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Principles of Marketing This page intentionally left blank Principles of Marketing 17e gLOBaL eDitiOn Philip Kotler Northwestern University Gary Armstrong University of North Carolina with Marc Oliver Opresnik St. Gallen Management Institute Harlow, England • London • New York • Boston • San Francisco • Toronto ...

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Principles of Marketing This page intentionally left blank Principles of Marketing 17e gLOBaL eDitiOn Philip Kotler Northwestern University Gary Armstrong University of North Carolina with Marc Oliver Opresnik St. Gallen Management Institute Harlow, England • London • New York • Boston • San Francisco • Toronto • Sydney • Dubai • Singapore • Hong Kong Tokyo • Seoul • Taipei • New Delhi • Cape Town • Sao Paulo • Mexico City • Madrid • Amsterdam • Munich • Paris • Milan Vice President, Business Publishing: Donna Battista Director of Portfolio Management: Stephanie Wall Portfolio Manager: Daniel Tylman Editorial Coordinator: Linda Albelli Managing Editor, Global Edition: Steven Jackson Associate Acquisitions Editor, Global Edition: Ishita Sinha Senior Project Editor, Global Edition: Daniel Luiz Project Manager, Global Edition: Nikhil Rakshit Manager, Media Production, Global Edition: M. Vikram Kumar Senior Manufacturing Controller, Production, Global Edition: Trudy Kimber Vice President, Product Marketing: Roxanne McCarley Director of Strategic Marketing: Brad Parkins Strategic Marketing Manager: Deborah Strickland Product Marketer: Becky Brown Field Marketing Manager: Lenny Ann Kucenski Product Marketing Assistant: Jessica Quazza Vice President, Production and Digital Studio, Arts and Business: Etain O’Dea Director of Production, Business: Jeff Holcomb Managing Producer, Business: Ashley Santora Operations Specialist: Carol Melville Creative Director: Blair Brown Manager, Learning Tools: Brian Surette Content Developer, Learning Tools: Sarah Peterson Managing Producer, Digital Studio, Arts and Business: Diane Lombardo Digital Studio Producer: Darren Cormier Digital Studio Producer: Alana Coles Full-Service Project Management, Design, and Composition: Integra Software Services Cover Art: MSSA/Shutterstock.com Pearson Education Limited KAO Two KAO Park Harlow CM17 9NA United Kingdom and Associated Companies throughout the world Visit us on the World Wide Web at: www.pearsonglobaleditions.com © Pearson Education Limited 2018 The rights of Philip Kotler and Gary Armstrong to be identified as the authors of this work have been asserted by them in accordance with the Copyright, Designs and Patents Act 1988. Authorized adaptation from the United States edition, entitled Principles of Marketing, 17th edition, ISBN 978-0-13-449251-3, by Philip Kotler and Gary Armstrong, published by Pearson Education © 2018. All rights reserved. No part of this publication may be reproduced, stored in a retrieval system, or transmitted in any form or by any means, electronic, mechanical, photocopying, recording or otherwise, without either the prior written permission of the publisher or a license permitting restricted copying in the United Kingdom issued by the Copyright Licensing Agency Ltd, Saffron House, 6–10 Kirby Street, London EC1N 8TS. All trademarks used herein are the property of their respective owners. The use of any trademark in this text does not vest in the author or publisher any trademark ownership rights in such trademarks, nor does the use of such trademarks imply any affiliation with or endorsement of this book by such owners. ISBN 10: 1-292-22017-1 ISBN 13: 978-1-292-22017-8 British Library Cataloguing-in-Publication Data A catalogue record for this book is available from the British Library. 10 9 8 7 6 5 4 3 2 1 14 13 12 11 10 Typeset in Times LT Pro-Roman by Integra Software Services. Printed and bound by Lego, Italy. Dedication To Kathy, Betty, Mandy, Matt, KC, Keri, Delaney, Molly, Macy, and Ben; and Nancy, Amy, Melissa, and Jessica This page intentionally left blank about the authors As a team, Philip Kotler and Gary Armstrong provide a blend of skills uniquely suited to writing an introductory marketing text. Professor Kotler is one of the world’s leading authorities on marketing. Professor Armstrong is an award-winning teacher of undergraduate business students. Together, they make the complex world of marketing practical, approachable, and enjoyable. Philip Kotler is S.C. Johnson & Son Distinguished Professor of International Marketing at the Kellogg School of Management, Northwestern University. He received his master’s degree at the University of Chicago and his Ph.D. at M.I.T., both in economics. Dr. Kotler is the author of Marketing Management (Pearson), now in its fifteenth edition and the most widely used marketing textbook in graduate schools of business worldwide. He has authored more than 50 other successful books and has published more than 150 articles in leading journals. He is the only three-time winner of the coveted Alpha Kappa Psi award for the best annual article in the Journal of Marketing. Professor Kotler was named the first recipient of four major awards: the Distinguished Marketing Educator of the Year Award and the William L. Wilkie “Marketing for a Better World” Award, both given by the American Marketing Association; the Philip Kotler Award for Excellence in Health Care Marketing presented by the Academy for Health Care Services Marketing; and the Sheth Foundation Medal for Exceptional Contribution to Marketing Scholarship and Practice. He is a charter member of the Marketing Hall of Fame, was voted the first Leader in Marketing Thought by the American Marketing Association, and was named the Founder of Modern Marketing Management in the Handbook of Management Thinking. His numerous other major honors include the Sales and Marketing Executives International Marketing Educator of the Year Award; the European Association of Marketing Consultants and Trainers Marketing Excellence Award; the Charles Coolidge Parlin Marketing Research Award; and the Paul D. Converse Award, given by the American Marketing Association to honor “outstanding contributions to science in marketing.” A recent Forbes survey ranks Professor Kotler in the top 10 of the world’s most influential business thinkers. And in a recent Financial Times poll of 1,000 senior executives across the world, Professor Kotler was ranked as the fourth “most influential business writer/guru” of the twentyfirst century. Dr. Kotler has served as chairman of the College on Marketing of the Institute of Management Sciences, a director of the American Marketing Association, and a trustee of the Marketing Science Institute. He has consulted with many major U.S. and international companies in the areas of marketing strategy and planning, marketing organization, and international marketing. He has traveled and lectured extensively throughout Europe, Asia, and South America, advising companies and governments about global marketing practices and opportunities. Gary Armstrong is Crist W. Blackwell Distinguished Professor Emeritus of Undergraduate Education in the KenanFlagler Business School at the University of North Carolina at Chapel Hill. He holds undergraduate and master’s degrees in business from Wayne State University in Detroit, and he received his Ph.D. in marketing from Northwestern University. Dr. Armstrong has contributed numerous articles to leading business journals. As a consultant and researcher, he has worked with many companies on marketing research, sales management, and marketing strategy. But Professor Armstrong’s first love has always been teaching. His long-held Blackwell Distinguished Professorship is the only permanent endowed professorship for distinguished undergraduate teaching at the University of North Carolina at Chapel Hill. He has been very active in the teaching and administration of Kenan-Flagler’s undergraduate program. His administrative posts have included Chair of Marketing, Associate Director of the Undergraduate Business Program, Director of the Business Honors Program, and many others. Through the years, he has worked closely with business student groups and has received several UNC campuswide and Business School teaching awards. He is the only repeat recipient of the school’s highly regarded Award for Excellence in Undergraduate Teaching, which he received three times. Most recently, Professor Armstrong received the UNC Board of Governors Award for Excellence in Teaching, the highest teaching honor bestowed by the sixteen-campus University of North Carolina system. Marc Oliver Opresnik is Professor of Marketing and Management and Member of the Board of Directors at SGMI St. Gallen Management Institute, a leading international business school. In addition, he is Professor of Business Administration at Luebeck University of Applied Sciences as well as a visiting professor to international universities such as the European Business School in London and East China University of Science and Technology in Shanghai. He has 10 years of experience working in senior management and marketing positions for Shell International Petroleum Co. Ltd. and is the author of numerous articles and books. Along with Kevin Keller and Phil Kotler, he is co-author of the German edition of Marketing Management. In addition, he is a co-editor and member of the editorial board of several international journals such as Transnational Marketing, Journal of World Marketing Summit Group, and International Journal of New Technologies in Science and Engineering. He was also appointed Chief Research Officer at Kotler Impact Inc., Philip Kotler’s international company. His responsibilities include the global development, planning, implementation, and management of university courses and executive training as well as global research initiatives and cooperations. As president of his consulting firm Opresnik Management Consulting, Professor Opresnik works as a coach, keynote speaker, and consultant for numerous institutions, governments, and international corporations, including Google, Coca-Cola, McDonald’s, Dräger, RWE, SAP, Porsche, Audi, Volkswagen, Shell International Petroleum Co. Ltd., Procter & Gamble, Unilever, L’Oréal, Bayer, BASF, and Adidas. More than 100,000 people have benefited professionally and personally from his work as a coach in seminars on marketing, sales, and negotiation and as a speaker at conferences all over the world, including locations like St. Gallen, Davos, St. Moritz, Berlin, Houston, Moscow, London, Paris, Dubai, and Tokyo. 7 This page intentionally left blank Brief Contents Preface 17 Acknowledgments 23 Part 1 1 2 Part 2 3 4 5 6 Part 3 7 8 9 10 11 12 13 14 15 16 17 Part 4 18 19 20 Appendix 1 Appendix 2 Appendix 3 Defining Marketing and the Marketing Process 26 Marketing: Creating Customer Value and Engagement 26 Company and Marketing Strategy: Partnering to Build Customer Engagement, Value, and Relationships 62 Understanding the Marketplace and Consumer Value 90 Analyzing the Marketing Environment 90 Managing Marketing Information to Gain Customer Insights 122 Consumer Markets and Buyer Behavior 156 Business Markets and Business Buyer Behavior 186 Designing a Customer Value–Driven Strategy and Mix 210 Customer Value–Driven Marketing Strategy: Creating Value for Target Customers 210 Products, Services, and Brands: Building Customer Value 242 Developing New Products and Managing the Product Life Cycle 278 Pricing: Understanding and Capturing Customer Value 306 Pricing Strategies: Additional Considerations 330 Marketing Channels: Delivering Customer Value 356 Retailing and Wholesaling 390 Engaging Consumers and Communicating Customer Value: Integrated Marketing Communication Strategy 422 Advertising and Public Relations 450 Personal Selling and Sales Promotion 478 Direct, Online, Social Media, and Mobile Marketing 510 Extending Marketing 540 Creating Competitive Advantage 540 The Global Marketplace 566 Sustainable Marketing: Social Responsibility and Ethics 596 Marketing Plan 627 Marketing by the Numbers 637 Careers in Marketing 655 Glossary 667 References 675 Index 705 9 This page intentionally left blank Contents Preface 17 Acknowledgments 23 Part 1: Defining Marketing and the Marketing Process 26 2 Company and Marketing Strategy: partnering to Build Customer engagement, Value, and relationships 62 Chapter Company-Wide Strategic Planning: Defining Marketing’s Role 64 Defining a Market-Oriented Mission 64 | Setting Company 1 Marketing: Creating Customer Value and engagement 26 Chapter Objectives and Goals 66 Designing the Business Portfolio 66 Analyzing the Current Business Portfolio 67 | The Boston Consulting Group Approach 67 | Developing Strategies for What Is Marketing? 28 Marketing Defined 29 | The Marketing Process 29 Understanding the Marketplace and Customer Needs 30 Customer Needs, Wants, and Demands 30 | Market Offerings—Products, Services, and Experiences 31 | Customer Value and Satisfaction 31 | Exchanges and Relationships 33 | Markets 33 Designing a Customer Value–Driven Marketing Strategy and Plan 34 Growth and Downsizing 70 Planning Marketing: Partnering to Build Customer Relationships 72 Partnering with Other Company Departments 72 | Partnering with Others in the Marketing System 73 Marketing Strategy and the Marketing Mix 74 Customer Value–Driven Marketing Strategy 74 | Developing an Integrated Marketing Mix 77 Managing the Marketing Effort and Marketing Return on Investment 79 Customer Value–Driven Marketing Strategy 34 | Preparing an Managing the Marketing Effort 79 | Measuring and Managing Integrated Marketing Plan and Program 38 Marketing Return on Investment 83 Managing Customer Relationships and Capturing Customer Value 38 REVIEWING AND ExTENDING THE CONCEPTS 84 | OBjECTIVES REVIEW AND KEY TERMS 84 | Objectives Review 84 | Key Engaging Customers and Managing Customer Terms 85 | DISCuSSION AND CRITICAL THINKING 86 | Discussion Relationships 38 | Capturing Value from Customers 44 Questions 86 | Critical Thinking Exercises 86 | APPLICATIONS AND The Changing Marketing Landscape 46 CASES 86 | Online, Mobile, and Social Media Marketing: Google’s The Digital Age: Online, Mobile, and Social Media (Alphabet’s) Mission 86 | Marketing Ethics: Predicting the Marketing 46 | The Changing Economic Environment 50 | Future 87 | Marketing by the Numbers: Apple vs. Microsoft 87 | The Growth of Not-for-Profit Marketing 51 | Rapid Video Case: Konica 87 | Company Case: Facebook: Making the Globalization 52 | Sustainable Marketing—The Call for More World More Open and Connected 88 Environmental and Social Responsibility 53 | So, What Is Marketing? Pulling It All Together 53 REVIEWING AND ExTENDING THE CONCEPTS 55 | OBjECTIVES REVIEW AND KEY TERMS 55 | Objectives Part 2: Understanding the Marketplace and Consumer Value 90 Review 55 | Key Terms 56 | DISCuSSION AND CRITICAL THINKING 57 | Discussion Questions 57 | Critical Thinking Exercises 57 | APPLICATIONS AND CASES 57 | Online, Mobile, and Social Media Marketing: The ALS Ice Bucket Challenge 57 | Marketing Ethics: Exaggeration and High Pressure 58 | Marketing by the Numbers: Be on the First Page 58 | Video Case: Eskimo joe’s 58 | Company Case: Argos: Creating Customer Value amid Change and Turbulence 59 Chapter 3 analyzing the Marketing environment 90 The Microenvironment and Macroenvironment 92 The Microenvironment 92 | The Macroenvironment 96 The Demographic and Economic Environments 96 The Demographic Environment 96 | The Economic Environment 103 The Natural and Technological Environments 104 The Natural Environment 104 | The Technological Environment 106 11 12 Contents The Political–Social and Cultural Environments 108 The Political and Social Environment 108 | The Cultural Environment 111 Responding to the Marketing Environment 114 REVIEWING AND ExTENDING THE CONCEPTS 117 | OBjECTIVES Buying Decision Behavior and the Buyer Decision Process 174 Types of Buying Decision Behavior 174 | The Buyer Decision Process 175 The Buyer Decision Process for New Products 178 REVIEW AND KEY TERMS 117 | Objectives Review 117 | Key Stages in the Adoption Process 178 | Individual Differences in Terms 117 | DISCuSSION AND CRITICAL THINKING 118 | Innovativeness 179 | Influence of Product Characteristics on Discussion Questions 118 | Critical Thinking Exercises 118 | Rate of Adoption 179 APPLICATIONS AND CASES 118 | Online, Mobile, and Social REVIEWING AND ExTENDING THE CONCEPTS 180 | Media Marketing: Sharing Economy 118 | Marketing Ethics: Your OBjECTIVES REVIEW AND KEY TERMS 180 | Objectives Insurance Renewal Notice Could Be a Trap 118 | Marketing by the Review 180 | Key Terms 181 | DISCuSSION AND CRITICAL Numbers: Demographic Trends 119 | Video Case: Burger King 119 | THINKING 182 | Discussion Questions 182 | Critical Company Case: Fitbit: Riding the Fitness Wave to Glory 119 Thinking Exercises 182 | APPLICATIONS AND CASES 182 | 4 Online, Mobile, and Social Media Marketing: Blogvertorials 182 | Managing Marketing Information to Gain Customer Insights 122 Marketing Ethics: Make Yourself Feel Good 183 | Marketing Marketing Information and Customer Insights 124 upstream against Consumer Perceptions 184 Chapter by the Numbers: Evaluating Alternatives 183 | Video Case: IMG Worldwide 183 | Company Case: GoldieBlox: Swimming Marketing Information and Today’s “Big Data” 125 | Managing Marketing Information 125 Assessing Information Needs and Developing Data 126 Assessing Marketing Information Needs 126 | Developing Marketing Information 126 Marketing Research 130 Defining the Problem and Research Objectives 130 | Developing the Research Plan 131 | Gathering Secondary Data 132 | Primary Data Collection 133 | Implementing the Research Plan 140 | Interpreting and Reporting the Findings 140 Analyzing and Using Marketing Information 140 Customer Relationship Management (CRM) 141 | Big Data and Marketing Analytics 141 | Distributing and using Marketing Information 144 Other Marketing Information Considerations 144 Marketing Research in Small Businesses and Nonprofit Organizations 144 | International Marketing Research 145 | Public Policy and Ethics in Marketing Research 147 REVIEWING AND ExTENDING THE CONCEPTS 149 | OBjECTIVES REVIEW AND KEY TERMS 149 | Objectives Review 149 | Key Terms 150 | DISCuSSION AND CRITICAL THINKING 150 | Discussion Questions 150 | Critical Thinking Exercises 151 | APPLICATIONS AND CASES 151 | Online, Mobile, and Social Media Marketing: Online Snooping 151 | Marketing Ethics: Metadata 151 | Marketing by the Numbers: What’s Your Sample? 151 | Video Case: Nielsen 152 | Company Case: Campbell Soup Company: Watching What You Eat 152 5 Consumer Markets and Buyer Behavior 156 Chapter 6 Business Markets and Business Buyer Behavior 186 Chapter Business Markets 188 Market Structure and Demand 189 | Nature of the Buying unit 189 | Types of Decisions and the Decision Process 189 Business Buyer Behavior 190 Major Types of Buying Situations 191 | Participants in the Business Buying Process 192 | Major Influences on Business Buyers 192 The Business Buyer Decision Process 195 Problem Recognition 195 | General Need Description 196 | Product Specification 196 | Supplier Search 196 | Proposal Solicitation 196 | Supplier Selection 197 | Order-Routine Specification 197 | Performance Review 197 Engaging Business Buyers with Digital and Social Marketing 197 E-procurement and Online Purchasing 197 | Businessto-Business Digital and Social Media Marketing 198 Institutional and Government Markets 199 Institutional Markets 199 | Government Markets 201 REVIEWING AND ExTENDING THE CONCEPTS 203 | OBjECTIVES REVIEW AND KEY TERMS 203 | Objectives Review 203 | Key Terms 204 | DISCuSSION AND CRITICAL THINKING 204 | Discussion Questions 204 | Critical Thinking Exercises 205 | APPLICATIONS AND CASES 205 | Online, Mobile, and Social Media Marketing: E-procurement and Mobile Procurement 205 | Marketing Ethics: Innocent: Proven Model of Consumer Behavior 158 Characteristics Affecting Consumer Behavior 159 Cultural Factors 159 | Social Factors 162 | Personal Factors 167 | Psychological Factors 169 Guilty? 205 | Marketing by the Numbers: NAICS 206 | Video Case: Eaton 206 | Company Case: Procter & Gamble: Treating Business Customers as Strategic Partners 206 Contents Part 3: Designing a Customer Value–Driven Strategy and Mix 210 7 Customer Value–Driven Marketing Strategy: Creating Value for target Customers 210 Chapter Marketing Strategy 212 Market Segmentation 213 Segmenting Consumer Markets 213 | Segmenting Business Video Case: Plymouth Rock Assurance 275 | Company Case: Airbnb: Making Hospitality Authentic 275 9 Developing New products and Managing the product Life Cycle 278 Chapter New Product Development Strategy 280 The New Product Development Process 281 Markets 219 | Segmenting International Markets 220 | Idea Generation 281 | Idea Screening 283 | Concept Requirements for Effective Segmentation 221 Development and Testing 283 | Marketing Strategy Market Targeting 221 Development 284 | Business Analysis 285 | Evaluating Market Segments 221 | Selecting Target Market Product Development 286 | Test Marketing 286 | Segments 222 Commercialization 287 | Managing New Product Differentiation and Positioning 228 Positioning Maps 229 | Choosing a Differentiation and Positioning Strategy 230 | Communicating and Delivering the Chosen Position 235 REVIEWING AND ExTENDING THE CONCEPTS 236 | OBjECTIVES REVIEW AND KEY TERMS 236 | Objectives Review 236 | Key Terms 237 | DISCuSSION AND CRITICAL 13 Development 287 Product Life-Cycle Strategies 289 Introduction Stage 294 | Growth Stage 294 | Maturity Stage 295 | Decline Stage 296 Additional Product and Service Considerations 297 Product Decisions and Social Responsibility 297 | International Product and Services Marketing 298 THINKING 237 | Discussion Questions 237 | Critical Thinking REVIEWING AND ExTENDING THE CONCEPTS 299 | Exercises 238 | APPLICATIONS AND CASES 238 | Online, OBjECTIVES REVIEW AND KEY TERMS 299 | Objectives Mobile, and Social Media Marketing: Get Your Groupon 238 | Review 299 | Key Terms 300 | DISCuSSION AND CRITICAL Marketing Ethics: Targeting Teens 238 | Marketing by the THINKING 300 | Discussion Questions 300 | Critical Thinking Numbers: uSAA 238 | Video Case: Sprout 239 | Company Case: Exercises 301 | APPLICATIONS AND CASES 301 | Online, Virgin America: Flight Service for the Tech Savvy 239 Mobile, and Social Media Marketing: Telemedicine 301 | Marketing Ethics: The Sustainable Tourist? 301 | Marketing by 8 products, Services, and Brands: Building Customer Value 242 Chapter What Is a Product? 244 Products, Services, and Experiences 244 | Levels of Product and Services 245 | Product and Service Classifications 246 the Numbers: Dental House Calls 302 | Video Case: Day2Night Convertible Heels 302 | Company Case: Bose: Better Products through Research 302 10 pricing: Understanding and Capturing Customer Value 306 Chapter Product and Service Decisions 249 Individual Product and Service Decisions 249 | Product Line Decisions 256 | Product Mix Decisions 256 Services Marketing 258 The Nature and Characteristics of a Service 258 | Marketing Strategies for Service Firms 259 | The Service Profit Chain 259 Branding Strategy: Building Strong Brands 264 What Is a Price? 308 Major Pricing Strategies 309 Customer Value–Based Pricing 309 | Cost-Based Pricing 313 | Competition-Based Pricing 317 Other Internal and External Considerations Affecting Price Decisions 317 Brand Equity and Brand Value 264 | Building Strong Overall Marketing Strategy, Objectives, and Mix 318 | Brands 265 | Managing Brands 272 Organizational Considerations 321 | The Market and REVIEWING AND ExTENDING THE CONCEPTS 272 | OBjECTIVES REVIEW AND KEY TERMS 272 | Objectives Demand 321 | The Economy 323 | Other External Factors 323 Review 272 | Key Terms 273 | DISCuSSION AND CRITICAL REVIEWING AND ExTENDING THE CONCEPTS 324 | THINKING 274 | Discussion Questions 274 | Critical Thinking OBjECTIVES REVIEW AND KEY TERMS 324 | Objectives Exercises 274 | APPLICATIONS AND CASES 274 | Online, Review 324 | Key Terms 325 | DISCuSSION AND CRITICAL Mobile, and Social Media Marketing: Feeding Pets from Your THINKING 325 | Discussion Questions 325 | Critical Thinking Smartphone 274 | Marketing Ethics: Cutthroat Prices 274 | Exercises 325 | APPLICATIONS AND CASES 325 | Online, Marketing by the Numbers: Pop-Tarts Gone Nutty! 275 | Mobile, and Social Media Marketing: Sold Out 325 | 14 Contents Marketing Ethics: The Cost of a Life 326 | Marketing Channel Management Decisions 372 by the Numbers: Pricey Sheets 326 | Video Case: Selecting Channel Members 372 | Managing and Fast-Food Discount Wars 327 | Company Case: MSC Motivating Channel Members 373 | Evaluating Channel Cruises: From One Second-Hand Ship to a Major World Members 375 | Public Policy and Distribution Player 327 Decisions 375 Marketing Logistics and Supply Chain Management 376 11 pricing Strategies: additional Considerations 330 Chapter New Product Pricing Strategies 332 Market-Skimming Pricing 332 | Market-Penetration Pricing 333 Product Mix Pricing Strategies 333 Product Line Pricing 334 | Optional-Product Pricing 334 | Captive-Product Pricing 334 | By-Product Pricing 335 | Product Bundle Pricing 335 Price Adjustment Strategies 335 Discount and Allowance Pricing 335 | Segmented Pricing 336 | Psychological Pricing 337 | Promotional Pricing 338 | Geographical Pricing 339 | Dynamic and Online Pricing 340 | International Pricing 342 Nature and Importance of Marketing Logistics 376 | Sustainable Supply Chains 377 | Goals of the Logistics System 378 | Major Logistics Functions 378 | Integrated Logistics Management 381 REVIEWING AND ExTENDING THE CONCEPTS 383 | OBjECTIVES REVIEW AND KEY TERMS 383 | Objectives Review 383 | Key Terms 384 | DISCuSSION AND CRITICAL THINKING 385 | Discussion Questions 385 | Critical Thinking Exercises 385 | APPLICATIONS AND CASES 385 | Online, Mobile, and Social Media Marketing: Fabletics Changing Channels 385 | Marketing Ethics: Ethical Sourcing 386 | Marketing by the Numbers: Tyson Expanding Distribution 386 | Video Case: Progressive 386 | Company Case: Apple Pay: Taking Mobile Payments Mainstream 387 Price Changes 344 Initiating Price Changes 344 | Responding to Price Changes 345 Public Policy and Pricing 346 Pricing within Channel Levels 349 | Pricing across Channel REVIEWING AND ExTENDING THE CONCEPTS 350 | OBjECTIVES REVIEW AND KEY TERMS 350 | Objectives Review 350 | Key Terms 351 | DISCuSSION AND CRITICAL THINKING 351 | Discussion Questions 351 | Critical Thinking Exercises 352 | APPLICATIONS AND CASES 352 | Online, Mobile, and Social Media Marketing: Krazy Coupon Lady 352 | Marketing Ethics: Less Bang for Your Buck 352 | Marketing by the Numbers: Louis Vuitton Price Increase 352 | Video Case: Hammerpress 353 | Company Case: Lululemon: Indulging Customers at a Premium Price 353 12 13 retailing and Wholesaling 390 Retailing 392 Retailing: Connecting Brands with Consumers 392 | Types of Levels 349 Chapter Chapter Marketing Channels: Delivering Customer Value 356 Supply Chains and the Value Delivery Network 358 The Nature and Importance of Marketing Channels 359 Channel Behavior and Organization 362 Retailers 393 Retailer Marketing Decisions 400 Segmentation, Targeting, Differentiation, and Positioning Decisions 400 | Product Assortment and Services Decision 401 | Price Decision 403 | Promotion Decision 403 | Place Decision 404 Retailing Trends and Developments 405 Tighter Consumer Spending 405 | New Retail Forms, Shortening Retail Life Cycles, and Retail Convergence 406 | The Rise of Megaretailers 406 | Growth of Direct, Online, Mobile, and Social Media Retailing 407 | The Need for Omni-Channel Retailing 407 | Growing Importance of Retail Technology 409 | Green Retailing 410 | Global Expansion of Major Retailers 411 Wholesaling 411 Types of Wholesalers 412 | Trends in Wholesaling 416 REVIEWING AND ExTENDING THE CONCEPTS 417 | OBjECTIVES REVIEW AND KEY TERMS 417 | Objectives Channel Behavior 362 | Vertical Marketing Systems 363 | Review 417 | Key Terms 418 | DISCuSSION AND CRITICAL Horizontal Marketing Systems 365 | Multichannel Distribution THINKING 418 | Discussion Questions 418 | Critical Thinking Systems 365 | Changing Channel Organization 366 Exercises 418 | APPLICATIONS AND CASES 418 | Online, Channel Design Decisions 368 Mobile, and Social Media Marketing: Skipping the Checkout Analyzing Consumer Needs 369 | Setting Channel Line 418 | Marketing Ethics: Footloose and Tax-Free 419 | Objectives 369 | Identifying Major Alternatives 370 | Marketing by the Numbers: Inventory Management 419 | Video Evaluating the Major Alternatives 371 | Designing International Case: Kmart 419 | Company Case: Bass Pro Shops: Creating Distribution Channels 371 Nature’s Theme Park for People Who Hate to Shop 420 Contents 14 engaging Consumers and Communicating Customer Value: Integrated Marketing Communication Strategy 422 Chapter The Promotion Mix 424 Integrated Marketing Communications 425 The New Marketing Communications Model 425 | The Need for Integrated Marketing Communications 427 Developing Effective Marketing Communication 430 A View of the Communication Process 430 | Steps in Developing Effective Marketing Communication 432 Setting the Total Promotion Budget and Mix 437 Setting the Total Promotion Budget 437 | Shaping the Overall 15 Managing the Sales Force 482 Designing the Sales Force Strategy and Structure 482 | Recruiting and Selecting Salespeople 485 | Training Salespeople 486 | Compensating Salespeople 487 | Supervising and Motivating Salespeople 488 | Evaluating Salespeople and Sales Force Performance 489 | Social Selling: Online, Mobile, and Social Media Tools 490 The Personal Selling Process 493 Steps in the Selling Process 493 | Personal Selling and Managing Customer Relationships 495 Sales Promotion 496 The Rapid Growth of Sales Promotion 496 | Sales Promotion Objectives 497 | Major Sales Promotion Tools 498 | Developing the Sales Promotion Program 502 Promotion Mix 439 | Integrating the Promotion Mix 441 | REVIEWING AND ExTENDING THE CONCEPTS 503 | Socially Responsible Marketing Communication 441 OBjECTIVES REVIEW AND KEY TERMS 503 | Objectives REVIEWING AND ExTENDING THE CONCEPTS 444 | Review 503 | Key Terms 504 | DISCuSSION AND CRITICAL OBjECTIVES REVIEW AND KEY TERMS 444 | Objectives THINKING 505 | Discussion Questions 505 | Critical Thinking Review 444 | Key Terms 445 | DISCuSSION AND CRITICAL Exercises 505 | APPLICATIONS AND CASES 505 | Online, THINKING 446 | Discussion Questions 446 | Critical Thinking Mobile, and Social Media Marketing: Snap It and Redeem It! 505 | Exercises 446 | APPLICATIONS AND CASES 446 | Online, Marketing Ethics: Walking the Customer 506 | Marketing by Mobile, and Social Media Marketing: Spot the Difference 446 | the Numbers: Sales Force Analysis 506 | Video Case: First Marketing Ethics: Western Stereotypes 447 | Marketing by Flavor 506 | Company Case: SunGard: Building Sustained the Numbers: Advertising-to-Sales Ratios 447 | Video Case: Growth by Selling the SunGard Way 506 OxO 447 | Company Case: Volvo Trucks: Integrated Marketing Communications of Epic Proportions 447 Chapter 15 advertising and public relations 450 Advertising 452 Major Advertising Decisions 453 17 Direct, Online, Social Media, and Mobile Marketing 510 Chapter Direct and Digital Marketing 512 The New Direct Marketing Model 512 | Rapid Growth of Direct Setting Advertising Objectives 453 | Setting the Advertising and Digital Marketing 513 | Benefits of Direct and Digital Budget 456 | Evaluating Advertising Effectiveness and the Marketing to Buyers and Sellers 514 Return on Advertising Investment 468 | Other Advertising Considerations 468 Public Relations 470 The Role and Impact of PR 471 Major Public Relations Tools 472 REVIEWING AND ExTENDING THE CONCEPTS 473 | OBjECTIVES Forms of Direct and Digital Marketing 514 Marketing, the Internet, and the Digital Age 515 Online Marketing 516 Social Media and Mobile Marketing 521 Social Media Marketing 521 | Mobile Marketing 525 Traditional Direct Marketing Forms 528 REVIEW AND KEY TERMS 473 | Objectives Review 473 | Key Direct-Mail Marketing 528 | Catalog Marketing 529 | Terms 473 | DISCuSSION AND CRITICAL THINKING 474 | Telemarketing 529 | Direct-Response Television Discussion Questions 474 | Critical Thinking Exercises 474 | Marketing 530 | Kiosk Marketing 531 | Public Policy Issues in APPLICATIONS AND CASES 474 | Online, Mobile, and Social Media Direct and Digital Marketing 531 Marketing: Facebook Audience Network 474 | Marketing Ethics: REVIEWING AND ExTENDING THE CONCEPTS 534 | Lie to Me 474 | Marketing by the Numbers: Dubai City Guide 475 | OBjECTIVES REVIEW AND KEY TERMS 534 | Objectives Video Case: Kmart 475 | Company Case: Allstate: Bringing Mayhem Review 534 | Key Terms 536 | DISCuSSION AND CRITICAL to the Auto Insurance Advertising Wars 475 THINKING 536 | Discussion Questions 536 | Critical Thinking Chapter 16 personal Selling and Sales promotion 478 Personal Selling 480 Exercises 536 | APPLICATIONS AND CASES 536 | Online, Mobile, and Social Media Marketing: On the Move 536 | Marketing Ethics: #Fail 537 | Marketing by the Numbers: Field Sales versus Telemarketing 537 | Video Case: Nutrisystem 537 | The Nature of Personal Selling 480 | The Role of the Sales Company Case: Alibaba: The World’s Largest E-tailer Is Not Force 481 Amazon 538 16 Contents Part 4: Extending Marketing 540 Chapter 18 Creating Competitive advantage 540 Competitor Analysis 542 Identifying Competitors 542 | Assessing Competitors 545 | Key Terms 591 | DISCuSSION AND CRITICAL THINKING 592 | Discussion Questions 592 | Critical Thinking Exercises 592 | APPLICATIONS AND CASES 592 | Online, Mobile, and Social Media Marketing: China’s Great Firewall 592 | Marketing Ethics: Cleaning up the Chinese Pharmaceutical Market 593 | Marketing by the Numbers: Attracting Alternative Markets 593 | Video Case: Monster 593 | Company Case: L’Oréal: The united Nations of Beauty 593 Selecting Competitors to Attack and Avoid 547 | Designing a Competitive Intelligence System 549 Competitive Strategies 549 Approaches to Marketing Strategy 549 | Basic Competitive 20 Sustainable Marketing: Social responsibility and ethics 596 Chapter Strategies 550 | Competitive Positions 553 | Market Leader Strategies 554 | Market Challenger Strategies 557 | Market Follower Strategies 558 | Market Nicher Strategies 558 Sustainable Marketing 598 Social Criticisms of Marketing 600 Balancing Customer and Competitor Orientations 559 Marketing’s Impact on Individual Consumers 600 | REVIEWING AND ExTENDING THE CONCEPTS 560 | Marketing’s Impact on Society as a Whole 604 | Marketing’s OBjECTIVES REVIEW AND KEY TERMS 560 | Objectives Review 560 | Key Terms 561 | DISCuSSION AND CRITICAL Impact on Other Businesses 606 Consumer Actions to Promote Sustainable Marketing 607 THINKING 561 | Discussion Questions 561 | Critical Thinking Consumerism 607 | Environmentalism 608 | Public Actions to Exercises 562 | APPLICATIONS AND CASES 562 | Online, Regulate Marketing 612 Mobile, and Social Media Marketing: I’ll Eat My Hat 562 | Marketing Ethics: Creating Competitive Advantage…to What End? 562 | Marketing by the Numbers: Market Share 562 | Video Case: umpqua Bank 563 | Company Case: YouTube: Google’s Quest for Video Dominance 563 Business Actions Toward Sustainable Marketing 613 Sustainable Marketing Principles 613 Marketing Ethics and the Sustainable Company 617 Marketing Ethics 617 | The Sustainable Company 620 REVIEWING AND ExTENDING THE CONCEPTS 620 | OBjECTIVES REVIEW AND KEY TERMS 620 | Objectives Chapter 19 Review 620 | Key Terms 621 | DISCuSSION AND CRITICAL the Global Marketplace 566 Global Marketing Today 568 Elements of the Global Marketing Environment 570 | Deciding Whether to Go Global 578 | Deciding Which Markets to Enter 578 Deciding How to Enter the Market 580 Exporting 580 | joint Venturing 581 | Direct Investment 582 Deciding on the Global Marketing Program 583 Product 585 | Promotion 586 | Price 588 | Distribution Channels 589 Deciding on the Global Marketing Organization 590 REVIEWING AND ExTENDING THE CONCEPTS 591 | OBjECTIVES REVIEW AND KEY TERMS 591 | Objectives Review 591 | THINKING 621 | Discussion Questions 621 | Critical Thinking Exercises 622 | APPLICATIONS AND CASES 622 | Online, Mobile, and Social Media Marketing: Teens and Social Media 622 | Marketing Ethics: Milking the International Market 622 | Marketing by the Numbers: The Cost of Sustainability 622 | Video Case: Honest Tea 623 | Company Case: adidas: Athletic Apparel with Purpose 623 Appendix 1: Marketing Plan 627 Appendix 2: Marketing by the Numbers 637 Appendix 3: Careers in Marketing 655 Glossary 667 References 675 Index 705 Preface The Seventeenth Edition of Kotler/Armstrong’s Principles of Marketing! Setting the World Standard in Marketing Education These are exciting times in marketing. Recent surges in digital technologies have created a new, more engaging, more connected marketing world. Beyond traditional tried-and-true marketing concepts and practices, today’s marketers have added a host of new-age tools for engaging consumers, building brands, and creating customer value and relationships. In these digital times, sweeping advances in “the Internet of Things”—from social and mobile media, connected digital devices, and the new consumer empowerment to “big data” and new marketing analytics—have profoundly affected both marketers and the consumers they serve. All around the world—across five continents, more than 40 countries, and 24 languages—students, professors, and business professionals have long relied on Kotler/ Armstrong’s Principles of Marketing as the most-trusted source for teaching and learning about the latest developments in basic marketing concepts and practices. More than ever, the seventeenth edition introduces new marketing students to the fascinating world of modern marketing in a complete and authoritative yet fresh, practical, and engaging way. Once again, we’ve added substantial new content and poured over every page, table, figure, fact, and example in order to make this the best text from which to learn about and teach marketing. Enhanced by MyMarketingLab, our online homework and personalized study tool, the seventeenth edition of Principles of Marketing remains the world standard in introductory marketing education. Marketing: Creating Customer Value and Engagement in the Digital and Social Age Top marketers share a common goal: putting the consumer at the heart of marketing. Today’s marketing is all about creating customer value and engagement in a fast-changing, increasingly digital and social marketplace. Marketing starts with understanding consumer needs and wants, determining which target markets the organization can serve best, and developing a compelling value proposition by which the organization can attract and grow valued consumers. Then, more than just making a sale, today’s marketers want to engage customers and build deep customer relationships that make their brands a meaningful part of consumers’ conversations and lives. In this digital age, to go along with their tried-and-true traditional marketing methods, marketers have a dazzling set of new online, mobile, and social media tools for engaging customers anytime, anyplace to jointly shape brand conversations, experiences, and community. If marketers do these things well, they will reap the rewards in terms of market share, profits, and customer equity. In the seventeenth edition of Principles of Marketing, you’ll learn how customer value and customer engagement drive every good marketing strategy. What’s New in the Seventeenth Edition? We’ve thoroughly revised the seventeenth edition of Principles of Marketing to reflect the major trends and forces that affect marketing in this digital age of customer value, engagement, and relationships. Here are just some of the major and continuing changes you’ll find in this edition. 17 18 Preface • The seventeenth edition adds fresh coverage in both traditional marketing areas and on fast-changing and trending topics such as customer engagement marketing, mobile and social media, big data and the new marketing analytics, the Internet of Things, omni-channel marketing and retailing, customer co-creation and empowerment, realtime customer listening and marketing, building brand community, marketing content creation and native advertising, B-to-B social media and social selling, monetizing social media, tiered and dynamic pricing, consumer privacy, sustainability, global marketing, and much more. • This new edition continues to build on its customer engagement framework—creating direct and continuous customer involvement in shaping brands, brand conversations, brand experiences, and brand community. New coverage and fresh examples throughout the text address the latest customer engagement tools, practices, and developments. See especially Chapter 1 (refreshed sections on Customer Engagement and Today’s Digital and Social Media and Consumer-Generated Marketing); Chapter 4 (big data and real-time research to gain deeper customer insights); Chapter 5 (creating social influence and customer community through digital and social media marketing); Chapter 9 (customer co-creation and customer-driven new-product development); Chapter 13 (omni-channel retailing); Chapters 14 and 15 (marketing content curation and native advertising); Chapter 16 (sales force social selling); and Chapter 17 (direct digital, online, social media, and mobile marketing). • No area of marketing is changing faster than online, mobile, social media, and other digital marketing technologies. Keeping up with digital concepts, technologies, and practices has become a top priority and major challenge for today’s marketers. The seventeenth edition of Principles of Marketing provides thoroughly refreshed, up-todate coverage of these explosive developments in every chapter—from online, mobile, and social media engagement technologies discussed in Chapters 1, 5, 14, 15, and 17 to “real-time listening” and “big data” research tools in Chapter 4, real-time dynamic pricing in Chapter 11, omni-channel retailing in Chapter 13, and social selling in Chapter 16. A Chapter 1 section on The Digital Age: Online, Mobile, and Social Media Marketing introduces the exciting new developments in digital and social media marketing. Then a Chapter 17 section on Direct, Online, Social Media, and Mobile Marketing digs more deeply into digital marketing tools such as online sites, social media, mobile ads and apps, online video, email, blogs, and other digital platforms that engage consumers anywhere, anytime via their computers, smartphones, tablets, internet-ready TVs, and other digital devices. • The seventeenth edition continues to track fast-changing developments in marketing communications and the creation of marketing content. Marketers are no longer simply creating integrated marketing communications programs; they are joining with customers and media to curate customer-driven marketing content in paid, owned, earned, and shared media. You won’t find fresher coverage of these important topics in any other marketing text. • The seventeenth edition of Principles of Marketing continues to improve on its innovative learning design. The text’s active and integrative presentation includes learning enhancements such as annotated chapter-opening stories, a chapter-opening objective outline, explanatory author comments on major chapter sections and figures, and Real Marketing highlights that provide in-depth examples of marketing concepts and practices at work. The chapter-opening layout helps to preview and position the chapter and its key concepts. Figures annotated with author comments help students to simplify and organize chapter material. New and substantially revised end-of-chapter features help to summarize important chapter concepts and highlight important themes, such as marketing ethics, financial marketing analysis, and online, mobile, and social media marketing. This innovative learning design facilitates student understanding and eases learning. • The seventeenth edition provides 18 new end-of-chapter company cases by which students can apply what they learn to actual company situations. It also features 16 new video cases, with brief end-of-chapter summaries and discussion questions. Finally, all of the chapter-opening stories, Real Marketing highlights, and end-of-chapter features in the seventeenth edition are either new or revised. • New material throughout the seventeenth edition highlights the increasing importance of sustainable marketing. The discussion begins in Chapter 1 and ends in Chapter  20, Preface 19 which pulls marketing together under a sustainable marketing framework. In between, frequent discussions and examples show how sustainable marketing calls for socially and environmentally responsible actions that meet both the immediate and the future needs of customers, companies, and society as a whole. • The seventeenth edition provides new discussions and examples of the growth in global marketing. As the world becomes a smaller, more competitive place, marketers face new global marketing challenges and opportunities, especially in fast-growing emerging markets such as China, India, Brazil, Africa, and others. You’ll find much new coverage of global marketing throughout the text, starting in Chapter 1 and discussed fully in Chapter 19. Five Major Customer Value and Engagement Themes The seventeenth edition of Principles of Marketing builds on five major customer value and engagement themes: 1. Creating value for customers in order to capture value from customers in return. Today’s marketers must be good at creating customer value, engaging customers, and managing customer relationships. Outstanding marketing companies understand the marketplace and customer needs, design value-creating marketing strategies, develop integrated marketing programs that engage customers and deliver value and satisfaction, and build strong customer relationships and brand community. In return, they capture value from customers in the form of sales, profits, and customer equity. This innovative customer-value and engagement framework is introduced at the start of Chapter 1 in a five-step marketing process model, which details how marketing creates customer value and captures value in return. The framework is carefully developed in the first two chapters and then fully integrated throughout the remainder of the text. 2. Customer Engagement and Today’s Digital and Social Media. New digital and social media have taken today’s marketing by storm, dramatically changing how companies and brands engage consumers and how consumers connect and influence each other’s brand behaviors. The seventeenth edition introduces and thoroughly explores the contemporary concept of customer engagement marketing and the exciting new digital and social media technologies that help brands to engage customers more deeply and interactively. It starts with two major Chapter 1 sections: Customer Engagement and Today’s Digital and Social Media and The Digital Age: Online, Mobile, and Social Media. A refreshed Chapter 17 on Direct, Online, Social Media, and Mobile Marketing summarizes the latest developments in digital engagement and relationship-building tools. Everywhere in between, you’ll find revised and expanded coverage of the exploding use of digital and social tools to create customer engagement and build brand community. 3. Building and managing strong, value-creating brands. Well-positioned brands with strong brand equity provide the basis upon which to build customer value and profitable customer relationships. Today’s marketers must position their brands powerfully and manage them well to create valued brand experiences. The seventeenth edition provides a deep focus on brands, anchored by a Chapter 8 section on Branding Strategy: Building Strong Brands. 4. Measuring and managing return on marketing. Especially in uneven economic times, marketing managers must ensure that their marketing dollars are being well spent. In the past, many marketers spent freely on big, expensive marketing programs, often without thinking carefully about the financial returns on their spending. But all that has changed rapidly. “Marketing accountability”—measuring and managing marketing return on investment—has now become an important part of strategic marketing decision making. This emphasis on marketing accountability is addressed in Chapter 2, in Appendix 2 (Marketing by the Numbers), and throughout the seventeenth edition. 5. Sustainable marketing around the globe. As technological developments make the world an increasingly smaller and more fragile place, marketers must be good at marketing their brands globally and in sustainable ways. New material throughout the 20 Preface seventeenth edition emphasizes the concepts of global marketing and sustainable marketing—meeting the present needs of consumers and businesses while also preserving or enhancing the ability of future generations to meet their needs. The seventeenth edition integrates global marketing and sustainability topics throughout the text. It then provides focused coverage on each topic in Chapters 19 and 20, respectively. An Emphasis on Real Marketing and Bringing Marketing to Life Principles of Marketing, seventeenth edition, takes a practical marketing-management approach, providing countless in-depth, real-life examples and stories that engage students with marketing concepts and bring modern marketing to life. In the seventeenth edition, every chapter has an engaging opening story plus Real Marketing highlights that provide fresh insights into real marketing practices. Learn how: • Samsung’s passion for creating superb online customer experiences has made it a poster child for direct and digital marketing. • Nestlé has set up a customer-driven new product development process for finding and growing new market offerings while living up to its vision to make its products tastier and healthier. • Apple’s outstanding success has never been about prices; it’s always been about creating “life-feels-good” user experiences that make its products fly off the shelves despite their premium prices. • Emirates became a lifestyle brand by changing the way it reached out to customers. It framed itself as connecting peoples and cultures, creating meaningful experiences. • Lenovo’s global success is rooted in its deep and sound understanding of customers and its ability to build profitable relationships. Its business model is thus built on customer satisfaction, innovation, and operational efficiency. • Philips has realized that assessing multiple factors for change is vital to the understanding of current and probable future shifts in a marketing environment that is continuously shifting. • Ferrero successfully analyzes and uses marketing information and customer insights to better tailor its offerings to the local market. • Zara’s control of the entire distribution chain, from design and production to its own worldwide distribution network, has turned the brand into the world’s fastestgrowing retailer. • App-based car sharing service Uber is radically reshaping urban transportation channels in cities around the globe, but it is now facing stiff competition from local rivals like Careem. • Industrial giant GE has unleashed a remarkable array of digital and social media content that connects the brand with its business customers and positions the 130-year-old company as a youthful, contemporary technology leader in the new digital industrial era. • High-flying Mountain Dew is “Doin’ the Dew” with brand superfans to build a passionately loyal and engaged brand community. It doesn’t just market to customers; it makes them partners in building the brand. Beyond such features, each chapter is packed with countless real, engaging, and timely examples that reinforce key concepts. No other text brings marketing to life like the seventeenth edition of Principles of Marketing. Preface 21 Learning Aids That Create Value and Engagement A wealth of chapter-opening, within-chapter, and end-of-chapter learning devices help students to learn, link, and apply major concepts: • Integrated chapter-opening preview sections. The active and integrative chapter-opening spread in each chapter starts with a Chapter Preview, which briefly previews chapter concepts, links them with previous chapter concepts, and introduces the chapteropening story. This leads to a chapter-opening vignette—an engaging, deeply developed, illustrated, and annotated marketing story that introduces the chapter material and sparks student interest. Finally, an Objective Outline provides a helpful preview of chapter contents and learning objectives, complete with page numbers. • Real Marketing highlights. Each chapter contains two carefully developed highlight features that provide an in-depth look at real marketing practices of large and small companies. • Author comments and figure annotations. Each figure contains author comments that ease student understanding and help organize major text sections. • Reviewing and Extending the Concepts. Sections at the end of each chapter summarize key chapter concepts and provide questions and exercises by which students can review and apply what they’ve learned. The Objectives Review and Key Terms section reviews major chapter concepts and links them to chapter objectives. It also provides a helpful listing of chapter key terms by order of appearance with page numbers that facilitate easy reference. A Discussion and Critical Thinking section provides discussion questions and critical thinking exercises that help students to keep track of and apply what they’ve learned in the chapter. • Applications and Cases. Brief Online, Mobile, and Social Media Marketing; Marketing Ethics; and Marketing by the Numbers sections at the end of each chapter provide short applications cases that facilitate discussion of current issues and company situations in areas such as mobile and social marketing, ethics, and financial marketing analysis. A Video Case section contains short vignettes with discussion questions to be used with a set four- to seven-minute videos that accompanied the seventeenth edition. End-ofchapter Company Case sections provide all-new or revised company cases that help students to apply major marketing concepts to real company and brand situations. • Marketing Plan appendix. Appendix 1 contains a sample marketing plan that helps students to apply important marketing planning concepts. • Marketing by the Numbers appendix. An innovative Appendix 2 provides students with a comprehensive introduction to the marketing financial analysis that helps to guide, assess, and support marketing decisions. An exercise at the end of each chapter lets students apply analytical and financial thinking to relevant chapter concepts and links the chapter to the Marketing by the Numbers appendix. More than ever before, the seventeenth edition of Principles of Marketing creates value and engagement for you—it gives you all you need to know about marketing in an effective and enjoyable total learning package! A Total Teaching and Learning Package A successful marketing course requires more than a well-written book. Today’s classroom requires a dedicated teacher, well-prepared students, and a fully integrated teaching system. A total package of teaching and learning supplements extends this edition’s emphasis on creating value and engagement for both the student and instructor. The following aids support Principles of Marketing, seventeenth edition. 22 Preface Instructor resources At the Instructor Resource Center, www.pearsonglobaleditions.com/kotler, instructors can easily register to gain access to a variety of instructor resources available with this text in downloadable format. If assistance is needed, a dedicated technical support team is ready to help with the media supplements that accompany the text. Visit http://support.pearson .com/getsupport for answers to frequently asked questions and toll-free user support phone numbers. The following supplements are available with this text: • • • • Instructor’s Resource Manual Test Bank TestGen® Computerized Test Bank PowerPoint Presentation acknowledgments No book is the work only of its authors. We greatly appreciate the valuable contributions of several people who helped make this new edition possible. As always, we owe extra-special thanks to Keri Jean Miksza for her dedicated and valuable contributions to all phases of the project and to her husband Pete and daughters Lucy and Mary for all the support they provide Keri during this very absorbing project. We owe substantial thanks to Andy Norman of Drake University for his skillful help in developing chapter vignettes and highlights, company and video cases, PowerPoint presentations, and the marketing plan appendix. This and many previous editions have benefited greatly from Andy’s assistance. We also thank Colette Wolfson of the Ivy Tech Community College School of Business for her dedicated efforts in preparing end-of-chapter materials. Additional thanks go to Carol Davis at California State University Monterey Bay for her work in updating the Instructor’s Manual and Test Item File. Finally, we’d like to thank the professors who assisted with our work on MyMarketingLab: Arlene Green, Indian River State College; Mahmood Khan, Virginia Tech; Todd Korol, Monroe Community College; Susan Schanne, Eastern Michigan University; and Sarah Shepler, Ivy Tech Community College. All of these contributors are greatly appreciated in making the seventeenth edition of Principles of Marketing a robust teaching and learning system. Many reviewers at other colleges and universities provided valuable comments and suggestions for this and previous editions. We are indebted to the following colleagues for their thoughtful input: reviewers Sucheta Ahlawat, Kean University Darrell E. Bartholomew, Rider University Leta Beard, University of Washington Greg Black, Metropolitan State University of Denver Christopher P. Blocker, Colorado State University Kathryn Boys, Virginia Tech Rod Carveth, Naugatuck Valley Community College Anindja Chatterjee, Slippery Rock University of Pennsylvania Christina Chung, Ramapo College of New Jersey Ed Chung, Elizabethtown College Marianne Collins, Winona State University Mary Conran, Temple University Eloise Coupey, Virginia Tech Deborah L. Cowles, Virginia Commonwealth University Alan Dick, University of Buffalo Patti Diggin, West Chester University of Pennsylvania Frank Franzak, Virginia Commonwealth University George J. Gannage Jr., Embry Riddle Aeronautical University David A. Gilliam, University of Arkansas at Little Rock Karen Gore, Ivy Tech Community College, Evansville Campus Deborah M. Gray, Central Michigan University Amy Handlin, Monmouth University James Heyman, University of St. Thomas Ken Knox, Eastern Gateway Community College Ann T. Kuzma, Minnesota State University, Mankato Geoffrey P. Lantos, Stonehill College Charles Lee, Chestnut Hill College Yun Jung Lee, Adelphi University Carolyn A. Massiah, University of Central Florida Samuel McNeely, Murray State University Chip Miller, Drake University Linda Morable, Richland College Randy Moser, Elon University David Murphy, Madisonville Community College Esther Page-Wood, Western Michigan University Ed Petkus Jr., Ramapo College of New Jersey Tim Reisenwitz, Valdosta State University Mary Ellen Rosetti, Hudson Valley Community College William Ryan, University of Connecticut James Sawhill, Washington University–Missouri Mid Semple, SUNY Broome Roberta Schultz, Western Michigan University Shweta Singh, Kean University Michaeline Skiba, Monmouth University Joseph G. Slifko Jr., Pennsylvania Highlands Community College J. Alexander Smith, Oklahoma City University Deb Utter, Boston University Donna Waldron, Manchester Community College Wendel Weaver, Oklahoma Wesleyan University Susan D. Williams, New Jersey City University Douglas Witt, Brigham Young University Poh-Lin Yeoh, Bentley University 23 24 Acknowledgments We also owe a great deal to the people at Pearson Education who helped develop this book. Portfolio Manager Dan Tylman provided resources and support during the revision. Editorial Coordinator Linda Albelli and Project Manager Karin Williams provided valuable assistance and advice in guiding this complex revision project through development, design, and production. We’d also like to thank Director of Portfolio Management Stephanie Wall for her strong guidance and support along the way as well as the expertise of Managing Producer Ashley Santora, Director of Production Jeff Holcomb, and Product Marketer Becky Brown. We are proud to be associated with the fine professionals at Pearson. We also owe a mighty debt of gratitude to Senior Project Manager Charles Fisher, Associate Managing Editor Allison Campbell, Design Manager Emily Friel, and the rest of the team at Integra for their fine work on this edition. Finally, we owe many thanks to our families for all of their support and encouragement—Kathy, Betty, Mandy, Matt, KC, Keri, Delaney, Molly, Macy, and Ben from the Armstrong clan and Nancy, Amy, Melissa, and Jessica from the Kotler family. To them, we dedicate this book. Gary Armstrong Philip Kotler Global Edition Acknowledgements Pearson would like to thank the following people for their work on the Global Edition: Contributors Jan Charbonneau, University of Tasmania Geoff Fripp, The University of Sydney Ayantunji Gbadamosi, University of East London, United Kingdom Alice Cheah Wai Kuan, Taylor’s University, Malaysia Marc Opresnik, SGMI St. Gallen Management Institute Abdul Rauf, Wittenborg University Muneeza Shoaib, Middlesex University Dubai Diane Sutherland Jon Sutherland Nguyen Hai Anh Tran, University of East Anglia Nina von Arx-Steiner, University of Applied Sciences and Arts, Northwestern Switzerland FHNW Sophie Hsiao-Pei Yang, Coventry University reviewers Lailani Alcantara, Ritsumeikan Asia Pacific University Maggie Au, Temasek Polytechnic Adele Berndt, Jönköping University Michael Grund, HWZ University of Applied Sciences in Business Administration Zurich Michael Korchia, Kedge Business School Ronan de Kervenoael, ESC Rennes, France Jie Liu, Manchester Metropolitan University Christina Neylan, Lucerne University of Applied Sciences and Arts Milena S. Nikolova, American University in Bulgaria Stephen Tustain, Glion Institute of Higher Education Jimmy Wong Shiang Yang, Singapore University of Social Sciences Principles of Marketing Chapter preview 1 Part 1: Defining Marketing and the Marketing Process (Chapters 1–2) Part 2: Understanding the Marketplace and Consumer Value (Chapters 3–6) Part 3: Designing a Customer Value–Driven Strategy and Mix (Chapters 7–17) Part 4: Extending Marketing (Chapters 18–20) Marketing Creating Customer Value and Engagement This first chapter introduces you to the basic concepts of marketing. We start with the question: What is marketing? Simply put, marketing is engaging customers and managing profitable customer relationships. The aim of marketing is to create value for customers in order to capture value from customers in return. Next we discuss the five steps in the marketing process—from understanding customer needs, to designing customer value–driven marketing strategies and integrated marketing programs, to building customer relationships and capturing value for the firm. Finally, we discuss the major trends and forces affecting marketing in this new age of digital, mobile, and social media. Understanding these basic concepts and forming your own ideas about what they really mean to you will provide a solid foundation for all that follows. Let’s start with a good story about marketing in action at Emirates, the largest international airline in the world and one of the best-known brands on the planet. Emirate’s success results from much more than just offering a way to connect people from point A to point B. It’s based on a customer-focused marketing strategy by which Emirates creates customer value through deep brand–customer engagement and close brand community with and among its customers. EmiratEs’ CUstOmEr VaLUE—DriVEN markEtiNg: Engaging Customers and Building a Brand Community T he Emirates Group operates across six continents customer needs of surfing the Internet, emailing, or simply and 150 cities with a 95,000-strong team comprised calling a land line while in the airplane, as well as exclusive of over 160 nationalities. The Emirates airline, headlounges for its clientele. These offerings have allowed Emirates quartered in Dubai, UAE, was founded in 1985. The to deliver its value proposition to its customers and support its financial year ending March 31, 2016, saw the Group achieve mission statement of committing to high standards. its 28th consecutive year of profit in a financial year. The The Skywards Program, the airlines’ frequent traveler loycompany successfully capitalized on its location—a small cityalty program, also plays a key role in helping Emirates build state strategically located to reach three-fourths of the world strong customer relationships. In an industry-leading innovation, population in a flight of less than eight hours—to build a fastmembers now earn miles by zone instead of actual miles flown. A growing and profitable hub-based business model, making it “miles accelerator feature” offers bonus miles on specific flights the largest international airline in the world. and is designed to boost turnover on flights with less full flights. Emirates set out to be an inFacing increased and fierce novative, modern, and customercompetition, Emirates has launched Emirates is not just offering a way to oriented provider of high-quality a range of customer service initiaconnect people from point A to point B air travel services. Through the tives that support differentiation, years, Emirates has successfully including Dubai Connect, an incenbut is the catalyst to connect people’s and continuously created a custive for premium-class passengers dreams, hopes, and aspirations. tomer-focused value proposition offering free luxury hotel accomby offering a combination of prodmodation, including meals, ground ucts, services, information, and experiences customized for transportation, and visa costs in Dubai. Another differentiating elits market demographics for each of its destinations. This apement of its customer service is Chauffeur-drive, a service offered proach had led to an array of product offerings such as its onto customers flying first-class or business-class. Emirates chaufboard Information, Communication, and Entertainment (ICE) feurs collect customers from their doorstep or will be present to system, an all-in-one communications device accommodating take them to their final destination when they land. This could ChAptEr 1 | Marketing: Creating Customer Value and Engagement 27 be straight to the customer’s hotel, their next meeting, their favorite restaurant, or even to the course for a round of golf. This service is available in over 70 cities worldwide. As competitors continued to discount air fares close to loss levels, Emirates maintained fares while managing healthy yields supported by excellent load factors. The company was capable of doing this because of its customer value–driven marketing approach and its service proposition, for which customers continue to be willing to pay a premium. Whereas competitors emphasized low prices or well-maintained aircraft, Emirates built customer engagement and relationships. Beyond the functional benefit of air travel, Emirates marketed its services as “The Emirates Experience,” a genuine passion Emirates’ success is due in part to its diverse product offerings. for comfort and attention to detail. Customers didn’t just Antony Nettle/Alamy Stock Photo fly Emirates; they experienced it. company is connecting people and cultures, creating relevant Connecting with customers once required simply outand meaningful experiences that are shaping the world. spending competitors on big media ads and celebrity endorsers The campaign launch featured print, TV, and digital adverthat talk at customers. In these digital times, however, Emirates tising, including some iconic billboards in New York’s Times is forging a new kind of customer relationship, a deeper, more Square and Milan’s central train station. Launched in over personal, more engaging one. Emirates still invests in tradi80 markets across the world, the new brand platform pretional advertising, but the brand now spends an increasing sented Emirates’ new mindset through communication and amount of its marketing budget on cutting-edge digital and engagement that celebrates global travel, conveying Emirates’ social media marketing that interacts with customers to build commitment to connect with people and help them realize brand engagement and community. their potential through travel. Reflecting an effort to target a Emirates uses online, mobile, and social media marketing younger audience, the “Hello Tomorrow” campaign debuted to connect with their customers. Emirates also creates brand with vignettes of the TV spots on Emirates’ Facebook channel. “tribes”—large groups of highly engaged users—with the help Moreover, Emirates collaborated with the BBC to develop a of social media platforms such as Facebook, Twitter, Instagram, new series called “Collaboration Culture,” which followed 14 YouTube, and Pinterest. For example, the main Emirates Facebook leading personalities who collaborated across their respective page has more than 6.5 million likes. The Emirates Twitter page fields in music, food, fashion, and art. With CNN, Emirates adds another 822,000; the Emirates Instagram page has 1.9 million created “Fusion Journeys,” a concept that took artists to join subscribers, making it the largest in the industry; and the compafellow artists across the world to learn, teach, and even perform ny’s LinkedIn page has 667,000 followers, also no. 1 in the airline with them in their own country. Finally, Emirates’ created the business. Emirates’ social media presence engages customers at “Inspired Culture” channel on Yahoo! Globally, where globalisa high level, gets them talking with each other about the brand, tas can access recommendations, videos, and content, engaging and weaves the brand into their daily lives through cross-media with other people and being inspired by their creations. campaigns that integrate digital media with traditional tools to The new global culture reached 43 million viewers across connect with customers. A compelling example is the company’s 85 countries through the BBC, CNN, and Yahoo! Emirates’ “Hello Tomorrow” campaign, which was launched in 2012 and consideration jumped from 38 percent to 69 percent among positioned the global airline as the enabler of global connectivity viewers and an impressive 84 percent of viewers exposed to the and meaningful experiences. Emirates wanted to be perceived as content reportedly believe Emirates was a brand that sought to a lifestyle choice and to ensure that more people than ever will connect the world and create a “brighter future.” fly Emirates. The target audience was “globalistas”—people who Emirates has become the world’s most valuable airline live to experience new cultures. Emirates was looking for a big brand, with an estimated value of $7.7 billion, according to the idea that would build virtual bridges between globalistas and dif2016 Brand Finance Global 500 report. It came out 47 places ferent cultures worldwide; inspire conversations on food, fashion, above the next closest airline brand. As a result of its customerart, and music; and break the mold for a travel brand to engage centric approach and integrated marketing campaigns (such with its audience and inspire discussions like never before. as the Hello Tomorrow initiative), Emirates has demonstrated Sir Maurice Flanagan, the founding CEO of Emirates and commitment, authenticity, relevance, and differentiation outside the former executive vice-chairman of The Emirates Group, the travel industry. Emirates has successfully changed the way emphasized that Emirates is not just offering a way to connect it reaches out to its customers by moving away from the prodpeople from point A to point B but is the catalyst to connect uct and creating a discourse of global customer engagement.1 people’s dreams, hopes, and aspirations. He also stated that the 28 | pArt 1 Defining Marketing and the Marketing Process Objectives Outline Objective 1-1 Define marketing and outline the steps in the marketing process. What Is Marketing? Objective 1-2 (pp 28–30) Explain the importance of understanding the marketplace and customers and identify the five core marketplace concepts. Understanding the Marketplace and Customer Needs Objective 1-3 (pp 30–34) Identify the key elements of a customer value–driven marketing strategy and discuss the marketing management orientations that guide marketing strategy. Designing a Customer Value–Driven Marketing Strategy and Plan Objective 1-4 Discuss customer relationship management and identify strategies for creating value for customers and capturing value from customers in return. Managing Customer Relationships and Capturing Customer Value Objective 1-5 (pp 34–38) (pp 38–46) Describe the major trends and forces that are changing the marketing landscape in this age of relationships. The Changing Marketing Landscape (pp 46–55) Today’s successful companies have one thing in common: Like Emirates, they are strongly customer focused and heavily committed to marketing. These companies share a passion for satisfying customer needs in well-defined target markets. They motivate everyone in the organization to help build lasting customer relationships based on creating value. Customer relationships and value are especially important today. Facing dramatic technological advances and deep economic, social, and environmental challenges, today’s customers are reassessing how they engage with brands. New digital, mobile, and social media developments have revolutionized how consumers shop and interact, in turn calling for new marketing strategies and tactics. It’s now more important than ever to build strong customer engagement, relationships, and advocacy based on real and enduring customer value. We’ll discuss the exciting new challenges facing both customers and marketers later in the chapter. But first, let’s introduce the basics of marketing. Author Pause here and think about Comment how you’d answer this question before studying marketing. Then see how your answer changes as you read the chapter. What Is Marketing? Marketing, more than any other business function, deals with customers. Although we will soon explore more-detailed definitions of marketing, perhaps the simplest definition is this one: Marketing is engaging customers and managing profitable customer relationships. The twofold goal of marketing is to attract new customers by promising superior value and to keep and grow current customers by delivering value and satisfaction. For example, Nike leaves its competitors in the dust by delivering on its promise to inspire and help everyday athletes to “Just do it.” Amazon dominants the online marketplace by creating a world-class online buying experience that helps customers to “find and discover anything they might want to buy online.” Facebook has attracted more than 1.5 billion active web and mobile users worldwide by helping them to “connect and share with the people in their lives.” And Coca-Cola has earned an impressive 49 percent global share of the carbonated beverage market—more than twice Pepsi’s share—by fulfilling its ChAptEr 1 | Marketing: Creating Customer Value and Engagement 29 “Taste the Feeling” motto with products that provide “a simple pleasure that makes everyday moments more special.”2 Sound marketing is critical to the success of every organization. Large for-profit firms such as Google, Target, Procter & Gamble, Coca-Cola, and Microsoft use marketing. But so do not-for-profit organizations, such as colleges, hospitals, museums, symphony orchestras, and even churches. You already know a lot about marketing—it’s all around you. Marketing comes to you in the good old traditional forms: You see it in the abundance of products at your nearby shopping mall and the ads that fill your TV screen, spice up your magazines, or stuff But in recent years, marketers have your mailbox. assembled a host of new marketing approaches, everything from imaginative websites and smartphone apps to blogs, online videos, and social media. These new approaches do more than just blast out messages to the masses. They reach you directly, personally, and interactively. Today’s marketers want to become a part of your life and enrich your experiences with their brands. They want to help you live their brands. At home, at school, where you work, and where you play, you see marketing in almost everything you do. Yet there is much more to marketing than meets the consumer’s casual eye. Behind it all is a massive network of people, technologies, and activities competing for your attention and purchases. This book will give Marketing is all around you, in good old traditional forms and in a host you a complete introduction to the basic concepts and of new forms, from websites and mobile phone apps to videos and online social media. practices of today’s marketing. In this chapter, we beWestend61/Getty Images gin by defining marketing and the marketing process. Marketing Defined Marketing The process by which companies engage customers, build strong customer relationships, and create customer value in order to capture value from customers in return. What is marketing? Many people think of marketing as only selling and advertising. We are bombarded every day with TV commercials, catalogs, spiels from salespeople, and online pitches. However, selling and advertising are only the tip of the marketing iceberg. Today, marketing must be understood not in the old sense of making a sale—“telling and selling”—but in the new sense of satisfying customer needs. If the marketer engages consumers effectively, understands their needs, develops products that provide superior customer value, and prices, distributes, and promotes them well, these products will sell easily. In fact, according to management guru Peter Drucker, “The aim of marketing is to make selling unnecessary.”3 Selling and advertising are only part of a larger marketing mix—a set of marketing tools that work together to engage customers, satisfy customer needs, and build customer relationships. Broadly defined, marketing is a social and managerial process by which individuals and organizations obtain what they need and want through creating and exchanging value with others. In a narrower business context, marketing involves building profitable, valueladen exchange relationships with customers. Hence, we define marketing as the process by which companies engage customers, build strong customer relationships, and create customer value in order to capture value from customers in return.4 The Marketing Process Figure 1.1 presents a simple, five-step model of the marketing process for creating and capturing customer value. In the first four steps, companies work to understand consumers, create customer value, and build strong customer relationships. In the final step, companies reap the rewards of creating superior customer value. By creating value for consumers, they in turn capture value from consumers in the form of sales, profits, and long-term customer equity. In this chapter and the next, we will examine the steps of this simple model of marketing. In this chapter, we review each step but focus more on the customer relationship 30 | pArt 1 Defining Marketing and the Marketing Process FIgurE | 1.1 The Marketing Process: Creating and Capturing Customer Value Create value for customers and build customer relationships Understand the marketplace and customer needs and wants Design a customer value– driven marketing strategy This important figure shows marketing in a nutshell. By creating value for customers, marketers capture value from customers in return. This five-step process forms the marketing framework for the rest of the chapter and the remainder of the text. Author Marketing is all about Comment creating value for customers. So, as the first step in the marketing process, the company must fully understand customers and the marketplace. Needs States of felt deprivation. Wants The form human needs take as they are shaped by culture and individual personality. Demands Human wants that are backed by buying power. Construct an integrated marketing program that delivers superior value Engage customers, build profitable relationships, and create customer delight Capture value from customers to create profits and customer equity steps—understanding customers, engaging and building relationships with customers, and capturing value from customers. In Chapter 2, we look more deeply into the second and third steps—designing value-creating marketing strategies and constructing marketing programs. Understanding the Marketplace and Customer Needs As a first step, marketers need to understand customer needs and wants and the marketplace in which they operate. We examine five core customer and marketplace concepts: (1) needs, wants, and demands; (2) market offerings (products, services, and experiences); (3) value and satisfaction; (4) exchanges and relationships; and (5) markets. Customer Needs, Wants, and Demands The most basic concept underlying marketing is that of human needs. Human needs are states of felt deprivation. They include basic physical needs for food, clothing, warmth, and safety; social needs for belonging and affection; and individual needs for knowledge and self-expression. Marketers did not create these needs; they are a basic part of the human makeup. Wants are the form human needs take as they are shaped by culture and individual personality. An American needs food but wants a Big Mac, fries, and a soft drink. A person in Papua, New Guinea, needs food but wants taro, rice, yams, and pork. Wants are shaped by one’s society and are described in terms of objects that will satisfy those needs. When backed by buying power, wants become demands. Given their wants and resources, people demand products and services with benefits that add up to the most value and satisfaction. Companies go to great lengths to learn about and understand customer needs, wants, and demands. They conduct consumer research, analyze mountains of customer data, and observe customers as they shop and interact, offline and online. People at all levels of the company— including top management—stay close to customers:5 Staying close to customers: Energetic target CEO Brian Cornell makes regular unannounced visits to target stores, accompanied by local moms and loyal target shoppers. Ackerman + Gruber Capture value from customers in return Target’s energetic CEO, Brian Cornell, makes regular unannounced visits to Target stores, accompanied by local moms and loyal Target shoppers. Cornell likes nosing around stores and getting a real feel for what’s going on. It gives him “great, genuine feedback.” He and other Target executives even visit customers in their homes, opening closet doors and poking around in cupboards to understand their product choices and buying habits. Similarly, Boston Market CEO George Michel makes frequent visits to company restaurants, working in the dining room and engaging customers to learn about “the good, the bad, and the ugly.” He also stays connected by reading customer messages on the Boston Market website and has even cold-called customers for insights. “Being close to the customer is critically important,” says Michel. “I get to learn what they value, what they appreciate.” ChAptEr 1 | Marketing: Creating Customer Value and Engagement 31 Market Offerings—Products, Services, and Experiences Market offerings Some combination of products, services, information, or experiences offered to a market to satisfy a need or want. Marketing myopia The mistake of paying more attention to the specific products a company offers than to the benefits and experiences produced by these products. Consumers’ needs and wants are fulfilled through market offerings—some combination of products, services, information, or experiences offered to a market to satisfy a need or a want. Market offerings are not limited to physical products. They also include services— activities or benefits offered for sale that are essentially intangible and do not result in the ownership of anything. Examples include banking, airline, hotel, retailing, and home repair services. More broadly, market offerings also include other entities, such as persons, places, organizations, information, and ideas. For example, San Diego runs a “Happiness Is Calling” advertising campaign that invites visitors to come and enjoy the city’s great weather and good times—everything from its bays and beaches to its downtown nightlife and urban scenes. And the Ad Council and the National Highway Traffic Safety Administration created a “Stop the Texts. Stop the Wrecks.” campaign that markets the idea of eliminating texting while driving. The campaign points out that a texting driver is 23 times more likely to get into a crash than a non-texting driver.6 Many sellers make the mistake of paying more attention to the specific products they offer than to the benefits and experiences produced by these products. These sellers suffer from marketing myopia. They are so taken with their products that they focus only on existing wants and lose sight of underlying customer needs.7 They forget that a product is only a tool to solve a consumer problem. A manufacturer of quarter-inch drill bits may think that the customer needs a drill bit. But what the customer really needs is a quarterinch hole. These sellers will have trouble if a new product comes along that serves the customer’s need better or less expensively. The customer will have the same need but will want the new product. Smart marketers look beyond the attributes of the products and services they sell. By orchestrating several services and products, they create brand experiences for consumers. For example, you don’t just visit Walt Disney World Resort; you immerse yourself and your family in a world of wonder, a world where dreams come true and things still work the way they should. And your local Buffalo Wild Wings restaurant doesn’t just serve up wings and beer; it gives customers the ultimate “Wings. Beer. Sports.” fan experience (see Real Marketing 1.1). Similarly, Mattel’s American Girl does much more than just make and sell high-end dolls. It creates special experiences between the dolls and the girls who adore them.8 To put more smiles on the faces of the girls who love their American Girl dolls, the company operates huge American Girl experiential stores in 20 major cities around the country. Each store carries an amazing selection of dolls plus every imaginable outfit and accessory. But more than just places to shop, American Girl stores are exciting destinations unto themselves, offering wonderfully engaging experiences for girls, mothers, grandmothers, and even dads or grandpas. There’s an in-store restaurant where girls, their dolls, and grown-ups can sit down together for brunch, lunch, afternoon tea, or dinner. There’s even a doll hair salon where a stylist can give a doll a new hairdo. American Girl also offers “perfect parties” to celebrate a birthday or any day as well as a full slate of special events, from crafts and activities to excursions. Much more than a store that sells dolls, says the company, “it’s the place where imaginations can soar.” A visit to American Girl creates “Fun today. Memories forever.” Customer Value and Satisfaction Marketing experiences: american Girl does more than just make and sell high-end dolls. It creates special experiences between the dolls and the girls who adore them. Image courtesy of American Girl, Inc. All rights reserved. Consumers usually face a broad array of products and services that might satisfy a given need. How do they choose among these many market offerings? Customers form expectations about the value and satisfaction that various market offerings will deliver and buy accordingly. Satisfied customers buy again and tell others about their good experiences. Dissatisfied customers often switch to competitors and disparage the product to others. Marketers must be careful to set the right level of expectations. If they set expectations too low, they may satisfy those who buy but fail to attract enough buyers. If they set expectations too high, buyers will be disappointed. Customer value and customer satisfaction are key building blocks for developing and managing customer relationships. We will revisit these core concepts later in the chapter. Real Marketing 32 | pArt 1 Defining Marketing and the Marketing Process 1.1 Buffalo Wild Wings: Fueling the Sports Fan Experience “Wings. Beer. Sports.” That’s the long-standing motto for the fastgrowing Buffalo Wild Wings restaurant chain. “B-Dubs”—as it’s known to avid regulars—focuses on food and sports and “everything in between.” There’s no doubt about it. Buffalo Wild Wings more than lives up to the “wings” and “beer” parts of the equation. It serves up wings in an abundant variety: boned or boneless, with five dry seasonings and 17 signature sauces ranging on the heat scale from Sweet BBQ (traditional BBQ sauce: satisfyingly sweet with no heat) to Desert Heat (smoky, sweet, and chili pepper seasoning) to Reformulated Blazin’ (so good, it’s scary— made with the unrelenting heat of the ghost pepper). To wash it all down, each B-Dubs restaurant pours as many as 30 different draft beers, with a full selection of domestic, import, and craft beer brands. You won’t go hungry or thirsty at B-Dubs. However, the Buffalo Wild Wings recipe for success goes much deeper than just selling wings and beer for profit. What really packs ’em in and keeps ’em coming back is the B-Dubs customer experience. Customers do gobble up the wings—more than 11  million wings chain-wide on last Super Bowl Sunday alone. But even more important, they come to B-Dubs to watch sports, trash talk, cheer on their sports teams, and meet old friends and make new ones—that is, a total eating and social experience. “We realize that we’re not just in the business of selling wings,” says the company. “We’re something much bigger. We’re in the business of fueling the sports fan experience. Our mission is to WOW people every day!” Everything about B-Dubs is designed to deliver the ultimate sports experience, for any fan of any sport. The WOW begins the minute you step into any of Buffalo Wild Wings’s 1,100 restaurants. This is not your average dark-and-dank sports bar. Instead, a B-Dubs is like a miniature stadium, with high ceilings, ample natural light, and brightly colored furnishings and wall coverings. The newest Buffalo Wild Wings “Stadia” restaurants are divided into barrier-free zones— including a bar area and a separate dining area. And every B-Dubs has 60 to 70 really big flat-screen TVs lining the walls, over the bar, and about everywhere else, ensuring that every table has the best seat in the house no matter what your team or sport, including live streaming of local college and even high school events. B-Dubs creates an exciting environment that makes it the next best thing to being at the game—or something even better. “We consider ourselves to have 1,100 stadiums,” says the chain’s vice president for guest experience and innovation. There’s an experience for everyone at Buffalo Wild Wings. The chain appeals to a wide range of customers, from pub-loving sports nuts to families looking for an affordable evening out. Singles and couples gravitate to the bar area; families stick to the carpeted areas with booths. In addition to streaming sports events of all kinds on the big screens, B-Dubs supplies tableside tablets upon which customers can play poker or trivia games. A social jukebox feature lets guests control the music that plays on the restaurant’s sound system. It seems like there’s always something happening in a B-Dubs to engage customers and enhance the experience. Take the chain’s infamous Blazin’ Wing Challenge— which promises a trophy-style T-shirt and a place on the Wall of Fame to any customer who can down a dozen wings with the chain’s hottest signature sauce in no more than six minutes. That’s no easy feat considering that the Blazin’ sauce is 60 times hotter than typical jalapeño sauce. During the six-minute binge, challengers are not allowed to use napkins or utensils, touch their faces, or eat or drink anything other than the wings (no dipping sauces, please). The menu boasts plenty of warnings, and servers advise most people not to even attempt the challenge. And before taking the plunge, each challenger signs a waiver agreeing that he or she “voluntarily assumes all risk of loss, damage, injury, illness, or death that may be sustained by him or her as a result.” As you can imagine, when a challenge is announced over the PA, it usually draws a crowd. Buffalo Wild Wings never rushes its guests. Whereas many other casual-dining restaurants have a “turn-and-burn” philosophy—cycling as many paying guests as possible through each table—at B-Dubs it’s just the opposite. Buffalo Wild Wings encourages people to linger longer, enjoy the food, and soak up the ambiance. To help make that happen, the chain has created a new staff position at each restaurant. In addition to the usual waitstaff, each table has a “Guest Experience Captain.” According to B-Dubs’s chief marketer, the captain is “like a host at any party,” moving from table to table, chatting with guests, personalizing their experiences, and making sure their needs are met. Want a special Customer-focused mission: the Buffalo Wild Wings mission is to provide a total eating and social environment that “fuels the sports fan experience” through in-store and online engagement. Reprinted with permission of Buffalo Wild Wings, Inc. ChAptEr 1 game on one screen with another game on the screen next to it? Your Guest Experience Captain sees to it. Need help with a tablet? Your captain lends a hand. Want to try some new sauces? Your captain will make suggestions and even bring out samples of different sauces with complimentary fries for dipping. Adding Guest Experience Captains is a major expense, especially when multiplied across shifts in all 1,100 stores. But Buffalo Wild Wings reasons that the captains will more than pay for themselves by enhancing the all-important guest experience, keeping customers around longer, and bringing them back more often. Buffalo Wild Wings restaurants with captains are achieving record levels of customer satisfaction and loyalty compared with those that have not yet brought captains on board. “It’s just an opportunity for us to go a little deeper with the community than our competitors,” says the B-Dubs marketing chief. True to its “ultimate sports experience” mission, Buffalo Wild Wings actively engages its customers digitally and socially outside its restaurants as well as inside. In fact, the company brags that it’s the number-one | Marketing: Creating Customer Value and Engagement brand in its industry for digital fan engagement. B-Dubs’s very active website draws 3 million visitors per month. The brand has more than 12 million Facebook fans, 660,000 Twitter followers, and very active YouTube and Instagram pages. It recently launched GameBreak, an app for fantasy football and other games that can be played inside or outside its restaurants. According to the company’s customer experience executive, GameBreak players visit more often, stay longer, and tend to “buy that second or third beer or maybe one more basket of wings.” In all, Buffalo Wild Wings creates a host of both in-store and online promotions that inspire camaraderie. “It’s about giving [customers] 33 tools to not just be spectators but advocates of the brand,” says the chain. Catering to the customer experience has paid big dividends for Buffalo Wild Wings. B-Dubs is now the nation’s number-one seller of chicken wings and largest pourer of draft beer. Over the past five years, as other casualdining restaurants have struggled with fierce competition and slow growth, B-Dubs’s sales have more than tripled and profits are up 250 percent. The chain’s “hottest wing coating available comes with a warning to B-Dubs’ customers: ‘keep away from eyes, pets, and children.’ The sauce is called ‘Blazin’,’ says one analyst. ‘That term also happens to be a good description of the stock’s performance lately.’” Sources: Demitrios Kalogeropoulos, “Why Buffalo Wild Wings Is Spending More on Its Employees,” The Motley Fool, June 24, 2015, www.fool.com/investing/general/2015/06/24/why-buffalo-wild-wings-is-spending-more-onits-emp.aspx; Demitrios Kalogeropoulos, “3 Reasons Buffalo Wild Wings Can Keep Soaring in 2015,” The Motley Fool, January 9, 2015, www.fool.com/investing/general/2015/01/09/3-reasons-why-buffalo-wild-wings-can-keepsoaring.aspx; Bryan Gruley, “The Sloppy Empire: How Buffalo Wild Wings Turned the Sports Bar into a $1.5 Billion Juggernaut,” Bloomberg Businessweek, April 13–19, 2015, pp. 62-65; Tanya Dua, “The Buffalo Wild Wings Recipe for the ‘Ultimate Sports Experience,’” August 4, 2015, http://digiday.com/brands/buffalo-wild-wings-recipeultimate-sports-experience/; and http://ir.buffalowildwings.com/financials.cfm and www.buffalowildwings.com/en/, accessed September 2016. Exchanges and Relationships Exchange The act of obtaining a desired object from someone by offering something in return. Marketing occurs when people decide to satisfy their needs and wants through exchange relationships. Exchange is the act of obtaining a desired object from someone by offering something in return. In the broadest sense, the marketer tries to bring about a response to some market offering. The response may be more than simply buying or trading products and services. A political candidate, for instance, wants votes; a church wants membership and participation; an orchestra wants an audience; and a social action group wants idea acceptance. Marketing consists of actions taken to create, maintain, and grow desirable exchange relationships with target audiences involving a product, service, idea, or other object. Companies want to build strong relationships by consistently delivering superior customer value. We will expand on the important concept of managing customer relationships later in the chapter. Markets Market The set of all actual and potential buyers of a product or service. The concepts of exchange and relationships lead to the concept of a market. A market is the set of actual and potential buyers of a product or service. These buyers share a particular need or want that can be satisfied through exchange relationships. Marketing means managing markets to bring about profitable customer relationships. However, creating these relationships takes work. Sellers must search for and engage buyers, identify their needs, design good market offerings, set prices for them, promote them, and store and deliver them. Activities such as consumer research, product development, communication, distribution, pricing, and service are core marketing activities. Although we normally think of marketing as being carried out by sellers, buyers also carry out marketing. Consumers market when they search for products, interact with companies to obtain information, and make their purchases. In fact, today’s digital technologies, from online sites and smartphone apps to the explosion of social media, have empowered consumers and made marketing a truly two-way affair. Thus, in addition to customer relationship management, today’s marketers must also deal effectively with customer-managed relationships. Marketers are no longer asking only “How can we influence our customers?” but also “How can our customers influence us?” and even “How can our customers influence each other?” 34 | pArt 1 Defining Marketing and the Marketing Process FIgurE | 1.2 A Modern Marketing System Company Marketing intermediaries Suppliers Each party in the system adds value. Walmart cannot fulfill its promise of low prices unless its suppliers provide low costs. Ford cannot deliver a high-quality car-ownership experience unless its dealers provide outstanding service. Final consumers Competitors Major environmental forces Arrows represent relationships that must be developed and managed to create customer value and profitable customer relationships. Figure 1.2 shows the main elements in a marketing system. Marketing involves serving a market of final consumers in the face of competitors. The company and competitors research the market and interact with consumers to understand their needs. Then they create and exchange market offerings, messages, and other marketing content with consumers, either directly or through marketing intermediaries. Each party in the system is affected by major environmental forces (demographic, economic, natural, technological, political, and social/cultural). Each party in the system adds value for the next level. The arrows represent relationships that must be developed and managed. Thus, a company’s success at engaging customers and building profitable relationships depends not only on its own actions but also on how well the entire system serves the needs of final consumers. Walmart cannot fulfill its promise of low prices unless its suppliers provide merchandise at low costs. And Ford cannot deliver a highquality car-ownership experience unless its dealers provide outstanding sales and service. Author Once a company fully Comment understands its consumers and the marketplace, it must decide which customers it will serve and how it will bring them value. Designing a Customer Value–Driven Marketing Strategy and Plan Customer Value–Driven Marketing Strategy Marketing management The art and science of choosing target markets and building profitable relationships with them. Once it fully understands consumers and the marketplace, marketing management can design a customer value–driven marketing strategy. We define marketing management as the art and science of choosing target markets and building profitable relationships with them. The marketing manager’s aim is to engage, keep, and grow target customers by creating, delivering, and communicating superior customer value. To design a winning marketing strategy, the marketing manager must answer two important questions: What customers will we serve (what’s our target market)? and How can we serve these customers best (what’s our value proposition)? We will discuss these marketing strategy concepts briefly here and then look at them in more detail in Chapters 2 and 7. Selecting Customers to Serve The company must first decide whom it will serve. It does this by dividing the market into segments of customers (market segmentation) and selecting which segments it will go after (target marketing). Some people think of marketing management as finding as many customers as possible and increasing demand. But marketing managers know that they cannot serve all customers in every way. By trying to serve all customers, they may not serve any customers well. Instead, the company wants to select only customers that it can serve well and profitably. For example, Nordstrom profitably targets affluent professionals; Dollar General profitably targets families with more modest means. Ultimately, marketing managers must decide which customers they want to target and on the level, timing, and nature of their demand. Simply put, marketing management is customer management and demand management. ChAptEr 1 | Marketing: Creating Customer Value and Engagement 35 Choosing a Value Proposition The company must also decide how it will serve targeted customers—how it will differentiate and position itself in the marketplace. A brand’s value proposition is the set of benefits or values it promises to deliver to consumers to satisfy their needs. JetBlue promises to put “You Above All” by bringing “humanity back to travel.” By contrast, Spirit Airlines gives you “Bare Fare” pricing: “Less Money. More Go.” Homewood Suites by Hilton wants Meanwhile, the you to “Make yourself at home.” Hyatt Regency brand declares that sometimes “It’s good not to be home.” Its ads highlight the joys of traveling and the fun things that people do when they are traveling on business. Such value propositions differentiate one brand from another. They answer the customer ’s question: “Why should I buy your brand rather than a competitor’s?” Companies must design strong value propositions that give them the greatest advantage in their target markets. Marketing Management Orientations Marketing management wants to design strategies that will engage target customers and build profitable relationships Value propositions: the Hyatt regency brand declares that with them. But what philosophy should guide these marketsometimes “It’s good not to be home.” Its ads highlight the joys of ing strategies? What weight should be given to the interests business travel and staying at a Hyatt regency hotel. of customers, the organization, and society? Very often, Courtesy Hyatt Corporation. Photograph ©Richard Schultz-2015. Talent: Dean West. these interests conflict. There are five alternative concepts under which organizations design and carry out their marketing strategies: the production, product, selling, marketing, and societal marketing concepts. production concept The Production Concept. The production concept holds that consumers will favor The idea that consumers will favor products that are available and highly affordable; therefore, the organization should focus on improving production and distribution efficiency. products that are available and highly affordable. Therefore, management should focus on improving production and distribution efficiency. This concept is one of the oldest orientations that guides sellers. The production concept is still a useful philosophy in some situations. For example, both personal computer maker Lenovo and home appliance maker Haier dominate the highly competitive, price-sensitive Chinese market through low labor costs, high production efficiency, and mass distribution. However, although useful in some situations, the production concept can lead to marketing myopia. Companies adopting this orientation run a major risk of focusing too narrowly on their own operations and losing sight of the real objective—satisfying customer needs and building customer relationships. product concept The Product Concept. The product concept holds that consumers will favor products The idea that consumers will favor products that offer the most quality, performance, and features; therefore, the organization should devote its energy to making continuous product improvements. that offer the most in quality, performance, and innovative features. Under this concept, marketing strategy focuses on making continuous product improvements. Product quality and improvement are important parts of most marketing strategies. However, focusing only on the company’s products can also lead to marketing myopia. For example, some manufacturers believe that if they can “build a better mousetrap, the world will beat a path to their doors.” But they are often rudely shocked. Buyers may be looking for a better solution to a mouse problem but not necessarily for a better mousetrap. The better solution might be a chemical spray, an exterminating service, a house cat, or something else that suits their needs even better than a mousetrap. Furthermore, a better mousetrap will not sell unless the manufacturer designs, packages, and prices it attractively; places it in convenient distribution channels; brings it to the attention of people who need it; and convinces buyers that it is a better product. 36 | pArt 1 Defining Marketing and the Marketing Process Selling concept The idea that consumers will not buy enough of the firm’s products unless the firm undertakes a large-scale selling and promotion effort. The Selling Concept. Many companies follow the selling concept, which holds that consumers will not buy enough of the firm’s products unless it undertakes a large-scale selling and promotion effort. The selling concept is typically practiced with unsought goods—those that buyers do not normally think of buying, such as life insurance or blood donations. These industries must be good at tracking down prospects and selling them on a product’s benefits. Such aggressive selling, however, carries high risks. It focuses on creating sales transactions rather than on building long-term, profitable customer relationships. The aim often is to sell what the company makes rather than to make what the market wants. It assumes that customers who are coaxed into buying the product will like it. Or, if they don’t like it, they will possibly forget their disappointment and buy it again later. These are usually poor assumptions. Marketing concept The Marketing Concept. The marketing concept holds that achieving organizational A philosophy in which achieving organizational goals depends on knowing the needs and wants of target markets and delivering the desired satisfactions better than competitors do. goals depends on knowing the needs and wants of target markets and delivering the desired satisfactions better than competitors do. Under the marketing concept, customer focus and value are the paths to sales and profits. Instead of a product-centered make-andsell philosophy, the marketing concept is a customer-centered sense-and-respond philosophy. The job is not to find the right customers for your product but to find the right products for your customers. Figure 1.3 contrasts the selling concept and the marketing concept. The selling concept takes an inside-out perspective. It starts with the factory, focuses on the company’s existing products, and calls for heavy selling and promotion to obtain profitable sales. It focuses primarily on customer conquest—getting short-term sales with little concern about who buys or why. In contrast, the marketing concept takes an outside-in perspective. As Herb Kelleher, the colorful founder of Southwest Airlines, once put it, “We don’t have a marketing department; we have a customer department.” The marketing concept starts with a well-defined market, focuses on customer needs, and integrates all the marketing activities that affect customers. In turn, it yields profits by creating relationships with the right customers based on customer value and satisfaction. Implementing the marketing concept often means more than simply responding to customers’ stated desires and obvious needs. Customer-driven companies research customers deeply to learn about their desires, gather new product ideas, and test product improvements. Such customer-driven marketing usually works well when a clear need exists and when customers know what they want. In many cases, however, customers don’t know what they want or even what is possible. As Henry Ford once remarked, “If I’d asked people what they wanted, they would have said faster horses.”9 For example, even 20 years ago, how many consumers would have thought to ask for now-commonplace products such as tablet computers, smartphones, digital cameras, 24-hour online buying, digital video and music streaming, and GPS systems in their cars and phones? Such situations call for customer-driving marketing—understanding customer needs even better than customers themselves do and creating products and services that meet both existing and latent needs, now and in the future. As an executive at 3M put it, “Our goal is to lead customers where they want to go before they know where they want to go.” FIgurE | 1.3 Selling and Marketing Concepts Contrasted The selling concept takes an inside-out view that focuses on existing products and heavy selling. The aim is to sell what the company makes rather than making what the customer wants. Starting point Focus Means Ends The selling concept Factory Existing products Selling Profits through and sales volume promoting The marketing concept Market Customer needs Integrated marketing Profits through customer satisfaction The marketing concept takes an outside-in view that focuses on satisfying customer needs as a path to profits. As Southwest Airlines's colorful founder puts it, “We don’t have a marketing department; we have a customer department.” | Marketing: Creating Customer Value and Engagement ChAptEr 1 FIgurE | 1.4 Three Considerations Underlying the Societal Marketing Concept Society (Human welfare) Societal marketing concept Consumers (Want satisfaction) Societal marketing concept The idea that a company’s marketing decisions should consider consumers’ wants, the company’s requirements, consumers’ long-run interests, and society’s long-run interests. Online grocer Door to Door Organics knows that doing what’s right benefits both customers and the company. It wants to “make a positive impact on our food system, make people healthier, connect communities, grow local economies, and inspire people to eat Good Food.” Company (Profits) The Societal Marketing Concept. The societal marketing concept questions whether the pure marketing concept overlooks possible conflicts between consumer shortrun wants and consumer long-run welfare. Is a firm that satisfies the immediate needs and wants of target markets always doing what’s best for its consumers in the long run? The societal marketing concept holds that marketing strategy should deliver value to customers in a way that maintains or improves both the consumer’s and society’s well-being. It calls for sustainable marketing, socially and environmentally responsible marketing that meets the present needs of consumers and businesses while also preserving or enhancing the ability of future generations to meet their needs. Even more broadly, many leading business and marketing thinkers are now preaching the concept of shared value, which recognizes that societal needs, not just economic needs, define markets.10 The concept of shared value focuses on creating economic value in a way that also creates value for society. A growing number of companies known for their hardnosed approaches to business—such as GE, Dow, Google, IBM, Intel, Johnson & Johnson, Nestlé, Unilever, and Walmart—are rethinking the interactions between society and corporate performance. They are concerned not just with short-term economic gains but with the well-being of their customers, the depletion of natural resources vital to their businesses, the viability of key suppliers, and the economic well-being of the communities in which they operate. One prominent marketer calls this Marketing 3.0. “Marketing 3.0 organizations are values-driven,” he says. “I’m not talking about being value-driven. I’m talking about ‘values’ plural, where values amount to caring about the state of the world.” Another marketer calls it purpose-driven marketing. “The future of profit is purpose,” he says.11 As Figure 1.4 shows, companies should balance three considerations in setting their marketing strategies: company profits, consumer wants, and society’s interests. Online grocer Door to Door Organics operates this way:12 the societal marketing concept: Door to Door Organics does more than just sell natural and organic groceries online for profit. Its deep-felt mission is “to bring more Good Food—food that positively impacts health, communities, and the environment—to more people in a sustainable way.” Door to Door Organics 37 Door to Door Organics delivers fresh, high-quality, organic, natural, and local meat, dairy, produce, and groceries directly to homes, offices, and schools in 16 states across the country. Customers order online and receive weekly deliveries to their doorsteps year-round. But Door to Door Organics does much more than just sell groceries online for profit. It also dedicates itself to a deeply felt mission “to bring more Good Food—food that positively impacts health, communities, and the environment—to more people in a sustainable way.” It wants to “make a positive impact on our food system, make people healthier, connect communities, grow local economies, and inspire people to eat Good Food.” To meet its ambitious Good Food mission, Door to Door sources most of what it sells from local family farms and businesses who are “dedicated stewards of the land and use USDA-certified organic practices that are healthier for both animals and people, better for the soil, and reduce carbon emissions.” Door to Door delivers to specified areas on specific days of the week, maintaining a tight delivery radius 38 | pArt 1 Defining Marketing and the Marketing Process that reduces both costs and carbon emissions. And through careful food management, the company puts 44 percent less wasted food in landfills than the average grocery store. Door to Door Organics also treats customers responsibly. All deliveries carry a #JoyDelivered guarantee—if a customer isn’t “absolutely delighted,” the company will make it right. Thanks to its societal mission, Door to Door Organics is thriving, suggesting that doing good can benefit both the planet and the company. Preparing an Integrated Marketing Plan and Program The company’s marketing strategy outlines which customers it will serve and how it will create value for these customers. Next, the marketer develops an integrated marketing program that will actually deliver the intended value to target customers. The marketing program builds customer relationships by transforming the marketing strategy into action. It consists of the firm’s marketing mix, the set of marketing tools the firm uses to implement its marketing strategy. The major marketing mix tools are classified into four broad groups, called the four Ps of marketing: product, price, place, and promotion. To deliver on its value proposition, the firm must first create a need-satisfying market offering (product). It must then decide how much it will charge for the offering (price) and how it will make the offering available to target consumers (place). Finally, it must engage target consumers, communicate about the offering, and persuade consumers of the offer’s merits (promotion). The firm must blend each marketing mix tool into a comprehensive integrated marketing program that communicates and delivers the intended value to chosen customers. We will explore marketing programs and the marketing mix in much more detail in later chapters. Author Doing a good job with Comment the first three steps in the marketing process sets the stage for step four, building and managing customer relationships. Managing Customer Relationships and Capturing Customer Value Engaging Customers and Managing Customer Relationships The first three steps in the marketing process—understanding the marketplace and customer needs, designing a customer value–driven marketing strategy, and constructing a marketing program—all lead up to the fourth and most important step: engaging customers and managing profitable customer relationships. We first discuss the basics of customer relationship management. Then we examine how companies go about engaging customers on a deeper level in this age of digital and social marketing. Customer Relationship Management Customer relationship management The overall process of building and maintaining profitable customer relationships by delivering superior customer value and satisfaction. Customer-perceived value The customer’s evaluation of the difference between all the benefits and all the costs of a marketing offer relative to those of competing offers. Customer relationship management is perhaps the most important concept of modern marketing. In the broadest sense, customer relationship management is the overall process of building and maintaining profitable customer relationships by delivering superior customer value and satisfaction. It deals with all aspects of acquiring, engaging, and growing customers. Relationship Building Blocks: Customer Value and Satisfaction. The key to building lasting customer relationships is to create superior customer value and satisfaction. Satisfied customers are more likely to be loyal customers and give the company a larger share of their business. Attracting and retaining customers can be a difficult task. Customers often face a bewildering array of products and services from which to choose. A customer buys from the firm that offers the highest customer-perceived value—the customer’s evaluation of the difference between all the benefits and all the costs of a market offering relative to those of competing offers. Importantly, customers often do not judge values and costs “accurately” or “objectively.” They act on perceived value. To some consumers, value might mean sensible products at affordable prices. To other consumers, however, value might mean paying more to get more. For example, a Steinway piano— any Steinway piano—costs a lot. But to those who own one, a Steinway is a great value:13 A Steinway grand piano typically runs anywhere from $61,000 to as high as several hundred thousand dollars. The most popular model sells for about $87,000. But ask anyone who owns a Steinway grand piano, and they’ll tell you that, when it comes to Steinway, price is nothing; the Steinway experience is everything. Steinway makes very high-quality pianos—handcrafting ChAptEr 1 | Marketing: Creating Customer Value and Engagement 39 each Steinway from more than 12,000 individual parts requires up to one full year. But, more importantly, owners get the Steinway mystique. The Steinway name evokes images of classical concert stages and the celebrities and performers who’ve owned and played Steinway pianos across more than 160 years. But Steinways aren’t just for world-class pianists and the wealthy. Ninety-nine percent of all Steinway buyers are amateurs who perform only in their dens. So is a Steinway piano worth its premium price compared with less expensive pianos? To many consumers, the answer is no. But to Steinway customers, whatever a Steinway costs, it’s a small price to pay for the value of owning one. As one Steinway user puts it, “A pianist without a Steinway, for me, is the same as a singer without a voice.” Says another, “My friendship with the Steinway piano is one of the most important and beautiful things in my life.” Who can put a price on such feelings? Perceived value: a Steinway piano—any Steinway piano—costs a lot. But a to Steinway customer, it’s a small price to pay for the value of owning one. © Westend61 GmbH/Alamy Stock Photo Customer satisfaction The extent to which a product’s perceived performance matches a buyer’s expectations. Customer satisfaction depends on the product’s perceived performance relative to a buyer’s expectations. If the product’s performance falls short of expectations, the customer is dissatisfied. If performance matches expectations, the customer is satisfied. If performance exceeds expectations, the customer is highly satisfied or delighted. Outstanding marketing companies go out of their way to keep important customers satisfied. Most studies show that higher levels of customer satisfaction lead to greater customer loyalty, which in turn results in better company performance. Companies aim to delight customers by promising only what they can deliver and then delivering more than they promise. Delighted customers not only make repeat purchases but also become willing marketing partners and “customer evangelists” who spread the word about their good experiences to others. For companies interested in delighting customers, exceptional value and service become part of the overall company culture. For example, L.L.Bean—the iconic American outdoor apparel and equipment retailer—was founded on the principle that keeping customers satisfied is the key to building lasting relationships.14 Year after year, L.L.Bean lands in the top 10 of virtually every list of top service companies, including J.D. Power’s most recent list of “customer service champions.” The customer-service culture runs deep at L.L.Bean. More than 100 years ago, Leon Leonwood Bean founded the company on a philosophy of complete customer satisfaction, expressed in the following guarantee: “I do not consider a sale complete until [the] goods are worn out and the customer [is] still satisfied.” To this day, customers can return any item, no questions asked, even decades after purchase. The company’s customer-service philosophy is perhaps best summed up in founder L.L.’s answer to the question “What is a customer?” His answer still forms the backbone of the company’s values: “A customer is the most important person ever in this company—in person or by mail. A customer is not dependent on us, we are dependent on him. A customer is not an interruption of our work, he is the purpose of it. We are not doing a favor by serving him, he is doing us a favor by giving us the opportunity to do so. A customer is not someone to argue or match wits with. Nobody ever won an argument with a customer. A customer is a person who brings us his wants. It is our job to handle them profitably to him and to ourCustomer satisfaction: Customer service champion L.L.Bean was selves.” Adds former L.L.Bean CEO Leon Gorman: “A founded on a philosophy of complete customer satisfaction. as founder Leon Leonwood Bean put it, “I do not consider a sale complete until [the] lot of people have fancy things to say about customer goods are worn out and the customer [is] still satisfied.” service, but it’s just a day-in, day-out, ongoing, neverending, persevering, compassionate kind of activity.” L.L.Bean 40 | pArt 1 Defining Marketing and the Marketing Process Other companies that have become legendary for customer delight and their service heroics include Zappos.com, Amazon.com, Chick-fil-A, Nordstrom department stores, and JetBlue Airways. However, a company doesn’t need to have over-the-top service to create customer delight. For example, no-frills grocery chain ALDI has highly satisfied customers, even though they have to bag their own groceries and can’t use credit cards. ALDI’s everyday very low pricing on good-quality products delights customers and keeps them coming back. Thus, customer satisfaction comes not just from service heroics but from how well a company delivers on its basic value proposition and helps customers solve their buying problems. “Most customers don’t want to be ‘wowed,’” says one marketing consultant. “They [just] want an effortless experience.”15 Although a customer-centered firm seeks to deliver high customer satisfaction relative to competitors, it does not attempt to maximize customer satisfaction. A company can always increase customer satisfaction by lowering its prices or increasing its services. But this may result in lower profits. Thus, the purpose of marketing is to generate customer value profitably. This requires a very delicate balance: The marketer must continue to generate more customer value and satisfaction but not “give away the house.” Customer Relationship Levels and Tools. Companies can build customer relationships at many levels, depending on the nature of the target market. At one extreme, a company with many low-margin customers may seek to develop basic relationships with them. For example, P&G’s Tide detergent does not phone or call on all of its consumers to get to know them personally. Instead, Tide creates engagement and relationships through product experiences, brand-building advertising, websites, and social media. At the other extreme, in markets with few customers and high margins, sellers want to create full partnerships with key customers. For example, P&G sales representatives work closely with Walmart, Kroger, and other large retailers that sell Tide. In between these two extremes, other levels of customer relationships are appropriate. Beyond offering consistently high value and satisfaction, marketers can use specific marketing tools to develop stronger bonds with customers. For example, many companies offer frequency marketing programs that reward customers who buy frequently or in large amounts. Airlines offer frequent-flier programs, hotels give room upgrades to frequent guests, and supermarkets give patronage discounts to “very important customers.” These days almost every brand has a loyalty rewards program. Such programs can enhance and strengthen a customer’s brand experience. For example, Hilton’s HHonors loyalty program offers the usual ability to earn points redeemable for free stays or upgrades (anywhere, anytime, with no blackout dates) but also for flights (e.g., points can be converted into miles for flight bookings). More importantly, the member-exclusive HHonors smartphone app allows travelers to personalize their stay. It offers functionalities like an eCheck-in or the selection of on-property benefits (such as pillows or snacks) prior to arrival. Travelers can pick their room of choice before their stay, either from a digital floor plan or by choosing relationship marketing tools: Hilton’s HHonors loyalty program personalizes and strengthens the customer’s brand experience. their room’s view with Google maps. The app also serves as Stephen Barnes/Alamy Stock Photo ChAptEr 1 | Marketing: Creating Customer Value and Engagement 41 a digital key, meaning that travelers do not even need to visit the front desk. Additional features include personalized content reflecting the user’s forthcoming travels, the option to request Uber rides, as well as restaurant recommendations. For future stays, the app offers the option of marking favorite hotels or hotel rooms.16 Significant changes are occurring in the nature of customer–brand relationships. Today’s digital technologies—the internet and the surge in online, mobile, and social media—have profoundly changed the ways that people on the planet relate to one another. In turn, these events have had a huge impact on how companies and brands connect with customers and how customers connect with and influence each other’s brand behaviors. Customer Engagement and Today’s Digital and Social Media The digital age has spawned a dazzling set of new customer relationship-building tools, from websites, online ads and videos, mobile ads and apps, and blogs to online communities and the major social media, such as Twitter, Facebook, YouTube, Snapchat, and Instagram. Yesterday’s companies focused mostly on mass marketing to broad segments of customers at arm’s length. By contrast, today’s companies are using online, mobile, and social media to refine their targeting and to engage customers more deeply and interactively. The old marketing involved marketing brands to consumers. The new marketing Customer-engagement marketing is customer-engagement marketing—fostering direct and continuous customer Making the brand a meaningful part of involvement in shaping brand conversations, brand experiences, and brand community. consumers’ conversations and lives Customer-engagement marketing goes beyond just selling a brand to consumers. Its goal is by fostering direct and continuous to make the brand a meaningful part of consumers’ conversations and lives. customer involvement in shaping The burgeoning internet and social media have given a huge boost to customerbrand conversations, experiences, and engagement marketing. Today’s consumers are better informed, more connected, and community. more empowered than ever before. Newly empowered consumers have more information about brands, and they have a wealth of digital platforms for airing and sharing their brand views with others. Thus, marketers are now embracing not only customer relationship management but also customer-managed relationships, in which customers connect with companies and with each other to help forge and share their own brand experiences. Greater consumer empowerment means that companies can no longer rely on marketing by intrusion. Instead, they must practice marketing by attraction—creating market offerings and messages that engage consumers rather than interrupt them. Hence, most marketers now combine their mass-media marketing efforts with a rich mix of online, mobile, and social media marketing that promotes brand– consumer engagement, brand conversations, and brand advocacy among customers. For example, companies post their latest ads and videos on social media sites, hoping they’ll go viral. They maintain an extensive presence on Twitter, YouTube, Facebook, Google+, Pinterest, Instagram, Snapchat, Vine, and other social media to create brand buzz. They launch their own blogs, mobile apps, online microsites, and consumer-generated review systems, all with the aim of engaging customers on a more personal, interactive level. Take Twitter, for example. Organizations ranging from Dell, JetBlue, and Dunkin’ Donuts to the Chicago Bulls, NASCAR, and the Los Angeles Fire Department have created Twitter pages and promotions. They use tweets to start conversations with and between Twitter’s more than 307 Engaging customers: Life is good starts with a deeply felt, engagementmillion active users, address customer service isworthy sense of purpose: spreading the power of optimism. then it creates sues, research customer reactions, and drive traffic online and social media tools that let people engage and help co-author the brand’s story. to relevant articles, web and mobile marketing sites, contests, videos, and other brand activities. © WWPhotography/Alamy Stock Photo 42 | pArt 1 Defining Marketing and the Marketing Process Similarly, almost every company has something going on Facebook these days. Starbucks has more than 36 million Facebook “fans”; Coca-Cola has more than 96 million. And every major marketer has a YouTube channel where the brand and its fans post current ads and other entertaining or informative videos. Instagram, LinkedIn, Pinterest, Snapchat, Vine—all have exploded onto the marketing scene, giving brands more ways to engage and interact with customers. Skilled use of social media can get consumers involved with a brand, talking about it, and advocating it to others. The key to engagement marketing is to find ways to enter targeted consumers’ conversations with engaging and relevant brand messages. Simply posting a humorous video, creating a social media page, or hosting a blog isn’t enough. And not all customers want to engage deeply or regularly with every brand. Successful engagement marketing means making relevant and genuine contributions to targeted consumers’ lives and interactions. Consider T-shirt and apparel maker Life is good:17 For starters, Life is good has an authentic, engagement-worthy sense of purpose: spreading the power of optimism. The brand is about helping people to open up, create relationships, and connect with other people. The company’s infectious philosophy is best represented by the “Life is good” slogan itself and by Jake—the familiar beret-wearing, happy-go-lucky stick figure who quickly became a pop-culture icon. Life is good backs its optimism philosophy with good deeds, donating 10 percent of its net profits each year to help kids in need. Online and social media have become a perfect fit for sharing the Life is good message. Today, the brand fosters a thriving community of Optimists, with more than 2.6 million Facebook fans, 304,000 Twitter followers, 33,000 followers on Instagram, and an active YouTube channel. But the strongest engagement platform is the brand’s own website, Lifeisgood.com, one of the most active customer-engagement sites found anywhere online. The site’s “Live It” section gives brand fans a breath of “fresh share.” It’s a place where they share photos, videos, and stories showing the brand’s role in their trials, triumphs, and optimism. To Life is good, true engagement is about deep meaningful relationships that go beyond the products it is selling. Says Life is good CEO Bert Jacobs: “You can’t build a brand on your own; we have entered a world where customers co-author your story.” Consumer-Generated Marketing Consumer-generated marketing Brand exchanges created by consumers themselves—both invited and uninvited— by which consumers are playing an increasing role in shaping their own brand experiences and those of other consumers. One form of customer-engagement marketing is consumer-generated marketing, by which consumers themselves play role in shaping their own brand experiences and those of others. This might happen through uninvited consumer-to-consumer exchanges in blogs, video-sharing sites, social media, and other digital forums. But increasingly, companies themselves are inviting consumers to play a more active role in shaping products and brand content. Some companies go directly to their customers for new product ideas and designs. For example, Airbus claims that the interior of its new A330neo aircraft, which is set to launch in 2017, is mainly designed based on comments gathered from disgruntled passengers on social media. The aerospace company then proposed an 18-inch (45.72 cm) seat width as the standard for future long-haul economy air travel. It commissioned new scientific research and revealed its findings on social media with the hashtag #AirbusComfort. The research demonstrated that a minimum seat width of 18 inches improves passenger sleep quality by 53 percent when compared to the 1950s 17-inch standard. For over a day, the campaign’s message was run in six languages, including live responses and monitoring. The campaign secured more than 70 million impressions and there was notable uplift in community size. Airbus is taking this to the next level in 2017 with the “Fly Your Ideas” campaign, which is an online competition for international students from all disciplines to develop new ideas.18 Other companies invite customers to play an active role in shaping ads and brand content. For example, for 10 full years, PepsiCo’s Doritos brand held a “Crash the Super Bowl” contest that invited 30-second ads from consumers and ran the best ones during the game. The contest attracted thousands of entries from around the world, and the hugely popular consumer-generated ads routinely finished in the top five of the USA Today’s AdMeter rankings. Based on the success of the “Crash the Super Bowl” contest, Doritos now runs new campaigns that create fun fan-made ads and other content throughout the year.19 Many brands incorporate user-generated social media content into their own traditional marketing and social media campaigns. For example, Mountain Dew stirred up and employed user-generated content to create buzz around a limited-time reintroduction of It began with a discreet Rogue Wave social media campaign its iconic Baja Blast flavor. in which it posted tantalizing hints on Facebook, Snapchat, Instagram, and Twitter about bringing Baja Blast back. For example, on Snapchat, the brand showed quick clips of ChAptEr 1 | Marketing: Creating Customer Value and Engagement 43 bottles. Mountain Dew fans responded with a flood of tweets and other social media chatter. “We started with discreet posts, but it didn’t take long for Dew Nation to call us out and beg for the rumors to be true,” says Mountain Dew’s digital brand manager. “Some of our fans even created collages of all the images featuring Baja over the last few days to confirm to other members of Dew Nation that Baja was coming back.” Mountain Dew then created ads on social media and men’s lifestyle websites incorporating consumers’ tweets. The result: Online chatter about Baja Blast shot up 170 percent.20 Despite the successes, however, harnessing consumer-generated content can be a time-consuming and costly process, and companies may find it difficult to mine even a little gold from all the content submitted. Moreover, because consumers have so much control over social media content, inviting their input can sometimes backfire. For example, McDonald’s famously launched a Twitter campaign using the hashtag #McDStories, hoping that it would inspire heartwarming stories about Happy Meals. Instead, the effort was hijacked by Twitter users, who turned the hashtag into a “bashtag” by posting Consumer-generated marketing: Mountain Dew stirred up user-generated less-than-appetizing messages about their bad expecontent to create buzz around a limited-time reintroduction of its iconic Baja riences with the fast-food chain. McDonald’s pulled Blast drink, boosting online chatter by 170 percent. the campaign within only two hours, but the hashtag PepsiCo was still churning weeks, even months later.21 As consumers become more connected and empowered, and as the boom in digital and social media technologies continues, consumer brand engagement—whether invited by marketers or not—will be an increasingly important marketing force. Through a profusion of consumer-generated videos, shared reviews, blogs, mobile apps, and websites, consumers are playing a growing role in shaping their own and other consumers’ brand experiences. Engaged consumers are now having a say in everything from product design, usage, and packaging to brand messaging, pricing, and distribution. Brands must embrace this new consumer empowerment and master the new digital and social media relationship tools or risk being left behind. Partner Relationship Management partner relationship management Working closely with partners in other company departments and outside the company to jointly bring greater value to customers. When it comes to creating customer value and building strong customer relationships, today’s marketers know that they can’t go it alone. They must work closely with a variety of marketing partners. In addition to being good at customer relationship management, marketers must also be good at partner relationship management—working closely with others inside and outside the company to jointly engage and bring more value to customers. Traditionally, marketers have been charged with understanding customers and representing customer needs to different company departments. However, in today’s more connected world, every functional area in the organization can interact with customers. The new thinking is that—no matter what your job is in a company—you must understand marketing and be customer focused. Rather than letting each department go its own way, firms must link all departments in the cause of creating customer value. Marketers must also partner with suppliers, channel partners, and others outside the company. Marketing channels consist of distributors, retailers, and others who connect the company to its buyers. The supply chain describes a longer channel, stretching from raw materials to components to final products that are carried to final buyers. Through supply chain management, companies today are strengthening their connections with partners all along the supply chain. They know that their fortunes rest on more than just how well they perform. Success at delivering customer value rests on how well their entire supply chain performs against competitors’ supply chains. 44 | pArt 1 Defining Marketing and the Marketing Process Author Look back at Figure 1.1. Comment In the first four steps of the marketing process, the company creates value for target customers and builds strong relationships with them. If it does that well, it can capture value from customers in return, in the form of loyal customers who buy and continue to buy the company’s brands. Capturing Value from Customers The first four steps in the marketing process outlined in Figure 1.1 involve engaging customers and building customer relationships by creating and delivering superior customer value. The final step involves capturing value in return in the form of sales, market share, and profits. By creating superior customer value, the firm creates satisfied customers who stay loyal and buy more. This, in turn, means greater long-run returns for the firm. Here, we discuss the outcomes of creating customer value: customer loyalty and retention, share of market and share of customer, and customer equity. Creating Customer Loyalty and Retention Customer lifetime value The value of the entire stream of purchases a customer makes over a lifetime of patronage. Good customer relationship management creates customer satisfaction. In turn, satisfied customers remain loyal and talk favorably to others about the company and its products. Studies show big differences in the loyalty between satisfied and dissatisfied customers. Even slight dissatisfaction can create an enormous drop in loyalty. Thus, the aim of customer relationship management is to create not only customer satisfaction but also customer delight. Keeping customers loyal makes good economic sense. Loyal customers spend more and stay around longer. Research also shows that it’s five times cheaper to keep an old customer than acquire a new one. Conversely, customer defections can be costly. Losing a customer means losing more than a single sale. It means losing the entire stream of purchases that the customer would make over a lifetime of patronage. For example, here is a classic illustration of customer lifetime value:22 Customer lifetime value: to keep customers coming back, Stew Leonard’s has created the “Disneyland of dairy stores.” rule #1—the customer is always right. rule #2—If the customer is ever wrong, reread rule #1. Courtesy of Stew Leonard’s Stew Leonard, who operates a highly profitable four-store supermarket in Connecticut and New York, once said that he saw $50,000 flying out of his store every time he saw a sulking customer. Why? Because his average customer spent about $100 a week, shopped 50 weeks a year, and remained in the area for about 10 years. If this customer had an unhappy experience and switched to another supermarket, Stew Leonard’s lost $50,000 in lifetime revenue. The loss could be much greater if the disappointed customer shared the bad experience with other customers and caused them to defect. To keep customers coming back, Stew Leonard’s has created what has been called the “Disneyland of Dairy Stores,” complete with costumed characters, scheduled entertainment, a petting zoo, and animatronics throughout the store. From its humble beginnings as a small dairy store in 1969, Stew Leonard’s has grown at an amazing pace. It’s built 30 additions onto the original store, which now serves more than 300,000 customers each week. This legion of loyal shoppers is largely a result of the store’s passionate approach to customer service. “Rule #1: The customer is always right. Rule #2: If the customer is ever wrong, reread rule #1.” Stew Leonard is not alone in assessing customer lifetime value. Lexus, for example, estimates that a single satisfied and loyal customer is worth more than $600,000 in lifetime sales, and the estimated lifetime value of a Starbucks customer is more than $14,000.23 In fact, a company can lose money on a specific transaction but still benefit greatly from a long-term relationship. This means that companies must aim high in building customer relationships. Customer delight creates an emotional relationship with a brand, not just a rational preference. And that relationship keeps customers coming back. Growing Share of Customer Share of customer The portion of the customer’s purchasing that a company gets in its product categories. Beyond simply retaining good customers to capture customer lifetime value, good customer relationship management can help marketers increase their share of customer— the share they get of the customer’s purchasing in their product categories. Thus, banks want to increase “share of wallet.” Supermarkets and restaurants want to get more “share ChAptEr 1 | Marketing: Creating Customer Value and Engagement 45 of stomach.” Car companies want to increase “share of garage,” and airlines want greater “share of travel.” To increase share of customer, firms can offer greater variety to current customers. Or they can create programs to cross-sell and up-sell to market more products and services to existing customers. For example, Amazon is highly skilled at leveraging relationships with its 304 million customers worldwide to increase its share of each customer’s spending budget:24 Once they log onto Amazon.com, customers often buy more than they intend, and Amazon does all it can to help make that happen. The online giant continues to broaden its merchandise assortment, creating an ideal spot for one-stop shopping. And based on each customer’s purchase and search history, the company recommends related products that might be of interest. This recommendation system influences perhaps a third of all sales. Amazon’s ingenious Amazon Prime two-day shipping program has also helped boost its share of customers’ wallets. For an annual fee of $99, Prime members receive delivery of all their purchases within two days, whether it’s a single paperback book or a 60-inch HDTV. According to one analyst, the ingenious Amazon Prime program “converts casual shoppers, who gorge on the gratification of having purchases reliably appear two days after the order, into Amazon addicts.” As a result, Amazon’s 54 million U.S. Prime customers now account for more than half of its U.S. sales. On average, a Prime customer spends 1.8 times more than a non-Prime customer. Building Customer Equity We can now see the importance of not only acquiring customers but also keeping and growing them. The value of a company comes from the value of its current and future customers. Customer relationship management takes a long-term view. Companies want to not only create profitable customers but also “own” them for life, earn a greater share of their purchases, and capture their customer lifetime value. Customer equity The total combined customer lifetime values of all of the company’s customers. What Is Customer Equity? The ultimate aim of customer relationship management is to produce high customer equity.25 Customer equity is the total combined customer lifetime values of all of the company’s current and potential customers. As such, it’s a measure of the future value of the company’s customer base. Clearly, the more loyal the firm’s profitable customers, the higher its customer equity. Customer equity may be a better measure of a firm’s performance than current sales or market share. Whereas Consider sales and market share reflect the past, customer equity suggests the future. Cadillac:26 In the 1970s and 1980s, Cadillac had some of the most loyal customers in the industry. To an entire generation of car buyers, the name Cadillac defined “The Standard of the World.” Cadillac’s share of the luxury car market reached a whopping 51 percent in 1976, and based on market share and sales, the brand’s future looked rosy. However, measures of customer equity would have painted a bleaker picture. Cadillac customers were getting older (average age 60), and average customer lifetime value was falling. Many Cadillac buyers were on their last cars. Thus, although Cadillac’s market share was good, its customer equity was not. Compare this with BMW. Its more youthful and vigorous image didn’t win BMW the early market share war. However, it did win BMW younger customers (average age about 40) with higher customer lifetime values. The result: In the years that followed, BMW’s market share and profits soared while Cadillac’s fortunes eroded badly. BMW overtook Cadillac in the 1980s. In recent years, Cadillac has struggled to make the Caddy cool again with edgier, high-performance designs that target a younger generation of consumers. More recently, the brand has billed itself as “The New Standard of the World” with marketing pitches based on “power, performance, and design,” attributes that position it more effectively against Managing customer equity: to increase customer equity, Cadillac is the likes of BMW and Audi. Recent ads feature young making the classic car cool again among younger buyers, encouraging achievers and invite consumers to “Dare Greatly” and consumers to “Dare Greatly.” “Drive the world forward.” However, for the past decade, Cadillac’s share of the luxury car market has stagnated. General Motors 46 | pArt 1 Defining Marketing and the Marketing Process The moral: Marketers should care not just about current sales and market share. Customer lifetime value and customer equity are the name of the game. Building the Right Relationships with the Right Customers. Companies should Potential profitability manage customer equity carefully. They should view customers as assets that need to be managed and maximized. But not all customers, not even all loyal customers, are good investments. Surprisingly, some loyal customers can be unprofitable, and some disloyal customers can be profitable. Which customers should the company acquire and retain? The company can classify customers according to their potential profitability and manage its relationships with them accordingly. Figure 1.5 classifies customers into one of four relationship groups, High h according to their profitability and projected loyalty.27 Each group requires a different relationship management strategy. Strangers show Butterflies True friends low potential profitability and little projected loyalty. There is little fit between the company’s offerings and their needs. The relationship management strategy for these customers is simple: Don’t invest anything in them; make money on every transaction. Butterflies are potentially profitable but not loyal. There is a good Strangers Barnacles fit between the company’s offerings and their needs. However, like real butterflies, we can enjoy them for only a short while and then they’re Low w gone. An example is stock market investors who trade shares often and in large amounts but who enjoy hunting out the best deals without Short-term Long-term building a regular relationship with any single brokerage company. Projected loyalty Efforts to convert butterflies into loyal customers are rarely successful. Instead, the company should enjoy the butterflies for the moment. It FIgurE | 1.5 should create satisfying and profitable transactions with them, capCustomer Relationship Groups turing as much of their business as possible in the short time during which they buy from the company. Then it should move on and cease investing in them until the next time around. True friends are both profitable and loyal. There is a strong fit between their needs and the company’s offerings. The firm wants to make continuous relationship investments to delight these customers and engage, nurture, retain, and grow them. It wants to turn true friends into true believers, who come back regularly and tell others about their good experiences with the company. Barnacles are highly loyal but not very profitable. There is a limited fit between their needs and the company’s offerings. An example is smaller bank customers who bank regularly but do not generate enough returns to cover the costs of maintaining their accounts. Like barnacles on the hull of a ship, they create drag. Barnacles are perhaps the most problematic customers. The company might be able to improve their profitability by selling them more, raising their fees, or reducing service to them. However, if they cannot be made profitable, they should be “fired.” The point here is an important one: Different types of customers require different engagement and relationship management strategies. The goal is to build the right relationships with the right customers. Author Marketing doesn’t take Comment place in a vacuum. Now that we’ve discussed the five steps in the marketing process, let’s look at how the ever-changing marketplace affects both consumers and the marketers who serve them. We’ll look more deeply into these and other marketing environment factors in Chapter 3. The Changing Marketing Landscape Every day, dramatic changes are occurring in the marketplace. Richard Love of HP observed, “The pace of change is so rapid that the ability to change has now become a competitive advantage.” Yogi Berra, the legendary New York Yankees catcher and manager, summed it up more simply when he said, “The future ain’t what it used to be.” As the marketplace changes, so must those who serve it. In this section, we examine the major trends and forces that are changing the marketing landscape and challenging marketing strategy. We look at five major developments: the digital age, the changing economic environment, the growth of not-for-profit marketing, rapid globalization, and the call for sustainable marketing practices. The Digital Age: Online, Mobile, and Social Media Marketing The explosive growth in digital technology has fundamentally changed the way we live— how we communicate, share information, access entertainment, and shop. Welcome to the ChAptEr 1 | Marketing: Creating Customer Value and Engagement 47 age of the Internet of Things (IoT), a global environment where everything and everyone is digitally connected to everything and everyone else. More than 3.3 billion people—46 percent of the world’s population—are now online; 64 percent of all American adults own smartphones. These numbers will only grow as digital technology rockets into the future.28 Most consumers are totally smitten with all things digital. For example, according to one study, 71 percent of Americans keep their mobile phone next to them when they sleep; 3 percent sleep with phone in hand. In just the past few years, people in the United States averaged more time per day with digital media (5.25 hours) than viewing traditional TV (4.5 hours).29 The consumer love affair with digital and mobile technology makes it fertile ground Digital and social media marketing for marketers trying to engage customers. So it’s no surprise that the internet and rapid Using digital marketing tools such as advances in digital and social media have taken the marketing world by storm. Digital websites, social media, mobile apps and social media marketing involves using digital marketing tools such as websites, and ads, online video, email, and blogs social media, mobile ads and apps, online video, email, blogs, and other digital platforms to to engage consumers anywhere, at any time, via their digital devices. engage consumers anywhere, anytime via their computers, smartphones, tablets, internetready TVs, and other digital devices. These days, it seems that every company is reaching out to customers with multiple websites, newsy tweets and Facebook pages, viral ads and videos posted on YouTube, rich-media emails, and mobile apps that solve consumer problems and help them shop. At the most basic level, marketers set up company and brand websites that provide information and promote the company’s products. Many companies also set up branded community sites, where customers can congregate and exchange brand-related interests and information. For example, Petco’s Community site is a place “where pet lovers can connect, share, and learn” via a blog and discussion boards dedicated to dogs (“the bark”), cats (“the purr”), fish (“the splash”), birds (“the chirp”), reptiles (“the hiss”), and other types of pets. And Sony’s PlayStation Forums site serves as a social hub for PlayStation PS4 game enthusiasts. It’s a place where fans can follow social media posts about PS4, watch the latest PS4 videos, discover which PS4 games are trending on social networks, share content, and interact with other fans—all in real time.30 Branded online communities: Petco’s Community site is a place where Beyond brand websites, most companies are pet lovers can connect, share, and learn via a blog and discussion boards dedicated to pets of all types, from dogs and cats to birds, fish, and reptiles. also integrating social and mobile media into their Petco marketing mixes. Social Media Marketing It’s hard to find a brand website, or even a traditional media ad, that doesn’t feature links to the brand’s Facebook, Instagram, Twitter, Google+, YouTube, Snapchat, Pinterest, LinkedIn, or other social media sites. Social media provide exciting opportunities to extend customer engagement and get people talking about a brand. Some social media are huge—Facebook has more than 1.59 billion active monthly members. Instagram has more than 400 million active monthly users, Twitter has more than 315 million monthly users, Google+ racks up 300 million active monthly visitors, and Pinterest draws in more than 100 million users. Reddit, the online social news community, has 234 million unique visitors each month from 185 countries. But smaller, more focused social media sites are also thriving, such as CafeMom, an online community of 20 million moms who exchange advice, entertainment, and commiseration at the community’s online, Facebook, Twitter, Pinterest, YouTube, Google+, and mobile sites. Even tiny sites can attract active audiences, such as Birdpost.com for avid birdwatchers or Ravelry.com for knitters and crocheters. Online social media provide a digital home where people can connect and share important information and moments in their lives. As a result, they offer an ideal platform for real-time marketing, by which marketers can engage consumers in the moment by linking brands to important trending topics, real-world events, causes, personal occasions, or other important happenings in consumers’ lives (see Real Marketing 1.2). Real Marketing 48 | pArt 1 Defining Marketing and the Marketing Process 1.2 real-time Marketing: Engaging Consumers in the Moment A funny thing happened during Super Bowl XLVII in New Orleans. Early in the third quarter, the lights in the Mercedes-Benz Superdome suddenly went out. As 71,000 attendees and 106 million viewers restlessly bided their time and scratched their heads, engineers worked feverishly for a full 34 minutes to repair the power outage and bring the lights back on. But whereas the blackout was a disaster for Superdome management and CBS Sports and an annoyance for players and fans, at least one marketer saw it as an opportunity. Shortly after the blackout began, Nabisco’s Oreo brand tweeted out a simple message: “Power out? No problem. You can still dunk in the dark.” That now-famous single tweet, conceived and approved within just minutes, grabbed more attention for Oreo than the brand’s extravagant first-quarter advertisement. Within an hour, the “dunk in the dark” message was retweeted nearly 16,000 times and racked up more than 20,000 Facebook likes, resulting in tens of millions of favorable exposures. In the following days, Oreo received tons of media coverage and was hailed as “The Brand That Won the Blackout Bowl.” Those were pretty impressive results for a one-off joke by a cookie maker. Oreo’s successful Super Bowl one-liner triggered a surge in real-time marketing. Brands of all kinds have since tried to create their own “Oreo moments” by aligning marketing content with real-world events and trending topics through timely tweets, videos, blog entries, and social media posts. Today, many real-time marketing efforts center on major media events, such as the Super Bowl, the Grammys, and the Academy Awards. These events let marketers engage huge, ready-made audiences. For example, when its blockbuster feature The LEGO Movie failed to win a nomination in the Best Animated Movie category at a recent Oscars, LEGO turned the snub into an opportunity to engage viewers in real time during the Academy Awards TV spectacular. During a performance of the movie’s Oscar-nominated song— “Everything Is Awesome”—performers handed out Oscars made of golden LEGO bricks to celebrities in the audience. Simultaneously, the brand tweeted coordinated real-time images and the message “#EverythingIsAwesome at the #Oscars!” With pictures of stars such as in the moment and make a brand more relMeryl Streep, Clint Eastwood, Oprah Winfrey, evant. Done poorly, however, real-time enand Bradley Cooper posing with their LEGO gagements can come off as little more than Oscars, #LegoOscar became the number-one awkward or inappropriate intrusions. Too often, brands simply toss standalone, lasttrending topic on Twitter. Other companies use real-time efforts to minute ads or messages into social chanconnect their brands to current events impor- nels, hoping to “catch lightning in a bottle.” tant to customers. Starbucks has long used But hastily prepared real-time content can real-time marketing in this way. For example, fall flat or miss the mark. Worse, self-servafter Winter Storm Nemo hit the northeastern ing real-time messages can easily backfire, United States with heavy snowfall and hur- painting the brand as opportunistic or out ricane-force winds in early 2013, Starbucks of touch. Minute-by-minute marketing strikes rarely Twitter and Facebook promotions offered free “Snow Day” coffee to customers in af- succeed. Instead, to be consistently successful, fected areas. “We wanted to make a grand real-time marketing must be part of a broader, [and timely] gesture,” said a Starbucks digi- carefully conceived strategy that makes the tal marketer. As another example, Red Roof brand itself an engaging and relevant part of Inn regularly links airline flight data from flight tracking service FlightAware with Google’s online search-ad system to beam real-time ads to stranded travelers facing flight cancellations. For example, when Chicago’s O’Hare Airport recently experienced a major bout of flight cancellations, Red Roof managed to secure the top ad spot in three-quarters of the Google search results for “hotels near O’Hare,” resulting in a 60 percent jump in bookings from those searches. Companies sometimes set up temporary real-time command centers, or “war rooms,” to created rapid responses during major events or even to counter competitor’s moves. For example, with each new Apple iPhone model, at the very same time that Apple executives are on stage unveiling the features of the new phone, Samsung marketers are flooding social media with clever real-time “The next best thing is already here” responses. The real-time marketing: Oreo’s spectacularly successful strategy lets Samsung capital- “You can still dunk in the dark” tweet triggered a surge ize on the buzz surrounding in real-time marketing, as brands of all kinds are now the Apple introductions to pro- trying to create their own “Oreo moments” by aligning mote its own wares. marketing content with real-world events and trending Done right, real-time mar- topics. keting can engage consumers © Isabella Cassini/Alamy ChAptEr 1 consumers’ lives. More than just trying to catch lightning in a bottle with one-off “Oreo moments” during showcase events, says one strategist, “keeping pace with the speed of digital culture actually requires marketers to plan ahead.” Says another, “The war room has given way to a campsite—real-time marketing needs to be a built-in strategy all year round.” Smart brands build agile, ongoing real-time marketing programs that listen in on the social space and respond with relevant marketing content that blends smoothly with the dynamics of customers’ real-time social sharing. For example, although the Oreo “dunk in the dark” tweet might have seemed off the cuff, it was only the latest in a long series of real-time marketing efforts designed to make Oreo a part of consumers’ daily discourse. In the months preceding the Super Bowl, Oreo had successfully carried out its “Daily Twist” campaign. Each day for 100 days, the brand posted consumer-inspired Oreo cookie art tied to a relevant event. There was a Mars Rover Landing Oreo (an open-face cookie with tire tracks through its red crème filling), an Elvis Week Oreo (with an Oreo profile of the King of Rock ’n’ Roll), and a Shark Week Oreo (with a jagged bite taken out of it, of course). The groundbreaking | Marketing: Creating Customer Value and Engagement Daily Twist campaign gave Oreo a fourfold increase in Facebook shares and boosted its Instagram following from 2,200 to more than 85,000. Oreo wages an ongoing social media and mobile campaign to engage consumers in the moment, skillfully injecting the brand into consumers’ lives and conversations. For example, there was the wildly popular “Twist, Lick, Dunk” mobile game app that had 4 million users dunking 4 billion virtual Oreo cookies. Then there was the catchy 90-second “Oreo Cookie Balls” rap video, tweeted and posted on YouTube and other social media, showing clever ideas for eating and serving cookie balls during the end-of-year holiday season—it quickly went viral with more than 1.6 million views on YouTube alone. And leading up to a one Halloween season, Oreo Laboratorium, a series of brief stop-motion videos, showed different Oreo creatures and asked fans to “Name the Nomster.” Such gems illustrate how Oreo keeps itself smack dab in the middle of the consumer consciousness by making real-time marketing an everyday event. Whether connected to a social cause, a trending topic or event, a consumer’s personal situation, or something else, the essential concept behind successful real-time marketing is pretty simple: Find or create ongoing connections between the brand and what’s happening and important in consumers’ lives, then engage consumers genuinely in the moment. One marketing executive suggests that real-time marketers should equate the practice to “meeting somebody in a social gathering—you don’t accost them, instead you try to find a commonality of interest.” Sources: “Marketing in the Moments, to Reach Customers Online,” New York Times, January 18, 2016, p. B5; Danielle Sacks, “The Story of Oreo: How an Old Cookie Became a Modern Marketing Personality,” Fast Company, October 23, 2014, www.fastcocreate.com/3037068; Christopher Heine, “Ads in Real Time, All the Time,” Adweek, February 18, 2013, p. 9; Christopher Palmeri, “‘Lego Movie’ Picks Up Tweets Not Trophies at Academy Awards,” Businessweek, February 23, 2015, www.bloomberg.com/news/articles/2015-02-23/lego-movie-picks-up-tweetsnot-trophies-at-academy-awards-show; Tanya Dua, “You Can Still Dunk in the Dark, but You Don’t Need a War Room,” Digiday, February 4, 2016, http://digiday.com/agencies/super-bowl-war-room-rip/; and www.360i.com/ work/oreo-daily-twist/ and https://twitter.com/oreo/status/298246571718483968, accessed September 2016. NaSa uses an extensive array of social media to engage and educate the next generation of space explorers. the agency invites you to “follow, share, and be a part of the conversation on popular social media sites with NaSa.” NASA 49 Using social media might involve something as simple as a contest or promotion to garner Facebook Likes, tweets, or YouTube postings. But more often these days, large organizations of all kinds use a wide range of carefully integrated social media. For example, space agency NASA uses a broad mix of social media to educate the next generation of space explorers on its mission to “boldly go where no man has gone before.” In all, NASA has more than 480 social media accounts spanning various topics and digital platforms. The agency has more than 14 million Facebook fans, 14.5 million Twitter followers, 8.8 million Instagram followers, and 76,000 YouTube subscribers. One of NASA’s largest-ever social media campaigns supported the recent test launch of the Orion spacecraft, which will eventually carry humans to deep space destinations, such as Mars or an asteroid:31 The extensive campaign included a dozen or more YouTube “I’m On Board” videos starring actors from classic science-fiction TV shows, such as Star Trek and The Incredible Hulk. Even Sesame Street’s Elmo added his support, proudly displaying his “I’m On Board” boarding pass, chatting up astronauts, and relaying facts and launch information on the Sesame Street Twitter feed and other digital platforms. The campaign offered social media users a chance to put their names on a microchip aboard the space vehicle— more than a million people signed on. During the flight, NASA’s social media team briefed the public through Twitter, Facebook, and Instagram posts. In all, it’s a new NASA. People once followed NASA events from afar by gathering around their TV sets. Not anymore. Now, 50 | pArt 1 Defining Marketing and the Marketing Process the space agency engages fans directly through interactive social media. “You can ask an astronaut a question,” says NASA’s social media manager. “You can . . . really be part of the experience in a much different way than ever before. It’s not your father and grandfather’s space agency anymore.” Mobile Marketing Mobile marketing is perhaps the fastest-growing digital marketing platform. Smartphones are ever present, always on, finely targeted, and highly personal. This makes them ideal for engaging customers anytime, anywhere as they move through the buying process. For example, Starbucks customers can use their mobile devices for everything from finding the nearest Starbucks and learning about new products to placing and paying for orders. Four out of five smartphone users use their phones to shop—browsing product information through apps or the mobile web, making in-store price comparisons, reading online product reviews, finding and redeeming coupons, and more. Almost 30 percent of all online purchases are now made from mobile devices, and mobile online sales are growing 2.6 times faster than total online sales. During this past holiday season, mobile shoppers made up more than 70 percent of traffic to Walmart.com, accounting for almost half the site’s orders over the Black Friday weekend.32 Marketers use mobile channels to stimulate immediate buying, make shopping easier, Consider Redbox:33 enrich the brand experience, or all of these. Redbox DVD rental kiosks are unmanned, so the company has to find innovative ways to engage customers and personalize its service—most of which it does through its website and mobile app, text messaging, and email. Customers can use the Redbox mobile app to locate Redbox kiosks, check availability of movies and games, and reserve rentals for quick pickup. Mobile customers can also join the Redbox Text Club to receive texts about the latest Redbox news, releases, and members-only deals. Text Club members are Redbox’s most valuable customers, so the company launched a 10-day-long mobile marketing campaign to increase membership. Using large call-to-action stickers on kiosks, a blast of email, and posts on its Facebook and other social media pages, Redbox offered discounts of between 10 cents and $1.50 on the next DVD rental to customers who texted the word “DEALS” to 727272. The campaign—called “The 10 Days of Deals”—generated nearly 1.5 million text messages from some 400,000 customers, resulting in more than 200,000 new Text Club members. “Mobile is like having a kiosk in your hand,” explains Redbox’s chief marketer. “It’s an incredibly important part of our [marketing] strategy.” Although online, social media, and mobile marketing offer huge potential, most marketers are still learning how to use them effectively. The key is to blend the new digital approaches with traditional marketing to create a smoothly integrated marketing strategy and mix. We will examine digital, mobile, and social media marketing throughout the text—they touch almost every area of marketing strategy and tactics. Then, after we’ve covered the marketing basics, we’ll look more deeply into digital and direct marketing in Chapter 17. The Changing Economic Environment Mobile marketing: redbox uses mobile marketing to engage its customers, personalize its service, and promote DVD rentals. Its “the 10 Days of Deals” mobile campaign generated nearly 1.5 million text messages, resulting in more than 200,000 new redbox text Club members. AP Images for Redbox The Great Recession of 2008 to 2009 and its aftermath hit American consumers hard. After two decades of overspending, new economic realities forced consumers to bring their consumption back in line with their incomes and rethink their buying priorities. In today’s post-recession era, consumer incomes and spending are again on the rise. However, even as the economy has strengthened, rather than reverting to their old free-spending ways, Americans are now showing a new enthusiasm for frugality. Sensible consumption has made a comeback, and it appears to be here to stay. The new consumer spending values emphasize simpler living and more value for the ChAptEr 1 | Marketing: Creating Customer Value and Engagement 51 dollar. Despite their rebounding means, consumers continue to buy less, clip more coupons, swipe their credit cards less, and put more in the bank. Many consumers are reconsidering their very definition of the good life. “People are finding happiness in old-fashioned virtues—thrift, savings, do-it-yourself projects, self-improvement, hard work, faith, and community,” says one consumer behavior expert. “We are moving from mindless to mindful consumption.”34 The new, more frugal spending values don’t mean that people have resigned themselves to lives of deprivation. As the economy has improved, consumers are again indulging in luxuries and bigger-ticket purchases, just more sensibly. In response, companies in all industries—from discounters such as Target to luxury brands such as Lexus—have realigned their marketing strategies with the new economic realities. More than ever, marketers are emphasizing the value in their value propositions. They are focusing on value for the money, practicality, and durability in their product offerings and marketing pitches. For example, for years discount retailer Target focused increasingly on the “Expect More” side of its “Expect More. Pay Less.” value proposition. Its carefully cultivated “upscale-discounter” image successfully differentiated it from Walmart’s more hard-nosed “lowest-price” position. But when the economy soured, many consumers worried that Target’s trendier assortments and hip marketing also meant higher prices. So Target has shifted its balance more toward the “Pay Less” half of the slogan, making certain that its prices are in line with Walmart’s and that customers know it. Although still trendy, Target’s marketing now emphasizes more practical price and savings appeals. Offering “more for your money” holds a prominent place in the Target mission. “We think a lot about your budget and how to give you the best value every time you shop with us,” says the company.35 In adjusting to the new economy, companies may be tempted to cut their marketing budgets and slash prices in an effort to coax customers into opening their wallets. However, although cutting costs and offering selected discounts can be important marketing tactics, smart marketers understand that making cuts in the wrong places can damage long-term brand images and customer relationships. The challenge is to balance the brand’s value proposition with the current times while also enhancing its long-term equity. Thus, rather than slashing prices in uncertain economic times, many marketers hold the line on prices and instead explain why their brands are worth it. The Growth of Not-for-Profit Marketing In recent years, marketing has also become a major part of the strategies of many not-forprofit organizations, such as colleges, hospitals, museums, zoos, symphony orchestras, foundations, and even churches. The nation’s not-for-profits face stiff competition for support and membership. Sound marketing can help them attract membership, funds, and support. For example, not-for-profit St. Jude Children’s Research Hospital has a special mission: “Finding cures. Saving children.” It directly serves some 7,800 patients each year plus countless thousands more through its affiliations and clinical trials in places across the country and around the world. Families never receive a bill from St. Jude, for treatment, travel, housing, or food. To accomplish this mission, St. Jude raises the funds for its $2.4 million daily operating budget through powerhouse marketing.36 Fundraising efforts include everything from public service announcements, celebrity endorsements, corporate partnerships, and an extensive online presence to events such as Trike-a-thons, Math-a-thons, an Up ’Til Dawn student challenge, and the St. Jude Dream Home Giveaway. St. Jude’s works Not-for-profit marketing: St. Jude Children’s research Hospital aggressively markets its powerful mission: “Finding cures. Saving children.” with more than 70 corporate partners such ALSAC | St. Jude as Target, Domino’s, Williams-Sonoma, 52 | pArt 1 Defining Marketing and the Marketing Process Regal Cinemas, and Expedia that participate in its annual Thanks and Giving campaign, which asks consumers to “give thanks for the healthy kids in your life, and give to those who are not.” The result is a pervasive brand that brings in more than $1 billion each year from private donors—from preschoolers and professionals to eighth-graders and 80-year-olds. Another example is the World Wildlife Fund (WWF), a global not-for-profit conservation organization whose mission is to conserve nature and protect the world’s wildlife. WWF operates in 100 countries under funding from government grants, foundations, corporations, and individuals—1.2 million members in the United States and nearly 5 million members worldwide. WWF uses sophisticated marketing to raise the considerable resources it needs to accomplish its sweeping mission. Just one example is the WWF’s recent cost-efficient but effective #LastSelfie Snapchat campaign: The idea behind the WWF #Last Selfie campaign is that the world’s endangered wildlife species are disappearing from the earth as quickly as a Snapchat. To make the point, WWF sent nine-second Snapchat pictures of endangered animals to WWF followers worldwide with the message “Don’t let this be my #LastSelfie,” urging recipients to take a screenshot. Within only eight hours, the campaign generated 5,000 tweets viewed on 6 million timelines. Within only a week, there were 40,000 tweets reaching 120 million users. In all, the #LastSelfie campaign reached more than half of all Twitter users. It also helped WWF to meet its monthly donation target in just three days and led to a record number of animal adoptions through WWF’s website. More broadly, thanks to such marketing efforts and despite its limited marketing budget, WWF raised nearly $290 million in funds last year, more than a third of it from individual donors. Government agencies have also shown an increased interest in marketing. For example, the U.S. military has a marketing plan to attract recruits to its different services, and various government agencies are now designing social marketing campaigns to encourage energy conservation and concern for the environment or discourage smoking, illegal drug use, and obesity. Even the once-stodgy U.S. Postal Service has developed innovative marketing to sell commemorative stamps, promote its Priority Mail services, and lift its image as a contemporary and competitive organization. In all, the U.S. government is the nation’s 39th largest advertiser, with an annual advertising budget of more than $980 million.37 Rapid Globalization As they are redefining their customer relationships, marketers are also taking a fresh look at the ways in which they relate with the broader world around them. Today, almost every company, large or small, is touched in some way by global competition. A neighborhood florist buys its flowers from Mexican nurseries, and a large U.S. electronics manufacturer competes in its home markets with giant Korean rivals. A fledgling internet retailer finds itself receiving orders from all over the world at the same time that an American consumer goods producer introduces new products into emerging markets abroad. American firms have been challenged at home by the skillful marketing of European and Asian multinationals. Companies such as Toyota, Nestlé, and Samsung have often outperformed their U.S. competitors in American markets. Similarly, U.S. companies in a wide range of industries have developed truly global operations, making and selling their products worldwide. Quintessentially American McDonald’s now serves 70 million customers daily in more than 36,000 local restaurants in more than 100 countries worldwide—68 percent of its corporate revenues come from outside the United States. Similarly, Nike markets in 190 countries, with non-U.S. sales accounting for 52 percent of its worldwide sales.38 Today, companies are not just selling more of their locally produced goods in international markets; they are also sourcing more supplies and components abroad and developing new products for specific markets around the world. Thus, managers in countries around the world are increasingly taking a global, not just local, view of the company’s industry, competitors, and opportunities. They are asking: What is global marketing? How does it differ from domestic marketing? How do global competitors and forces affect our business? To what extent should we “go global”? We will discuss the global marketplace in more detail in Chapter 19. ChAptEr 1 | Marketing: Creating Customer Value and Engagement 53 Sustainable Marketing—The Call for More Environmental and Social Responsibility Marketers are reexamining their relationships with social values and responsibilities and with the very earth that sustains us. As the worldwide consumerism and environmentalism movements mature, today’s marketers are being called on to develop sustainable marketing practices. Corporate ethics and social responsibility have become hot topics for almost every business. And few companies can ignore the renewed and very demanding environmental movement. Every company action can affect customer relationships. Today’s customers expect companies to deliver value in a socially and environmentally responsible way. The social responsibility and environmental movements will place even stricter demands on companies in the future. Some companies resist these movements, budging only when forced by legislation or organized consumer outcries. Forward-looking companies, however, readily accept their responsibilities to the world around them. They view sustainable marketing as an opportunity to do well by doing good. They seek ways to profit by serving immediate needs and the best long-run interests of their customers and communities. Some companies, such as Patagonia, Timberland, Method, Ben & Jerry’s, and others, practice caring capitalism, setting themselves apart by being civic minded and responsible. They build social and environmental responsibility into their company For example, Ben value and mission statements. & Jerry’s, a division of Unilever, has long prided itself on being a “values-led business,” one that creates “linked prosperity” for everyone connected to the brand—from suppliers to employees to customers and communities:39 Under its three-part mission, Ben & Jerry’s wants to make fantastic ice cream (product mission), manage the company for sustainable financial growth (economic mission), and use the company “in innovative ways to make the world a better place” (social mission). Ben & Jerry’s backs its mission with actions. For example, the company is committed to using wholesome, natural, non-GMO, fair-tradecertified ingredients and buys from local farms. It Sustainable marketing: Ben & Jerry’s three-part “linked prosperity” employs business practices “that respect the earth mission drives it to make fantastic ice cream (product mission), manage and the environment,” investing in wind energy, the company for sustainable financial growth (economic mission), and use solar usage, travel offsets, and carbon neutrality. Its the company “in innovative ways to make the world a better place” (social Caring Dairy program helps farmers develop more mission). Both Ben & Jerry’s and its products are “Made of Something sustainable practices on the farm (“Caring Dairy Better.” means happy cows, happy farmers, and a happy Clark Brennan / Alamy Stock Photo planet”). The Ben & Jerry’s Foundation awards nearly $2 million annually in grassroots grants to  community service organizations and projects in communities across the nation. Ben & Jerry’s also operates 14 PartnerShops, scoop shops that are independently owned and operated by community-based not-for-profit organizations. The company waives standard franchise fees for these shops. Sustainable marketing presents both opportunities and challenges for marketers. We will revisit the topic of sustainable marketing in greater detail in Chapter 20. Author Remember Figure 1.1 Comment outlining the marketing process? Now, based on everything we’ve discussed in this chapter, we’ll expand that figure to provide a road map for learning marketing throughout the remainder of the text. So, What Is Marketing? Pulling It All Together At the start of this chapter, Figure 1.1 presented a simple model of the marketing process. Figure 1.6 presents an expanded Now that we’ve discussed all the steps in the process, model that will help you pull it all together. What is marketing? Simply put, marketing is the process of engaging customers and building profitable customer relationships by creating value for customers and capturing value in return. 