34
strategic planning at Google, 29
Touch points, 316 U American, 49
global marketing and, 71–72
Toyota U.S. social classes, 103 influence of on consumer buying
advertising spending by, 283 Uber, 238 decisions, 101
R&D spending at, 188 Ubid, 350 Variable cost, 347
INDEX 391
Variable pricing, 358 Wants, 90 World Bank, 78
Vera Bradley, Inc., use of strategic WAP Web sites, use of for World trade, 66–67
channel alliances by, 237 marketing, 337 Doha Round, 76
Verizon, advertising spending by, 281 Warby Parker, 135, 188 Uruguay Round, 75–76
Vesset, Dan, 281 Warehouse club, 248 World Trade Organization (WTO),
Villa Fresh Italian Kitchen, “Dub the Warranties, 185–186 75–76
Dew” contest, 297 Web community research, 168
Vine, 325, 334–335
Virtual shopping, 161–162
benefits of, 167
Web sites Y
Virtual worlds, 336–337 innovation, 60 Y8, 325
Virtue ethics, 33–34 metrics, 330 Yahoo!
Vodaphone, 119 use of for nonmarketing-controlled product line contraction of, 177
information searches, 92 use of alternative media for
W use of for public relations, 296

use of in B-to-B marketing, 116
advertisement, 291
Yelp, 31, 336
W.L. Gore & Associates, 18 Web survey systems, 166 Yield management systems, 346
Walgreen Stores, social sustainabilty Web widgets, 338 Yik Yak, 325
efforts of, 226 Web-based interactions, 317 YouTube, 323, 334–335
Walmart, 69 Wendy’s consumer use of, 325
adaptation of pricing strategies for marketing mix of, 26 use of for B-to-B marketing, 117
global market, 85 test marketing strategy of, 195–196 use of for marketing, 50
presence of in China, 74 use of social media by, 50 Yum! Brands, global brand of, 178–179
pricing image of, 351 Whirlpool, use of online actions
use of big data analytics by, 155
use of market-based analysis by, 256
by, 350
Whole Foods, pricing image of, 351 Z
use of push strategy by, 278 Wholesaler channels, 235 Zara, 251
use of reverse channels by, 237 Willagirls, 52 innovation at, 60
Walt Disney World, value of teamwork Word-of-mouth (WOM) advertising, Zero percent financing, 356
at, 10 152, 272 Zipcar, multisegment targeting strategy
Walton, Sam, 6 teenagers and, 198 of, 144
Want–got gap, 90–91 Work ethic, 49 Zone pricing, 358
392 INDEX
CHAPTER REVIEW 1
KEY CONCEPTS KEY TERMS

1-1 Define the term marketing. Marketing is the activity, set of institutions, 1-1
and processes for creating, communicating, delivering, and exchanging offerings that have marketing the activity, set of institutions, and processes
value for customers, clients, partners, and society at large. Marketing also requires all facets for creating, communicating, delivering, and exchanging
of a company to work together to pool ideas and resources. One major goal of marketing offerings that have value for customers, clients, partners,
is to create an exchange. An exchange has five conditions, as listed below. Even if all five and society at large
conditions are met, however, an exchange might not occur. People engage in marketing exchange people giving up something in order to receive
whether or not an exchange happens. something else they would rather have
Five conditions of exchange 1-2

production orientation a philosophy that focuses on
1. There must be at least two parties. the internal capabilities of the firm rather than on the desires
and needs of the marketplace
2. Each party has something that might be of value to the other party.
sales orientation the belief that people will buy more
3. Each party is capable of communication and delivery. goods and services if aggressive sales techniques are used
4. Each party is free to accept or reject the exchange offer. and that high sales result in high profits
marketing concept the idea that the social and
5. Each party believes it is appropriate or desirable to deal with the other party. economic justification for an organization’s existence is the
satisfaction of customer wants and needs while meeting
organizational objectives
market orientation a philosophy that assumes that a
sale does not depend on an aggressive sales force but rather on
a customer’s decision to purchase a product; it is synonymous
with the marketing concept
societal marketing orientation the idea that an
organization exists not only to satisfy customer wants and
needs and to meet organizational objectives but also to
preserve or enhance individuals’ and society’s long-term best
interests
1-3
customer value the relationship between benefits and
the sacrifice necessary to obtain those benefits
Zuma Press, Inc./Alamy
customer satisfaction customers’ evaluation of a

good or service in terms of whether it has met their needs and
expectations
relationship marketing a strategy that focuses on
keeping and improving relationships with current customers
Google offers many amenities to its employees, part of the reason Fortune empowerment delegation of authority to solve
ranked it as the best company to work for in 2012, 2013, and 2014. customers’ problems quickly—usually by the first person the
customer notifies regarding a problem
teamwork collaborative efforts of people to accomplish
common objectives
1-2 Describe four marketing management philosophies. The role
customer relationship management
of marketing and the character of marketing activities within an organization are strongly
(CRM) a company-wide business strategy designed to
influenced by the organization’s marketing philosophy and orientation. A production- optimize profitability, revenue, and customer satisfaction by
oriented organization focuses on the internal capabilities of the firm rather than on the focusing on highly defined and precise customer groups
desires and needs of the marketplace. A sales orientation is based on the beliefs that people
on-demand marketing delivering relevant
will buy more products and services if aggressive sales techniques are used and that high experiences, integrated across both physical and virtual
sales volumes produce high profits. A market-oriented organization focuses on satisfying environments, throughout the consumer’s decision and
customer wants and needs while meeting organizational objectives. A societal marketing buying process
orientation goes beyond a market orientation to include the preservation or enhancement
of individuals’ and society’s long-term best interests.
WWW.CENGAGEBRAIN.COM
CHAP T E R RE V IE W 1
1-3 Discuss the differences between sales and market
orientations. First, sales-oriented firms focus on their own needs; market-oriented firms
focus on customers’ needs and preferences. Second, sales-oriented companies consider
themselves to be deliverers of goods and services, whereas market-oriented companies
view themselves as satisfiers of customers. Third, sales-oriented firms direct their products
to everyone; market-oriented firms aim at specific segments of the population. Fourth,
sales-oriented organizations place a higher premium on making a sale, while market-
oriented businesses seek a long-term relationship with the customer. Finally, sales-oriented
businesses pursue maximum sales volume through intensive promotion, whereas market-
oriented businesses pursue customer satisfaction through coordinated activities.
AP Images/PRNewsFoto/Fairfield Inn & Suites by Marriott

Marriott’s customer-oriented focus is evident in initiatives
like the Fairfield Inn & Suites “Some Like It Hot” food truck,
which serves hot, made-to-order breakfasts to customers
for free.
1-4 Describe several reasons for studying marketing. First, marketing

affects the allocation of goods and services that influence a nation’s economy and standard of
living. Second, an understanding of marketing is crucial to understanding most businesses. Third,
career opportunities in marketing are diverse, profitable, and expected to increase significantly
during the coming decade. Fourth, understanding marketing makes consumers more informed.
CHAPTER REVIEW 2

2-1 Understand the importance of strategic planning. Strategic 2-1
planning is the basis for all marketing strategies and decisions. These decisions affect the strategic planning the managerial process of creating
allocation of resources and ultimately the financial success of the company. and maintaining a fit between the organization’s objectives
and resources and the evolving market opportunities
2-2 Define strategic business units (SBUs). Each SBU should have these
characteristics: a distinct mission and a specific target market, control over its resources, 2-2
its own competitors, a single business, and plans independent from other SBUs in the strategic business unit (SBU) a subgroup of a single
organization. Each SBU has its own rate of return on investment, growth potential, and business or collection of related businesses within the larger
associated risks, and requires its own strategies and funding. organization
2-3 Identify strategic alternatives and know a basic outline for 2-3
a marketing plan. Ansoff’s opportunity matrix presents four options to help market penetration a marketing strategy that tries to
management develop strategic alternatives: market penetration, market development, increase market share among existing customers
product development, and diversification. In selecting a strategic alternative, managers market development a marketing strategy that entails
may use a portfolio matrix, which classifies strategic business units as stars, cash cows, attracting new customers to existing products
problem children (or question marks), and dogs, depending on their present or projected product development a marketing strategy that
growth and market share. Alternatively, the GE model suggests that companies determine entails the creation of new products for present markets
strategic alternatives based on the comparisons between business position and market diversification a strategy of increasing sales by
attractiveness. introducing new products into new markets
A marketing plan should define the business mission, perform a situation analysis, define portfolio matrix a tool for allocating resources among
objectives, delineate a target market, and establish components of the marketing mix. Other products or strategic business units on the basis of relative
elements that may be included in a plan are budgets, implementation timetables, required market share and market growth rate
marketing research efforts, or elements of advanced strategic planning. star in the portfolio matrix, a business unit that is a fast-
growing market leader
2-4 Develop an appropriate business mission statement. The firm’s cash cow in the portfolio matrix, a business unit that
mission statement establishes boundaries for all subsequent decisions, objectives, and
generates more cash than it needs to maintain its market share
strategies. A mission statement should focus on the market(s) the organization is attempting
to serve rather than on the good or service offered. problem child (question mark) in the portfolio matrix,
a business unit that shows rapid growth but poor profit margins
2-5 Describe the components of a situation analysis. In the situation dog in the portfolio matrix, a business unit that has low
(or SWOT) analysis, the firm should identify its internal strengths (S) and weaknesses (W) growth potential and a small market share
and also examine external opportunities (O) and threats (T). When examining external planning the process of anticipating future events and
opportunities and threats, marketing managers must analyze aspects of the marketing determining strategies to achieve organizational objectives in
environment in a process called environmental scanning. The six macroenvironmental the future
forces studied most often are social, demographic, economic, technological, political and marketing planning designing activities relating
legal, and competitive. to marketing objectives and the changing marketing
2-6 Identify sources of competitive advantage. There are three types environment
of competitive advantage: cost, product/service differentiation, and niche. Sources marketing plan a written document that acts as a
of cost competitive advantage include experience curves, efficient labor, no-frills guidebook of marketing activities for the marketing manager
goods and services, government subsidies, product design, reengineering, production 2-4
innovations, and new methods of service delivery. A product/service differentiation
mission statement a statement of the firm’s business
competitive advantage exists when a firm provides something unique that is valuable based on a careful analysis of benefits sought by present and
to buyers beyond just low price. Niche competitive advantages come from targeting potential customers and an analysis of existing and anticipated
unique segments with specific needs and wants. The goal of all these sources of environmental conditions
competitive advantage is to be sustainable. marketing myopia defining a business in terms of goods
2-7 Explain the criteria for stating good marketing and services rather than in terms of the benefits customers seek
objectives. Objectives should be realistic, measurable, time specific, and compared to 2-5
a benchmark. They must also be consistent and indicate the priorities of the organization.
SWOT analysis identifying internal strengths (S) and
Good marketing objectives communicate marketing management philosophies, provide weaknesses (W) and also examining external opportunities
management direction, motivate employees, force executives to think clearly, and form a (O) and threats (T)
basis for control.
environmental scanning collection and 2-8 Discuss target market strategies. Targeting markets begins with a market
interpretation of information about forces, events, opportunity analysis (MOA), which describes and estimates the size and sales potential of market
and relationships in the external environment that segments that are of interest to the firm. In addition, an assessment of key competitors in these
may affect the future of the organization or the
market segments is performed. After the market segments are described, one or more may be
implementation of the marketing plan
targeted by the firm.
2-6
2-9 Describe the elements of the marketing mix. The marketing mix is a
competitive advantage a set of unique blend of product, place, promotion, and pricing strategies (the four Ps) designed to produce
features of a company and its products that are
mutually satisfying exchanges with a target market. The starting point of the marketing mix
perceived by the target market as significant and
superior to those of the competition is the product offering—tangible goods, ideas, or services. Place (distribution) strategies are
concerned with making products available when and where customers want them. Promotion
cost competitive advantage being the
includes advertising, public relations, sales promotion, and personal selling. Price is what a buyer
low-cost competitor in an industry while maintaining
satisfactory profit margins must give up in order to obtain a product and is often the most flexible of the four marketing
mix elements.
experience curves curves that show costs
declining at a predictable rate as experience with a 2-10 Explain why implementation, evaluation, and control of the
product increases marketing plan are necessary. Before a marketing plan can work, it must be
product/service differentiation implemented—that is, people must perform the actions in the plan. The plan should also be
competitive advantage the provision of evaluated to see if it has achieved its objectives. Poor implementation can be a major factor
something that is unique and valuable to buyers beyond in a plan’s failure, but working to gain acceptance can be accomplished with task forces. Once
simply offering a lower price than that of the competition implemented, one major aspect of control is the marketing audit and ultimately continuing to
niche competitive advantage the apply what the audit uncovered through post-audit tasks.
advantage achieved when a firm seeks to target and
effectively serve a small segment of the market 2-11 Identify several techniques that help make strategic planning
effective. First, management must realize that strategic planning is an ongoing process and
sustainable competitive advantage an
advantage that cannot be copied by the competition not a once-a-year exercise. Second, good strategic planning involves a high level of creativity.
The last requirement is top management’s support and participation.
2-7
marketing objective a statement of what is to
be accomplished through marketing activities
2-8
marketing strategy the activities of selecting and
describing one or more target markets and developing
and maintaining a marketing mix that will produce
mutually satisfying exchanges with target markets
market opportunity analysis (MOA) the
description and estimation of the size and sales
potential of market segments that are of interest to the
firm and the assessment of key competitors in these
market segments
2-9
marketing mix (four Ps) a unique blend of
product, place (distribution), promotion, and pricing
strategies designed to produce mutually satisfying
exchanges with a target market
2-10
implementation the process that turns a
marketing plan into action assignments and ensures
that these assignments are executed in a way that
accomplishes the plan’s objectives
evaluation gauging the extent to which the
marketing objectives have been achieved during the
specified time period
control provides the mechanisms for evaluating
marketing results in light of the plan’s objectives and
for correcting actions that do not help the organization
reach those objectives within budget guidelines
marketing audit a thorough, systematic,
periodic evaluation of the objectives, strategies,
structure, and performance of the marketing
organization
CHAPTER REVIEW 3
Ethics and Social Responsibility