54 | pArt 1 Defining Marketing and the Marketing Process FIgurE | 1.6 An Expanded Model of the Marketing Process Create value for customers and build customer relationships Capture value from customers in return Understand the marketplace and customer needs and wants Design a customer value– driven marketing strategy Construct an integrated marketing program that delivers superior value Engage customers, build profitable relationships, and create customer delight Capture value from customers to create profits and customer equity Research customers and the marketplace Select customers to serve: market segmentation and targeting Product and service design: build strong brands Create satisfied, loyal customers Decide on a value proposition: differentiation and positioning Pricing: create real value Customer relationship management: build engagement and strong relationships with chosen customers Manage marketing information and customer data Distribution: manage demand and supply chains Partner relationship management: build strong relationships with marketing partners Capture customer lifetime value Increase share of market and share of customer Promotion: communicate the value proposition Harness marketing technology This expanded version of Figure 1.1 at the beginning of the chapter provides a good road map for the rest of the text. The underlying concept of the entire text is that marketing creates value for customers in order to capture value from customers in return. Manage global markets Ensure environmental and social responsibility The first four steps of the marketing process focus on creating value for customers. The company first gains a full understanding of the marketplace by researching customer needs and managing marketing information. It then designs a customer-driven marketing strategy based on the answers to two simple questions. The first question is “What consumers will we serve?” (market segmentation and targeting). Good marketing companies know that they cannot serve all customers in every way. Instead, they need to focus their resources on the customers they can serve best and most profitably. The second marketing strategy question is “How can we best serve targeted customers?” (differentiation and positioning). Here, the marketer outlines a value proposition that spells out what values the company will deliver to win target customers. With its marketing strategy chosen, the company now constructs an integrated marketing program—consisting of a blend of the four marketing mix elements, the four Ps—that transforms the marketing strategy into real value for customers. The company develops product offers and creates strong brand identities for them. It prices these offers to create real customer value and distributes the offers to make them available to target consumers. Finally, the company designs promotion programs that engage target customers, communicate the value proposition, and persuade customers to act on the market offering. Perhaps the most important step in the marketing process involves building valueladen, profitable relationships with target customers. Throughout the process, marketers practice customer relationship management to create customer satisfaction and delight. They engage customers in the process of creating brand conversations, experiences, and community. In creating customer value and relationships, however, the company cannot go it alone. It must work closely with marketing partners both inside the company and throughout its marketing system. Thus, beyond practicing good customer relationship ChAptEr 1 | Marketing: Creating Customer Value and Engagement 55 management and customer-engagement marketing, firms must also practice good partner relationship management. The first four steps in the marketing process create value for customers. In the final step, the company reaps the rewards of its strong customer relationships by capturing value from customers. Delivering superior customer value creates highly satisfied customers who will buy more and buy again. This helps the company capture customer lifetime value and greater share of customer. The result is increased long-term customer equity for the firm. Finally, in the face of today’s changing marketing landscape, companies must take into account three additional factors. In building customer and partner relationships, they must harness marketing technologies in the new digital age, take advantage of global opportunities, and ensure that they act sustainably in an environmentally and socially responsible way. Figure 1.6 provides a good road map to future chapters of this text. Chapters 1 and 2 introduce the marketing process, with a focus on building customer relationships and capturing value from customers. Chapters 3 through 6 address the first step of the marketing process—understanding the marketing environment, managing marketing information, and understanding consumer and business buyer behavior. In Chapter 7, we look more deeply into the two major marketing strategy decisions: selecting which customers to serve (segmentation and targeting) and determining a value proposition (differentiation and positioning). Chapters 8 through 17 discuss the marketing mix variables one by one. Chapter 18 sums up customer-driven marketing strategy and creating competitive advantage in the marketplace. The final two chapters examine special marketing considerations: global marketing and sustainable marketing. 1 Reviewing and Extending the Concepts OBjECtiVEs rEViEw aND kEy tErms Objectives review Today’s successful companies—whether large or small, for-profit or not-for-profit, domestic or global—share a strong customer focus and a heavy commitment to marketing. The goal of marketing is to engage customers and manage profitable customer relationships. Objective 1-1 Define marketing and outline the steps in the marketing process. (pp 28–30) Marketing is the process by which companies create value for customers and build strong customer relationships in order to capture value from customers in return. The marketing process involves five steps. The first four steps create value for customers. First, marketers need to understand the marketplace and customer needs and wants. Next, marketers design a customerdriven marketing strategy with the goal of getting, engaging, and growing target customers. In the third step, marketers construct a marketing program that actually delivers superior value. All of these steps form the basis for the fourth step: engaging customers, building profitable customer relationships, and creating customer delight. In the final step, the company reaps the rewards of strong customer relationships by capturing value from customers. Objective 1-2 Explain the importance of understanding the marketplace and customers and identify the five core marketplace concepts. (pp 30–34) Outstanding marketing companies go to great lengths to learn about and understand their customers’ needs, wants, and demands. This understanding helps them to design want-satisfying market offerings and build value-laden customer relationships by which they can capture customer lifetime value and greater share of customer. The result is increased long-term customer equity for the firm. The core marketplace concepts are needs, wants, and demands; market offerings (products, services, and experiences); value and satisfaction; exchange and relationships; and markets. Companies address needs, wants, and demands by putting forth a value proposition, a set of benefits that they promise to consumers to satisfy their needs. The value proposition is fulfilled through a market offering, which delivers customer value and satisfaction, resulting in long-term exchange relationships with customers. Objective 1-3 Identify the key elements of a customer value–driven marketing strategy and discuss the marketing management orientations that guide marketing strategy. (pp 34–38) To design a winning marketing strategy, the company must first decide whom it will serve. It does this by dividing the market into segments of customers (market segmentation) and selecting which segments it will cultivate (target marketing). Next, the company must decide how it will serve targeted 56 | pArt 1 Defining Marketing and the Marketing Process customers (how it will differentiate and position itself in the marketplace). Marketing management can adopt one of five competing market orientations. The production concept holds that management’s task is to improve production efficiency and bring down prices. The product concept holds that consumers favor products that offer the most in quality, performance, and innovative features; thus, little promotional effort is required. The selling concept holds that consumers will not buy enough of an organization’s products unless it undertakes a large-scale selling and promotion effort. The marketing concept holds that achieving organizational goals depends on determining the needs and wants of target markets and delivering the desired satisfactions more effectively and efficiently than competitors do. The societal marketing concept holds that generating customer satisfaction and long-run societal well-being through sustainable marketing strategies is key to both achieving the company’s goals and fulfilling its responsibilities. Objective 1-4 Discuss customer relationship management and identify strategies for creating value for customers and capturing value from customers in return. (pp 38–46) Broadly defined, customer relationship management is the process of engaging customers and building and maintaining profitable customer relationships by delivering superior customer value and satisfaction. Customer-engagement marketing aims to make a brand a meaningful part of consumers’ conversations and lives through direct and continuous customer involvement in shaping brand conversations, experiences, and community. The aim of customer relationship management and customer engagement is to produce high customer equity, the total combined customer lifetime values of all of the company’s customers. The key to building lasting relationships is the creation of superior customer value and satisfaction. In return for creating value for targeted customers, the company captures value from customers in the form of profits and customer equity. Objective 1-5 Describe the major trends and forces that are changing the marketing landscape in this age of relationships. (pp 46–55) Dramatic changes are occurring in the marketing arena. The digital age has created exciting new ways to learn about and relate to individual customers. As a result, advances in digital and social media have taken the marketing world by storm. Online, mobile, and social media marketing offer exciting new opportunities to target customers more selectively and engage them more deeply. The key is to blend the new digital approaches with traditional marketing to create a smoothly integrated marketing strategy and mix. The Great Recession caused consumers to rethink their buying priorities and bring their consumption back in line with their incomes. Even as the post-recession economy has strengthened, Americans are now showing an enthusiasm for frugality not seen in decades. The challenge is to balance a brand’s value proposition with current times while also enhancing its long-term equity. In recent years, marketing has become a major part of the strategies for many not-for-profit organizations, such as colleges, hospitals, museums, zoos, symphony orchestras, foundations, and even churches. Also, in an increasingly smaller world, many marketers are now connected globally with their customers, marketing partners, and competitors. Finally, today’s marketers are also reexamining their ethical and societal responsibilities. Marketers are being called on to take greater responsibility for the social and environmental impacts of their actions. Pulling it all together, as discussed throughout the chapter, the major new developments in marketing can be summed up in a single concept: engaging customers and creating and capturing customer value. Today, marketers of all kinds are taking advantage of new opportunities for building value-laden relationships with their customers, their marketing partners, and the world around them. Key terms Objective 1-1 Objective 1-3 Marketing (p 29) Marketing management (p 34) production concept (p 35) product concept (p 35) Selling concept (p 36) Marketing concept (p 36) Societal marketing concept (p 37) Customer satisfaction (p 39) Customer-engagement marketing (p 41) Consumer-generated marketing (p 42) partner relationship management (p 43) Customer lifetime value (p 44) Share of customer (p 44) Customer equity (p 45) Objective 1-4 Objective 1-5 Customer relationship management (p 38) Customer-perceived value (p 38) Digital and social media marketing (p 47) Objective 1-2 Needs (p 30) Wants (p 30) Demands (p 30) Market offerings (p 31) Marketing myopia (p 31) Exchange (p 33) Market (p 33) ChAptEr 1 | Marketing: Creating Customer Value and Engagement 57 DisCUssiON aND CritiCaL thiNkiNg MyLab Marketing Go to mymktlab.com to complete the problems marked with this icon . Discussion Questions 1-1 Define marketing and outline the steps in the marketing process. (AACSB: Communication) 1-4 Discuss the concept of customer relationship management. Why is it essential that a business incorporates this in its operations? (AACSB: Communication; Reflective Thinking) 1-2 What is marketing myopia? What are the short- and long- term implications for business in this situation? (AACSB: Communication; Reflective Thinking) 1-5 Why is marketing as important for not-for-profit organizations as profit-driven ones? (AACSB: Communication; Reflective Thinking) 1-3 Describe the five different competing marketing orientations that a business organization can adopt to drive its marketing strategy. (AACSB: Communication; Reflective Thinking) Critical thinking Exercises 1-6 Select an FTSE 100 company. How much did the com- pany spend on marketing activities in the most recent year for which data are available? What percentage of sales does marketing expenditure represent for the company? Have these expenditures increased or decreased over the past five years? Write a brief report of your findings. (AACSB: Communication; Analytic Reasoning) relevant? How does it manage its content? (AACSB: Communication; Use of IT; Reflective Thinking) 1-8 Use the internet to search for salary information regarding jobs in marketing in your region. What is the national average salary for five different jobs in marketing? How do the averages compare in different areas of the region? Write a brief report on your findings. (AACSB: Communication; Use of IT; Reflective Thinking) 1-7 Some believe that social marketing is primarily effective only for bigger companies with the time and capacity to manage and update their media content. Choose a local business and evaluate its effectiveness in creating customer engagement. Is the content up-to-date and appLiCatiONs aND CasEs Online, Mobile, and Social Media Marketing The ALS Ice Bucket Challenge In the summer of 2014, people with connections to ALS (Lou Gehrig’s disease) raised awareness of the condition by urging people to post videos of themselves dumping buckets of ice water over their heads and challenge others to do the same. The efforts raised millions of dollars in online donations to the ALS Association for enhanced research and patient services. This realtime marketing campaign generated 17 million videos uploaded to social media platforms from 159 countries. Celebrities posting videos included Will Smith, Bill Gates, Oprah Winfrey, and Mark Zuckerberg. The Ice Bucket Challenge generated 70 billion video views while raising $220 million. The best part? Zero dollars were spent to promote the Ice Bucket Challenge, yet 440 million people saw it. The ALS Association has now turned the wildly successful challenge into an annual social media campaign, bringing back the original Ice Bucket Challenge #EveryAugustUntilACure. For more information, visit www.alsa.org/fight-als/ice-bucketchallenge. 1-9 Real-time marketing is a shift for traditional marketers who can now digitally link brands to important moments in customers’ lives. Explain how real-time marketing was used in the Ice Bucket Challenge. Why was this campaign successful? (AACSB: Communication; Reflective Thinking) 1-10 Create a real-time marketing campaign for a product or service of your choice to create customer engagement using online, mobile, and social media. How would you measure the success of your campaign? (AACSB: Communication; Reflective Thinking) 58 | pArt 1 Defining Marketing and the Marketing Process Marketing Ethics Exaggeration and High Pressure It is a great temptation for manufacturers to exaggerate the benefits of their products on the packaging. Sometimes, the claims are overstated. Businesses want to make bold claims to help them sell more products. Some of the claims are morally wrong, other times they are just “advertising puff.” A business might resort to high-pressurized sales techniques. In other cases they might focus on vulnerable customer groups. Businesses need to make a profit, but is it wrong to try any means to achieve this? Legally, yes it is. 1-11 How would a business begin to frame an ethical marketing process as a template for their activities now and in the future? (AACSB: Communication; Ethical Reasoning) 1-12 What is likely to motivate a business to adopt ethical marketing? (AACSB: Communication; Ethical Reasoning) Marketing by the Numbers Be on the First Page The internet has become a vital marketing medium, and pay-perclick (PPC) is one of the many ways for a business to attract traffic. It is risky, and a business can spend a lot of money, get a lot of visits, but end up with very few actual sales. Search engines allow businesses to buy listings in their search results; they appear next to the non paid organic search results. These spots are sold by auction. If the business bids the most, they get a chance, but only the chance to be ranked first. 1-13 If you bid $1.25 on a key word related to your product and 14,000 people click on your PPC, how much will the search engine charge you? (AACSB: Communication; Analytical Reasoning) 1-14 PPC can be expensive, so why is it popular as a marketing method? (AACSB: Communication; Reflective Thinking) Video Case Eskimo Joe’s Since 1975, Eskimo Joe’s has been a popular watering hole in Stillwater, Oklahoma. Through word of mouth and a popular logo spread via T-shirts, it rapidly became a favorite place to grab a beer for students at Oklahoma State. But what started as a basic beer joint has grown into something much more. When the drinking age changed from 18 to 21 in the 1980s, Eskimo Joe’s had to decide how it would move forward. That challenge helped the company to recognize that its product is much more than just a cold mug of beer. Instead, people flocked to Eskimo Joe’s for the fun atmosphere and customerfriendly service. This realization led to an expansion into different businesses that have now spread the Eskimo Joe’s logo all over the planet. After viewing the video featuring Eskimo Joe’s, answer the following questions: 1-15 1-16 Describe Eskimo Joe’s market offering. 1-17 How does Eskimo Joe’s build long-term customer relationships? What is Eskimo Joe’s value proposition? How does its value proposition relate to its market offering? ChAptEr 1 | Marketing: Creating Customer Value and Engagement 59 Company Case Argos: Creating Customer Value amid Change and Turbulence One of the biggest news items in the UK retail sector recently was the £1.4 billion acquisition in September 2016, of Home Retail Group, the parent company of Argos, by Sainsbury’s, one of the leading British supermarkets. Unsurprisingly, the highlights of this business decision are the huge sum involved and the associated risk in the complex marketing environment. So why was this considered a good decision, especially after the British referendum in favor of leaving the European Union (EU) and the uncertainty in the business environment that follows? The key answers to these questions are not hard to find. The deal makers can see the gold in the track record of the organization. Argos, the leading UK digital retailer, was established in July 1973 as the United Kingdom’s first catalog retailer with only 17 stores; it now has over 750 stores throughout the United Kingdom and the Republic of Ireland, serving over 130 million customers annually. Approximately one-third of the UK population shops in an Argos store annually, buying one thing or another. Even before the agreement on the takeover deal, 10 Argos outlets that opened in Sainsbury’s stores already had a record 30 percent sales increase, and the takeover is expected to result in annual savings of £160 million. As part of its attempts to create value for its customers, Argos has undergone remarkable changes in the 21st century. The design makeover has turned the tatty faux-wooden floorboards and display cabinets into tiled floors and LED display boards for easy shopping. It is thus not surprising that Argos was valued so highly by Sainsbury’s. Ultimately, the plan is to have an Argos center at every Sainsbury’s branch to ensure convenience in shopping for customers. While the in-stores catalogs are still in use at Argos stores, the centers have been radically transformed into hi-tech outlets and “digital” stores. The idea behind all these changes is that the customers of today are more informed and deserve the best. Argos’s approach is to ensure that value creation for customers permeates every phase of the organization’s activities. Catalog Retailing Although Argos is noted for a number of things in the British retail sector, its core hallmark is its consistent focus on the satisfaction of the needs and wants of its target customers. This is not only ensured through the thousands of products that it offers its customers both online and across its various stores in the country, but also in all the phases that encapsulate the customers’ experience in their transactions, from placing the order to receiving the items. Argos’s focus on catalog retailing is based on its quest to satisfy customers through convenience. The idea is to make it easier for customers to meet their needs, especially as the company deals in a variety of products. The shopper checks the catalog, places the order, and receives it shortly afterwards. So, its twice-yearly catalog and internet site aid the way the establishment creates value for its customers. Market Offerings The assortment of products offered by Argos to its various customers across the country illustrates the core value that it offers its target market. The organization is noted for offering a wide range of products that are categorized on its websites to make shopping easy for its online visitors. For example, customers who are interested in products such as TVs, telephones, or computers would simply need to click on the “Technology” link to be ushered into the world of these gadgets. Similarly, there are categories for “Home and Garden,” “Sports and Leisure,” “Clothing,” “Health and Beauty,” “Toys,” and many more. One critic noted that Argos’s focus is on being a “working class” brand, implying that their customers are mainly less well-off. However, former CEO John Walden disagrees with this customer stereotype and insists that while this may have been true five years earlier, things have now changed at Argos; the company now targets all demographics. Beyond the rhetoric of who their customers actually are is the issue of keeping those customers satisfied with seasoned products and excellent customer service. This has been strategically identified by John Rogers, the new CEO of Argos, as the cornerstone of his approach in marketing after taking over the job. The core objective is to ensure not only that the customers are encouraged to shop at Argos but that they are motivated to stay loyal even when the competition tries to entice them. For example, Tesco has a strong plan in place to price-match best-selling toys by the end of this year. This is clearly in direct competition with Argos. The retailer’s mainstay is the continuous effort to clearly outperform competitors like Tesco and Amazon in meeting customers’ needs and addressing their concerns. Same-Day Delivery As the retail environment in the United Kingdom becomes more competitive, Argos also continues to explore various means of maintaining and improving its market share. To this end, the management has set a long-term goal of having 250 Argos collection points that will be located within Sainsbury’s to ensure that customers get their ordered items more quickly than before the acquisition of the firm—which, according to Mike Coupe, the CEO of Sainsbury’s, was meant to give customers more choice in their purchasing decisions and make life easier for them. In 2015, Argos introduced a striking and daring policy—its “Same-Day Delivery” service. As the name suggests, a customer could now order the desired products and get them immediately in the store or delivered at home on the same day through a “fast tracked” option. This quickly became a very popular strategy and was considered a good gesture among the customers. It not only reinforced loyalty among the organization’s current clientele but also wooed others keen on efficiency in the marketplace. As the company experienced increase in demand, it also realized that this would require a commensurate increase in resources, hence the recent increase in its delivery vans to about 800 and the 30,000 people employed in different areas of the organization, including customer service, packaging, and order delivery, across its 845 stores. In the run up to Christmas sales in 2016, Argos reportedly hired several additional seasonal staff, adding to the current number. Digital Retailing Developments in the world of technology are transforming businesses in various sectors, and retailing is no exception. Based on data from the food and grocery research charity IGD, 5 percent of grocery sales in the United Kingdom are done online. This small figure is due to a variety of challenges associated with this transaction mode, but this is very likely to improve over time. As a key organization in the retail sector in the digital age, Argos is also working toward transforming itself into a “click and collect” business. Toward the end of 2012, Argos announced its mission to rediscover itself as a digital retail leader. John Coombe, the chairman of Home Retail, Argos’s parent organization, remarked that Argos is not only an icon of the British high street but also a leading player in the digital transformation 60 | pArt 1 Defining Marketing and the Marketing Process of UK retailing business. In June 2016, a report indicated that Argos’s Internet sales had gone up by 16 percent, the strongest record in three years. Around the time Argos was being sold to Sainsbury’s, John Walden debunked the view that being digital would be like operating a traditional retailing outfit with just one store. According to him, it would still involve hiring people, bringing stock in, expanding, and upgrading. Around 60 percent of Argos’s sales are now done as online transactions, which is also closely linked to the fact that the organization is the first retailer in the United Kingdom to make over £1 billion through mobile payments. Its hefty catalogs are being replaced by iPad-style terminals to facilitate order processing. All of this has helped Argos make a seamless entry into the digital world in retail business. Special Offers Argos’ commitment to delighting its customers is not only evident in the increasing range of products it offers its customers and the sleek distribution system, but also in the various promotional programs it offers. Some of these are offered to existing loyal customers through the Argos loyalty card scheme while others are to attract new customers. Periodically, it sends its customers various promotional offers, money-off vouchers, and other financing offers. When Black Friday hit the UK high street and its public awareness grew, Argos was quick to explore the opportunity through various special price-cut offers that also attracted a response from many new and existing customers. About 12 million customers reportedly visited the company’s website on the 2015 Black Friday, resulting in 18 purchases in a second. The expectation for 2016 is that around 38 percent more sales than what was recorded for the previous year will have been made. John Rogers also estimates that at least 70 percent of its orders will be taken online on Black Friday while normal trading will account for 50 percent. The Argos gift voucher promotions, which are managed by the company’s affiliates, offer its customers something to fall back on during their various subsequent purchases. The periodic product-specific special offers on certain products like furniture, computers, and TVs also constitute part of the package that keeps Argos’ stores busy over the years, and with this, it generates customer value profitably. Argos and Society It is tempting to conclude that Argos’s focus on maximizing customer value is predominantly driven by profit. However, evidence suggests that the company does believe in taking responsibility for the environment, improving the local communities, and pursing a number of initiatives that revolve around long-run benefits for customers and society. Argos is focused on reducing the amount of resources used in its operations and the CO2 (carbon dioxide) emissions it produces. It clearly communicates its green credentials on its web pages. Apart from its catalog, which is 100 percent recyclable, it sources the paper it uses from sustainably managed forests and encourages customers to recycle old catalogs in their possession as these have proven useful to newspaper print manufacturers. According to the firm, it has already been able to recycle 91 percent of waste from the business, had a 9 percent reduction in its carbon footprint, ensured a 35 percent reduction in the waste sent to landfill, and has established a goal to reduce its CO2 emission per square foot by 40 percent by the year 2020. Argos’s impacts in the local community are also notable: it supports various charities and other related organizations, and it specifically chose Macmillan Cancer Support as its charity of the year from 2015 to 2017. Argos has shown that it is quite possible to create value for customers and still build relationships with stakeholders. Questions for Discussion 1-18 To what extent do you think the acquisition of Argos by Sainsbury’s resulted in delivering superior value to customers? 1-19 How is the concept of share of customer illustrated in the case study? 1-20 To what extent would you agree with the claim that Argos’s marketing management orientation is a marketing concept? Justify your standpoint with relevant points from the case study. 1-21 What are the key actions taken by Argos that show that the organization is following the changing marketing landscape? 1-22 In view of the stiff competition in the UK retail sector, suggest various ways by which Argos could continue to provide better value to its customers. Sources: Argos “About Argos,” Affiliate Program, http://www.argosaffiliates.co.uk/blog/resources/about-argos; Argos, “Welcome to Argos, Part of Sainsbury’s”, http://www.argos.co.uk/static/StaticDisplay/ includeName/AboutArgos.htm; Argos, “Our History: A Major British Company”, https://argosforbusiness.co.uk/about-us/story; S. Farrell, “Argos Owner Home Retail Backs Sainsbury’s £1.4bn Takeover Bid,” The Guardian, April 1, 2016, https://www.theguardian.com/business/2016/apr/01/home-retail-backs-sainsburys-argos-takeoverbid; A. Armstrong, “Argos Exec John Walden: ‘When I First Joined, People Didn’t Think Argos Had a Future At All’,” The Telegraph, August 20, 2016, http://www.telegraph.co.uk/business/2016/08/20/ sunday-interview-john-walden---when-i-first-joined-people-didnt; M. Price, “Further Argos Integration Promised by Sainsbury,” ShopSafe, November 11, 2016, http://www.shopsafe.co.uk/news/further-argosintegration-promised-by-sainsburys/11725; G. 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Crouch, “Early Christmas Present: Argos Creates 10,000 Jobs in Time for Christmas,” The Sun, September 29, 2016, https://www. thesun.co.uk/news/1879858/argos-creates-10000-jobs-in-time-forchristmas; J. Easton, “What the Argos-Sainsbury’s Deal Means for the Channel,” PCR, September 12, 2016, http://www.pcr-online.biz/news/ read/what-the-argos-sainsbury-s-deal-means-for-the-channel/038698; S. Butler, “Argos Boss Plans Whirlwind Shop Four to Boost Catalogue Retailer,” The Guardian, November 13, 2016, https://www.theguardian. com/business/2016/nov/13/argos-boss-plans-whirlwind-shop-tour-toboost-catalogue-retailer; BBC “Argos Recalls Five Mamas and Papas Car Seat Models,” May 2, 2016, http://www.bbc.co.uk/news/business-36185935; B. Stevens, “Mike Coupe Defends £1.4 Billion Argos Acquisition,” Retail Gazette, October 18, 2016, http://www.retailgazette. co.uk/blog/2016/10/mike-coupe-defends-1-pounds-4-pence-billionargos-aquisition; Argos, “Argos Launches Same-day UK-wide Home Delivery Service,” Post and Parcel, October 7, 2015, http://postandparcel.info/ 68489/news/argos-launches-same-day-uk-wide-home-delivery-service; all websites accessed December 9, 2016. ChAptEr 1 | Marketing: Creating Customer Value and Engagement MyLab Marketing Go to mymktlab.com for the following Assisted-graded writing questions: 1-23 When implementing customer relationship management, why might a business desire fewer customers over more customers? Shouldn’t the focus of marketing be to acquire as many customers as possible? 1-24 Compare and contrast needs, wants, and demands. Which one(s) can marketers influence? 61 Chapter preview 2 Part 1: Defining Marketing and the Marketing Process (Chapters 1–2) Part 2: Understanding the Marketplace and Consumer Value (Chapters 3–6) Part 3: Designing a Customer Value–Driven Strategy and Mix (Chapters 7–17) Part 4: Extending Marketing (Chapters 18–20) Company and Marketing Strategy Partnering to Build Customer Engagement, Value, and Relationships In the first chapter, we explored the marketing process by which companies create value for customers to capture value from them in return. In this chapter, we dig deeper into steps two and three of that process: designing customer value–driven marketing strategies and constructing marketing programs. First, we look at the organization’s overall strategic planning, which guides marketing strategy and planning. Next, we discuss how, guided by the strategic plan, marketers partner closely with others inside and outside the firm to engage customers and create value for them. We then examine marketing strategy and planning—how marketers choose target markets, position their market offerings, develop a marketing mix, and manage their marketing programs. Finally, we look at the important step of measuring and managing marketing return on investment (marketing ROI). First, let’s look at Rolex, an outstanding company and a good marketing strategy story. Rolex met with enormous instant success by focusing on the customer and on product features that are important to them. The company has pursued this customer-driven marketing strategy since its foundation. Along the way, it discovered that good marketing strategy means more than just growth, sales, and profits. It means skillfully engaging customers and creating value for them. At its core, Rolex doesn’t sell just wristwatches; it sells a sentiment of achievement and of belonging to an exclusive club. Rolex: Building Brand equity through a Customer-Driven Marketing Mix I n 1905, in London, Alfred Davis and his brother-in-law watches became synonymous with precision all over the world. Hans Wilsdorf founded Wilsdorf and Davis, the company In 1926, the company took a major step toward developing that would eventually become Rolex SA. Rolex is the single the world’s first waterproof wristwatch, named the “Oyster.” largest luxury watch brand, with estimated 2014 revenues The following year, the watch was worn by Mercedes Gleitze, of $4.6 billion. Although its luxury wrist watches are manufaca young Englishwoman who swam the English Channel. The tured in Switzerland, the company maintains a network of 4,000 watch remained in perfect working order after the 10-hour Rolex-trained watchmakers in over 100 countries. Rolex has set swim, and this event prompted Rolex to use testimonials in up and maintained its pole position in the luxury watch market their advertising strategy to convey the superiority of the brand. through its customer value–driven marketing strategy and by Since then, the Oyster has graced the wrists of personages from focusing on features that have been Winston Churchill to Che Guevara important to its customer base to Eminem. Launched in 1953, the Rolex has established and maintained its since the company was founded. “Submariner” was the first watch pole position as the largest luxury watch Product-wise, Rolex has the guaranteed to be waterproof to a brand on the planet. At its core, Rolex distinction of having many newdepth of 100 meters. In the same to-the-world products launched year, the expedition led by Sir doesn’t sell just wristwatches; it sells a due to its research and developEdmund Hillary was equipped sentiment of achievement and belonging ment as well as manufacture of with the “Oyster Perpetual,” and to an exclusive club. unique and timeless watches. In his team became the first to reach 1910, a Rolex watch was the first the summit of Mount Everest. All wristwatch in the world to receive the Swiss Certificate of of this has made Rolex watches synonymous with precision, Precision, granted by the Official Watch Rating Centre, and in achievement, robustness, and reliability. The design of its prod1914, the Kew Observatory in Great Britain awarded a Rolex ucts went through such minor changes that they are recognizwristwatch a class A precision certificate, which until that point able at first sight, setting the brand apart from its rivals. It has had been reserved exclusively for marine chronometers. Rolex become an outward expression of exclusiveness and of the ChApteR 2 | Company and Marketing Strategy 63 to put across is that customers purchase sentiment of belonging to a select club. Rolex as a statement and as a reward In this sense, wearers get the feeling of for success. belonging to a special group of achievers. In the future, Rolex will face increasDistribution-wise, Rolex has a very ingly fierce competition, particularly in exclusive network consisting of a limited Asia, as competitors search for new ways number of fine jewelry stores in order to to gain market share. The large luxury make the brand and its products look even goods conglomerates such as Louis more exclusive to customers. A crystal Vuitton Moët Hennessy and Compagnie prism indicates that a store is an official Financière Richemont enjoy advantages of Rolex dealer, and the locations selected size and significantly reduced costs from are all in upscale areas with an estabsynergies in advertising and marketing. lished reputation. Its high-end jewelers are Furthermore, these enterprises are also spaced geographically and have to carry a targeting younger customers to generate certain level of inventory, use certain disfurther market potential. However, Rolex play patterns, and place specific levels of has successfully managed to build and enannual local advertising. Thus, Rolex has hance its brand equity and has effectively high market control with minimal service rolex’s endorsements reinforce the generated a distinct perception of the or channel conflict problems, which envalues of the brand—achievement and company and its products that is rooted in ables the company to closely monitor the exclusivity. values such as accuracy, exclusivity, and brand. Rolex strengthens this positioning lee hacker/Alamy Stock Photo robustness. This was accomplished by the strategy by limiting production even as company’s carefully orchestrated customer-driven marketing demand increases. For luxury goods, scarcity in the marketplace mix in concert with constant innovation. The company has also definitely influences value perception, thus increasing demand successfully reacted to their rival’s strategy to target a younger and contributing to long-term appreciation in the end. Rolex does audience by sponsoring more current testimonials in sports, such not have a retail outlet on the internet. Its website has informaas young golf pros Ricky Fowler and Martin Kaymer. tion on the watch lineup and information on dealers in a respecWith similar goals in mind, Rolex has created a fan page on tive region, but it does not serve as a point of purchase, thus Facebook in 2013 that has earned over 5.6 million likes to date, ensuring that it can offer the best possible service and maintain outperforming rivals like Breitling or Cartier. In 2013, Rolex the exclusivity of its brand in terms of its distribution channels. amplified its 30-year sponsorship of Wimbledon with a raft of The pricing strategy that Rolex employs is distinct in its digital content based around the world’s most famous tennis conception and execution. It pursues a premium pricing policy competition. The company used a “scorecard” Facebook app, and sets its prices with little regard to the competition, setting Twitter hashtags, and video content to deeply embed its brand instead the price that others follow. Furthermore, the company into the event experience and start an online dialogue with does not offer any sort of discounts for customers or any sort of consumers. In 2012, the brand started its YouTube channel to price reductions or sales because consumers are willing to pay launch in-house documentaries about topics that matter to the the high prices set by the company. This has been evidenced by brand and its devotees, like deep-sea missions to investigate the fact that even during an economic downturn and faced with the polar ice caps and Himalayan expeditions. As to the cost discounted watches from other brands, the majority of luxury advantage of some of their rivals, Rolex successfully adapted watch shoppers is still looking for a Rolex. its marketing mix strategy by launching its Tudor brand. Priced When it comes to promotion, Rolex uses a number of marsignificantly lower than the classic Rolex wristwatches, the keting communication tools to effectively convey its positioning launch of Tudor has enabled the company to compete with Tag strategy, like print advertising in upmarket publications such as Heuer and other competitors within the accessible luxury marthe Financial Times and Vogue. Sponsorship and testimonials reket and also to target a younger audience. In this respect, the main central to its marketing communications, for the company company ensures a clear distinction between both brands (for chooses people who have achieved something and can reinforce example, by not having any reference to the Tudor brand on the the values of the brand. The sports that the company endorses official Rolex website) to prevent any dilution of the value of are those generally considered upscale, such as golf, equestrithe Rolex brand in the luxury watch market. anism, yachting, and tennis. By tradition, the brand has been In all, its effective and flexible marketing mix strategy, in a partner of the famous Wimbledon tennis tournament since line with its ability to react to a dynamic environment, has en1978, with the Rolex clock prominently placed at the scoreboard abled Rolex to not only build brand equity but also successfully on Centre Court. All promotional tools convey a consistent repel threats from competitors and stand resilient as one of the positioning and message—Rolex purchasers are wealthy, attracworld’s most powerful and enduring brands.1 tive, and active, and lead interesting lives. The image it seeks 64 | pARt 1 Defining Marketing and the Marketing Process Objectives Outline Objective 2-1 explain company-wide strategic planning and its four steps. Company-Wide Strategic Planning: Defining Marketing’s Role Objective 2-2 Discuss how to design business portfolios and develop growth strategies. Designing the Business Portfolio Objective 2-3 (pp 64–66) (pp 66–72) explain marketing’s role in strategic planning and how marketing works with its partners to create and deliver customer value. Planning Marketing: Partnering to Build Customer Relationships Objective 2-4 Describe the elements of a customer value–driven marketing strategy and mix and the forces that influence them. Marketing Strategy and the Marketing Mix Objective 2-5 (pp 72–73) (pp 74–79) List the marketing management functions, including the elements of a marketing plan, and discuss the importance of measuring and managing marketing return on investment. Managing the Marketing Effort and Marketing Return on Investment Author Company-wide strategic Comment planning guides marketing strategy and planning. Like marketing strategy, the company’s broader strategy must also be customer focused. Strategic planning The process of developing and maintaining a strategic fit between the organization’s goals and capabilities and its changing marketing opportunities. (pp 79–84) Company-Wide Strategic Planning: Defining Marketing’s Role Each company must find the game plan for long-run survival and growth that makes the most sense given its specific situation, opportunities, objectives, and resources. This is the focus of strategic planning—the process of developing and maintaining a strategic fit between the organization’s goals and capabilities and its changing marketing opportunities. Strategic planning sets the stage for the rest of planning in the firm. Companies usually prepare annual plans, long-range plans, and strategic plans. The annual and longrange plans deal with the company’s current businesses and how to keep them going. In contrast, the strategic plan involves adapting the firm to take advantage of opportunities in its constantly changing environment. At the corporate level, the company starts the strategic planning process by definFigure 2.1). This mission is then turned ing its overall purpose and mission (see into detailed supporting objectives that guide the entire company. Next, headquarters decides what portfolio of businesses and products is best for the company and how much support to give each one. In turn, each business and product develops detailed marketing and other departmental plans that support the company-wide plan. Thus, marketing planning occurs at the business-unit, product, and market levels. It supports company strategic planning with more detailed plans for specific marketing opportunities. Defining a Market-Oriented Mission An organization exists to accomplish something, and this purpose should be clearly stated. Forging a sound mission begins with the following questions: What is our business? Who is the customer? What do consumers value? What should our business be? These simplesounding questions are among the most difficult the company will ever have to answer. Successful companies continuously raise these questions and answer them carefully and completely. ChApteR 2 FiguRe | 2.1 Steps in Strategic Planning | Company and Marketing Strategy Business unit, product, and market level Corporate level Setting company objectives and goals Defining the company mission Planning marketing and other functional strategies Designing the business portfolio Like the marketing strategy, the broader company strategy must be customer focused. Company-wide strategic planning guides marketing strategy and planning. Mission statement A statement of the organization’s purpose—what it wants to accomplish in the larger environment. Table 2.1 65 Many organizations develop formal mission statements that answer these questions. A mission statement is a statement of the organization’s purpose—what it wants to accomplish in the larger environment. A clear mission statement acts as an “invisible hand” that guides people in the organization. Some companies define their missions myopically in product or technology terms (“We make and sell furniture” or “We are a chemical-processing firm”). But mission statements should be market oriented and defined in terms of satisfying basic customer needs. Products and technologies eventually become outdated, but basic market needs may last forever. For example, social scrapbooking site Pinterest doesn’t define itself as just an online place to post pictures. Its mission is to give people a social media platform for collecting, organizing, and sharing things they love. And Microsoft’s mission isn’t to create the world’s best software, technologies, and devices. It’s to “empower every person and every table 2.1 provides several examples of organization on the planet to achieve more.” product-oriented versus market-oriented business definitions.2 | Product- versus Market-Oriented Business Definitions Company Product-Oriented Definition Market-Oriented Definition Chipotle We sell burritos and other Mexican food. We give customers “Food With Integrity,” served with a commitment toward the long-term welfare of customers and the environment. Facebook We are an online social network. We connect people around the world and help them share important moments in their lives. Home Depot We sell tools and home repair and improvement items. We empower consumers to achieve the homes of their dreams. NASA We explore outer space. We reach for new heights and reveal the unknown so that what we do and learn will benefit all humankind. Revlon We make cosmetics. We sell lifestyle and self-expression; success and status; memories, hopes, and dreams. Ritz-Carlton Hotels & Resorts We rent rooms. We create “The Ritz-Carlton experience”—a memorable stay that far exceeds guests’ already-high expectations. Starbucks We sell coffee and snacks. We sell “The Starbucks Experience,” one that enriches people’s lives one moment, one human being, one extraordinary cup of coffee at a time. Walmart We run discount stores. We deliver low prices every day and give ordinary folks the chance to buy the same things as rich people. “Save Money. Live Better.” 66 | pARt 1 Defining Marketing and the Marketing Process Mission statements should be meaningful and specific yet motivating. Too often, mission statements are written for public relations purposes and lack specific, workable guidelines. Instead, they should emphasize the company’s strengths and tell forcefully how it intends to win in the marketplace. Finally, as we discovered in the chapter-opening Starbucks story, a company’s mission should not be stated as making more sales or profits; profits are only a reward for creating value for customers. Instead, the mission should focus on customers and the customer experience the firm seeks to create. For example, Ritz-Carlton Hotels & Resorts doesn’t see itself as just renting out rooms. It’s on a mission to create “The Ritz-Carlton Experience,” one that “enlivens the senses, instills well-being, and fulfills even the unexpressed wishes and needs of our guests.” Ritz-Carlton follows up this mission with specific steps of service by which every employee can help to turn the mission into reality.3 Setting Company Objectives and Goals The company needs to turn its broad mission into detailed supporting objectives for each level of management. Each manager should have objectives and be responsible for reaching them. For example, most Americans know CVS as a chain of retail pharmacies selling prescription and over-the-counter medicines, personal care products, and a host of convenience and other items. But CVS—recently renamed CVS Health—has a much broader It views itself as a “pharmacy innovation commission. pany,” one that is “helping people on their path to better health.” The company’s motto: “Health is everything.”4 CVS Health’s broad mission leads to a hierarchy of objectives, including business objectives and marketing objectives. CVS Health’s overall business objective is to increase access, lower costs, and improve the quality of care. It does this through the products it sells at its retail pharmacies and by taking a more active role in overall healthcare management through research, consumer outreach and education, and support of health-related programs and organizations. However, such activities are expensive and must be funded through improved profits, so improving profits becomes another major objective for CVS Health. Profits can be improved by increasing sales or by reducing costs. Sales can be increased by improving customer engagement and raising CVS Health’s overall mission is to be a “pharmacy innovation company,” one that is “helping people on their way to better health.” the company’s share of the health-care market. These goals Its marketing strategies and programs must support this mission. then become the company’s current marketing objectives. CVS Caremark Corporation Marketing strategies and programs must be developed to support these marketing objectives. To increase customer engagement, sales, and market share, CVS Health has reshaped and broadened its lines of products and services. For example, it recently stopped selling tobacco products, items not compatible with its “better health” mission. And it has placed CVS MinuteClinic locations in more than 1,000 of its 9,500 stores, providing walk-in medical care for more than 18 million patient visits since 2000. CVS Health has also broadened its range of customer contact activities to include tailored advising to customers managing chronic and specialty health conditions. These are CVS Health’s broad marketing strategies. Each marketing strategy must then be defined in greater detail. For example, the company’s rapidly expanding MinuteClinic services will require more advertising and promotional efforts, and such efforts will need to be spelled out carefully. In this way, CVS Health’s broad mission is translated into a set of specific short-term objectives and marketing plans. Designing the Business Portfolio Guided by the company’s mission statement and objectives, management now must plan its business portfolio—the collection of businesses and products that make up the ChApteR 2 Business portfolio The collection of businesses and products that make up the company. | Company and Marketing Strategy 67 company. The best business portfolio is the one that best fits the company’s strengths and weaknesses to opportunities in the environment. Most large companies have complex portfolios of businesses and brands. Strategic and marketing planning for such business portfolios can be a daunting but critical task. For example, ESPN’s brand portfolio consists of more than 50 business entities, ranging from multiple ESPN cable channels to ESPN Radio, ESPN.com, ESPN The Magazine, and even ESPN Zone sports-themed restaurants. In turn, ESPN is just one unit in the even more complex portfolio of its parent company, The Walt Disney Company. The best business portfolio is the one that best fits the company’s strengths and weaknesses to opportunities in the environment (see Real Marketing 2.1). Business portfolio planning involves two steps. First, the company must analyze its current business portfolio and determine which businesses should receive more, less, or no investment. Second, it must shape the future portfolio by developing strategies for growth and downsizing. Analyzing the Current Business Portfolio portfolio analysis The process by which management evaluates the products and businesses that make up the company. growth-share matrix A portfolio-planning method that evaluates a company’s SBUs in terms of market growth rate and relative market share. The major activity in strategic planning is business portfolio analysis, whereby management evaluates the products and businesses that make up the company. The company will want to put strong resources into its more profitable businesses and phase down or drop its weaker ones. Management’s first step is to identify the key businesses that make up the company, called strategic business units (SBUs). An SBU can be a company division, a product line within a division, or sometimes a single product or brand. The company next assesses the attractiveness of its various SBUs and decides how much support each deserves. When designing a business portfolio, it’s a good idea to add and support products and businesses that fit closely with the firm’s core philosophy and competencies. The purpose of strategic planning is to find ways in which the company can best use its strengths to take advantage of attractive opportunities in the environment. For this reason, most standard portfolio analysis methods evaluate SBUs on two important dimensions: the attractiveness of the SBU’s market or industry and the strength of the SBU’s position in that market or industry. The best-known portfolio-planning method was developed by the Boston Consulting Group, a leading management consulting firm.5 The Boston Consulting Group Approach Using the now-classic Boston Consulting Group (BCG) approach, a company classifies Figure 2.2. On all its SBUs according to the growth-share matrix, as shown in the vertical axis, market growth rate provides a measure of market attractiveness. On the FiguRe | 2.2 The BCG Growth-Share Matrix The company must decide how much it will invest in each product or business (SBU). For each SBU, it must decide whether to build, hold, harvest, or divest. High Market growth rate Question mark Low Under the classic BCG portfolio planning approach, the company invests funds from mature, successful products and businesses (cash cows) to support promising products and businesses in faster-growing markets (stars and question marks), hoping to turn them into future cash cows. Star Cash cow High Dog Low Relative market share Real Marketing 68 | pARt 1 Defining Marketing and the Marketing Process 2.1 red Bull: the Global Market Leader in Energy Drinks Skillfully Manages Its Business Portfolio There’s no question: Coca-Cola and PepsiCo dominate the global beverage industry. So how does a small company breaking into the beverage business compete with such global powerhouses? The best answer: It doesn’t—at least not directly. Instead, it finds a unique market niche and runs where the big dogs don’t. That’s what Red Bull does. When Red Bull first introduced its energy drink in Austria in 1987, few imagined that it would become the 5 billion-dollar-a-year success that it is today. Red Bull found a new beverage niche that the market leaders had overlooked: energy drinks. Although Coca-Cola and PepsiCo have followed Red Bull into the energy drinks market, the company still owns 44 percent of the energy drink category it created. Despite hefty investments, Coca-Cola and PepsiCo are yet to make a dent in the category. This is because Red Bull was first in the market and in defining the new category, but more importantly because of the company’s ability to engender and foster a deep customer loyalty. For example, Red Bull’s Facebook Fan Page has more than 44  million likes, whereas Coca-Cola’s Facebook page for its NOS energy drink only registers 380,000 likes and Pepsi’s Facebook page for Amp only accounts for 48,000 likes, while the Kickstart brand barely even triggers 1,000 likes. Red Bull has energized a market niche with a unique product, brand personality, and marketing approach. Back in 1987, energy drinks simply didn’t exist. Red Bull co-founder Dietrich Mateschitz saw an unfilled customer need. He formulated a new beverage containing a hefty dose of caffeine that packed the right punch, producing unique physical-energy and mentalclarity benefits. To make the new beverage even more distinctive, Mateschitz gave it a unique name: Red Bull. He packaged it in a slim 8.3-ounce (250 ml) blue-and-silver can with a distinct red-and-yellow logo, and tagged it with a $2-per-can price. Thus, a whole new energy drink category was born, with Red Bull as its only player. The unique Red Bull product demanded equally unique brand positioning and personality, a declaration that this was no ordinary beverage. The brand’s first and still red Bull sponsored extreme sports events and athletes who were overlooked by big beverage competitors but were spiking in popularity with red Bull’s target customers. speedpix/Alamy Stock Photo only slogan—“Red Bull Gives You Wings”— communicated the product’s energy-inducing benefits. More important, it tapped into the forces that moved the brand’s narrow target niche: customers seeking to live in the adrenalin-stoked fast lane. Red Bull shunned the big-budget massmedia advertising common in the beverage industry at the time. Instead, it relied on grassroots, high-octane sports and event marketing. It sponsored extreme sports events and athletes who were overlooked by big beverage competitors but were spiking in popularity with Red Bull’s target customers. In the years since, Red Bull has turned event marketing into a science. Today, the brand holds hundreds of events each year in dozens of sports around the world. Each event features off-the-grid experiences designed to bring the high-octane world of Red Bull to its narrow but impassioned community of enthusiasts. But it’s not just about the events; it’s about creating tactile engagements where people can feel, touch, taste, and live the brand face-to-face rather than simply reading about or watching it. Red Bull doesn’t just sponsor an event—it is the event. One example of Red Bull’s niche marketing genius is the Red Bull Stratos project, which set records for consumer brand engagement. Felix Baumgartner’s dive from space fit perfectly with Red Bull’s brand message. More than 8 million people watched the event live on 40 TV stations and 130 digital channels. Red Bull’s niche marketing engages customers in a way that big-budget traditional marketing by competitors like Coca-Cola or Pepsi can’t. For example, within 40 minutes of posting photos of Baumgartner’s jump, Red Bull’s Facebook page gained almost 216,000 likes, 10,000 comments, and over 29,000 shares. On Twitter, half of the worldwide trending topics were related to Red Bull Stratos. By one estimate, 90 million people worldwide followed the campaign on social media, creating 60 million trusted brand impressions. Since its introduction, Red Bull has invested deeply in building the brand, spending around 40 percent of revenue on marketing and promotion. As a comparison, Coca-Cola spends 9 percent. As to its product portfolio, the company had one product to focus on until 2003, when a sugar-free version was added. On March 24, 2008, Red Bull introduced “Simply Cola,” or “Red Bull Cola.” In the summer of 2009, the Red Bull Energy Shots were introduced globally. This is a small version of the regular drink. ChApteR 2 Red Bull also owns and operates a number of lifestyle magazines, covering issues such as motor racing, celebrity gossip, and football. In addition, the company has established a “Red Bull Music Academy,” the music label “Red Bull Records,” several “Red Bull Music Studios,” “Red Bull Music Academy Radio,” and even mobile phone service operations branded “Red Bull Mobile” in a number of nations. In fact, the company can be found in a number of business sectors, from TV broadcasting to youth academies and football clubs. The company has thus diversified into other businesses that have synergy with its brand image. Red Bull today has become a close-knit brand community that engages customers with both products and absorbing brand content. Beyond its products, Red Bull produces a steady stream of event and social media content that engages and entertains brand fans. During the last few years, for example, Red Bull’s Media House unit has filmed movies, signed a deal with NBC for a show called Red Bull Signature Series, developed realityTV ideas with big-name producers, become one of YouTube’s biggest partners in publishing original content, and loaded its own web and mobile sites with unique content features. Werner Brell, who heads the Red Bull Media House Unit, stated that all of Red Bull’s events have been put on film or photographed. The goal is to be able to tell engaging stories. Since its early start, Red Bull has created a business portfolio which best fits the | Company and Marketing Strategy 69 company’s strengths and weaknesses to opportunities in the external environment. By focusing on a niche and mainly one product only, the company displays what successful business portfolio management in the form of niche marketing is all about—a well-defined brand engaging a focused customer community with meaningful brand relationships that even larger and more resourceful competitors can’t crack. Through smart niche and business portfolio management, Red Bull has given its customers—and itself— new wings and a whole new shot of energy. Sources: Travis Hoium, “Coke and Pepsi Up against a Young Monster—and Losing,” Daily Finance, March 26, 2013, http://www.dailyfinance.com/on/coke-pepsi-monster-beverage-energy-drinks/; Janean Chun, “Bull Stratos May Change Future of Marketing,” Huffington Post, October 15, 2012, http://www.huffingtonpost.com/2012/10/15/redbull-Stratos-marketing_n_1966852.html; Brian Kotlyar, “7 Social Campaign Insights from Red Bull Stratos,” DG Blog, October 23, 2012, http://dachisgroup.com/2012/10/7-social-campaign-insights-from-redbull-stratos//; Teresa Iezzi, “Red Bull Media House,” Fast Company, March, 2013, http://www.fastcompany.com/most-innovative-companies/ 2012/red-bull-media-house; and http://www.redbull.com/us/en, all Internet sources accessed October 2015. horizontal axis, relative market share serves as a measure of company strength in the market. The growth-share matrix defines four types of SBUs: 1. Stars. Stars are high-growth, high-share businesses or products. They often need heavy investments to finance their rapid growth. Eventually their growth will slow down, and they will turn into cash cows. 2. Cash cows. Cash cows are low-growth, high-share businesses or products. These established and successful SBUs need less investment to hold their market share. Thus, they produce a lot of the cash that the company uses to pay its bills and support other SBUs that need investment. 3. Question marks. Question marks are low-share business units in high-growth markets. They require a lot of cash to hold their share, let alone increase it. Management has to think hard about which question marks it should try to build into stars and which should be phased out. 4. Dogs. Dogs are low-growth, low-share businesses and products. They may generate enough cash to maintain themselves but do not promise to be large sources of cash. The 10 circles in the growth-share matrix represent the company’s 10 current SBUs. The company has two stars, two cash cows, three question marks, and three dogs. The area of each circle is proportional to the SBU’s dollar sales. This company is in fair shape, although not in good shape. It wants to invest in the more promising question marks to make them stars and maintain the stars so that they will become cash cows as their markets mature. Fortunately, it has two good-sized cash cows. Income from these cash cows will help finance the company’s question marks, stars, and dogs. The company should take some decisive action concerning its dogs and its question marks. Once it has classified its SBUs, the company must determine what role each will play in the future. It can pursue one of four strategies for each SBU. It can invest more in the business unit to build its share. Or it can invest just enough to hold the SBU’s share at the current level. It can harvest the SBU, milking its short-term cash flow regardless of the long-term effect. Finally, it can divest the SBU by selling it or phasing it out and using the resources elsewhere. As time passes, SBUs change their positions in the growth-share matrix. Many SBUs start out as question marks and move into the star category if they succeed. They later become cash cows as market growth falls and then finally die off or turn into dogs toward the end of the life cycle. The company needs to add new products and units continuously so that some of them will become stars and, eventually, cash cows that will help finance other SBUs. 70 | pARt 1 Defining Marketing and the Marketing Process Problems with Matrix Approaches. The BCG and other formal methods revolutionized strategic planning. However, such centralized approaches have limitations: They can be difficult, time consuming, and costly to implement. Management may find it difficult to define SBUs and measure market share and growth. In addition, these approaches focus on classifying current businesses but provide little advice for future planning. Because of such problems, many companies have dropped formal matrix methods in favor of more customized approaches that better suit their specific situations. Moreover, unlike former strategic planning efforts that rested mostly in the hands of senior managers at company headquarters, today’s strategic planning has been decentralized. Increasingly, companies are placing responsibility for strategic planning in the hands of cross-functional teams of divisional managers who are close to their markets. In this digital age, such managers have rich and current data at their fingertips and can adapt their plans quickly to meet changing conditions and events in their markets. Portfolio planning can be challenging. For example, consider GE, the giant $117 billion industrial conglomerate operating with a broad portfolio of products in dozens of consumer and business markets:6 Most consumers know GE for its home appliance and lighting products, part of the company’s GE Lighting unit and former GE Appliances unit. But that’s just the beginning for GE. Other company units—such as GE Transportation, GE Aviation, GE Energy Connections, GE Power, GE Oil & Gas, GE Healthcare, and others—offer products and services ranging from jet engines, diesel-electric locomotives, wind turbines, and off-shore drilling solutions to aerospace systems and medical imaging equipment. GE Capital offers a breadth of financial products and services. However, in recent years, GE has been dramatically shifting its vast portfolio away from consumer products and financial services toward the goal of becoming a more focused “industrial infrastructure company,” one that’s on a mission to “invent the next digital industrial era, to build, move, power, and cure the world.” Currently, less than 8 percent of GE’s annual revenues come from consumer products, and that percentage continues to dwindle. The company is now in the midst of selling off its huge GE Capital financial services arm, and it recently sold its entire GE Appliances division to Haier. Such portfolio decisions have huge implications for the company’s future. For example, prior to the sale of its appliances unit, GE’s appliance and lighting businesses Managing the business portfolio: Managing GE’s broad portfolio of alone generated more than $8.8 billion in annual revenues, businesses and its mission to “invent the next digital industrial era, to build, more than the total revenues of companies such as JetBlue, move, power, and cure the world” requires plenty of skill and lots of GE’s Netflix, Harley-Davidson, or Hershey. Thus, successfully famous “Imagination at work.” this huge GE turbine weighs as much as a managing GE’s broad portfolio takes plenty of managefully loaded Boeing 747 and can generate the power needed to supply more ment skill and—as GE’s long-running corporate slogan than 680,000 homes. suggests—lots of “Imagination at work.” GE Developing Strategies for Growth and Downsizing product/market expansion grid A portfolio-planning tool for identifying company growth opportunities through market penetration, market development, product development, or diversification. Beyond evaluating current businesses, designing the business portfolio involves finding businesses and products the company should consider in the future. Companies need growth if they are to compete more effectively, satisfy their stakeholders, and attract top talent. At the same time, a firm must be careful not to make growth itself an objective. The company’s objective must be to manage “profitable growth.” Marketing has the main responsibility for achieving profitable growth for the company. Marketing needs to identify, evaluate, and select market opportunities and lay down strategies for capturing them. One useful device for identifying growth opportuFigure 2.3.7 We apply it nities is the product/market expansion grid, shown in 8 here to performance sports apparel maker Under Armour. Less than 20 years ago, Under Armour introduced its innovative line of comfy, moisture-wicking performance shirts and shorts with the mission “to make all athletes better through passion, design, and the relentless pursuit of innovation.” Since then, it has grown at a torrid pace. In just the past five years, Under Armour’s sales have more than ChApteR 2 FiguRe | 2.3 The Product/Market Expansion Grid Companies can grow by developing new markets for existing products. For example, Under Armour recently stepped up its marketing to women consumers and is expanding rapidly in international markets. | Company and Marketing Strategy Existing products New products Existing markets Market penetration Product development New markets Market development Diversification 71 Through diversification, companies can grow by starting or buying businesses outside their current product/markets. For example, Under Armour has entered the digital personal health and fitness market by acquiring three fitness app companies. doubled, making it the nation’s second-best-selling apparel brand behind Nike. Looking forward, the company must look for new ways to keep growing. First, Under Armour might consider whether the company can achieve deeper market penetration—making more sales in its current product lines and markets. It can spur growth through marketing mix improvements—adjustments to its product design, advertisMarket development ing, pricing, and distribution efforts. For example, Under Armour offers an ever-increasing Company growth by identifying and range of styles and colors in its original apparel lines. And it recently boosted its spending developing new market segments for on advertising and professional athlete and team endorsements by 35 percent over previous current company products. years. The company has also added direct-to-consumer distribution channels, including its product development own retail stores and sales websites. Direct-to-consumer sales have tripled over the past eight Company growth by offering modified or years and now account for some 30 percent of total revenues. new products to current market segments. Second, Under Armour might consider possibilities for market development—identifying and developing new markets for its current products. Under Armour can review Diversification For instance, the company recently stepped up its marketing to new demographic markets. Company growth through starting up women consumers, with new products and a highly acclaimed $15 million women-focused or acquiring businesses outside the promotion campaign called “I Will What I Want.” Under Armour can also pursue new geocompany’s current products and markets. graphical markets. For example, the brand is rapidly making a name for itself in international markets, including Japan, Europe, Canada, and Latin America. It recently opened its first-ever brand store in China. Although Under Armour’s international sales grew 70 percent last year, they still account for only 12 percent of total sales, leaving plenty of room for international growth. Third, Under Armour can consider product development—offering modified or new products to current markets. For example, the company added athletic shoes to its apparel lines in 2006, and it continues to introduce innovative new athletic-footwear products, such as the recently added Under Armour SpeedForm line. Sneaker sales rose 44 percent last year yet still account for only about 13 percent of total sales, again leaving plenty of growth potential. Finally, Under Armour can consider diversification—starting up or buying businesses outside of its current products and markets. For example, the company recently expanded into the digital personal health and fitness tracking market by acquiring three fitness app companies—MapMyFitness, MyFitnessPal, and Endomondo. It has also partnered with IBM to add artificial fitness tracking technologies that connect fitness, sleep, and nutrition to its products and bind consumers to the brand via technology and services rather than just apparel. Under Armour might also consider moving into nonperforStrategies for growth: Under armour has grown at a blistering rate under mance leisurewear or begin making and marketing its multipronged growth strategy. In recent years, the brand has stepped Under Armour fitness equipment. When diversifyup its marketing to women, as in its highly acclaimed “I Will” advertising campaign. ing, companies must be careful not to overextend their brands’ positioning. UndEr ArmoUr, InC. Market penetration Company growth by increasing sales of current products to current market segments without changing the product. 72 | pARt 1 Defining Marketing and the Marketing Process Companies must develop not only strategies for growing their business portfolios but also strategies for downsizing them. There are many reasons that a firm might want to abandon products or markets. A firm may have grown too fast or entered areas where it lacks experience. The market environment might change, making some products or markets less profitable. For example, in difficult economic times, many firms prune out weaker, less-profitable products and markets to focus their more limited resources on the strongest ones. Finally, some products or business units simply age and die. When a firm finds brands or businesses that are unprofitable or that no longer fit its overall strategy, it must carefully prune, harvest, or divest them. For example, over the past several years, P&G has sold off dozens of major brands—from Crisco, Folgers, Jif, and Pringles to Duracell batteries, Right Guard deodorant, Aleve pain reliever, CoverGirl and Max Factor cosmetics, Wella and Clairol hair care products, and its Iams and other pet food brands—allowing the company to focus on household care and beauty and grooming products. And in recent years, GM has pruned several underperforming brands from its portfolio, including Oldsmobile, Pontiac, Saturn, Hummer, and Saab. Weak businesses usually require a disproportionate amount of management attention. Managers should focus on promising growth opportunities, not fritter away energy trying to salvage fading ones. Author Marketing can’t go it alone Comment in creating customer value. Under the company-wide strategic plan, marketing must work closely with other departments to form an effective internal company value chain and with other companies in the marketing system to create an external value delivery network that jointly serves customers. Planning Marketing: Partnering to Build Customer Relationships The company’s strategic plan establishes what kinds of businesses the company will operate and its objectives for each. Then, within each business unit, more detailed planning takes place. The major functional departments in each unit—marketing, finance, accounting, purchasing, operations, information systems, human resources, and others—must work together to accomplish strategic objectives. Marketing plays a key role in the company’s strategic planning in several ways. First, marketing provides a guiding philosophy—the marketing concept—that suggests the company strategy should revolve around creating customer value and building profitable relationships with important consumer groups. Second, marketing provides inputs to strategic planners by helping to identify attractive market opportunities and assessing the firm’s potential to take advantage of them. Finally, within individual business units, marketing designs strategies for reaching the unit’s objectives. Once the unit’s objectives are set, marketing’s task is to help carry them out profitably. Customer engagement and value are the key ingredients in the marketer’s formula for success. However, as noted in Chapter 1, although marketing plays a leading role, it alone cannot produce engagement and superior value for customers. It can be only a partner in attracting, engaging, and growing customers. In addition to customer relationship management, marketers must also practice partner relationship management. They must work closely with partners in other company departments to form an effective internal value chain that serves customers. Moreover, they must partner effectively with other companies in the marketing system to form a competitively superior external value delivery network. We now take a closer look at the concepts of a company value chain and a value delivery network. Partnering with Other Company Departments Value chain The series of internal departments that carry out value-creating activities to design, produce, market, deliver, and support a firm’s products. Each company department can be thought of as a link in the company’s internal value chain.9 That is, each department carries out value-creating activities to design, produce, market, deliver, and support the firm’s products. The firm’s success depends not only on how well each department performs its work but also on how well the various departments coordinate their activities. For example, True Value Hardware’s goal is to create customer value and satisfaction by providing shoppers with the hardware and home improvement products they need at affordable prices along with top-notch customer service. Marketers at the retail-owned cooperative play an important role. They learn what customers need and help the 3,500 independent True Value retailers stock their store shelves with the desired products at competitive prices. They prepare advertising and merchandising programs and assist shoppers ChApteR 2 | Company and Marketing Strategy 73 with customer service. Through these and other activities, True Value marketers help deliver value to customers. However, True Value’s marketers, both at the home office and in stores, need help from the company’s other functions. True Value’s ability to help you “Start Right. Start Here.” depends on purchasing’s skill in developing the needed suppliers and buying from them at low cost. True Value’s information technology people must provide fast and accurate information about which products are selling in each store. And its operations people must provide effective, low-cost merchandise handling and delivery. A company’s value chain is only as strong as its weakest link. Success dethe value chain: these true Value ads recognize that everyone in the organization— pends on how well each group performs from marketing research analyst Jeff alvarez to operations manager tom Statham—must its work of adding customer value and contribute to helping the chain’s customers handle their home improvement projects. they on how the company coordinates the form the foundation for the brand’s “Behind Every Project Is a true Value” positioning. True activities of various functions. True Value and Start right. Start Here. are registered trademarks of True Value Company. The print ads and images are copyrighted works of authorship of True Value Company. Value’s marketing campaign—“Behind Every Project Is a True Value”— recognizes the importance of having everyone in the organization—from in-store managers and employees to home-office operations managers and marketing research analysts— understand the needs and aspirations of the chain’s do-it-yourself customers and help them handle home improvement projects. Ideally, then, a company’s different functions should work in harmony to produce value for consumers. But, in practice, interdepartmental relations are full of conflicts and misunderstandings. The marketing department takes the consumer’s point of view. But when marketing tries to improve customer satisfaction, it can cause other departments to do a poorer job in their terms. Marketing department actions can increase purchasing costs, disrupt production schedules, increase inventories, and create budget headaches. Thus, other departments may resist the marketing department’s efforts. Yet marketers must find ways to get all departments to “think consumer” and develop a smoothly functioning value chain. One marketing expert puts it this way: “Engaging customers today requires commitment from the entire company. We’re all marketers now.”10 Thus, whether you’re an accountant, an operations manager, a financial analyst, an IT specialist, or a human resources manager, you need to understand marketing and your role in creating customer value. Partnering with Others in the Marketing System Value delivery network A network composed of the company, suppliers, distributors, and, ultimately, customers who partner with each other to improve the performance of the entire system in delivering customer value. In its quest to engage customers and create customer value, the firm needs to look beyond its own internal value chain and into the value chains of its suppliers, its distributors, and, ultimately, its customers. Consider McDonald’s. People do not swarm to McDonald’s only because they love the chain’s hamburgers. Consumers flock to the McDonald’s system, not only to its food products. Throughout the world, McDonald’s finely tuned value delivery system delivers a high standard of QSCV—quality, service, cleanliness, and value. McDonald’s is effective only to the extent that it successfully partners with its franchisees, suppliers, and others to jointly create “our customers’ favorite place and way to eat.” More companies today are partnering with other members of the supply chain— suppliers, distributors, and, ultimately, customers—to improve the performance of the customer value delivery network. Competition no longer takes place only between individual competitors. Rather, it takes place between the entire value delivery network created by these competitors. Thus, Ford’s performance against Toyota depends on the quality of Ford’s overall value delivery network versus Toyota’s. Even if Ford makes the best cars, it might lose in the marketplace if Toyota’s dealer network provides a more customer-satisfying sales and service experience. 74 | pARt 1 Defining Marketing and the Marketing Process Author Now that we’ve set Comment the context in terms of company-wide strategy, it’s time to discuss customer value–driven marketing strategies and programs. Marketing strategy The marketing logic by which the company hopes to create customer value and achieve profitable customer relationships. Marketing Strategy and the Marketing Mix The strategic plan defines the company’s overall mission and objectives. Marketing’s role Figure 2.4, which summarizes the major activities involved in managing a is shown in customer-driven marketing strategy and the marketing mix. Consumers are in the center. The goal is to create value for customers and build profitable customer relationships. Next comes marketing strategy—the marketing logic by which the company hopes to create this customer value and achieve these profitable relationships. The company decides which customers it will serve (segmentation and targeting) and how (differentiation and positioning). It identifies the total market and then divides it into smaller segments, selects the most promising segments, and focuses on serving and satisfying the customers in these segments. Guided by marketing strategy, the company designs an integrated marketing mix made up of factors under its control—product, price, place, and promotion (the four Ps). To find the best marketing strategy and mix, the company engages in marketing analysis, planning, implementation, and control. Through these activities, the company watches and adapts to the actors and forces in the marketing environment. We will now look briefly at each activity. In later chapters, we will discuss each one in more depth. Customer Value–Driven Marketing Strategy To succeed in today’s competitive marketplace, companies must be customer centered. They must win customers from competitors and then engage and grow them by delivering greater value. But before it can satisfy customers, a company must first understand customer needs and wants. Thus, sound marketing requires careful customer analysis. Companies know that they cannot profitably serve all consumers in a given market— at least not all consumers in the same way. There are too many different kinds of consumers with too many different kinds of needs. Most companies are in a position to serve some segments better than others. Thus, each company must divide up the total market, choose the best segments, and design strategies for profitably serving chosen segments. This process involves market segmentation, market targeting, differentiation, and positioning. market Segmentation The market consists of many types of consumers, products, and needs. The marketer must determine which segments offer the best opportunities. Consumers can be grouped and served in various ways based on geographic, demographic, psychographic, and behavioral Marketing intermediaries Competitors n atio nt Price io n Customer value and relationships D i ff Promotion er e im M pl ar em ke en ting ta tio n in g nt iti g tin ke ol ar tr M con Suppliers iat Po s on At its core, marketing is all about creating customer value and profitable customer relationships. Ta rg ng eti Seg m e Product Place P Marketing strategy involves two key questions: Which customers will we serve (segmentation and targeting)? and How will we create value for them (differentiation and positioning)? Then the company designs a marketing program—the four Ps—that delivers the intended value to targeted consumers. g tin ke ing ar n M lan p M an arke al tin ys g is FiguRe | 2.4 Managing Marketing Strategies and the Marketing Mix Publics ChApteR 2 Market segmentation Dividing a market into distinct groups of buyers who have different needs, characteristics, or behaviors and who might require separate marketing strategies or mixes. Market segment A group of consumers who respond in a similar way to a given set of marketing efforts. | Company and Marketing Strategy 75 factors. The process of dividing a market into distinct groups of buyers who have different needs, characteristics, or behaviors and who might require separate marketing strategies or mixes is called market segmentation. Every market has segments, but not all ways of segmenting a market are equally useful. For example, Tylenol would gain little by distinguishing between low-income and high-income pain-relief users if both respond the same way to marketing efforts. A market segment consists of consumers who respond in a similar way to a given set of marketing efforts. In the car market, for example, consumers who want the biggest, most comfortable car regardless of price make up one market segment. Consumers who care mainly about price and operating economy make up another segment. It would be difficult to make one car model that was the first choice of consumers in both segments. Companies are wise to focus their efforts on meeting the distinct needs of individual market segments. market Targeting Market targeting Evaluating each market segment’s attractiveness and selecting one or more segments to serve. positioning Arranging for a product to occupy a clear, distinctive, and desirable place relative to competing products in the minds of target consumers. After a company has defined its market segments, it can enter one or many of these segments. Market targeting involves evaluating each market segment’s attractiveness and selecting one or more segments to enter. A company should target segments in which it can profitably generate the greatest customer value and sustain it over time. A company with limited resources might decide to serve only one or a few special segments or market niches. Such nichers specialize in serving customer segments that major competitors overlook or ignore. For example, McLaren sold only 1,653 of its very-high-performance cars last year but at very high prices—such as its 570S model at $180,000 or a made-to-order FI model starting at an eye-popping $980,000. Most nichers aren’t quite so exotic. Profitable low-cost airline Allegiant Air avoids direct competition with larger major airline rivals by targeting smaller, neglected markets and new fliers. Nicher Allegiant “goes where they ain’t.” And small online-search start-up DuckDuckGo thrives among privacy-minded users in the shadows of search giants Google and Microsoft’s Bing (see Real Marketing 2.2). The L’Oréal group serves major segments of the beauty market, and within each segment it caters to many sub segments. L’Oréal targets the larger segments through its major divisions: L’Oreal Luxe, Consumer Products, Professional Products, Active Cosmetics, and the Body Shop. Further within these major divisions, L’Oréal markets various brands that cater to customers of different ages, incomes, and lifestyles. For example, its Consumer Product division sells brands like Garnier, L’Oréal Paris, Maybelline New York, African Beauty Brand, Essie, and NYX Professional Make Up. Similarly, the L’Oreal Luxe division offers more than 15 brands, including Lancôme, Giorgio Armani, Urban Decay, Diesel , and Ralph Lauren. Most companies enter a new market by serving a single segment; if this proves successful, they add more segments. For example, Nike started with innovative running shoes for serious runners. Large companies eventually seek full market coverage. Nike now makes and sells a broad range of sports apparel and equipment for just about anyone and everyone in about every sport. It designs different products to meet the special needs of each segment it serves. market differentiation and Positioning Positioning: the L’Oréal group serves major segments of the beauty market, catering to them through its various brands. rosaIreneBetancourt 4/Alamy Stock Photo After a company has decided which market segments to enter, it must determine how to differentiate its market offering for each targeted segment and what positions it wants to occupy in those segments. A product’s position is the place it occupies relative to competitors’ products in consumers’ minds. Marketers want to develop unique market positions for their products. If a product is perceived to be exactly like others on the market, consumers would have no reason to buy it. Positioning is arranging for a product to occupy a clear, distinctive, and desirable place relative to competing products in the minds of target consumers. Marketers plan positions that distinguish their products from competing brands and give them the greatest advantage in their target markets. BMW promises “Sheer driving pleasure”; Subaru is “Confidence in motion.” Coca-Cola wants you to “Taste the feeling”; Pepsi says “Live for now.” Del Monte is “Bursting with Life”; Cascadian Farm products are “Certified Organic. Guaranteed Delicious.” At Panera, you’ll find “Food as it should be”; at Wendy’s, “Quality Is Our Recipe.” Real Marketing 76 | pARt 1 Defining Marketing and the Marketing Process 2.2 DuckDuckGo: Google’s tiniest, Fiercest Competitor Google dominates U.S. online search with its massive 64 percent market share. Two other giants— Microsoft’s Bing and Yahoo!— combine for another 34 percent of the market. That leaves a precious 2 percent sliver of the market for dozens of other search engines trying to get a foothold. What’s more, Google and the other search giants have deep pockets from their non-search businesses, letting them spend abundantly to hold and grow market share. So how does a small search engine wannabe compete against global powerhouses? The best answer: It doesn’t—at least not directly. Instead, it finds a unique market niche and runs where the big dogs don’t. Enter DuckDuckGo, a plucky search engine start-up that’s carving out its own special market niche. Instead of battling Google and other giants head-on, DuckDuckGo provides a customer benefit that the market leaders can’t—privacy. Then it energizes its unique niche with brand personality and user community. One look at DuckDuckGo’s icon—a quirky bow-tied duck—gives you the sense that, like the small locomotive in the classic children’s story, this might be “the little engine that could.” DuckDuckGo isn’t just surviving in its niche, it’s exploding. The company is still comparatively tiny—it averages about 3 billion searches a year compared with Google’s more than 1.2 trillion. But DuckDuckGo’s daily search volume has surged nearly tenfold in just the past three years, whereas Google’s volume growth has lagged a bit. When Gabriel Weinberg first launched DuckDuckGo eight years ago, most people questioned his sanity. How could a small upstart challenge the likes of mighty Google? But rather than simply mimicking Google, Weinberg went a different direction, developing a quality search engine with a key differentiating feature. DuckDuckGo now positions itself strongly on “Smarter Search. Less Clutter. Real Privacy.” DuckDuckGo focuses only on search. It offers a streamlined, clutter-free, customizable user interface with far fewer sponsored ads. As with other search engines, a DuckDuckGo query returns link-by-link search results based on third-party sources, but the results are filtered and reorganized to reduce spam. And beyond the usual search-result links, for many searches, DuckDuckGo provides direct “Instant Answers” in the form of zero-click information boxes above the search results. “When you do a search, you generally want an answer,” says Weinberg. “It’s our job to try to get an answer.” With Instant Answers, DuckDuckGo can “help you get where you want to go in fewer clicks.” The Instant Answer feature is a good one, so good in fact that it has now been copied by Google and Bing. For example, run a Google search for “davinci” or “how long is the great wall” and along with the familiar list of blue links you’ll get a white box containing a mini-biography of Leonardo Da Vinci or displaying the length of the Great Wall of China (5,500.3 miles) and other interesting facts about it. DuckDuckGo would tell you that its Instant Answers are often better. Its answers rely not just on third-party data sources but also on the deep and diverse knowledge of its active, growing, and loyal community of users and developers. DuckDuckGo’s community provides additional power behind its searches. In a Wikipedia-like fashion, DuckDuckGo users come up with ideas about what the answers should be, suggest sources, and even develop answers themselves. “DuckDuckGo is a search engine driven by community— you’re on the team!” says the company. “We’re not just servers and an algorithm. We’re so much more.” Still, even though DuckDuckGo had Instant Answers long before Google, Google’s response illustrates a typical nicher dilemma. Market leaders usually have huge resources and can quickly copy the start-up’s most popular features. “At any point,” notes one analyst, “the Googles or Facebooks or Apples of the world can just mimic what made you different, slam-dunking your shattered dreams into the waste bin of tech history.” Fortunately for DuckDuckGo, it has one crucial differentiator that the Googles of the world simply can’t mimic. Real privacy. Google’s entire model is built around personalization for customers and behaviorally targeted marketing for advertisers. That requires collecting and sharing data about users and their searches. When you search on Google, the company knows and retains in detail who you are, what you’ve searched for, and when you’ve searched. It then integrates your online identity and data with its services. Niche marketing: DuckDuckGo thrives in the shadows of giant search engine competitors by giving its user community something the Googles of the world can’t mimic—real privacy. duck duck Go, Inc. ChApteR 2 By contrast, DuckDuckGo is specifically designed to be less invasive and less creepy than its competitors. DuckDuckGo doesn’t know who you are. It doesn’t log user IP addresses or use cookies to track users over time or other online locations. Users don’t have accounts. In fact, DuckDuckGo doesn’t even save user search histories. Perhaps most important, when users click on DuckDuckGo’s search results links, the linked websites don’t receive any information generated by the search engine. As one privacy advocate puts it, “DuckDuckGo is a solid search engine that lets you surf the web without leaving behind a bunch of bread crumbs for Uncle Sam or anyone else to follow. . . . The sites you visit are being kept at arm’s length.” So DuckDuckGo has become the preferred search engine for people concerned about online privacy, and that’s a fastgrowing group. “If you look at the logs of people’s search sessions, they’re the most personal thing on the internet,” Weinberg says. “Unlike Facebook, where you choose what to post, with search you’re typing in medical and financial problems and all sorts of other things.” Today, more and more people are thinking about the privacy implications of their search histories. “It was extreme at the time,” says Weinberg of DuckDuckGo’s early privacy positioning. But today, he adds, Differentiation Actually differentiating the market offering to create superior customer value. “It’s become obvious why people don’t want to be tracked.” How does DuckDuckGo make money? Last year, Google made 90 percent of its $74.5 billion of revenue from search-related advertising, and most of that business involved large-scale, behaviorally targeted advertising that relies on the very tracking tools that DuckDuckGo shuns. However, even without tracking users, smaller DuckDuckGo can be profitable. It simply focuses on the other part of Google’s business—delivering contextual search ads based on the topic of the search itself. So when users search for “curved OLED TVs,” DuckDuckGo shows ads and links for TV manufacturers and retailers who’ve paid for the associated key words. Thus, in many ways, DuckDuckGo is David to Google’s Goliath. But unlike David, DuckDuckGo isn’t out to slay the giant. It knows that it can’t compete head-on with | Company and Marketing Strategy 77 the Googles and Bings of the world—it doesn’t even try. Then again, given the depth of consumer engagement and loyalty that DuckDuckGo engenders in its own small corner of the online search market, Google and the other giants may find it difficult to compete with DuckDuckGo for privacy-minded users. DuckDuckGo is currently the nation’s 11thmost-popular search engine based on unique monthly visitors. And as privacy grows in importance, so will DuckDuckGo. That’s what niche marketing is all about—a well-defined brand engaging a focused customer community with meaningful brand relationships that even large and resourceful competitors can’t crack. Smart niching has made DuckDuckGo “Google’s tiniest, fiercest competitor,” says the analyst. “Our vision is simple,” says DuckDuckGo. “To give you great search results without tracking you.” Sources: “comScore Releases February 2016 U.S. Desktop Search Engine Rankings,” March 16, 2016, www. comscore.com/Insights/Rankings/comScore-Releases-January-2016-US-Desktop-Search-Engine-Rankings; “DuckDuckGo Direct Queries per Day,” https://duckduckgo.com/traffic.html, accessed July 2016; John Paul Titlow, “Inside DuckDuckGo, Google’s Tiniest, Fiercest Competitor,” Fast Company, February 20, 2014, www. fastcompany.com/3026698/inside-duckduckgo-googles-tiniest-fiercest-competitor; Susan Adams, “The Founder of DuckDuckGo Explains Why Challenging Google Isn’t Insane,” Forbes, February 19, 2016, www.forbes.com/ sites/forbestreptalks/2016/02/19/the-founder-of-duckduckgo-explains-how-to-get-customers-before-you-have-aproduct-and-why-challenging-google-isnt-insane/#5899487d593c; “Top 15 Most Popular Search Engines—March 2016,” www.ebizmba.com/articles/search-engines, accessed July 2016; and https://duckduckgo.com/about, accessed September 2016. Such deceptively simple statements form the backbone of a product’s marketing strategy. For example, from its founding, Southwest Airlines has positioned itself as “The LUV Airline,” a positioning recently reinforced by the colorful heart in its new logo and plane graphics design. As recent Southwest advertising affirms, “Without a heart, it’s just a machine.” The airline has “always put Heart in everything it does.” In positioning its brand, a company first identifies possible customer value differences that provide competitive advantages on which to build the position. A company can offer greater customer value by either charging lower prices than competitors or offering more benefits to justify higher prices. But if the company promises greater value, it must then deliver that greater value. Thus, effective positioning begins with differentiation—actually differentiating the company’s market offering to create superior customer value. Once the company has chosen a desired position, it must take strong steps to deliver and communicate that position to target consumers. The company’s entire marketing program should support the chosen positioning strategy. Developing an Integrated Marketing Mix Marketing mix The set of tactical marketing tools— product, price, place, and promotion— that the firm blends to produce the response it wants in the target market. After determining its overall marketing strategy, the company is ready to begin planning the details of the marketing mix, one of the major concepts in modern marketing. The marketing mix is the set of tactical marketing tools that the firm blends to produce the response it wants in the target market. The marketing mix consists of everything the firm can do to engage consumers and deliver customer value. The many possibilities can be collected into four groups Figure 2.5 shows the marketing tools under each P. of variables—the four Ps. • Product means the goods-and-services combination the company offers to the target market. Thus, a Ford Escape consists of nuts and bolts, spark plugs, pistons, 78 | pARt 1 Defining Marketing and the Marketing Process headlights, and thousands of other parts. Ford offers several Escape models and dozens of optional features. The car comes fully serviced and with a comprehensive warranty that is as much a part of the product as the tailpipe. • Price is the amount of money customers must pay to obtain the product. For example, Ford calculates suggested retail prices that its dealers might charge for each Escape. But Ford dealers rarely charge the full sticker price. Instead, they negotiate the price with each customer, offering discounts, trade-in allowances, and credit terms. These actions adjust prices for the current competitive and economic situations and bring them into line with the buyer’s perception of the car’s value. • Place includes company activities that make the product available to target consumers. Ford partners with a large body of independently owned dealerships that sell the company’s many different models. Ford selects its dealers carefully and strongly supports them. The dealers keep an inventory of Ford automobiles, demonstrate them to potential buyers, negotiate prices, close sales, and service the cars after the sale. • Promotion refers to activities that communicate the merits of the product and persuade target customers to buy it. Ford spends nearly $2.5 billion each year on U.S. advertising to tell consumers about the company and its many products.11 Dealership salespeople assist potential buyers and persuade them that Ford is the best car for them. Ford and its dealers offer special promotions—sales, cash rebates, and low financing rates—as added purchase incentives. And Ford’s Facebook, Twitter, YouTube, Instagram, and other social media platforms engage consumers with the brand and with other brand fans. An effective marketing program blends the marketing mix elements into an integrated marketing program designed to achieve the company’s marketing objectives by engaging consumers and delivering value to them. The marketing mix constitutes the company’s tactical tool kit for establishing strong positioning in target markets. Some critics think that the four Ps may omit or underemphasize certain important activities. For example, they ask, “Where are services? Just because they don’t start with a P doesn’t justify omitting them.” The answer is that services, such as banking, airline, and retailing services, are products too. We might call them service products. “Where is packaging?” the critics might ask. Marketers would answer that they include packaging as one of many product decisions. All said, as Figure 2.5 suggests, many marketing activities that might appear to be left out of the marketing mix are included under one of the four Ps. The issue is not whether there should be four, six, or ten Ps so much as what framework is most helpful in designing integrated marketing programs. FiguRe | 2.5 The Four Ps of the Marketing Mix Product Variety Quality Design Features Brand name Packaging Services Price List price Discounts Allowances Payment period Credit terms Target customers Intended positioning Promotion Advertising Personal selling Sales promotion Public relations Direct and digital Place Channels Coverage Locations Inventory Transportation Logistics The marketing mix—or the four Ps—consists of tactical marketing tools blended into an integrated program that actually engages target customers and delivers the intended customer value. ChApteR 2 | Company and Marketing Strategy 79 There is another concern, however, that is valid. It holds that the four Ps concept takes the seller’s view of the market, not the buyer’s view. From the buyer’s viewpoint, in this age of customer value and relationships, the four Ps might be better described as the four As:12 Four Ps Four As Product Acceptability Price Affordability Place Accessibility Promotion Awareness Under this more customer-centered framework, acceptability is the extent to which the product exceeds customer expectations; affordability the extent to which customers are willing and able to pay the product’s price; accessibility the extent to which customers can readily acquire the product; and awareness the extent to which customers are informed about the product’s features, persuaded to try it, and reminded to repurchase. The four As relate closely to the traditional four Ps. Product design influences acceptability, price affects affordability, place affects accessibility, and promotion influences awareness. Marketers would do well to think through the four As first and then build the four Ps on that platform. Author So far we’ve focused on Comment the marketing in marketing management. Now, let’s turn to the management. Managing the Marketing Effort and Marketing Return on Investment Managing the Marketing Effort SWOt analysis An overall evaluation of the company’s strengths (S), weaknesses (W), opportunities (O), and threats (T). FiguRe | 2.6 Managing Marketing: Analysis, Planning, Implementation, and Control In addition to being good at the marketing in marketing management, companies also need to pay attention to the management. Managing the marketing process requires the five marFigure 2.6—analysis, planning, implementation, keting management functions shown in organization, and control. The company first develops company-wide strategic plans and then translates them into marketing and other plans for each division, product, and brand. Through implementation and organization, the company turns the plans into actions. Control consists of measuring and evaluating the results of marketing activities and taking corrective action where needed. Finally, marketing analysis provides the information and evaluations needed for all the other marketing activities. marketing Analysis Managing the marketing function begins with a complete analysis of the company’s situation. The marketer should conduct a SWOt analysis (pronounced “swat” analysis), by Analysis Planning Develop strategic plans The first part of the chapter dealt with this—developing company-wide and marketing strategies and plans. Develop marketing op marke plans Implementation and Organization Carry out the plans Control Measure results Evaluate results uate resu Take corrective e correct action We’ll close the chapter by looking at how marketers manage those strategies and plans—how they implement marketing strategies and programs and evaluate the results. 80 | pARt 1 Defining Marketing and the Marketing Process FiguRe | 2.7 SWOT Analysis: Strengths (S), Weaknesses (W), Opportunities (O), and Threats (T) Internal The goal of SWOT analysis is to match the company’s strengths to attractive opportunities in the environment while eliminating or overcoming the weaknesses and minimizing the threats. External S W O T Strengths Internal capabilities that may help a company reach its objectives Weaknesses Internal limitations that may interfere with a company’s ability to achieve its objectives Opportunities External factors that the company may be able to exploit to its advantage Threats Current and emerging external factors that may challenge the company’s performance Positive Hang on to this figure! SWOT analysis (pronounced “swat” analysis) is a widely used tool for conducting a situation analysis. You’ll find yourself using it a lot in the future, especially when analyzing business cases. Negative which it evaluates the company’s overall strengths (S), weaknesses (W), opportunities (O), Figure 2.7). Strengths include internal capabilities, resources, and and threats (T) (see positive situational factors that may help the company serve its customers and achieve its objectives. Weaknesses include internal limitations and negative situational factors that may interfere with the company’s performance. Opportunities are favorable factors or trends in the external environment that the company may be able to exploit to its advantage. And threats are unfavorable external factors or trends that may present challenges to performance. The company should analyze its markets and marketing environment to find attractive opportunities and identify threats. It should analyze company strengths and weaknesses as well as current and possible marketing actions to determine which opportunities it can best pursue. The goal is to match the company’s strengths to attractive opportunities in the environment while simultaneously eliminating or overcoming the weaknesses and minimizing the threats. Marketing analysis provides inputs to each of the other marketing management functions. We discuss marketing analysis more fully in Chapter 3. marketing Planning Through strategic planning, the company decides what it wants to do with each business unit. Marketing planning involves choosing marketing strategies that will help the company attain its overall strategic objectives. A detailed marketing plan is needed for each business, product, or brand. What does a marketing plan look like? Our discussion focuses on product or brand marketing plans. table 2.2 outlines the major sections of a typical product or brand marketing plan. (See Appendix 1 for a sample marketing plan.) The plan begins with an executive summary that quickly reviews major assessments, goals, and recommendations. The main section of the plan presents a detailed SWOT analysis of the current marketing situation as well as potential threats and opportunities. The plan next states major objectives for the brand and outlines the specifics of a marketing strategy for achieving them. A marketing strategy consists of specific strategies for target markets, positioning, the marketing mix, and marketing expenditure levels. It outlines how the company intends to engage target customers and create value in order to capture value in return. In this section, the planner explains how each strategy responds to the threats, opportunities, and critical issues spelled out earlier in the plan. Additional sections of the marketing plan lay out an action program for implementing the marketing strategy along with the details of a supporting marketing budget. The last section outlines the controls that will be used to monitor progress, measure return on marketing investment, and take corrective action. Marketing implementation Turning marketing strategies and plans into marketing actions to accomplish strategic marketing objectives. marketing Implementation Planning good strategies is only a start toward successful marketing. A brilliant marketing strategy counts for little if the company fails to implement it properly. Marketing implementation is the process that turns marketing plans into marketing actions to accomplish ChApteR 2 Table 2.2 | Company and Marketing Strategy 81 | Contents of a Marketing Plan Section Purpose Executive summary Presents a brief summary of the main goals and recommendations of the plan for management review, helping top management find the plan’s major points quickly. Current marketing situation Describes the target market and the company’s position in it, including information about the market, product performance, competition, and distribution. This section includes the following: • A market description that defines the market and major segments and then reviews customer needs and factors in the marketing environment that may affect customer purchasing. • A product review that shows sales, prices, and gross margins of the major products in the product line. • A review of competition that identifies major competitors and assesses their market positions and strategies for product quality, pricing, distribution, and promotion. • A review of distribution that evaluates recent sales trends and other developments in major distribution channels. Threats and opportunities analysis Assesses major threats and opportunities that the product might face, helping management to anticipate important positive or negative developments that might have an impact on the firm and its strategies. Objectives and issues States the marketing objectives that the company would like to attain during the plan’s term and discusses key issues that will affect their attainment. Marketing strategy Outlines the broad marketing logic by which the business unit hopes to engage customers, create customer value, and build customer relationships, plus the specifics of target markets, positioning, and marketing expenditure levels. How will the company create value for customers in order to capture value from customers in return? This section also outlines specific strategies for each marketing mix element and explains how each responds to the threats, opportunities, and critical issues spelled out earlier in the plan. Action programs Spells out how marketing strategies will be turned into specific action programs that answer the following questions: What will be done? When will it be done? Who will do it? How much will it cost? Budgets Details a supporting marketing budget that is essentially a projected profit-and-loss statement. It shows expected revenues and expected costs of production, distribution, and marketing. The difference is the projected profit. The budget becomes the basis for materials buying, production scheduling, personnel planning, and marketing operations. Controls Outlines the controls that will be used to monitor progress, allow management to review implementation results, and spot products that are not meeting their goals. It includes measures of return on marketing investment. strategic marketing objectives. Whereas marketing planning addresses the what and why of marketing activities, implementation addresses the who, where, when, and how. Many managers think that “doing things right” (implementation) is as important as, or even more important than, “doing the right things” (strategy). The fact is that both are critical to success, and companies can gain competitive advantages through effective implementation. One firm can have essentially the same strategy as another yet win in the marketplace through faster or better execution. Still, implementation is difficult—it is often easier to think up good marketing strategies than it is to carry them out. In an increasingly connected world, people at all levels of the marketing system must work together to implement marketing strategies and plans. At John Deere, for example, marketing implementation for the company’s residential, commercial, agricultural, and industrial equipment requires day-to-day decisions and actions by thousands of people both inside and outside the organization. Marketing managers make decisions about target 82 | pARt 1 Defining Marketing and the Marketing Process segments, branding, product development, pricing, promotion, and distribution. They talk with engineering about product design, with manufacturing about production and inventory levels, and with finance about funding and cash flows. They also connect with outside people, such as advertising agencies to plan ad campaigns and the news media to obtain publicity support. The sales force urges and supports independent John Deere dealers and large retailers like Lowe’s in their efforts to convince residential, agricultural, and industrial customers that “Nothing Runs Like a Deere.” marketing department organization The company must design a marketing organization that can carry out marketing strategies and plans. If the company is very small, one person might do all the research, selling, advertising, customer service, and other marketing work. As the company expands, however, a marketing department emerges to plan and carry out marketing activities. In large companies, this department contains many specialists—product and market managers, sales managers and salespeople, market researchers, and advertising and social media experts, among others. To head up such large marketing organizations, many companies have now created a chief marketing officer (or CMO) position. This person heads up the company’s entire marketing operation and represents marketing on the company’s top management team. The CMO position puts marketing on equal footing with other “C-level” executives, such as the chief operating officer (COO) and the chief financial officer (CFO). As a member of top management, the CMO’s role is to champion the customer’s cause—to be the “chief customer officer.” To that end, British Airways even went so far as to rename its top marketing position as Director of Customer Experience.13 Modern marketing departments can be arranged in several ways. The most common form of Marketers must continually plan their analysis, implementation, and marketing organization is the functional organizacontrol activities. tion, under which different marketing activities are Pressmaster/Adobe Photo headed by a functional specialist—a sales manager, an advertising manager, a marketing research manager, a customer service manager, or a new product manager. A company that sells across the country or internationally often uses a geographic organization, assigning sales and marketing people to specific countries, regions, and districts. Companies with many very different products or brands often create a product management organization. For companies that sell one product line to many different types of markets and customers who have different needs and preferences, a market or customer management organization might be best. Large companies that produce many different products flowing into many different geographic and customer markets usually employ some combination of the functional, geographic, product, and market organization forms. Marketing organization has become an increasingly important issue in recent years. More and more, companies are shifting their brand management focus toward customer management—moving away from managing only product or brand profitability and toward managing customer profitability and customer equity. They think of themselves not as managing portfolios of brands but as managing portfolios of customers. And rather than managing the fortunes of a brand, they see themselves as managing customer-brand engagement, experiences, and relationships. Marketing control Measuring and evaluating the results of marketing strategies and plans and taking corrective action to ensure that the objectives are achieved. marketing Control Because many surprises occur during the implementation of marketing strategies and plans, marketers must practice constant marketing control—evaluating results and taking corrective action to ensure that the objectives are attained. Marketing control involves ChApteR 2 | Company and Marketing Strategy 83 four steps. Management first sets specific marketing goals. It then measures its performance in the marketplace and evaluates the causes of any differences between expected and actual performance. Finally, management takes corrective action to close the gaps between goals and performance. This may require changing the action programs or even changing the goals. Operating control involves checking ongoing performance against the annual plan and taking corrective action when necessary. Its purpose is to ensure that the company achieves the sales, profits, and other goals set out in its annual plan. It also involves determining the profitability of different products, territories, markets, and channels. Strategic control involves looking at whether the company’s basic strategies are well matched to its opportunities. Marketing strategies and programs can quickly become outdated, and each company should periodically reassess its overall approach to the marketplace. Author Measuring marketing Comment return on investment has become a major emphasis. But it can be difficult. For example, a Super Bowl ad reaches more than 100 million consumers but may cost more than $4 million for 30 seconds of airtime. How do you measure the return on such an investment in terms of sales, profits, and building customer engagement and relationships? Marketing return on investment (marketing ROi) The net return from a marketing investment divided by the costs of the marketing investment. Measuring and Managing Marketing Return on Investment Marketing managers must ensure that their marketing dollars are being well spent. In the past, many marketers spent freely on big, expensive marketing programs and flashy advertising campaigns, often without thinking carefully about the financial returns on their spending. Their goal was often a general one—to “build brands and consumer preference.” They believed that marketing produces intangible creative outcomes, which do not lend themselves readily to measures of productivity or return. However, those free-spending days have now been replaced by a new era of marketing measurement and accountability. More than ever, today’s marketers are being held accountable for linking their strategies and tactics to measurable marketing performance outcomes. One important marketing performance measure is marketing return on investment (or marketing rOI). Marketing ROI is the net return from a marketing investment divided by the costs of the marketing investment. It measures the profits generated by investments in marketing activities. Marketing ROI can be difficult to measure. In measuring financial ROI, both the R and the I are uniformly measured in dollars. For example, when buying a piece of equipment, the productivity gains resulting from the purchase are fairly straightforward. As of yet, however, there is no consistent definition of marketing ROI. For instance, returns such as engagement, advertising, and brand-building impact aren’t easily put into dollar returns. A company can assess marketing ROI in terms of standard marketing performance measures, such as brand awareness, sales, or market share. Many companies are assembling such measures into marketing dashboards—meaningful sets of marketing performance measures in a single display used to monitor strategic marketing performance. Just as automobile dashboards present drivers with details on how their cars are performing, the marketing dashboard gives marketers the detailed measures they need to assess and adjust their marketing strategies. For example, VF Corporation uses a marketing dashboard to track the performance of its more than 30 lifestyle apparel brands—including Wrangler, Lee, The North Face, Vans, Nautica, 7 For All Mankind, Timberland, and others. VF’s marketing dashboard tracks brand equity and trends, share of voice, market share, online sentiment, and marketing ROI in key markets worldwide, not only for VF brands but also for competing brands.14 Increasingly, however, beyond standard performance measures, marketers are using customer-centered measures of marketing impact, such as customer acquisition, customer engagement, customer experience, customer retention, customer lifetime value, and customer equity. These measures capture not only current marketing performance but also Figure 2.8 views future performance resulting from stronger customer relationships. marketing expenditures as investments that produce returns in the form of more profitable customer relationships.15 Marketing investments result in improved customer value, engagement, and satisfaction, which in turn increase customer attraction and retention. This increases individual customer lifetime values and the firm’s overall customer equity. Increased customer equity, in relation to the cost of the marketing investments, determines return on marketing investment. | 84 pARt 1 Defining Marketing and the Marketing Process FiguRe | 2.8 Marketing Return on Investment Marketing investments Source: Adapted from Roland T. Rust, Katherine N. Lemon, and Valerie A. Zeithaml, “Return on Marketing: Using Consumer Equity to Focus Marketing Strategy,” Journal of Marketing, January 2004, p. 112. Used with permission. Beyond measuring marketing return on investment in terms of standard performance measures such as sales or market share, many companies are using customer relationship measures, such as customer satisfaction, engagement, retention, and equity. These are more difficult to measure but capture both current and future performance. Marketing returns Improved customer value and engagement Increased customer attraction Increased customer retention Cost of marketing investment Increased customer lifetime values and customer equity Marketing return on investment As one chief marketing officer says, “You have to be able to move on to those deeper engagement metrics, which show that for the money that I’m spending, here are the various programs that are working in terms of driving engagement with customers and ultimately driving purchase behavior and revenue.”16 2 Reviewing and Extending the Concepts oBjeCtives Review anD Key teRMs Objectives Review In Chapter 1, we defined marketing and outlined the steps in the marketing process. In this chapter, we examined companywide strategic planning and marketing’s role in the organization. Then we looked more deeply into marketing strategy and the marketing mix and reviewed the major marketing management functions. So you’ve now had a pretty good overview of the fundamentals of modern marketing. Objective 2-1 explain company-wide strategic planning and its four steps. (pp 64–66) Strategic planning sets the stage for the rest of the company’s planning. Marketing contributes to strategic planning, and the overall plan defines marketing’s role in the company. Strategic planning involves developing a strategy for longrun survival and growth. It consists of four steps: (1) defining the company’s mission, (2) setting objectives and goals, (3) designing a business portfolio, and (4) developing functional plans. The company’s mission should be market oriented, realistic, specific, motivating, and consistent with the market environment. The mission is then transformed into detailed supporting goals and objectives, which in turn guide decisions about the business portfolio. Then each business and product unit must develop detailed marketing plans in line with the company-wide plan. Objective 2-2 Discuss how to design business portfolios and develop growth strategies. (pp 66–72) Guided by the company’s mission statement and objectives, management plans its business portfolio, or the collection of businesses and products that make up the company. The firm wants to produce a business portfolio that best fits its strengths and weaknesses to opportunities in the environment. To do this, it must analyze and adjust its current business portfolio and develop growth and downsizing strategies for adjusting the future portfolio. The company might use a formal portfolioplanning method. But many companies are now designing more-customized portfolio-planning approaches that better suit their unique situations. ChApteR 2 Objective 2-3 explain marketing’s role in strategic planning and how marketing works with its partners to create and deliver customer value. (pp 72–73) Under the strategic plan, the major functional departments— marketing, finance, accounting, purchasing, operations, information systems, human resources, and others—must work together to accomplish strategic objectives. Marketing plays a key role in the company’s strategic planning by providing a marketing concept philosophy and inputs regarding attractive market opportunities. Within individual business units, marketing designs strategies for reaching the unit’s objectives and helps to carry them out profitably. Marketers alone cannot produce superior value for customers. Marketers must practice partner relationship management, working closely with partners in other departments to form an effective value chain that serves the customer. And they must also partner effectively with other companies in the marketing system to form a competitively superior value delivery network. Objective 2-4 Describe the elements of a customer value–driven marketing strategy and mix and the forces that influence them. (pp 74–79) Customer engagement, value, and relationships are at the center of marketing strategy and programs. Through market segmentation, targeting, differentiation, and positioning, the company divides the total market into smaller segments, selects segments it can best serve, and decides how it wants to bring value to target consumers in the selected segments. It then designs an integrated marketing mix to produce the response it wants in the target market. The marketing mix consists of product, price, place, and promotion decisions (the four Ps). | Company and Marketing Strategy Objective 2-5 List the marketing management functions, including the elements of a marketing plan, and discuss the importance of measuring and managing marketing return on investment. (pp 79–84) To find the best strategy and mix and to put them into action, the company engages in marketing analysis, planning, implementation, and control. The main components of a marketing plan are the executive summary, the current marketing situation, threats and opportunities, objectives and issues, marketing strategies, action programs, budgets, and controls. Planning good strategies is often easier than carrying them out. To be successful, companies must also be effective at implementation—turning marketing strategies into marketing actions. Marketing departments can be organized in one way or a combination of ways: functional marketing organization, geographic organization, product management organization, or market management organization. In this age of customer relationships, more and more companies are now changing their organizational focus from product or territory management to customer relationship management. Marketing organizations carry out marketing control, both operating control and strategic control. More than ever, marketing accountability is the top marketing concern. Marketing managers must ensure that their marketing dollars are being well spent. In a tighter economy, today’s marketers face growing pressures to show that they are adding value in line with their costs. In response, marketers are developing better measures of marketing return on investment. Increasingly, they are using customer-centered measures of marketing impact as a key input into their strategic decision making. Key terms Objective 2-1 Strategic planning (p 64) Mission statement (p 65) Objective 2-2 Business portfolio (p 67) portfolio analysis (p 67) growth-share matrix (p 67) product/market expansion grid (p 70) Market penetration (p 71) Market development (p 71) 85 product development (p 71) Diversification (p 71) Objective 2-3 Value chain (p 72) Value delivery network (p 73) Objective 2-4 Marketing strategy (p 74) Market segmentation (p 75) Market segment (p 75) Market targeting (p 75) positioning (p 75) Differentiation (p 77) Marketing mix (p 77) Objective 2-5 SWOt analysis (p 79) Marketing implementation (p 80) Marketing control (p 82) Marketing return on investment (marketing ROi) (p 83) 86 | pARt 1 Defining Marketing and the Marketing Process DisCussion anD CRitiCal thinKing MyLab Marketing Go to mymktlab.com to complete the problems marked with this icon . Discussion Questions 2-1 Define strategic planning and briefly describe the four steps that lead managers and the firm through the strategic planning process. Discuss the role marketing plays in this process. (AASCB: Communication) 2-2 Describe how a company’s mission statement and 2-4 Discuss how a new brand manufacturer would go about defining their market segments and then begin to target them. (AACSB: Communication; Reflective Thinking) 2-5 Imagine a marketing department structure for a company you are familiar with and explain how it is organized. (AACSB: Communication; Reflective Thinking) objectives affect the way management plans its business portfolio. (AACSB: Communication; Reflective Thinking) 2-3 Describe the differences between a value chain and a value delivery network. (AACSB: Communication, Reflective Thinking) Critical thinking exercises 2-6 As a student you have individual experiences with your college or university. These may include managing the application process, enrolling, orientation, choosing a major, setting schedules, and many more. Conduct a SWOT analysis for your school from your perspective. Discuss how your SWOT analysis would provide strategic insight for future decisions at your college or university. (AACSB: Communication; Reflective Thinking) ingredients? What about their brand, service, and IMC? (AASCB: Communication) 2-8 Create a mission statement for a nonprofit organization you would be interested in starting. Have another student evaluate your mission statement while you evaluate the other student’s statement, suggesting areas of improvement. (AACSB: Communication; Reflective Thinking) 2-7 Examine the integrated marketing mix of the Japanese clothing brand UNIQLO. What are their key marketing mix appliCations anD Cases Online, Mobile, and Social Media Marketing Google’s (Alphabet’s) Mission Founded in 1998 as an internet search engine, Google’s mission statement remains the same to this day: to “organize the world’s information and make it universally accessible and useful.” Google is certainly successful, with revenues growing from $3.2 billion in 2002 to $74.5 billion in 2015, 90 percent of which comes from advertisers. Google is expanding rapidly into other areas well beyond its search engine, such as self-driving cars, smart contact lenses that measure a person’s blood sugar levels, internet-bearing balloons to create internet hotspots anywhere on earth, and even magnetic nanoparticles to search for disease within the human bloodstream. In fact, Google has innovated into so many diverse new ventures that it recently created a broader organization—a parent holding company called Alphabet—to contain them all. Google/Alphabet has been on a buying frenzy recently, purchasing security, biotech, and robotic companies in a quest to capitalize on the Internet of Things (IoT) phenomenon. Experts predict there will be 25 million connected devices in our homes and workplaces by 2020. Google recently announced its new IoT operat- ing system, dubbed Brillo (after the Brillo scrubbing pad because it is a scrubbed-down version of its Android operating system), targeted to developers of smart products connected to the internet, such as ovens, thermostats, and even toothbrushes. It’s also developed Weave, the corresponding IoT language that will allow smart products to speak to each other. Perhaps one day you will be sitting in your Google/Alphabet self-driving car, streaming the news, checking your blood sugar, and cooling your home by turning down your thermostat on the way home from work. 2-9 Conduct research on Google/Alphabet to learn more about its products and services. Some say the time has come for Google to create a new mission statement. Do you agree? Explain. (AACSB: Communication; Reflective Thinking) 2-10 Create a new mission statement for Google/Alphabet that will take it through the rest of this century. (AACSB: Communication; Reflective Thinking) ChApteR 2 | Company and Marketing Strategy 87 Marketing ethics Predicting the Future In 1966, Time magazine made a prediction about the retail world in 2000. It confidently predicted that remote shopping, although feasible, would never be likely to catch on. Time made this prediction based on the reasoning that women, in particular, like to handle merchandise before they purchase it. Not only was the prediction hugely inaccurate, it was chauvinistic as well. Global online sales are now in excess of $500 billion. It is not only men who spend massive sums online, but also women, in direct contradiction of Time’s prediction. In contrast to this poor prediction, there are cases of articles in the press correctly predicting digital trends in the future, but many predictions still fall short of reality. For example, Robert Metcalf, the inventor of Ethernet, made a prediction in 1995 that, within a year, the internet would spectacularly collapse. In 2007, The New York Times predicted that Twitter would never be any more relevant to modern-day communication than an old-fashioned short-wave radio. Tuning into predictions can be dangerous, but should they really be ignored? 2-11 In some cases, short-term predictions are far more reliable than long-term ones. To what extent should businesses base their long-term planning on the views of “experts”? (AACSB: Communication; Ethical Understanding and Reasoning) 2-12 Business Monitor International is one of the several organizations that seek to predict future trends in sectors, countries, and financial markets. How are these services sold to businesses as legitimate business planning tools? (AACSB: Communication; Reflective Thinking) Marketing by the Numbers Apple vs. Microsoft In 2014, Apple reported profits of more than $50 billion on sales of $182 billion. For that same period, Microsoft posted a profit of almost $30 billion on sales of $88 billion. So Apple is a better marketer, right? Sales and profits provide information to compare the profitability of these two competitors, but between these numbers is information regarding the efficiency of marketing efforts in creating those sales and profits. Appendix 2, Marketing by the Numbers, discusses other marketing profitability measures beyond the return on marketing investment (marketing ROI) measure described in this chapter. Review the Appendix to answer the questions using the following information from the two companies’ incomes statements (all numbers are in thousands): apple Microsoft Sales $182,795,000 $86,833,000 Gross Profit $ 70,537,000 $59,899,000 Marketing Expenses $ 8,994,750 $15,474,000 Net Income (Profit) $ 52,503,000 $27,759,000 2-13 Calculate profit margin, net marketing contribution, marketing return on sales (or marketing ROS), and marketing return on investment (or marketing ROI) for each company. Which company is performing better? (AACSB: Communication; Use of IT; Analytic Thinking) 2-14 Go to Yahoo! Finance (http://finance.yahoo.com/) and find the income statements for two other competing companies. Perform the same analyses for these companies that you performed for the previous question. Which company is doing better overall and with respect to marketing? For marketing expenses, use 75 percent of the company’s reported “Selling General and Administrative” expenses, as not all of the expenses in that category are marketing expenses. (AACSB: Communication; Analytic Reasoning; Reflective Thinking) Video Case Konica Konica Minolta has been in business since 1873. For decades, it was a successful photo company selling cameras, equipment, and supplies primarily to final consumers. But dramatic changes in the marketing environment forced the company to reevaluate its marketing strategy and ultimately to abandon what had been its primary industry. Today, Konica Minolta has a successful business-to-business strategy centered on office equipment and print products for commercial printers. The company has also developed a healthcare and medical group, an optics group, and a division that produces components for mobile phones and televisions. With the advent and growth of social media, Konica Minolta’s marketing strategy continues to evolve. After viewing the video featuring Konica Minolta, answer the following questions: 2-15 2-16 What is Konica Minolta’s mission? 2-17 How has Konica Minolta modified its marketing mix? Are these changes in line with its mission? What market conditions led Konica Minolta to reevaluate its marketing strategy? 88 | pARt 1 Defining Marketing and the Marketing Process Company Case Facebook: Making the World More Open and Connected The world has rapidly gone online, social, and mobile. And no company is more online, social, and mobile than Facebook. In spite of the growing number of social media options, Facebook continues to dominate. In little more than a decade, it has accumulated more than 1.6 billion active monthly users—more than 20 percent of the world’s total population—and some 1.5 billion people now access the network on a mobile device. More than a billion Facebook members already log on daily, and five new Facebook profiles are created every second. In the United States, more collective time is spent on Facebook than on any other website. Together, the Facebook community uploads 350 million photos, “Likes” 4.5 billion items, and shares 4.75 billion pieces of content daily. Having achieved such phenomenal impact in such a short period of time, Facebook’s success can be attributed to tenacious focus on its mission—“to give people the power to share and make the world more open and connected.” It’s a place where friends and family meet, share their stories, display their photos, pass along information, and chronicle their lives. Hordes of people have made Facebook their digital home 24/7. From Simple Things Initially, carrying out this mission was relatively simple. When CEO Mark Zuckerberg and friends launched “thefacebook.com” in 2004, it was for Harvard students only. Still, with its clean design (“No Disneyland, no ‘Live nude girls.’”), the fledgling site attracted a lot of attention when it racked up more than 1,200 registered users by the end of the first day. Within the first month, more than half of Harvard’s undergraduate student body had joined. The massive response demonstrated tremendous untapped demand. At first, the social network grew one university campus at a time. But it wasn’t long before Facebook was open to the public and people everywhere were registering by the millions. As it grew, Facebook’s interface was a work in progress. Features were added and modified in order to appeal to everyone. The network’s growth and development also gave it the ability to target specific kinds of content to well-defined user segments. However, Facebook’s “all things to all people” approach left many users, especially younger ones, visiting Facebook less and shifting time to more specialized competing social networks. To meet that growing threat, Facebook shifted gears from a “one site for all” approach to a multi-app strategy of providing “something for any and every individual.” According to Zuckerberg, “Our vision for Facebook is to create a set of products that help you share any kind of content you want with any audience you want.” As the first move under its multi-app strategy, Facebook paid a then-stunning $1 billion to acquire Instagram, the surging photosharing app. Although Facebook already had its own photosharing features, the Instagram acquisition brought a younger, 27-million-strong user base into the Facebook fold. And rather than incorporating Instagram as just another Facebook feature, Facebook maintained Instagram as an independent brand with its own personality and user base. Instagram and Facebook customers can choose their desired level of integration, including Instagram membership without a Facebook account. “The fact that Instagram is connected to other services beyond Facebook is an important part of the experience,” says Zuckerberg. Not long after the Instagram acquisition, in its quest to add unique new products and user segments, Facebook announced the creation of Creative Labs, a Facebook division charged with developing single-purpose mobile apps. It also unveiled the new division’s first product—Paper, a mobile app that provides easy and personalized access to Facebook’s News Feed. Although the core Facebook mobile app already provided access to this content, Paper let users organize the feed by themes, interests, and sources, serving it all up in a full-screen, distraction-free layout. On the heels of Paper came another stunning Facebook mega-acquisition. Dwarfing its Instagram deal, Facebook paid a shocking $19 billion for standalone messaging app WhatsApp. Facebook’s own Messenger had already grown quickly to 200 million users. But similar to Instagram, WhatsApp immediately gave Facebook something it could not easily build on its own— an independent brand with more than 450 million registered international users, many of whom were not on Facebook. By developing and acquiring such new products and apps, Facebook is doing what it does best—growing its membership and giving its diverse users more ways and reasons to connect and engage. Facebook’s fuller portfolio lets users meet their individual needs within the broadening Facebook family. To the Stratosphere As Facebook develops more reasons for more users to connect and engage, it also pursues technologies that might leave some observers scratching their heads. For example, a few years ago, the social media giant paid $2 billion to acquire Oculus VR, the virtual reality start-up. In the past year, Facebook has also developed its own 360-degree stereoscopic 3D video camera with 17 lenses—a device it calls Facebook Surround360. Why these acquisitions and developments? According to Zuckerberg, it has to do with “first steps.” When Zuckerberg took his first steps, his parents noted the event in his baby book. When one of his cousins first walked some time later, Mom and Dad captured the moment with a photo. When his niece learned to walk, the video camera was rolling. But for his own daughter, Zuckerberg wanted to take it to the next level. “When Max takes her first step, we’ll be able to capture the whole scene, not just write down the date or take a photo or take a little 2D video,” Zuckerber says. “The people we want to share this with . . . can go there. They can experience that moment.” Zuckerberg’s wanting to broadcast his daughter’s first steps as though others were there is just one more example of how Facebook constantly focuses on its central mission—to connect the world. “Over time, people get richer and richer tools to communicate and express what they care about,” says Zuckerberg. Facebook anticipates that this kind of video could lead to an entirely new mode of communication, one that could extend to Facebook’s own Oculus virtual reality headset. As much as 3D virtual reality video sounds like a long shot, it’s easy pickings compared to Facebook’s biggest current initiative. Zuckerberg has been spanning the globe, addressing everyone from global leaders to fellow entrepreneurs and making a case for what he sees as the most critical social endeavor of our time—making the internet a basic human right, like health care or clean water. As he tells it, lack of free and open access to information is the greatest barrier to prosperity for the world’s impoverished. Yet almost 5 billion people are not yet connected to the internet. Zuckerberg and the Facebook team aim to eliminate that barrier by making the internet accessible to all. To this end, Facebook has created its own innovation think tank called the Connectivity Lab. This group will have a satellite ChApteR 2 orbiting above sub-Saharan Africa within a year. But satellites are expensive, so the group is also working on other options. The most promising option is known internally as Aquila—a sleek, boomerang-shaped drone that has the wingspan of a Boeing 737, weighs less than 1,000 pounds, and can to stay aloft at 65,000 feet for months at a time. Soon to be tested, Aquila will receive radio signals from a ground station, relay those signals via lasers to transponders on the ground, and convert the signals to Wi-Fi or 4G networks. Facebook’s vision is to eventually have 10,000 Aquilas flying the friendly skies around planet earth. Giving It All Away Although Facebook spent more than five years building its user base and paying almost no attention to generating income, it is now making up for lost time. In the past five years, Facebook’s revenues have gone viral—from $2 billion to $18 billion, a ninefold increase to its top line. With a 20 percent margin, its bottom line isn’t doing too badly either. And although Facebook has experimented with various ways to generate income, the vast majority of its income comes via tried-and-true online advertising. With all the development of fancy technologies such as drones, lasers, virtual reality, and 3D video, you might think that Facebook intends to diversify into new businesses that could generate cash and profits. But nothing could be further from the truth. In fact, as Facebook launches these and other technologies, it is giving away the designs for free. Years ago when Facebook built its own servers and data centers, it promptly open-sourced the designs and let the world have them for nothing. It did the same with big data analytics tools such as Cassandra and Hadoop. Although that might seem like throwing away money, it’s right in line with Facebook’s mission. Whereas most companies define themselves by a craft, such as making the best consumer electronic gadgets or solving companies’ efficiency problems, Facebook has been built around a single-minded goal of connecting everyone in the world and giving them the tools they need “to share anything and everything in a natural way.” For that reason, Facebook focuses on what it does best— being the best social network. Rather than becoming distracted by developing multiple business units and trying to make money through diversified means, it remains focused on building its user base and treating its core social media products as works in process. To those who view the projects coming out of the Connectivity Lab as unrelated, Zuckerberg points out, “They’re actually incredibly focused in terms of the mission. The real goal is to build the community. A lot of times, the best way to advance the technology is to work on it as a community.” With many companies already working on the very technologies that Facebook is trying to advance, it might seem that Facebook isn’t adding much. But Zuckerberg is impatient, and he feels that the tech world is providing too little, too late. For example, Facebook’s laser drones will be able to shower entire rural | Company and Marketing Strategy areas, villages, and cities with extremely high bandwidth at higher speeds with more economical costs than the systems currently being employed and developed by telecom companies. “We need certain technologies to exist in the world, so we will build those,” says Zuckerberg. “We’re not selling [servers] or cameras or connectivity services. But if no one else is building them, we’re going to.” Whatever its future, Facebook seems to have barely scratched the surface when it comes to fulfilling its mission. Its new multi-app, multi-segment strategy, combined with its massive, closely knit social structure, gives Facebook staggering potential. And moving the world toward internet access for all will help make Facebook’s portfolio of apps and products available to everyone. For years, a popular saying around Facebook has been “We are one percent done with our mission.” These days, those who manage Facebook might concede that they’ve made progress—say, to maybe 2 percent. For skeptics, consider how Facebook got started: It was a few nights after [Zuckerberg] launched the website. He and his computer science buddy were getting pizza and talking. Zuckerberg told his friend that someone was going to build a social network, because it was too important not to exist. But he didn’t guess, back then, that he’d be the guy to do it. There were older people and bigger companies. So why, then, was Zuckerberg the one to build Facebook? “I think it’s because we cared. A lot of times, caring about something and believing in it trumps,” he says. “I couldn’t connect the dots going forward on Facebook from the beginning. To me, that’s a lot of the story of [Facebook’s future] too.” Questions for Discussion 2-18 Is Facebook’s mission statement market oriented? Explain. 2-19 2-20 How is Facebook’s strategy driven by its mission? 2-21 As it moves forward in fulfilling its mission, what challenges does Facebook face in the future? Is it wise for Facebook to give away it technologies for free? Why or why not? Sources: Based on information from Cade Metz, “How Will Zuckerberg Rule the World? By Giving Facebook’s Tech Away,” Wired, April 12, 2016, www.wired.com/2016/04/mark-zuckerberg-giving-away-facebookstech-free/; Jessi Hempel, “Inside Facebook’s Ambitious Plan to Connect the Whole World,” Wired, January 19, 2016, www.wired.com/2016/01/ facebook-zuckerberg-internet-org/; Sarah Kessler, “With Paper, Facebook Stops Trying to Be Everything for Everyone,” Fast Company, January 30, 2014, www.fastcompany.com/3025762/with-paper-facebook-stopstrying-to-be-everything-for-everyone; Josh Constine, “Zuck Says Ads Aren’t the Way to Monetize Messaging,” Techcrunch, February 19, 2014, www .techcrunch.com/2014/02/19/whatsapp-will-monetize-later/; and information from www.facebook.com/facebook/info/?tab=page_info and www .zephoria.com/top-15-valuable-facebook-statistics/, accessed June 2016. MyLab Marketing Go to mymktlab.com for the following Assisted-graded writing questions: 2-22 2-23 89 How are marketing departments organized? Which organization is best? Explain the roles of market segmentation, market targeting, differentiation, and positioning in implementing an effective marketing strategy. Chapter preview 3 Part 1: Defining Marketing and the Marketing Process (Chapters 1–2) Part 2: Understanding the Marketplace and Consumer Value (Chapters 3–6) Part 3: Designing a Customer Value–Driven Strategy and Mix (Chapters 7–17) Part 4: Extending Marketing (Chapters 18–20) Analyzing the Marketing Environment So far, you’ve learned about the basic concepts of marketing and the steps in the marketing process for engaging and building profitable relationships with targeted consumers. Next, we’ll begin digging deeper into the first step of the marketing process—understanding the marketplace and customer needs and wants. In this chapter, you’ll see that marketing operates in a complex and changing environment. Other actors in this environment—suppliers, intermediaries, customers, competitors, publics, and others—may work with or against the company. Major environmental forces—demographic, economic, natural, technological, political, and cultural—shape marketing opportunities, pose threats, and affect the company’s ability to engage customers and build customer relationships. To develop effective marketing strategies, a company must first understand the environment in which marketing operates. To start, let’s look at Philips, one of the world’s biggest electronics companies and one of the most recognized and respected brands. Their lighting products have been found in homes all around the world. However, the markets Philips Lighting is operating in are subject to constant change. The storied company discovered that a continuous and sophisticated assessment of the factors that influence and shape the marketing environment is paramount. PhiliPs: Analyzing the Marketing Environment in the Middle East K oninklijke Philips N.V. was founded by Anton and companies in order to better tailor its offerings to the specific Gerard Philips in 1891 in Eindhoven to manufacture customer segments and leverage the Philips brand. Giving carbon filament lamps. Among their first major clients independence to the lighting solutions business, Philips claims, were early electricity companies, who included the will better enable it to expand its global leadership position provision of lamps in their power supply contracts. The comand venture into adjacent market opportunities. Both compapany, now better known as Philips, is one of the world’s biggest nies are supposed to be able to make the appropriate investelectronics companies and one of the world’s most respected ments to boost growth and drive profitability, ultimately generbrands. It has evolved into a global ating significantly more value for player and today employs a worktheir customers, employees, and Philips Lighting is no. 1 in the world force of 113,687 around the world. shareholders. market for lighting, but as the marketing A market leader in medical diagSince the 1980s, Philips has environment constantly changes, nostic imaging, patient monitoring participated intensively in the systems, energy-efficient lighting, concentration of the lighting secPhilips has realized that assessing and lifestyle solutions for personal tor by purchasing smaller national multiple factors for change is vital to well-being, Philips manufactures companies such as Companie des the understanding of current and future more than 50,000 products across Lampes (France), AEG (Germany), shifts. 100 countries, in which it also opand Polam Pila (Poland). It has erates sales and service outlets. In also developed different joint ven2014, the firm reported sales of $23,982 billion. But Philips has tures; for example, with Westinghouse Lamps, Kono Sylvania, also stayed true to its roots—today, it is the world leader in and EBT China. Today, Philips Lighting is no. 1 in the world lighting products manufacturing. market for lighting, ahead of competitors like Osram, Halonix, On September 23, 2014, Philips announced that it would and Crompton. Their lighting products (light bulbs and lamps) separate its healthcare and lighting businesses into two new are found all around the world, not only everywhere at home, ChaPter 3 | Analyzing the Marketing Environment 91 but also in many professional applications, including 30 percent of offices, 65 percent of the world’s top airports, 30 percent of hospitals, 35 percent of cars, and 55 percent of major football stadiums. For 124 years, Philips has been a leader in building and shaping markets with meaningful innovations including the radio, audio cassette, video cassette recorder (VCR), compact disc (CD), and digital versatile disc (DVD). In order to succeed in its markets, Philips must carefully and continuously analyze the marketing environment. At the beginning of the 21st century, Philips needed a new and coherent marketing strategy for the entire Middle East region, which had been identified as one of the key markets by the company. In order to better address macroeconomic factors and regional preferPhilips’s analysis of market needs—such as demands for energyences, Philips wanted to develop a more integrated and efficient products like LEDs—has driven its continuous growth in this less fragmented marketing strategy for the region. region. The first objective was to select the most attracSergiy Palamarchuk/Alamy Stock Photo tive markets in the region. Over the years, Philips has developed a statistical model that displays a correlaincrease the regional Philips market shares in cooperation with tion between a country’s demand for lighting and its GDP per the local distributor. capita. The company has identified this correlation after careful Today, the lighting market is impacted by multiple facanalysis of GDP growth rate data and their corresponding sales tors, three of which are particularly important. The first figures. During discussions with agents and distributors in is the macroeconomic situation, which is influenced and many countries, Philips was completely dependent on its inforshaped by factors such as inflation rate and GDP, and which mation about the market size. If Philips miscalculated market is influencing new construction and, consequently, the numsize, it missed market opportunities. The key reason why this ber of lighting installations. This key driver was used as a model was developed was so that the company could crossmain indicator by Philips in its model to screen markets in check market estimations of its agents and distributors. The the Middle East. Another important element used was, and developed model showed that the demand for lamps and bulbs still is, country-specific energy efficiency regulations and an is a basic need for a country, and as soon as a country starts deincrease in energy awareness, which are redefining future veloping (which is indicated by the increase in GDP), this basic lighting product portfolios. For example, in 2014 the UAE need increases. However, as the country’s wealth increases, government announced an energy efficiency regulation on the growth in the demand slows down, because basic lighting lighting products, which bans the sale of inefficient standard needs are covered at later stages of economic development. bulbs while also seeking to reduce carbon dioxide emissions. In order to find the most attractive markets, Philips Government action limiting certain energy sources—key beLighting used the model and combined it with market data of ing nuclear power due to events over the last years—results the Middle East that contained population, GNP growth, and in additional demands for energy-efficient products such as GNP per capita. They multiplied the demand for lighting per LEDs. For example, Dubai’s government has started an inicapita by the number of inhabitants in a country. Looking at tiative in 2014 to switch all lighting in government buildings the regions, Israel and Kuwait had the highest GDP per capita, to LED, which is more energy-efficient and can be digitally but their population size was rather small. On the other hand, controlled. It is these such projects that have helped Philips to Iraq and Iran were (and still are) large markets for lighting, but grow in the region. they are very tough to enter because of their politically difficult Philips has managed to assess these factors which heavily situations. influence and shape the marketing environment for change. However, the Philips Lighting Middle East managers did The company’s ability to understanding current and probable not use market size as the only selection criterion for priority; future shifts in the lighting market has driven its continuous instead, the model was used as a starting point for discussions growth in this region, making it the market leader in Middle with agents and distributors in the respective countries. If Eastern countries such as the Emirates, where it has a 38.5 the Philips sales in large lighting markets were very low, this percent market share; trailed by Osram, with 22.6 percent; and would indicate a low Philips market share. This would lead to General Electric with 16.3 percent.1 a discussion with local agents and distributors about how to 92 | Part 2 Understanding the Marketplace and Consumer Value Objectives Outline Objective 3-1 Describe the environmental forces that affect the company’s ability to serve its customers. The Microenvironment and Macroenvironment Objective 3-2 explain how changes in the demographic and economic environments affect marketing decisions. The Demographic and Economic Environments Objective 3-3 (pp 104–108) explain the key changes in the political and cultural environments. The Political–Social and Cultural Environments Objective 3-5 (pp 96–104) Identify the major trends in the firm’s natural and technological environments. The Natural and Technological Environments Objective 3-4 (pp 92–96) (pp 108–114) Discuss how companies can react to the marketing environment. Responding to the Marketing Environment Marketing environment The actors and forces outside marketing that affect marketing management’s ability to build and maintain successful relationships with target customers. Microenvironment The actors close to the company that affect its ability to serve its customers— the company, suppliers, marketing intermediaries, customer markets, competitors, and publics. Macroenvironment The larger societal forces that affect the microenvironment—demographic, economic, natural, technological, political, and cultural forces. Author The microenvironment Comment includes all the actors close to the company that affect, positively or negatively, its ability to create value for and relationships with customers. (pp 114–116) A company’s marketing environment consists of the actors and forces outside marketing that affect marketing management’s ability to build and maintain successful relationships with target customers. Like Kellogg, companies must constantly watch and adapt to the changing environment—or, in many cases, lead those changes. More than any other group in the company, marketers must be environmental trend trackers and opportunity seekers. Although every manager in an organization should watch the outside environment, marketers have two special aptitudes. They have disciplined methods—marketing research and marketing intelligence—for collecting information and developing insights about the marketing environment. They also spend more time in customer and competitor environments. By carefully studying the environment, marketers can adapt their strategies to meet new marketplace challenges and opportunities. The Microenvironment and Macroenvironment The marketing environment consists of a microenvironment and a macroenvironment. The microenvironment consists of the actors close to the company that affect its ability to engage and serve its customers—the company, suppliers, marketing intermediaries, customer markets, competitors, and publics. The macroenvironment consists of the larger societal forces that affect the microenvironment—demographic, economic, natural, technological, political, and cultural forces. We look first at the company’s microenvironment. The Microenvironment Marketing management’s job is to build relationships with customers by creating customer Figure 3.1 value and satisfaction. However, marketing managers cannot do this alone. shows the major actors in the marketer’s microenvironment. Marketing success requires building relationships with other company departments, suppliers, marketing intermediaries, competitors, various publics, and customers, which combine to make up the company’s value delivery network. ChaPter 3 | Analyzing the Marketing Environment 93 FIgure | 3.1 Actors in the Microenvironment titor s Pu b Marketing e rs stom The com pan y Compe Cu Marketers must work in harmony with other company departments to create customer value and relationships. rs lie g rketin Ma diaries e rm inte s lic Su pp In creating value for customers, marketers must partner with other firms in the company’s value delivery network. Customers are the most important actors in the company’s microenvironment. The aim of the entire value delivery system is to serve target customers and create strong relationships with them. The Company In designing marketing plans, marketing management takes other company groups into account—groups such as top management, finance, research and development (R&D), purchasing, operations, human resources, and accounting. All of these interrelated groups form the internal environment. Top management sets the company’s mission, objectives, broad strategies, and policies. Marketing managers make decisions within these broader strategies and plans. Then, as we discussed in Chapter 2, marketing managers must work closely with other company departments. With marketing taking the lead, all departments—from manufacturing and finance to legal and human resources—share the responsibility for understanding customer needs and creating customer value. Suppliers Suppliers form an important link in the company’s overall customer value delivery network. They provide the resources needed by the company to produce its goods and services. Supplier problems can seriously affect marketing. Marketing managers must watch supply availability and costs. Supply shortages or delays, natural disasters, and other events can cost sales in the short run and damage customer satisfaction in the long run. Rising supply costs may force price increases that can harm the company’s sales volume. Most marketers today treat their suppliers as partners in creating and delivering customer value. Morrison’s, one of the United Kingdom’s leading supermarkets, sells a large number of items, including seafood, dairy products, meat, bakery goods, and non-food grocery products. It has realized that the significance of its relationship with suppliers cannot be understated if it to succeed in the competitive retail sector. It acknowledges that the various awards it has achieved over the years— including “Supermarket of the Year,” “Nations’ Best Café,” and “Most Sustainable Retailer of the Year”— could not have been achieved without good relations with its suppliers. Its endeavor to maintain good relationships with suppliers shows in many ways. For instance, Morrison’s premium brand of milk costs 10 pence per liter more than the Morrison’s standard price, and according to Martyn Jones, the corporate services director of the organization, the supermarket uses this to support the dairy farmers who supply the milk. Morrison’s also encourages farmers to complete the Grocery Code Adjudicator’s annual supplier survey, through which the relationship could be developed further. In fact, the close relationship between Morrison’s and its suppliers has also culminated in a different way; the orgaSuppliers: Morrison’s has developed healthy, long-term relationships with its farmers. nization hired its former supplier, Neil Davison of Home Bird/Alamy Stock Photo Express Dairies, to work for it.2 94 | Part 2 Understanding the Marketplace and Consumer Value Marketing Intermediaries Marketing intermediaries Marketing intermediaries help the company promote, sell, and distribute its products to Firms that help the company to promote, sell, and distribute its goods to final buyers. final buyers. They include resellers, physical distribution firms, marketing services agencies, and financial intermediaries. Resellers are distribution channel firms that help the company find customers or make sales to them. These include wholesalers and retailers that buy and resell merchandise. Physical distribution firms help the company stock and move goods from their points of origin to their destinations. Marketing services agencies are the marketing research firms, advertising agencies, media firms, and marketing consulting firms that help the company target and promote its products to the right markets. Financial intermediaries include banks, credit companies, insurance companies, and other businesses that help finance transactions or insure against the risks associated with the buying and selling of goods. Like suppliers, marketing intermediaries form an important component of the company’s overall value delivery network. Thus, today’s marketers recognize the importance of working with their intermediaries as partners rather than simply as Although Apple has hundreds of channels through which they sell their products. its own retail locations throughout the world, it also uses the services of authorized resellers who help the firm sell its products all over the world. In this arrangement, Apple’s products are sold at identical prices both in its stores and in those of authorized resellers. Apple considers these authorized resellers as partners and has recently overhauled its premium resellers’ partners program. The organization is co-funding the renovation of resellers’ stores to follow Apple’s own retail formula and make demo units display consistent with Apple’s specifications. Apart from those who sell its products, Apple also has another set of intermediaries called authorized service providers. These are companies or individuals who represent organizations in providing repair and maintenance services to its customers. These intermediaries could belong to either of two categories, depending on the scale of the services that could be handled: authorized service providers or limited service providers. Apple gives its partners reimbursements for labor, travel, and parts, where applicable. It also gives them comprehensive access to products, upgrade information, service, troubleshooting, on-the-spot technical support for certified technicians, etc. In addition, the partners benefit from inclusion in the Apple resource locator system, whereby they are displayed on Apple’s website for customers looking for nearby service providers.3 Competitors Partnering with intermediaries: apple provides its retail partners with much more than just phones. It also pledges technical support. FC2/Picturesbyrob/Alamy Stock Photo The marketing concept states that, to be successful, a company must provide greater customer value and satisfaction than its competitors do. Thus, marketers must do more than simply adapt to the needs of target consumers. They also must gain strategic advantage by positioning their offerings strongly against competitors’ offerings in the minds of consumers. No single competitive marketing strategy is best for all companies. Each firm should consider its own size and industry position compared with those of its competitors. Large firms with dominant positions in an industry can use certain strategies that smaller firms cannot afford. But being large is not enough. There are winning strategies for large firms, but there are also losing ones. And small firms can develop strategies that give them better rates of return than large firms enjoy. ChaPter 3 | Analyzing the Marketing Environment 95 Publics Public Any group that has an actual or potential interest in or impact on an organization’s ability to achieve its objectives. The company’s marketing environment also includes various publics. A public is any group that has an actual or potential interest in or impact on an organization’s ability to achieve its objectives. We can identify seven types of publics: • Financial publics. This group influences the company’s ability to obtain funds. Banks, investment analysts, and stockholders are the major financial publics. • Media publics. This group carries news, features, editorial opinions, and other content. It includes television stations, newspapers, magazines, and blogs and other social media. • Government publics. Management must take government developments into account. Marketers must often consult the company’s lawyers on issues of product safety, truth in advertising, and other matters. • Citizen-action publics. A company’s marketing decisions may be questioned by consumer organizations, environmental groups, minority groups, and others. Its public relations department can help it stay in touch with consumer and citizen groups. • Internal publics. This group includes workers, managers, volunteers, and the board of directors. Large companies use newsletters and other means to inform and motivate their internal publics. When employees feel good about the companies they work for, this positive attitude spills over to the external publics. • General public. A company needs to be concerned about the general public’s attitude toward its products and activities. The public’s image of the company affects its buying behavior. • Local publics. This group includes local community residents and organizations. Large companies usually work to become responsible members of the local communities in which they operate. NatWest, one of the leading UK banks, maintains a strong link with its local community through various cause-related activities. In 2016, across the group, the organization gave a whooping £2.5 million to local charities, community groups, and social enterprises both in the United Kingdom and in Ireland. A further £2.5 million has been earmarked to be spent on similar endeavors in the year 2017. Meanwhile, the commitment of the bank to supporting local communities is not only displayed in the organizations’ corporate efforts but also flows down to the staff members, who are very enthusiastic in supporting various local charities through their concerted efforts. In 2015, the staff of the bank donated a total of £2.7 million to charity through the Pay-as-You-Earn Scheme and contributed 45,437 hours of volunteering for various communities and charity projects. The same year, it became an official sponsor of Sports Relief. Over the years, it has been celebrated for supporting many other local charities to improve life, including Porchlight for the homeless, Discovery Park for tenants, and UKSA, a Youth charity. Its link to the Prince’s Trust spans over 16 years, through which it has helped thousands of disadvantaged young people to create sustainable businesses. In 2014 alone, it ran a employability and mentoring program for 2,521 disadvantaged people through hours devoted to the Trust.4 A company can prepare marPublics: NatWest shows its commitment to its local community by giving generously to local charities, community groups, and social enterprises. keting plans for these major publics as well as for its customer markets. Jeff Gilbert/Alamy Stock Photo 96 | Part 2 Understanding the Marketplace and Consumer Value Suppose the company wants a specific response from a particular public, such as goodwill, favorable word of mouth and social sharing, or donations of time or money. The company would have to design an offer to this public that is attractive enough to produce the desired response. Customers Customers are the most important actors in the company’s microenvironment. The aim of the entire value delivery network is to engage target customers and create strong relationships with them. The company might target any or all of five types of customer markets. Consumer markets consist of individuals and households that buy goods and services for personal consumption. Business markets buy goods and services for further processing or use in their production processes, whereas reseller markets buy goods and services to resell at a profit. Government markets consist of government agencies that buy goods and services to produce public services or transfer the goods and services to others who need them. Finally, international markets consist of these buyers in other countries, including consumers, producers, resellers, and governments. Each market type has special characteristics that call for careful study by the seller. Author The macroenvironment Comment consists of broader forces that affect the actors in the microenvironment. The Macroenvironment The company and all of the other actors operate in a larger macroenvironment of forces Figure 3.2 shows the six that shape opportunities and pose threats to the company. major forces in the company’s macroenvironment. Even the most dominant companies can be vulnerable to the often turbulent and changing forces in the marketing environment. Some of these forces are unforeseeable and uncontrollable. Others can be predicted and handled through skillful management. Companies that understand and adapt well to their environments can thrive. Those that don’t can face difficult times. One-time dominant market leaders such as Xerox, Sears, and Sony have learned this lesson the hard way. In the remaining sections of this chapter, we examine these forces and show how they affect marketing plans. The Demographic and Economic Environments Author Changes in demographics Comment mean changes in markets, so they are very important to marketers. We first look at the biggest demographic trend—the changing age structure of the population. The Demographic Environment Demography is the study of human populations in terms of size, density, location, age, gender, race, occupation, and other statistics. The demographic environment is of major interest to marketers because it involves people, and people make up markets. The world population is growing at an explosive rate. It now exceeds 7.3 billion people and is expected to grow to more than 8 billion by the year 2030.5 The world’s large and highly diverse population poses both opportunities and challenges. Changes in the world demographic environment have major implications for business. Thus, marketers keep a close eye on demographic trends and developments in their FIgure | 3.2 Major Forces in the Company’s Macroenvironment Ec on Techno l ogic al Po li ic Cult Company ural Demog raph ic om l l Changing demographics mean changes in markets and marketing strategies. For example, Netflix created a “Just for Kids” portal and app targeting today’s fast-growing young, tech-savvy “Gen Z” segment. ra Natu a tic Concern for the natural environment has spawned a so-called green movement. For example, Timberland is on a mission to develop products that do less harm to the environment. Marketers also want to be socially responsible citizens in their markets and communities. For example, online eyeware seller Warby Parker was founded on a cause: For every pair of glasses Warby Parker sells, it distributes a free pair to someone in need. ChaPter 3 Demography The study of human populations in terms of size, density, location, age, gender, race, occupation, and other statistics. | Analyzing the Marketing Environment 97 markets. They analyze changing age and family structures, geographic population shifts, educational characteristics, and population diversity. Here, we discuss the most important demographic trends in the United States. The Changing Age Structure of the Population The U.S. population currently stands at nearly 323 million and may reach almost 364 million by 2030.6 The single most important demographic trend in the United States is the changing age structure of the population. Primarily because of falling birthrates and longer life expectancies, the U.S. population is rapidly getting older. In 1970, the median age was 28; by 2016, it was 38.7 This aging of the population will have a significant impact on markets and those who service them. The U.S. population contains several generational groups. Here, we discuss the four largest groups—the baby boomers, Generation X, the millennials, and Generation Z—and their impact on today’s marketing strategies. Baby boomers The 78 million people born during the years following World War II and lasting until 1964. generation X The 49 million people born between 1965 and 1976 in the “birth dearth” following the baby boom. The Baby Boomers. The post–World War II baby boom produced 78 million baby boomers, who were born between 1946 and 1964. Over the years, the baby boomers have been one of the most powerful forces shaping the marketing environment. The youngest boomers are now in their 50s; the oldest are in their early 70s and well into retirement. The baby boomers are the wealthiest generation in U.S. history, what one analyst calls “a marketer’s dream.” Today’s baby boomers account for about 26 percent of the U.S. population but control an estimated 70 percent of the nation’s disposable income and half of all consumer spending.8 The boomers constitute a lucrative market for financial services, new housing and home remodeling, new cars, travel and entertainment, eating out, health and fitness products, and just about everything else. And contrary to the popular belief that they are staid in their ways, one recent survey found that 82 percent of boomers are open to new brands. Says a researcher, “Changing and trying new brands helps boomers feel like they are staying current.”9 It would be a mistake to think of older boomers as phasing out or slowing down. Rather than viewing themselves that way, many of today’s boomers see themselves as entering new life phases. More active boomers have no intention of abandoning their youthful lifestyles as they age. For example, adults over 50 now account for 80 percent of luxury travel spending in America. Boomers are also digitally active and increasingly social media savvy. They are the fastest-growing shopper demographic online, outspending younger generations two to one. They are also the fastest-growing social media users, with an 80 percent surge in Facebook usage over the past four years.10 Thus, although boomers buy lots of products that help them deal with issues of aging—from vitamins to blood pressure monitors to Good Grips kitchen tools—they tend to appreciate marketers who appeal to For example, their youthful thinking rather than their advancing age. Walgreens recently launched a campaign called “Carpe Med Diem,” telling older boomers how to “seize the day” to get more out of life and their Medicare Part D prescription coverage at Walgreens, not just with savings on prescriptions but also with products that make them look and feel good.11 One “Carpe Med Diem” ad features an active and stylish boomer-age woman with purple highlights in her hair and the headline “Who says blonds have more fun.” In another ad, two boomer women pick up their prescriptions at Walgreens but also load up on sunscreen before heading out to a nude beach, where they drop their clothes and enjoy some fun in the sun. “Walgreen’s has you covered,” says the ad. “Who says that being on Medicare has to stop you from being edgy?” targeting baby boomers: Walgreen’s Carpe Med Diem campaign appeals to older boomers’ youthful thinking rather than advancing age. “Who says that being on Medicare has to stop you from being edgy?” Walgreen Co. Generation X. The baby boom was followed by a “birth dearth,” creating another generation of 49 million people born between 1965 and 1976. Author Douglas Coupland calls them Generation X because they lie in the shadow of the boomers. 