3-1 Explain the determinants of a civil society. Societal order is created 3-1
through the six modes of social control. Ethics are the moral principles or values that social control any means used to maintain behavioral
generally govern the conduct of an individual or a group. Laws come into being when ethical norms and regulate conflict
rules and guidelines are codified into law. Formal and informal groups have codes of conduct behavioral norms standards of proper or acceptable
that prescribe acceptable and desired behaviors of their members. Self-regulation involves behavior. Several modes of social control are important to
the voluntary acceptance of standards established by nongovernmental entities. The media marketing
play a key role in informing the public about the actions of individuals and organizations— ethics the moral principles or values that generally
both good and bad. An informed and engaged society can help mold individual and govern the conduct of an individual or a group
corporate behavior. 3-2
3-2 Explain the concept of ethical behavior. Ethics are the standards of deontological theory ethical theory that states that
behavior by which conduct is judged. Standards that are legal may not always be ethical. An people should adhere to their obligations and duties when
ethics violation offends a person’s sense of justice or fairness. Ethics basically constitute the analyzing an ethical dilemma
unwritten rules developed to guide interactions. Many ethical questions arise from balancing utilitarian ethical theory ethical theory that
a business’s need to produce profit for shareholders against its desire to operate honestly and is founded on the ability to predict the consequences
with concern for environmental and social issues. of an action
casuist ethical theory ethical theory that compares
Several ethical theories apply to marketing. Deontological theory states that people should a current ethical dilemma with examples of similar ethical
adhere to their obligations and duties when analyzing an ethical dilemma. Utilitarian ethical dilemmas and their outcomes
theory says that the choice that yields the greatest benefit to the most people is the choice moral relativism an ethical theory of time-and-place
that is ethically correct. The casuist ethical theory compares a current ethical dilemma with ethics; that is, the belief that ethical truths depend on the
examples of similar ethical dilemmas and their outcomes. Moral relativists believe in time- individuals and groups holding them
and-place ethics, that is, ethical truths depend on the individuals and groups holding them. virtue a character trait valued as being good
Virtue ethics suggests that individuals become able to solve ethical dilemmas when they
develop and nurture a set of virtues. 3-3
morals the rules people develop as a result of cultural
3-3 Describe ethical behavior in business. Business ethics may be viewed values and norms
as a subset of the values of society as a whole, with a foundation based on the cultural code of ethics a guideline to help marketing managers
values and norms that constitute a culture’s morals. The ethical conduct of businesspeople and other employees make better decisions
is shaped by societal elements, including family, education, and religious institutions. Morals
Foreign Corrupt Practices Act (FCPA) a law
are the rules people develop as a result of cultural values and norms. As members of society, that prohibits U.S. corporations from making illegal
businesspeople are morally obligated to consider the ethical implications of their decisions. payments to public officials of foreign governments to
Ethical decision making can be grouped into three basic approaches. The first approach obtain business rights or to enhance their business dealings
examines the consequences of decisions. The second approach relies on rules and laws to in those countries
guide decision making. The third approach is based on a theory of moral development that
places individuals or groups in one of three developmental stages: preconventional morality,
3-4
corporate social responsibility (CSR) a
conventional morality, or postconventional morality. business’s concern for society’s welfare
In addition to personal influences, there are many business influences on ethical decision stakeholder theory ethical theory stating that
making. Some of the most influential include the extent of ethical problems within social responsibility is paying attention to the interest
the organization, top management’s actions on ethics, potential magnitude of the of every affected stakeholder in every aspect of a firm’s
consequences, social consensus, probability of a harmful outcome, length of time between operation
the decision and the onset of consequences, and the number of people affected. pyramid of corporate social responsibility
a model that suggests corporate social responsibility is
Many companies develop a code of ethics to help their employees make ethical decisions. composed of economic, legal, ethical, and philanthropic
A code of ethics can help employees identify acceptable business practices, be an effective responsibilities and that a firm’s economic performance
internal control on behavior, help employees avoid confusion when determining whether supports the entire structure
decisions are ethical, and facilitate discussion about what is right and wrong.
3-5
Studies show that ethical beliefs vary little from country to country. However, there are sustainability the idea that socially responsible
enough cultural differences, such as the practice of bribery or gift giving, that laws such as companies will outperform their peers by focusing on the
the Foreign Corrupt Practices Act (FCPA) have been put in place to discourage and attempt world’s social problems and viewing them as opportunities to
to modify the current acceptance of such practices. build profits and help the world at the same time
green marketing the development and 3-4 Discuss corporate social responsibility. Corporate social responsibility
marketing of products designed to minimize negative (CSR) is a business’s concern for society’s welfare. Responsibility in business refers to a firm’s
effects on the physical environment or to improve the
concern for the way its decisions affect society. Stakeholder theory says that social responsibility
environment
means paying attention to the interest of every affected stakeholder in every aspect of a firm’s
3-6 operation, including employees, management, customers, the local community, suppliers, and
cause-related marketing the cooperative owners. According to the pyramid of corporate social responsibility, CSR has four components:
marketing efforts between a for-profit firm and a economic, legal, ethical, and philanthropic. These are intertwined, yet the most fundamental is
nonprofit organization earning a profit. If a firm does not earn a profit, the other three responsibilities are moot.
3-5 Describe the arguments for and against society responsibility.
Most businesspeople believe they should do more than pursue profits. Although a company must
consider its economic needs first, it must also operate within the law, do what is ethical and fair,
and be a good corporate citizen. Sustainability is the concept that socially responsible companies
will outperform their peers by focusing on the world’s social problems and viewing them as an
opportunity to earn profits and help the world at the same time. Social responsibility is growing,
but it can be costly and the benefits are not always immediate. In addition, some surveys report
that consumer desire to purchase responsible products does not always translate to actually
purchasing those products. One branch of social responsibility is green marketing, which aids the
environment and often the bottom line of a business.
3-6 Explain cause-related marketing. Cause-related marketing is the cooperative
effort between a for-profit firm and a nonprofit organization. It is different from philanthropy,
which is a specific, tax-deductible donation. Cause-related marketing is very popular because it
can enhance the reputation of the corporation and also make additional profit for the company.
However, consumers sometimes come to believe that every company is tied to a cause, resulting
in consumer cause fatigue.
EXHIBIT 3.3 THE PYRAMID OF CORPORATE SOCIAL

RESPONSIBILITY
Philanthropic responsibilities
Be a good corporate citizen.
Contribute resources to the
community; improve the
quality of life.
Ethical responsibilities
Be ethical.
Do what is right, just, and
fair. Avoid harm.
Legal responsibilities
Obey the law.
Law is society’s codification
of right and wrong. Play by
the rules of the game.
Economic responsibilities
Be profitable.
Profit is the foundation on which
all other responsibilities rest.
CHAPTER REVIEW 4
The Marketing Environment

4-1 Discuss the external environment of marketing and explain 4-1
how it affects a firm. The external marketing environment consists of social, target market a group of people or organizations for
demographic, economic, technological, political and legal, and competitive variables. which an organization designs, implements, and maintains
Marketers generally cannot control the elements of the external environment. Instead, they a marketing mix intended to meet the need of that group,
must understand how the external environment is changing and the impact of that change resulting in mutually satisfying exchanges
on the target market. Then marketing managers can create a marketing mix to effectively environmental management when a company
meet the needs of target customers. implements strategies that attempt to shape the external
environment within which it operates
4-2 Describe the social factors that affect marketing. Within the
external environment, social factors are perhaps the most difficult for marketers to anticipate. 4-2
component lifestyles the practice of choosing goods
Several major social trends are currently shaping marketing strategies. First, people of all
and services that meet one’s diverse needs and interests rather
ages have a broader range of interests, defying traditional consumer profiles. Second, social than conforming to a single, traditional lifestyle
media, Web-based, and mobile technology change how people and marketers interact by
allowing one-to-one, one-to-many, and many-to-many communications. Because Facebook 4-3
is about human-to-human interaction, companies are turning to it and other forms of social demography the study of people’s vital statistics, such as
media with ever-increasing speed. age, race and ethnicity, and location
Millennials people born between 1979 and 1994
4-3 Explain the importance to marketing managers of current Generation X people born between 1965 and 1978
demographic trends. There are more than 7 billion people alive today. China has the
largest population with 1.39 billion persons; India is second with 1.23 billion. Census data baby boomers people born between 1946 and 1964
puts the U.S. population at more than 318 million, with metropolitan areas growing and rural 4-5
areas shrinking in population. Marketers are faced with increasingly experienced consumers purchasing power a comparison of income versus the
among the younger generations such as tweens and teens. And because the population is relative cost of a standard set of goods and services in different
also growing older, marketers are offering more products that appeal to middle-aged and geographic areas
older consumers. inflation a measure of the decrease in the value of money,
expressed as the percentage reduction in value since the
4-4 Explain the importance to marketing managers of growing previous year
ethnic markets. The minority population today is about 118 million. By 2050, around
one in three U.S. residents will be Hispanic. The United States will flip completely to a recession a period of economic activity characterized
by negative growth, which reduces demand for goods and
majority-minority makeup in 2041. Many companies are creating departments and product
services
lines to target multicultural market segments effectively. Companies have quickly found that
ethnic markets are not homogeneous. 4-6
basic research pure research that aims to confirm
4-5 Identify consumer and marketer reactions to the state of an existing theory or to learn more about a concept or
the economy. The annual median household income in the United States in 2014 was phenomenon
approximately $52,000, though the median household income varies widely from state to applied research research that attempts to develop new
state. During a time of inflation, marketers generally attempt to maintain level pricing to or improved products
avoid losing customer brand loyalty. During times of recession, many marketers maintain
or reduce prices to counter the effects of decreased demand; they also concentrate on 4-7
increasing production efficiency and improving customer service. The Great Recession was Consumer Product Safety Commission
(CPSC) a federal agency established to protect the health
the largest economic downturn since the Great Depression. While the causes of recession
and safety of consumers in and around their homes
are very complex, this one began with the collapse of inflated housing prices.
Food and Drug Administration (FDA) a federal
4-6 Identify the impact of technology on a firm. Technological success agency charged with enforcing regulations against selling and
is based upon innovation, and innovation requires imagination and risk taking. Monitoring distributing adulterated, misbranded, or hazardous food and
new technology and encouraging research and development (R&D) of new technology drug products
are essential to keeping up with competitors in today’s marketing environment. Innovation Federal Trade Commission (FTC) a federal agency
through R&D needs to be stimulated by upper management and fostered in creative empowered to prevent persons or corporations from using
environments. Although developing new technology internally is a key to creating and unfair methods of competition in commerce
maintaining a long-term competitive advantage, external technology is also important
to managers.
4-7 Discuss the political and legal environment of marketing. All
marketing activities are subject to state and federal laws and the rulings of regulatory agencies.
Marketers are responsible for remaining aware of and abiding by such regulations. Some key
federal agencies that affect marketing are the Consumer Product Safety Commission, the Food
and Drug Administration, and the Federal Trade Commission. Many laws, including privacy
laws, have been passed to protect the consumer as well. In 2012, the FTC called for online data
collectors to adopt better privacy policies and asked Congress to pass comprehensive privacy
legislation. Despite federal efforts, online tracking has become widespread and pervasive.
4-8 Explain the basics of foreign and domestic competition. The
competitive environment encompasses the number of competitors a firm must face, the
relative size of the competitors, and the degree of interdependence within the industry.
Declining population growth, rising costs, and shortages of resources have heightened
domestic competition.
EXHIBIT 4.2 PRIMARY U.S. LAWS PROTECTING CONSUMERS

Federal Food and Drug Act of 1906 Prohibits adulteration and misbranding of foods and drugs involved in interstate commerce; strength-
ened by the Food, Drug, and Cosmetic Act (1938) and the Kefauver-Harris Drug Amendment (1962).
Federal Hazardous Substances Act of 1960 Requires warning labels on hazardous household chemicals.
Kefauver-Harris Drug Amendment of 1962 Requires that manufacturers conduct tests to prove drug effectiveness and safety.
Consumer Credit Protection Act of 1968 Requires that lenders fully disclose true interest rates and all other charges to credit customers for loans
and installment purchases.
Child Protection and Prevents marketing of products so dangerous that adequate safety warnings
Toy Safety Act of 1969 cannot be given.
Public Health Smoking Act of 1970 Prohibits cigarette advertising on television and radio and revises the health hazard
warning on cigarette packages.
Poison Prevention Labeling Act of 1970 Requires safety packaging for products that may be harmful to children.
National Environmental Policy Act of 1970 Established the Environmental Protection Agency to deal with various types of pollution and organiza-
tions that create pollution.
Public Health Cigarette Smoking Act of 1971 Prohibits tobacco advertising on radio and television.
Consumer Product Safety Act of 1972 Created the Consumer Product Safety Commission, which has authority to specify safety standards for
most products.
Child Protection Act of 1990 Regulates the number of minutes of advertising on children’s television.
Children’s Online Privacy Empowers the FTC to set rules regarding how and when marketers must obtain parental permission
Protection Act of 1998 before asking children marketing research questions.
Aviation Security Act of 2001 Requires airlines to take extra security measures to protect passengers, including the installation
of stronger cockpit doors, improved baggage screening, and increased security training for airport
personnel.
Homeland Security Act of 2002 Protects consumers against terrorist acts; created the Department of Homeland Security.
Do Not Call Law of 2003 Protects consumers against unwanted telemarketing calls.
CAN-SPAM Act of 2003 Protects consumers against unwanted e-mail, or spam.
Credit Card Act of 2009 Provides many credit card protections.
Restoring American Financial Created the Consumer Financial Protection Bureau to protect consumers against unfair, abusive, and
Stability Act of 2010 deceptive financial practices.
Patient Protection and Affordable Care Act Overhauled the U.S. healthcare system; mandated and subsidized health insurance for individuals.
CHAPTER REVIEW 5
Developing a Global Vision

5-1 Discuss the importance of global marketing. Businesspeople who 5-1
adopt a global vision are better able to identify global marketing opportunities, understand global marketing marketing that targets markets
the nature of global networks, create effective global marketing strategies, and compete throughout the world
against foreign competition in domestic markets. Large corporations have traditionally been global vision recognizing and reacting to international
the major global competitors, but more and more small businesses are entering the global marketing opportunities, using effective global marketing
marketplace. Despite fears of job losses to other countries with cheaper labor, there are strategies, and being aware of threats from foreign
many benefits to globalization, including the reduction of poverty and increased standards competitors in all markets
of living. gross domestic product (GDP) the total market
5-2 Discuss the impact of multinational firms on the world value of all final goods and services produced in a country for a
given time period
economy. Multinational corporations are international traders that regularly operate
across national borders. Because of their vast size and financial, technological, and material outsourcing sending U.S. jobs abroad
resources, multinational corporations have great influence on the world economy. They inshoring returning production jobs to the United States
have the ability to overcome trade problems, save on labor costs, and tap new technology. 5-2
There are critics and supporters of multinational corporations, and the critics question
multinational corporation a company that is
the actual benefits of bringing capital-intensive technology to impoverished nations.
heavily engaged in international trade, beyond exporting
Many countries block foreign investment in factories, land, and companies to protect and importing
their economies.
capital intensive using more capital than labor in the
Some companies presume that markets throughout the world are more and more similar, so production process
some global products can be standardized across global markets. global marketing standardization production
5-3 Describe the external environment facing global marketers. of uniform products that can be sold the same way all over
the world
Global marketers face the same environmental factors as they do domestically: culture,
economic and technological development, the global economy, political structure and multidomestic strategy when multinational firms
actions, demography, and natural resources. Cultural considerations include societal enable individual subsidiaries to compete independently in
domestic markets
values, attitudes and beliefs, language, and customary business practices. A country’s
economic and technological status depends on its stage of industrial development, 5-3
which, in turn, affects average family incomes. A global marketer today must be fully Mercosur the largest Latin American trade agreement;
aware of the intertwined nature of the global economy. The political structure is includes Argentina, Bolivia, Brazil, Chile, Colombia, Ecuador,
shaped by political ideology and such policies as tariffs, quotas, boycotts, exchange Paraguay, Peru, Uruguay, and Venezuela
controls, trade agreements, and market groupings. Demographic variables include Uruguay Round a trade agreement to dramatically
the size of a population and its age and geographic distribution. A shortage of natural lower trade barriers worldwide; created the World Trade
resources also affects the external environment by dictating what is available and at Organization
what price. World Trade Organization (WTO) a trade
5-4 Identify the various ways of entering the global marketplace. organization that replaced the old General Agreement on
Tariffs and Trade (GATT)
Firms use the following strategies to enter global markets, in descending order of risk and
profit: direct investment, joint venture, contract manufacturing, licensing and franchising, General Agreement on Tariffs and Trade
and exporting. (GATT) a trade agreement that contained loopholes
enabling countries to avoid trade-barrier reduction
agreements
North American Free Trade Agreement
(NAFTA) an agreement between Canada, the United
States, and Mexico that created the world’s then-largest free
trade zone
Dominican Republic-Central America
Free Trade Agreement (CAFTA-DR) a RISK LEVELS FOR FIVE METHODS OF ENTERING
EXHIBIT 5.2
trade agreement instituted in 2005 that includes Costa THE GLOBAL MARKETPLACE
Rica, the Dominican Republic, El Salvador, Guatemala,
Honduras, Nicaragua, and the United States
European Union (EU) a free trade zone Risk High risk/
encompassing twenty-eight European countries high return
World Bank an international bank that offers

low-interest loans, advice, and information to
Direct
developing nations investment
Joint
International Monetary Fund (IMF) an venture
international organization that acts as a lender of last Contract
manufacturing
resort, providing loans to troubled nations, and also
Exporting Licensing
works to promote trade through financial cooperation
Group of Twenty (G-20) a forum for Low
risk/
international economic development that promotes
low
discussion between industrial and emerging-market return
countries on key issues related to global economic Return
stability
5-4
exporting selling domestically produced products
to buyers in other countries 5-5 List the basic elements involved in developing a global marketing
buyer for export an intermediary in the global mix. A firm’s major consideration is how much it will adjust the four Ps—product, promotion,
market that assumes all ownership risks and sells place (distribution), and price—within each country. One strategy is to use one product and one
globally for its own account promotion message worldwide. A second strategy is to create new products for global markets.
export broker an intermediary who plays A third strategy is to keep the product basically the same but alter the promotional message. A
the traditional broker’s role by bringing buyer and fourth strategy is to slightly alter the product to meet local conditions.
seller together
export agent an intermediary who acts like a 5-6 Discover how the Internet is affecting global marketing. Simply
manufacturer’s agent for the exporter; the export opening an e-commerce site can open the door for international sales. International carriers, such
agent lives in the foreign market as UPS, can help solve logistics problems. Language translation software can help an e-commerce
licensing the legal process whereby a licensor business become multilingual. Yet cultural differences and old-line rules, regulations, and taxes
allows another firm to use its manufacturing hinder rapid development of e-commerce in many countries. Not only do global marketers use
process, trademarks, patents, trade secrets, or other social media for understanding consumers. they also use social media to build their brands as they
proprietary knowledge expand internationally.
contract manufacturing private label
manufacturing by a foreign company
joint venture when a domestic firm buys part of
a foreign company or joins with a foreign company to
create a new entity
direct foreign investment active ownership
of a foreign company or of overseas manufacturing or
marketing facilities
5-5
exchange rate the price of one country’s currency
in terms of another country’s currency
floating exchange rates a system in which
prices of different currencies move up and down based
on the demand for and the supply of each currency
dumping the sale of an exported product at a price
lower than that charged for the same or a like product
in the “home” market of the exporter
countertrade a form of trade in which all or part
of the payment for goods or services is in the form of
other goods or services
CHAPTER REVIEW 6
Consumer Decision Making

6-1 Explain why marketing managers should understand consumer 6-1
behavior. An understanding of consumer behavior reduces marketing managers’ consumer behavior processes a consumer uses to make
uncertainty when they are defining a target market and designing a marketing mix. purchase decisions, as well as to use and dispose of purchased
goods or services; also includes factors that influence purchase
6-2 Analyze the components of the consumer decision-making
decisions and product use
process. The consumer decision-making process begins with need recognition, when
stimuli trigger awareness of an unfulfilled want. If additional information is required to value a personal assessment of the net worth one obtains
from making a purchase, or the enduring belief that a specific
make a purchase decision, the consumer may engage in an internal or external information
mode of conduct is personally or socially preferable to another
search. The consumer then evaluates the alternatives using the additional information and mode of conduct
establishes purchase guidelines. Finally, a purchase decision is made.
perceived value the value a consumer expects to
6-3 Explain the consumer’s postpurchase evaluation process. obtain from a purchase
Consumer postpurchase evaluation is influenced by prepurchase expectations, the utilitarian value a value derived from a product
prepurchase information search, and the consumer’s general level of self-confidence. When or service that helps the consumer solve problems and
a purchase creates cognitive dissonance, consumers tend to react by seeking positive accomplish tasks
reinforcement for the purchase decision, avoiding negative information about the purchase hedonic value a value that acts as an end in itself rather
decision, or revoking the purchase decision by returning the product. than as a means to an end
6-4 Identify the types of consumer buying decisions and 6-2
discuss the significance of consumer involvement. Consumer decision
consumer decision-making process a five-step
making falls into three broad categories: routine response behavior, limited decision process used by consumers when buying goods or services
making, and extensive decision making. High-involvement decisions usually include
need recognition result of an imbalance between actual
an extensive information search and a thorough evaluation of alternatives. By contrast,
and desired states
low-involvement decisions are characterized by brand loyalty and a lack of personal
identification with the product. The main factors affecting the level of consumer want recognition of an unfulfilled need and a product that
will satisfy it
involvement are previous experience, interest, perceived risk of negative consequences
(financial, social, and psychological), and social visibility. A purchase decision can stimulus any unit of input affecting one or more of the five
be highly involved due to a wide range of factors, including product involvement, senses: sight, smell, taste, touch, hearing
situational involvement, shopping involvement, enduring involvement, and emotional internal information search the process of recalling
involvement. past information stored in the memory
external information search the process of seeking
6-5 Identify and understand the cultural factors that affect consumer information in the outside environment
buying decisions. Cultural influences on consumer buying decisions include culture
nonmarketing-controlled information
and values, subculture, and social class. Culture is the essential character of a society that
source a product information source that is not associated
distinguishes it from other cultural groups. The underlying elements of every culture are with advertising or promotion
the values, language, myths, customs, rituals, laws, and the artifacts, or products, that are
marketing-controlled information source a
transmitted from one generation to the next. The most defining element of a culture is its
product information source that originates with marketers
values. A culture can be divided into subcultures on the basis of demographic characteristics, promoting the product
geographic regions, national and ethnic background, political beliefs, and religious beliefs.
evoked set (consideration set) a group of brands
6-6 Identify and understand the social factors that affect consumer resulting from an information search from which a buyer can
buying decisions. Social factors include such external influences as reference groups, choose
opinion leaders, and family. Consumers seek out others’ opinions for guidance on new
products or services and products with image-related attributes or because attribute
6-3
information is lacking or uninformative. Consumers may use products or brands to identify cognitive dissonance inner tension that a consumer
with or become a member of a reference group, or to follow an opinion leader. Family experiences after recognizing an inconsistency between
behavior and values or opinions
members also influence purchase decisions; children tend to shop in similar patterns as
their parents. 6-4
6-7 Identify and understand the individual factors that affect involvement the amount of time and effort a buyer
consumer buying decisions. Individual factors that affect consumer buying invests in the search, evaluation, and decision processes of
decisions include gender; age and family life cycle stage; and personality, self-concept, consumer behavior
routine response behavior the type of and lifestyle. Beyond obvious physiological differences, men and women differ in their social
decision making exhibited by consumers buying and economic roles, and that affects consumer buying decisions. A consumer’s age generally
frequently purchased, low-cost goods and services; indicates what products he or she may be interested in purchasing. Marketers often define their
requires little search and decision time target markets in terms of consumers’ life cycle stage, following changes in consumers’ attitudes
limited decision making the type of and behavioral tendencies as they mature. Finally, certain products and brands reflect consumers’
decision making that requires a moderate amount of personality, self-concept, and lifestyle.
time for gathering information and deliberating about
an unfamiliar brand in a familiar product category 6-8 Identify and understand the psychological factors that affect
extensive decision making the most consumer buying decisions. Psychological factors include perception, motivation,
complex type of consumer decision making, used and learning. These factors allow consumers to interact with the world around them, recognize
when buying an unfamiliar, expensive product or their feelings, gather and analyze information, formulate thoughts and opinions, and take
an infrequently bought item; requires use of several action. Perception allows consumers to recognize their consumption problems. Motivation
criteria for evaluating options and much time for is what drives consumers to take action to satisfy specific consumption needs. Almost all
seeking information consumer behavior results from learning, which is the process that creates changes in behavior
showrooming the practice of examining through experience.
merchandise in a physical retail location without
purchasing it, and then shopping online for a better
deal on the same item EXHIBIT 6.6 MASLOW’S HIERARCHY OF NEEDS
6-5
Self-actualization needs
culture the set of values, norms, attitudes, and
Self-development,
other meaningful symbols that shape human behavior self-realization
and the artifacts, or products, of that behavior as they
Esteem needs
are transmitted from one generation to the next Self-esteem,
subculture a homogeneous group of people who recognition,
share elements of the overall culture as well as unique status
elements of their own group
Social needs
social class a group of people in a society who Sense of belonging, love
are considered nearly equal in status or community
esteem, who regularly socialize among themselves
both formally and informally, and who share Safety needs
behavioral norms Security, protection
6-6
reference group all of the formal and informal Physiological needs
groups in society that influence an individual’s Hunger, thirst
purchasing behavior
primary membership group a reference
group with which people interact regularly in an
informal, face-to-face manner, such as family, friends, connected self-schema a perspective selective distortion a process whereby a
and coworkers whereby a consumer sees himself or herself as an consumer changes or distorts information that
secondary membership group a reference integral part of a group conflicts with his or her feelings or beliefs
group with which people associate less consistently 6-7 selective retention a process whereby a
and more formally than a primary membership consumer remembers only that information that
group, such as a club, professional group, or personality a way of organizing and grouping supports his or her personal beliefs
religious group the consistencies of an individual’s reactions to
situations motive a driving force that causes a person to take
aspirational reference group a group that action to satisfy specific needs
someone would like to join self-concept how consumers perceive themselves
in terms of attitudes, perceptions, beliefs, and self- Maslow’s hierarchy of needs a method
norm a value or attitude deemed acceptable by evaluations of classifying human needs and motivations into
a group five categories in ascending order of importance:
ideal self-image the way an individual would physiological, safety, social, esteem, and self-
nonaspirational reference group a like to be perceived
group with which an individual does not want to actualization
associate real self-image the way an individual actually learning a process that creates changes in
perceives himself or herself behavior, immediate or expected, through experience
opinion leader an individual who influences the
opinions of others 6-8 and practice
socialization process how cultural values and perception the process by which people select, stimulus generalization a form of learning
norms are passed down to children organize, and interpret stimuli into a meaningful and that occurs when one response is extended to a second
coherent picture stimulus similar to the first
separated self-schema a perspective whereby
a consumer sees himself or herself as distinct and selective exposure a process whereby a stimulus discrimination a learned ability to
separate from others consumer notices certain stimuli and ignores others differentiate among similar products
CHAPTER REVIEW 7
Business Marketing

7-1 Describe business marketing. Business marketing provides goods 7-1
and services that are bought for use in business rather than for personal consumption. business marketing (industrial, business-
Intended use, not physical characteristics, distinguishes a business product from a to-business, B-to-B, or B2B marketing) the
consumer product. marketing of goods and services to individuals and
organizations for purposes other than personal consumption
7-2 Describe trends in B-to-B Internet marketing. B-to-B companies use
the Internet in three major ways. First, they use their Web sites to facilitate communication business product (industrial product) a product
used to manufacture other goods or services, to facilitate an
and orders. Second, they use digital marketing to increase brand awareness. Third, they use
organization’s operations, or to resell to other customers
digital marketing—primarily in the form of content marketing—to position their businesses
as thought leaders and therefore generate sales leads. Content marketing, a strategic consumer product a product bought to satisfy an
individual’s personal wants or needs
marketing approach focused on creating and distributing valuable, relevant, and consistent
content, has played an important role for B-to-B marketers. As they build reputations in 7-2
their business areas, many B-to-B marketers use social media to share content, increase Content marketing a strategic marketing approach
awareness, and build relationships and community. Some metrics that are particularly that focuses on creating and distributing content that is
useful for increasing the success of a social media campaign are awareness, engagement, valuable, relevant and consistent.
and conversion.
7-3
7-3 Discuss the role of relationship marketing and strategic strategic alliance (strategic partnership)
alliances in business marketing. Relationship marketing entails seeking and a cooperative agreement between business firms
establishing long-term alliances or partnerships with customers. A strategic alliance is a relationship commitment a firm’s belief that an
cooperative agreement between business firms. Firms form alliances to leverage what they ongoing relationship with another firm is so important that
do well by partnering with others that have complementary skills. Although the concepts of the relationship warrants maximum efforts at maintaining
relationship marketing and strategic alliances are relatively new to American marketers, these it indefinitely
ideas have long been used by marketers in other cultures. trust the condition that exists when one party has
7-4 Identify the four major categories of business market confidence in an exchange partner’s reliability and
integrity
customers. Producer markets consist of for-profit individuals and organizations that
buy products to use in producing other products, as components of other products, or in keiretsu a network of interlocking corporate affiliates
facilitating business operations. Reseller markets consist of wholesalers and retailers that buy 7-4
finished products to resell for profit. Government markets include federal, state, county, and original equipment manufacturers (OEMs)
city governments that buy goods and services to support their own operations and serve the individuals and organizations that buy business goods and
needs of citizens. Institutional markets consist of very diverse nonbusiness institutions whose incorporate them into the products they produce for eventual
main goals do not include profit. sale to other producers or to consumers
7-5 Explain the North American Industry Classification 7-5
System. The North American Industry Classification System (NAICS) provides a way to North American Industry Classification System
identify, analyze, segment, and target business and government markets. Organizations can (NAICS) a detailed numbering system developed by the
be identified and compared by a numeric code indicating business sector, subsector, industry United States, Canada, and Mexico to classify North American
group, industry, and industry subdivision. NAICS is a valuable tool for analyzing, segmenting, business establishments by their main production processes
and targeting business markets.
7-6
7-6 Explain the major differences between business and consumer derived demand the demand for business products
markets. In business markets, demand is derived, inelastic, joint, and fluctuating. joint demand the demand for two or more items used
Purchase volume is much larger than in consumer markets, customers are fewer and together in a final product
more geographically concentrated, and distribution channels are more direct. Buying is
multiplier effect (accelerator principle)
approached more formally using professional purchasing agents, more people are involved phenomenon in which a small increase or decrease in
in the buying process, negotiation is more complex, and reciprocity and leasing are more consumer demand can produce a much larger change in
common. And, finally, selling strategy in business markets normally focuses on personal demand for the facilities and equipment needed to make
contact rather than on advertising. the consumer product
business-to-business online exchange 7-7 Describe the seven types of business goods and services. Major
an electronic trading floor that provides companies equipment includes capital goods such as heavy machinery. Accessory equipment is typically less
with integrated links to their customers and suppliers expensive and shorter lived than major equipment. Raw materials are extractive or agricultural
reciprocity a practice whereby business products that have not been processed. Component parts are finished or near-finished items to
purchasers choose to buy from their own customers be used as parts of other products. Processed materials are used to manufacture other products.
7-7 Supplies are consumable and not used as part of a final product. Business services are intangible
major equipment (installations) capital products that many companies use in their operations.
goods such as large or expensive machines, mainframe 7-8 Discuss the unique aspects of business buying behavior. Business
computers, blast furnaces, generators, airplanes, buying behavior is distinguished by five fundamental characteristics. First, buying is normally
and buildings undertaken by a buying center consisting of many people who range widely in authority level.
accessory equipment goods, such as portable Second, business buyers typically evaluate alternative products and suppliers based on quality,
tools and office equipment, that are less expensive and service, and price—in that order. Third, business buying falls into three general categories: new
shorter-lived than major equipment buys, modified rebuys, and straight rebuys. Fourth, the ethics of business buyers and sellers are
raw materials unprocessed extractive or often scrutinized. Fifth, customer service before, during, and after the sale plays a big role in
agricultural products, such as mineral ore, lumber, business purchase decisions.
wheat, corn, fruits, vegetables, and fish
component parts either finished items ready for
assembly or products that need very little processing
before becoming part of some other product
processed materials products used directly in
manufacturing other products
supplies consumable items that do not become
part of the final product
business services expense items that do not
become part of a final product
7-8
buying center all those people in an organization
who become involved in the purchase decision
new buy a situation requiring the purchase of a
product for the first time
modified rebuy a situation in which the
purchaser wants some change in the original good
or service
straight rebuy a situation in which the purchaser
reorders the same goods or services without looking
for new information or investigating other suppliers
CHAPTER REVIEW 8
Segmenting and Targeting Markets

8-1 Describe the characteristics of markets and market segments. 8-1
A market is composed of individuals or organizations with the ability and willingness to market people or organizations with needs or wants and
make purchases to fulfill their needs or wants. A market segment is a group of individuals or the ability and willingness to buy
organizations with similar product needs as a result of one or more common characteristics. market segment a subgroup of people or organizations
sharing one or more characteristics that cause them to have
8-2 Explain the importance of market segmentation. Before the similar product needs
1960s, few businesses targeted specific market segments. Today, segmentation is a crucial
market segmentation the process of dividing a market
marketing strategy for nearly all successful organizations. Market segmentation enables
into meaningful, relatively similar, and identifiable segments
marketers to tailor marketing mixes to meet the needs of particular population segments. or groups
Segmentation helps marketers identify consumer needs and preferences, areas of declining
demand, and new marketing opportunities. 8-4
8-3 Discuss the criteria for successful market segmentation. segmentation bases (variables) characteristics of
Successful market segmentation depends on four basic criteria: (1) a market segment must individuals, groups, or organizations
be substantial and have enough potential customers to be viable; (2) a market segment must geographic segmentation segmenting markets by
be identifiable and measurable; (3) members of a market segment must be accessible to region of a country or the world, market size, market density,
marketing efforts; and (4) a market segment must respond to particular marketing efforts in a or climate
way that distinguishes it from other segments. demographic segmentation segmenting markets by
age, gender, income, ethnic background, and family life cycle
8-4 Describe the bases commonly used to segment consumer
family life cycle (FLC) a series of stages determined
markets. Five bases are commonly used for segmenting consumer markets. Geographic by a combination of age, marital status, and the presence or
segmentation is based on region, size, density, and climate characteristics. Demographic absence of children
segmentation is based on age, gender, income level, ethnicity, and family life cycle
psychographic segmentation segmenting
characteristics. Psychographic segmentation includes personality, motives, and lifestyle markets on the basis of personality, motives, lifestyles, and
characteristics. Benefits sought is a type of segmentation that identifies customers according geodemographics
to the benefits they seek in a product. Finally, usage segmentation divides a market by the
geodemographic segmentation segmenting
amount of product purchased or consumed. potential customers into neighborhood lifestyle categories
8-5 Describe the bases for segmenting business markets. Business markets benefit segmentation the process of grouping
can be segmented on two general bases. First, businesses may segment markets based on company customers into market segments according to the benefits
characteristics, such as customers’ geographic location, type of company, company size, and product they seek from the product
use. Second, companies may segment customers based on the buying processes those customers use. usage-rate segmentation dividing a market by the
amount of product bought or consumed
8-6 List the steps involved in segmenting markets. Six steps are
involved when segmenting markets: (1) selecting a market or product category for study; (2) 80/20 principle a principle holding that 20 percent of all
choosing a basis or bases for segmenting the market; (3) selecting segmentation descriptors; customers generate 80 percent of the demand
(4) profiling and evaluating segments; (5) selecting target markets; and (6) designing, 8-5
implementing, and maintaining appropriate marketing mixes.
satisficers business customers who place an order with
8-7 Discuss alternative strategies for selecting target markets. Marketers the first familiar supplier to satisfy product and delivery
select target markets using three different strategies: undifferentiated targeting, concentrated requirements
targeting, and multisegment targeting. An undifferentiated targeting strategy assumes that optimizers business customers who consider numerous
all members of a market have similar needs that can be met with a single marketing mix. A suppliers (both familiar and unfamiliar), solicit bids, and study
concentrated targeting strategy focuses all marketing efforts on a single market segment. all proposals carefully before selecting one
Multisegment targeting is a strategy that uses two or more marketing mixes to target two or more
market segments.
8-7
target market a group of people or organizations for
8-8 Explain how CRM can be used as a targeting tool. Companies which an organization designs, implements, and maintains
that successfully implement CRM tend to customize the goods and services offered to their a marketing mix intended to meet the needs of that group,
customers based on data generated through interactions between carefully defined groups resulting in mutually satisfying exchanges
of customers and the company. CRM relies on four things to be successful: personalization, undifferentiated targeting strategy a marketing
time savings, loyalty, and technology. Although mass marketing will probably continue to be approach that views the market as one big market with no
used, the advantages of CRM cannot be ignored. individual segments and thus uses a single marketing mix
concentrated targeting strategy a 8-9 Explain how and why firms implement positioning strategies
strategy used to select one segment of a market for and how product differentiation plays a role. Positioning is used to influence
targeting marketing efforts consumer perceptions of a particular brand, product line, or organization in relation to
niche one segment of a market competitors. The term position refers to the place that the offering occupies in consumers’ minds.
multisegment targeting strategy a To establish a unique position, many firms use product differentiation, emphasizing the real or
strategy that chooses two or more well-defined perceived differences between competing offerings. Products may be differentiated on the
market segments and develops a distinct marketing basis of attribute, price and quality, use or application, product user, product class, competitor, or
mix for each emotion. Some firms, instead of using product differentiation, position their products as being
cannibalization a situation that occurs when similar to competing products or brands. Sometimes products or companies are repositioned in
sales of a new product cut into sales of a firm’s existing order to sustain growth in slow markets or to correct positioning mistakes.
products
8-9
positioning developing a specific marketing mix PERCEPTUAL MAP AND POSITIONING STRATEGY
to influence potential customers’ overall perception of EXHIBIT 8.3
a brand, product line, or organization in general
FOR SAKS DEPARTMENT STORES
position the place a product, brand, or group of
products occupies in consumers’ minds relative to Positioning Bases
Spending Levels
competing offerings
product differentiation a positioning BEST
strategy that some firms use to distinguish their Chanel, Gucci, Louis Vuitton,
products from those of competitors Oscar de la Renta, Bill Blass
perceptual mapping a means of displaying or
graphing, in two or more dimensions, the location of
products, brands, or groups of products in customers’ Positions
minds
repositioning changing consumers’ perceptions
of a brand in relation to competing brands
“PARK AVENUE”
Preferred classic “UPTOWN” modern “SOHO” trendy
Styles
BETTER
Piazza Sempione, Armani
Collezioni, Ralph Lauren
GOOD
Dana Buchman, Ellen
Tracy, Lafayette, 148
CHAPTER REVIEW 9
Marketing Research