98 | Part 2 Understanding the Marketplace and Consumer Value Considerably smaller than the boomer generation that precedes them and the millennials who follow, the Generation Xers are a sometimes-overlooked consumer group. Although they seek success, they are less materialistic than the other groups; they prize experience, not acquisition. For many of the Gen Xers who are parents, family comes first—both children and their aging parents—and career second. From a marketing standpoint, the Gen Xers are a more skeptical bunch. They are sensible shoppers who research products heavily before they consider a purchase, prefer quality to quantity, and tend to be less receptive to overt marketing pitches. They are more receptive to irreverent ad pitches that make fun of convention and tradition. The first to grow up in the internet era, Generation X is a connected generation that embraces the benefits of new technology. The Gen Xers, now in their 40s, have grown up and are taking over. They have increasingly displaced the lifestyles, culture, and values of the baby boomers. They are firmly into their careers, and many are proud homeowners with growing families. They are the most educated generation to date, and they possess hefty annual purchasing power. Although Gen Xers make up less than a quarter of all U.S. adults, they pull in 29 percent of the nation’s total income. With so much potential, many brands and organizations focus on Gen Xers as a prime target segment. For example, a full 82 percent of Gen Xers own their own homes, making them an important segment for Home-improvement home-and-hearth marketers. retailer Lowe’s markets heavily to Gen X homeowners, urging them to “Never Stop Improving.” Through ads, online videos, and a substantial social media presence, Lowe’s provides ideas and advice on a wide range of indoor and outdoor home-improvement projects and problems, providing solutions that make life simpler for busy Gen X homeowners and their families. Its myLowe’s app is like a 24/7 home-improvement concierge that lets customers build room-by-room profiles of their homes, archive their Lowe’s purchases, build product lists with photos, receive reminders for targeting Gen Xers: Lowe’s markets heavily to Gen X homeowners with things like changing furnace filters, and even consult ideas and advice on home-improvement projects and problems, urging them to “Never Stop Improving.” with store employees online as they plan out homeimprovement projects.12 Bryan Bedder/Stringer/Getty Images Millennials. Both the baby boomers and Gen Xers will one day be passing the reins to the Millennials (or generation Y) The 83 million children of the baby boomers born between 1977 and 2000. millennials (also called Generation Y or the echo boomers). Born between 1977 and 2000, these children of the baby boomers number 83 million or more, dwarfing the Gen Xers and becoming larger even than the baby boomer segment. In the post-recession era, the millennials are the most financially strapped generation. Facing higher unemployment and saddled with more debt, many of these young consumers have near-empty piggy banks. Still, because of their numbers, the millennials make up a huge and attractive market, both now and in the future. One thing that all millennials have in common is their comfort with digital technology. They don’t just embrace technology; it’s a way of life. The millennials were the first generation to grow up in a world filled with computers, mobile phones, satellite TV, iPods and iPads, and online social media. As a result, they engage with brands in an entirely new way, such as with mobile or social media. Compared with other generational groups, millennials tend to be frugal, practical, connected, mobile, and impatient. More than sales pitches from marketers, millennials seek authenticity and opportunities to shape their own brand experiences and share them with others. One AT&T marketer identifies what she calls “universal Millennial truths: being transparent, authentic, immediate, and versatile.”13 Many brands are now fielding specific products and marketing campaigns aimed at For example, many financial services firms are shedding millennial needs and lifestyles. their once-stodgy images to make their brands more appealing to millennial consumers. Consider Fifth Third Bank:14 Fifth Third Bank knows that waiting is hard for time-crunched millennials. So it launched a new campaign called “No Waiting” that shows how its mobile app takes the wait out of banking. The ChaPter 3 targeting millennials: Fifth third Bank’s “No Waiting” campaign engages impatient, social-media-savvy millennials with anything-but-stodgy videos demonstrating how its mobile app takes the wait out of banking. Fifth Third Bank generation Z People born after 2000 (although many analysts include people born after 1995) who make up the kids, tweens, and teens markets. | Analyzing the Marketing Environment 99 campaign targets younger consumers who are increasingly put off by the traditional banking world. The “No Waiting” campaign includes TV spots but also a full slate of digital video and social media content, even a novel mobile game, aimed at engaging impatient, social-media-savvy millennials. The anything-but-stodgy digital videos provide humorous side-by-side comparisons showing that a check can be deposited using the Fifth Third Bank app faster than a hamster can eat five cheese balls or faster than an accordion player can play “Mary Had a Little Lamb.” The campaign also features an animated mobile game, “TXTvsTXT,” that tests a user’s texting speed. Something you wouldn’t expect from a bank, the mobile game offers a quirky way for text-savvy millennials to test their finger-clicking skills, challenge friends on Facebook, and earn badges ranging from “molasses hands” to “turbo twiddler.” Millennials “want it fast, whether in a text conversation or checking your balance on the Fifth Third Bank mobile app,” says Fifth Third’s chief marketer. “Our mobile banking takes the wait out of banking and we believe [this campaign] tells that story in a fun engaging way.” Generation Z. Hard on the heels of the millennials is Generation Z, young people born after 2000 (although many analysts include people born after 1995 in this group). The approximately 82 million Gen Zers make up the important kids, tweens, and teens markets. They spend an estimated $44 billion annually of their own money and influence up to $600 billion of family spending.15 These young consumers also represent tomorrow’s markets—they are now forming brand relationships that will affect their buying well into the future. Even more than the millennials, the defining characteristic of Gen Zers is their utter fluency and comfort with digital technologies. Generation Z takes smartphones, tablets, internet-connected game consoles, wireless internet, and digital and social media for granted—they’ve always had them—making this group highly mobile, connected, and social. On average, connected Gen Zers receive more than 3,000 texts per month. “If they’re awake, they’re online,” quips one analyst. They have “digital in their DNA,” says another.16 Gen Zers blend the online and offline worlds seamlessly as they socialize and shop. According to recent studies, despite their youth, more than half of all Generation Z tweens and teens do product research before buying a product or having their parents buy it for them. Of those who shop online, more than half prefer shopping online in categories ranging from electronics, books, music, sports equipment, and beauty products to clothes, shoes, and fashion accessories. Companies in almost all industries market products and services aimed at Generation Z. For example, many retailers have created special lines or even entire stores appealing to Gen Z buyers and their parents—consider Abercrombie Kids, Gap Kids, Old Navy Kids, and Pottery Barn Kids. The Justice chain targets only tween girls, with apparel and accessories laser-focused on their special preferences and lifestyles. Although these young buyers often have their mothers in tow, “the last thing a 10- or 12-year-old girl wants is to look like her mom,” says Justice’s CEO. Justice’s stores, website, and social media pages are designed with tweens in mind. “You have to appeal to their senses,” says the CEO. “They love sensory overload—bright colors, music videos, a variety of merchandise, the tumult of all of that.”17 Marketing to Gen Zers and their parents presents special challenges. Traditional media are still important to this group. Magazines such as J-14 and Twist are popular with some Gen Z segments, as are TV channels such as Nickelodeon and the Disney Channel. But marketers know they must meet Gen Zers where they hang out and shop. Increasingly, that’s in the online and mobile worlds. Although the under-13 set remains barred from social media such as Periscope, Snapchat, and Instagram, at least officially, social media will play a crucial marketing role as the kids and tweens grow into their teens and early twenties. Today’s kids are notoriously fickle and hard to pin down. The key is to engage these For example, to young consumers and let them help to define their brand experiences. engage young consumers more deeply, The North Face even invites them to help design its outdoor apparel and gear:18 The North Face Youth Design Team holds focus groups at summer camps with tweens 9 to 12 year olds and their parents to get their input on the brand’s outdoor clothing for kids. “We find that 100 | Part 2 Understanding the Marketplace and Consumer Value these kids are just beginning to have their own personal style and are also beginning to influence their parents in their purchases,” says a North Face marketer. To engage kids even further, The North Face recently launched a design contest in which it invited young would-be artists ages 6 to 12 to submit new apparel and gear designs that represent what the brand’s “Never Stop Exploring” mantra means to them. The 10 winners will see their artwork featured in the brand’s youth collection. “Kids are our main source of inspiration,” says a Youth Design Team marketer. “It’s important that we make things that are ‘fun,’ and how fun would it be to have kids help design our product?” Such engagement efforts have helped to make The North Face one of today’s hottest brands among teens and tweens. targeting Generation Z: the North Face engages young consumers directly and lets them help to define their brand experiences. Such efforts have helped to make the North Face one of today’s hottest brands among teens and tweens. An important Generation Z marketing concern involves children’s privacy and their vulnerability to marketing pitches. Companies marketing to this group must do so responsibly or risk the wrath of parents and public policy makers. Generational Marketing. Do brands need to VF Corporation create separate products and marketing programs for each generation? Some experts warn that marketers need to be careful about turning off one generation each time they craft a product or message that appeals effectively to another. Others caution that each generation spans decades of time and many socioeconomic levels. For example, marketers often split the baby boomers into three smaller groups—leadingedge boomers, core boomers, and trailing-edge boomers—each with its own beliefs and behaviors. Similarly, they split Generation Z into kids, tweens, and teens. Thus, marketers need to form more precise age-specific segments within each group. More important, defining people by their birth date may be less effective than segmenting them by lifestyle, life stage, or the common values they seek in the products they buy. We will discuss many other ways to segment markets in Chapters 5 and 7. The Changing American Family The traditional household consists of a husband, wife, and children (and sometimes grandparents). Yet the historic American ideal of the two-child, two-car suburban family has lately been losing some of its luster. In the United States, fewer than half of today’s households contain married couples, down from 76 percent in 1940. Married couples with children under 18 represent only 19 percent of the nation’s 125 million households. Married couples without children represent 23 percent, and single parents are another 14 percent. A full 34 percent are nonfamily households—singles living alone or unrelated adults of one or both sexes living together.19 More people are divorcing or separating, choosing not to marry, marrying later, remarrying, or marrying without intending to have children. Currently, 15 percent of all new marriages are interracial or interethnic, and 7.3 percent of The same-sex couple households are raising children.20 changing composition of today’s modern American families is increasingly reflected in popular movies and television shows, such as Modern Family, the award-winning TV sitcom about an extended nontraditional family. Marketers the american family: the changing composition of american must consider the special needs of nontraditional housefamilies is increasingly reflected in popular movies and television holds because they are now growing more rapidly than shows, such as Modern Family, the award-winning tV sitcom about traditional households. Each group has distinctive needs an extended nontraditional family. and buying habits. Mitch Haddad/Getty Images ChaPter 3 | Analyzing the Marketing Environment 101 The number of working women has also increased greatly, growing from 38 percent of the U.S. workforce in 1970 to 47 percent of the workforce today. American women now make up 40 percent of primary family breadwinners in households with children under 18. Among households made up of married couples with children, 60 percent are dual-income households; only the husband works in 27 percent. Meanwhile, more men also stay home with their children and manage the household while their wives go to work.21 Companies are now adapting their marketing to reflect the changing dynamics of American families. For example, whereas fathers were once ignored or portrayed as dolts in family-oriented ads, today’s advertisers are showing more caring and capable dads. One recent Samsung Galaxy phone ad, for instance, features a dad swaddling and calming his newborn son while Mom runs errands. When the anxious mom calls home to check in, the newly minted swaddle master replies, “We’re having a dudes’ day here. We’re fiiiiine. You take the weekend if you want to.” Other ads reflect the evolving diversity in modern American households. For example, Campbell Soup’s recent “Your Father” commercial—part of the brand’s “Made for Real. Real Life” campaign—features a real-life same-sex couple feeding their son Campbell’s Star Wars soup as they mimic Darth Vader’s famous Star Wars line “I am your father.” The commercial, like others in the campaign, aligns the brand with the company’s purpose: “Real food that matters for real life moments.” Similarly, General Mills ran a series of commercials for Cheerios featuring an interracial couple and their daughter portraying typical young family scenarios—from the daughter pouring Cheerios on her sleeping dad’s chest after learning that Cheerios are good for your heart to her negotiating for a new puppy after learning that she is going to have a baby brother. Said a General Mills marketer, “At Cheerios, we know there are many kinds of families and we celebrate them all.”22 Geographic Shifts in Population This is a period of great migratory movements between and within countries. Americans, for example, are a mobile people, with about 12 percent of all U.S. residents moving each year. Over the past two decades, the U.S. population has shifted toward the Sunbelt states. The West and South have grown, whereas the Midwest and Northeast states have lost population.23 Such population shifts interest marketers because people in different regions buy differently. For example, people in the Midwest buy more winter clothing than people in the Southeast. Also, for more than a century, Americans have been moving from rural to metropolitan areas. In the 1950s, they made a massive exit from the cities to the suburbs. Today, the migration to the suburbs continues. And more and more Americans are moving to “micropolitan areas,” small cities located beyond congested metropolitan areas, such as Minot, North Dakota; Boone, North Carolina; Traverse City, Michigan; and Concord, New Hampshire. These smaller micros offer many of the advantages of metro areas—jobs, restaurants, diversions, community organizations—but without the population crush, traffic jams, high crime rates, and high property taxes often associated with heavily urbanized areas. Ten percent of the U.S. population now resides in micropolitan areas.24 The shift in where people live has also caused a shift in where they work. For example, the migration toward micropolitan and suburban areas has resulted in a rapid increase in the number of people who “telecommute”—work at home or in a remote office and conduct business by phone or the internet. This trend, in turn, has created a booming SOHO (small office/home office) market. Increasing numbers of people are working from home with the help of electronic conveniences such as PCs, tablets, smartphones, and broadband internet access. One recent study estimates that 37 percent of employed individuals do some or all of their work at home.25 Many marketers are actively courting the lucrative telecomtelecommuting: applications like Citrix’s GotoMeeting For example, online applications such as Citrix’s muting market. help people meet and collaborate online via computer, tablet, or smartphone, no matter what their work location. GoToMeeting, Sqwiggle, and Cisco’s WebEx help connect people Citrix Systems, Inc. who telecommute or work remotely. With such applications, people 102 | Part 2 Understanding the Marketplace and Consumer Value can meet and collaborate online via computer, tablet, or smartphone, no matter what their work location. And companies ranging from Salesforce.com to Google and IBM offer cloud computing applications that let people collaborate anywhere and everywhere through the internet and mobile devices. Additionally, for telecommuters who can’t work fully at home, companies such as ShareDesk, DaVinci, and Regus rent out fully equipped shared office space. For a daily, monthly, or yearly fee, telecommuters who work away from a main office can rent shared space that includes the same amenities of a regular office, from networked computers, printers, and copiers to conference rooms and lounge spaces. A Better-Educated, More White-Collar, More Professional Population The U.S. population is becoming better educated. For example, in 2012, 88 percent of the U.S. population over age 25 had completed high school and 32 percent had a bachelor’s degree or better, compared with 66 percent and 16 percent, respectively, in 1980.26 The workforce also is becoming more white collar. Job growth is now strongest for professional workers and weakest for manufacturing workers. Between 2014 and 2024, of 30 detailed occupations projected to have the fastest employment growth, most require some type of postsecondary education.27 The rising number of educated professionals will affect not just what people buy but also how they buy. Increasing Diversity Countries vary in their ethnic and racial makeup. At one extreme is Japan, where almost everyone is Japanese. At the other extreme is the United States, with people from virtually all national origins. The United States has often been called a melting pot, where diverse groups from many nations and cultures have melted into a single, more homogenous whole. Instead, the United States seems to have become more of a “salad bowl” in which various groups have mixed together but have maintained their diversity by retaining and valuing important ethnic and cultural differences. Marketers now face increasingly diverse markets, both at home and abroad, as their operations become more international in scope. The U.S. population is about 62.2 percent non-Hispanic white, with Hispanics at 17.4 percent and African Americans at 13.2 percent. The U.S. Asian American population now totals more than 5.4 percent of the total U.S. population, with the remaining groups being Native Hawaiian, Pacific Islander, American Indian, Eskimo, or Aleut. Moreover, one in eight people living in the United States— more than 13 percent of the population—was born in another country. The nation’s ethnic populations are expected to explode in coming decades. By 2060, Hispanics will be about 28 percent of the population, African Americans will be about 14 percent, and Asian Americans will increase to 9 percent.28 Most large companies, from P&G, Walmart, Allstate, and Wells Fargo to McDonald’s and Southwest Airlines, now target specially designed products, ads, and promotions to one or more of these groups. For example, Southwest Airlines’s outreach to Asian Americans includes being the title sponsor for the Chinese New Year Festival and Parade in San Francisco, the biggest nighttime parade in the United States and the second-biggest in North America after the Macy’s Thanksgiving Day parade:29 Serving diverse customer communities: Southwest airlines reaches out to asian american consumers through its title sponsorship of San Francisco’s Chinese New Year Festival and Parade and through ads like this one, which pass along “cleverly constructed well wishes and cheerful nods to the community.” Southwest Airlines Co. San Francisco’s Chinese New Year Festival and Parade typically draws hundreds of thousands of spectators and is broadcast on English- and Asian-language TV stations to viewers around the world. Consumers in the affluent, fast-growing Asian American segment travel often. And they are concentrated in a few key areas such as California and New York, making them easy to pinpoint. That makes them an ideal target for Southwest. The Chinese New Year Festival and Parade event also aligns well with Southwest’s preference for grassroots marketing programs that position it as a hometown carrier targeting local “passion points,” in this case a cultural and family-related celebration. To support its title sponsorship, Southwest ties its brand to the Lunar New Year through promotional efforts ranging from floats and ticket-giveaway contests to “cleverly constructed well wishes and cheerful nods to the community” on street pole banners, bus shelters, billboards, and traditional broadcast and print ads. Something must be working right—Southwest has been the event’s title sponsor for more than 15 years. ChaPter 3 | Analyzing the Marketing Environment 103 Diversity goes beyond ethnic heritage. For example, many major companies explicitly target gay and lesbian consumers. According to one estimate, the 6 to 7 percent of U.S. adults who identify themselves as lesbian, gay, bisexual, or transgender (LGBT) have buying power of more than $884 billion.30 As a result of TV shows such as Modern Family, Transparent, and Gotham; movies like Brokeback Mountain and Carol; and openly gay celebrities and public figures such as Neil Patrick Harris, Ellen DeGeneres, David Sedaris, and Apple CEO Tim Cook, the LGBT community has increasingly emerged in the public eye. Brands in a wide range of industries are now targeting the LGBT community with gay-specific ads and marketing efforts—from Amazon, adidas, Allstate, and Apple to Kaiser Permanente, Wells Fargo, Macy’s, and Best Buy. For example, Allstate recently ran an “Everyone deserves to be in good hands” campaign with ads featuring same-sex couples and the hashtag #OutHoldingHands. Last Valentine’s Day, adidas posted an image on Instagram featuring a same-sex couple and quoting the Beatles’ “The Love You Take Is Equal to the Love You Make.” Macy’s and Best Buy run regular ads for their wedding registries featuring same-sex couples. And Frito-Lay launched a limited-edition Doritos Rainbows, multi-colored chips demonstrating the brand’s “expression of inclusion and support for individuality.” Wells Fargo recently became one of the first banks to feature an LGBT couple in a national TV ad campaign. The heartwarming commercial, featuring a lesbian couple adopting a deaf child, is part of a nine-commercial series that also spotlights other diverse customer groups ranging from Asian Americans to small business owners. Says a Wells Fargo representative, “We…embrace diversity in every aspect, internally and externally. Diversity and inclusion is something we live internally very strongly. This [campaign] is a very important and natural progression of [that value] in how we serve our customers.”31 Another attractive diversity segment is the 53 million U.S. adults with disabilities—a market larger than African Americans or Hispanics—representing anywhere from $200 to $500 billion in annual spending power. Most individuals with disabilities are active consumers. For example, one study found that the segment spends $17.3 billion on 73 million business or leisure trips every year. And because people with disabilities typically travel with one or more other adults, the economic impact is estimated to be at least double that amount.32 How are companies trying to reach consumers with disabilities? Many marketers now recognize that the worlds of people with disabilities and those without disabilities are one in the same. Marketers such as McDonald’s, Verizon Wireless, Nike, Samsung, Nordstrom, Toyota, and Apple have featured people with disabilities in their mainstream marketing. For instance, a recent Apple iPad Air commercial features real-life travel writer Chérie King traveling the world with her iPad Air in hand, helping her along as she travels through diverse global settings. She communicates back home, posts photos, writes articles, and lets her iPad translate what she wants to say to shop keepers and others who don’t speak English. Only at the very end of the commercial is her disability revealed—she is deaf.33 As the population in the United States grows more diverse, successful marketers will continue to diversify their marketing programs to take advantage of opportunities in fastgrowing segments. Author The economic environment Comment can offer both opportunities and threats. For example, in the post– Great Recession era of more sensible consumer spending, “value” has become the marketing watchword. economic environment Economic factors that affect consumer purchasing power and spending patterns. The Economic Environment Markets require buying power as well as people. The economic environment consists of economic factors that affect consumer purchasing power and spending patterns. Economic factors can have a dramatic effect on consumer spending and buying behavior. For example, until fairly recently, American consumers spent freely, fueled by income growth, a boom in the stock market, rapid increases in housing values, and other economic good fortunes. They bought and bought, seemingly without caution, amassing record levels of debt. However, the free spending and high expectations of those days were dashed by the Great Recession of 2008–2009. As a result, as discussed in Chapter 1, consumers have now adopted a back-to-basics sensibility in their lifestyles and spending patterns that will likely persist for years to come. They are buying less and looking for greater value in the things they do buy. In turn, value marketing has become the watchword for many marketers. Marketers in all industries are looking for ways to offer today’s more financially frugal buyers greater value—just the right combination of product quality and good service at a fair price. 104 | Part 2 Understanding the Marketplace and Consumer Value You’d expect value pitches from the sellers of everyday products. For example, as Target has shifted emphasis toward the “Pay Less” side of its “Expect More. Pay Less.” slogan, the once-chic headlines at the Target.com website have been replaced by more practical appeals such as “Our lowest prices of the season,” “Slam dunk deals,” and “Free shipping, every day.” However, these days, even luxury-brand marketers are emphasizing good value. For example, Tiffany has long been known for selling high-end “fine jewelry” and “statement jewelry” at prices of $5,000 to $50,000 or more. However, when the Great Recession Economic environment: Consumers adopted a new back-to-basics eroded Tiffany’s high-end sales, the company began sensibility in their lifestyles and spending patterns. to serve the tastes offering affordable luxury items—what it calls “fashof these more financially frugal buyers, companies like target are ion jewelry”—priced at as little as $100 to $500. Such emphasizing the “pay less” side of their value propositions. relatively affordable items now account for about oneAssociated Press quarter of Tiffany’s sales.34 Marketers should pay attention to income distribution as well as income levels. Over the past several decades, the rich have grown richer, the middle class has shrunk, and the poor have remained poor. The top 5 percent of American earners capture 22 percent of the country’s adjusted gross income, and the top 20 percent of earners capture 51 percent of all income. In contrast, the bottom 40 percent of American earners get just 11 percent of the total income.35 This distribution of income has created a tiered market. Many companies—such as Nordstrom and Neiman Marcus—aggressively target the affluent. Others—such as Dollar General, Five Below, and Family Dollar—target those with more modest means. Still other companies tailor their marketing offers across a range of markets, from the less affluent to the very affluent. For example, Ford offers cars ranging from the low-priced Ford Fiesta, starting at $14,090, to the luxury Lincoln Navigator SUV, starting at $63,195. Changes in major economic variables, such as income, cost of living, interest rates, and savings and borrowing patterns, have a large impact on the marketplace. Companies watch these variables by using economic forecasting. Businesses do not have to be wiped out by an economic downturn or caught short in a boom. With adequate warning, they can take advantage of changes in the economic environment. The Natural and Technological Environments Author Today’s enlightened Comment companies are developing environmentally sustainable strategies in an effort to create a world economy that the planet can support indefinitely. Natural environment The physical environment and the natural resources that are needed as inputs by marketers or that are affected by marketing activities. The Natural Environment The natural environment involves the physical environment and the natural resources that are needed as inputs by marketers or that are affected by marketing activities. At the most basic level, unexpected happenings in the physical environment—anything from weather to natural disasters—can affect companies and their marketing strategies. For example, during a recent cold winter—in which the term polar vortex gusted into the American vocabulary—sales suffered across a wide range of businesses, from florists and auto dealers to restaurants, airlines, and tourist destinations. In contrast, the severe weather boosted demand for products such as salt, snowblowers, winter clothing, and auto repair centers. Although companies can’t prevent such natural occurrences, they should prepare for dealing with them. For example, shipping companies such as FedEx and UPS maintain corps of meteorologists on their staffs to anticipate weather conditions that might inhibit on-time deliveries around the world. “Someone awaiting a package in Bangkok doesn’t care if it snowed in Louisville, Kentucky,” says a UPS meteorologist. “They want their stuff.”36 At a broader level, environmental sustainability concerns have grown steadily over the past several decades. In many cities around the world, air and water pollution have reached dangerous levels. World concern continues to mount about the possibilities of global warming, and many environmentalists fear that we soon will be buried in our own trash. Marketers should be aware of several trends in the natural environment. The first involves growing shortages of raw materials. Air and water may seem to be infinite resources, but some groups see long-run dangers. Air pollution chokes many of the world’s large cities, and water shortages are already a big problem in some parts of the United States and the world. By 2030, more than one in three people in the world will not have enough water ChaPter 3 | Analyzing the Marketing Environment 105 to drink.37 Renewable resources, such as forests and food, also have to be used wisely. Nonrenewable resources, such as oil, coal, and various minerals, pose a serious problem. Firms making products that require these scarce resources face large cost increases even if the materials remain available. A second environmental trend is increased pollution. Industry will almost always damage the quality of the natural environment. Consider the disposal of chemical and nuclear wastes; the dangerous mercury levels in the ocean; the quantity of chemical pollutants in the soil and food supply; and the littering of the environment with nonbiodegradable bottles, plastics, and other packaging materials. A third trend is increased government intervention in natural resource management. The governments of different countries vary in their concern and efforts to promote a clean environment. Some, such as the German government, vigorously pursue environmental quality. Others, especially many poorer nations, do little about pollution, largely because they lack the needed funds or political will. In the United States, the Environmental Protection Agency (EPA) was created in 1970 to create and enforce pollution standards and conduct pollution research. In the future, companies doing business in the United States can expect continued strong controls from government and pressure groups. Instead of opposing regulation, marketers should help develop solutions to the materials and energy problems facing the world. Concern for the natural environment has spawned an environmental sustainabilenvironmental sustainability Developing strategies and practices that ity movement. Today, enlightened companies go beyond what government regulations create a world economy that the planet dictate. They are developing strategies and practices that create a world economy that the can support indefinitely. planet can support indefinitely. Environmental sustainability means meeting present needs without compromising the ability of future generations to meet their needs. Many companies are responding to consumer demands with more environmentally responsible products. Others are developing recyclable or biodegradable packaging, recycled materials and components, better pollution controls, and more energy-efficient operations. Nike is not only committed to its economic objectives but positions itself as an advocate of sustainability. To that end, it tries to reduce its environmental impact through its value chain. Its key focus is to create a new generation of goods for maximum athletic performance but minimal environmental impact, an ethos that is held across all of its products. Nike thus transformed £54 million worth of factory scrap into premium materials that were used to make its performance footwear and apparel in fiscal year 2015. Without energy recovery, it diverted 92 percent of the total waste from landfill and incineration in its footwear production. The company launched its energy and carbon program in 2008, and since then, its footwear contract manufacturers have succeeded in cutting energy use per unit in half. Nike is also proud to state that 95 percent of the materials used in its production passed its restricted substance list testing. It hopes that by 2020 it will minimize its environmental footprint through a 10 percent reduction in the average environmental footprint and the elimination of waste from footwear manufacturing being consigned to incineration and landfill. It also hopes to achieve a 20 percent reduction in freshwater use in its finishing and dyeing of textile per unit of production. Ultimately, it is focused on the natural environment: Nike has tried to advocate sustainability through its own achieving 100 percent renewable energy in its practices and its impact on the actions of its value chain. owned and operated facilities through FY25.38 david pearson/Alamy Stock Photo 106 | Part 2 Understanding the Marketplace and Consumer Value Many companies today are looking to do more than just good deeds. More and more, companies are making environmental sustainability a part of their core missions. For example, in accordance with the company’s purpose to make sustainable living commonplace, Knorr has committed itself to sustainable agriculture. Under the motto “Good Taste Is Our Nature,” the brand has positioned itself as a supplier of high-quality products that taste good and are made of natural ingredients (see Real Marketing 3.1). Author Technological advances Comment are perhaps the most dramatic forces affecting today’s marketing strategies. Just think about the tremendous impact on marketing of digital technologies—which have exploded in years. You’ll see examples of the fast-growing world of online, mobile, and social media marketing throughout every chapter, and we’ll discuss them in detail in Chapter 17. technological environment Forces that create new technologies, creating new product and market opportunities. The Technological Environment The technological environment is perhaps the most dramatic force now shaping our destiny. Technology has released such wonders as antibiotics, robotic surgery, smartphones, and the internet. It also has released such horrors as nuclear missiles and assault rifles. It has released such mixed blessings as the automobile, television, and credit cards. Our attitude toward technology depends on whether we are more impressed with its wonders or its blunders. New technologies can offer exciting opportunities for marketers. For example, what would you think about having tiny little transmitters implanted in all the products you buy that would allow tracking of the products from their point of production through use and disposal? How about a bracelet with a chip inserted that would let you make and pay for purchases, receive personalized specials at retail locations, or even track your whereabouts or those of friends? Or how about “beacon” technology that would do all those things using your smartphone? On the one hand, such technologies would provide many advantages to both buyers and sellers. On the other hand, they could be a bit scary. Either way, with the advent of such technologies as radio-frequency identification (RFID), GPS, and Bluetooth, it’s already happening. Many firms are already using RFID technology to track products and customers at various points in the distribution channel. For example, Walmart has strongly encouraged suppliers shipping products to its distribution centers to apply RFID tags to their pallets. And retailers such as American Apparel, Macy’s, and Bloomingdales are now installing item-level RFID systems in their stores. Fashion and accessories maker Burberry even uses chips imbedded in items and linked to smartphones to provide personalized, interactive experiences for customers in its stores and at runway shows.39 Disney is taking RFID technology to new levels with its cool MagicBand RFID wristband:40 Wearing a MagicBand at The Walt Disney World Resort opens up a whole new level of Disney’s famed magic. After registering for cloud-based MyMagic+ services, with the flick of your wrist you can enter a park or attraction, buy dinner or souvenirs, or even unlock your hotel room. But Disney has only begun to tap the MagicBand’s potential for personalizing guest experiences. Future applications could be truly magical. Imagine, for example, the wonder of a child who receives a warm hug from Mickey Mouse or a bow from Prince Charming, who then greets the child by name and wishes her a happy birthday. Imagine animatronics that interact with nearby guests based on personal information supplied in advance. You get separated from family or friends? No problem. A quick scan of your MagicBand at a nearby directory could pinpoint the locations of your entire party. Linked to your Disney phone app, the MagicBand could trigger in-depth information about park features, ride wait times, FastPass check-in alerts, and your reservations schedule. Of course, the MagicBand also offers Disney a potential mother lode of digital data on guest activities and movements in minute detail, helping to improve guest logistics, services, and sales. If all this seems too Big Brother-ish, there will be privacy options—for example, letting parents opt out Marketing technology: Disney is taking rFID technology to new of things like characters knowing children’s names. In all, such levels with its cool new MagicBand rFID wristband. digital technologies promise to enrich the Disney experience for both guests and the company. Bob Croslin Real Marketing ChaPter 3 | Analyzing the Marketing Environment 107 3.1 Unilever’s Knorr: Ways toward a Sustainable Future Populations are growing fast, creating challenges like poverty and lack of food, basic hygiene, and sanitation. These developments and changes affect people all over the world in one way or the other and pose new challenges for enterprises too as commodity costs fluctuate, markets become unstable, and raw materials become harder to source. In order to make its business part of the solution, British–Dutch consumer goods company Unilever launched the Unilever Sustainable Living Plan in 2010, which is its blueprint for sustainable business. The strategic vision is to double the size of the business while reducing the environmental footprint and increasing the company’s positive social impact. The corporation’s purpose is to make sustainable living commonplace. Consequently, Unilever is developing new business practices that promote the company as well as communities, meeting people’s increasing desire for more sustainable products and creating a brighter future for everyone. Against this background, Unilever is accelerating the integration of sustainability into more of their brands, one of which is Knorr, the largest globally within the Unilever corporation. Knorr is a German food and beverage brand owned by Unilever since 2000, when Unilever acquired Best Foods, except in Japan, where it is made under license by Ajinomoto. It produces dehydrated soup mixes and condiments, and in 2012, its global sales contributed more than 6 percent to the corporation’s total sales. In Europe alone, Unilever sells 10 million Knorr products a day, manufactured from 128,000 tonnes of fresh vegetables a year, grown on 120,000 hectares of land that are being cultivated by 5,000 farmers. Vegetables and herbs are the main ingredients of many Knorr products. By means of sustainable cultivation, Unilever wants to reduce its ecological footprint. In order to achieve this target, the corporation created the “Knorr Partnership for Sustainability” initiative in 2010, relying on close cooperation with suppliers and farmers. By 2012, all of Knorr’s vegetable and herb suppliers had signed up to the “Knorr Partnership for Sustainability.” Having chosen sustainable sourcing as its key focus, Knorr already purchases over 90 percent of its top 13 vegetables and herbs globally from sustainable sources. By 2020, all of the further agricultural raw materials should follow. This is in line with the company’s Knorr Chefs are its brand ambassadors and are integrated into all communications measures. Paul Maguire/Alamy Stock Photo. mission, for it believes that the widespread adoption of sustainable agriculture is crucial if over 9 billion people are to be fed without further depleting the planet’s natural resources. Sustainable farming methods have the potential to increase yields considerably, mitigate the effects of climate change, and provide economic and social benefits to smallholder farmers and rural communities. In addition, sourcing sustainably helps secure Unilever’s supplies and reduces risk and volatility in their raw material supply chains. Sourcing sustainably also opens up opportunities for innovation: by focusing on people’s sustainable living needs and consumer preference, Unilever enhances the brand equity of Knorr. In this respect, the company also helps farmers to farm sustainably via various initiatives such as the “Knorr Sustainability Partnership Fund.” The aim of the fund is to support farmers on complex sustainable agriculture projects. Knorr will invest 50 percent of any agreed project budget, matched by an equivalent investment from their partner. This allows farmers to try out new ideas and accelerate implementation of sustainable agricultural practices. Within the scope of this initiative, Knorr invests $1 million every year in knowledge and equipment for their farmers to accelerate the implementation of sustainable practices. In order to differentiate itself from the competition and at the same time meet the increasing information demands of consumers regarding the sources and manufacture of foods, Knorr began in 2010 to better communicate its commitment to sustainable agriculture. Under the motto “Good Taste Is Our Nature,” a campaign was launched with the aim of positioning Knorr as a supplier of high-quality products that taste good and are made of natural ingredients. At Knorr in Germany, over 40 chefs are responsible for optimizing the recipes of existing products and creating new products. They are convinced that flavorsome, high-quality ingredients come from responsible cultivation. Credibility for the Knorr chefs is a further target for this campaign. The campaign aims are to be met by means of the following strategy: The Knorr Chefs as well as its farmers and suppliers give the brand a face and translate complex issues. Instruments of dialogue such as social media are used in addition to regular events to create proximity, increase transparency, enable a positive brand experience, and thus turn consumers and employees into ambassadors. Knorr communicates its commitment to high product quality and sustainable agriculture through comprehensive above-theline and below-the-line measures. The mix of communications includes TV commercials, print advertisements, promotions at points of sale, and extensive online activity on the brand website, in addition to setting up a separate website for specific initiatives. The brand 108 | Part 2 Understanding the Marketplace and Consumer Value introduced its first on-pack sustainability logo in 2012 in order to help consumers choose products with sustainably sourced ingredients. The PR campaign also included a communications manual defining the key messages for various communicators (marketing, chefs, etc.) and to differentiate between the ways of addressing target groups (consumers, journalists, NGOs, etc.). A “Town Vegetables/Allotment” event at the beginning of the campaign drew attention and consumer engagement. Consumers could apply as “city farmers” and grow their own vegetables in 100 gardens supplied by Knorr. The central point in the campaign is the Knorr Chefs as brand ambassadors, integrated into all communications measures. Among Knorr’s other events, they play a central role in the “Knorr Market Day,” staged in the foyer of the Unilever House in Germany. Journalists, opinion-makers, staff, and consumers get to know the Knorr Chefs during a round table and at show-cooking. At market stands, guests can obtain information about Knorr products and the cultivation and processing of ingredients during talks with employees as well as with farmers and suppliers. A word-of-mouth action whereby product testers were sought for the Knorr Gourmet Political environment Laws, government agencies, and pressure groups that influence and limit various organizations and individuals in a given society. Vine Tomato Soup, winner of a taste test from 13 packaged tomato soups, provided online entertainment and generated buzz. The launch is provided by a comprehensive press pack at the start of the initiative. Further press releases are on the subject of the work of the Chefs as product developers and brand ambassadors and inform about the progress made in sustainability commitment. The emphasis in the media work is on the press conference in the context of the Market Day with representatives of the company, Chefs, suppliers and farmers. The Town Vegetables/Allotment event succeeded in addressing a relevant topic that consumers could relate to emotionally and which generated media interest. More than 7,000 applications were received. More than 100 reports, especially from media with broad coverage, successfully mediate the message. Knorr also chose well in launching a Facebook fan page: positive messages outnumbered the negative from the start, and interaction by the Knorr fans surpasses that of the fans of its direct competitor. The participation in actions and discussions with critical customers is lively and creates a positive resonance in the press. Knorr Market Day made a decisive contribution to the transparency and credibility of the communications and enabled high-value direct contact. The many media representatives and the several thousand consumers in attendance testified to the attraction and success of the event. Unilever has been committed to sustainable agriculture since 1998 and has so far invested more than €25 million in research and development. This is also why the corporation is heading the Dow Jones Sustainability Index (DJSI) for the 15th time as the most sustainable company in the food sector. In Germany, Unilever was awarded the German Sustainability Prize 2012 in the “Most Sustainable Future Strategy” category. In addition, CEO Paul Polman has been awarded the United Nation’s highest environmental accolade, the Champion of the Earth Award, for leading the business world toward a new model of sustainable growth, which demonstrates that the transition to a sustainable and socially responsible economy is an opportunity to be seized, not a risk to be managed. Sources: Information from http://www.unilever.de/sustainable-living and http://www.knorr.de, accessed October 2015; the authors would like to thank Katja Wagner, Marketing Lead Knorr at Unilever, for her contribution to this case. The technological environment changes rapidly, creating new markets and opportunities. However, every new technology replaces an older technology. Transistors hurt the vacuum-tube industry, digital photography hurt the film business, and digital downloads and streaming are hurting the DVD and book businesses. When old industries fight or ignore new technologies, their businesses decline. Thus, marketers should watch the technological environment closely. Companies that do not keep up will soon find their products outdated. If that happens, they will miss new product and market opportunities. As products and technologies become more complex, the public needs to know that these items are safe. Thus, government agencies investigate and ban potentially unsafe products. In the United States, the Food and Drug Administration (FDA) has created complex regulations for testing new drugs. The Consumer Product Safety Commission (CPSC) establishes safety standards for consumer products and penalizes companies that fail to meet them. Such regulations have resulted in much higher research costs and longer times between new product ideas and their introduction. Marketers should be aware of these regulations when applying new technologies and developing new products. The Political–Social and Cultural Environments Author Even the strongest freeComment market advocates agree that the system works best with at least some regulation. But beyond regulation, most companies want to be socially responsible. We’ll dig deeper into marketing and social responsibility in Chapter 20. The Political and Social Environment Marketing decisions are strongly affected by developments in the political environment. The political environment consists of laws, government agencies, and pressure groups that influence or limit various organizations and individuals in a given society. Legislation Regulating Business Even the strongest advocates of free-market economies agree that the system works best with at least some regulation. Well-conceived regulation can encourage competition and ensure fair markets for goods and services. Thus, governments develop public policy to guide commerce—sets of laws and regulations that limit business for the good of society as a whole. Almost every marketing activity is subject to a wide range of laws and regulations. ChaPter 3 | Analyzing the Marketing Environment 109 Legislation affecting business around the world has increased steadily over the years. The United States and many other countries have many laws covering issues such as competition, fair-trade practices, environmental protection, product safety, truth in advertising, consumer privacy, packaging and labeling, pricing, and other important areas (see table 3.1). Understanding the public policy implications of a particular marketing activity is not a simple matter. In the United States, there are many laws created at the national, state, and local levels, and these regulations often overlap. For example, aspirin products sold in Dallas are governed by both federal labeling laws and Texas state advertising laws. Moreover, regulations are constantly changing; what was allowed last year may now be prohibited, and what was prohibited may now be allowed. Marketers must work hard to keep up with changes in regulations and their interpretations. Business legislation has been enacted for a number of reasons. The first is to protect companies from each other. Although business executives may praise competition, they sometimes try to neutralize it when it threatens them. Therefore, laws are passed to define and prevent unfair competition. In the United States, such laws are enforced by the Federal Trade Commission (FTC) and the Antitrust Division of the Attorney General’s office. The second purpose of government regulation is to protect consumers from unfair business practices. Some firms, if left alone, would make shoddy products, invade consumer privacy, mislead consumers in their advertising, and deceive consumers through their packaging and pricing. Rules defining and regulating unfair business practices are enforced by various agencies. The third purpose of government regulation is to protect the interests of society against unrestrained business behavior. Profitable business activity does not always create a better quality of life. Regulation arises to ensure that firms take responsibility for the social costs of their production or products. International marketers will encounter dozens, or even hundreds, of agencies set up to enforce trade policies and regulations. In the United States, Congress has established federal regulatory agencies, such as the FTC, the FDA, the Federal Communications Commission, the Federal Energy Regulatory Commission, the Federal Aviation Administration, the Consumer Product Safety Commission, the Environmental Protection Agency, and hundreds of others. Because such government agencies have some discretion in enforcing the laws, they can have a major impact on a company’s marketing performance. New laws and their enforcement will continue to increase. Business executives must watch these developments when planning their products and marketing programs. Marketers need to know about the major laws protecting competition, consumers, and society. They need to understand these laws at the local, state, national, and international levels. Increased Emphasis on Ethics and Socially Responsible Actions Written regulations cannot possibly cover all potential marketing abuses, and existing laws are often difficult to enforce. However, beyond written laws and regulations, business is also governed by social codes and rules of professional ethics. Socially Responsible Behavior. Enlightened companies encourage their managers to look beyond what the regulatory system allows and simply “do the right thing.” These socially responsible firms actively seek out ways to protect the long-run interests of their consumers and the environment. Almost every aspect of marketing involves ethics and social responsibility issues. Unfortunately, because these issues usually involve conflicting interests, well-meaning people can honestly disagree about the right course of action in a given situation. Thus, many industrial and professional trade associations have suggested codes of ethics. And more companies are now developing policies, guidelines, and other responses to complex social responsibility issues. The boom in online, mobile, and social media marketing has created a new set of social and ethical issues. Critics worry most about online privacy issues. There has been an explosion in the amount of personal digital data available. Users themselves supply some of it. They voluntarily place highly private information on social media sites, such as Facebook or LinkedIn, or on genealogy sites that are easily searched by anyone with a computer or a smartphone. However, much of the information is systematically developed by businesses seeking to learn more about their customers, often without consumers realizing that they are under the microscope. Legitimate businesses track consumers’ online browsing and buying behavior and collect, analyze, and share digital data from every move consumers make at 110 | Part 2 Understanding the Marketplace and Consumer Value Table 3.1 | Major U.S. Legislation Affecting Marketing Legislation Purpose Sherman Antitrust Act (1890) Prohibits monopolies and activities (price-fixing, predatory pricing) that restrain trade or competition in interstate commerce. Federal Food and Drug Act (1906) Created the Food and Drug Administration (FDA). It forbids the manufacture or sale of adulterated or fraudulently labeled foods and drugs. Clayton Act (1914) Supplements the Sherman Act by prohibiting certain types of price discrimination, exclusive dealing, and tying clauses (which require a dealer to take additional products in a seller’s line). Federal Trade Commission Act (1914) Established the Federal Trade Commission (FTC), which monitors and remedies unfair trade methods. Robinson-Patman Act (1936) Amends the Clayton Act to define price discrimination as unlawful. Empowers the FTC to establish limits on quantity discounts, forbid some brokerage allowances, and prohibit promotional allowances except when made available on proportionately equal terms. Wheeler-Lea Act (1938) Makes deceptive, misleading, and unfair practices illegal regardless of injury to competition. Places advertising of food and drugs under FTC jurisdiction. Lanham Trademark Act (1946) Protects and regulates distinctive brand names and trademarks. National Traffic and Safety Act (1958) Provides for the creation of compulsory safety standards for automobiles and tires. Fair Packaging and Labeling Act (1966) Provides for the regulation of the packaging and labeling of consumer goods. Requires that manufacturers state what the package contains, who made it, and how much it contains. Child Protection Act (1966) Bans the sale of hazardous toys and articles. Sets standards for child-resistant packaging. Federal Cigarette Labeling and Advertising Act (1967) Requires that cigarette packages contain the following statement: “Warning: The Surgeon General Has Determined That Cigarette Smoking Is Dangerous to Your Health.” National Environmental Policy Act (1969) Establishes a national policy on the environment. The 1970 Reorganization Plan established the Environmental Protection Agency (EPA). Consumer Product Safety Act (1972) Establishes the Consumer Product Safety Commission (CPSC) and authorizes it to set safety standards for consumer products as well as exact penalties for failing to uphold those standards. Magnuson-Moss Warranty Act (1975) Authorizes the FTC to determine rules and regulations for consumer warranties and provides consumer access to redress, such as the class action suit. Children’s Television Act (1990) Limits the number of commercials aired during children’s programs. Nutrition Labeling and Education Act (1990) Requires that food product labels provide detailed nutritional information. Telephone Consumer Protection Act (1991) Establishes procedures to avoid unwanted telephone solicitations. Limits marketers’ use of automatic telephone dialing systems and artificial or prerecorded voices. Americans with Disabilities Act (1991) Makes discrimination against people with disabilities illegal in public accommodations, transportation, and telecommunications. Children’s Online Privacy Protection Act (2000) Prohibits websites or online services operators from collecting personal information from children without obtaining consent from a parent and allowing parents to review information collected from their children. Do-Not-Call Implementation Act (2003) Authorizes the FTC to collect fees from sellers and telemarketers for the implementation and enforcement of a national Do-Not-Call Registry. CAN-SPAM Act (2003) Regulates the distribution and content of unsolicited commercial email. Financial Reform Law (2010) Created the Bureau of Consumer Financial Protection, which writes and enforces rules for the marketing of financial products to consumers. It is also responsible for enforcement of the Truth-inLending Act, the Home Mortgage Disclosure Act, and other laws designed to protect consumers. ChaPter 3 | Analyzing the Marketing Environment 111 their online sites. Critics worry that these companies may now know too much and might use digital data to take unfair advantage of consumers. Although most companies fully disclose their internet privacy policies and most try to use data to benefit their customers, abuses do occur. As a result, consumer advocates and policy makers are taking action to protect consumer privacy. In Chapters 4 and 20, we discuss these and other societal marketing issues in greater depth. Cause-Related Marketing. To exercise their social responsibility and build more positive images, many companies are now linking themselves to worthwhile causes. These days, every product seems to be tied to some cause. For example, the P&G “Tide Loads of Hope” program provides mobile laundromats and loads of clean laundry to families in disaster-stricken areas—P&G washes, dries, and folds clothes for these families for free. Shake Shack runs an annual Great American Shake Sale: If you donate at least $2 at the register to Share Our Strength’s No Kid Hungry program dedicated to ending child hunger in And America, you get a $5 shake free on your next visit. AT&T joined forces with competitors Verizon, Sprint, and T-Mobile to spearhead the “It Can Wait” campaign, which addresses the texting-while-driving epidemic by urging people of all ages to take the pledge to never text and drive. The campaign’s cause-related message: “No text is worth the risk. It can wait.”41 Some companies are founded on cause-related missions. Under the concept of “values-led business” or “caring capitalism,” their mission is to use business to make the world a better place. For example, Warby Parker—the online marketer of low-priced prescription eyewear—was founded with the hope of bringing affordable eyewear to the masses. The company sells “eyewear with a purpose.” For every pair of glasses Warby Parker sells, it distributes a free pair to someone in need. The company also works with not-for-profit organizations that train low-income entrepreneurs to sell affordable glasses. “We believe that everyone has the right to see,” says the company.42 Cause-related marketing: at&t joined forces with competitors Cause-related marketing has become a primary form of Verizon, Sprint, and t-Mobile to spearhead the “It Can Wait” corporate giving. It lets companies “do well by doing good” campaign, which urges people of all ages to take the pledge to by linking purchases of the company’s products or services never text and drive. with benefiting worthwhile causes or charitable organizaCourtesy of AT&T Intellectual Property. Used with permission. tions. Beyond being socially admirable, Warby Parker’s Buy a Pair, Give a Pair program also makes good economic sense, for both the company and its customers. “Companies can do good in the world while still being profitable,” says Warby Parker co-founder Neil Blumenthal. “A single pair of reading glasses causes, on average, a 20 percent increase in income. Glasses are one of the most effective poverty alleviation tools in the world.”43 Cause-related marketing has also stirred some controversy. Critics worry that cause-related marketing is more a strategy for selling than a strategy for giving—that “cause-related” marketing is really “cause-exploitative” marketing. Thus, companies using cause-related marketing might find themselves walking a fine line between increased sales and an improved image and facing charges of exploitation. However, if handled well, cause-related marketing can greatly benefit both the company and the cause. The company Cultural environment gains an effective marketing tool while building a more positive public image. The chariInstitutions and other forces that affect table organization or cause gains greater visibility and important new sources of funding society’s basic values, perceptions, and support. Spending on cause-related marketing in the United States skyrocketed from preferences, and behaviors. only $120 million in 1990 to $2 billion in 2016.44 Author Cultural factors strongly Comment affect how people think and how they consume, so marketers are keenly interested in the cultural environment. The Cultural Environment The cultural environment consists of institutions and other forces that affect a society’s basic values, perceptions, preferences, and behaviors. People grow up in a particular society that shapes their basic beliefs and values. They absorb a worldview that defines their 112 | Part 2 Understanding the Marketplace and Consumer Value relationships with others. The following cultural characteristics can affect marketing decision making. The Persistence of Cultural Values People in a given society hold many beliefs and values. Their core beliefs and values have a high degree of persistence. For example, most Americans believe in individual freedom, hard work, getting married, and achievement and success. These beliefs shape more specific attitudes and behaviors found in everyday life. Core beliefs and values are passed on from parents to children and are reinforced by schools, businesses, religious institutions, and government. Secondary beliefs and values are more open to change. Believing in marriage is a core belief; believing that people should get married early in life is a secondary belief. Marketers have some chance of changing secondary values but little chance of changing core values. For example, family-planning marketers could argue more effectively that people should get married later than not get married at all. Shifts in Secondary Cultural Values Although core values are fairly persistent, cultural swings do take place. Consider the impact of popular music groups, movie personalities, and other celebrities on young people’s hairstyle and clothing norms. Marketers want to predict cultural shifts to spot new opportunities or threats. The major cultural values of a society are expressed in people’s views of themselves and others as well as in their views of organizations, society, nature, and the universe. People’s Views of Themselves. People vary in their emphasis on serving themselves versus serving others. Some people seek personal pleasure, wanting fun, change, and escape. Others seek self-realization through religion, recreation, or the avid pursuit of careers or other life goals. Some people see themselves as sharers and joiners; others see themselves as individualists. People use products, brands, and services as a means of self-expression, and they buy products and services that match their views of themselves. Marketers can position their brands to appeal to specific self-view segments. For example, consider Sperry, maker of storied Sperry Top-Sider boat shoes:45 Sperry first introduced its iconic Top-Sider shoes in 1935 as the perfect non-slip boat shoe for rough seas and slippery decks. That nautical legacy remains an important part of Sperry’s positioning. The brand’s recent “Odysseys Await” marketing campaign confirms that the sure-footed shoes are built for adventurous soles who can’t stay put. The campaign targets “intrepid consumers”—active millennials who view themselves as adventurous, authentic, bold, and creative. “There’s a certain section of Millennials that really look at life as an opportunity,” says a Sperry marketer. They “want to have meaningful experiences and align with brands that provide opportunities for such.” The “Odysseys Await” campaign reconnects the brand with the sea, featuring intrepid consumers having nautical adventures, jumping off boats, sailing, and diving off cliffs. Headlines such as “The best stories are written with your feet,” “Keep your laces tight and your plans loose,” “Try living for a living,” and “If Earth has an edge, find it” suggest that Sperry Top-Siders are more than just shoes. They are the embodiment of customers’ self-views and lifestyles. People’s Views of Others. People’s attitudes toward and interactions with others shift over time. In recent years, some analysts have voiced concerns that the digital age would result in diminished human interaction, as people buried themselves in social media pages or emailed and texted rather than interacting personally. Instead, today’s digital technologies seem to have launched an era of what one trend watcher calls “mass mingling.” Rather than interacting less, people are using social media and mobile communications to connect more than ever. Basically, the more people meet, network, text, and socialize online, the more likely they are to eventually meet up with friends and followers in the real world. However, these days, even when people are together, they are often “alone together.” Groups of people may sit or walk in their own little bubbles, intensely connected to tiny screens and keyboards. One expert describes the latest communication skill as “maintaining eye contact with someone while you text someone else; it’s hard but it can be done,” she says. “Technology-enabled, we are able to be with one another, and also ‘elsewhere,’ connected to wherever we want to be.”46 Thus, whether the new technology-driven ChaPter 3 | Analyzing the Marketing Environment 113 communication is a blessing or a curse is a matter of much debate. This new way of interacting strongly affects how companies market their brands and communicate with customers. Consumers increasingly tap digitally into networks of friends and online brand communities to learn about and buy products and to shape and share brand experiences. As a result, it is important for brands to participate in these networks too. People’s Views of Organizations. People vary in their attitudes toward corporations, government agencies, trade unions, universities, and other organizations. By and large, people are willing to work for major organizations and expect them, in turn, to carry out society’s work. The past two decades have seen a sharp decrease in confidence in and loyalty toward America’s busiPeople’s views of others: today’s digital technologies have launched a ness and political organizations and institutions. In the new era of mass mingling. However, even when people are together, they workplace, there has been an overall decline in organiare often “alone together”—immersed in their own little bubbles, intensely zational loyalty. Waves of company downsizings bred connected to tiny screens and keyboards. cynicism and distrust. In just the past decade, major Dmitriy Shironosov/123RF corporate scandals, rounds of layoffs resulting from the Great Recession, the financial meltdown triggered by Wall Street bankers’ greed and incompetence, and other unsettling activities have resulted in a further loss of confidence in big business. Many people today see work not as a source of satisfaction but as a required chore to earn money to enjoy their nonwork hours. This trend suggests that organizations need to find new ways to win consumer and employee confidence. People’s Views of Society. People vary in their attitudes toward their society—patriots defend it, reformers want to change it, and malcontents want to leave it. People’s orientation to their society influences their consumption patterns and attitudes toward the marketplace. American patriotism has been increasing gradually for the past two decades. One annual consumer survey shows that some brands are highly associated with patriotism, such as Jeep, Coca-Cola, Disney, Levi Strauss, Harley-Davidson, Gillette, and Apple. Marketers respond with renewed “Made in America” pitches and ads with patriotic themes. For example, last summer Coca-Cola launched a limited-edition red, white, and blue flag can surrounding the July 4 holiday with the patriotic song lyric “I’m proud to be an American” on the label. Apple recently kicked off a $100 million “Made in America” push with the introduction of a new high-end Mac Pro personal computer. The Mac Pro, “the most powerful Mac ever,” is built in Austin, Texas, with components made domestically. And Jeep’s recent patriotic “Portraits” Super Bowl ad—which featured famous and ordinary faces of Americans who’ve driven Jeeps through 75 years of wars, peace, boom times, and bust—resonated strongly with Americans. “We don’t make Jeep,” concludes the ad, “you do.”47 Although most such marketing efforts are tasteful and well received, waving the red, white, and blue can sometimes prove tricky. Flag-waving promotions can be viewed as corny or as token attempts to cash in on the nation’s emotions. For example, some critics note that, so far, Apple’s “Made in America” push hasn’t had much real impact. The Mac Pro contributes less than 1 percent of Apple’s total revenues. More than 70 percent of the company’s revenues come from its iPhone and iPad products, both built in China. Marketers must take care when appealing to patriotism and other strong national emotions. People’s Views of Nature. People vary in their attitudes toward the natural world— some feel ruled by it, others feel in harmony with it, and still others seek to master it. A long-term trend has been people’s growing mastery over nature through technology and the belief that nature is bountiful. More recently, however, people have recognized that nature is finite and fragile; it can be destroyed or spoiled by human activities. This renewed love of things natural has created a sizable market of consumers who seek out everything from natural, organic, and nutritional products to fuel-efficient cars 114 | Part 2 Understanding the Marketplace and Consumer Value and alternative medicines. These consumers make up a sizable and growing market. For example, food producers have also found fast-growing markets for natural and organic products. In total, the U.S. organic/natural food market now generates $45 billion in annual retail sales and will grow to an estimated $200 billion by 2019.48 Annie’s Homegrown, a General Mills company, caters to this market with sustainable, all-natural food products— from mac and cheese to pizzas, pastas, snacks, and salad dressings—made and sold in a sustainable way:49 riding the trend toward all things natural: annie’s is out to create a happier and healthier world with nourishing foods and responsible conduct that is “forever kind to the planet.” General Mills Marketing, Inc. Author Rather than simply Comment watching and reacting to the marketing environment, companies should take proactive steps. Annie’s is out to create a happier and healthier world with nourishing foods and responsible conduct that is “forever kind to the planet.” Annie’s products are made from simple, natural ingredients grown by its farm partners. The products contain “no artificial anything,” says the company. “If it’s not real, it’s not Annie’s.” The company works closely with its food supply-system partners to jointly raise the bar for sustainability and organics. Annie’s also makes sustainable practices a top priority with its packaging—more than 90 percent of Annie’s packaging by weight is recyclable. Finally, Annie’s gives back to the community through programs such as sustainable agriculture scholarships, school garden programs, and support for like-minded organizations dedicated to making the planet a better place to live and eat. People’s Views of the Universe. Finally, people vary in their beliefs about the origins of the universe and their place in it. Although most Americans practice religion, religious conviction and practice have been dropping off gradually through the years. According to a recent poll, 22 percent of Americans now say they are not affiliated with any particular faith, up from about 17 percent just seven years prior. Among Americans ages 18 to 29, more than one-third say they are not currently affiliated with any particular religion.50 However, the fact that people are dropping out of organized religion doesn’t mean that they are abandoning their faith. Some futurists have noted a renewed interest in spirituality, perhaps as a part of a broader search for a new inner purpose. People have been moving away from materialism and dog-eat-dog ambition to seek more permanent values—family, community, earth, faith—and a more certain grasp of right and wrong. Rather than calling it “religion,” they call it “spirituality.” One recent survey found that whereas Americans have become less religious in recent years, the share of people who feel a deep sense of “spiritual peace and well-being” as well as a deep sense of “wonder about the universe” has risen.51 This changing spiritualism affects consumers in everything from the television shows they watch and the books they read to the products and services they buy. Responding to the Marketing Environment Someone once observed, “There are three kinds of companies: those who make things happen, those who watch things happen, and those who wonder what’s happened.” Many companies view the marketing environment as an uncontrollable element to which they must react and adapt. They passively accept the marketing environment and do not try to change it. They analyze environmental forces and design strategies that will help the company avoid the threats and take advantage of the opportunities the environment provides. Other companies take a proactive stance toward the marketing environment. Rather than assuming that strategic options are bounded by the current environment, these firms develop strategies to change the environment. Companies and their products often create and shape new industries and their structures, products such as Ford’s Model T car, Apple’s iPod and iPhone, Google’s search engine, and Amazon’s online marketplace. Even more, rather than simply watching and reacting to environmental events, proactive firms take aggressive actions to affect the publics and forces in their marketing environment. Such companies hire lobbyists to influence legislation affecting their industries ChaPter 3 | Analyzing the Marketing Environment 115 and stage media events to gain favorable press coverage. They take to the social media and run blogs to shape public opinion. They press lawsuits and file complaints with regulators to keep competitors in line, and they form contractual agreements to better control their distribution channels. By taking action, companies can often overcome seemingly uncontrollable environmental events. For example, whereas some companies try to hush up negative talk about their products, others proactively counter false information. McDonald’s did this when a photo went viral showing unappetizing “mechanically separated chicken” (also known as “pink goop”) and associating it with the company’s Chicken McNuggets:52 McDonald’s quickly issued statements disclaiming the pink goop photo as a hoax and noting that McNuggets are made using only boneless white breast meat chicken in a process that never produces anything remotely resembling the weird pink substance. But McDonald’s took its response an important step further. It created its own nearly three-minute social media video giving a tour of a company processing plant in Canada, showing the step-by-step process by which McNuggets are made. In the process, fresh chicken breasts are ground and seasoned, stamped into four nugget shapes (balls, bells, boots, and bow ties), battered, flash-fried, frozen, packaged, and shipped out to local McDonald’s restaurants where they are fully cooked. There’s not a trace of the gross pink goop anywhere in the process. The proactive video itself went viral, garnering more than 3.5 million YouTube views in less than six weeks. As a follow-up, McDonald’s launched an “Our Food. Your Questions.” campaign inviting consumers to submit questions about its food-making processes via Facebook, Twitter, YouTube, and other social media. It then addressed the top concerns in a series of “behind-the-scenes” webisodes. Real Marketing Marketing management cannot always control environmental forces. In many cases, it must settle for simply watching and reacting to the environment. For example, a company would have little success trying to influence geographic population shifts, the economic environment, or major cultural values. But whenever possible, smart marketing managers take a proactive rather than reactive approach to the marketing environment (see Real Marketing 3.2). 3.2 In the Social Media age: When the Dialogue Gets Nasty Marketers have hailed the internet and social media as the great new way to engage customers and nurture customer relationships. In turn, today’s more-empowered consumers use the new digital media to share their brand experiences with companies and with each other. All of this back and forth helps both the company and its customers. But sometimes, the dialogue can get nasty. Consider the following examples: • Upon receiving a severely damaged computer monitor via FedEx, YouTube user goobie55 posts footage from his security camera. The video clearly shows a FedEx delivery man hoisting the monitor package over his head and tossing it over goobie55’s front gate without ever attempting to ring the bell, open the gate, or walk the package to the door. The video—with FedEx’s familiar purple and orange logo prominently displayed on everything from the driver’s shirt to the package and the truck—goes viral, with 5 million hits in just five days. TV news and talk shows go crazy discussing the clip. • A young creative team at Ford’s ad agency in India produces a Ford Figo print ad and releases it to the internet without approval. The ad features three women— bound, gagged, and scantily clad—in the hatch of a Figo, with a caricature of a grinning Silvio Berlusconi (Italy’s sexscandal-plagued ex-prime minister) at the wheel. The ad’s tagline: “Leave your worries behind with Figo’s extra-large boot (trunk).” Ford quickly pulls the ad, but not before it goes viral. Within days, millions of people around the world have viewed the ad, causing an online uproar and giving Ford a global black eye. • When eight-year-old Harry Winsor sends a crayon drawing of an airplane he’s designed to Boeing with a suggestion that the company might want to manufacture it, the company responds with a stern, legal-form letter. “We do not accept unso- licited ideas,” the letter states. “We regret to inform you that we have disposed of your message and retain no copies.” The embarrassing blunder would probably go unnoticed were it not for the fact that Harry’s father—John Winsor, a prominent ad exec—blogs and tweets about the incident, making it instant national news. Extreme events? Not anymore. The internet and social media have turned the traditional power relationship between businesses and consumers upside down. In the good old days, disgruntled consumers could do little more than bellow at a company service rep or shout out their complaints from a street corner. Now, armed with only a laptop or smartphone, they can take it public, airing their gripes to millions on blogs, social media sites, or even hate sites devoted exclusively to their least favorite corporations. “A consumer’s megaphone is now [sometimes] more powerful than a brand’s,” says one ad agency executive. “Individuals can bring 116 | Part 2 Understanding the Marketplace and Consumer Value a huge company to its knees … simply by sharing their experiences and opinions on Facebook, Yelp, Twitter, Instagram, or other social forums.” “I hate” and “sucks” sites are almost commonplace. These sites target some highly respected companies with some highly disrespectful labels: Walmartblows. com, PayPalSucks.com (aka NoPayPal), IHateStarbucks.com, DeltaREALLYsucks.com, and UnitedPackageSmashers.com (UPS), to name only a few. “Sucks” videos on YouTube and other video sites also abound. For example, a search of “Apple sucks” on YouTube turns up more than 600,000 videos; a search for Microsoft finds 143,000 videos. An “Apple sucks” search on Facebook links to hundreds of groups. If you don’t find one you like, try “Apple suks” or “Apple sux” for hundreds more. Some of these sites, videos, and other online attacks air legitimate complaints that should be addressed. Others, however, are little more than anonymous, vindictive slurs that unfairly ransack brands and corporate reputations. Some of the attacks are only a passing nuisance; others can draw serious attention and create real headaches. How should companies react to online attacks? The real quandary for targeted companies is figuring out how far they can go to protect their images without fueling the already-raging fire. One point on which all experts seem to agree: Don’t try to retaliate in kind. “It’s rarely a good idea to lob bombs at the fire starters,” says one analyst. “Preemption, engagement, and diplomacy are saner tools.” Such criticisms are often based on real consumer concerns and unresolved anger. Hence, the best strategy might be to proactively monitor these sites and respond honestly to the concerns they express. For example, Boeing quickly took responsibility for mishandling aspiring Harry Winsor’s designs, turning a potential PR disaster into a positive. It called and invited young Harry to visit Boeing’s facilities. On its corporate Twitter site, it confessed, “We’re experts at airplanes but novices in social media. We’re learning as we go.” In response to its Figo ad fiasco, Ford’s chief marketing officer issued a deep public apology, citing that Ford had not approved the ads and that it had since modified its ad review process. Ford’s ad agency promptly fired the guilty creatives. Similarly, FedEx drew praise by immediately posting its own YouTube video addressing the monitor-smashing incident. In the video, FedEx Senior Vice President of Operations Matthew Thornton stated that he had personally met with the aggrieved customer, who had today’s empowered consumers: Boeing’s embarrassing blunder over young Harry Winsor’s airplane design made instant national news. However, Boeing quickly took responsibility and turned the potential Pr disaster into a positive. John Winsor accepted the company’s apology. “This goes directly against all FedEx values,” declared Thornton. The FedEx video struck a responsive chord. Numerous journalists and bloggers responded with stories about FedEx’s outstanding package handling and delivering record. Many companies have now created teams of specialists that monitor online conversations and engage unhappy consumers. For example, the social care team at Southwest Airlines includes a chief Twitter officer who tracks Twitter comments and monitors Facebook groups, an online representative who checks facts and interacts with bloggers, and another person who takes charge of the company’s presence on sites such as YouTube, Instagram, Flickr, and LinkedIn. So if someone posts an online comment, the company can respond promptly in a personal way. Not long ago, Southwest’s team averted what could have been a major PR catastrophe when a hole popped open in a plane’s fuselage on a flight from Phoenix to Sacramento. The flight had Wi-Fi, and the first passenger tweet about the incident, complete with a photo, was online in only nine minutes—11 minutes before Southwest’s official dispatch channel report. But Southwest’s monitoring team picked up the social media chatter and was able to craft a blog post and other social media responses shortly after the plane made an emergency landing in Yuma, Arizona. By the time the story hit the major media, the passenger who had tweeted initially was back on Twitter praising the Southwest crew for its professional handling of the situation. Thus, by monitoring and proactively responding to seemingly uncontrollable events in the environment, companies can prevent the negatives from spiraling out of control or even turn them into positives. Who knows? With the right responses, Walmartblows.com might even become Walmartrules.com. Then again, probably not. Sources: See Matt Wilson, “How Southwest Airlines Wrangled Four Social Media Crises,” Ragan.com, February 20, 2013, www.ragan.com/Main/Articles/How_Southwest_Airlines_wrangled_four_social_media_46254.aspx#; Vanessa Ko, “FedEx Apologizes after Video of Driver Throwing Fragile Package Goes Viral,” Time, December 23, 2011, http://newsfeed.time.com/2011/12/23/fedex-apologizes-after-video-of-driver-throwing-fragile-packagegoes-viral/; Michelle Conlin, “Web Attack,” BusinessWeek, April 16, 2007, pp. 54–56; “Boeing’s Social Media Lesson,” May 3, 2010, http://mediadecoder.blogs.nytimes.com/2010/05/03/boeings-social-media-lesson/; Brent Snavely, “Ford Marketing Chief Apologizes for Ads,” USA Today, March 27, 2013; Benet J. Wilson, “Southwest Airlines Steps Up Its Social Media Game during Jonas Snowstorm,” Airways News, February 3, 2016, http:// airwaysnews.com/blog/2016/02/03/swa-sm-jonas/; and www.youtube.com/watch?v=C5uIH0VTg_o, accessed September 2016. ChaPter 3 3 | Analyzing the Marketing Environment 117 Reviewing and Extending the Concepts ObjEctivEs REviEw And KEy tERMs Objectives review In this and the next two chapters, you’ll examine the environments of marketing and how companies analyze these environments to better understand the marketplace and consumers. Companies must constantly watch and manage the marketing environment to seek opportunities and ward off threats. The marketing environment consists of all the actors and forces influencing the company’s ability to transact business effectively with its target market. Objective 3-1 Describe the environmental forces that affect the company’s ability to serve its customers. (pp 92–96) The company’s microenvironment consists of actors close to the company that combine to form its value delivery network or that affect its ability to serve customers. It includes the company’s internal environment—its several departments and management levels—as it influences marketing decision making. Marketing channel firms— suppliers, marketing intermediaries, physical distribution firms, marketing services agencies, and financial intermediaries—cooperate to create customer value. Competitors vie with the company in an effort to serve customers better. Various publics have an actual or potential interest in or impact on the company’s ability to meet its objectives. Finally, five types of customer markets exist: consumer, business, reseller, government, and international markets. The macroenvironment consists of larger societal forces that affect the entire microenvironment. The six forces making up the company’s macroenvironment are demographic, economic, natural, technological, political/social, and cultural forces. These forces shape opportunities and pose threats to the company. Objective 3-2 explain how changes in the demographic and economic environments affect marketing decisions. (pp 96–104) Demography is the study of the characteristics of human populations. Today’s demographic environment shows a changing age structure, shifting family profiles, geographic population shifts, a better-educated and more white-collar population, and increasing diversity. The economic environment consists of factors that affect buying power and patterns. The economic environment is characterized by more frugal consumers who are seeking greater value—the right combination of good quality and service at a fair price. The distribution of income also is shifting. The rich have grown richer, the middle class has shrunk, and the poor have remained poor, leading to a two-tiered market. Objective 3-3 Identify the major trends in the firm’s natural and technological environments. (pp 104–108) The natural environment shows three major trends: shortages of certain raw materials, higher pollution levels, and more government intervention in natural resource management. Environmental concerns create marketing opportunities for alert companies. The technological environment creates both opportunities and challenges. Companies that fail to keep up with technological change will miss out on new product and marketing opportunities. Objective 3-4 explain the key changes in the political and cultural environments. (pp 108–114) The political environment consists of laws, agencies, and groups that influence or limit marketing actions. The political environment has undergone changes that affect marketing worldwide: increasing legislation regulating business, strong government agency enforcement, and greater emphasis on ethics and socially responsible actions. The cultural environment consists of institutions and forces that affect a society’s values, perceptions, preferences, and behaviors. The environment shows trends toward new technologyenabled communication, a lessening trust of institutions, increasing patriotism, greater appreciation for nature, a changing spiritualism, and the search for more meaningful and enduring values. Objective 3-5 Discuss how companies can react to the marketing environment. (pp 114–116) Companies can passively accept the marketing environment as an uncontrollable element to which they must adapt, avoiding threats and taking advantage of opportunities as they arise. Or they can take a proactive stance, working to change the environment rather than simply reacting to it. Whenever possible, companies should try to be proactive rather than reactive. Key terms Objective 3-1 Objective 3-2 Objective 3-3 Marketing environment (p 92) Microenvironment (p 92) Macroenvironment (p 92) Marketing intermediaries (p 94) Public (p 95) Demography (p 96) Baby boomers (p 97) generation X (p 97) Millennials (generation Y) (p 98) generation Z (p 99) economic environment (p 103) Natural environment (p 104) environmental sustainability (p 105) technological environment (p 106) Objective 3-4 Political environment (p 108) Cultural environment (p 111) 118 | Part 2 Understanding the Marketplace and Consumer Value discussiOn And cRiticAl thinKing MyLab Marketing Go to mymktlab.com to complete the problems marked with this icon . Discussion Questions 3-1 Name and describe the types of publics in a company’s marketing environment. (AASCB: Communication) 3-4 How would you characterize the current state of the economic environment in developed countries? How does it impact the activities and approach of marketers? (AACSB: Communication; Reflective Thinking) 3-2 What are publics in the marketing context? Why are they important to marketers? Suggest the publics for a specific business. (AACSB: Communication; Reflective Thinking) 3-5 Why should marketers play close attention to the political environment? (AASCB: Communication) 3-3 Describe Generation Z. What differentiates GenZers from other demographic groups, such as baby boomers, Generation X, and millennials? (AACSB: Communication; Reflective Thinking) Critical thinking exercises 3-6 In 1965, more than 40 percent of American adults were smokers. That percentage has now fallen to less than 18 percent. Tobacco companies have dealt with this threat by developing new markets overseas and also developing alternative nicotine products such as electronic cigarettes (e-cigarettes). Research this product and the regulatory environment regarding this product, then write a report advising tobacco companies on the opportunities and threats posed by this technology. (AACSB: Communication; Reflective Thinking) 3-7 Form a small group and discuss cultural trends in the United States. Research one of them in depth and create a presentation on the trend’s impact on marketing. (AACSB: Communication; Reflective Thinking) 3-8 Visit www.causemarketingforum.com to learn about com- panies that have won Halo Awards for outstanding causerelated marketing programs. Present an award-winning case study to your class. (AACSB: Communication; Use of IT) APPlicAtiOns And cAsEs Online, Mobile, and Social Media Marketing Sharing Economy Changes in the technological environment have created amazing opportunities for new business models while at the same time threatening traditional ones. For example, Airbnb has shaken up the hospitality industry by allowing people to rent out spare rooms or their entire homes to strangers. The Uber and Lyft ridesharing businesses allow consumers to find a ride from people looking to earn extra money with their vehicles. And with Uber you don’t have to worry about having enough cash or giving your credit card to the driver—payments and tips are all done through the Uber app. Traditional hotel and cab companies are crying foul, claiming that these businesses are not playing by the same regulatory rules to which they are subject. Others are concerned about safety amid reports of riders allegedly being attacked, kidnappings, and driver accidents, questioning the thoroughness of background checks of the 160,000-plus Uber drivers around the world. Some countries, states, and cities in the United States have banned Uber because of these issues. 3-9 Describe how Uber’s business model works and the role technology has played in its success. What are the arguments for banning these types of businesses? What are the arguments for defending them? (AACSB: Communication; Use of IT; Reflective Thinking) 3-10 Describe examples of two other businesses based on the sharing economy model and create a new business idea based on this concept. (AACSB: Communication; Reflective Thinking) Marketing ethics Your Insurance Renewal Notice Could Be a Trap Consumers in the United Kingdom seem to be at the mercy of their own insurers. Hidden within the fine print of the renewal notices is the true cost of renewing the insurance, often as much as a 100 percent increase. This is despite the fact that there have been no claims on the insurance and perhaps the value of the insured asset has fallen since last year. Unwittingly, consumers have signed up for continuous payment to authorities. In effect, this means that consumers have agreed to continue to buy the ChaPter 3 insurance year over year, regardless of an increase in price, unless they contact the insurer and cancel it. If only cancelling insurance was that simple. If consumers fail to read the small print in their contracts carefully, they are hit by a cancellation fee. With higher percentages of consumers checking insurance quotes on price comparison websites, insurers still take the chance of inertia when the consumers receive their renewal notices. Insurers seem to rely on the fact that a certain percentage of consumers do not bother to read the documents, and if they do, they do not readily notice that the price is far higher than the previous year. The Financial Conduct Authority, which has responsibility for dealing with disputes arising out of financial services, receives around 500 complaints a year regarding insurance renewal. From April 2017, UK insurers are required to include text on their renewal communication to encourage consumers to shop around for the | Analyzing the Marketing Environment 119 best deal. In cases when consumers have renewed with the same insurer four times, an additional message is required in the renewal communication to encourage shopping around. Insurers are also required to disclose last year’s premium alongside this year’s for clear comparison. 3-11 Discuss the aspects of the competitive environment of the insurance industry that might encourage this type of practice. (AACSB: Communication; Use of IT; Reflective Thinking) 3-12 Discuss whether or not technology and access to price comparison websites can banish this type of fraudulent practice in the insurance industry. (AACSB: Communication; Use of IT; Reflective Thinking) Marketing by the Numbers Demographic Trends Marketers are interested in demographic trends related to variables such as age, ethnicity, and population. The U.S. Census Bureau provides considerable demographic information that is useful for marketers. For example, the following table provides a sample of such population data (see www.censusscope. org/2010Census/PDFs/RaceEth-States.pdf): 2000 State total 2010 Hispanic total Hispanic Georgia 8,186,453 435,227 9,687,653 853,689 Michigan 9,938,444 323,877 9,883,640 436,358 California 3-13 What percentage change in the total and Hispanic populations occurred in each state between 2000 and 2010? What conclusions can be drawn from this analysis? (AACSB: Communication; Analytical Reasoning; Reflective Thinking) 3-14 Research another demographic trend and create a pre- sentation to marketers regarding the significance of the trend you analyzed. (AACSB: Communication; Reflective Thinking) 33,871,648 10,966,556 37,253,956 14,013,719 Video Case Burger King In the fast-food burgers business, french fries are perhaps more important than the burgers themselves. System-wide, Burger King sells 56 million orders of french fries every month—one order of fries for every two customers. But nothing is exempt from the impact of marketing environment forces. As health trends drove some companies to cut back on fatty foods, Burger King saw its french fry sales dip. So Burger King decided to let people have their fries and eat them to. To bring health-conscious customers back to the counter, Burger King introduced Satisfries—french fries with 30 percent less fat and 20 percent fewer calories than its regular fries. In a product category that has seen little if any innovation, Satisfries could be a big game changer. Still, reduced fat and calories may not be enough to make a difference to health-food lovers. And at 30 to 40 cents more per item, Satisfries may end up as little more than a fry fiasco. After viewing the video featuring Burger King, answer the following questions: 3-15 Considering marketing environment forces, describe how Burger King went about developing its new Satisfries. 3-16 With Satisfries, has Burger King truly created customer value, or is it just chasing trends? Explain. Company Case Fitbit: Riding the Fitness Wave to Glory It was 2009. James Park and Eric Friedman were at a breaking point. They’d been flitting around Asia for months, setting up the supply chain for their company’s first product, the Fitbit Tracker. Having raised capital to launch the product with nothing more than a circuit board in a balsa wood box, they were now on the verge of pushing the button to start the assembly line. But with thousands of orders to fill, they discovered that the antenna on the device wasn’t working properly. They stuck a piece of foam on the circuit board and called it “good enough.” Five thousand customers received shiny new Fitbit Trackers just in time for the holidays. 120 | Part 2 Understanding the Marketplace and Consumer Value Getting a start-up company off the ground is challenging. Getting a hardware start-up to succeed is near impossible, especially when you’re the pioneer. But with so many changes in the marketing environment, Park and Friedman knew they had something special. Pedometers had been selling for years, following personal fitness and wellness trends. But those devices were low-tech and limited in the information they provided consumers. And with the seemingly endless demand for high-tech gadgetry, Park and Friedman saw big potential for using sensors in small, wearable devices. The two entrepreneurs were correct. In just seven years, Fitbit has marketed more than a dozen different products and sold millions of units. Last year alone, the company shipped 21 million devices—almost double the previous year’s number—ringing up $1.86 billion in revenues and $116 million in profits. Fitbit created what is now a fast-growing segment—wearable tech. Amid its best year to date, Fitbit went public with an initial public offering of $4.1 billion. How did the company go from a balsa wood box to sitting atop an exploding industry? To hear Park tell it, “It was the right product at the right time at the right price point.” A Magical Device Although Park’s response may seem simplistic, it’s right on. Coming up with a product that delivers the right benefits to consumers at precisely the time they need them is the key to any new product launch. In Fitbit’s case, consumers were hungry for this small device that could not only track steps taken but calculate distance walked, calories burned, floors climbed, and activity duration and intensity, all from an unobtrusive spot— clipped on a pants pocket. What’s more, the Fitbit Tracker could track sleep quality based on periods of restlessness, the amount of time before falling asleep, and the amount of time actually sleeping. Even more enticing to consumers, the device could upload data to a computer and make them available on the Fitbit website. At the site, users could overview their physical activity, set and track goals, and keep logs on food eaten and additional activities not tracked by the device. To top things off, the explosion of social media and sharing personal information went hand in hand with what users were uploading. By design, Park and Friedman put more into Fitbit’s software than its own hardware, recognizing that other hardware device companies like Garmin had shortchanged the software aspect. But Fitbit’s success can also be attributed to new models. Recognizing that gadgets have a limited life span and that competition would attempt to improve on its offerings, Fitbit has made development a constant process. From the original Tracker to its current Blaze smartwatch with GPS, heart-rate monitor, and the ability to display smartphone notifications for calls, texts, calendar alerts, Fitbit has stayed ahead in giving consumers what they want. An Unexpected Opportunity Still, Fitbit’s path to success has been challenging. One big challenge the company has faced from the start is customer retention. Like many diets and pieces of exercise equipment, users are drawn to the “wow” factor of something that can improve their health and wellness but quickly fizzle out. And if users stop using a device, they are far less likely to purchase the “new-andimproved” version, much less recommend it to anyone else. But an interesting thing happened as Fitbit got things rolling. The company received a flood of calls and messages from corporate human resource departments. Perplexed as to why businesses would want to buy Fitbit devices in bulk, the company assigned a point person to find out. It turned out that corporate America was going through a push to enroll employees in wellness programs. The reasons for this push extended far beyond concerns about employee health and well-being. Healthy employees provide major benefits for a company. They call in sick less often and are generally more productive. They also cost less in terms of health-care benefits. And although diet and exercise can’t erase every poor health condition, they can have a big effect on health factors such as blood pressure, cholesterol levels, and blood sugar levels—conditions related to common diseases such as heart disease, stroke, and diabetes. So it’s no wonder that companies have an incentive to do whatever they can to motivate employees to take better care of themselves. As Fitbit talked to companies, it discovered that most were struggling to enroll even a small proportion of employees in their workforce wellness programs—many had less than 20 percent compliance. One problem was that—even as the latest fitness wearables from Fitbit and its competitors were showing up around offices everywhere—participation in corporate wellness programs often required the use of a bulky corporate-issued tracker, better known as an analog pedometer. “Can you imagine asking engineers to wear a janky old pedometer and write down their steps?” mused Amy McDonough, Fitbit’s corporate point person. Fitbit, of course, offered a much more high-tech option, letting individuals easily track more complex data and letting HR departments easily compile and analyze the data as well. Fitbit’s bulk sales to corporations started rolling in. Much to Fitbit’s pleasant surprise, Fitbit products sold through corporations versus those sold to individuals had noticeably higher retention rates. Fitness trackers in corporate wellness programs were often used in wellness challenges—maintain a minimum of 10,000 steps a day and get free vacation days or a discount on health insurance premiums. It might seem logical that people would stop using their devices once a challenge ended. But when IBM gave out 40,000 Fitbits to employees over a two-year period, it found not only that 96 percent of employees routinely logged their health data and eating habits but that 63 percent of employees continued to wear their Fitbits months after the challenge concluded. Other companies noted even greater tangible benefits. Cloud-services start-up Appirio bought Fitbit devices for 400 employees. Armed with data from the wearables, Appirio was able to convince its health insurance provider, Anthem, that the increased health benefits were translating into lower health-care costs. This gave Appirio the leverage to negotiate lower premiums, shaving $280,000 off its annual bill. Today, Fitbit’s well division offers tools specifically designed for employers, such as dashboards, dedicated service support, and webinars. Corporate clients include BP America, KimberlyClark, Time Warner, and Barclays. Target offered Fitbit Zip trackers to 335,000 of its employees. Corporate sales currently account for 10 percent of Fitbit revenues. But the corporate share of the sales will increase, as adoption in that sector is growing at a faster rate than in consumer markets. Founder Park claims that the use of Fitbits in employee wellness programs is having an impact not only on health and well-being but on job safety as well. Companies have also experienced improvements in office cultures as a result of the unified effort among coworkers ChaPter 3 to achieve fitness goals together—a factor that is also likely boosting retention numbers in the corporate setting. Encountering Hurdles With high growth rates and plenty of market potential, it would seem that the sky is the limit for Fitbit. But Fitbit still faces numerous obstacles. For starters, privacy issues have increased as technology creates new ways to gather and share information. In Fitbit’s early days, information logged by users was public by default. That meant that as users integrated their information into social networks, their fitness, eating, sleeping, and in some cases sexual activities were being posted for all to see. That was easily remedied by making “private” the default setting. But general concerns about what happens with uploaded personal data remain, even amid assurances from Fitbit that it does not analyze individual data or sell or share consumer data. But other privacy matters haven’t been so easily managed. Fitness trackers and the data they generate are not regulated. That means that any organization bound by compliance with the U.S. Health Insurance Portability and Accountability Act (HIPAA) has had to tread lightly when adopting a digital tracking device. Fitbit has always been proactive on privacy and information security issues, leading the industry by working with Congress on legislation in this area. Fitbit recently achieved HIPAA compliance, which goes a long way toward putting employers’ fears about privacy and security to rest. But other concerns remain on the part of both employers and employees. Even as Fitbit and its corporate customers do all they can to allay privacy concerns, many employees have expressed concerns that companies will misuse the data. Concern about what data are being collected and how they are being used has led some employees to wonder whether their Fitbits could be telling employers if they are recovering from a wild night of partying, calling in sick when they really aren’t, or feeling nervous in a meeting or even if they become pregnant. Although the overall benefits of integrating a Fitbit device into wellness programs and the associated challenges seem clear, there are negative outcomes as well. Health experts point to the potential for a cultural divide between the “dos” and the “do nots.” Employees with disabilities, chronic ailments, or even unhealthy habits may opt out of such programs. Particularly in programs that use leaderboards and group incentives, the result can be to celebrate the fit but demoralize those who are not. And rewards given to those who participate as well as those who succeed are viewed as penalties for those who opt out. Cheaters are also a concern. Yes, some participants in wellness programs have found ways to fool their Fitbits. For example, a dog can trigger 13,000 to 30,000 steps per day with a Fitbit attached to its collar, easily exceeding the standard 10,000-step goal. Social media sites have erupted with shared practices. | Analyzing the Marketing Environment 121 “Want to cheat your Fitbit? Try a puppy or a power drill,” suggests one Tweet with a link to instructions. Other methods for logging steps include putting it in the dryer, shaking the fist, attaching it to small children, playing the piano, leading music, and whisking a bowl of chocolate-chip cookie batter. Even the vibrations from riding a Harley or a lawnmower can do the trick. Beyond these concerns that stand in the way of more widespread acceptance and use, perhaps Fitbit’s greatest challenge is competition. With a dominant market share in the rapidly growing product category that it created, you might think the Fitbit has it made. However, as digital technologies advance on all fronts, it has become apparent that a fitness tracker is not a product. It’s a feature. That became painfully apparent when the Apple Watch hit the market. The Apple Watch wowed the public as a wrist-worn extension of the iPhone with practically unlimited app potential. Its fitness tracking features seemed to minimize those of Fitbit’s products. And if Apple can jump Fitbit’s train as one simple addition to a far more robust product, what other companies and devices might make their way into Fitbit’s territory? And on the software and analytics side, Apple Health and Google Fit seem poised to corner the market with compatibility across mobile platforms. But Fitbit is hard at work differentiating its wares and positioning itself as more than just a maker of fitness trackers. It has already introduced its own smartwatch. And its “next big leap” is to move beyond fitness tracking into medical diagnosis. By partnering with organizations that can link Fitbit’s products with more detailed clinical research, Fitbit devices could soon replace blood glucose meters and even alert users to dangerous health conditions and disease. If Fitbit can successfully position itself on strengths that competitors have a hard time replicating, the sky may be the limit. Questions for Discussion 3-17 What microenvironmental factors have affected Fitbit since it opened for business? 3-18 3-19 What macroenvironmental factors have affected Fitbit? 3-20 What factors in the marketing environment not mentioned in this case could affect Fitbit? How should Fitbit overcome the threats and obstacles it faces? Sources: Based on information from Christina Farr, “Fitbit at Work,” Fast Company, May 2016, pp. 27–30; Robert Hof, “How Fitbit Survived as a Hardware Startup,” Forbes, February 4, 2014, www.forbes. com/sites/roberthof/2014/02/04/how-fitbit-survived-as-a-hardwarestartup/#5e2a544e4f42; Lance Whitney, “Fitbit Still Tops in Wearables, but Market Share Slips,” Cnet, February 23, 2016, www.cnet.com/news/ fitbit-still-tops-in-wearables-market/; Jen Wieczner, “Fitbit Users Are Finding Creative Ways to Cheat,” Fortune, June 10, 2016, http://fortune. com/2016/06/10/fitbit-hack-cheat/. MyLab Marketing Go to mymktlab.com for the following Assisted-graded writing questions: 3-21 What is environmental sustainability and why has it grown in importance for marketers? 3-22 Discuss a recent change in the technological environment that impacts marketing. How has it affected buyer behavior and how has it changed marketing? Chapter preview 4 PART 1: Defining Marketing and the Marketing Process (Chapters 1–2) PART 2: Understanding the Marketplace and Consumer Value (Chapters 3–6) PART 3: Designing a Customer Value–Driven Strategy and Mix (Chapters 7–17) PART 4: Extending Marketing (Chapters 18–20) Managing Marketing Information to Gain Customer Insights In this chapter, we continue our exploration of how marketers gain insights into consumers and the marketplace. We look at how companies develop and manage information about important marketplace elements: customers, competitors, products, and marketing programs. To succeed in today’s marketplace, companies must know how to turn mountains of marketing information into fresh customer insights that will help them engage customers and deliver greater value to them. Let’s start with a story about marketing research and customer insights in action. In order to tailor its products to the market it operates in, Italian chocolate and confectionary manufacturer Ferrero derives fresh insights on customers and the marketplace from marketing information. The company’s ability to use this information and capitalize on them by improving decision making and tailoring their offerings to the local market has been a key success factor in major and growing markets such as India. Ferrero: Managing Marketing Information and Customer Insights F errero SpA is an Italian manufacturer of branded chocchocolate in India with the help of sophisticated marketing olate and confectionery products, and the third biganalysis. gest chocolate producer and confectionery company When Ferrero entered India in 2004, the country did not in the world. It was founded in 1946 in Alba, Italy, really have a ready market for premium chocolates. Since India by Pietro Ferrero and is still privately owned by the Ferrero is a very price-sensitive country, most brands offer products family. In the updated listings for the year 2016, Ferrero was at low prices in small packs. Market leader Cadbury had been named the most reputable company in the food-and-beverages selling its flagship brand, Dairy Milk, at an entry price of $0.07 sector in Reputation Institute’s Global RepTrak 100, which for over a decade. That has changed today due to Ferrero’s ranks the world’s most reputable companies on innovation, sophisticated and ongoing analysis of the local market and its governance, and citizenship. Its customers that paved the way for revenue in the fiscal year of 2015 a new product segment in that was $9.9 billion, a 12 percent rise region. Premium chocolates now Ferrero successfully analyzes and uses from the previous year. The commake up about 27 percent of the marketing information and customer pany employs nearly 33,219 peomarket in India. Besides Ferrero, insights to better tailor its offerings to ple worldwide. Because of its conseveral companies compete in the local market. Its ability to gain fresh sistent commitment to innovation this segment, including Cadbury, understandings of customers and the and customer focus, the company Nestlé, Mars, Hershey, and Lindt. marketplace from marketing information has outperformed its competitors Cadbury, with its Celebrations, in many markets. Bournville, and Silk brands, is the has become the basis for the company’s The firm concentrates on market leader, with more than success. meeting high standards; thus, it 60 percent share in the premium manufactures only in places where segment and 70 percent overall. it is sure it can deliver consistently and establish a secure retail Within just a decade, Ferrero has garnered a 6 percent share of supply chain. The company strives to understand market prefthe Indian chocolate market. More notably, it is credited with erences and has a proven track record of successfully managing developing the premium segment. When Ferrero launched its marketing information and gaining customer insights. A prime Rocher chocolates, the only competing brand was Cadbury example of this is when it created a new market for premium Celebrations, which was priced between $1.50 and $2.65 per Chapter 4 | Managing Marketing Information to Gain Customer Insights box. However, Ferrero has managed to launch their product at $4.55 (per box of 12 chocolates) and make it work even at such a steep price point. So, how did the Italian confectionery giant do it? The company rolled out Rocher chocolates across India in 2007 and followed this up in 2009 with Tic Tac and Kinder Joy, an egg-shaped chocolate that comes with a toy for children. In October 2011, it opened a factory at Baramati, in the state of Maharashtra. The factory produces one million Kinder Joy eggs and 20 million pellets of Tic Tac daily. Though the company still imports Rocher, it has made India its center for Asia and exports half its local production. Ferrero set up its branch office in Chennai because this region offered contrasting cultures with different needs and wants. Ferrero sensed as early as 2004 that there was a set of consumers in India willing to pay a premium price for a box of chocolates. To gain and manage the appropriate marketing information and customer insights, Ferrero did not hire any market research firm when it was test-marketing Rocher. Instead, it decided to go to the market on its own to better understand the Indian customer. The company set up a specific customer insights team as a center of excellence in market research. This team provided deep insight into the local market across all relevant aspects, from the launch of new products to changing packaging, developing and modifying recipes, and finding the ideal communication channels. In order to better understand the customer and their potential needs and wants as well as their habits, the Ferrero customer insights team as well as the management traveled into the metro cities as well as out of them, to Nagpur and smaller markets in the interior. They also visited consumer homes to understand consumer habits and aspirations. As a result, Ferrero not only realized that Indians were open to buying an expensive box of chocolates, even if it was sold in a kirana store (a small neighborhood retail store in the Indian subcontinent), but they also discovered that consumers would buy expensive chocolates mostly during festivals, when they generally gift sweets. As a consequence, Ferrero supplies Rocher round the year to modern retail stores such as Food Bazaar, but kirana stores get these chocolates typically during the festival season (from October to March). During the summer months, Ferrero distributors do not usually allow kirana stores to stock more than three to four boxes so that quality is not compromised because of a lack of refrigeration facilities. The logic is that it is better not to be present at all than give the consumer a stale product. By 2014, despite being available mostly during festivals, Ferrero Rocher had captured 14 percent share in the box chocolate category. In India, where the sheer variety of sweets is vast, where recipes vary from state to state, Ferrero has managed to lodge itself in the minds of the people as a luxury and exclusive product, and people are consuming and gifting these chocolates during local festivals in addition to other occasions when local sweets are consumed. It  is worth 123 Ferrero is credited with developing the premium segment in India, a price-sensitive market where chocolates are sold at low prices in small packs. Ekaterina Minaeva/Alamy Stock Photo emphasizing that Ferrero’s growth comes despite a 30 percent import duty on chocolate. Nestle recently launched its premium brand Alpino at $0.45 a piece for round chocolates that look like Ferrero Rocher. Although both Cadbury and Nestlé sell premium brands, they derive the major share of their revenue from mass-market products. Ferrero’s strategy is different: it does not even plan to make cheaper variants of Tic Tac and Kinder Joy, but successfully pursued a premium strategy instead. Tic Tac is priced at $0.15 while most mouth-freshener candies cost $0.01. Kinder Joy is pitched as a healthy product that contains more milk than cocoa to target mothers conscious of their children’s health. The success behind Ferrero’s product launches lies in its ability to manage marketing information and gain customer insights. New flavors of products are introduced only after conducting thorough research on Indian requirements and preferences. After further in-depth marketing research, the company successfully introduced an Indian flavor, “Elaichi Mint,” to its Tic Tac brand in late 2014 to suit the local palate. This is the first time that the brand has introduced a local flavor in the market especially to cater to the Indian audience. The new flavored Tic Tac mint has the strong flavor of cardamom and has the tag line “The Desi Mint.” This condiment is widely used in India for its health benefits and as a mouth freshener after meals. The Indian chocolate market has been growing at a rate of more than 15 percent over the last seven years and is projected to grow at an even higher rate in the future. Ferrero’s objective is to sell Tic Tac and Kinder Joy at 1.1 million retail stores in the next two to three years, up from 38,000 at present. Although Nestlé and Cadbury together account for the majority of the chocolate market, Ferrero is expected to overtake Nestlé in the next few years with the increasing popularity of Ferrero Rocher and Kinder Joy. The company’s ability to capitalize on its management of the marketing information by gaining customer insights and using them to improve decision-making will definitely prove to be a valuable asset in this endeavor.1 124 | part 2 Understanding the Marketplace and Customer Value Objectives Outline Objective 4-1 explain the importance of information in gaining insights about the marketplace and customers. Marketing Information and Customer Insights Objective 4-2 (pp 124–126) Define the marketing information system and discuss its parts. Assessing Information Needs and Developing Data Objective 4-3 Outline the steps in the marketing research process. Marketing Research Objective 4-4 (pp 130–140) explain how companies analyze and use marketing information. Analyzing and Using Marketing Information Objective 4-5 (pp 126–130) (pp 140–144) Discuss the special issues some marketing researchers face, including public policy and ethics issues. Other Marketing Information Considerations (pp 144–149) AS ThE FERRERO STORy highlights, good products and marketing programs begin with good customer information. Companies also need an abundance of information on competitors, resellers, and other actors and marketplace forces. But more than just gathering information, marketers must use the information to gain powerful customer and market insights. Author Marketing information Comment by itself has little value. The value is in the customer insights gained from the information and how marketers use these insights to make better decisions. Marketing Information and Customer Insights To create value for customers and build meaningful relationships with them, marketers must first gain fresh, deep insights into what customers need and want. Such customer insights come from good marketing information. Companies use these customer insights to develop a competitive advantage. For example, when it began six years ago, social media site Pinterest needed to differentiate itself from the dozens, even hundreds, of existing social networking options.2 Pinterest’s research uncovered a key customer insight: Many people want more than just Twitter- or Facebook-like places to swap messages and pictures. They want a way to collect, organize, and share things on the internet related to their interests and passions. So Pinterest created a social scrapbooking site where people can create and share digital pinboards—themebased image collections of things that inspire them. “Pinterest is your own little internet of only the things you love,” says the company. Thanks to this unique customer insight, Pinterest has been wildly popular. Today, more than 100 million active monthly Pinterest users collectively pin more than 5 million articles a day and view more than 2.5 billion Pinterest pages a month. In turn, more than a half-million businesses use Pinterest to engage and inspire their customer communities. For example, L.L.Bean has 5.1 million Pinterest followers, Nordstrom has 4.3 million followers, and Lowe’s has 3.4 million followers. Some 47 percent of U.S. online shoppers have purchased something as a result of a Pinterest recommendation. Although customer and market insights are important for building customer value and engagement, these insights can be very difficult to obtain. Customer needs and buying motives are often anything but obvious—consumers themselves usually can’t tell you exactly what they need and why they buy. To gain good customer insights, marketers must effectively manage marketing information from a wide range of sources. Chapter 4 | Managing Marketing Information to Gain Customer Insights 125 Marketing Information and Today’s “Big Data” Big data The huge and complex data sets generated by today’s sophisticated information generation, collection, storage, and analysis technologies. Customer insights Fresh marketing information-based understandings of customers and the marketplace that become the basis for creating customer value, engagement, and relationships. Marketing information system (MIS) People and procedures dedicated to assessing information needs, developing the needed information, and helping decision makers to use the information to generate and validate actionable customer and market insights. With the recent explosion of information technologies, companies can now generate and find marketing information in great quantities. The marketing world is filled to the brim with information from innumerable sources. Consumers themselves are now generating tons of marketing information. Through their smartphones, PCs, and tablets—via online browsing and blogging, apps and social media interactions, texting and video, and geolocation data—consumers now volunteer a tidal wave of bottom-up information to companies and to each other. Far from lacking information, most marketing managers are overloaded with data and often overwhelmed by it. This problem is summed up in the concept of big data. The term big data refers to the huge and complex data sets generated by today’s sophisticated information generation, collection, storage, and analysis technologies. Every year, the people and systems of the world generate about a trillion gigabytes of information. That’s enough data to fill 2.47 trillion good old CD-ROMs, a stack tall enough to go to the moon and back four times. A full 90 percent of all the data in the world has been created in just the past two years.3 Big data presents marketers with both big opportunities and big challenges. Companies that effectively tap this glut of data can gain rich, timely customer insights. However, accessing and sifting through so much data is a daunting task. For example, when a large consumer brand such as Coca-Cola or Apple monitors online discussions about its brand in tweets, blogs, social media posts, and other sources, it might take in a stunning 6 million public conversations a day, more than 2 billion a year. That’s far more information than any manager can digest. Thus, marketers don’t need more information; they need better information. And they need to make better use of the information they already have. Managing Marketing Information The real value of marketing information lies in how it is used—in the customer insights that it provides. Based on such thinking, companies ranging from PepsiCo, Starbucks, and McDonald’s to Google and GEICO have restructured their marketing information and research functions. They have created customer insights teams, whose job it is to develop actionable insights from marketing information and work strategically with marketing decision makers to apply those insights. Consider PepsiCo:4 Consumer insights: PepsiCo’s “consumer insights teams” wring actionable insights out of the glut of marketing data. They have even developed a consumer insights app to share custom-designed content with brand decision makers. PepsiCo Years ago, PepsiCo’s various marketing research departments were mainly data providers. But not anymore. Today they are integrated “customer insights teams” charged with delivering insights at the center of the brand, the business, and consumers. The teams gather insights from a rich and constantly evolving variety of sources—ranging from grocery store cash registers, focus groups and surveys, and subconscious measures to mingling with and observing customers in person and monitoring their digital and social media behaviors. The teams continually evaluate new methods for uncovering consumer truths that might predict market behavior. Then the insights teams use the data and observations, tempered by intuitive judgment, to form actionable consumer insights with real business implications. Finally, they share these insights with brand teams from Pepsi, Mountain Dew, Aquafina, and other PepsiCo brands to help them make better decisions. Beyond just transmitting data and findings through traditional fact-based presentations, reports, and spreadsheets, the Consumer Insights teams share their insights in more engaging, accessible, and digestible ways. For example, the PepsiCo North America Beverages (NAB) Consumer Insights team has even developed a consumer insights app that disseminates customdesigned data and content to marketing and brand decision makers. More than just collecting and distributing data, the PepsiCo consumer insights teams are strategic marketing partners. “We drive decisions that ultimately lead to sustainable growth,” says a senior PepsiCo consumer strategy and insights executive. “And everything we do impacts the bottom line.” Thus, companies must design effective marketing information systems that give managers the right information, in the right form, at the right time and help them to use this information to create customer value, engagement, and stronger customer relationships. A marketing information system (MIS) consists of people and procedures dedicated to assessing information needs, developing the needed information, and helping decision makers use the information to generate and validate actionable customer and market insights. 126 | part 2 Understanding the Marketplace and Customer Value Figure 4.1 shows that the MIS begins and ends with information users— marketing managers, internal and external partners, and others who need marketing information and insights. First, it interacts with these information users to assess information needs. Next, it interacts with the marketing environment to develop needed information through internal company databases, marketing intelligence activities, and marketing research. Finally, the MIS helps users to analyze and use the information to develop customer insights, make marketing decisions, and manage customer engagement and relationships. Assessing Information Needs and Developing Data Author The marketing information Comment system begins and ends with users—assessing their information needs and then delivering information and insights that meet those needs. Author The problem isn’t finding Comment information; in this “big data” age, the world is bursting with information from a glut of sources. The real challenge is to find the right information—from inside and outside sources—and turn it into customer insights. FIgure | 4.1 The Marketing Information System Assessing Marketing Information Needs The marketing information system primarily serves the company’s marketing and other managers. However, it may also provide information to external partners, such as suppliers, resellers, or marketing services agencies. For example, Walmart’s Retail Link system gives key suppliers access to information on everything from customers’ buying patterns and store inventory levels to how many items they’ve sold in which stores in the past 24 hours.5 A good marketing information system balances the information users would like to have against what they really need and what is feasible to offer. Some managers will ask for whatever information they can get without thinking carefully about what they really need. And in this age of big data, some managers will want to collect and store vast amounts of digital data simply because technology lets them. But too much information can be as harmful as too little. In contrast, other managers may omit things they ought to know, or they may not know to ask for some types of information they should have. The MIS must monitor the marketing environment to provide decision makers with information and insights they should have to make key marketing decisions. Finally, the costs of obtaining, analyzing, storing, and delivering information can mount quickly. The company must decide whether the value of insights gained from additional information is worth the costs of providing it, and both value and cost are often hard to assess. Developing Marketing Information Marketers can obtain the needed information from internal data, marketing intelligence, and marketing research. Marketing managers and other information users Obtaining customer and market insights from marketing information Marketing information system Developing needed information This chapter is all about managing marketing information to gain customer insights. And this important figure organizes the entire chapter. Marketers start by assessing user information needs. Then they develop the needed information using internal data, marketing intelligence, and marketing research processes. Finally, they make the information available to users in the right form at the right time. Assessing information needs Internal databases Target markets Marketing channels Marketing intelligence Marketing environment Competitors Marketing research Publics Analyzing and using information in Macroenvironment forces Chapter 4 | Managing Marketing Information to Gain Customer Insights 127 Internal Data Internal databases Collections of consumer and market information obtained from data sources within the company network. Many companies build extensive internal databases, collections of consumer and market information obtained from data sources within the company’s network. Information in an internal database can come from many sources. The marketing department furnishes information on customer characteristics, in-store and online sales transactions, and web and social media site visits. The customer service department keeps records of customer satisfaction or service problems. The accounting department provides detailed records of sales, costs, and cash flows. Operations reports on production, shipments, and inventories. The sales force reports on reseller reactions and competitor activities, and marketing channel partners provide data on sales transactions. Harnessing such information can provide powerful customer insights and competitive advantage. For example, insurance and financial services provider USAA uses its internal database to create an incredibly loyal customer base:6 USAA provides financial services to U.S. military personnel and their families, largely through direct marketing via the phone, the internet, and mobile channels. It maintains a huge customer database built from customer purchasing histories and information collected directly through customer surveys, transaction data, and browsing behavior at its online sites. USAA uses the database to tailor direct marketing offers to the needs of individual customers. For example, for customers looking toward retirement, it sends information on estate planning. If the family has college-age children, USAA sends those children information on how to manage their credit cards. One delighted reporter, a USAA customer, recounts how USAA even helped him teach his 16-year-old daughter to drive. Just before her birthday, but before she received her driver’s license, USAA sent a “package of materials, backed by research, to help me teach my daughter how to drive, help her practice, and help us find ways to agree on what constitutes safe driving later on, when she gets her license.” Through such skillful use of its database, USAA serves each customer uniquely, resulting Internal data: Financial services provider USAA uses its extensive in legendary levels of customer satisfaction and loyalty. More database to tailor its services to the specific needs of individual important, the $24 billion company retains 98 percent of its customers, creating incredible loyalty. customers. Courtney Young Internal databases usually can be accessed more quickly and cheaply than other information sources, but they also present some problems. Because internal information is often collected for other purposes, it may be incomplete or in the wrong form for making marketing decisions. Data also age quickly; keeping the database current requires a major effort. Finally, managing and mining the mountains of information that a large company produces require highly sophisticated equipment and techniques. Competitive Marketing Intelligence Competitive marketing intelligence The systematic monitoring, collection, and analysis of publicly available information about consumers, competitors, and developments in the marketing environment. Competitive marketing intelligence is the systematic monitoring, collection, and analysis of publicly available information about consumers, competitors, and developments in the marketplace. The goal of competitive marketing intelligence is to improve strategic decision making by understanding the consumer environment, assessing and tracking competitors’ actions, and providing early warnings of opportunities and threats. Marketing intelligence techniques range from observing consumers firsthand to quizzing the company’s own employees, benchmarking competitors’ products, online research, and monitoring social media buzz. Good marketing intelligence can help marketers gain insights into how consumers talk about and engage with their brands. Many companies send out teams of trained observers to mix and mingle personally with customers as they use and talk about the company’s products. Other companies—such as PepsiCo, Mastercard, Kraft, and Dell—have set up sophisticated digital command centers that routinely monitor brand-related online consumer and marketplace activity (see Real Marketing 4.1). Real Marketing 128 | part 2 Understanding the Marketplace and Customer Value 4.1 Social Media Command Centers: Listening to and Engaging Customers in Social Space Today’s social space is alive with buzz about brands and related happenings and trends. As a result, many companies are now setting up state-of-the-art social media command centers with which they track or even help shape the constant barrage of social media activity surrounding their brands. Some social media command centers are event-specific. For example, Jaguar set up “The Villain’s Lair,” a social media command center for the express purpose of managing engagement with its Super Bowl ads featuring famous movie villains. But many other organizations, ranging from financial institutions and consumer products companies to not-for-profit organizations, have opened permanent digital command centers to harness the power of today’s burgeoning social media chatter. For example, Mastercard’s digital intelligence command center—called the Conversation Suite—monitors, analyzes, and responds in real time to millions of online conversations around the world. It monitors online brand-related conversations across 43 markets and 26 languages. It tracks social networks, blogs, online and mobile video, and traditional media—any and every digital place that might contain relevant content or commentary on Mastercard. At Mastercard’s Purchase, New York, headquarters, Conversation Suite staff huddle with managers from various Mastercard departments and business units in front of a giant 40-foot LED screen that displays summaries of ongoing global brand conversations, refreshed every four minutes. A rotating group of marketing and customer service people spends two or three hours a day in the command center. “It’s a real-time focus group,” says a Mastercard marketing executive. “We track all mentions of Mastercard and any of our products, plus the competition.” Mastercard uses what it sees, hears, and learns in the Conversation Suite to improve its products and marketing, track brand performance, and spark meaningful customer conversations and engagement. Mastercard is even training “social ambassadors,” who can join online conversations and engage customers and brand influencers directly. “Today, almost everything we do [across the company] is rooted in insights we’re gathering from the Conversation Suite,” says another manager. “[It’s] transforming the way we do business.” PepsiCo’s Gatorade was one of the first brands to set up a social media command center, called Gatorade Mission Control. The center conducts extensive real-time monitoring of brand-related social media activity. Whenever someone mentions anything related to Gatorade (including competitors, Gatorade athletes, and sports nutritionrelated topics) on major social media or blogs, it pops up in various visualizations and dashboards on one of six big screens. Gatorade Mission Control staffers also monitor digital ad, web, and mobile site traffic, producing a consolidated picture of the brand’s internet image. Gatorade uses what it sees and learns at the center to improve its products, marketing, and interactions with customers. Gatorade Mission Control also lets the brand engage consumers in real time, sometimes adding to or even shaping the online discourse. For example, during Game One of the 2014 NBA Finals, when then-Miami Heat forward LeBron James was carried off the court with leg cramps, Twitter exploded with comments that Gatorade had failed to prevent James’s cramps. Although the former Gatorade spokesman had recently switched to rival Powerade, a Coca-Cola brand, most fans still associated King James with Gatorade. However, at the same time that fans were tweeting concerns about the brand, the Gatorade Mission Control team was countering with its own humorous responses, such as “The person cramping isn’t our client. Our athletes can take the Heat.” When one fan tweet asked where Gatorade was when LeBron James needed it, the team replied, “Waiting on the sidelines, but he prefers to drink something else.” Thus, real-time social media monitoring helped Gatorade turn potentially negative online chatter into a game-winning shot at the buzzer. All kinds of organizations are now setting up social media command centers, even not-for-profits. For example, the American Red Cross partnered with Dell to create its Digital Operations Center in Washington, DC, which helps the humanitarian relief organization improve its responses to emergencies and natural disasters. The Red Cross got serious about monitoring social media after an opinion poll revealed that 80 percent of Americans expect emergency responders Competitive marketing intelligence: Mastercard’s digital intelligence command center—called the Conversation Suite—monitors, analyzes, and responds in real time to millions of brand-related conversations across 43 markets and 26 languages around the world. Mastercard Chapter 4 to monitor social networks, and one-third presumed that they could get help during a disaster within an hour if they posted or tweeted a request. Modeled after Dell’s own iconic social media center, the Red Cross Digital Operations Center broke new ground with an innovative digital volunteer program, adding thousands of trained volunteers around the country to help handle the massive volume of social media traffic that occurs during a disaster. The Digital Operations Center helps improve the Red Cross’s everyday relief efforts, such as responses to an apartment fire in a large metropolitan area. “Not only are we scanning the social media landscape looking for actionable intelligence,” says a Red Cross manager, “we are also scanning the social space to see if there are people out there who need information and emotional support.” But it’s the major disasters that highlight the center’s biggest potential. For example, during the week of Hurricane Sandy, one of the biggest natural disasters in U.S. history, the Digital Operations Center played a crucial role in directing Red Cross relief efforts. In addition to the usual data from government partners, on-the-ground assessments, and damage reports from traditional media, the center pored through and acted on millions tweets, Facebook posts, blog entries, and | Managing Marketing Information to Gain Customer Insights photos posted online. In all, it tracked more than 2 million posts and responded directly to thousands of people. In at least 88 cases, social media posts had a direct effect on Red Cross actions. “We put trucks in areas where we saw a greater need, we moved cots to a shelter where we needed more supplies,” says the Red Cross manager. Even a lack of social media activity was an important indicator. A social media “black hole” in a specific area probably meant that factors were preventing people in that area from tweeting and that they needed help. So whether it’s Mastercard, Gatorade, or the American Red Cross, a social media 129 command center can help marketers scour the digital environment, analyze brand-related conversations in real time to gain marketing insights, and respond quickly and appropriately. Ultimately, social media listening gives consumers another voice, to the benefit of both customers and the brand. “It enables us to give the public a seat at our response table,” says the Red Cross manager. Wells Fargo’s Director of Social Media agrees: “Consumers want to be a part of how companies serve them,” she says. “Our nirvana is that if someone offers us an idea, tip, or feedback that really helps us, we respond directly.” Sources: “Mastercard Conversation Suite Video,” http://newsroom.mastercard.com/videos/mastercardconversation-suite-video/, accessed September 2016; Sheila Shayon, “Mastercard Harnesses the Power of Social with Innovative Conversation Suite,” brandchannel, May 7, 2013, www.brandchannel.com/home/ post/2013/05/07/Mastercard-Conversation-Suite-050713.aspx; Giselle Abramovich, “Inside Mastercard’s Social Command Center,” Digiday, May 9, 2013, http://digiday.com/brands/inside-mastercards-social-commandcenter/; Anthony Shop, “Social Media Lessons from Gatorade Mission Control,” Socialmediadriver.com, August 28, 2013, http://socialdriver.com/2013/08/28/social-media-lessons-from-gatorade-mission-control/; Evan Hanson, “PepsiCo Drinks In Gatorade’s Social Media Performance at Game One of NBA Finals,” 24/7 Wallstreet, June 7, 2014, http://247wallst.com/general/2014/06/07/pepsico-drinks-in-gatorades-social-media-performanceat-game-one-of-nba-finals/#ixzz3O6SWtQJt; Ariel Schwartz, “How the Red Cross Used Tweets to Save Lives during Hurricane Sandy,” Fast Company, October 31, 2013, www.fastcoexist.com/3020923/how-the-red-crossused-tweets-to-save-lives-during-hurricane-sandy; “Gatorade Mission Control,” YouTube, www.youtube.com/ watch?v=YPBUZOX36DQ, accessed September 2016; and “Examples of Ten Social Media Command Centers,” Salesforce, www.exacttarget.com/sites/exacttarget/files/10-Examples-of-Social-Media-Command-Centers.pdf, accessed June 2016. Companies also need to actively monitor competitors’ activities. They can monitor competitors’ web and social media sites. For example, Amazon’s Competitive Intelligence arm routinely purchases merchandise from competing sites to analyze and compare their assortment, speed, and service quality. Companies can use the internet to search specific competitor names, events, or trends and see what turns up. And tracking consumer conversations about competing brands is often as revealing as tracking conversations about the company’s own brands. Firms use competitive marketing intelligence to gain early insights into competitor moves and strategies and to prepare quick responses. For example, Samsung routinely monitors real-time social media activity surrounding the introductions of Apple’s latest iPhones, iPads, and other devices to quickly shape marketing responses for its own Galaxy S smartphones and tablets. At the same time that Apple CEO Tim Cook is onstage unveiling the latest much-anticipated new models, Samsung marketing strategists are huddled around screens in a war room hundreds of miles away watching the introductions unfold. They carefully monitor not only each new device feature as it is presented but also the gush of online consumer commentary flooding blogs and social media channels. Even as the real-time consumer and competitive data surge in, the Samsung team is drafting responses. Within only a few days, just as Apple’s new models are hitting store shelves, Samsung is already airing TV, print, and social media responses that rechannel the excitement toward its own Galaxy line. Much competitor intelligence can be collected from people inside the company— executives, engineers and scientists, purchasing agents, and the sales force. The company can also obtain important intelligence information from suppliers, resellers, and key customers. Intelligence seekers can also pour through any of thousands of online databases. Some are free. For example, the U.S. Security and Exchange Commission’s database provides a huge stockpile of financial information on public competitors, and the U.S. 130 | part 2 Understanding the Marketplace and Customer Value Patent Office and Trademark database reveals patents that competitors have filed. For a fee, companies can also subscribe to any of the more than 3,000 online databases and information search services, such as Hoover’s, LexisNexis, and Dun & Bradstreet. Today’s marketers have an almost overwhelming amount of competitor information only a few keystrokes away. The intelligence game goes both ways. Facing determined competitive marketing intelligence efforts by competitors, most companies take steps to protect their own information. One self-admitted corporate spy advises that companies should try conducting marketing intelligence investigations of themselves, looking for potentially damaging information leaks. They should start by “vacuuming up” everything they can find in the public record, including job postings, court records, company advertisements and blogs, web pages, press releases, online business reports, social media postings by customers and employees, and other information available to inquisitive competitors.7 The growing use of marketing intelligence also raises ethical issues. Some intelligencegathering techniques may involve questionable ethics. Clearly, companies should take advantage of publicly available information. However, they should not stoop to snoop. With all the legitimate intelligence sources now available, a company does not need to break the law or accepted codes of ethics to get good intelligence. Author Whereas marketing Comment intelligence involves actively scanning the general marketing environment, marketing research involves more focused studies to gain customer insights related to specific marketing decisions. Marketing research The systematic design, collection, analysis, and reporting of data relevant to a specific marketing situation facing an organization. Marketing Research In addition to marketing intelligence information about general consumer, competitor, and marketplace happenings, marketers often need formal studies that provide customer and market insights for specific marketing situations and decisions. For example, Starbucks wants to know how customers would react to a new breakfast menu item. Yahoo! wants to know how web searchers will react to a proposed redesign of its site. Or Samsung wants to know how many and what kinds of people will buy its next-generation, ultrathin televisions. In such situations, managers will need marketing research. Marketing research is the systematic design, collection, analysis, and reporting of data relevant to a specific marketing situation facing an organization. Companies use marketing research in a wide variety of situations. For example, marketing research gives marketers insights into customer motivations, purchase behavior, and satisfaction. It can help them to assess market potential and market share or measure the effectiveness of pricing, product, distribution, and promotion activities. Some large companies have their own research departments that work with marketing managers on marketing research projects. In addition, these companies—like their smaller counterparts—frequently hire outside research specialists to consult with management on specific marketing problems and to conduct marketing research studies. Sometimes firms simply purchase data collected by outside firms to aid in their decision making. Figure 4.2): defining the probThe marketing research process has four steps (see lem and research objectives, developing the research plan, implementing the research plan, and interpreting and reporting the findings. Defining the Problem and Research Objectives This first step is probably the most difficult but also the most important one. It guides the entire research process. It’s frustrating and costly to reach the end of an expensive research project only to learn that you’ve addressed the wrong problem! Marketing managers and researchers must work together closely to define the problem and agree on research objectives. The manager best understands the decision for which information is needed, whereas the researcher best understands marketing research and how to obtain the information. Defining the problem and research objectives is often the hardest step in the research process. The manager may know that something is wrong without knowing the specific causes. FIgure | 4.2 The Marketing Research Process Defining the problem and research objectives Developing the research plan for collecting information Implementing the research plan–– collecting and analyzing the data Interpreting and reporting the findings Chapter 4 exploratory research Marketing research to gather preliminary information that will help define problems and suggest hypotheses. Descriptive research Marketing research to better describe marketing problems, situations, or markets, such as the market potential for a product or the demographics and attitudes of consumers. Causal research Marketing research to test hypotheses about cause-and-effect relationships. | Managing Marketing Information to Gain Customer Insights 131 After the problem has been defined carefully, the manager and the researcher must set the research objectives. A marketing research project might have one of three types of objectives. The objective of exploratory research is to gather preliminary information that will help define the problem and suggest hypotheses. The objective of descriptive research is to describe things, such as the market potential for a product or the demographics and attitudes of consumers who buy the product. The objective of causal research is to test hypotheses about cause-and-effect relationships. For example, would a 10 percent decrease in tuition at a private college result in an enrollment increase sufficient to offset the reduced tuition? Managers often start with exploratory research and later follow with descriptive or causal research. The statement of the problem and research objectives guides the entire research process. The manager and the researcher should put the statement in writing to be certain that they agree on the purpose and expected results of the research. Developing the Research Plan Once researchers have defined the research problem and objectives, they must determine the exact information needed, develop a plan for gathering it efficiently, and present the plan to management. The research plan outlines sources of existing data and spells out the specific research approaches, contact methods, sampling plans, and instruments that researchers will use to gather new data. Research objectives must be translated into specific information needs. For example, suppose that Chipotle Mexican Grill wants to know how consumers would react to the addition of drive-thru service to its restaurants. U.S. fast-food chains generate an estimated 24 percent of sales through drive-thrus. However, Chipotle—the sustainabilityminded fast-casual restaurant that positions itself on “Food With Integrity”—doesn’t offer drive-thru service. Adding drive-thrus might help Chipotle leverage its strong brand position and attract new sales. The proposed research might call for the following specific information: • The demographic, economic, and lifestyle characteristics of current Chipotle customers: Do current counter-service customers also use drive-thrus? Are drive-thrus consistent with their needs and lifestyles? Or would Chipotle need to target a new segment of consumers? • The characteristics and usage patterns of the broader population of fast-food and fast-casual diners: What do they need and expect from such restaurants? Where, when, and how do they use them, and what existing quality, price, and service levels do they value? The new Chipotle service would require strong, relevant, and distinctive positioning in the crowded fast-food market. • Impact on the Chipotle customer experience: Would drive-thrus be consistent with a higher-quality fastcasual experience like the one Chipotle offers? • Chipotle employee reactions to drive-thru service: A decision by Chipotle Mexican Grill to add drive-thru service Would restaurant employees support drive-thrus? would call for marketing research that provides lots of specific Would adding drive-thrus disrupt operations and information. their ability to deliver high-quality food and service to Chipotle Mexican Grill, Inc. inside customers? • Forecasts of both inside and drive-thru sales and profits: Would the new drive-thru service create new sales and customers or simply take sales away from current inside operations? Chipotle’s marketers would need these and many other types of information to decide whether to introduce drive-thru service and, if so, the best way to do it. The research plan should be presented in a written proposal. A written proposal is especially important when the research project is large and complex or when an outside 132 | part 2 Understanding the Marketplace and Customer Value Secondary data Information that already exists somewhere, having been collected for another purpose. primary data Information collected for the specific purpose at hand. firm carries it out. The proposal should cover the management problems addressed, the research objectives, the information to be obtained, and how the results will help management’s decision making. The proposal also should include estimated research costs. To meet the manager’s information needs, the research plan can call for gathering secondary data, primary data, or both. Secondary data consist of information that already exists somewhere, having been collected for another purpose. Primary data consist of information collected for the specific purpose at hand. Gathering Secondary Data Researchers usually start by gathering secondary data. The company’s internal database provides a good starting point. However, the company can also tap into a wide assortment of external information sources. Companies can buy secondary data from outside suppliers. For example, Nielsen sells shopper insight data from a consumer panel of more than 250,000 households in 25 countries worldwide, with measures of trial and repeat purchasing, brand loyalty, and buyer demographics. Experian Simmons carries out a full spectrum of consumer studies that provide a comprehensive view of the American consumer. The U.S. Yankelovich MONITOR service by The Futures Company sells information on important social and lifestyle trends. These and other firms supply high-quality data to suit a wide variety of marketing information needs.8 Using commercial online databases, marketing researchers can conduct their own searches General database services such as ProQuest and LexisNexis of secondary data sources. put an incredible wealth of information at the fingertips of marketing decision makers. Beyond commercial services offering information for a fee, almost every industry association, government agency, business publication, and news medium offers free information to those tenacious enough to find their websites or apps. Internet search engines can also be a big help in locating relevant secondary information sources. However, they can also be very frustrating and inefficient. For example, a Chipotle marketer Googling “fast-food drivethru” would come up with more than 6.8 million hits. Still, well-structured, well-designed online searches can be a good starting point to any marketing research project. Secondary data can usually be obtained more quickly and at a lower cost than primary data. Also, General database services such as Dialog, ProQuest, and LexisNexis put an incredible secondary sources can sometimes wealth of information at the fingertips of marketing decision makers. provide data an individual comCopyright 2016 LexisNexis, a division of Reed Elsevier Inc. All rights reserved. LexisNexis, Lexis, Lexis Advance and the Knowledge Burst pany cannot collect on its own— logo are registered trademarks of Reed Elsevier Properties Inc., used with the permission of LexisNexis. information that either is not directly available or would be too expensive to collect. For example, it would be too expensive for a consumer products brand such as Coca-Cola or Tide to conduct a continuing retail store audit to find out about the market shares, prices, and displays of its own and competitors’ brands. But those marketers can buy store sales and audit data from IRI, which provides data from 34,000 retail stores in markets around the nation.9 Secondary data can also present problems. Researchers can rarely obtain all the data they need from secondary sources. For example, Chipotle will not find existing information regarding consumer reactions about new drive-thru service that it has not yet installed. Even when data can be found, the information might not be very usable. The researcher must evaluate secondary information carefully to make certain it is relevant (fits the research project’s needs), accurate (reliably collected and reported), current (up-to-date enough for current decisions), and impartial (objectively collected and reported). Chapter 4 | Managing Marketing Information to Gain Customer Insights 133 Primary Data Collection Secondary data provide a good starting point for research and often help to define research problems and objectives. In most cases, however, the company must also collect primary Table 4.1 shows that designing a plan for primary data collection calls for a number data. of decisions on research approaches, contact methods, the sampling plan, and research instruments. Research Approaches Research approaches for gathering primary data include observation, surveys, and experiments. We discuss each one in turn. Observational research Observational Research. Observational research involves gathering primary data by Gathering primary data by observing relevant people, actions, and situations. observing relevant people, actions, and situations. For example, food retailer Trader Joe’s might evaluate possible new store locations by checking traffic patterns, neighborhood conditions, and the locations of competing Whole Foods, Fresh Market, and other retail chains. Researchers often observe consumer behavior to glean customer insights they can’t obtain by simply asking customers questions. For instance, Fisher-Price has established an observation lab in which it can observe the reactions little tots have to new toys. The Fisher-Price Play Lab is a sunny, toy-strewn space where lucky kids get to test Fisher-Price prototypes under the watchful eyes of designers who hope to learn what will get them worked up into a new-toy frenzy. In the lab, some 3,500 kids participate each year testing 1,200 products annually. “Our designers watch and learn from how [children] play,” says a Fisher-Price child research manager. “It really helps us make better products.”10 Marketers not only observe what consumers do but also observe what consumers are saying. As discussed earlier, marketers now routinely listen in on consumer conversations on blogs, social media, and websites. Observing such naturally occurring feedback can provide inputs that simply can’t be gained through more structured and formal research approaches. A wide range of companies now use ethnographic research. Ethnographic research involves sending observers to watch and interact with consumers in their “natural environments.” The observers might be trained anthropologists and psychologists or company researchers and managers. For example, Coors insights teams frequent bars and other locations in a top-secret small-town location—they call it the “Outpost”—within a day’s drive of Chicago. The researchers use the town as a real-life lab, hob-knobbing anonymously with bar patrons, supermarket shoppers, restaurant diners, convenience store clerks, and other townspeople to gain authentic insights into how middle American consumers buy, drink, dine, and socialize around Coors and competing beer brands.11 Global branding firm Landor launched Landor Families, an ongoing ethnographic study that has followed 11 French families intensely for the past seven years. Landor researchers visit the families twice a year in their homes, diving deeply into both their refrigerators and their food shopping behaviors and opinions. The researchers also shop with the families at their local supermarkets and look over their shoulders while they shop online. The families furnish monthly online reports detailing their shopping behaviors and opinions. The Landor Families study provides rich behavioral insights for Landor clients such as Danone, Kraft Foods, and Procter & Gamble. Today’s big data analytics can provide important insights into the whats, whens, and wheres of consumer buying. The Landor Families ethnographic research A form of observational research that involves sending trained observers to watch and interact with consumers in their “natural environments.” Table 4.1 | Planning Primary Data Collection Research Approaches Contact Methods Sampling Plan Research Instruments Observation Mail Sampling unit Questionnaire Survey Telephone Sample size Mechanical instruments Experiment Personal Sampling procedure Online 134 | part 2 Understanding the Marketplace and Customer Value program is designed to explore the whys. According to Landor, “There is no better way to understand people than to observe them in real life.”12 Observational and ethnographic research often yields the kinds of details that just don’t emerge from traditional research questionnaires or focus groups. Whereas traditional quantitative research approaches seek to test known hypotheses and obtain answers to well-defined product or strategy questions, observational research can generate fresh customer and market insights that people are unwilling or unable to provide. It provides a window into customers’ unconscious actions and unexpressed needs and feelings. However, some things simply cannot be observed, such as attitudes, motives, or private behavior. Long-term or infrequent behavior is also difficult to observe. Finally, observations can be very difficult to interpret. Because of these limitations, researchers often use observation along with other data collection methods. Survey Research. Survey research, the most widely used method for primary data collection, is the approach best suited for gathering descriptive information. A company that wants to know about people’s knowledge, attitudes, preferences, or buying behavior can often find out by asking them directly. The major advantage of survey research is its flexibility; it can be used to obtain many different kinds of information in many different situations. Surveys addressing almost any The Landor Families ongoing ethnographic study has followed marketing question or decision can be conducted by phone 11 French families intensely for the past seven years, diving deeply or mail, online, or in person. into both their refrigerators and their food shopping behaviors. Says However, survey research also presents some problems. Landor, “There is no better way to understand people than to observe Sometimes people are unable to answer survey questions them in real life.” because they cannot remember or have never thought about Landor what they do and why they do it. People may be unwilling to respond to unknown interviewers or about things they consider private. Respondents may answer survey questions even when they do not know the answer just to appear smarter or more informed. Or they may try to help the interviewer by giving pleasing answers. Finally, Survey research Gathering primary data by asking people busy people may not take the time, or they might resent the intrusion into their privacy. questions about their knowledge, attitudes, preferences, and buying behavior. experimental research Gathering primary data by selecting matched groups of subjects, giving them different treatments, controlling related factors, and checking for differences in group responses. Experimental Research. Whereas observation is best suited for exploratory research and surveys for descriptive research, experimental research is best suited for gathering causal information. Experiments involve selecting matched groups of subjects, giving them different treatments, controlling unrelated factors, and checking for differences in group responses. Thus, experimental research tries to explain cause-and-effect relationships. For example, before adding a new sandwich to its menu, McDonald’s might use experiments to test the effects on sales of two different prices it might charge. It could introduce the new sandwich at one price in one city and at another price in another city. If the cities are similar and if all other marketing efforts for the sandwich are the same, then differences in sales in the two cities could be related to the price charged. Contact Methods Information can be collected by mail, by telephone, by personal interview, or online. Each contact method has its own particular strengths and weaknesses. Mail, Telephone, and Personal Interviewing. Mail questionnaires can be used to collect large amounts of information at a low cost per respondent. Respondents may give more honest answers on a mail questionnaire than to an unknown interviewer in person or over the phone. Also, no interviewer is involved to bias respondents’ answers. However, mail questionnaires are not very flexible; all respondents answer the same questions in a fixed order. And mail surveys usually take longer to complete and response rates are often low. Chapter 4 | Managing Marketing Information to Gain Customer Insights 135 As a result, more and more marketers are now shifting to faster, more flexible, and lowercost email, online, and mobile phone surveys. Telephone interviewing is one of the best methods for gathering information quickly, and it provides greater flexibility than mail questionnaires. Interviewers can explain difficult questions and, depending on the answers they receive, skip some questions or probe on others. Response rates tend to be higher than with mail questionnaires, and interviewers can ask to speak to respondents with the desired characteristics or even by name. However, with telephone interviewing, the cost per respondent is higher than with mail, online, or mobile questionnaires. Also, people may not want to discuss personal questions with an interviewer. The method introduces interviewer bias—the way interviewers talk, how they ask questions, and other differences that may affect respondents’ answers. Finally, in this age of do-not-call lists and promotion-harassed consumers, potential survey respondents are increasingly hanging up on telephone interviewers rather than talking with them. Personal interviewing takes two forms: individual interviewing and group interviewing. Individual interviewing involves talking with people in their homes or offices, on the street, or in shopping malls. Such interviewing is flexible. Trained interviewers can guide interviews, explain difficult questions, and explore issues as the situation requires. They can show subjects actual products, packages, advertisements, or videos and observe reactions and behavior. However, individual personal interviews may cost three to four times as much as telephone interviews. Focus Group Interviewing. Group interviewing consists of inviting small groups of Focus group interviewing Personal interviewing that involves inviting small groups of people to gather for a few hours with a trained interviewer to talk about a product, service, or organization. The interviewer “focuses” the group discussion on important issues. people to meet with a trained moderator to talk about a product, service, or organization. Participants normally are paid a small sum for attending. A moderator encourages free and easy discussion, hoping that group interactions will bring out deeper feelings and thoughts. At the same time, the moderator “focuses” the discussion—hence the name focus group interviewing. In traditional focus groups, researchers and marketers watch the focus group discussions from behind a one-way mirror and video-record sessions for later study. Through videoconferencing and internet technology, marketers in far-off locations can look in and listen, even participate, as a focus group progresses. Focus group interviewing has become one of the major qualitative marketing research tools for gaining fresh insights into consumer thoughts and feelings. In focus group settings, researchers not only hear consumer ideas and opinions, they also can observe facial expressions, body movements, group interplay, and conversational flows. However, focus group studies present some challenges. They usually employ small samples to keep time and costs down, and it may be hard to generalize from the results. Moreover, consumers in focus groups are not always open and honest about their real feelings, behaviors, and intentions in front of other people. To overcome these problems, many researchers are tinkering with the focus group design. Some companies are changing the environments in which they conduct focus groups to help consumers relax and elicit more authentic responses. For example, Lexus hosts “An Evening with Lexus” dinners in customers’ homes with groups of luxury car buyers to learn up close and personal why they did or did not buy a Lexus. Other companies use immersion groups—small groups of consumers who interact directly and informally with product designers without a focus group moderator present. Research and innovation consultancy The Mom Complex uses such immersion groups to help brand marketers