9-1 Define marketing research and explain its importance to 9-1
marketing decision making. Marketing research is a process of collecting and marketing research the process of planning, collecting,
analyzing data for the purpose of solving specific marketing problems. Practically speaking, and analyzing data relevant to a marketing decision
marketers use marketing research to improve the decision-making process, trace problems,
serve customers, gauge the value of goods and services, understand the marketplace,
9-2
and measure customer service efforts. marketing research problem determining what
information is needed and how that information can be
obtained efficiently and effectively
EXHIBIT 9.1 THE MARKETING RESEARCH PROCESS
marketing research objective the specific
information needed to solve a marketing research problem;
1 the objective should be to provide insightful decision-making
Identify and formulate
information
the problem/
opportunity. management decision problem a broad-based
problem that uses marketing research in order for managers
2 Plan the research
to take proper actions
secondary data data previously collected for any
design and gather purpose other than the one at hand
secondary data.
big data the exponential growth in the volume, variety,
and velocity of information and the development of complex,
3 Specify the new tools to analyze and create meaning from such data
sampling research design specifies which research questions
procedures. must be answered, how and when the data will be gathered,
and how the data will be analyzed
4 primary data information that is collected for the
Collect primary first time; used for solving the particular problem under
data. investigation
survey research the most popular technique for
5 gathering primary data, in which a researcher interacts with
people to obtain facts, opinions, and attitudes
Analyze the
data. mall intercept interview a survey research method
that involves interviewing people in the common areas of
shopping malls
6 computer-assisted personal interviewing an
Prepare and present interviewing method in which the interviewer reads questions
the report.
from a computer screen and enters the respondent’s data
directly into the computer
7 computer-assisted self-interviewing
an interviewing method in which a mall interviewer
Follow up. intercepts and directs willing respondents to nearby
computers where each respondent reads questions off
a computer screen and directly keys his or her answers into
the computer
9-2 Describe the steps involved in conducting a marketing central-location telephone (CLT) facility
research project. The marketing research process involves several basic steps. First, a specially designed phone room used to conduct telephone
the researcher and the decision maker must agree on a problem statement or set of interviewing
research objectives. Social media and big data may be helpful in this pursuit. The researcher executive interview a type of survey that involves
then creates an overall research design to specify how primary data will be gathered and interviewing businesspeople at their offices concerning
analyzed. Before collecting data, the researcher decides whether the group to be interviewed industrial products or services
will be a probability or nonprobability sample. Field service firms are often hired to carry
out data collection. Once data have been collected, the researcher analyzes them using
statistical analysis. The researcher then prepares and presents oral and written reports, with
focus group seven to ten people who participate conclusions and recommendations, to management. As a final step, the researcher determines
in a group discussion led by a moderator whether the recommendations were implemented and what could have been done to make the
open-ended question an interview project more successful.
question that encourages an answer phrased in the
respondent’s own words
9-3 Discuss the profound impact of the Internet on marketing
research. The Internet has simplified the secondary data search process. Internet survey
closed-ended question an interview question research is surging in popularity. Internet surveys can be created rapidly, are reported in real time,
that asks the respondent to make a selection from a
are relatively inexpensive, and are easily personalized. Often, researchers use the Internet to contact
limited list of responses
respondents who are difficult to reach by other means. The Internet can also be used to conduct
scaled-response question a closed-ended focus groups, to distribute research proposals and reports, and to facilitate collaboration between
question designed to measure the intensity of a
the client and the research supplier.
respondent’s answer
observation research a research method that 9-4 Describe the growing importance of mobile research. Mobile survey
relies on four types of observation: people watching traffic now accounts for approximately 30 percent of interview responses. Mobile surveys are
people, people watching an activity, machines designed to fit into the brief cracks of time that open up when a person waits for a plane, is early
watching people, and machines watching an activity for an appointment, commutes to work on a train, or stands in a line. Marketers strive to engage
mystery shoppers researchers posing as respondents in the moment because mobile research provides immediate feedback when a
customers who gather observational data about consumer makes a decision to purchase, consumes a product, or experiences some form of
a store promotion. Mobile research has also expanded into qualitative research. Using an app, respondents
behavioral targeting (BT) a form of can participate in bulletin board and research community discussions.
observation marketing research that combines
a consumer’s online activity with psychographic
9-5 Discuss the growing importance of scanner-based research. A
and demographic profiles compiled in databases scanner-based research system enables marketers to monitor a market panel’s exposure and
reaction to such variables as advertising, coupons, store displays, packaging, and price. By
social media monitoring the use of
analyzing these variables in relation to the panel’s subsequent buying behavior, marketers gain
automated tools to monitor online buzz, chatter,
and conversations useful insight into sales and marketing strategies.
ethnographic research the study of human 9-6 Explain when marketing research should be conducted. Because
behavior in its natural context; involves observation acquiring marketing information can be time-consuming and costly, deciding to acquire additional
of behavior and physical setting decision-making information depends on managers’ perceptions of its quality, price, and timing.
experiment a method of gathering primary data Research, therefore, should be undertaken only when the expected value of the information is
in which the researcher alters one or more variables greater than the cost of obtaining it. A customer relationship management system is integral to
while observing the effects of those alterations on analyzing, transforming, and leveraging customer data.
another variable
sample a subset from a larger population
9-7 Explain the concept of competitive intelligence. Intelligence is analyzed
information, and it becomes decision-making intelligence when it has implications for the
universe the population from which a sample organization. By helping managers assess their competition and vendors, competitive intelligence
will be drawn (CI) leads to fewer surprises. CI is part of a sound marketing strategy, helps companies respond to
probability sample a sample in which every competitive threats, and helps reduce unnecessary costs.
element in the population has a known statistical
likelihood of being selected
random sample a sample arranged in such a
way that every element of the population has an equal
chance of being selected as part of the sample
nonprobability sample any sample in which
little or no attempt is made to get a representative
cross section of the population
convenience sample a form of nonprobability
sample using respondents who are convenient or
readily accessible to the researcher—for example,
employees, friends, or relatives
measurement error an error that occurs when
there is a difference between the information desired field service firm a firm that specializes in BehaviorScan a scanner-based research program
by the researcher and the information provided by the interviewing respondents on a subcontracted basis that tracks the purchases of 3,000 households through
measurement process cross-tabulation a method of analyzing data store scanners in each research market
sampling error an error that occurs when a that lets the analyst look at the responses to one InfoScan a scanner-based sales-tracking service
sample somehow does not represent the target question in relation to the responses to one or more for the consumer packaged-goods industry
population other questions neuromarketing a field of marketing that
studies the body’s responses to marketing stimuli
frame error an error that occurs when a sample 9-5
drawn from a population differs from the target scanner-based research a system for 9-7
population gathering information from a single group of competitive intelligence (CI) an intelligence
random error an error that occurs when the respondents by continuously monitoring the system that helps managers assess their competition
selected sample is an imperfect representation of advertising, promotion, and pricing they are exposed to and vendors in order to become more efficient and
the overall population and the things they buy effective competitors
CHAPTER REVIEW 10
Product Concepts

10-1 Define the term product. A product is anything, desired or not, that a 10-1
person or organization receives in an exchange. The basic goal of purchasing decisions is product everything, both favorable and unfavorable, that a
to receive the tangible and intangible benefits associated with a product. Tangible aspects person receives in an exchange
include packaging, style, color, size, and features. Intangible qualities include service, the
retailer’s image, the manufacturer’s reputation, and the social status associated with a
10-2
product. An organization’s product offering is the crucial element in any marketing mix. convenience product a relatively inexpensive item
that merits little shopping effort
10-2 Classify consumer products. Consumer products are classified into four shopping product a product that requires comparison
categories: convenience products, shopping products, specialty products, and unsought shopping because it is usually more expensive than a
products. Convenience products are relatively inexpensive and require limited shopping convenience product and is found in fewer stores
effort. Shopping products are of two types: homogeneous and heterogeneous. Because specialty product a particular item for which consumers
of the similarity of homogeneous products, they are differentiated mainly by price and search extensively and are very reluctant to accept substitutes
features. In contrast, heterogeneous products appeal to consumers because of their distinct unsought product a product unknown to the potential
characteristics. Specialty products possess unique benefits that are highly desirable to certain buyer or a known product that the buyer does not actively seek
customers. Finally, unsought products are either new products or products that require
aggressive selling because they are generally avoided or overlooked by consumers. 10-3
product item a specific version of a product that can
10-3 Define the terms product item, product line, and product mix. be designated as a distinct offering among an organization’s
A product item is a specific version of a product that can be designated as a distinct offering products
among an organization’s products. A product line is a group of closely related products product line a group of closely related product items
offered by an organization. An organization’s product mix includes all the products it sells.
product mix all products that an organization sells
Product mix width refers to the number of product lines an organization offers. Product line
depth is the number of product items in a product line. Firms modify existing products by product mix width the number of product lines an
changing their quality, functional characteristics, or style. Product line extension occurs when organization offers
a firm adds new products to existing product lines. product line depth the number of product items in a
product line
10-4 Describe marketing uses of branding. A brand is a name, term, or product modification changing one or more of a
symbol that identifies and differentiates a firm’s products. Established brands encourage product’s characteristics
customer loyalty and help new products succeed. Branding strategies require decisions
planned obsolescence the practice of modifying
about individual, family, manufacturers’, and private brands. products so those that have already been sold become
obsolete before they actually need replacement
EXHIBIT 10.3 COMPARISON OF MANUFACTURER’S AND PRIVATE BRANDS FROM THE RESELLERS PERSPECTIVE
Key Advantages of Carrying Key Advantages of Carrying
Manufacturers’ Brands Private Brands
• Heavy advertising to the consumer by manufacturers such as Procter & • A wholesaler or retailer can usually earn higher profits on its own brand.
Gamble helps develop strong consumer loyalties. In addition, because the private brand is exclusive, there is less pressure
to mark down the price to meet competition.
• Well-known manufacturers’ brands, such as Kodak and Fisher-Price, • A manufacturer can decide to drop a brand or a reseller at any time or
can attract new customers and enhance the dealer’s (wholesaler’s or even become a direct competitor to its dealers.
retailer’s) prestige.
• Many manufacturers o er rapid delivery, enabling the dealer to carry • A private brand ties the customer to the wholesaler or retailer. A person
less inventory. who wants a DieHard battery must go to Sears.
• If a dealer happens to sell a manufacturer’s brand of poor quality, the • Wholesalers and retailers have no control over the intensity of
customer may simply switch brands and remain loyal to the dealer. distribution of manufacturers’ brands. Walmart store managers don’t
have to worry about competing with other sellers of Sam’s American
Choice products or Ol‘ Roy dog food. They know that these brands are
sold only in Walmart and Sam’s Club stores.
product line extension adding additional 10-5 Describe marketing uses of packaging and labeling. Packaging has
products to an existing product line in order to four functions: containing and protecting products; promoting products; facilitating product
compete more broadly in the industry storage, use, and convenience; and facilitating recycling and reducing environmental damage
10-4 As a tool for promotion, packaging identifies the brand and its features. It also serves the critical
brand a name, term, symbol, design, or function of differentiating a product from competing products and linking it with related products
combination thereof that identifies a seller’s products from the same manufacturer. The label is an integral part of the package, with persuasive and
and differentiates them from competitors’ products informational functions. In essence, the package is the marketer’s last chance to influence buyers
brand name that part of a brand that can be before they make a purchase decision.
spoken, including letters, words, and numbers 10-6 Discuss global issues in branding and packaging. In addition to
brand mark the elements of a brand that cannot brand piracy, international marketers must address a variety of concerns regarding branding and
be spoken packaging, including choosing a brand name policy, translating labels and meeting host-country
brand equity the value of a company or brand labeling requirements, making packages aesthetically compatible with host-country cultures, and
name offering the sizes of packages preferred in host countries.
global brand a brand that obtains at least a one-
third of its earnings from outside its home country, is Global Branding Considerations Global Packaging Considerations
recognizable outside its home base of customers, and
One name Labeling
has publicly available marketing and financial data
brand loyalty consistent preference for one Modify or adapt one name Aesthetics
brand over all others Different names in different markets Climate
manufacturer’s brand the brand name of a
manufacturer 10-7 Describe how and why product warranties are important
marketing tools. Just as a package is designed to protect the product, a warranty protects
private brand a brand name owned by a
wholesaler or a retailer the buyer and gives essential information about the product. A warranty confirms the quality or
performance of a good or service. An express warranty is a written guarantee. Express warranties
captive brand a brand manufactured by a third
range from simple statements—such as “100-percent cotton” (a guarantee of quality) and
party for an exclusive retailer, without evidence of that
retailer’s affiliation “complete satisfaction guaranteed” (a statement of performance)—to extensive documents
written in technical language. In contrast, an implied warranty is an unwritten guarantee that the
individual branding using different brand
good or service is fit for the purpose for which it was sold. All sales have an implied warranty under
names for different products
the Uniform Commercial Code.
family branding marketing several different
products under the same brand name Express warranty 5 written guarantee
co-branding placing two or more brand names on Implied warranty 5 unwritten guarantee
a product or its package
trademark the exclusive right to use a brand or
part of a brand
service mark a trademark for a service
generic product name identifies a product by
class or type and cannot be trademarked
10-5
persuasive labeling a type of package labeling
that focuses on a promotional theme or logo, and
consumer information is secondary
informational labeling a type of package
labeling designed to help consumers make proper
product selections and lower their cognitive
dissonance after the purchase
universal product codes (UPCs) a series
of thick and thin vertical lines (bar codes) readable by
computerized optical scanners that represent numbers
used to track products
10-7
warranty a confirmation of the quality or
performance of a good or service
express warranty a written guarantee
implied warranty an unwritten guarantee that
the good or service is fit for the purpose for which it
was sold
CHAPTER REVIEW
Developing and 11
Managing Products

11-1 Explain the importance of developing new products and 11-1
describe the six categories of new products. New products are important new product a product new to the world, the market,
to sustain growth and profits and to replace obsolete items. New products can be classified the producer, the seller, or some combination of these
as new-to-the-world products (discontinuous innovations), new product lines, additions
to existing product lines, improvements or revisions of existing products, repositioned
11-2
products, or lower-priced products. To sustain or increase profits, a firm must innovate. new-product strategy a plan that links the new-
product development process with the objectives of the
11-2 Explain the steps in the new-product development process. marketing department, the business unit, and the corporation
First, a firm forms a new-product strategy by outlining the characteristics and roles product development a marketing strategy that
of future products. Then new-product ideas are generated by customers, employees, entails the creation of marketable new products; the
distributors, competitors, vendors, and internal research and development personnel. Once process of converting applications for new technologies into
a product idea has survived initial screening by an appointed screening group, it undergoes marketable products
business analysis to determine its potential profitability. If a product concept seems brainstorming the process of getting a group to think
viable, it progresses into the development phase, in which the technical and economic of unlimited ways to vary a product or solve a problem
feasibility of the manufacturing process is evaluated. The development phase also includes screening the first filter in the product development
laboratory and use testing of a product for performance and safety. Following initial testing process, which eliminates ideas that are inconsistent with
and refinement, most products are introduced in a test market to evaluate consumer the organization’s new-product strategy or are obviously
response and marketing strategies. Finally, test market successes are propelled into full inappropriate for some other reason
commercialization. The commercialization process involves starting up production, building concept test a test to evaluate a new-product idea,
inventories, shipping to distributors, training a sales force, announcing the product to the usually before any prototype has been created
trade, and advertising to consumers. business analysis the second stage of the screening
process where preliminary figures for demand, cost, sales,
EXHIBIT 11.1 NEW-PRODUCT DEVELOPMENT PROCESS and profitability are calculated
development the stage in the product development
process in which a prototype is developed and a marketing
strategy is outlined
simultaneous product development a team-
oriented approach to new-product development
test marketing the limited introduction of a product
and a marketing program to determine the reactions of
potential customers in a market situation
simulated (laboratory) market testing the
presentation of advertising and other promotional materials
for several products, including a test product, to members
1 New-product strategy
of the product’s target market
2 Idea generation commercialization the decision to market a product
11-5
3 Idea screening innovation a product perceived as new by a potential
adopter
4 Business analysis diffusion the process by which the adoption of an
innovation spreads
5 Development 11-6
product life cycle (PLC) a concept that provides a
6 Test marketing way to trace the stages of a product’s acceptance, from its
introduction (birth) to its decline (death)
7
Commercialization
New product
product category all brands that satisfy a 11-3 Understand why some products succeed and others fail. Despite
particular type of need the amount of time and money spent on developing and testing new products, a large proportion
introductory stage the full-scale launch of a of new-product introductions fail. Products fail for a number of reasons. Failure can be a matter of
new product into the marketplace degree—absolute failure occurs when a company cannot recoup its development, marketing, and
growth stage the second stage of the product life production costs, while relative product failure occurs when the product returns a profit but fails
cycle when sales typically grow at an increasing rate, to achieve sales, profit, or market share goals.
many competitors enter the market, large companies
may start to acquire small pioneering firms, and profits 11-4 Discuss global issues in new-product development. A marketer with
are healthy global vision seeks to develop products that can easily be adapted to suit local needs. The goal is
maturity stage a period during which sales not simply to develop a standard product that can be sold worldwide. Smart global marketers also
increase at a decreasing rate look for good product ideas worldwide.
decline stage a long-run drop in sales 11-5 Explain the diffusion process through which new products are
adopted. The diffusion process is the spread of a new product from its producer to ultimate
adopters. Adopters in the diffusion process belong to five categories: innovators, early adopters,
the early majority, the late majority, and laggards. Product characteristics that affect the rate of
adoption include product complexity, compatibility with existing social values, relative advantage
over existing substitutes, visibility, and “trialability.” The diffusion process is facilitated by word-of-
mouth communication and communication from marketers to consumers.
11-6 Explain the concept of product life cycles. All brands and product
categories undergo a life cycle with four stages: introduction, growth, maturity, and decline.
The rate at which products move through these stages varies dramatically. Marketing managers
use the product life cycle concept as an analytical tool to forecast a product’s future and devise
effective marketing strategies.
EXHIBIT 11.2 FOUR STAGES OF THE PRODUCT LIFE CYCLE
Introductory Growth Maturity Decline

stage stage stage stage
Sales
Dollars
Profits
Time
CHAPTER REVIEW 12
Services and Nonprofit
Organization Marketing

12-1 Discuss the importance of services to the economy. The service 12-1
sector plays a crucial role in the U.S. economy. In 2014, service industries accounted for service the result of applying human or mechanical efforts
68 percent of U.S. GDP and four out of five U.S. jobs. Services have unique characteristics to people or objects
that distinguish them from goods, and marketing strategies need to be adjusted for 12-2
these characteristics. intangibility the inability of services to be touched, seen,
12-2 Discuss the differences between services and goods. Services tasted, heard, or felt in the same manner that goods can be
sensed
are distinguished by four characteristics. Services are intangible performances in that
they lack clearly identifiable physical characteristics, making it difficult for marketers search quality a characteristic that can be easily assessed
to communicate their specific benefits to potential customers. The production and before purchase
consumption of services occurs simultaneously. Services are heterogeneous because their experience quality a characteristic that can be assessed
quality depends on such elements as the service provider, individual consumer, location, and only after use
the like. Finally, services are perishable in the sense that they cannot be stored or saved. As a credence quality a characteristic that consumers may
result, synchronizing supply with demand is particularly challenging in the service industry. have difficulty assessing even after purchase because they do
not have the necessary knowledge or experience
12-3 Describe the components of service quality and the gap
inseparability the inability of the production and
model of service quality. Service quality has five components: reliability (ability to consumption of a service to be separated; consumers must be
perform the service dependably, accurately, and consistently), responsiveness (providing present during the production
prompt service), assurance (knowledge and courtesy of employees and their ability to
heterogeneity the variability of the inputs and
convey trust), empathy (caring, individualized attention), and tangibles (physical evidence outputs of services, which causes services to tend to be less
of the service). standardized and uniform than goods
The gap model identifies five key discrepancies that can influence customer evaluations of perishability the inability of services to be stored,
service quality. When the gaps are large, service quality is low. As the gaps shrink, service warehoused, or inventoried
quality improves. Gap 1 is found between customers’ expectations and management’s 12-3
perceptions of those expectations. Gap 2 is found between management’s perception of reliability the ability to perform a service dependably,
what the customer wants and specifications for service quality. Gap 3 is found between accurately, and consistently
service quality specifications and delivery of the service. Gap 4 is found between service responsiveness the ability to provide prompt service
delivery and what the company promises to the customer through external communication.
assurance the knowledge and courtesy of employees and
Gap 5 is found between customers’ service expectations and their perceptions of service
their ability to convey trust
performance.
empathy caring, individualized attention to customers
12-4 Develop marketing mixes for services. “Product” (service) strategy tangibles the physical evidence of a service, including the
issues include what is being processed (people, possessions, mental stimulus, information), physical facilities, tools, and equipment used to provide the
core and supplementary services, customization versus standardization, and the service mix. service
Distribution (place) decisions involve convenience, number of outlets, direct versus indirect gap model a model identifying five gaps that can
distribution, and scheduling. Stressing tangible cues, using personal sources of information, cause problems in service delivery and influence customer
creating strong organizational images, and engaging in postpurchase communication are evaluations of service quality
effective promotion strategies. Pricing objectives for services can be revenue oriented,
operations oriented, patronage oriented, or any combination of the three. 12-4
core service the most basic benefit the consumer is
12-5 Discuss relationship marketing in services. Relationship marketing buying
in services involves attracting, developing, and retaining customer relationships. There are supplementary services a group of services that
four levels of relationship marketing: level 1 focuses on pricing incentives; level 2 uses pricing support or enhance the core service
incentives and social bonds with customers; level 3 focuses on customization; and level 4 mass customization a strategy that uses technology to
uses pricing, social bonds, and structural bonds to build long-term relationships. deliver customized services on a mass basis
12-6 Explain internal marketing in services. Internal marketing means 12-6
treating employees as customers and developing systems and benefits that satisfy their internal marketing treating employees as customers
needs. Employees who like their jobs and are happy with the firm they work for are more and developing systems and benefits that satisfy their needs
likely to deliver good service.
EXHIBIT 12.1 GAP MODEL OF SERVICE QUALITY
Consumer Gap Model of Service Quality
Word-of-Mouth
Personal Needs Past Experience
Communications
Expected Service
GAP 5
Perceived Service
Marketer GAP 4
Service Delivery External
(Including pre- Communications
and post-contacts) to Consumers
GAP 3
Translation of
Perceptions into
GAP 1 Service Quality Specs
GAP 2
Management
Perceptions of
Consumer Expectations
The gap analysts model measures consumer perceptions of service quality. Managers use the model to ana-
lyze sources of quality problems and to understand how service quality can be improved.
Based on Valarie A. Zeithaml, Mary Jo Bitner, and Dwayne Gremler, Services Marketing, 4/e, © 2006 (New York: McGraw-Hill, 2006).
12-7 12-7 Describe nonprofit organization marketing. Nonprofit organizations

nonprofit organization an organization pursue goals other than profit, market share, and return on investment. Nonprofit organization
that exists to achieve some goal other than the usual marketing facilitates mutually satisfying exchanges between nonprofit organizations and their
business goals of profit, market share, or return on target markets. Several unique characteristics distinguish nonbusiness marketing strategy, including
investment a concern with services and social behaviors rather than manufactured goods and profit; a difficult,
nonprofit organization marketing the undifferentiated, and in some ways marginal target market; a complex product that may have only
effort by nonprofit organizations to bring about indirect benefits and elicit very low involvement; distribution that may or may not require special
mutually satisfying exchanges with target markets facilities depending on the service provided; a relative lack of resources for promotion; and prices
public service advertisement (PSA) only indirectly related to the exchange between the producer and the consumer of services.
an announcement that promotes a program of a
federal, state, or local government or of a 12-8 Discuss global issues in services marketing. The United States has
nonprofit organization become the world’s largest exporter of services. Although competition is keen, the United States has
a competitive advantage because of its vast experience in many service industries. To be successful
globally, service firms must adjust their marketing mix for the environment of each target country.
CHAPTER REVIEW 13
Supply Chain Management and
Marketing Channels

13-1 Define the terms supply chain and supply chain management 13-1
and discuss the benefits of supply chain management. Management supply chain the connected chain of all of the business
coordinates and integrates all of the activities performed by supply chain members into a entities, both internal and external to the company, that
seamless process from the source to the point of consumption. The benefits of supply chain perform or support the logistics function
management include reduced inventory, transportation, warehousing, and packaging costs; supply chain management a management system
greater supply chain flexibility; improved customer service; and higher revenues. that coordinates and integrates all of the activities performed
by supply chain members into a seamless process, from the
13-2 Discuss the concepts of internal and external supply chain source to the point of consumption, resulting in enhanced
integration and explain why each of these types of integration is customer and economic value
important. In the modern supply chain, integration can be either internal or external.
supply chain agility an operational strategy focused
Internally, the very best companies develop a managerial orientation toward demand-
on creating inventory velocity and operational flexibility
supply integration. Externally, five types of integration are sought by firms interested in simultaneously in the supply chain
providing top-level service to customers: relationship integration, measurement integration,
technology and planning integration, material and service supplier integration, and 13-2
customer integration. supply chain orientation a system of management
13-3 Identify the eight key processes of excellent supply chain practices that are consistent with a “systems thinking” approach
management and discuss how each of these processes affects the supply chain integration when multiple firms or
end customer. The key processes that leading supply chain companies focus on are business functions in a supply chain coordinate their activities
(1) customer relationship management, (2) customer service management, (3) demand and processes so that they are seamlessly linked to one
another in an effort to satisfy the customer
management, (4) order fulfillment, (5) manufacturing flow management, (6) supplier
relationship management, (7) product development and commercialization, and (8) returns demand-supply integration (DSI) a supply
management. When firms practice excellent supply chain management, each of these chain operational philosophy focused on integrating the
supply-management and demand-generating functions of
processes is integrated from end to end in the supply chain.
an organization
13-4 Understand the importance of sustainable supply chain
management to modern business operations. Sustainable supply chain 13-3
management involves the integration and balancing of environmental, social, and economic business processes bundles of interconnected activities
thinking into all phases of the supply chain management process. that stretch across firms in the supply chain
customer relationship management (CRM)
13-5 Discuss how new technology and emerging trends are process allows companies to prioritize their marketing
impacting the practice of supply chain management. Several emerging focus on different customer groups according to each group’s
trends are changing the job of today’s supply chain manager. Some of the business long-term value to the company or supply chain
trends affecting supply chain management include outsourcing logistics, public-private customer service management process presents
partnerships, electronic distribution, maintaining a secure supply chain, and new analytics a multi-company, unified response system to the customer
tools. While these changes exert pressure on managers to change the way their supply whenever complaints, concerns, questions, or comments
chains function, they also help make supply chain management more integrated and are voiced
easier to track. demand management process seeks to align
13-6 Explain what marketing channels and channel intermediaries supply and demand throughout the supply chain by
are and describe their functions and activities. A marketing channel is a anticipating customer requirements at each level and creating
demand-related plans of action prior to actual customer
business structure of interdependent organizations that reach from the point of production
purchasing behavior
to the consumer. Intermediaries negotiate with one another, buy and sell products, and
facilitate the change of ownership between buyer and seller. Retailers are those firms in the order fulfillment process a highly integrated process,
often requiring persons from multiple companies and multiple
channel that sell directly to consumers.
functions to come together and coordinate to create customer
13-7 Describe common channel structures and strategies and the satisfaction at a given place and time
factors that influence their choice. When possible, producers use the direct order cycle time the time delay between the placement
channel to sell directly to consumers. When one or more channel members are small of a customer’s order and the customer’s receipt of that order
companies, an agent/broker channel may be the best solution. Most consumer products manufacturing flow management process
are sold through distribution channels similar to the retailer channel and the wholesaler concerned with ensuring that firms in the supply chain have
channel. Dual distribution may be used to distribute the same product to target markets, the needed resources to manufacture with flexibility and to
and companies often form strategic channel alliances to use already-established channels. move products through a multi-stage production process
supplier relationship management Managers must decide what role distribution will play in the overall marketing strategy. In addition,
process supports manufacturing flow by they must be sure that the channel strategy chosen is consistent with market factors, product
identifying and maintaining relationships with factors, and producer factors. Organizations have three options for intensity of distribution:
highly valued suppliers intensive distribution, selective distribution, or exclusive distribution.
product development and
commercialization process includes 13-8 Discuss multichannel and omnichannel marketing in both
the group of activities that facilitates the joint B-to-B and B-to-C structures and explain why these concepts are
development and marketing of new offerings among important. Many companies have begun employing multichannel marketing strategies,
a group of supply chain partner firms whereby customers are offered information, goods, services, and/or support through one or more
returns management process enables synchronized channels. While it can promote better consumer behavior, the multichannel design
firms to manage volumes of returned product also creates redundancy and complexity in the firm’s distribution system. Selling through multiple
efficiently while minimizing returns-related costs channels is typified by multiple parallel supply chains, each with its own inventory, processes, and
and maximizing the value of the returned assets to performance metrics. Many companies are transitioning to omnichannel distribution operations
the firms in the supply chain that support their multichannel retail operations and unify their retail interfaces. With omnichannel
13-4 operations, every customer receives equally efficient service.
sustainable supply chain management
a supply chain management philosophy that embraces
the need for optimizing social and environmental costs
in addition to financial costs
13-5
outsourcing (contract logistics)
a manufacturer’s or supplier’s use of an independent
third party to manage an entire function of the
logistics system, such as transportation, warehousing,
or order processing
third-party logistics company (3PL) a firm 13-6 dual distribution (multiple distribution)
that provides functional logistics services to others the use of two or more channels to distribute the same
marketing channel (channel of distribution)
fourth-party logistics company (4PL product to target markets
a set of interdependent organizations that eases the
or logistics integrator) a consulting-based transfer of ownership as products move from producer nontraditional channels non-physical
organization that assesses another’s entire logistical to business user or consumer channels that facilitate the unique market access of
service needs and provides integrated solutions, often products and services
drawing on multiple 3PLs for actual service channel members all parties in the marketing
channel who negotiate with one another, buy and strategic channel alliance a cooperative
offshoring the outsourcing of a business process sell products, and facilitate the change of ownership agreement between business firms to use the other’s
from one country to another for the purpose of gaining between buyer and seller in the course of moving the already established distribution channel
economic advantage product from the manufacturer into the hands of the gray marketing channels secondary channels
nearshoring the transfer of an offshored activity final consumer that are unintended to be used by the producer, and
from a distant to a nearby country form utility the elements of the composition and which often flow illegally obtained or counterfeit
public-private partnerships (PPPs) appearance of a product that make it desirable product toward customers
Critical to the satisfaction of both company and time utility the increase in customer satisfaction reverse channels channels that enable customers
societal interests and provide a mechanism by which gained by making a good or service available at the to return products or components for reuse or
very-large scale problems or opportunities can be appropriate time remanufacturing
addressed
place utility the usefulness of a good or service as drop and shop a system used by several retailers
electronic distribution a distribution a function of the location at which it is made available that allow customers to bring used products for return
technique that includes any kind of product or service
exchange utility the increased value of a product or donation at the entrance of the store
that can be distributed electronically, whether over
traditional forms such as fiber-optic cable or through that is created as its ownership is transferred digital channels electronic pathways that allow
satellite transmission of electronic signals merchant wholesaler an institution that products and related information to flow from producer
buys goods from manufacturers and resells them to to consumer
three-dimensional printing (3DP) the
creation of three-dimensional objects via an additive businesses, government agencies, and other wholesalers M-commerce the ability to conduct commerce
manufacturing (printing) technology that layers raw or retailers and that receives and takes title to goods, using a mobile device for the purpose of buying or
material into desired shapes stores them in its own warehouses, and later ships them selling goods or services
big data the rapidly collected and difficult- agents and brokers wholesaling intermediaries intensive distribution a form of distribution
to-process large-scale datasets that have recently who do not take title to a product but facilitate its sale aimed at having a product available in every outlet
emerged, and which push the limits of current from producer to end user by representing retailers, where target customers might want to buy it
analytical capability wholesalers, or manufacturers
selective distribution a form of distribution
retailer a channel intermediary that sells mainly to achieved by screening dealers to eliminate all but a
cloud computing the practice of using remote
consumers few in any single area
network servers to store, manage, and process data
supply chain analytics data analyses that 13-7 exclusive distribution a form of distribution
support the improved design and management of the direct channel a distribution channel in which that establishes one or a few dealers within a
supply chain producers sell directly to consumers given area
CHAPTER REVIEW 14
Retailing