from companies such as Unilever, Johnson & Johnson, Kimberly-Clark, Kellogg, Playskool, and Walmart understand and connect with their “mom customers”:13 New focus group designs: The Mom Complex uses “Mom Immersion Sessions” to help brand marketers understand and connect directly with their “mom customers” on important brand issues. © caia image/Alamy According to The Mom Complex, America’s 80 million moms control 85 percent of household purchases, yet three out of four moms say marketers have no idea what it’s like to be a mother. To change that, The Mom Complex arranges “Mom Immersion Sessions,” in which brand marketers interact directly with groups of mothers, who receive $100 in compensation for a two-hour session. Rather than the usual focus group 136 | part 2 Understanding the Marketplace and Customer Value practice of putting the marketers behind a one-way mirror to observe groups of moms discussing their brands, the participants and marketers sit in the same room. Guided by a discussion facilitator, the moms begin by educating the marketers about the realities of motherhood—“the raw, real ugly truth about being a mom.” Then the moms and marketers work together to address specific brand issues—whether it’s new product ideas, current product problems, or positioning and communications strategy. The goal is to “turn the challenges of motherhood into growth opportunities for brands.” Individual and focus group interviews can add a personal touch as opposed to more numbers-oriented, big data research. They can provide rich insights into the motivations and feelings behind the numbers and analytics. “Focus groups are the most widely used qualitative research tool,” says one analyst, “and with good reason. They foster fruitful discussion and can provide unique insight into customers’ and potential customers’ needs, wants, thoughts, and feelings.” Things really come to life when you hear people say them.14 Online Marketing Research. The internet has had a dramatic impact on how marketing research is conducted. Increasingly, researchers are collecting primary data through Online marketing research online marketing research: internet and mobile surveys, online focus groups, conCollecting primary data through internet sumer tracking, experiments, and online panels and brand communities. and mobile surveys, online focus groups, Online research can take many forms. A company can use the internet or mobile technolconsumer tracking, experiments, and ogy as a survey medium: It can include a questionnaire on its web or social media sites or use online panels and brand communities. email or mobile devices to invite people to answer questions. It can create online panels that provide regular feedback or conduct live discussions or online focus groups. Researchers can also conduct online experiments. They can experiment with different prices, headlines, or product features on different web or mobile sites or at different times to learn the relative effectiveness of their offers. They can set up virtual shopping environments and use them to test new products and marketing programs. Or a company can learn about the behavior of online customers by following their click streams as they visit the online site and move to other sites. The internet is especially well suited to quantitative research—for example, conducting marketing surveys and collecting data. More than 90 percent of all Americans now use the internet, making it a fertile channel for reaching a broad cross-section of consumers.15 As response rates for traditional survey approaches decline and costs increase, the internet is quickly replacing mail and the telephone as the dominant data collection methodology. Internet-based survey research offers many advantages over traditional phone, mail, and personal interviewing approaches. The most obvious advantages are speed and low costs. By going online, researchers can quickly and easily distribute surveys to thousands of respondents simultaneously via email or by posting them on selected online and mobile sites. Responses can be almost instantaneous, and because respondents themselves enter the information, researchers can tabulate, review, and share research data as the information arrives. Online research also usually costs much less than research conducted through mail, phone, or personal interviews. Using the internet eliminates most of the postage, phone, interviewer, and data-handling costs associated with the other approaches. Moreover, sample size and location have little impact on costs. Once the questionnaire is set up, there’s little difference in cost between 10 respondents and 10,000 respondents on the internet or between local or globally distant respondents. Its low cost puts online research well within the reach of almost any business, large or small. In fact, with the internet, what was once the domain of research experts is now available to almost any would-be researcher. Even smaller, less sophisticated researchers can use online survey services such as Snap Surveys (www.snapsurveys.com) and Online research: Thanks to survey services such as Snap Surveys, almost any SurveyMonkey (www.surveymonkey.com) business, large or small, can create, publish, and distribute its own custom online or mobile surveys in minutes. to create, publish, and distribute their own Reproduced with permission from Snap Surveys. www.snapsurveys.com custom online or mobile surveys in minutes. Chapter 4 | Managing Marketing Information to Gain Customer Insights 137 Internet-based surveys also tend to be more interactive and engaging, easier to complete, and less intrusive than traditional phone or mail surveys. As a result, they usually garner higher response rates. The internet is an excellent medium for reaching the hard-toreach consumer—for example, the often-elusive teen, single, affluent, and well-educated Online focus groups audiences. It’s also good for reaching people who lead busy lives, from working mothers Gathering a small group of people online to on-the-go executives. Such people are well represented online, and they can respond in with a trained moderator to chat about their own space and at their own convenience. a product, service, or organization and Just as marketing researchers have rushed to use the internet for quantitative surveys gain qualitative insights about consumer attitudes and behavior. and data collection, they are now also adopting qualitative internet-based research approaches, such as online focus groups, blogs, and social networks. The internet can provide a fast, low-cost way to gain qualitative customer insights. A primary qualitative internet-based research approach For example, online research is online focus groups. firm FocusVision offers its InterVu service, which harnesses the power of the internet to conduct focus groups with participants at remote locations, anywhere in the world, at any time. Using their own webcams, InterVu participants can log on to focus sessions from their homes or offices and see, hear, and react to each other in real-time, face-to-face discussions.16 Such focus groups can be conducted in any language and viewed with simultaneous translation. They work well for bringing together people from different parts of the country or world at low cost. Researchers can view the sessions in real time from just about anywhere, eliminating travel, lodging, and facility costs. Finally, although online focus groups require some advance scheduling, results are almost immediate. Although growing rapidly, both quantitative and qualitative internet-based research have some drawbacks. One major Online focus groups: FocusVision’s InterVu service lets focus problem is controlling who’s in the online sample. Without group participants at remote locations see, hear, and react to each seeing respondents, it’s difficult to know who they really are. other in real-time, face-to-face discussions. To overcome such sample and context problems, many online FocusVision research firms use opt-in communities and respondent panels. Alternatively, many companies have now developed their own “insight communities” from which they obtain customer feedback and insights. For example, NASCAR has built an online community of 12,000 core fans called the NASCAR Fan Council from which it obtains quick and relevant feedback from fans. Similarly, women’s magazine Allure formed its own insight community—called Beauty Enthusiasts, now 35,000 members strong—from which it solicits feedback both on its own content and on advertisers’ brands. When Beauty Enthusiast members first join the community, they provide detailed information about their demographics, product needs, and preferences. Brands can then interact online with specific segments of the Beauty Enthusiasts community about brand perceptions, product ideas, beauty trends, and marketing moves. Says one analyst, “The feedback combines the precision of quantitative research with the qualitative results of focus groups, as people write their reactions to products in their own words.”17 Online Behavioral and Social Tracking and Targeting. Thus, in recent years, the internet has become an important tool for conducting research and developing customer insights. But today’s marketing researchers are going even further—well beyond online surveys, focus groups, and online communities. Increasingly, they are listening to and watching consumers by actively mining the rich veins of unsolicited, unstructured, “bottom-up” customer information already coursing around the internet. Whereas traditional marketing research provides more logical consumer responses to structured and intrusive research questions, online listening provides the passion and spontaneity of unsolicited consumer opinions. Tracking consumers online might be as simple as scanning customer reviews and comments on the company’s brand site or on shopping sites such as Amazon.com or BestBuy. com. Or it might mean using sophisticated online-analysis tools to deeply analyze the mountains of consumer brand-related comments and messages found in blogs or on social media sites. Listening to and engaging customers online can provide valuable insights into what consumers are saying or feeling about a brand. It can also provide opportunities for building positive brand experiences and relationships. Many companies now excel at 138 | part 2 Understanding the Marketplace and Customer Value listening online and responding quickly and appropriately. As noted previously, more and more companies are setting up social media command centers with which they scour the digital environment and analyze brand-related comments and conversations to gain marketing insights. Information about what consumers do while trolling the vast digital expanse—what searches they make, the online and mobile sites they visit, how they shop, and what they buy—is pure gold to marketers. And today’s marketers are busy mining that gold. Then, in a practice called behavioral targeting, marketers use the online data to target ads and Behavioral targeting Using online consumer tracking data to offers to specific consumers. For example, if you place an Apple iPad in your Amazon.com target advertisements and marketing shopping cart but don’t buy it, you might expect to see some ads for that very type of tablet offers to specific consumers. the next time you visit your favorite ESPN site to catch up on the latest sports scores. The newest wave of web analytics and targeting takes online eavesdropping even further—from behavioral targeting to social targeting. Whereas behavioral targeting tracks consumer movements across online sites, social targeting also mines individual online social connections and conversations from social networking sites. Research shows that consumers shop a lot like their friends and are much more likely to respond to ads from brands friends use. So, instead of just having a Zappos.com ad for running shoes pop up because you’ve recently searched online for running shoes (behavioral targeting), an ad for a specific pair of running shoes pops up because a friend that you’re connected to via Twitter just bought those shoes from Zappos.com last week (social targeting). Online listening, behavioral targeting, and social targeting can help marketers to harness the massive amounts of consumer information swirling around the internet. However, as marketers get more adept at trolling blogs, social networks, and other internet and mobile domains, many critAt what point does sophisticated ics worry about consumer privacy. online research cross the line into consumer stalking? Proponents claim that behavioral and social targeting benefit more than abuse consumers by feeding back ads and products that are more relevant to their interests. But to many consumers and public advocates, following consumers online and stalking them with ads feels more than just a little creepy. Regulators and others are stepping in. The Federal Trade Commission (FTC) has recommended the creation of a “Do Not Track” system (the online equivalent to the “Do Not Call” registry)—which Marketers watch what consumers say and do would let people opt out of having their actions monitored online. online, then use the resulting insights to personalize However, progress has been mixed. Meanwhile, many major internet online shopping experiences. Is it sophisticated online research or “just a little creepy”? browsers and social media have heeded the concerns by adding extended privacy features to their services.18 Andresr/Shutterstock.com Sampling Plan Sample A segment of the population selected for marketing research to represent the population as a whole. Marketing researchers usually draw conclusions about large groups of consumers by studying a small sample of the total consumer population. A sample is a segment of the population selected for marketing research to represent the population as a whole. Ideally, the sample should be representative so that the researcher can make accurate estimates of the thoughts and behaviors of the larger population. Designing the sample requires three decisions. First, who is to be studied (what sampling unit)? The answer to this question is not always obvious. For example, to learn about the decision-making process for a family automobile purchase, should the subject be the husband, the wife, other family members, dealership salespeople, or all of these? Second, how many people should be included (what sample size)? Large samples give more reliable results than small samples. However, larger samples usually cost more, and it is not necessary to sample the entire target market or even a large portion to get reliable results. Finally, how should the people in the sample be chosen (what sampling procedure)? Table 4.2 describes different kinds of samples. Using probability samples, each population member has a known chance of being included in the sample, and researchers can calculate confidence limits for sampling error. But when probability sampling costs too much or takes too much time, marketing researchers often take nonprobability samples even though their sampling error cannot be measured. These varied ways of drawing samples have different costs and time limitations as well as different accuracy and statistical properties. Which method is best depends on the needs of the research project. Chapter 4 Table 4.2 | Managing Marketing Information to Gain Customer Insights 139 | Types of Samples Probability Sample Simple random sample Every member of the population has a known and equal chance of selection. Stratified random sample The population is divided into mutually exclusive groups (such as age groups), and random samples are drawn from each group. Cluster (area) sample The population is divided into mutually exclusive groups (such as blocks), and the researcher draws a sample of the groups to interview. Nonprobability Sample Convenience sample The researcher selects the easiest population members from which to obtain information. Judgment sample The researcher uses his or her judgment to select population members who are good prospects for accurate information. Quota sample The researcher finds and interviews a prescribed number of people in each of several categories. Research Instruments In collecting primary data, marketing researchers have a choice of two main research instruments: questionnaires and mechanical devices. Questionnaires. The questionnaire is by far the most common instrument, whether administered in person, by phone, by email, or online. Questionnaires are very flexible—there are many ways to ask questions. Closed-ended questions include all the possible answers, and subjects make choices among them. Examples include multiple-choice questions and scale questions. Open-ended questions allow respondents to answer in their own words. In a survey of airline users, Southwest Airlines might simply ask, “What is your opinion of Southwest Airlines?” Or it might ask people to complete a sentence: “When I choose an airline, the most important consideration is . . . ” These and other kinds of open-ended questions often reveal more than closed-ended questions because they do not limit respondents’ answers. Open-ended questions are especially useful in exploratory research, when the researcher is trying to find out what people think but is not measuring how many people think in a certain way. Closed-ended questions, on the other hand, provide answers that are easier to interpret and tabulate. Researchers should also use care in the wording and ordering of questions. They should use simple, direct, and unbiased wording. Questions should be arranged in a logical order. The first question should create interest if possible, and difficult or personal questions should be asked last so that respondents do not become defensive. Mechanical Instruments. Although questionnaires are the most common research instrument, researchers also use mechanical instruments to monitor consumer behavior. For example, Nielsen Media Research attaches people meters to television sets in selected homes to record who watches which programs. Retailers use checkout scanners to record shoppers’ purchases. Other marketers use mobile phone GPS technologies to track consumer movements in and near their stores. Still other researchers apply neuromarketing, using EEG and MRI technologies to track brain electrical activity to learn how consumers feel and respond. Neuromarketing measures, often combined with biometric measures (such as heart rates, respiration rates, sweat levels, and facial and eye movements), can provide companies with insights into what turns consumers on and off regarding their brands and marketing. For example, research firm Nielsen and the Ad Council used neuromarketing to improve the effectiveness of an ad for the Shelter Pet Project, a public service campaign focused on increasing adoption rates for pets in shelters:19 Using neuroscience methods, Nielsen charted how people’s brains responded to an existing Shelter Pet Project public service ad and the ad’s canine star, Jules the dog. Researchers used a combination of EEG and eye-tracking measurements to determine the second-by-second, 140 | part 2 Understanding the Marketplace and Customer Value scene-by-scene impact of the ad on viewer attention, emotional engagement, and memory activation. They discovered that viewer attention and emotional engagement jumped when Jules was on the screen. They also learned that the end of the ad caused confusion, with Jules, the logo, and the website URL all competing for viewer attention. The creative team re-edited the ad, increasing Jules’s onscreen moments and sharpening the ad’s ending and call to action. A second round of neuroscience tests showed that the recrafted ad held viewers’ attention better, kept them more consistently engaged, and improved ad recall. As a result, in the first three months after the launch of the refreshed ad, traffic to the Shelter Pet Project website more than doubled, a change that may have real life-or-death implications for shelter pets. Neuromarketing helped improve the effectiveness of ads for the Shelter Pet Project, as measured by Nielsen, increasing viewer attention, emotional engagement, and memory recall and more than doubling traffic to the organization’s website. Copyrighted information ©2017, of The Nielsen Company, licensed for use herein. Although neuromarketing techniques can measure consumer involvement and emotional responses second by second, such brain responses can be difficult to interpret. Thus, neuromarketing is usually used in combination with other research approaches to gain a more complete picture of what goes on inside consumers’ heads. Implementing the Research Plan The researcher next puts the marketing research plan into action. This involves collecting, processing, and analyzing the information. Data collection can be carried out by the company’s marketing research staff or outside firms. Researchers should watch closely to make sure that the plan is implemented correctly. They must guard against problems with data collection techniques and technologies, data quality, and timeliness. Researchers must also process and analyze the collected data to isolate important information and insights. They need to check data for accuracy and completeness and code them for analysis. The researchers then tabulate the results and compute statistical measures. Interpreting and Reporting the Findings The market researcher must now interpret the findings, draw conclusions, and report them to management. The researcher should not try to overwhelm managers with numbers and fancy statistical techniques. Rather, the researcher should present important findings and insights that are useful in the major decisions faced by management. However, interpretation should not be left only to researchers. Although they are often experts in research design and statistics, the marketing manager knows more about the problem and the decisions that must be made. The best research means little if the manager blindly accepts faulty interpretations from the researcher. Similarly, managers may be biased. They might tend to accept research results that show what they expected and reject those that they did not expect or hope for. In many cases, findings can be interpreted in different ways, and discussions between researchers and managers will help point to the best interpretations. Thus, managers and researchers must work together closely when interpreting research results, and both must share responsibility for the research process and resulting decisions. Author We’ve talked generally Comment about managing customer relationships throughout the book. But here, customer relationship management (CRM) has a much narrower data-management meaning. It refers to capturing and using customer data from all sources to manage customer interactions, engage customers, and build customer relationships. Analyzing and Using Marketing Information Information gathered from internal databases, competitive marketing intelligence, and marketing research usually requires additional analysis. Managers may need help applying the information to gain customer and market insights that will improve their marketing decisions. This help may include advanced analytics to learn more about the relationships within sets of data. Information analysis might also involve the application of analytical models that will help marketers make better decisions. Once the information has been processed and analyzed, it must be made available to the right decision makers at the right time. In the following sections, we look deeper into analyzing and using marketing information. Chapter 4 | Managing Marketing Information to Gain Customer Insights 141 Customer Relationship Management (CRM) Customer relationship management (CrM) Managing detailed information about individual customers and carefully managing customer touch points to maximize customer loyalty. The question of how best to analyze and use individual customer data presents special problems. In the current big data era, most companies are awash in information about their customers and the marketplace. Still, smart companies capture information at every possible customer touch point. These touch points include customer purchases, sales force contacts, service and support calls, web and social media site visits, satisfaction surveys, credit and payment interactions, market research studies—every contact between a customer and a company. Unfortunately, this information is usually scattered widely across the organization or buried deep in separate company databases. To overcome such problems, many companies are now turning to customer relationship management (CRM) to manage detailed information about individual customers and carefully manage customer touch points to maximize customer loyalty. CRM consists of sophisticated software and analysis tools from companies such as Salesforce.com, Oracle, Microsoft, and SAS that integrate customer and marketplace information from all sources, analyze it, and apply the results to build stronger customer relationships. CRM integrates everything that a company’s sales, service, and marketing teams know about individual customers, providing a 360-degree view of the customer relationship. For example, MetLife recently developed a CRM system that it calls “The MetLife Wall”:20 One of the biggest customer service challenges for MetLife’s sales and service reps used to be quickly finding and getting to customer information—different records, transactions, and interactions stored in dozens of different company data locations and formats. The MetLife Wall solves that problem. The Wall uses a Facebook-like interface to serve up a consolidated view of each MetLife customer’s service experience. The innovative CRM system draws customer data from 70 different MetLife systems containing 45 million customer agreements and 140 million transactions. It puts all of a given customer’s information and related links into a single record on a single screen, updated in near real time. Now, thanks to The MetLife Wall—with only a single click instead of the 40 clicks it used to take—sales and service reps can see a complete view of a given customer’s various policies, transactions, and claims filed and paid along with a history of all the interactions the customer has had with MetLife across the company’s many touch points, all on a simple timeline. The Wall has given a big boost to MetLife’s customer service and cross-selling efforts. According to a MetLife marketing executive, it’s also had “a huge impact on customer satisfaction.” By using CRM to understand customers better, companies can provide higher levels of customer service and develop deeper customer relationships. They can use CRM to pinpoint high-value customers, target them more effectively, cross-sell the company’s products, and create offers tailored to specific customer requirements. Big Data and Marketing Analytics Marketing analytics The analysis tools, technologies, and processes by which marketers dig out meaningful patterns in big data to gain customer insights and gauge marketing performance. As noted at the start of the chapter, today’s big data can yield big results. But simply collecting and storing huge amounts of data has little value. Marketers must sift through the mountains of data to mine the gems—the bits that yield customer insights. As one marketing executive puts it, “It’s actually [about getting] big insights from big data. It’s throwing away 99.999 percent of that data to find things that are actionable.” Says another data expert, “right data trumps big data.”21 That’s the job of marketing analytics. Marketing analytics consists of the analysis tools, technologies, and processes by which marketers dig out meaningful patterns in big data to gain customer insights and gauge marketing performance.22 Marketers apply marketing analytics to the large and complex sets of data they collect from web, mobile, and social media tracking; customer transactions and engagements; and other big data sources. For example, Netflix maintains a bulging customer database and uses sophisticated marketing analytics to gain insights, which it then uses to fuel recommendations to subscribers, decide what programming to offer, and even develop its own exclusive content in the quest to serve its customers better (see Real Marketing 4.2). Another good example of marketing analytics in action comes from food products giant Kraft, whose classic brands—from JELL-O, Miracle Whip, and Kraft Macaroni and Real Marketing 142 | part 2 Understanding the Marketplace and Customer Value 4.2 Netflix Streams Success with Big Data and Marketing Analytics Americans now watch more movies and TV programs streamed online than they watch on DVDs and Blu-ray discs. And with its rotating library of more than 60,000 titles, Netflix streams more movie and program content by far than any other video service. Netflix’s 81.5 million paid subscribers watch some 3.8 billion hours of movies and TV programs every month. A remarkable 51 percent of all Americans have streamed Netflix content during the past year. All of this comes as little surprise to avid Netflixers. But members might be startled to learn that while they are busy watching Netflix videos, Netflix is busy watching them—watching them very, very closely. Netflix tracks and analyzes heaps of customer data in excruciating detail. Then it uses the big data insights to give customers exactly what they want. Netflix knows in depth what its audience wants to watch, and it uses this knowledge to fuel recommendations to subscribers, decide what programming to offer, and even develop its own exclusive content. No company knows its customers better than Netflix. The company has mind-boggling access to real-time data on member viewing behavior and sentiments. Every day, Netflix tracks and parses member data on tens of millions of searches, ratings, and “plays.” Netflix’s bulging database contains every viewing detail for each individual subscriber— what shows they watch, at what time of day, on what devices, at what locations, even when they hit the pause, rewind, or fastforward buttons during programs. Netflix supplements this already-massive database with consumer information purchased from Nielsen, Facebook, Twitter, and other sources. Finally, the company employs experts to classify each video on hundreds of characteristics, such as talent, action, tone, genre, color, volume, scenery, and many, many others. Using this rich base of big data, Netflix builds detailed subscriber profiles based on individual viewing habits and preferences. It then uses these profiles to personalize each customer’s viewing experience. According to Netflix, there are 69 million different versions of Netflix, one for each individual subscriber worldwide. For example, Netflix uses data on viewing history to make personalized recommendations. Wading through 60,000 titles to decide what to watch can be overwhelming. So when new customers sign up, Netflix asks them to rate their interest in movie and TV genres and to rate specific titles they have already seen. It then cross-references what people like with other similar titles to predict additional movies or programs customers will enjoy. But that’s just the beginning. As customers watch and rate more and more video content, and as Netflix studies the details of their viewing behavior, the predictions become more and more accurate. Netflix often comes to know individual customer viewing preferences better than customers themselves do. How accurate are Netflix’s recommendations? Seventy-five percent of viewing activity results from these suggestions. That’s important. The more subscribers watch, the more likely they are to stay with Netflix—viewers who watch at least 15 hours of content each month are 75 percent less likely to cancel. Accurate recommendations increase average viewing time, keeping subscribers in the fold. Increased viewing also depends on offering the right content in the first place. But adding new programming is expensive—content licensing fees constitute the lion’s share of Netflix’s cost of goods sold. With so many new and existing movies and TV programs on the market, Netflix must be very selective in what it adds to its content inventory. Once again, it’s big data and marketing analytics to the rescue. Just as Netflix analyzes its database to come up with subscriber recommendations, it uses the data to assess what additional titles customers might enjoy and how much each is worth. The goal is to maximize subscriber “happiness-per-dollar-spent” on new titles. “We always use our in-depth knowledge about what our members love to watch to decide what’s available on Netflix,” says a Netflix marketer. “If you keep watching, we’ll keep adding more of what you love.” To get even more viewers watching even more hours, Netflix uses its extensive big data insights to add its own exclusive video content—things you can see only on Netflix. In its own words, Netflix wants “to become HBO faster than HBO can become Netflix.” For example, Netflix stunned the media industry when it outbid both HBO and AMC by paying a stunning $100 million for exclusive rights to air the first two seasons of House of Cards, a U.S. version of a hit British political drama produced by Hollywood bigwigs David Fincher and Kevin Spacey. Netflix, big data, and CRM: While members are busy watching Netflix videos, Netflix is busy watching them—watching them very, very closely. Then it uses the big data insights to give customers exactly what they want. © OJO Images Ltd/Alamy (photo); PR NEWSWIRE (logo) Chapter 4 To outsiders, the huge investment in House of Cards seemed highly risky. However, using its powerful database, Netflix was able to predict accurately which and how many existing members would watch the new House of Cards regularly and how many new members would sign up because of the show. Netflix also used its viewer knowledge to pinpoint and personalize promotion of the exclusive series to just the right members. Before House of Cards premiered, based on their profiles, selected subscribers saw one of 10 different trailers of the show aimed at their specific likes and interests. Thanks to Netflix’s big data and marketing analytics prowess, House of Cards was a smash hit. It brought in 3 million new subscribers in only the first three months. These new subscribers alone covered almost all of the $100 million investment. More important, a Netflix survey revealed that for the average House of Cards viewer, 86 percent were less likely to cancel because of the new program. Such success came as no surprise to Netflix. Its data had predicted that the | Managing Marketing Information to Gain Customer Insights program would be a hit before the director ever shouted “action.” Based on the success of House of Cards, Netflix has developed a number of other original series, including Hemlock Grove, Lillyhammer, Orange Is the New Black, Bad Samaritans, Marco Polo, and the animated series BoJack Horseman. For traditional broadcast networks, the average success rate for new television shows is 35 percent. In contrast, Netflix is batting almost 70 percent. To continue the momentum, Netflix committed to spending a dazzling $6 billion in new original content in 2016. Such investments promise an ever-growing slate of new and continuing 143 Netflix original series, specials, documentaries, and films. As more and more high-quality video streams out of Netflix, more success streams in. Netflix’s sales have surged 36 percent during the past two years. Last year alone, membership grew by more than 20 percent. Netflix thrives on using big data and marketing analytics to know and serve its customers. The company excels at helping customers figure out just what they want to watch and offering just the right content profitably. Says Netflix’s chief communications officer, “Because we have a direct relationship with consumers, we know what people like to watch, and that helps us [immeasurably].” Sources: Shalini Ramachandram, “Netflix Drops on Weak-Growth Forecast,” Wall Street Journal, April 19, 2016, www.wsj.com/articles/netflix-adds-more-users-than-expected-1461010680; David Carr, “Giving Viewers What They Want,” New York Times, February 25, 2013, p. B1; Trey Williams, “Netflix Has Star-Studded Original Content Up Its Sleeve,” October 14, 2015, www.marketwatch.com/story/netflix-has-star-studded-original-content-upits-sleeve-2015-08-26; Zach Bulygo, “How Netflix Uses Analytics to Select Movies, Create Content, and Make Multimillion Dollar Decisions,” Kissmetrics, September 6, 2013, http://blog.kissmetrics.com/how-netflix-usesanalytics/; Craig Smith, “By the Numbers: 50+ Amazing Netflix Statistics and Facts,” Expanded Ramblings, April 18, 2016, http://expandedramblings.com/index.php/netflix_statistics-facts/; and www.netflix.com, accessed September 2016. Cheese to Oscar Mayer, Philadelphia Cream Cheese, Lunchables, and Planters nuts—are found in 98 percent of all North American households:23 Kraft has a treasure trove of marketing data, gathered from years of interactions with customers and from its social media monitoring hub called Looking Glass. Looking Glass tracks consumer trends, competitor activities, and more than 100,000 brand-related conversations daily in social media and on blogs. Kraft also reaps data from customer interactions with its Kraft Food & Family magazine, email communications, and the more than 100 web and social media sites that serve its large brand portfolio. In all, Kraft has 18 years’ worth of customer data across 22,000 different attributes. Kraft applies high-level marketing analytics to this wealth of data to mine nuggets of customer insight. Then it uses these insights to shape big data–driven marketing strategies and tactics, from developing new products to creating more focused and personalized web, mobile, and social media content. For example, Kraft’s analytics have identified more than 500 custom target segments. Within these segments, Kraft knows in detail what consumers need and like. Says one analyst, it knows “their dietary [characteristics and] restrictions—gluten free, a diabetic, low calorie, big snacks, feeding a big family, whether they are new cooks.” Kraft uses this knowledge to personalize digital interactions with individual customers, down to the fine details. “If Kraft knows you’re not a bacon user,” says the analyst, “you will never be served a bacon ad.” Thus, sophisticated analytics let Kraft target the right customer with the right message in the right medium at the right moment. Marketing analytics: Food products giant Kraft reaps a treasure trove of data from customers of its classic brands, then applies highlevel marketing analytics to mine nuggets of customer insights. Bloomberg/Getty Images The benefits of customer relationship management and big data analytics don’t come without costs or risks. The most common mistake is to view CRM and marketing analytics as technology processes only. Or they get buried in the big data details and miss the big picture.24 Yet technology alone cannot build profitable customer relationships. Companies can’t improve customer relationships by simply installing some new software. Instead, marketers should start with the fundamentals of managing customer relationships and then employ high-tech data and analytics solutions. They should focus first on the R— it’s the relationship that CRM is all about. 144 | part 2 Understanding the Marketplace and Customer Value Distributing and Using Marketing Information Marketing information has no value until it is used to make better marketing decisions. Thus, the marketing information system must make information readily available to managers and others who need it, when they need it. In some cases, this means providing managers with regular performance reports, intelligence updates, and reports on the results of research studies. But marketing managers may also need access to nonroutine information for special situations and on-the-spot decisions. For example, a sales manager having trouble with a large customer may want a summary of the account’s sales and profitability over the past year. Or a brand manager may want to get a sense of the amount of the social media buzz surrounding the recent launch of a new product. These days, therefore, information distribution involves making information available in a timely, user-friendly way. Many firms use company intranet and internal CRM systems to facilitate this process. These systems provide ready access to research and intelligence information, customer transaction and experience information, shared reports and documents, and more. For example, the CRM system at phone and online gift retailer 1-800-Flowers.com gives customer-facing employees real-time access to customer information. When a repeat customer calls, the system immediately pulls up data on previous transactions and other contacts, helping reps make the customer’s experience easier and more relevant. For instance, if a customer usually buys tulips for his wife, the rep can talk about the best tulip selections and related gifts. Such connections result in greater customer satisfaction and loyalty and greater sales for the company. “We can do it in real time,” says a 1-800-Flowers.com executive, “and it enhances the customer experience.”25 In addition, companies are increasingly allowing key customers and value-network members to access account, product, and other data on demand through extranets. Suppliers, customers, resellers, and select other network members may access a company’s extranet to update their accounts, arrange purchases, and check orders against inventories to improve For example, online shoes and accessories customer service. retailer Zappos considers suppliers to be “part of the Zappos family” and a key component in its quest to deliver “WOW” through great customer service. So it treats suppliers as valued partners, including sharing information with them. Through its ZUUL extranet (Zappos Unified User Login), thousands of suppliers are given full access to brand-related Zappos’s inventory levels, sales figures, and even profitability. Suppliers can also use ZUUL to interact with the Zappos creative team and to enter suggested orders for Zappos buyers to approve.26 Thanks to modern technology, today’s marketing managers can gain direct access to a company’s information system at any time and from virtually anywhere. They can tap into the system from a home office, customer location, airport, or the local Starbucks—anyplace they can connect Extranets: Zappos shares marketing information and insights with on a laptop, tablet, or smartphone. Such systems allow mansuppliers through its ZUUL extranet. It considers suppliers to be agers to get the information they need directly and quickly “part of the Zappos family.” and tailor it to their own needs. Zappos Author We finish this chapter by Comment examining three special marketing information topics. Other Marketing Information Considerations This section discusses marketing information in two special contexts: marketing research in small businesses and nonprofit organizations and international marketing research. Then we look at public policy and ethics issues in marketing research. Marketing Research in Small Businesses and Nonprofit Organizations Just like larger firms, small businesses and not-for-profit organizations need market information and the customer insights that it can provide. However, large-scale research studies are beyond the budgets of most small organizations. Still, many of the marketing research Chapter 4 | Managing Marketing Information to Gain Customer Insights 145 techniques discussed in this chapter can be used by smaller organizations in a less formal Consider how one small business owner conducted manner and at little or no expense. market research on a shoestring before even opening his doors:27 After a string of bad experiences with his local dry cleaner, Robert Byerley decided to open his own dry-cleaning business. But before jumping in, he conducted plenty of market research. He needed a key customer insight: How would he make his business stand out from the others? To start, Byerley spent an entire week online, researching the dry-cleaning industry. To get input from potential customers, using a local marketing firm, Byerley held focus groups on the store’s name, look, and brochure. He also took clothes to the 15 best competing cleaners in town and had focus group members critique their work. Based on his research, he made a list of features for his new business. First on his list: quality. His business would stand behind everything it did. Not on the list: cheap prices. Creating the perfect dry-cleaning establishment simply didn’t fit with a discount operation. With his research complete, Byerley opened Bibbentuckers, a high-end dry cleaner positioned on high-quality service and convenience. It featured a bank-like drive-thru area with curbside delivery. A computerized barcode system read customer cleaning preferences and tracked clothes all the way through the cleaning process. Byerley added other differentiators, such as decorative awnings, TV screens, and refreshments (even “candy for the kids and a doggy treat for your best friend”). “I wanted a place . . . that paired five-star service and quality with an establishment that didn’t look like a dry cleaner,” he says. The market research yielded results. Today, Bibbentuckers is a thriving eightstore operation. Thus, small businesses and not-for-profit organizations can obtain good marketing insights through observation or informal surveys using small convenience samples. Also, many associations, local media, and government agencies provide special help to small organizations. For example, the U.S. Small Business Administration offers dozens of free publications and a website (www.sba.gov) that give advice on topics ranging from starting, financing, and expanding a small business to ordering business cards. Other excellent research resources for small businesses include the U.S. Census Bureau (www. census.gov) and the Bureau of Economic Analysis (www.bea.gov). Finally, small businesses can collect a considerable amount of information at very little cost online. They can check out online product and service review sites, use internet search engines to research specific companies and issues, and scour competitor and customer web, mobile, and social media sites. In summary, secondary data collection, observation, surveys, and experiments can all be used effectively by small organizations with small budgets. However, although these informal research methods are less complex and less costly, they still must be conducted with care. Managers must think carefully about the objectives of the research, formulate questions in advance, recognize the biases introduced by smaller samples and less skilled researchers, and conduct the research systematically.28 Before opening Bibbentuckers dry cleaner, owner Robert Byerley conducted research to gain insights into what customers wanted. First on the list: quality. Bibbentuckers International Marketing Research International researchers follow the same steps as domestic researchers, from defining the research problem and developing a research plan to interpreting and reporting the results. However, these researchers often face more and different problems. Whereas domestic researchers deal with fairly homogeneous markets within a single country, international researchers deal with diverse markets in many different countries. These markets often vary greatly in their levels of economic development, cultures and customs, and buying patterns. 146 | part 2 Understanding the Marketplace and Customer Value In many foreign markets, the international researcher may have a difficult time finding good secondary data. Whereas U.S. marketing researchers can obtain reliable secondary data from dozens of domestic research services, many countries have almost no research services at all. Some of the largest international For example, The research services operate in many countries. Nielsen Company (the world’s largest marketing research company) has offices in more than 100 countries, from Schaumburg, Illinois, to Hong Kong to Nicosia, Cyprus.29 However, most research firms operate in only a relative handful of countries. Thus, even when secondary information is available, it usually must be obtained from many different sources on a country-bycountry basis, making the information difficult to combine or compare. Because of the scarcity of good secondary data, international researchers often must collect their own primary data. However, obtaining primary data may be no easy task. For example, it can be difficult simply to develop good samples. U.S. researchers can use current telephone directories, email lists, census tract data, and any of several sources of socioeconomic data to construct samples. However, such information is largely lacking in many countries. Once the sample is drawn, the U.S. researcher usually can reach most respondents easily by phone, by mail, online, or in person. However, reaching respondents is often not so easy in other parts of the world. Researchers in Mexico cannot rely Some of the largest research services firms have large on  phone, internet, and mail data collection—most data colinternational organizations. Nielsen has offices in more than lection is conducted door to door and concentrated in three or 100 countries. four of the largest cities. In some countries, few people have Copyrighted information ©2017, of The Nielsen Company, licensed for use herein. computers, let alone internet access. For example, whereas there are 84 internet users per 100 people in the United States, there are only 43 internet users per 100 people in Mexico. In Madagascar, the number drops to 2 internet users per 100 people. In some countries, the postal system is notoriously unreliable. In Brazil, for instance, an estimated 30 percent of the mail is never delivered; in Russia, mail delivery can take several weeks. In many developing countries, poor roads and transportation systems make certain areas hard to reach, making personal interviews difficult and expensive.30 Cultural differences from country to country cause additional problems for international researchers. Language is the most obvious obstacle. For example, questionnaires must be prepared in one language and then translated into the languages of each country researched. Responses then must be translated back into the original language for analysis and interpretation. This adds to research costs and increases the risks of error. Even within a given country, language can be a problem. For example, in India, English is the language of business, but consumers may use any of 14 “first languages,” with many additional dialects. Translating a questionnaire from one language to another is anything but easy. Many idioms, phrases, and statements mean different things in different cultures. For example, a Danish executive noted, “Check this out by having a different translator put back into English what you’ve translated from English. You’ll get the shock of your life. I remember [an example in which] ‘out of sight, out of mind’ had become ‘invisible things are insane.’”31 Consumers in different countries also vary in their attitudes toward marketing research. People in one country may be very willing to respond; in other countries, nonresponse can be a major problem. Customs in some countries may prohibit people from talking with strangers. In certain cultures, research questions often are considered too personal. For example, in many Muslim countries, mixed-gender focus groups are taboo, as is videotaping female-only focus groups. In some countries, even when respondents are willing to respond, they may not be able to because of high functional illiteracy rates. Chapter 4 | Managing Marketing Information to Gain Customer Insights 147 Despite these problems, as global marketing grows, global companies have little choice but to conduct these types of international marketing research. Although the costs and problems associated with international research may be high, the costs of not doing it—in terms of missed opportunities and mistakes—might be even higher. Once recognized, many of the problems associated with international marketing research can be overcome or avoided. Public Policy and Ethics in Marketing Research Most marketing research benefits both the sponsoring company and its consumers. Through marketing research, companies gain insights into consumers’ needs, resulting in more satisfying products and services and stronger customer relationships. However, the misuse of marketing research can also harm or annoy consumers. Two major public policy and ethics issues in marketing research are intrusions on consumer privacy and the misuse of research findings. Intrusions on Consumer Privacy Many consumers feel positive about marketing research and believe that it serves a useful purpose. Some actually enjoy being interviewed and giving their opinions. However, others strongly resent or even mistrust marketing research. They don’t like being interrupted by researchers. They worry that marketers are building huge databases full of personal information about customers. Or they fear that researchers might use sophisticated techniques to probe our deepest feelings, track our internet and mobile device usage, or peek over our shoulders as we shop and then use this knowledge to manipulate our buying. A recent survey showed that more than 90 percent of Americans feel that they have lost control over the collection and use by companies of their personal data and information they share on social media sites.32 For example, Target made some of its customers very uneasy recently when it used their buying histories to figure out that they had a baby on the way, including eerily accurate estimates of child gender and due date:33 Target gives every customer a Guest ID number, tied to his or her name, credit card, or email address. It then tracks the customer’s purchases in detail, along with demographic information from other sources. By studying the buying histories of women who’d previously signed up for its baby registries, Target found that it could develop a “pregnancy prediction” score for each customer based on her purchasing patterns across 25 product categories. It used this score to start sending personalized books of coupons for baby-related items to expectant parents, keyed to their pregnancy stages. The strategy seemed to make good marketing sense—by hooking parents-to-be, Target could turn them into loyal buyers as their families developed. However, the strategy hit a snag when an angry man showed up at his local Target store, complaining that his high school-aged daughter was receiving Target coupons for cribs, strollers, and maternity clothes. “Are you trying to encourage her to get pregnant?” he demanded. The Target store manager apologized. But when he called to apologize again a few days later, he learned that Target’s marketers had, in fact, known about the young woman’s pregnancy before her father did. It turns out that many other customers were creeped out that Target knew about their pregnancies before they’d told even family and close friends. And they wondered what else Target might be tracking and profiling. As one reporter concluded: “The store’s bull’s-eye logo may now send a shiver . . . down the closely-watched spines of some [Target shoppers].” Consumer privacy: Target made some customers uneasy when it used their buying histories to figure out things about them that even When mining customer information, marketers must their family and friends didn’t know. The chain’s bull’s-eye logo may be careful not to cross over the privacy line. But there are now “send a shiver . . . down the closely-watched spines of some Target shoppers.” no easy answers when it comes to marketing research and ©Ken Wolter/Shutterstock privacy. For example, is it a good or bad thing that some 148 | part 2 Understanding the Marketplace and Customer Value retailers use mannequins with cameras hidden in one eye to record customer demographics and shopping behavior in order to serve them better? Should we applaud or resent companies that monitor consumer posts on Facebook, Twitter, Instagram, YouTube, or other social media in an effort to be more responsive? Should we worry when marketers track consumers’ mobile phone usage to issue location-based information, ads, and offers? Consider this example:34 SAP’s Consumer Insight 365 service helps mobile service providers to “extract data about subscribers [and their] mobile-centric lifestyles.” It ingests as many as 300 mobile web surfing, text messaging, phone call, and other mobile events per day for each of 20 to 25 million mobile subscribers across multiple carriers. The data tell marketers in detail where customers are coming from and where they go. According to one analyst, by combining the mobile data with other information, the service can tell businesses “whether shoppers are checking out competitor prices on their phones or just emailing friends. It can tell them the age ranges and genders of people who visited a store location between 10 a.m. and noon, and link location and demographic data with shoppers’ web browsing histories. Retailers might use the information to arrange store displays to appeal to certain customer segments at different times of the day, or to help determine where to open new locations.” Although such information can help marketers target customers with more useful offers, it might be “a little too close for comfort” from a consumer privacy viewpoint. Increasing consumer privacy concerns have become a major problem for the marketing research industry. Companies face the challenge of unearthing valuable but potentially sensitive consumer data while also maintaining consumer trust. At the same time, consumers wrestle with the trade-offs between personalization and privacy. They want to receive relevant, personalized offers that meet their needs, but they worry or resent that companies may track them too closely. The key question: When does a company cross the line in gathering and using customer data? Failure to address privacy issues could result in angry, less cooperative consumers and increased government intervention. As a result, the marketing research industry is considering several options for responding to intrusion and privacy issues. One example is the Marketing Research Association’s “Your Opinion Counts” and “Respondent Bill of Rights” initiatives to educate consumers about the benefits of marketing research and distinguish it from telephone selling and database building.35 Most major companies—including Facebook, Apple, Microsoft, IBM, American Express, and even the U.S. government—have now appointed a chief privacy officer (CPO), whose job is to safeguard the privacy of customers. In the end, however, if researchers provide value in exchange for information, customers will gladly provide it. For example, Amazon’s customers don’t mind if the firm builds a database of previous purchases as a way to provide future product recommendations. This saves time and provides value. The best approach is for researchers to ask only for the information they need, use it responsibly to provide customer value, and avoid sharing information without the customer’s permission. Misuse of Research Findings Research studies can be powerful persuasion tools; companies often use study results as claims in their advertising and promotion. Today, however, many research studies appear to be little more than vehicles for pitching the sponsor’s products. In fact, in some cases, research surveys appear to have been designed just to produce the intended effect. For example, a Black Flag survey once asked: “A roach disk . . . poisons a roach slowly. The dying roach returns to the nest and after it dies is eaten by other roaches. In turn these roaches become poisoned and die. How effective do you think this type of product would be in killing roaches?” Not surprisingly, 79 percent said effective. Few advertisers openly rig their research designs or blatantly misrepresent the findings—most abuses tend to be more subtle “stretches.” Or disputes arise over the validity, interpretation, and use of research findings. Almost any research results can be variously interpreted depending on the researchers’ bias and viewpoints. Recognizing that marketing research can be abused, several associations—including the American Marketing Association, the Marketing Research Association, and the Council of American Survey Research Organizations (CASRO)—have developed codes of research ethics and standards of conduct. For example, the CASRO Code of Standards and Ethics Chapter 4 | Managing Marketing Information to Gain Customer Insights 149 for Survey Research outlines researcher responsibilities to respondents, including confidentiality, privacy, and avoidance of harassment. It also outlines major responsibilities in reporting results to clients and the public.36 In the end, however, unethical or inappropriate actions cannot simply be regulated away. Each company must accept responsibility for policing the conduct and reporting of its own marketing research to protect consumers’ best interests as well as its own. 4 Reviewing and Extending the Concepts objeCtIves revIew and Key terMs Objectives review To create value for customers and build meaningful relationships with them, marketers must first gain fresh, deep insights into what customers need and want. Such insights come from good marketing information. As a result of the recent explosion of “big data” and digital technologies, companies can now obtain great quantities of information, often even too much. Consumers themselves are now generating a tidal wave of bottom-up information through their smartphones, PCs, and tablets via online browsing and blogging, apps and social media interactions, and texting and video. The challenge is to transform today’s vast volume of consumer information into actionable customer and market insights. Objective 4-1 explain the importance of information in gaining insights about the marketplace and customers. (pp 124–126) The marketing process starts with a complete understanding of the marketplace and consumer needs and wants. Thus, the company needs to turn sound consumer information into meaningful customer insights by which it can produce superior value for its customers. The company also requires information on competitors, resellers, and other actors and forces in the marketplace. Increasingly, marketers are viewing information not only as an input for making better decisions but also as an important strategic asset and marketing tool. Objective 4-2 Define the marketing information system and discuss its parts. (pp 126–130) The marketing information system (MIS) consists of people and procedures for assessing information needs, developing the needed information, and helping decision makers use the information to generate and validate actionable customer and market insights. A well-designed information system begins and ends with users. The MIS first assesses information needs. The MIS primarily serves the company’s marketing and other managers, but it may also provide information to external partners. Then the MIS develops information from internal databases, marketing intelligence activities, and marketing research. Internal databases provide information on the company’s own operations and departments. Such data can be obtained quickly and cheaply but often need to be adapted for marketing decisions. Marketing intelligence activities supply everyday information about developments in the external marketing environment, including listening and responding to the vast and complex digital environment. Market research consists of collecting information relevant to a specific marketing problem faced by the company. Last, the marketing information system helps users analyze and use the information to develop customer insights, make marketing decisions, and manage customer relationships. Objective 4-3 Outline the steps in the marketing research process. (pp 130–140) The first step in the marketing research process involves defining the problem and setting the research objectives, which may be exploratory, descriptive, or causal research. The second step consists of developing a research plan for collecting data from primary and secondary sources. The third step calls for implementing the marketing research plan by gathering, processing, and analyzing the information. The fourth step consists of interpreting and reporting the findings. Additional information analysis helps marketing managers apply the information and provides them with sophisticated statistical procedures and models from which to develop more rigorous findings. Both internal and external secondary data sources often provide information more quickly and at a lower cost than primary data sources, and they can sometimes yield information that a company cannot collect by itself. However, needed information might not exist in secondary sources. Researchers must also evaluate secondary information to ensure that it is relevant, accurate, current, and impartial. Primary research must also be evaluated for these features. Each primary data collection method—observational, survey, and experimental—has its own advantages and disadvantages. Similarly, each of the various research contact methods—mail, telephone, personal interview, and online—has its own advantages and drawbacks. Objective 4-4 explain how companies analyze and use marketing information. (pp 140–144) Information gathered in internal databases and through marketing intelligence and marketing research usually requires 150 | part 2 Understanding the Marketplace and Customer Value more analysis. To analyze individual customer data, many companies have now acquired or developed special software and analysis techniques—called customer relationship management (CRM)—that integrate, analyze, and apply the mountains of individual customer data to gain a 360-degree view of customers and build stronger the customer relationships. They apply marketing analytics to dig out meaningful patterns in big data and gain customer insights and gauge marketing performance. Marketing information has no value until it is used to make better marketing decisions. Thus, the MIS must make the information available to managers and others who make marketing decisions or deal with customers. In some cases, this means providing regular reports and updates; in other cases, it means making nonroutine information available for special situations and on-the-spot decisions. Many firms use company intranets and extranets to facilitate this process. Thanks to modern technology, today’s marketing managers can gain direct access to marketing information at any time and from virtually any location. Objective 4-5 Discuss the special issues some marketing researchers face, including public policy and ethics issues. (pp 144–149) Some marketers face special marketing research situations, such as those conducting research in small business, not-forprofit, or international situations. Marketing research can be conducted effectively by small businesses and nonprofit organizations with limited budgets. International marketing researchers follow the same steps as domestic researchers but often face more and different problems. All organizations need to act responsibly concerning major public policy and ethical issues surrounding marketing research, including issues of intrusions on consumer privacy and misuse of research findings. Key terms Objective 4-1 Objective 4-3 Big data (p 125) Customer insights (p 125) Marketing information system (MIS) (p 125) Marketing research (p 130) exploratory research (p 131) Descriptive research (p 131) Causal research (p 131) Secondary data (p 132) primary data (p 132) Observational research (p 133) ethnographic research (p 133) Survey research (p 134) Objective 4-2 Internal databases (p 127) Competitive marketing intelligence (p 127) experimental research (p 134) Focus group interviewing (p 135) Online marketing research (p 136) Online focus groups (p 137) Behavioral targeting (p 138) Sample (p 138) Objective 4-4 Customer relationship management (CrM) (p 141) Marketing analytics (p 141) dIsCussIon and CrItICal thInKIng MyLab Marketing Go to mymktlab.com to complete the problems marked with this icon . Discussion Questions 4-1 What is big data, and what opportunities and challenges does it provide for marketers? (AACSB: Communication; Reflective Thinking) 4-2 Explain how internal databases differ from marketing intel- ligence. What are some advantages and disadvantages of both? (AACSB: Communication; Reflective Thinking) 4-3 What is behavioral targeting? Provide an example of behavioral targeting. How are firms responding to consumers and public advocates that it is a form of stalking consumers? (AACSB: Communication; Reflective Thinking) 4-4 Marketers make heavy use of both open-ended and closed-ended questions in questionnaires. What are some of the benefits or drawbacks of using each of these ways to ask questions? (AACSB: Communication; Reflective Thinking) 4-5 The marketing research process has several very distinct and important stages that need to be followed. In your opinion, which is the most important? Justify your view on this. (AACSB: Communication; Reflective Thinking) Chapter 4 | Managing Marketing Information to Gain Customer Insights 151 Critical thinking exercises 4-6 In a small group, identify the steps a business organization might need to take to carry out market research in an overseas market. Discuss whether the business would be best advised to have someone do the research for them, or do it themselves. (AACSB: Communication; Reflective Thinking) brand plans to launch in the next six months. Determine the makeup of your focus group. Who should be invited to the focus group, and why? What types of information would you want to obtain? Identify possible questions to present to the focus group. (AACSB: Communication; Reflective Thinking) 4-7 Suppose you are conducting market research for your 4-8 Conduct an online search to learn more about the mar- keting research industry. Develop a presentation describing the variety of jobs in the marketing research field along with the compensation for those jobs. Create a graphical representation to communicate your findings. (AACSB: Communication; Use of IT; Reflective Thinking) favorite soda brand. Sales have been lagging for two quarters, and you are determined to find out why. You decide to host an in-person focus group to gain customer insights into your brand’s current product offerings. You are also interested in obtaining feedback on a new product that your applICatIons and Cases Online, Mobile, and Social Media Marketing Online Snooping Every second of every day, personal information is being indexed and processed. Every device we use has a unique address which is being broadcast as long as you have wireless networking switched on. Many of us do not even realize that programs exist to find every picture you may have ever posted online. They can also pinpoint exactly where you were when you uploaded them. If you haven’t set the right privacy settings, it will become fairly easy to work out exactly where you live, your habits, and when you are at home and when you are out. Some services are specifically designed to scare people about the information they are unintentionally leaking to the world, such as pleaserobme. com. This shows you whether you are sharing your location and prompts you to change your privacy settings. 4-9 Make a detailed list of all the websites, online forums, social networks, and other web pages you have visited this week. What data have you left that could be of value to marketers? (AACSB: Communication; Information Technology) 4-10 Monetizing relevant data is the key to revealing its true value. Should marketers have access to the personal information of billions of people who use the internet? Discuss how you would use data trails left by individuals on the internet if you ran a business. (AACSB: Communication; Ethical reasoning) Marketing ethics Metadata Everyone generates metadata when using technologies such as computers and mobile devices to search, post, tweet, play, text, and talk. What many people don’t realize, however, is that this treasure trove of date, time, and location information can be used to identify them without their knowledge. For example, in analyzing more than a million anonymous credit card transactions, researchers at the Massachusetts Institute of Technology were able to link 90 percent of the transactions to specific users with just four additional bits of metadata, such as user locations based on apps such as Foursquare, the timing of an activity such as a tweet on Twitter, or playing a mobile game. Since there are more mobile devices than there are people in the United States and 60 percent of purchases are made with a credit card, marketing research firms are gobbling up all sorts of metadata that will let them tie a majority of purchase transactions to specific individuals. 4-11 Describe at least four applications you use that provide location, time, and date information that can be tied to your identity. (AACSB Communication; Reflective Thinking) 4-12 Debate whether it is ethical for marketers to use metadata to link individual consumers with specific credit card transactions. (AACSB: Communication; Ethical Reasoning) Marketing by the Numbers What’s Your Sample? Decisions are often made by businesses on the basis of fairly small samples in relation to the actual size of the population or number of customers. Thus, the future of products and services is often determined by relatively small numbers of people. But just how reliable are small-scale samples? Larger samples cost more money; they take more time and ultimately may not be any more accurate than a smaller sample. Are businesses and organizations right to rely so heavily on these small 152 | part 2 Understanding the Marketplace and Customer Value (AACSB: Communication; Information Technology; Analytical Thinking) samples? Statistically speaking, a small sample is probably just as accurate. 4-13 Go to http://www.surveysystem.com/sscalc.htm to determine the appropriate sample size for a population in your country. Briefly explain what is meant by confidence interval and confidence level. Assuming a confidence interval of 5, how large should the sample of households be when desiring a 95 percent confidence level? How large for a 99 percent confidence level? 4-14 What sample sizes are necessary to cover the population of the whole region in which you live with a confidence interval of a 5-percent and a 95-percent confidence level? Explain the effect population size has on a required sample size. (AACSB: Written Communication; Information Technology; Analytical Thinking) Video Case Nielsen Most people know Nielsen as the TV ratings company. In reality, however, Nielsen is a multiplatform market research company that has constantly been evolving since 1923. Its goal is to measure and track a wide range of consumer activity in order to establish a 360-degree view of individuals and market segments. To accomplish this, Nielsen has to follow consumers wherever they may be—watching TV, online, in their homes, or in stores. How does Nielsen track all this activity? The veteran research firm has established effective methods of recording consumer activity, from retail scanner data to household panels to monitoring social networks. As data are captured, they are transferred to a Nielsen data warehouse, where they are matched to the right individual and added to the terabytes of information Nielsen already possesses. Through data sorting and analytics, Nielsen cuts through billions of daily transactions to deliver clear consumer insights to clients. After viewing the video featuring Nielsen, answer the following questions: 4-15 4-16 4-17 What is Nielsen’s expertise? Providing a real-world example, describe how Nielsen might discover a consumer insight. What kinds of partnerships might Nielsen need to form with other companies in order to accomplish its goals? Company Case Campbell Soup Company: Watching What You Eat You might think that a well-known, veteran consumer products company like the Campbell Soup Company has it made. After all, when people think of soup, they think of Campbell’s. In the $5 billion U.S. soup market, Campbell dominates with a 44 percent share. Selling products under such an iconic brand name should be a snap. But if you ask Denise Morrison, CEO of Campbell, she’ll tell you a different story. Just a few years ago, when Morrison took over as head of the world’s oldest and best-known soup company, she faced a big challenge—reverse the declining market share of a 145-year-old brand in a mature, low-growth, and fickle market characterized by shifting consumer preferences, everexpanding tastes, and little tolerance for price increases. Turning things around would require revitalizing the company’s brands in a way that would attract new customers without alienating the faithful who had been buying Campbell products for decades. Morrison had a plan. A core element of that plan was to maintain a laser-like focus on consumers. “The consumer is our boss,” Morrison said. “[Maintaining a customer focus] requires a clear, up-to-the-minute understanding of consumers in order to create more relevant products.” Morrison’s plan involved transforming the traditional stagnant culture of a corporate dinosaur into one that embraces creativity and flexibility. But it also involved employing innovative methods that would allow brand managers and product developers to establish the customer understanding that was so desperately needed. In other words, marketing research at the Campbell Soup Company was about to change. Reading Consumers’ Minds Soup is a well-accepted product found in just about everyone’s pantry in the United States. However, not long ago, Campbell researchers discovered that marketing soups presents unique problems. People don’t covet soup. Sure, a steaming bowl of savory soup really hits the spot after coming in out of a bitingly cold rain. But soup is not a top-of-mind meal or snack choice, and it’s typically a prelude to a more interesting main course. The bottom line—consumers don’t really think much about soup, making meaningful marketing research difficult. For years, Campbell researchers relied on good old paperand-pencil surveys and traditional interviews to gain consumer insights for making ads, labels and packaging, and the products themselves more effective. But Campbell’s experience with such marketing research showed that traditional methods failed to capture important subconscious thoughts, emotions, and behaviors that consumers experience when shopping for soup. So instead, to get closer to what was really going on inside consumers’ hearts and minds, Campbell researchers began employing state-of-the-art neuroscience methods. They outfitted shoppers with special vests that measured skin-moisture levels, heart rates, depth and pace of breathing, and postures. Sensors tracked eye movements and pupil width. Then, to aid interpretation, such biometric data was combined with interviews and videos that captured each shopper’s experiences. The high-tech research produced some startling insights. Campbell knew that people hold strong emotions associated with eating soup. After all, who doesn’t remember getting a hot bowl of soup from Mom when they were sick or cold? But the new biometric testing revealed that all that warmth and those positive emotions evaporated when consumers confronted the sea of nearly identical red and white Campbell’s cans found on a typical grocery store soup aisle. Chapter 4 | Managing Marketing Information to Gain Customer Insights In the past, the top of a typical store shelf display featured a large Campbell’s logo with a bright red background. But the new research showed that such signs made all varieties of Campbell’s Soup blend together, creating an overwhelming browsing situation and causing shoppers to spend less time at the aisle. The biometric research methods also revealed that the soup can labels themselves were lacking—the big bowl of soup on Campbell’s labels was not perceived warmly, and the large spoon filled with soup provoked no emotional response. Based on these research insights, in an attempt to prompt and preserve important consumer emotions surrounding soup consumption, Campbell began evaluating specific aspects of its displays, labels, and packaging. This led to seemingly small but important changes. For starters, the Campbell’s logo is now smaller and lower on the shelf, minimizing the overwhelming “sea of cans” effect. To further encourage browsing, can labels now fall into different categories, each with distinguishing visual cues. Varieties like Beef Broth and Broccoli Cheese, which are typically used as ingredients in recipes, feature a narrow blue swath across the middle of the can with a “Great for Cooking” label. A green swath and the label “98% Fat Free” characterize reduced-fat varieties. Tomato Chipotle & Olive Oil, part of Campbell’s “Latin Inspired” line, features a black background rather than the traditional white. And top-sellers such as Chicken Noodle, Tomato, and Cream of Mushroom feature the plain traditional label with the center medallion, immortalized by Andy Warhol’s larger-than-life recreations of Campbell’s soup cans. As for bringing out those warm emotions, Campbell’s labels are now adorned with steam rising off a larger, more vibrant picture of the featured soup in a more modern white bowl. The non-emotional spoons are gone as well. Can such minor label changes make a real difference? Yes, they can. Campbell claims that its sales of condensed soups are up by 2 percent since making the changes. That may not sound like much, but even a small sales bump applied to a $2 billion consumer brand means real money. The sales jump also indicates that consumers are receiving greater value through a more fulfilling shopping experience. Diving Deeper for Insights Although the insights from Campbell’s biometric marketing research have proven valuable, it will take more to capture the attention of a new generation of customers and stay attuned to the changing nature of consumer food tastes and preferences. Additionally, the Campbell Soup Company makes and markets much more than just soup these days. Over the years, the company has added or created such brands as Pepperidge Farms, Swanson, Pace, Prego, V8, Bolthouse Farms, and Plum Organics. Today, Campbell’s house of packaged food brands includes something for just about everyone. With that kind of product portfolio, maintaining and creating relevant products based on a clear, up-to-the-minute understanding of consumers is an especially daunting proposition. To capture clear and contemporary customer insights, Campbell researchers turn to deep dive marketing research— qualitative methods employed in the fields of anthropology and other social sciences for up-close-and-personal study. Campbell researchers and marketers dive in and spend time 153 with consumers on their own turf. “We’re in their homes,” says Charles Vila, Campbell’s vice president of consumer and customer insights. “We are cooking with them; we’re eating with them; we’re shopping with them.” By spending hours at a time with consumers and observing them in their natural environments, researchers can unlock deep consumer insights of which customers themselves are often not aware. By employing deep dive marketing research methods, Campbell researchers have identified six different consumer groups, each with an extensive profile. For each of these groups, Campbell has created six fully equipped kitchens at its Camden, New Jersey, headquarters, each designed to mirror the homes of consumers in the six groups. Each kitchen has a unique design, with different appliances, different features, and, most importantly, different food in the cabinets and refrigerators. At one end of the spectrum is the group called “Uninvolved Quick Fixers.” These are individuals and families who are not acquainted with or into cooking. Their kitchens are strewn with pizza boxes, and collections of takeout menus adorn their fridges. Their stoves and ovens often look like they’ve never been touched. “They’re doing a lot of microwaving and frozen foods,” explains the manager of Campbell’s test facilities. At the other end of the spectrum is group six, the “Passionate Kitchen Masters.” Their kitchens tend to be filled with well-used, high-end appliances. Their refrigerators are stuffed with fresh produce, dairy, and meats. Gourmet sauces and artisanal breads and pastas are complemented by a wide variety of spices. Such levels of detail help Campbell marketers discover and understand existing and developing trends in each consumer group as well as in the general market. For example, ginger is in. Only a few years ago, this herb was something found only in ethnic restaurants or in obscure recipes. But now its popularity is soaring. Campbell expects that it will soon be an important ingredient for each of the six consumer segments, a valuable insight for developing new products. Another conclusion from Campbell’s deep dive is that although Passionate Kitchen Masters consume far fewer prepared and packaged foods than other consumers, they still buy a lot of ingredients—such as broth. Broth flies under the radar of most consumers. But for people who like to cook, it’s a sturdy component of soups, sauces, and braised meats. Under both the Campbell’s and Swanson brands, broth is also a $400 million business for the Campbell Soup Company. Applying the 2 percent sales boost resulting from the label changes discussed earlier translates to $8 million in sales gains for broth alone. That’s why Campbell researchers are so interested in consumer trends, big and small. The main goal is to enhance the customer’s food experience. For example, Thai dishes are becoming more popular for foodies. But coming up with key ingredients like lemongrass is both time consuming and expensive. “Even for confident cooks, to bring those together, to go and purchase them, and actually blend them in such a way that it actually works, that’s not easy,” says Campbell’s vice president Dale Clemiss, who oversees the Swanson and other Campbell brands. Add that to other insights that Campbell’s research has uncovered, and a new broth is born—Swanson Thai Ginger, a broth “infused with flavors of lime, soy sauce, coconut, lemongrass, cilantro, and ginger—a simple way to make delicious restaurant inspired global dishes at home.” 154 | part 2 Understanding the Marketplace and Customer Value Every marketing research method has pitfalls. So Campbell combines multiple research methods to minimize the possibility of making incorrect judgments. In addition to neuroscience and deep dive research, the company still employs traditional methods of surveys and interviews. The triangulation of data across methods allows for greater accuracy as well as the ability to cover larger consumer samples. In the packaged foods business, every little bit helps. It’s all about staying in tune with consumers and keeping up with the changes—large and small—in consumer preferences. That philosophy has worked well for the Campbell Soup Company in the past. And as Campbell has dug deeper through multiple marketing research methods, the proof is in the pudding. Over the most recent three years, Campbell’s corporate revenues rose 12.6 percent while net profits returned 6 to 10 percent each year. Campbell’s stock price also increased by more than 60 percent during that time. As the company website states, “For generations, people have trusted Campbell to provide authentic, flavorful, and readily available foods and beverages that connect them to each other, to warm memories, and to what’s important today.” With the help of Campbell’s marketing research program, it looks like consumers will continue to trust Campbell for generations to come. Questions for Discussion 4-18 What are the strengths and weaknesses of the Campbell Soup Company’s marketing information system? 4-19 What objectives does Campbell have for the marketing research efforts described in this case? 4-20 Compare the effectiveness of Campbell’s biometric research with its deep dive research. 4-21 Describe how traditional marketing research could be integrated with Campbell’s research efforts from this  case. Sources: “Soup in the U.S.,” Euromonitor International, December 2015, www.euromonitor.com/soup-in-the-us/report; Mark Garrison, “How Food Companies Watch What You Eat,” Marketplace, December 2, 2013, www.marketplace.org/topics/business/how-food-companies-watch-what-you-eat; Ilan Brat, “The Emotional Quotient of Soup Shopping,” Wall Street Journal, February 17, 2010, p. B1; Bonnie Marcus, “Campbell Soup CEO Denise Morrison Stirs the Pot to Create Cultural Change,” Forbes, April 25, 2015, www.forbes.com/sites/bonniemarcus/2014/04/25/campbell-soup-ceo-denise-morrison-stirs-thepot-to-create-cultural-change/; and information from www.campbellsoupcompany.com/about-campbell/ and www.google.com/finance, accessed September 2016. Chapter 4 | Managing Marketing Information to Gain Customer Insights MyLab Marketing Go to mymktlab.com for the following Assisted-graded writing questions: 4-22 What is neuromarketing and how is it useful in marketing research? Why is this research approach usually used with other approaches? 4-23 Describe an example in which marketing research could cause harm to participants. Many companies have a review process similar to that required for following the government’s “Common Rule.” Write a brief report explaining this rule and how you would apply it to your example. 