14-1 Explain the importance of the retailer within the channel 14-1
and the U.S. economy Retailing represents all the activities directly related to the retailing all the activities directly related to the sale
sale of goods and services to the ultimate consumer for personal, nonbusiness use, and has of goods and services to the ultimate consumer for personal,
enhanced the quality of our daily lives. When we shop for groceries, hair styling, clothes, nonbusiness use
books, and many other products and services, we are doing business with retailers. Retailing retailer a channel intermediary that sells mainly to
affects all people directly or indirectly. Trends and innovations relating to customer data, consumers
social media, and alternative forms of shopping are constantly developing, and retailers
have no choice but to react. 14-2
independent retailer a retailer owned by a single
14-2 List and understand the different types of retailers Retail person or partnership and not operated as part of a larger
establishments can be classified according to ownership, level of service, product assortment, retail institution
and price. These variables can be combined in several ways to create various retail operating
chain store a store that is part of a group of the same
models. Retail ownership takes one of three forms: independent, part of a chain, or a stores owned and operated by a single organization
franchise outlet. The service levels that retailers provide range from full-service to self-service.
franchise a relationship in which the business rights to
Retailers can also be categorized by the width and depth of their product lines. Price is the
operate and sell a product are granted by the franchisor to
fourth way to position retail stores. Many stores fall into the basic types of retailers, but the franchisee
some companies have begun to experiment with alternative formats.
franchisor the originator of a trade name, product,
14-3 Explain why nonstore retailing is on the rise and list the methods of operation, and the like that grants operating
advantages of its different forms Nonstore retailing enables customers to shop rights to another party to sell its product
without visiting a physical store location. It adds a level of convenience for customers who wish franchisee an individual or business that is granted the
to shop from their current locations. Due to broader changes in culture and society, nonstore right to sell another party’s product
retailing is currently growing faster than in-store retailing. The major forms of nonstore retailing gross margin the amount of money the retailer makes as
are automatic vending, direct retailing, direct marketing, and Internet retailing. a percentage of sales after the cost of goods sold is subtracted
EXHIBIT 14.1 TYPES OF STORES AND THEIR CHARACTERISTICS
Type of Retailer Level of Service Product Assortment Price Gross Margin

Department store Moderately high to high Broad Moderate to high Moderately high
Specialty store High Narrow Moderate to high High
Supermarket Low Broad Moderate Low
Drugstore Low to moderate Medium Moderate Low
Convenience store Low Medium to narrow Moderately high Moderately high
Full-line discount store Moderate to low Medium to broad Moderately low Moderately low
Specialty discount Moderate to low Medium to broad Moderately low to low Moderately low
store
Warehouse club Low Broad Low to very low Low
Off-price retailer Low Medium to narrow Low Low
Restaurant Low to high Narrow Low to high Low to high
14-4 Discuss the different retail operations models and understand department store a store housing several
why they vary in strategy and format Retail formats are co-aligned with departments under one roof
unique operating models that guide the decisions made by their managers. Each operating specialty store a retail store specializing in a given
model can be summarized as a set of guiding principles. Today, most retail stores remain type of merchandise
supermarket a large, departmentalized, operationally and tactically similar to those that have been in business for hundreds of years; with
self-service retailer that specializes in food and some one or more physical locations that the customer must visit in order to purchase a stocked product,
nonfood items and with strategies in place to attract customers to visit.
drugstore a retail store that stocks pharmacy-
related products and services as its main draw 14-5 Explain how retail marketing strategies are developed and
executed Retail managers develop marketing strategies based on the goals established by
convenience store a miniature supermarket,
stakeholders and the overall strategic plans developed by company leadership. Strategic retailing
carrying only a limited line of high-turnover
convenience goods goals typically focus on increasing total sales, reducing costs of goods sold, and improving financial
ratios such as return on assets or equity. The first and foremost task in developing a retail strategy
discount store a retailer that competes on the
is to define the target market. Then comes combining the elements of the retailing mix to come up
basis of low prices, high turnover, and high volume
with a single retailing method to attract that target market.
full-line discount store a discount store that
carries a vast depth and breadth of product within a 14-6 Discuss how services retailing differs from goods retailing
single product category The fastest-growing part of our economy is the service sector. Although distribution in the service
supercenter a large retailer that stocks and sells sector is difficult to visualize, the same skills, techniques, and strategies used to manage inventory
a wide variety of merchandise including groceries, can also be used to manage service inventory, such as hospital beds, bank accounts, or airline seats.
clothing, household goods, and other general Because service industries are so customer oriented, service quality is a priority.
merchandise
specialty discount store a retail store that
14-7 Understand how retailers address product/service failures
offers a nearly complete selection of single-line and discuss the opportunities that service failures provide No retailer
merchandise and uses self-service, discount prices, can be everything to every customer, and by making strategic decisions related to targeting,
high volume, and high turnover segmentation, and the retailing mix, retailers implicitly decide which customers will be delighted
category killer a large discount store that and which will probably leave the store unsatisfied. The best retailers have plans in place not only
specializes in a single line of merchandise and becomes to recover from inevitable lapses in service but perhaps even to benefit from them.
the dominant retailer in its category 14-8 Summarize current trends related to customer data, analytics,
warehouse club a large, no-frills retailer that and technology Retailers are constantly innovating. They are always looking for new products
sells bulk quantities of merchandise to customers and services (or ways to offer them) that will attract new customers or inspire current ones to buy
at volume discount prices in exchange for a periodic in greater quantities or more frequently. Big data analytics, shopper marketing, mobile technology,
membership fee and social media are at the front of this innovation. Some retailers have turned to channel
off-price retailer a retailer that sells at prices omnification, while others have embraced click-and-collect.
25 percent or more below traditional department store
prices because it pays cash for its stock and usually
doesn’t ask for return privileges
factory outlet an off-price retailer that is owned
and operated by a manufacturer microtargeting the use of direct marketing atmosphere the overall impression conveyed by a
techniques that employ highly detailed data analytics store’s physical layout, décor, and surroundings
used goods retailer a retailer whereby items in order to isolate potential customers with great
purchased from one of the other types of retailers are layout the internal design and configuration of a
precision store’s fixtures and products
resold to different customers
shop-at-home television network a
restaurant a retailer that provides both tangible specialized form of direct response marketing whereby 14-8
products—food and drink—and valuable services— television shows display merchandise, with the retail big data analytics the process of discovering
food preparation and presentation price, to home viewers patterns in large data sets for the purposes of
14-3 online retailing (e-tailing) a type of shopping extracting knowledge and understanding human
available to consumers with personal computers and behavior
nonstore retailing shopping without visiting
access to the Internet beacon a device that sends out connecting signals
a store
to customers’ smartphones and tablets in order
automatic vending the use of machines to offer 14-4 to bring them into a retail store or improve their
goods for sale floor stock inventory displayed for sale to shopping experience
self-service technologies (SST) technological customers shopper marketing understanding how one’s
interfaces that allow customers to provide themselves back stock inventory held in reserve for potential target consumers behave as shoppers, in different
with products and/or services without the intervention future sale in a retailer’s storeroom or stockroom channels and formats, and leveraging this intelligence
of a service employee to generate sales or other positive outcomes
direct retailing the selling of products by 14-5 shopper analytics searching for and
representatives who work door-to-door, office-to- retailing mix a combination of the six Ps— discovering meaningful patterns in shopper data for
office, or at home sales parties product, promotion, place, price, presentation, and the purpose of fine-tuning, developing, or changing
direct marketing (DM) techniques used to get personnel—to sell goods and services to the ultimate market offerings
consumers to make a purchase from their home, office, consumer retail channel omnification the reduction of
or other nonretail setting brand cannibalization the reduction of sales multiple retail channel systems into a single, unified
telemarketing the use of the telephone to sell for one brand as the result of the introduction of a system for the purpose of creating efficiencies or
directly to consumers new product or promotion of a current product by saving costs
direct mail the delivery of advertising or another brand click-and-collect the practice of buying
marketing material to recipients of postal or destination store a store that consumers something online and then traveling to a physical
electronic mail purposely plan to visit prior to shopping store location to take delivery of the merchandise
CHAPTER REVIEW 15
Marketing Communications

15-1 Discuss the role of promotion in the marketing mix. Promotional 15-1
strategy is the plan for using the elements of promotion—advertising, public relations, promotion communication by marketers that informs,
sales promotion, personal selling, and social media—to meet the firm’s overall objectives persuades, and reminds potential buyers of a product in order
and marketing goals. Based on these objectives, the elements of the promotional strategy to influence an opinion or elicit a response
become a coordinated promotion plan. The promotion plan then becomes an integral promotional strategy a plan for the optimal use of the
part of the total marketing strategy for reaching the target market along with product, elements of promotion: advertising, public relations, personal
distribution, and price. Promotional strategies have changed a great deal over the years as selling, sales promotion, and social media
many target customer segments have become harder and harder to reach. competitive advantage one or more unique aspects
15-2 Describe the communication process. The communication process of an organization that cause target consumers to patronize
that firm rather than competitors
has several steps. When an individual or organization has a message it wishes to convey
to a target audience, it encodes that message using language and symbols familiar to the 15-2
intended receiver and sends the message through a channel of communication. Noise in communication the process by which we exchange or
the transmission channel distorts the source’s intended message. Reception occurs if the share meaning through a common set of symbols
message falls within the receiver’s frame of reference. The receiver decodes the message
interpersonal communication direct, face-to-face
and usually provides feedback to the source. Normally, feedback is direct for interpersonal communication between two or more people
communication and indirect for mass communication. The Internet and social media have
mass communication the communication of a concept
had an impact on the communication model in two major ways: consumers are now able
or message to large audiences
to become senders, and marketers can personalize the feedback channel by initiating direct
conversations with customers. sender the originator of the message in the communication
process
15-3 Explain the goals and tasks of promotion. The fundamental encoding the conversion of a sender’s ideas and thoughts
goals of promotion are to induce, modify, or reinforce behavior by informing, persuading, into a message, usually in the form of words or signs
reminding, and connecting. Informative promotion explains a good’s or service’s purpose channel a medium of communication—such as a voice,
and benefits. Promotion that informs the consumer is typically used to increase demand for radio, or newspaper—for transmitting a message
a general product category or to introduce a new good or service. Persuasive promotion
noise anything that interferes with, distorts, or slows down
is designed to stimulate a purchase or an action. Promotion that persuades the consumer the transmission of information
to buy is essential during the growth stage of the product life cycle, when competition
receiver the person who decodes a message
becomes fierce. Reminder promotion is used to keep the product and brand name in the
public’s mind. Promotions that remind are generally used during the maturity stage of the decoding interpretation of the language and symbols sent
product life cycle. Connection promotion is designed to form relationships with customers by the source through a channel
and potential customers using social media. Connecting encourages customers to become feedback the receiver’s response to a message
brand advocates and share their experiences via social media.
15-4
15-4 Discuss the elements of the promotional mix. The elements of promotional mix the combination of promotional
the promotional mix include advertising, public relations, sales promotion, personal selling, tools—including advertising, public relations, personal
and social media. Advertising is a form of impersonal, one-way mass communication selling, sales promotion, and social media—used to
paid for by the source. Public relations is the function of promotion concerned with a reach the target market and fulfill the organization’s
firm’s public image. Sales promotion is typically used to back up other components of the overall goals
promotional mix by stimulating immediate demand. Personal selling typically involves direct advertising impersonal, one-way mass communication
communication, in person or by telephone; the seller tries to initiate a purchase by informing about a product or organization that is paid for by a marketer
and persuading one or more potential buyers. Finally, social media are promotion tools used public relations the marketing function that evaluates
to facilitate conversations among people online. public attitudes, identifies areas within the organization the
public may be interested in, and executes a program of action
15-5 Discuss the AIDA concept and its relationship to the to earn public understanding and acceptance
promotional mix. The AIDA model outlines the four basic stages in the purchase
publicity public information about a company,
decision-making process, which are initiated and propelled by promotional activities:
product, service, or issue appearing in the mass media as
(1) attention, (2) interest, (3) desire, and (4) action. The components of the promotional mix a news item
have varying levels of influence at each stage of the AIDA model. Advertising is a good tool
sales promotion marketing activities—other than
for increasing awareness and knowledge of a good or service. Sales promotion is effective
personal selling, advertising, and public relations—that
when consumers are at the purchase stage of the decision-making process. Personal selling stimulate consumer buying and dealer effectiveness
is most effective in developing customer interest and desire.
personal selling a purchase situation involving 15-6 Discuss the concept of integrated marketing communications.
a personal, paid-for communication between two Integrated marketing communications is the careful coordination of all promotional messages for a
people in an attempt to influence each other product or service to ensure the consistency of messages at every contact point where a company
paid media a category of promotional tactic meets the consumer—advertising, sales promotion, personal selling, public relations, and social
based on the traditional advertising model, whereby media, as well as direct marketing, packaging, and other forms of communication. Marketing
a brand pays for media space managers carefully coordinate all promotional activities to ensure that consumers see and hear one
earned media a category of promotional tactic message. Integrated marketing communications has received more attention in recent years due
based on a public relations or publicity model that gets to the proliferation of media choices, the fragmentation of mass markets into more segmented
customers talking about products or services niches, and the decrease in advertising spending in favor of promotional techniques that generate
owned media a new category of promotional an immediate sales response.
tactic based on brands becoming publishers of their
own content in order to maximize the brands’ value 15-7 Describe the factors that affect the promotional mix. Promotion
to customers managers consider many factors when creating promotional mixes. These factors include
the nature of the product, product life-cycle stage, target market characteristics, the type of
15-5 buying decision involved, availability of funds, and feasibility of push or pull strategies. As
AIDA concept a model that outlines the process products move through different stages of the product life cycle, marketers will choose to
for achieving promotional goals in terms of stages of use different promotional elements. Characteristics of the target market, such as geographic
consumer involvement with the message; the acronym location of potential buyers and brand loyalty, influence the promotional mix, as does whether
stands for attention, interest, desire, and action the buying decision is complex or routine. The amount of funds a firm has to allocate to
15-6 promotion may also help determine the promotional mix. Last, if a firm uses a push strategy
to promote the product or service, the marketing manager might choose to use aggressive
integrated marketing communications
(IMC) the careful coordination of all promotional advertising and personal selling to wholesalers and retailers. If a pull strategy is chosen,
messages for a product or a service to ensure the then the manager often relies on aggressive mass promotion, such as advertising and sales
consistency of messages at every contact point at promotion, to stimulate consumer demand.
which a company meets the consumer
15-7
push strategy a marketing strategy that uses EXHIBIT 15.7 PUSH STRATEGY VERSUS PULL STRATEGY
aggressive personal selling and trade advertising to
convince a wholesaler or a retailer to carry and sell Push strategy
particular merchandise
Manufacturer Wholesaler Retailer Consumer
pull strategy a marketing strategy that promotes to promotes promotes to buys from
to retailer consumer retailer
stimulates consumer demand to obtain product wholesaler
distribution
Pull strategy
Manufacturer Consumer Retailer Wholesaler

promotes to demands demands demands
consumer product from product from product from
retailer wholesaler manufacturer
CHAPTER REVIEW 16
Advertising, Public Relations,
and Sales Promotion

16-1 Discuss the effects of advertising on market share and 16-1
consumers. Advertising helps marketers increase or maintain brand awareness and, advertising response function a phenomenon in
subsequently, market share. Typically, more is spent to advertise new brands with a small which spending for advertising and sales promotion increases
market share than to advertise older brands. Brands with a large market share use advertising sales or market share up to a certain level but then produces
mainly to maintain their share of the market. Advertising affects consumers’ daily lives as diminishing returns
well as their purchases. Although advertising can seldom change strongly held consumer 16-2
attitudes and values, it may transform a consumer’s negative attitude toward a product into
institutional advertising a form of advertising
a positive one. Finally, advertising can also change the importance of a brand’s attributes
designed to enhance a company’s image rather than promote
to consumers. By emphasizing different brand attributes, advertisers can change their a particular product
appeal in response to consumers’ changing needs or try to achieve an advantage over
product advertising a form of advertising that touts
competing brands.
the benefits of a specific good or service
16-2 Identify the major types of advertising. Advertising is any form advocacy advertising a form of advertising in which
of nonpersonal, paid communication in which the sponsor or company is identified. an organization expresses its views on controversial issues or
The two major types of advertising are institutional advertising and product advertising. responds to media attacks
Institutional advertising is not product oriented; rather, its purpose is to foster a positive pioneering advertising a form of advertising
company image among the general public, investment community, customers, and designed to stimulate primary demand for a new product
employees. Product advertising is designed mainly to promote goods and services, and it or product category
is classified into three main categories: pioneering, competitive, and comparative. A competitive advertising a form of advertising
product’s place in the product life cycle is a major determinant of the type of advertising designed to influence demand for a specific brand
used to promote it. comparative advertising a form of advertising that
16-3 Discuss the creative decisions in developing an advertising compares two or more specifically named or shown competing
campaign. Before any creative work can begin on an advertising campaign, it is brands on one or more specific attributes
important to determine what goals or objectives the advertising should achieve. The 16-3
objectives of a specific advertising campaign often depend on the overall corporate advertising campaign a series of related
objectives and the product being advertised and are often determined using the DAGMAR advertisements focusing on a common theme, slogan, and
approach. Once objectives are defined, creative work can begin (e.g., identifying the set of advertising appeals
product’s benefits, developing possible advertising appeals, evaluating and selecting the advertising objective a specific communication
advertising appeals, executing the advertising message, and evaluating the effectiveness task that a campaign should accomplish for a specified
of the campaign). target audience during a specified period
16-4 Describe media evaluation and selection techniques. Media advertising appeal a reason for a person to buy
evaluation and selection make up a crucial step in the advertising campaign process. a product
Major types of advertising media include newspapers, magazines, radio, television, unique selling proposition a desirable, exclusive,
the Internet, and outdoor media such as billboards and bus panels. Recent trends in and believable advertising appeal selected as the theme
advertising media include shopping carts, computer screen savers, interactive kiosks, for a campaign
advertisements run before movies, posters on bathroom stalls, and advertainments. 16-4
Promotion managers choose the advertising campaign’s media mix on the basis of medium the channel used to convey a message to a
the following variables: cost per contact, reach, frequency, characteristics of the target target market
audience, flexibility of the medium, noise level, and the life span of the medium. After
media planning the series of decisions advertisers
choosing the media mix, a media schedule designates when the advertisement will make regarding the selection and use of media, allowing the
appear and the specific vehicles in which it will appear. marketer to optimally and cost-effectively communicate the
16-5 Discuss the role of public relations in the promotional message to the target audience
mix. Public relations is a vital part of a firm’s promotional mix. A company fosters good cooperative advertising an arrangement in which the
publicity to enhance its image and promote its products. Popular public relations tools manufacturer and the retailer split the costs of advertising the
include new-product publicity, product placement, consumer education, sponsorship, and manufacturer’s brand
company Web sites. An equally important aspect of public relations is managing unfavorable infomercial a 30-minute or longer advertisement that
publicity in a way that is least damaging to a firm’s image. looks more like a television talk show than a sales pitch
advergaming placing advertising messages
in Web-based, mobile, console, or handheld video EXHIBIT 16.3 ADVANTAGES AND DISADVANTAGES OF MAJOR ADVERTISING MEDIA
games to advertise or promote a product, service,
organization, or issue Medium Advantages Disadvantages
media mix the combination of media to be used Newspapers Geographic selectivity and flexibility; short-term advertiser Little demographic selectivity; limited color capabilities; low
commitments; news value and immediacy; year-round pass-along rate; may be expensive
for a promotional campaign readership; high individual market coverage; co-op and
cost per contact (cost per thousand or local tie-in availability; short lead time
CPM) the cost of reaching one member of the Magazines Good reproduction, especially for color; demographic Long-term advertiser commitments; slow audience
target market selectivity; regional selectivity; local market selectivity; buildup; limited demonstration capabilities; lack of urgency;
relatively long advertising life; high pass-along rate long lead time
cost per click the cost associated with a consumer Radio Low cost; immediacy of message; can be scheduled on No visual treatment; short advertising life of message;
clicking on a display or banner ad short notice; relatively no seasonal change in audience; high frequency required to generate comprehension and
highly portable; short-term advertiser commitments; retention; distractions from background sound; commercial
reach the number of target consumers exposed entertainment carryover clutter
to a commercial at least once during a specific period,
Television Ability to reach a wide, diverse audience; low cost per Short life of message; some consumer skepticism about
usually four weeks thousand; creative opportunities for demonstration; imme- claims; high campaign cost; little demographic selectivity
frequency the number of times an individual is diacy of messages; entertainment carryover; demographic with network stations; long-term advertiser commitments;
selectivity with cable stations long lead times required for production; commercial clutter
exposed to a given message during a specific period
Internet Fastest-growing medium; ability to reach a narrow target Most ad exposure relies on “click-through” from display ads;
audience selectivity the ability of audience; relatively short lead time required for creating measurement for social media needs much improvement;
an advertising medium to reach a precisely Web-based advertising; moderate cost; ability to measure not all consumers have access to the Internet, and many
ad e ectiveness; ability to engage consumers through consumers are not using social media
defined market search engine marketing, social media, display advertis-
media schedule designation of the media, the ing, and mobile marketing
specific publications or programs, and the insertion Outdoor Media Repetition; moderate cost; flexibility; geographic selectivity Short message; lack of demographic selectivity; high “noise”
dates of advertising level distracting audience
continuous media schedule a media

scheduling strategy in which advertising is run steadily
throughout the advertising period; used for products
in the later stages of the product life cycle 16-6 Define and state the objectives of sales promotion and the tools
used to achieve them. Marketing managers can use sales promotion to increase the
flighted media schedule a media scheduling
effectiveness of their promotional efforts. Sales promotion can target either trade or consumer
strategy in which ads are run heavily every other
month or every two weeks to achieve a greater markets. Trade promotions may push a product through the distribution channel using sales
impact with an increased frequency and reach at contests, premiums, P-O-P displays, trade allowances, push money, training, free merchandise,
those times store demonstrations, and business meetings. Consumer promotions may push a product
pulsing media schedule a media scheduling through the distribution channel using coupons, rebates, premiums, loyalty marketing programs
strategy that uses continuous scheduling throughout or frequent buyer programs, contests, sweepstakes, sampling, and P-O-P displays. The biggest
the year coupled with a flighted schedule during the trend in sales promotion on both the trade and consumer sides has been the increased use
best sales periods of the Internet.
seasonal media schedule a media scheduling
strategy that runs advertising only during times of the
year when the product is most likely to be used
16-5 16-6 rebate a cash refund given for the purchase of a

product during a specific period
public relations the element in the promotional sales promotion marketing communication
activities other than advertising, personal selling, premium an extra item offered to the consumer,
mix that evaluates public attitudes, identifies issues
and public relations, in which a short-term incentive usually in exchange for some proof of purchase of the
that may elicit public concern, and executes programs
motivates consumers or members of the distribution promoted product
to gain public understanding and acceptance
channel to purchase a good or service immediately, loyalty marketing program a promotional
publicity an effort to capture media attention, either by lowering the price or by adding value program designed to build long-term, mutually
often initiated through press releases that further a
trade sales promotion promotion activities beneficial relationships between a company and its
corporation’s public relations plans
directed to members of the marketing channel, such as key customers
product placement a public relations strategy wholesalers and retailers frequent buyer program a loyalty program
that involves getting a product, service, or company
consumer sales promotion promotion in which loyal consumers are rewarded for making
name to appear in a movie, television show, radio
activities targeted to the ultimate consumer market multiple purchases of a particular good or service
program, magazine, newspaper, video game, video or
audio clip, book, or commercial for another product; on trade allowance a price reduction offered by sampling a promotional program that allows the
the Internet; or at special events manufacturers to intermediaries such as wholesalers consumer the opportunity to try a product or service
and retailers for free
sponsorship a public relations strategy in which
a company spends money to support an issue, cause, push money money offered to channel point of purchase (P-O-P) display a
or event that is consistent with corporate objectives, intermediaries to encourage them to “push” promotional display set up at the retailer’s location
such as improving brand awareness or enhancing products—that is, to encourage other members of the to build traffic, advertise the product, or induce
corporate image channel to sell the products impulse buying
crisis management a coordinated effort coupon a certificate that entitles consumers
to handle all the effects of unfavorable publicity to an immediate price reduction when the product is
or another unexpected unfavorable event purchased.
CHAPTER REVIEW 17
Personal Selling
and Sales Management

17-1 Understand the sales environment. Salespeople can be consumer- 17-3
focused (as in the case of retail) or business-focused. The sales environment changes relationship selling (consultative selling)
constantly as new competitors enter the market and old competitors leave. The ways a sales practice that involves building, maintaining, and
that customers interact with salespeople and learn about products and suppliers are enhancing interactions with customers in order to develop
changing due to the rapid increase in new sales technologies. In order for companies long-term satisfaction through mutually beneficial partnerships
to successfully sell products or services using a sales force, they must be very effective 17-4
at personal selling, sales management, customer relationship management, and
sales process (sales cycle) the set of steps a
technology—all of which play critical roles in building strong long-term relationships
salesperson goes through in a particular organization to
with customers. sell a particular product or service
17-2 Describe personal selling. Personal selling is direct communication lead generation (prospecting) identification
between a sales representative and one or more prospective buyers in an attempt to of those firms and people most likely to buy the seller’s
influence each other in a purchase situation. Broadly speaking, all businesspeople use offerings
personal selling to promote themselves and their ideas. Personal selling offers several cold calling a form of lead generation in which the
advantages over other forms of promotion. Generally speaking, personal selling becomes salesperson approaches potential buyers without any prior
more important as the number of potential customers decreases, as the complexity knowledge of the prospects’ needs or financial status
of the product increases, and as the value of the product grows. Technology plays an referral a recommendation to a salesperson from a
increasingly important role in personal selling. If salespeople do not stay well informed customer or business associate
about the products they’re selling, consumers may enter the store knowing even more networking a process of finding out about potential clients
than they do. from friends, business contacts, coworkers, acquaintances, and
fellow members in professional and civic organizations
17-3 Discuss the key differences between relationship selling and
traditional selling. Relationship selling is the practice of building, maintaining, and lead qualification determination of a sales prospect’s
(1) recognized need, (2) buying power, and (3) receptivity
enhancing interactions with customers to develop long-term satisfaction through mutually
and accessibility
beneficial partnerships. Traditional selling, on the other hand, is transaction focused. That
is, the salesperson is most concerned with making a one-time sale and moving on to the preapproach a process that describes the “homework”
that must be done by a salesperson before he or she contacts
next prospect. Salespeople practicing relationship selling spend more time understanding
a prospect
a prospect’s needs and developing solutions to meet those needs.
needs assessment a determination of the customer’s
17-4 List and explain the steps in the selling process. The selling specific needs and wants and the range of options the
process is composed of seven basic steps: (1) generating leads, (2) qualifying leads, customer has for satisfying them
(3) approaching the customer and probing needs, (4) developing and proposing solutions, sales proposal a formal written document or
(5) handling objections, (6) closing the sale, and (7) following up. The actual sales process professional presentation that outlines how the salesperson’s
depends on the features of the product or service, characteristics of customer segments, product or service will meet or exceed the prospect’s needs
and internal processes in place within the firm (such as how leads are gathered). Some sales sales presentation a formal meeting in which the
take only a few minutes to complete, but others may take much longer. Like other forms of salesperson presents a sales proposal to a prospective buyer
promotion, the steps of selling follow the AIDA concept. negotiation the process during which both the salesperson
17-5 Understand the functions of sales management. The sales and the prospect offer special concessions in an attempt to
arrive at a sales agreement
manager’s basic job is to maximize sales at a reasonable cost while also maximizing
profits. The sales manager’s responsibilities include (1) defining sales goals and the follow-up the final step of the selling process, in which
sales process, (2) determining the sales force structure, (3) recruiting and training the the salesperson ensures delivery schedules are met, goods or
services perform as promised, and the buyers’ employees are
sales force, (4) compensating and motivating the sales force, and (5) evaluating the
properly trained to use the products
sales force.
17-5 RELATIVE AMOUNT OF TIME SPENT IN THE KEY STEPS
quota a statement of the salesperson’s sales goals, EXHIBIT 17.3
usually based on sales volume OF THE SELLING PROCESS
17-6
customer-centric a philosophy under which the
er
s m
company customizes its product and service offerings
op pi eed sto
ns
ns
n cu
based on data generated through interactions
tio
tio
ds
g e
s
g d
le
De bin g th
ad
ec
between the customer and the company
lu
in an
sa
le
up
le
so
ob
pr in
os ng
g
e
g
th
in
g
knowledge management the process
d ach
g
in
in
t
lin
g
o
y
ra
pr lo
w
an o
in
lif
by which customer information is centralized and
nd
ne
ve
pr
llo
os
ua
Ap
Ha
Ge
Fo
Cl
shared in order to enhance the relationship between
Q
customers and the organization High Relationship/
interaction the point at which a customer and Consultative selling
a company representative exchange information
and develop learning relationships
touch points areas of a business where customers
have contact with the company and data might be
gathered
point-of-sale interactions a touch point Low Traditional selling
in stores or information kiosks that uses software to
enable customers to easily provide information about
themselves without feeling violated
Source: Data from Robert M. Peterson, Patrick L. Schul, and George H. Lucas Jr., “Consultative Selling: Walking the Walk
campaign management developing in the New Selling Environment, “National Conference on Sales Management Proceedings, March 1996; and Mark
product or service offerings customized for the Ellwood, How Sales Reps Spend Their Time, http://paceproductivity.com/files/How_Sales_Reps_Spend_Their_Time.pdf
appropriate customer segment and then pricing and (Accessed March 2015).
communicating these offerings for the purpose of
enhancing customer relationships
17-6 Describe the use of customer relationship management in the

selling process. Companies that have CRM systems follow a customer-centric focus or model.
The interaction between the customer and the organization is the foundation on which a CRM
system is built. Only through effective interactions can organizations learn about the expectations
of their customers, generate and manage knowledge about them, negotiate mutually satisfying
commitments, and build long-term relationships. If a company has identified its best customers,
then it should make every effort to maintain and increase their loyalty.
CHAPTER REVIEW 18
Social Media and Marketing

18-1 Describe social media, how they are used, and their relation 18-1
to integrated marketing communications. Social media, commonly thought social media any tool or service that uses the Internet
of as digital technology, offer a way for marketers to communicate one-on-one with to facilitate conversations
consumers and measure the effects of those interactions. Social media include social social commerce a subset of e-commerce that involves
networks, microblogs, and media sharing sites, all of which are used by the majority of adults. the interaction and user contribution aspects of social online
Smartphones and tablet computers have given consumers greater freedom to access social media to assist online buying and selling of products and
media on the go, which is likely to increase usage of social media sites. Many advertising services
budgets are allotting more money to online marketing, including social media, mobile crowdsourcing using consumers to develop and
marketing, and search marketing. market products
18-2 Explain how to create a social media campaign. A social media 18-2
campaign should take advantage of owned media, earned media, and paid media. To use social media monitoring the process of identifying
these types of media in a social media campaign, first implement an effective listening and assessing what is being said about a company, individual,
system. Marketers can interact with negative feedback, make changes, and effectively product, or brand
manage their online presence. Paying attention to the ways that competing brands attract
and engage with their customers can be particularly enlightening for both small businesses
18-5
and global brands. Second, develop a list of objectives that reflects how social media blog a publicly accessible Web page that functions as an
dynamically communicate with customers and build relationships. interactive journal, whereby readers can post comments on
the author’s entries
18-3 Evaluate the various methods of measurement for social corporate blogs blogs that are sponsored by a company
media. Most marketers have not been able to figure out how to measure the benefits of or one of its brands and maintained by one or more of the
social media. Hundreds of metrics have been developed to measure social media’s value, company’s employees
but these metrics are meaningless unless they are tied to key performance indicators. Some noncorporate blogs independent blogs that are
social media metrics to consider include buzz, interest, participation, search engine rank not associated with the marketing efforts of any particular
and results, influence, sentiment analysis, and Web site metrics. company or brand
18-4 Explain consumer behavior on social media. To effectively microblogs blogs with strict post length limits
leverage social media, marketers must understand who uses social media and how they use social networking sites Web sites that allow
it. If a brand’s target market does not use social media, a social media campaign might not individuals to connect—or network—with friends, peers,
be useful. There are six categories of social media users: creators, critics, collectors, joiners, and business associates
spectators, and inactives. A new category is emerging called “conversationalists,” who post media sharing sites Web sites that allow users to
status updates on social networking sites or microblogs. upload and distribute multimedia content like videos and
photos
18-5 Describe the social media tools in a marketer’s toolbox and social news sites Web sites that allow users to decide
how they are useful. A marketer has many tools to implement a social media
which content is promoted on a given Web site by voting that
campaign. However, new tools emerge daily, so these resources will change rapidly. Some content up or down
of the strongest social media platforms are blogs, microblogs, social networks, media
location-based social networking sites Web
creation and sharing sites, social news sites, location-based social networking sites, and
sites that combine the fun of social networking with the utility
virtual worlds and online gaming. Blogs allow marketers and consumers to create content of location-based GPS technology
in the form of posts, which ideally build trust and a sense of authenticity in customers.
review sites Web sites that allow consumers to post, read,
Microblogs allow brands to follow, repost, respond to potential customers, and post content
rate, and comment on opinions regarding all kinds of products
that inspires customers to engage the brand, laying a foundation for meaningful two-way and services
conversation. Social networks allow marketers to increase awareness, target audiences,
promote products, forge relationships, attract event participants, perform research,
and generate new business. Media sharing sites give brands an interactive channel to
disseminate content. Social news sites are useful to marketers to promote campaigns, create
conversations, and build Web site traffic. Location-based social networking sites can forge
lasting relationships and loyalty in customers. Review sites allow marketers to respond to
customer reviews and comments about their brand. Online and mobile gaming are fertile
grounds for branded content and advertising.
18-6 Describe the impact of mobile technology on social media. The
mobile platform is such an effective marketing tool—especially when targeting a younger
audience. There are six reasons for the popularity of mobile marketing: (1) mobile platforms are
standardized, (2) fewer consumers are concerned about privacy and pricing policies, (3) advertising
can be done in real time, (4) mobile marketing is measurable, (5) in-store notification technology
such as Apple’s iBeacon can send promotional messages based on real-time interactions with
customers, and (6) there is a higher response rate than with traditional advertising. Because of the
rapid growth of smartphones, well-branded, integrated apps allow marketers to create buzz and
generate customer engagement. Widgets allow customers to post a company’s information to its
site, are less expensive than apps, and broaden that company’s exposure.
18-7 Understand the aspects of developing a social media plan. The social
media plan should fit into the overall marketing plan and help marketers meet the organization’s
larger goals. There are six stages in creating an effective social media plan; (1) listening, (2) setting
social media objectives, (3) defining strategies, (4) identifying the target audience, (5) selecting
the appropriate tools and platforms, and (6) implementing and monitoring the strategy. Listening
and revising the social media plan to accommodate changing market trends and needs is key to
an effective social media plan.
EXHIBIT 18.2 SOCIAL MEDIA TRENDS

Trend Change Where Is It Now?
Yik Yak Anonymous geolocated messaging
Microsoft Office 365, Google Drive Integration with file hosting
Ello Challengers to Facebook's dominance
Bing Rewards program offers prizes for using Bing Search
The Internet of Things Integration into wearables, appliances, apparel, and more
Apple Pay, Google Wallet, Bitcoin, and
Replace credit cards with various forms of digital payment
NFC- enabled payment options
Loot Crate, Trunk Club, and NatureBox Online and subscription-based personal shopping
Twitch, Meerkat, and Periscope Live video streaming for everybody
Tinder and Grindr The mainstreaming of geolocated dating apps
CHAPTER REVIEW 19
Pricing Concepts

19-1 Discuss the importance of pricing decisions to the economy 19-1
and to the individual firm. Pricing plays an integral role in the U.S. economy by price that which is given up in an exchange to acquire a
allocating goods and services among consumers, governments, and businesses. Pricing is good or service
essential in business because it creates revenue, which is the basis of all business activity. revenue the price charged to customers multiplied by the
In setting prices, marketing managers strive to find a level high enough to produce a number of units sold
profit revenue minus expenses
satisfactory profit. Profit drives growth, salary increases, and corporate investment.
Price 3 Sales Units 5 Revenue
19-2
return on investment (ROI) net profit after taxes
Revenue 2 Costs 5 Profit divided by total assets
market share a company’s product sales as a percentage
19-2 List and explain a variety of pricing objectives. Establishing realistic
of total sales for that industry
and measurable pricing objectives is a critical part of any firm’s marketing strategy. Pricing status quo pricing a pricing objective that maintains
objectives are commonly classified into three categories: profit oriented, sales oriented, and existing prices or meets the competition’s prices
status quo. Profit-oriented pricing is based on profit maximization, a satisfactory level of
profit, or a target return on investment (ROI). The goal of profit maximization is to generate 19-3
as much revenue as possible in relation to cost. Often, a more practical approach than demand the quantity of a product that will be sold in the
market at various prices for a specified period
profit maximization is setting prices to produce profits that will satisfy management and
supply the quantity of a product that will be offered to the
stockholders. The most common profit-oriented strategy is pricing for a specific ROI relative to market by a supplier at various prices for a specified period
a firm’s assets. The second type of pricing objective is sales oriented, and it focuses on either elasticity of demand consumers’ responsiveness or
maintaining a percentage share of the market or maximizing dollar or unit sales. The third type sensitivity to changes in price
of pricing objective aims to maintain the status quo by matching competitors’ prices. elastic demand a situation in which consumer demand
is sensitive to changes in price
19-3 Explain the role of demand in price determination. Demand is inelastic demand a situation in which an increase or
a key determinant of price. When establishing prices, a firm must first determine demand a decrease in price will not significantly affect demand for the
for its product. A typical demand schedule shows an inverse relationship between quantity product
demanded and price: when price is lowered, sales increase; when price is increased, the
quantity demanded falls. For prestige products, however, there may be a direct relationship 19-4
between demand and price: the quantity demanded will increase as price increases. dynamic pricing a strategy whereby prices are
adjusted over time to maximize a company’s revenues
Marketing managers must also consider demand elasticity when setting prices. Elasticity of yield management systems (YMS) a technique
demand is the degree to which the quantity demanded fluctuates with changes in price. If for adjusting prices that uses complex mathematical software
consumers are sensitive to changes in price, demand is elastic; if they are insensitive to price to profitably fill unused capacity by discounting early
changes, demand is inelastic. Thus, an increase in price will result in lower sales for an elastic purchases, limiting early sales at these discounted prices, and
product and little or no loss in sales for an inelastic product. overbooking capacity
19-4 Understand the concepts of dynamic pricing and yield 19-5

variable cost a cost that varies with changes in the level
management systems. When competitive pressures are high, a company must know
of output
when it can raise prices to maximize its revenues. Dynamic pricing allows companies to adjust fixed cost a cost that does not change as output is
prices on the fly to meet demand. Yield management systems use complex mathematical increased or decreased
software to fill unused capacity profitably. The software uses techniques such as discounting markup pricing the cost of buying the product from
early purchases, limiting early sales at these discounted prices, and overbooking capacity. the producer, plus amounts for profit and for expenses not
These systems are used in service and retail businesses and are substantially raising revenues. otherwise accounted for
keystoning the practice of marking up prices by
19-5 Describe cost-oriented pricing strategies. The other major 100 percent, or doubling the cost
determinant of price is cost. Marketers use several cost-oriented pricing strategies. To cover break-even analysis a method of determining what
their own expenses and obtain a profit, wholesalers and retailers commonly use markup sales volume must be reached before total revenue equals
pricing: they tack an extra amount on to the manufacturer’s original price. Another pricing total costs
strategy determines how much a firm must sell to break even; this amount in turn is used as a
reference point for adjusting price.
19-6
extranet a private electronic network that links a
19-6 Demonstrate how the product life cycle, competition, company with its suppliers and customers
distribution and promotion strategies, customer demands, the 19-7
Internet and extranets, and perceptions of quality can affect price. price strategy a basic, long-term pricing framework
The price of a product normally changes as it moves through the life cycle and as demand that establishes the initial price for a product and the intended
for the product and competitive conditions change. Management often sets a high price at direction for price movements over the product life cycle
price skimming a pricing policy whereby a firm the introductory stage, and the high price tends to attract competition. The competition usually
charges a high introductory price, often coupled with drives prices down because individual competitors lower prices to gain market share. Adequate
heavy promotion distribution for a new product can sometimes be obtained by offering a larger-than-usual profit
penetration pricing a pricing policy whereby a margin to wholesalers and retailers. The Internet enables consumers to compare products and
firm charges a relatively low price for a product when it prices quickly and efficiently. Price is also used as a promotional tool to attract customers. Special
is first rolled out as a way to reach the mass market low prices often attract new customers and entice existing customers to buy more. Large buyers
19-8 can extract price concessions from vendors. Such demands can squeeze the profit margins of
unfair trade practice acts laws that prohibit suppliers. Perceptions of quality can also influence pricing strategies.
wholesalers and retailers from selling below cost
price fixing an agreement between two or more 19-7 Describe the procedure for setting the right price. The process of
firms on the price they will charge for a product setting the right price on a product involves four major steps: (1) establishing pricing goals;
predatory pricing the practice of charging a (2) estimating demand, costs, and profits; (3) choosing a price policy to help determine a base
very low price for a product with the intent of driving price; and (4) fine-tuning the base price with pricing tactics. A price strategy establishes a long-
competitors out of business or out of a market term pricing framework for a good or service. The three main types of price policies are price
skimming, penetration pricing, and status quo pricing.
19-9
base price the general price level at which the 19-8 Identify the legal constraints on pricing decisions. Government
company expects to sell the good or service regulation helps monitor four major areas of pricing: unfair trade practices, price fixing, price
quantity discount a price reduction offered discrimination, and predatory pricing. Many states have enacted unfair trade practice acts
to buyers buying in multiple units or above a specified that protect small businesses from large firms that operate efficiently on extremely thin profit
dollar amount
margins; the acts prohibit charging below-cost prices. The Sherman Act and the Federal Trade
cumulative quantity discount a
deduction from list price that applies to the buyer’s Commission Act prohibit both price fixing, which is an agreement between two or more firms
total purchases made during a specific period on a particular price, and predatory pricing, in which a firm undercuts its competitors with
noncumulative quantity discount a extremely low prices to drive them out of business. Finally, the Robinson-Patman Act of 1936
deduction from list price that applies to a single order makes it illegal for firms to discriminate between two or more buyers in terms of price. Predatory
rather than to the total volume of orders placed during pricing is the practice of charging a very low price for a product with the intent of driving
a certain period competitors out of business or out of a market.
cash discount a price reduction offered to
a consumer, an industrial user, or a marketing 19-9 Explain how discounts, geographic pricing, and other pricing
intermediary in return for prompt payment of a bill tactics can be used to fine-tune a base price. Several techniques enable
functional discount (trade discount) a marketing managers to adjust prices within a general range in response to changes in
discount to wholesalers and retailers for performing competition, government regulation, consumer demand, and promotional and positioning
channel functions goals. Techniques for fine-tuning a price can be divided into three main categories: discounts,
seasonal discount a price reduction for buying allowances, rebates, and value-based pricing; geographic pricing; and other pricing tactics.
merchandise out of season
promotional allowance (trade The first type of tactic gives lower prices to those who pay promptly, order a large quantity, or
allowance) a payment to a dealer for promoting perform some function for the manufacturer. Additional tactics in this category include seasonal
the manufacturer’s products discounts, promotion allowances, and rebates (cash refunds).
rebate a cash refund given for the purchase of a
product during a specific period Geographic pricing tactics—such as FOB origin pricing, uniform delivered pricing, zone pricing,
value-based pricing setting the price at a freight absorption pricing, and basing-point pricing—are ways of moderating the impact of
level that seems to the customer to be a good price shipping costs on distant customers.
compared to the prices of other options
A variety of other pricing tactics stimulate demand for certain products, increase store
FOB origin pricing a price tactic that requires
the buyer to absorb the freight costs from the shipping patronage, and offer more merchandise at specific prices.
point (“free on board”) More and more customers are paying price penalties, which are extra fees for violating the
uniform delivered pricing a price tactic in terms of a purchase contract. The perceived fairness or unfairness of a penalty may affect some
which the seller pays the actual freight charges and consumers’ willingness to patronize a business in the future.
bills every purchaser an identical, flat freight charge
zone pricing a modification of uniform delivered
pricing that divides the United States (or the total
market) into segments or zones and charges a flat
freight rate to all customers in a given zone
freight absorption pricing a price tactic in
which the seller pays all or part of the actual freight price lining the practice of offering a odd-even pricing (psychological
charges and does not pass them on to the buyer product line with several items at specific price pricing) a price tactic that uses odd-numbered
basing-point pricing a price tactic that points prices to connote bargains and even-numbered
charges freight from a given (basing) point, regardless leader pricing (loss-leader pricing) a prices to imply quality
of the city from which the goods are shipped price tactic in which a product is sold near or even price bundling marketing two or more
single-price tactic a price tactic that offers all below cost in the hope that shoppers will buy other products in a single package for a special price
goods and services at the same price (or perhaps two items once they are in the store two-part pricing a price tactic that charges
or three prices) bait pricing a price tactic that tries to get two separate amounts to consume a single good
flexible pricing (variable pricing) a consumers into a store through false or misleading or service
price tactic in which different customers pay different price advertising and then uses high-pressure consumer penalty an extra fee paid by the
prices for essentially the same merchandise bought in selling to persuade consumers to buy more consumer for violating the terms of the purchase
equal quantities expensive merchandise agreement
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YOUR

Strategic Planning for

WEAK RATE AND ORGANIZE

Smart Phone illustration: ©iStockphoto.com/

Printed in the United States of America

PART 1 THE WORLD OF MARKETING

PART 2 ANALYZING MARKET OPPORTUNITIES

PART 3 PRODUCT DECISIONS

PART 4 DISTRIBUTION DECISIONS

PART 5 PROMOTION AND COMMUNICATION STRATEGIES

PART 6 PRICING DECISIONS

2-10 Following Up on the Marketing

1-1 What is Marketing? 2 4-3 Demographic Factors 51

2 Strategic Planning for

MARKET 7-3 Relationship Marketing and Strategic Alliances 118

8 Segmenting and Targeting

8-6 Steps in Segmenting a Market 141

Part 3 12-7 Nonprofit Organization Marketing 213

Bill Pugliano/Getty Images News/Getty Images

12 Services and Nonprofit

14-4 Retail Operations Models 250

COMMUNICATION 17-2 Personal Selling

18 Social Media and

Includes Videos & Other MKTG10

Strategic Planning for

Access MKTG ONLINE at www.cengagebrain.com

1-1 Define the term marketing

1-1 WHAT IS MARKETING?

Zuma Press, Inc./Alamy

CHAPTER 1: An Overview of Marketing 3

of its Thunderbolt Kellogg’s recently introduced Open for Breakfast, a fo-

marketing concept the

ket orientation. It states that the

1-3a The Organization’s Focus CUSTOMER SATISFACTION The customers’ evalua-

▸ Earn trust: A stable base of loyal customers can help

AP Images/PRNewsFoto/Fairfield Inn & Suites by Marriott

1-3b The Firm’s Business

10 PART ONE: The World of Marketing

CHAPTER 1: An Overview of Marketing 11

house he or she likes. Us- ing mix decisions that must

1-3d The Firm’s Primary Goal 1-3f A Word of Caution

1-4b Marketing Is Important to Businesses

After you finish this chapter go to PAGE 29 for STUDY TOOLS.

2-1 THE NATURE OF STRATEGIC PLANNING

The Boston Consulting Group Model

Management must find a balance among the SBUs that

generate large amounts of cash, and others need cash

to foster growth. The challenge is to balance the or-

can use the Boston Consulting Group’s portfolio matrix.

High categories where growth prospects are the greatest.

lieves has the potential to be a star (probably a

● Hold: If an SBU is a very successful cash cow, Low Medium High

thriving market plus a strong business position

(the green cells in Exhibit 2.4)—are the best

Beats Electronics launched a new line of over-the-ear

2-3f Why Write a Marketing Plan? Objectives

2-3h Writing the Marketing Plan

SITUATION ANALYSIS business. After emerging from bankruptcy, Kodak has