155 Chapter preview 5 PART 1: Defining Marketing and the Marketing Process (Chapters 1–2) PART 2: Understanding the Marketplace and Consumer Value (Chapters 3–6) PART 3: Designing a Customer Value–Driven Strategy and Mix (Chapters 7–17) PART 4: Extending Marketing (Chapters 18–20) Consumer Markets and Buyer Behavior You’ve studied how marketers obtain, analyze, and use information to develop customer insights and assess marketing programs. In this chapter, we take a closer look at the most important element of the marketplace—customers. The aim of marketing is to engage customers and affect how they think and act. To affect the whats, whens, and hows of buyer behavior, marketers must first understand the whys. In this chapter, we look at final consumer buying influences and processes. In the next chapter, we’ll study the buyer behavior of business customers. You’ll see that understanding buyer behavior is an essential but very difficult task. To get a better sense of the importance of understanding consumer behavior, we begin by looking at Lenovo, the world’s largest personal computer vendor by unit sales. Before it acquired IBM’s computer business, you might never have heard of Lenovo. Yet few brands can match the avid enthusiasm and intense loyalty that Lenovo has generated in its customers. Its business model is thus built on customer satisfaction, innovation, and operational efficiency. LENOVO: Understanding Customers and Building Profitable Relationships L they feel about the products? What makes them tick? In order enovo was established in Beijing, China, in 1984 by to arrive at comprehensive answers to these questions, Lenovo’s 11 members of the Computer Technology Research product design and engineering teams listen to their customers Institute. Originally founded as Legend by Liu through their social media channels, forums, blogs, and fan clubs Chunzhi with a group of 10 engineers, the company around the world. decided to abandon the brand name in 2002 to expand interThe company highly values the input of its customers nationally, and so its name was changed to Lenovo. In 2005, and tracks it accordingly. For example, after Lenovo had inthe company acquired IBM’s personal computer business, troduced new variants of its Lenovo ThinkPad series in 2012 including the ThinkPad laptop and tablet lines. This acquisiand 2013, customers complained on internet forums that the tion accelerated access to foreign markets and made Lenovo two physical TrackPoint buttons the third-largest computer maker had been removed from the touchworldwide by volume. In 2015, The global success of Lenovo is rooted pad at the bottom of the keyboard. Lenovo was the world’s largest These buttons correspond to the personal computer vendor by in its deep and sound understanding left and right mouse buttons on a unit sales and had operations of customers and its ability to build conventional mouse and work as a in more than 60 countries, with profitable relationships. The business substitute to an external mouse or products sold in around 160 model is thus built on customer touchpad. Always with an ear to countries. satisfaction, innovation, and operational the ground, Lenovo soon realized The global success of Lenovo efficiency. this issue and publically admitted is rooted in its deep and sound unthat they had made a big mistake. derstanding of customers and its Soon afterwards, they brought back the TrackPoint buttons. ability to build profitable relationships. The business model is Lenovo’s product development is always driven by deep thus built on customer satisfaction, innovation, and operational customer understanding from around the globe. The company efficiency. Lenovo’s marketers spend a great deal of time thinkemphasizes on its websites that every time customers provide ing about customers and their buying behavior. They want to feedback in some form, they are actually and personally helping know who their customers are. What do they think? How do ChapTer 5 | Consumer Markets and Buyer Behavior 157 to influence the next wave of technology that it puts into the market. By listening and communicating constantly with their customers and taking into consideration their input when it comes to product development and improvement, Lenovo has been successful in building emotional relationships with their customers. They engage more directly with customers when they display traits such as honesty in admitting mistakes, as in case of the ThinkPad redesign. In this respect, Tracey Trachta, vice president of Brand Experience at Lenovo, states that the company aims to not just display its products on shelves, but through engagement to also enable people to understand what it is that makes Lenovo’s products different. Through the years, Lenovo’s emphasis on building emotional relationships with their customers has given them a more personal cast than a mere computer Lenovo listens and communicates constantly with their customers and takes their input manufacturer. into consideration, as for instance when customers complained about the removal of In addition to listening to their custom- the TrackPoint buttons from the ThinkPad. ers, Lenovo also filters and focuses their Elena Elisseeva/Shutterstock analytic efforts on better understanding the were happening on blogs and third-party discussion forums, online behavior of site visitors. Concentrating on two of their they spent a lot of time trying to understand the existing convermain user segments, purchasers and non-purchasers, Lenovo sations and participating in discussions. Lenovo then decided constantly aims to better understand their online buying behavthat it wanted more ownership, even better customer underior on the homepage and product pages specifically. Learning the standing, and stronger leadership in the discussions about its differences between them enables Lenovo to develop and deliver products. Accordingly, Lenovo set up its own discussion forums the right message to the right users, ultimately converting nonand actively asked customers to share their ideas, user experipurchasing users into purchasers. In order to achieve this objecence, and tips with Lenovo’s product, design, and development tive, Lenovo permanently visualizes the in-page behavior of each teams. By doing so, Lenovo was able to better connect with its customer segment via so-called heat maps, which provide deep customers and provide even better customer service. insights into users’ digital psychology. In all, Lenovo possesses a unique ability to achieve cusIn a recent study, Lenovo identified an interesting difference tomer satisfaction and engagement. The company has positively between purchasers and non-purchasers. One finding was that shaped and influenced customers’ perceptions of Lenovo’s purchasers were drawn to the main homepage banner and deals, brand personality by trying to listen to and understand them. whereas non-purchasers avoided the banner and were less foConsumers today—conditioned by mobile and powered by the cused on their search, favoring product images and videos over Internet—need brands that can interact with them in real time. text. As non-purchasers dominate a significant percentage of the Lenovo engages in a consistent, respectful, two-way dialogue Lenovo website user base, better understanding their customer with their target audience. As a result, various satisfaction experience was crucial towards improving it and increasing studies consistently place the company well ahead of its comconversion rates. Drawing from the study, the company has used petitors in various satisfaction studies. Technology Business greater ratios of images and videos to text in order to guide those Research (TBR), for example, has declared Lenovo the best potential customers and engage with them to a greater extent. computer brand in its extensive Corporate IT Buying Behavior Understanding what’s most important to the customer is and Customer Satisfaction studies. Giving top marks in imparamount for Lenovo because the company continuously foportant categories of customer satisfaction and innovation, the cuses on exceeding customer expectations and creating customer analysis found Lenovo’s customer service and cutting-edge delight. For example, when the company noticed that many of features second to none.1 the discussions about PCs, tablets, and other electronic devices 158 | parT 2 Understanding the Marketplace and Customer Value Objectives Outline Objective 5-1 Define the consumer market and construct a simple model of consumer buyer behavior. Model of Consumer Behavior Objective 5-2 (pp 158–159) Name the four major factors that influence consumer buyer behavior. Characteristics Affecting Consumer Behavior Objective 5-3 (pp 159–173) List and define the major types of buying decision behavior and the stages in the buyer decision process. Buying Decision Behavior and the Buyer Decision Process Objective 5-4 (pp 174–178) Describe the adoption and diffusion process for new products. The Buyer Decision Process for New Products (pp 178–180) ThE hARLEy-DAViDSon ExAMPLE shows that factors at many levels affect Consumer buyer behavior The buying behavior of final consumers— individuals and households that buy goods and services for personal consumption. Consumer market All the individuals and households that buy or acquire goods and services for personal consumption. Author Despite the simple-looking Comment model in Figure 5.1, understanding the whys of buying behavior is very difficult. Says one expert, “The mind is a whirling, swirling, jumbled mass of neurons bouncing around . . . .” consumer buying behavior. Buying behavior is never simple, yet understanding it is an essential task of marketing management. Consumer buyer behavior refers to the buying behavior of final consumers—individuals and households that buy goods and services for personal consumption. All of these final consumers combine to make up the consumer market. The American consumer market consists of more than 323 million people who consume more than $11.9 trillion worth of goods and services each year, making it one of the most attractive consumer markets in the world.2 Consumers around the world vary tremendously in age, income, education level, and tastes. They also buy an incredible variety of goods and services. How these diverse consumers relate with each other and with other elements of the world around them affects their choices among various products, services, and companies. Here we examine the fascinating array of factors that affect consumer behavior. Model of Consumer Behavior Consumers make many buying decisions every day, and the buying decision is the focal point of the marketer’s effort. Most large companies research consumer buying decisions in great detail to answer questions about what consumers buy, where they buy, how and how much they buy, when they buy, and why they buy. Marketers can study actual consumer purchases to find out what they buy, where, and how much. But learning about the whys behind consumer buying behavior is not so easy—the answers are often locked deep within the consumer’s mind. Often, consumers themselves don’t know exactly what influences their purchases. The central question for marketers is this: How do consumers respond to various marketing efforts the company might use? The starting point is the stimulus-response model Figure 5.1. This figure shows that marketing and other of buyer behavior shown in stimuli enter the consumer’s “black box” and produce certain responses. Marketers want to understand how the stimuli are changed into responses inside the consumer’s black box, which has two parts. First, the buyer’s characteristics influence how he or she perceives and reacts to the stimuli. These characteristics include a variety of cultural, social, personal, and psychological factors. Second, the buyer’s decision process itself affects his or her behavior. This decision process—from need recognition, information search, and alternative evaluation to the purchase decision and postpurchase behavior—begins long before the actual purchase decision and continues long after. ChapTer 5 | Consumer Markets and Buyer Behavior 159 Figure | 5.1 The Model of Buyer Behavior The environment Marketing stimuli Product Price Place Promotion Buyer’s black box Other Economic Technological Social Cultural We can measure the whats, wheres, and whens of buyer behavior. But it’s diffcult to “see” inside the consumer’s head and figure out the whys (that’s why it’s called the black box). Author Many levels of factors affect Comment our buying behavior—from broad cultural and social influences to motivations, beliefs, and attitudes lying deep within us. Buyer responses Buyer’s characteristics Buying attitudes and preferences Buyer’s decision process Purchase behavior: what the buyer buys, when, where, and how much Brand engagements and relationships We look first at buyer characteristics as they affect buyer behavior and then discuss the buyer decision process. Characteristics Affecting Consumer Behavior Consumer purchases are influenced strongly by cultural, social, personal, and psychological characteristics, as shown in Figure 5.2. For the most part, marketers cannot control such factors, but they must take them into account. Cultural Factors Cultural factors exert a broad and deep influence on consumer behavior. Marketers need to understand the role played by the buyer’s culture, subculture, and social class. Culture Culture The set of basic values, perceptions, wants, and behaviors learned by a member of society from family and other important institutions. Figure | 5.2 Factors Influencing Consumer Behavior Culture is the most basic cause of a person’s wants and behavior. Human behavior is largely learned. Growing up in a society, a child learns basic values, perceptions, wants, and behaviors from his or her family and other important institutions. A child in the United States normally is exposed to the following values: achievement and success, freedom, individualism, hard work, activity and involvement, efficiency and practicality, material comfort, youthfulness, and fitness and health. Every group or society has a culture, and cultural influences on buying behavior may vary greatly from both county to county and country to country. Marketers are always trying to spot cultural shifts so as to discover new products that might be wanted. For example, the cultural shift toward greater concern about health and fitness has created a huge industry for health-and-fitness services, exercise equipment and clothing, organic foods, and a variety of diets. Cultural Social Culture Many brands now target specific subcultures—such as Hispanic American, African American, and Asian American consumers—with marketing programs tailored to their specific needs and preferences. Subculture Social class Personal Groups and social networks Family Roles and status Age and lifecycle stage Occupation Economic situation Lifestyle Personality and self-concept Psychological Motivation Perception Learning Beliefs and attitudes People’s buying decisions reflect and contribute to their lifestyles— their whole pattern of acting and interacting in the world. For example, KitchenAid sells much more than just kitchen appliances. It sells an entire cooking and entertainment lifestyle to “Kitchenthusiasts.” Buyer Our buying decisions are affected by an incredibly complex combination of external and internal influences. 160 | parT 2 Understanding the Marketplace and Customer Value Subculture Subculture A group of people with shared value systems based on common life experiences and situations. Each culture contains smaller subcultures, or groups of people with shared value systems based on common life experiences and situations. Subcultures include nationalities, religions, racial groups, and geographic regions. Many subcultures make up important market segments, and marketers often design products and marketing programs tailored to their needs. Examples of three such important subculture groups are Hispanic American, African American, and Asian American consumers. Hispanic American Consumers. Hispanics represent a large, fast-growing market. The nation’s more than 55 million Hispanic consumers (almost one out of every six Americans) have total annual buying power of $1.7 trillion. The U.S. Hispanic population will surge to more than 130 million by 2030, close to one-third of the total U.S. population. Hispanics are a youthful segment—more than 52 percent of U.S. Hispanics are below age 30.3 Within the Hispanic market, there exist many distinct subsegments based on nationality, age, income, and other factors. A company’s product or message may be more relevant to one nationality over another, such as Mexicans, Costa Ricans, Argentineans, or Cubans. Although Hispanic consumers share many characteristics and behaviors with the mainstream buying public, there are also distinct differences. They tend to be deeply family oriented and make shopping a family affair—children have a big say in what brands they buy. Older, first-generation Hispanic consumers tend to be very brand loyal and to favor brands and sellers who show special interest in them. Younger Hispanics, however, have shown increasing price sensitivity in recent years and a willingness to switch to store brands. Befitting their youthfulness, Hispanics are more active on mobile and social networks than other segments, making digital media ideal for reaching this segment.4 Companies ranging from P&G, McDonald’s, AT&T, Walmart, and State Farm to Google, L’Oréal, and many others have developed special targeting efforts for this fastgrowing consumer segment. For example, working with its longtime Hispanic advertising agency Conill, Toyota has developed numerous Hispanic marketing campaigns that have helped make it the favorite automobile brand among Hispanic buyers. Consider its recent award-winning “Más Que un Auto” campaign: Last fall, to celebrate its 10th year as America’s most-loved auto brand among Hispanics, Toyota ran a Hispanic campaign themed “Más Que un Auto” (translation: “More than a Car”). The campaign appealed to Hispanics’ special love for their cars and their penchant for giving everything and anything a superpersonal nickname, including their cars. The campaign offered Hispanic customers free nameplates featuring their unique car names, made with the same typeface and materials as the official Toyota nameplates. Now, along with the Toyota and model names, they could adorn their cars with personalized, official-looking brand badges of their own—whether Pepe, El Niño, Trueno (“Thunder”), Monster, or just plain Oliver, Ellie, or Rolly the Corolla. The award-winning “Más Que un Auto” campaign created a strong emotional connection between Hispanics and their Toyotas. Within the first few months, customers had ordered more than 100,000 customer nameplates, far exceeding the goal of 25,000. Brand fans by the thousands posted pictures and shared their car love stories on campaign sites and other social media. Toyota is now shaping new phases of the “Más Que un Auto” campaign, such as turning some of the fan car stories into ads or asking customers to imagine what a how commercial featuring their beloved ride might look and then picking the best idea to produce for a real broadcast ad.5 Targeting hispanic consumers: Toyota’s award-winning “Más Que un Auto” campaign created a strong emotional connection between hispanics and their Toyotas with free, official-looking, personalized nameplates for their much-loved cars—here, Pepe. Toyota Motor Sales, U.S.A. Inc. African American Consumers. The U.S. African American population is growing in affluence and sophistication. The nation’s more than 44 million black consumers wield almost $1.3 trillion in annual buying power. Although more price conscious than other segments, blacks are also strongly motivated by quality and selection. Brands are important. African American ChapTer 5 | Consumer Markets and Buyer Behavior 161 consumers are heavy users of digital and social media, providing access through a rich variety of marketing channels.6 Many companies develop special products, appeals, and marketing programs for African American consumers—from carmakers like Ford and Hyundai to consumer products companies like P&G to even not-for-profits and For example, the U.S. government agencies such as the U.S. Forest Service. Forest Service and the Ad Council recently joined forces to create the “Discover the Forest” public service campaign to raise awareness among families of the benefits for children of getting outside and enjoying nature. One round of the campaign specifically targeted the parents of African American tweens:7 Although more than 245 million Americans live within 100 miles of a national forest or grassland, research shows that a majority of children in some population segments are not spending active time outdoors. For example, only 37 percent of African American children ages 6 to 12 participate frequently in outdoor activities compared with 67 percent of the broader U.S. population in that age group. To help close that gap, the U.S. Forest Service and the Ad Council created the “Discover the Forest” campaign, a series of public service messages ranging from billboards and radio commercials to interactive social media and website content. With headlines such as “Unplug,” “Where Curiosity Blooms,” and “Where Imagination Sprouts,” the ads targeting African American families promote the discovery and imagination wonders of connecting with the great outdoors and the resulting physical, mental health, and emotional well-being benefits. “The forest is one of those amazing places where kids can flex their imagination muscles through exploration and discovery,” says a marketer associated with the campaign. Asian American Consumers. Asian Americans are the most affluent U.S. demographic segment. A relatively well-educated segment, they now number more than 18.5 million (5 percent of the population), with annual buying power expected to approach $1 trillion by 2018. Asian Americans are the secondfastest-growing subsegment after Hispanic Americans. And like Hispanic Americans, they are a diverse group. Chinese Americans constitute the largest The Forest Service, an agency of the U.S. Department of Agriculture, group, followed by Filipinos, Asian Indians, Vietnamese, Korean Americans, and the Ad Council and Japanese Americans. Yet, unlike Hispanics who all speak various dialects of Spanish, Asians speak many different languages. For example, ads for the 2010 U.S. Census ran in languages ranging from Japanese, Cantonese, Khmer, Korean, and Vietnamese to Thai, Cambodian, Hmong, Hinglish, and Taglish.8 As a group, Asian American consumers shop frequently and are the most brand conscious of all the ethnic groups. They can be fiercely brand loyal, especially to brands that work to build relationships with them. As a result, many firms now target the Asian American market. For example, many retailers, especially luxury retailers such as Bloomingdale’s, now feature themed events and promotions during the Chinese New Year, a spending season equivalent to the Christmas holidays for Chinese American consumers. They hire Mandarin-speaking staff, offer Chinese-themed fashions and other merchandise, and feature Asian cultural presentations. Bloomingdale’s has even introduced seasonal, limited edition pop-up shops in many stores around the country: Targeting African American consumers: The U.S. Forest Service and the Ad Council joined forces to create the “Discover the Forest” public service campaign to raise awareness among African American families of the benefits for children of getting outside and enjoying nature. Total market strategy Integrating ethnic themes and crosscultural perspectives within a brand’s mainstream marketing, appealing to consumer similarities across subcultural segments rather than differences. Richly designed in red, gold, and black motifs, Chinese colors of good fortune, the Bloomingdale’s pop-up boutiques feature high-end Chinese-themed fashions and other merchandise created especially for the Chinese New Year celebration. Some locations sponsor entertainment such as lion dancers, Chinese tarot card readings, calligraphy, lantern making, tea tastings, and free Zodiac nail art. Shoppers in some stores are invited to select Chinese red envelopes with prizes such as gift cards in denominations of $8, $88, or $888 (eight is a lucky number in Chinese culture). In addition to the pop-up boutiques, Bloomingdale’s celebrates the days and weeks leading up to the Chinese New Year with Chinese-language ads and promotions in carefully targeted traditional and online media. The retailer also has 175 Chinese-speaking associates across the country. “Chinese customers, including both tourists as well as Chinese Americans, are an important part of the overall Bloomingdale’s business,” says the retailer’s CEO.9 A Total Marketing Strategy. Beyond targeting segments such as Hispanics, African Americans, and Asian Americans with specially tailored efforts, many marketers now embrace a total market strategy—the practice of integrating ethnic themes and 162 | parT 2 Understanding the Marketplace and Customer Value Targeting Asian American consumers: Bloomingdale’s celebrates the important Chinese new year with carefully targeted ads and promotions and even special seasonal pop-up boutiques in its stores featuring Chinesethemed merchandise, events, and entertainment. Petr Svab/Epoch Times Inc. cross-cultural perspectives within their mainstream marketing. An example is general-market commercials for Cheerios and Honey Maid that feature interracial and blended families and couples. A total market strategy appeals to consumer similarities across subcultural segments rather than differences.10 Many marketers are finding that insights gleaned from ethnic consumer segments can influence their broader markets. For example, today’s youth-oriented lifestyle is influenced heavily by Hispanic and African American entertainers. So it follows that consumers expect to see many different cultures and ethnicities represented in the advertising and products they consume. For instance, McDonald’s takes cues from African Americans, Hispanics, and Asians to develop menus and advertising in hopes of encouraging mainstream consumers to buy smoothies, mocha drinks, and snack wraps as avidly as they consume hip-hop and rock ’n’ roll. Or McDonald’s might take an ad primarily geared toward African Americans and run it in general-market media. Social Class Social class Relatively permanent and ordered divisions in a society whose members share similar values, interests, and behaviors. Almost every society has some form of social class structure. Social classes are society’s relatively permanent and ordered divisions whose members share similar values, interests, and behaviors. Social scientists have identified seven American social classes: upper upper class, lower upper class, upper middle class, middle class, working class, upper lower class, and lower lower class. Social class is not determined by a single factor, such as income, but is measured as a combination of occupation, income, education, wealth, and other variables. In some social systems, members of different classes are reared for certain roles and cannot change their social positions. In the United States, however, the lines between social classes are not fixed and rigid; people can move to a higher social class or drop into a lower one. Marketers are interested in social class because people within a given social class tend to exhibit similar buying behavior. Social classes show distinct product and brand preferences in areas such as clothing, home furnishings, travel and leisure activity, financial services, and automobiles. Social Factors A consumer’s behavior also is influenced by social factors, such as the consumer’s small groups, social networks, family, and social roles and status. Groups and Social Networks group Two or more people who interact to accomplish individual or mutual goals. Many small groups influence a person’s behavior. Groups that have a direct influence and to which a person belongs are called membership groups. In contrast, reference groups serve as direct (face-to-face interactions) or indirect points of comparison or reference in forming a person’s attitudes or behavior. People often are influenced by reference groups to which they do not belong. For example, an aspirational group is one to which the individual wishes to belong, as when a young basketball player hopes to someday emulate basketball star LeBron James and play in the NBA. Marketers try to identify the reference groups of their target markets. Reference groups expose a person to new behaviors and lifestyles, influence the person’s attitudes and self-concept, and create pressures to conform that may affect the person’s product and brand choices. The importance of group influence varies across products and brands. It tends to be strongest when the product is visible to others whom the buyer respects. ChapTer 5 Word-of-mouth influence The impact of the personal words and recommendations of trusted friends, family, associates, and other consumers on buying behavior. Opinion leader A person within a reference group who, because of special skills, knowledge, personality, or other characteristics, exerts social influence on others. | Consumer Markets and Buyer Behavior 163 Word-of-mouth influence can have a powerful impact on consumer buying behavior. The personal words and recommendations of trusted friends, family, associates, and other consumers tend to be more credible than those coming from commercial sources, such as advertisements or salespeople. One recent study found that only 49 percent of consumers reported that they trust or believe advertising, whereas 72 percent said they trusted family and friends and 72 percent said they trust online reviews.11 Most word-ofmouth influence happens naturally: Consumers start chatting about a brand they use or feel strongly about one way or the other. Often, however, rather than leaving it to chance, marketers can help to create positive conversations about their brands. Marketers of brands subjected to strong group influence must figure out how to reach opinion leaders—people within a reference group who, because of special skills, knowledge, personality, or other characteristics, exert social influence on others. Some experts call this group the influentials or leading adopters. When these influentials talk, consumers listen. Marketers try to identify opinion leaders for their products and direct marketing efforts toward them. Buzz marketing involves enlisting or even creating opinion leaders to serve as “brand ambassadors” who spread the word about a company’s products. Consider MercedesBenz’s award-winning “Take the Wheel” influencer campaign:12 Mercedes-Benz wanted get more people talking about its all-new, soon-to-be-launched 2014 CLA model, priced at $29,900 and aimed at getting a new generation of younger consumers into the Mercedes brand. So it challenged five of Instagram’s most influential photographers—everyday Gen Y consumers whose stunning imagery had earned them hundreds of thousands of fans—to each spend five days behind the wheel of a CLA, documenting their journeys in photos shared via Instagram. The photographer who got the most Likes got to keep the CLA. The short campaign really got people buzzing about the car, earning 87 million social media impressions and more than 2 million Likes. Ninety percent of the social conversation was positive. And when Mercedes launched the CLA the following month, it broke sales records. Online social networks Online social communities—blogs, online social media, brand communities, and other online forums—where people socialize or exchange information and opinions. Sometimes, everyday customers become a brand’s best evangelists. For instance, Alan Klein loves the McDonald’s McRib—a sandwich made of a boneless pork patty molded into a rib-like shape, slathered in BBQ sauce and topped with pickles and onion. The McRib is sold for only short time periods each year at McDonald’s restaurants around the nation. Klein loves it so much that he created the McRib Locator app and website (mcriblocator.com), where McRib fans buzz about locations where they’ve recently sighted the coveted sandwich.13 Over the past several years, a new type of social interaction has exploded onto the scene—online social networking. online social networks are online communities where people socialize or exchange information and opinions. Social networking communities range from blogs (Consumerist, Engadget, Gizmodo) and message boards (Craigslist) to social media sites (Facebook, Twitter, YouTube, Instagram, Snapchat, LinkedIn) and even communal shopping sites (Amazon.com and Etsy). These online forms of consumer-toconsumer and business-to-consumer dialogue have big implications for marketers. Marketers are working to harness the power of these new social networks and other “word-of-web” opportunities to promote their products and build closer customer relationships. Instead of throwing more one-way commercial messages at consumers, they hope to use digital, mobile, and social media to become an interactive part of consumers’ conversations and lives. For example, Red Bull has an astounding 44 million friends on Facebook; Twitter Dunkin’ and Facebook are the primary ways it communicates with college students. Donuts uses Vine personality Logan Paul to promote its Dunkin’ Donuts app and DD Perks loyalty program with posts on Vine and other social media. As it turns out, Paul is a genuine Dunkin’ Donuts fan, so the brand lets him figure out what to say to his more than 8.7  million Vine followers, 5.4 million Facebook fans, 2.4 million followers on Instagram, and 615 followers on Twitter.14 Other marketers are working to tap the army of self-made influencers already plying the internet—independent bloggers. Believe it or not, there are now almost as many people making a living as bloggers as there are lawyers. The key is to find bloggers who have strong networks of relevant readers, a credible voice, and a good fit with the brand. For example, you’ll no doubt cross paths with the likes of climbers and skiers blogging for Patagonia, bikers blogging for Harley-Davidson, and foodies blogging for Whole Foods Market or Trader Joe’s. And companies such as P&G, McDonald’s, Walmart, and Disney 164 | parT 2 Understanding the Marketplace and Customer Value work closely with influential “mom bloggers” or “social media moms,” turning them into brand advocates (see Real Marketing 5.1). Even Bermuda uses social media extensively. The Bermuda Tourism Authority maintains Facebook, Instagram, Pinterest, Twitter, YouTube, and other social media pages; two mobile apps, including the Bermuda’s Very Own Mobile Events App; and a Discovering Bermuda blog featuring “Posts from Paradise.” It also hires popular users of social media such as Instagram and trendy Tastemade—which features quirky videos about restaurants—to the island and urges them to post about their visits.15 We will dig deeper into online and social media as marketing tools in Chapter 17. However, although much current talk focuses on the digital, mobile, and social media, most brand conversaharnessing the power of online social networking: Dunkin’ Donuts uses tions still take place the old-fashioned way—face Vine personality Logan Paul to promote its Dunkin’ Donuts app and DD Perks to face. So effective word-of-mouth marketing loyalty program with posts on Vine and other social media. programs usually begin with generating personCourtesy Logan Paul to-person brand conversations and integrating both offline and online social influence strategies. The goal is to get customers involved with brands and then help them share their brand passions and experiences with others in both their real and digital worlds. Consider Red Bull:16 Red Bull’s fizzy energy drink was launched as a true product innovation in 1987 and went on to become a massive success, with more than 6 billion cans sold worldwide in 2016. Besides the product itself, the success of Red Bull rests on the unique marketing approaches of its founder, Dietrich Mateschitz. He tied Red bull to extreme activities, from air races to Formula One to Felix Baumgartner’s stratosphere jump in 2012, making it a synonym for adventure and energy. Social media is a significant pillar of this strategy: the brand’s Facebook and Twitter accounts, which are home to an extensive and active community, feature a vast array of pictures, videos, and stories illustrating the brand’s spirit. But Red Bull also places great value on promoting the brand on a personal level in the form of student ambassadors around the world who represent the brand on their campuses and are responsible for spreading its image by organizing events and brand-relevant initiatives. Family Family members can strongly influence buyer behavior. The family is the most important consumer buying organization in society, and it has been researched extensively. Marketers are interested in the roles and influence of the husband, wife, and children on the purchase of different products and services. Husband–wife involvement varies widely by product category and by stage in the buying process. Buying roles change with evolving consumer lifestyles. For example, in the United States, the wife traditionally has been considered the main purchasing agent for the family in the areas of food, household products, and clothing. But with 71 percent of all mothers now working outside the home and the willingness of husbands to do more of the family’s purchasing, all this has changed in recent years. Recent surveys show that 41 percent of men are now the primary grocery shoppers in their households, 39 percent handle most of their household’s laundry, and about one-quarter say they are responsible for all of their household’s cooking. At the same time, today women outspend men three to two on new technology purchases and influence more than 80 percent of all new car purchases.17 Such shifting roles signal a new marketing reality. Marketers in industries that have traditionally sold their products to only women or only men—from groceries and personal care products to cars and consumer electronics—are now carefully targeting the opposite sex. Other companies are showing their products in “modern family” contexts. For example, one General Mills ad shows a father packing Go-Gurt yogurt in his son’s lunch as the child heads off to school in the morning, with the slogan “Dads who Real Marketing ChapTer 5 | Consumer Markets and Buyer Behavior 165 5.1 Tapping Social Media Moms as Brand Ambassadors America’s moms constitute a huge market. Women account for 85 percent of all consumer purchases, and the nation’s 85 million moms account $3.2 trillion worth of annual consumer spending. Moms are also heavy social media sharers and shoppers. They are 20 percent more likely than the general population to use social media, and 44 percent of moms have made a purchase on their smartphones within the past week. Moreover, many moms rely heavily on social media to share experiences with other moms, including brand and buying experiences. For example, there are as many as 14.2 million U.S. mothers who blog, and some mom bloggers influence millions of followers. Some 55 percent of moms on social media regularly base their buying decisions on personal stories, recommendations, and product reviews that they find in blogs and other social media. Given these pretty amazing figures, it’s not surprising that many marketers now harness the power of mom-to-mom influence by creating or tapping into networks of influential social media moms and turning them into brand ambassadors. Here are just three examples: McDonald’s, Walmart, and Disney. McDonald’s Mom Bloggers. McDonald’s systematically reaches out to key “mom bloggers,” those who influence the nation’s homemakers, who in turn influence their families’ eating-out choices. For example, McDonald’s recently hosted 15 influential mom bloggers on an all-expenses-paid tour of its Chicagoarea headquarters. The bloggers toured the facilities (including the company’s test kitchens), met McDonald’s USA president, and had their pictures taken with Ronald at a nearby Ronald McDonald House. McDonald’s knows that these mom bloggers have loyal followings and talk a lot about McDonald’s in their blogs. So it’s turning the bloggers into believers by giving them a behind-the-scenes view. McDonald’s doesn’t try to tell the bloggers what to say in their posts about the visit. It simply asks them to write one honest recap of their trip. However, the resulting posts (each acknowledging the blogger’s connection with McDonald’s) were mostly very positive. Thanks to this and other such efforts, mom bloggers around the country are now more informed about and connected with McDonald’s. “I know they have smoothies and they have yogurt and they have other things that my kids would want,” says one prominent blogger. “I really couldn’t tell you what Burger King’s doing right now,” she adds. “I have no idea.” the Walmart Moms know that their strength lies in their authenticity and in the trust they build with their readers. So with Walmart’s urging and full support, the moms write whatever they please and share their sincere opinions. “Walmart does not require anything of us but to be ourselves and remain authentic to our own voice,” says one mom blogger. Without that, what the Walmart Moms write and say would be viewed as little more than paid promotions. Walmart Moms. Eight years ago, Walmart enlisted a group of 11 influential mom bloggers—originally called the ElevenMoms—to “represent the voice of all moms.” Now numbering 22 and called simply the “Walmart Moms,” these influential social media moms provide input to Walmart on behalf of all Disney Social Media Moms. The Walt moms and in turn represent Walmart to their Disney Company has long recognized the power of moms in social media and the large blog followings. Described by Walmart as “moms like you,” importance moms play in planning family vathe Walmart Moms represent a cross-section cations. Five years ago, the company asof American moms in terms of geography, sembled a group called Disney Social Media ethnicity, and age. “Walmart Moms are pretty Moms, roughly 1,300 carefully selected mom much like most moms out there,” says Walmart. They “know what it’s like to balance family, work, errands, searching for missing softball mitts, and everything else in between. And [they’re] always looking for ways to save money and live better.” The Walmart Moms have become important and influential Walmart brand ambassadors. Though surveys, focus groups, and in-store events, the mom bloggers and their readers provide Walmart and its suppliers with key customer insights regarding its stores and products. Going the other way, the Walmart Moms create relevant written and video content—everything from money-saving tips to product reviews to craft suggestions and recipes—shared on their blogs and through links on Walmart’s online and social media sites. Walmart Moms receive harnessing the power of mom-to-mom influence: product samples and comEach year, Disney invites 175 to 200 moms and their pensation. Their posts often families to its Disney Social Media Moms Celebration in refer to products sold by Florida, an affair that’s a mix of public relations event, Walmart and include links educational conference, and family vacation with plenty of Disney magic for these important mom influencers. to the products on Walmart sites. But both Walmart and Mindy Marzec 166 | parT 2 Understanding the Marketplace and Customer Value bloggers (and some dads), travel bloggers, and active Disney-focused social media posters. Disney looks for influential moms who fit the brand’s family-friendly focus, use social media heavily, and are active in their communities offline as well as online. One example is Rachel Pitzel, a mother of two and CEO of ClubMomMe, a social and educational group that sponsors events for moms, expectant parents, and families and maintains an active blog. Another is Wendy Wright, a homeschooling mother of two and a prolific blogger. Wendy describes herself as a “Disney nut” (she named her cats Mickey and Minnie), and she fills her blog with advice for planning Disney park visits, tips for holding Disney-themed parties, and reviews of Disney movies. Disney Social Media Moms aren’t paid; they participate because of their passion and enthusiasm for all things Disney. However, they do receive special educational attention from Disney, inside information, and occasional perks. For example, every year, Disney invites 175 to 200 of the moms and their families for a deeply discounted, fourday trip to attend its annual Disney Social Media Moms Celebration in Florida. The celebration is a mix of public relations event, educational conference, and family vacation with plenty of Disney magic for these important mom influencers. The Disney Social Media Moms are under no obligation to post anything about Disney, and the company doesn’t tell them what to say when they do post. However, the most recent celebration generated 28,500 tweets, 4,900 Instagram photos, and 88 blog posts full of ride reviews, videos of families meeting Disney characters, and a host of overwhelmingly positive comments. “For a big chunk of our guests, it’s the moms who are making [travel] decisions,” says a top Disney executive. The Disney Social Media Moms effort costs the company very little but effectively harnesses the power of mom-to-mom influence to help sprinkle Disney’s magical pixie dust on an important group of buyers. Sources: See Mindy Rasledvich, “Harnessing the Power of Mom-to-Mom Influence,” Dedicated Media, May 19, 2015, www.dedicatedmedia.com/articles/harnessing-the-power-of-mom-to-mom-influence-2; Elizabeth Segran, “On Winning the Hearts—and Dollars—of Mommy Bloggers,” Fast Company, August 14, 2015, www.fast company.com/3049137; Keith O’Brien, “How McDonald’s Came Back Bigger than Ever,” New York Times, May 6, 2012, p. MM44; “Who Are Walmart Moms?” http://learn.walmart.com/Tips-Ideas/Articles/Walmart_Moms/19242/, accessed June 2016; “How Walmart Made 11 Moms Become Its Brand Ambassadors,” http://crezeo.com/ how-11-moms-became-walmart-brand-ambassadors/, accessed June 2016; Lisa Richwine, “Disney’s Powerful Marketing Force: Social Media Moms,” Reuters, June 15, 2015, www.reuters.com/article/us-disney-moms-insightidUSKBN0OV0DX20150615; and “Disney Parks Social Media Moms Celebration,” http://disneysmmoms.com/, accessed September 2016. get it, get Go-Gurt.” And a recent General Mills “How to Dad” campaign for Cheerios presents a dad as a multitasking superhero around the house, a departure from the bumbling dad stereotypes often shown in food ads. This dad does all the right things, including feeding this children healthy Cheerios breakfasts. “Being a dad is awesome,” he proclaims in one ad. “Just like Cheerios are awesome. That’s why it’s the Official Cereal of Dadhood.”18 Children also have a strong influence on family buying decisions. A global survey showed that children—from babies to teens—wield particular influence over their parents’ decisions regarding how money and free time are spent (71 and 70 percent), where to go on vacation (64 percent), how often to go out to eat (58 percent), and where to live (43 percent). Furthermore, the majority of parents felt that their kids exert more influence on family purchases than they did themselves when growing up.19 Roles and Status Family buying influences: Children may weigh in heavily on family purchases for everything from restaurants and vacation destinations to mobile devices and even car purchases. Andres Rodriguez/123RF A person belongs to many groups—family, clubs, organizations, online communities. The person’s position in each group can be defined in terms of both role and status. A role consists of the activities people are expected to perform according to the people around them. Each role carries a status reflecting the general esteem given to it by society. People usually choose products appropriate to their roles and status. Consider the various roles a working mother plays. In her company, she may play the role of a brand manager; in her family, she plays the role of wife and mother; at her favorite sporting events, she plays the role of avid fan. As a brand manager, she will buy the kind of clothing that reflects her role and status in her company. At the game, she may wear clothing supporting her favorite team. ChapTer 5 | Consumer Markets and Buyer Behavior 167 Personal Factors A buyer’s decisions also are influenced by personal characteristics such as the buyer’s occupation, age and stage, economic situation, lifestyle, and personality and self-concept. Occupation A person’s occupation affects the goods and services bought. Blue-collar workers tend to buy more rugged work clothes, whereas executives buy more business suits. Marketers try to identify the occupational groups that have an above-average interest in their products and services. A company can even specialize in making products needed For example, by a given occupational group. Caterpillar/CAT, the world’s leading manufacturer of construction machinery, offers rugged mobile phones made for tough and challenging work environments. In demanding surroundings like the construction and heavy industry, normal smartphones are not durable, robust, or reliable enough. According to the devices maker, consequential damage of handsets is a common problem for tradesmen in these professions, leaving them being unnecessarily burdened and out-ofpocket. CAT’s phones withstand extreme drops and temperatures, are dust- and waterproof, offer enhanced audio quality for noisy workplaces, and feature displays that can be controlled with wet fingers or gloves.20 Appealing to occupation segments: CAT makes rugged, durable phones for the construction and heavy industries. B Christopher/Alamy Stock Photo Age and Life Stage People change the goods and services they buy over their lifetimes. Tastes in food, clothes, furniture, and recreation are often age related. Buying is also shaped by the stage of the family life cycle—the stages through which families might pass as they mature over time. Life-stage changes usually result from demographics and life-changing events—marriage, having children, purchasing a home, divorce, children going to college, changes in personal income, moving out of the house, and retirement. Marketers often define their target markets in terms of life-cycle stage and develop appropriate products and marketing plans for each stage. One of the leading life-stage segmentation systems is the Nielsen PRIZM Lifestage Groups system. PRIZM classifies every American household into one of 66 distinct lifestage segments, which are organized into 11 major life-stage groups based on affluence, age, and family characteristics. The classifications consider a host of demographic factors such as age, education, income, occupation, family composition, ethnicity, and housing; and behavioral and lifestyle factors such as purchases, free-time activities, and media preferences. The major PRIZM Lifestage groups carry names such as “Striving Singles,” “Midlife Success,” “Young Achievers,” “Sustaining Families,” “Affluent Empty Nests,” and “Conservative Classics,” which in turn contain subgroups such as “Brite Lites, Li’l City,” “Kids & Cul-de-Sacs,” “Gray Power,” and “Big City Blues.” The “Young Achievers” group consists of hip, single 20-somethings who rent apartments in or close to metropolitan neighborhoods. Their incomes range from working class to well-to-do, but the entire group tends to be politically liberal, listen to alternative music, and enjoy lively nightlife.21 Life-stage segmentation provides a powerful marketing tool for marketers in all industries to better find, understand, and engage consumers. Armed with data about the makeup of consumer life stages, marketers can create targeted, actionable, personalized campaigns based on how people consume and interact with brands and the world around them. 168 | parT 2 Understanding the Marketplace and Customer Value Economic Situation A person’s economic situation will affect his or her store and product choices. Marketers watch trends in spending, personal income, savings, and interest rates. In today’s more value-conscious times, most companies have taken steps to create more customer value by redesigning, repositioning, and repricing their products and services. For example, in recent years, upscale discounter Target has put more emphasis on the “Pay Less” side of its “Expect More. Pay Less.” positioning promise. Similarly, in line with worldwide economic trends, smartphone makers who once offered only premium-priced phones are now offering lower-priced models for consumers both at home and in the world’s emerging economies. Microsoft’s Nokia division recently targeted emerging markets with lower-end Lumia models priced well under $100. And Apple is rumored to be introducing a lower-priced version of its iPhone. As their more affluent Western markets have become saturated and more competitive, the phone makers hope that their lower-priced phones will help them to compete effectively in less-affluent emerging Eastern markets such as China and Southeast Asia against low-cost smartphone makers such as Chinese giant Xiaomi.22 Lifestyle People coming from the same subculture, social class, and occupation may have quite different lifestyles. Lifestyle is a person’s pattern of living as expressed in his or her psychoA person’s pattern of living as expressed graphics. It involves measuring consumers’ major AIO dimensions—activities (work, hobin his or her activities, interests, and bies, shopping, sports, social events), interests (food, fashion, family, recreation), and opinions opinions. (about themselves, social issues, business, products). Lifestyle captures something more than the person’s social class or personality. It profiles a person’s whole pattern of acting and interacting in the world. When used carefully, the lifestyle concept can help marketers understand changing consumer values and how they affect buyer behavior. Consumers don’t just buy products; they buy the values and For example, lifestyles those products represent. The Body Shop markets much more than just beauty products. Its founder, Anita Roddick has always been a strong advocate of ethical consumerism, human and animal rights issues, and environmental protection. When she made her first beauty products in 1976, she infused her philosophy in them by using natural and non-animal-tested ingredients, making them ethical and ecological statement pieces. As she grew her business, she continued to use her products as a platform for communicating more of her beliefs, like the importance of raising self-esteem in women. Although The Body Shop was sold to L’Oréal in 2006, its social and environmental commitment remains in its marketing DNA today. The present-day Lifestyles: The Body Shop markets much more than just beauty Body Shop brand stands for fighting exploitation of products. its cosmetics embody the ethical consumerism lifestyle. animals, the planet, and people by fighting animal UK retail Alan King/Alamy Stock Photo cruelty, protecting endangered creatures, preserving the rainforest, and supporting fair trade. Its “BioBridges” campaign, aimed at restoring wildlife corridors in the rainforest, was supported by several social media activities that engaged with consumers conscious about sustainability. Marketers look for lifestyle segments with needs that can be served through special products or marketing approaches. Such segments might be defined by anything from family characteristics or outdoor interests to the foods people eat. Lifestyle Personality and Self-Concept personality The unique psychological characteristics that distinguish a person or group. Each person’s distinct personality influences his or her buying behavior. Personality refers to the unique psychological characteristics that distinguish a person or group. Personality is usually described in terms of traits such as self-confidence, dominance, ChapTer 5 | Consumer Markets and Buyer Behavior 169 sociability, autonomy, defensiveness, adaptability, and aggressiveness. Personality can be useful in analyzing consumer behavior for certain product or brand choices. The idea is that brands also have personalities, and consumers are likely to choose brands with personalities that match their own. A brand personality is the specific mix of human traits that may be attributed to a particular brand. One researcher identified five brand personality traits: sincerity (down-to-earth, honest, wholesome, and cheerful), excitement (daring, spirited, imaginative, and up-to-date), competence (reliable, intelligent, and successful), sophistication (glamorous, upper class, charming), and ruggedness (outdoorsy and tough). “Your personality determines what you consume, what TV shows you watch, what products you buy, and [most] other decisions you make,” says one consumer behavior expert.23 Most well-known brands are strongly associated with a particular trait: the Ford F150 with “ruggedness,” Apple with “excitement,” the Washington Post with “competence,” Method with “sincerity,” and Gucci with “class and sophistication.” Many brands build their positioning and brand stories around such traits. For example, fastgrowing lifestyle brand Shinola has crafted an “authentic, built in Detroit” persona that has made it one of America’s hottest brands (see Real Marketing 5.2). Many marketers use a concept related to personality—a person’s self-concept (also called self-image). The idea is that people’s possessions contribute to and reflect their identities—that is, “we are what we consume.” Thus, to understand consumer behavior, marketers must first understand the relationship between consumer self-concept and possessions. Hence, brands will attract people who are high on the same perFor example, the MINI automobile has an instantly sonality traits. recognizable personality as a clever and sassy but powerful little car. MINI owners—who sometimes call themselves “MINIacs”—have a Brand personality: Mini markets to personality strong and emotional connection with their cars. More than tarsegments of people who are “adventurous, individualistic, geting specific demographic segments, MINI appeals to personality open-minded, creative, tech-savvy, and young at heart”— anything but “normal”—just like the car. segments—to people who are “adventurous, individualistic, openUsed with permission of MINI Division of BMW of North America, LLC minded, creative, tech-savvy, and young at heart,” just like the car.24 Psychological Factors A person’s buying choices are further influenced by four major psychological factors: motivation, perception, learning, and beliefs and attitudes. Motivation Motive (drive) A need that is sufficiently pressing to direct the person to seek satisfaction of the need. A person has many needs at any given time. Some are biological, arising from states of tension such as hunger, thirst, or discomfort. Others are psychological, arising from the need for recognition, esteem, or belonging. A need becomes a motive when it is aroused to a sufficient level of intensity. A motive (or drive) is a need that is sufficiently pressing to direct the person to seek satisfaction. Psychologists have developed theories of human motivation. Two of the most popular—the theories of Sigmund Freud and Abraham Maslow— carry quite different meanings for consumer analysis and marketing. Sigmund Freud assumed that people are largely unconscious about the real psychological forces shaping their behavior. His theory suggests that a person’s buying decisions are affected by subconscious motives that even the buyer may not fully understand. Thus, an aging baby boomer who buys a sporty BMW convertible might explain that he simply likes the feel of the wind in his thinning hair. At a deeper level, he may be trying to impress others with his success. At a still deeper level, he may be buying the car to feel young and independent again. Consumers often don’t know or can’t describe why they act as they do. Thus, many companies employ teams of psychologists, anthropologists, and other social scientists to carry out motivation research that probes the subconscious motivations underlying Real Marketing 170 | parT 2 Understanding the Marketplace and Customer Value 5.2 Shinola: A Real, Authentic, “Detroit” Persona Earlier this year, a comedy sketch on Jimmy Kimmel Live featured a mock TV game show that presented each of two contestants with a pair of luxury products and asked, “Which of these products is sh*t, and which is Shinola?” It wasn’t much of a challenge. One product in each pair really did look like it was made from poop, whereas the other items were genuine products from the hot new American luxury brand Shinola. The contestants ended up taking home “all this beautiful sh*t from Shinola.” The idea for the gag came from the very company that was the butt of the joke, Detroit-based luxury goods maker Shinola. Shinola opened for business less than five years ago with a line of premium watches priced between $550 and $850. Its unlikely name derives from the old Shinola shoe polish brand that became a household name following a widely circulated story during World War II that a soldier had polished his commander’s boots with poop because “he doesn’t know sh*t from Shinola.” The original Shinola company closed its doors in 1960, but the founders of the current company purchased the rights to the unique Shinola name, replete with its mildly crude but colorful associations. In another seemingly surprising move, Shinola chose to headquarter itself in Detroit, the once-iconic symbol of gritty American manufacturing and ingenuity that had since fallen into bankruptcy and desperately hard times. Shinola prints the city’s name in its logo and on every product it makes. Since its founding, Shinola has expanded rapidly into other product categories including high-end bicycles, apparel, leather accessories, and even basketballs. Its sales are booming. Shinola is now sold in highend department stores such as Nordstrom, Neiman-Marcus, Saks Fifth Avenue, and Bloomingdale’s. The company has opened 16 retail stores of its own and faces exploding online demand for its products. And it seems Shinola is just getting started. Such success might seem surprising. At first blush, Shinola’s name and its Detroit roots seem incongruous with the luxury lines of trendy products it makes and sells. But dig deeper and you find that everything about Shinola binds together strongly under a carefully crafted, all-American brand persona. In an age of products “made in China,” Shinola is on a mission to revive old-time American manufacturing. “We are a Detroit-based company dedicated to quality, craft, and creating world-class manufacturing jobs in the United States,” says the company. Why the Shinola name and why the Detroit location? “We’re starting with the reinvigoration of a storied American brand, and a storied American city,” says the company. Shinola “is a brand committed to turning out high-quality products in America with . . . American suppliers and American labor,” says an analyst. “To drive home that commitment, the company selected Detroit—the buckle of the American rust belt—as its base.” The brand story just wouldn’t be as compelling if it was based in Chicago or San Francisco. The brand reflects a gritty Detroit, authentically American persona. So do its products and manufacturing. Shinola began with about 100 local manufacturing employees and brought in the world’s best Swiss watchmakers to train them how to build watches the old-fashioned way—by hand. As the company expanded into other lines, it remained committed to working with mostly U.S.-based suppliers. Leather goods come from the Horween tannery in Chicago, whereas bike frames and forks are hand-built by Waterford, a Wisconsin company. We are “creating a community that will thrive through excellence of craft and pride of work,” says the company “where we will reclaim the making of things that are made well and define American luxury through American quality.” The roots of American ingenuity and manufacturing are evident in every facet of Shinola’s products and branding, from its Wright Brothers Limited Edition Runwell bike ($2,950 and sold out), to its Bluetooth player with Gramophone speaker ($400 with a waiting list of buyers), to its limitededition Great American Series Muhammad Ali watch, a tribute to the six principles that shaped the life of the famed fighter: conviction, respect, dedication, confidence, giving, and spirituality. Shinola products are at once both classic and modern, with clean, functional, and authentically American designs, craftsmanship, and quality. Backed by a lifetime guarantee, they are meant to be handed down from generation to generation rather than to end up in a landfill after a few years of use. Shinola’s retail stores are the ultimate embodiment of its brand persona. Store interiors have an industrial feel—weathered brick, varnished wood, glass, stainless Brand personality: Shinola’s carefully crafted, real, authentic, “Detroit” persona has made it one of America’s hottest brands. Shinola ChapTer 5 steel, and exposed iron trusswork. But they are also warm and inviting. According to Shinola’s marketer director, “Shinola’s stores are more than a place to buy stuff— they’re centers of activity complete with permanent coffee bars and period events like whisky tastings or pop-up florists and barbershops.” The company plans to open a dozen or more new stores each year going forward. In another throwback to a bygone era, Shinola is committed to its employees. If you take care of your people, the company believes, they will take care of your customers and your business. Shinola pays its people above-market wages and provides amazing benefits. All employees spend time in the company’s retail stores to gain a clear understanding of the customers for whom they are making products. Shinola has a | Consumer Markets and Buyer Behavior promote-from-within policy. Today, many of Shinola’s critical operations managers are people who started with the company as security guards, janitors, and delivery people. “We build our goods to last,” says Shinola, “but of all the things we make, American jobs might just be the thing we’re most proud of.” Thus, Shinola’s well-crafted, deeply felt brand persona has made it special to consumers who identify with its personality. “Shinola is 171 about pride and craft, making things that matter and last, and honoring the past as well as the future,” observes a business writer. “It’s a no-nonsense notion combined with a lot of nostalgia, and it’s the real deal.” “Consumers want something real, something authentic. You want to feel proud about something,” says Shinola’s marketing director. “We have good timing, a good product, and a good story.” In short, nobody’s confusing sh*t with Shinola anymore. Sources: Robert Klara, “How Shinola Went from Shoe Polish to the Coolest Brand in America,” Adweek, June 22, 2015, pp. 23–25; Helen Heller, “The Luxury-Goods Company Shinola Is Capitalizing on Detroit,” Washington Post, November 17, 2014, www.washingtonpost.com/lifestyle/style/the-luxury-goods-company-shinola-is-capitalizingon-detroit/2014/11/17/638f88a4-6a8f-11e4-b053-65cea7903f2e_story.html; Howard Tullman, “4 Lessons from Shinola,” Inc., February 17, 2015, www.inc.com/howard-tullman/4-lessons-from-shinola.html; Jack Preston, “What Does the Success of Shinola Tell Us about the City’s Future?” July 29, 2015, www.virgin.com/entrepreneur/ inside-detroit-what-does-the-success-of-shinola-tell-us-about-the-citys-future; and www.shinola.com/our-story and www.shinola.com/about-shinola, accessed September 2016. consumers’ emotions and behaviors toward brands. One ad agency routinely conducts one-on-one, therapy-like interviews to delve the inner workings of consumers. Another company asks consumers to describe their favorite brands as animals or cars (say, a Mercedes versus a Chevy) to assess the prestige associated with various brands. Still others rely on hypnosis, dream therapy, or soft lights and mood music to plumb the murky depths of consumer psyches. Such projective techniques might seem pretty goofy, and some marketers dismiss such motivation research as mumbo jumbo. But many marketers use such touchy-feely approaches, now sometimes called interpretive consumer research, to dig deeper into consumer psyches and develop better marketing strategies. Abraham Maslow sought to explain why people are driven by particular needs at particular times. Why does one person spend a lot of time and energy on personal safety and another on gaining the esteem of others? Maslow’s answer is that human needs are Figure 5.3, from the most pressing at the bottom arranged in a hierarchy, as shown in to the least pressing at the top.25 They include physiological needs, safety needs, social needs, esteem needs, and self-actualization needs. Figure | 5.3 Maslow’s Hierarchy of Needs Selfactualization needs Self-development and realization Esteem needs Self-esteem, recognition, status Social needs Sense of belonging, love Safety needs Security, protection Physiological needs Hunger, thirst According to Maslow, human needs are arranged in a hierarchy. Starving people will take little interest in the latest happenings in the art world. 172 | parT 2 Understanding the Marketplace and Customer Value A person tries to satisfy the most important need first. When that need is satisfied, it will stop being a motivator, and the person will then try to satisfy the next most important need. For example, starving people (physiological need) will not take an interest in the latest happenings in the art world (self-actualization needs) nor in how they are seen or esteemed by others (social or esteem needs) nor even in whether they are breathing clean air (safety needs). But as each important need is satisfied, the next most important need will come into play. Perception A motivated person is ready to act. How the person acts is influenced by his or her own perception of the situation. All of us learn by the flow of information through our five senses: sight, hearing, smell, touch, and taste. However, each of us receives, organizes, and interprets this sensory information in an individual way. Perception is the process by perception The process by which people select, which people select, organize, and interpret information to form a meaningful picture of organize, and interpret information to the world. form a meaningful picture of the world. People can form different perceptions of the same stimulus because of three perceptual processes: selective attention, selective distortion, and selective retention. People are exposed to a great amount of stimuli every day. For example, individuals are exposed to an estimated 3,000 to 5,000 ad messages daily—from TV and magazine ads to billboards to social media ads and posts on their smartphones.26 People can’t possibly pay attention to all the competing stimuli surrounding them. Selective attention—the tendency for people to screen out most of the information to which they are exposed—means that marketers must work especially hard to attract the consumer’s attention. Even noticed stimuli do not always come across in the intended way. Each person fits incoming information into an existing mindset. Selective distortion describes the tendency of people to interpret information in a way that will support what they already believe. People also will forget much of what they learn. They tend to retain information that supports their attitudes and beliefs. Selective retention means that consumers are likely to remember good points made about a brand they favor and forget good points made about competing brands. Because of selective attention, distortion, and retention, marketers must work hard just to get their messages through. Interestingly, although most marketers worry about whether their offers will be perceived at all, some consumers worry that they will be affected by marketing messages without even knowing it—through subliminal advertising. More than 50 years ago, a researcher announced that he had flashed the phrases “Eat popcorn” and “Drink CocaCola” on a screen in a New Jersey movie theater every five seconds for 1/300th of a second. He reported that although viewers did not consciously recognize these messages, they absorbed them subconsciously and bought 58 percent more popcorn and 18 percent more Coke. Suddenly advertisers and consumer-protection groups became intensely interested in subliminal perception. Although the researcher later admitted to making up the data, the issue has not died. Some consumers still fear that they are being manipulated by subliminal messages. Numerous studies by psychologists and consumer researchers have found little or no link between subliminal messages and consumer behavior. Recent brain-wave studies have found that in certain circumstances, our brains may register subliminal messages. However, it appears that subliminal advertising simply doesn’t This classic ad from the American Association of One classic ad have the power attributed to it by its critics.27 Advertising Agencies pokes fun at subliminal advertising. from the American Association of Advertising Agencies pokes fun “So-called ‘subliminal advertising’ simply doesn’t exist,” at subliminal advertising. “So-called ‘subliminal advertising’ simsays the ad. “overactive imaginations, however, most certainly do.” ply doesn’t exist,” says the ad. “Overactive imaginations, however, most certainly do.” American Association of Advertising Agencies ChapTer 5 | Consumer Markets and Buyer Behavior 173 Learning Learning Changes in an individual’s behavior arising from experience. When people act, they learn. Learning describes changes in an individual’s behavior arising from experience. Learning theorists say that most human behavior is learned. Learning occurs through the interplay of drives, stimuli, cues, responses, and reinforcement. A drive is a strong internal stimulus that calls for action. A drive becomes a motive when it is directed toward a particular stimulus object. For example, a person’s drive for self-actualization might motivate him or her to look into buying a camera. The consumer’s response to the idea of buying a camera is conditioned by the surrounding cues. Cues are minor stimuli that determine when, where, and how the person responds. The camera buyer might spot several camera brands in a shop window, hear of a special sale price, or discuss cameras with a friend. These are all cues that might influence a consumer’s response to his or her interest in buying the product. Suppose the consumer buys a Nikon camera. If the experience is rewarding, the consumer will probably use the camera more and more, and his or her response will be reinforced. Then the next time he or she shops for a camera, or for binoculars or some similar product, the probability is greater that he or she will buy a Nikon product. The practical significance of learning theory for marketers is that they can build up demand for a product by associating it with strong drives, using motivating cues, and providing positive reinforcement. Beliefs and Attitudes Belief A descriptive thought that a person holds about something. attitude A person’s consistently favorable or unfavorable evaluations, feelings, and tendencies toward an object or idea. Through doing and learning, people acquire beliefs and attitudes. These, in turn, influence their buying behavior. A belief is a descriptive thought that a person holds about something. Beliefs may be based on real knowledge, opinion, or faith and may or may not carry an emotional charge. Marketers are interested in the beliefs that people formulate about specific products and services because these beliefs make up product and brand images that affect buying behavior. If some of the beliefs are wrong and prevent purchase, the marketer will want to launch a campaign to correct them. People have attitudes regarding religion, politics, clothes, music, food, and almost everything else. Attitude describes a person’s relatively consistent evaluations, feelings, and tendencies toward an object or idea. Attitudes put people into a frame of mind of liking or disliking things, of moving toward or away from them. Our camera buyer may hold attitudes such as “Buy the best,” “The Japanese make the best camera products in the world,” and “Creativity and self-expression are among the most important things in life.” If so, the Nikon camera would fit well into the consumer’s existing attitudes. Attitudes are difficult to change. A person’s attitudes fit into a pattern; changing one attitude may require difficult adjustments in many others. Thus, a company should usually try to fit its products into existing attitude patterns rather than attempt to change attitudes. Of course, there are exceptions. Repositioning or extending a brand calls for changing attitudes. For example, consider the Burberry brand:28 When you think of Burberry now, you probably think of a luxury high-fashion label, its signature trench coats, and its association with celebrities like Kate Moss. However, this very profitable positioning is the result of an extensive brand overhaul. The company started out in 1856 and over time become a glamorous fashion label worn by the rich and famous. In the years leading up to 2006, when Angela Ahrendts became CEO, the brand’s image had slid downmarket as their distinct beige/red/black check pattern had become associated with the chav culture and football hooliganism. The far-reaching sale of licences over the years had resulted in products as diverse as disposable nappies for dogs featuring its trademark. While the global market was booming, Burberry only grew by 2 percent annually. Existing attitudes towards the brand needed to be changed to make it successful again. Angela Ahrendts started the turnaround by buying back licences, thereby re-centralizing control over the brand. For its repositioning, she decided to go back to Burberry’s roots, reclaiming its luxury authenticity, reviving its high-quality heritage, and focusing less on the famous check pattern. In support of this revamped positioning, Burberry launched modern campaigns targeting luxury customers with its core, classic high-fashion products augmented by a modern twist, enlisting the help of celebrities like Naomi Campbell and Romeo Beckham. We can now appreciate the many forces acting on consumer behavior. The consumer’s choice results from the complex interplay of cultural, social, personal, and psychological factors. 174 | parT 2 Understanding the Marketplace and Customer Value Author Some purchases are simple Comment and routine, even habitual. Others are far more complex—involving extensive information gathering and evaluation—and are subject to sometimes subtle influences. For example, think of all that goes into a new car buying decision. Buying Decision Behavior and the Buyer Decision Process Types of Buying Decision Behavior Buying behavior differs greatly for a tube of toothpaste, a smartphone, financial services, and a new car. More complex decisions usually involve more buying particiFigure 5.4 shows the types of consumer buypants and more buyer deliberation. ing behavior based on the degree of buyer involvement and the degree of differences among brands. Complex Buying Behavior Complex buying behavior Consumer buying behavior in situations characterized by high consumer involvement in a purchase and significant perceived differences among brands. Consumers undertake complex buying behavior when they are highly involved in a purchase and perceive significant differences among brands. Consumers may be highly involved when the product is expensive, risky, purchased infrequently, and highly selfexpressive. Typically, the consumer has much to learn about the product category. For example, someone buying a new car might not know what models, attributes, and accessories to consider or what prices to expect. This buyer will pass through a learning process, first developing beliefs about the product, then attitudes, and then make a thoughtful purchase choice. Marketers of highinvolvement products must understand the information-gathering and evaluation behavior of high-involvement consumers. They need to help buyers learn about product-class attributes and their relative importance. They need to differentiate their brand’s features, perhaps by describing and illustrating the brand’s benefits through printed promotional materials or in-depth online information and videos. They must motivate store salespeople and the buyer’s acquaintances to influence the final brand choice. Dissonance-Reducing Buying Behavior Dissonance-reducing buying behavior Consumer buying behavior in situations characterized by high involvement but few perceived differences among brands. habitual buying behavior Consumer buying behavior in situations characterized by low consumer involvement and few significant perceived brand differences. Dissonance-reducing buying behavior occurs when consumers are highly involved with an expensive, infrequent, or risky purchase but see little difference among brands. For example, consumers buying carpeting may face a high-involvement decision because carpeting is expensive and self-expressive. Yet buyers may consider most carpet brands in a given price range to be the same. In this case, because perceived brand differences are not large, buyers may shop around to learn what is available but buy relatively quickly. They may respond primarily to a good price or purchase convenience. After the purchase, consumers might experience postpurchase dissonance (after-sale discomfort) when they notice certain disadvantages of the purchased carpet brand or hear favorable things about brands not purchased. To counter such dissonance, the marketer’s after-sale communications should provide evidence and support to help consumers feel good about their brand choices. Habitual Buying Behavior habitual buying behavior occurs under conditions of low-consumer involvement and Figure | 5.4 Four Types of Buying Behavior Source: Adapted from Henry Assael, Consumer Behavior and Marketing Action (Boston: Kent Publishing Company, 1987), p. 87. Used with permission of the author. little significant brand difference. For example, take table salt. Consumers have little involvement in this product category—they simply go to the store and reach for a brand. If they keep reaching for the same brand, it is out of habit rather than strong brand loyalty. Consumers appear to have low involvement with most low-cost, frequently purchased products. Significant differences between brands Buying behavior varies greatly for different types of products. For example, someone buying a new car might undertake a full information-gathering and brand evaluation process. Few differences between brands High involvement Low involvement Complex buying behavior Varietyseeking buying behavior Dissonancereducing buying behavior Habitual buying behavior At the other extreme, for low-involvement products, consumers may simply select a familiar brand out of habit. For example, what brand of salt do you buy and why? ChapTer 5 | Consumer Markets and Buyer Behavior 175 In such cases, consumer behavior does not pass through the usual belief-attitude-behavior sequence. Consumers do not search extensively for information about the brands, evaluate brand characteristics, and make weighty decisions about which brands to buy. Because they are not highly involved with the product, consumers may not evaluate the choice, even after purchase. Thus, the buying process involves brand beliefs formed by passive learning, followed by purchase behavior, which may or may not be followed by evaluation. Because buyers are not highly committed to any brands, marketers of low-involvement products with few brand differences often use price and sales promotions to promote buying. Alternatively, they can add product features or enhancements to differentiate their brands from the rest of the pack and raise involvement. For example, take something as seemingly uncomplicated as wheat flour or oatmeal. To set its brand apart, Bob’s Red Mill adds an “honest-to-goodness” touch to all of the baking, grain, and cereal products it makes, using only the best nutritional whole grains and time-honored stone mill production processes. Bob’s Red Mill doesn’t sell just plain old flour. It offers “America’s Best Baking Flours,” nine varieties of differentiated wheat flours, ranging from Unbleached White Fine Pastry Flour and Super-Fine Cake Flour to The same goes for 100% Whole Grain Organic Ivory Wheat flour. its oatmeal—billed as the World’s Best Oatmeal—with 24 varieties ranging from Extra Thick Rolled Oats to High Fiber Oat Bran hot cereal to Organic Scottish Oatmeal. To raise involvement, Bob’s Red Mill adds an “honestto-goodness” touch, using only the best whole grains and time-honored stone mill production processes. Photo Courtesy of Bob’s Red Mil Variety-seeking buying behavior Consumer buying behavior in situations characterized by low consumer involvement but significant perceived brand differences. Author The actual purchase Comment decision is part of a much larger buying process—from recognizing a need through postpurchase behavior. Marketers want to be involved throughout the entire buyer decision process. The buying process starts long before the actual purchase and continues long after. Therefore, marketers must focus on the entire buying process, not just the purchase decision. Need recognition Figure | 5.5 Buyer Decision Process Variety-Seeking Buying Behavior Consumers undertake variety-seeking buying behavior in situations characterized by low consumer involvement but significant perceived brand differences. In such cases, consumers often do a lot of brand switching. For example, when buying cookies, a consumer may hold some beliefs, choose a cookie brand without much evaluation, and then evaluate that brand during consumption. But the next time, the consumer might pick another brand out of boredom or simply to try something different. Brand switching occurs for the sake of variety rather than because of dissatisfaction. In such product categories, the marketing strategy may differ for the market leader and minor brands. The market leader will try to encourage habitual buying behavior by dominating shelf space, keeping shelves fully stocked, and running frequent reminder advertising. Challenger firms will encourage variety seeking by offering lower prices, special deals, coupons, free samples, and advertising that presents reasons for trying something new. The Buyer Decision Process Now that we have looked at the influences that affect buyers, we are ready to look at how Figure 5.5 shows that the buyer decision process consumers make buying decisions. consists of five stages: need recognition, information search, evaluation of alternatives, the purchase decision, and postpurchase behavior. Clearly, the buying process starts long before the actual purchase and continues long after. Marketers need to focus on the entire buying process rather than on the purchase decision only. Information search Evaluation of alternatives Purchase decision Postpurchase behavior 176 | parT 2 Understanding the Marketplace and Customer Value Figure 5.5 suggests that consumers pass through all five stages with every purchase in a considered way. But buyers may pass quickly or slowly through the buying decision process. And in more routine purchases, consumers often skip or reverse some of the stages. Much depends on the nature of the buyer, the product, and the buying situation. A person buying a regular brand of toothpaste would recognize the need and go right to the purchase decision, skipping information search and evaluation. However, we use the model in Figure 5.5 because it shows all the considerations that arise when a consumer faces a new and complex purchase situation. Need Recognition Need recognition The first stage of the buyer decision process, in which the consumer recognizes a problem or need. The buying process starts with need recognition—the buyer recognizes a problem or need. The need can be triggered by internal stimuli when one of the person’s normal needs—for example, hunger or thirst—rises to a level high enough to become a drive. A need can also be triggered by external stimuli. For example, an advertisement or a discussion with a friend might get you thinking about buying a new car. At this stage, the marketer should research consumers to find out what kinds of needs or problems arise, what brought them about, and how they led the consumer to this particular product. Information Search An interested consumer may or may not search for more information. If the consumer’s drive is strong and a satisfying product is near at hand, he or she is likely to buy it then. If not, the consumer may store the need in memory or undertake an information search information search The stage of the buyer decision process related to the need. For example, once you’ve decided you need a new car, at the least, in which the consumer is motivated to you will probably pay more attention to car ads, cars owned by friends, and car conversearch for more information. sations. Or you may actively search online, talk with friends, and gather information in other ways. Consumers can obtain information from any of several sources. These include personal sources (family, friends, neighbors, acquaintances), commercial sources (advertising, salespeople, dealer and manufacturer web and mobile sites, packaging, displays), public sources (mass media, consumer rating organizations, social media, online searches and peer reviews), and experiential sources (examining and using the product). The relative influence of these information sources varies with the product and the buyer. Traditionally, consumers have received the most information about a product from commercial sources—those controlled by the marketer. The most effective sources, however, tend to be personal. Commercial sources normally inform the buyer, but personal sources legitimize or evaluate products for the buyer. Few advertising campaigns can be as effective as a next-door neighbor leaning over the fence and raving about a wonderful experience with a product you are considering. Increasingly, that “neighbor’s fence” is a digital one. Today, consumers share product opinions, images, and experiences freely across social media. And buyers can find an abundance of user-generated reviews alongside the products they are considering at sites ranging from Amazon.com or BestBuy.com to For example, Yelp, TripAdvisor, and Epicurious. Yelp’s goal is “to connect people with great local businesses” by maintaining a huge, searchable collection of candid reviews from people who’ve used those businesses. Over the past decade, Yelpers have written more than 90 million reviews of local restaurants, yelp’s goal is “to connect people with great local businesses” by service business, arts and entertainment activities, and collecting “Real People. Real Reviews.” from people who’ve actually used those businesses. other service in cities across the nation. The site receives some 89 million unique visitors per month Yelp Inc. ChapTer 5 | Consumer Markets and Buyer Behavior 177 seeking reviews and ratings.29 Although individual user reviews at Yelp and other sites vary widely in quality, an entire body of reviews often provides a reliable product assessment—straight from the fingertips of people like you who’ve actually purchased and experienced the product. As more information is obtained, the consumer’s awareness and knowledge of the available brands and features increase. In your car information search, you may learn about several brands that are available. The information might also help you to drop certain brands from consideration. A company must design its marketing mix to make prospects aware of and knowledgeable about its brand. It should carefully identify consumers’ sources of information and the importance of each source. Evaluation of Alternatives alternative evaluation The stage of the buyer decision process in which the consumer uses information to evaluate alternative brands in the choice set. We have seen how consumers use information to arrive at a set of final brand choices. Next, marketers need to know about alternative evaluation, that is, how consumers process information to choose among alternative brands. Unfortunately, consumers do not use a simple and single evaluation process in all buying situations. Instead, several evaluation processes are at work. How consumers go about evaluating purchase alternatives depends on the individual consumer and the specific buying situation. In some cases, consumers use careful calculations and logical thinking. At other times, the same consumers do little or no evaluating. Instead, they buy on impulse and rely on intuition. Sometimes consumers make buying decisions on their own; sometimes they turn to friends, online reviews, or salespeople for buying advice. Suppose you’ve narrowed your car choices to three brands. And suppose that you are primarily interested in four attributes—price, style, operating economy, and performance. By this time, you’ve probably formed beliefs about how each brand rates on each attribute. Clearly, if one car rated best on all the attributes, the marketer could predict that you would choose it. However, the brands will no doubt vary in appeal. You might base your buying decision mostly on one attribute, and your choice would be easy to predict. If you wanted style above everything else, you would buy the car that you think has the most style. But most buyers consider several attributes, each with different importance. By knowing the importance that you assigned to each attribute, the marketer could predict and affect your car choice more reliably. Marketers should study buyers to find out how they actually evaluate brand alternatives. If marketers know what evaluative processes go on, they can take steps to influence the buyer’s decision. Purchase Decision purchase decision The buyer’s decision about which brand to purchase. In the evaluation stage, the consumer ranks brands and forms purchase intentions. Generally, the consumer’s purchase decision will be to buy the most preferred brand, but two factors can come between the purchase intention and the purchase decision. The first factor is the attitudes of others. If someone important to you thinks that you should buy the lowest-priced car, then the chances of you buying a more expensive car are reduced. The second factor is unexpected situational factors. The consumer may form a purchase intention based on factors such as expected income, expected price, and expected product benefits. However, unexpected events may change the purchase intention. For example, the economy might take a turn for the worse, a close competitor might drop its price, or a friend might report being disappointed in your preferred car. Thus, preferences and even purchase intentions do not always result in an actual purchase choice. Postpurchase Behavior postpurchase behavior The stage of the buyer decision process in which consumers take further action after purchase, based on their satisfaction or dissatisfaction. The marketer’s job does not end when the product is bought. After purchasing the product, the consumer will either be satisfied or dissatisfied and will engage in postpurchase behavior of interest to the marketer. What determines whether the buyer is satisfied or dissatisfied with a purchase? The answer lies in the relationship between the consumer’s expectations and the product’s perceived performance. If the product falls short of expectations, the consumer is disappointed; if it meets expectations, 178 | parT 2 Understanding the Marketplace and Customer Value the consumer is satisfied; if it exceeds expectations, the consumer is delighted. The larger the negative gap between expectations and performance, the greater the consumer’s dissatisfaction. This suggests that sellers should promise only what their brands can deliver so that buyers are satisfied. Almost all major purchases, however, result in cognitive dissonance, or discomfort caused by postpurchase conflict. After the purchase, consumers are satisfied with the benefits of the chosen brand and are glad to avoid the drawbacks of the brands not bought. However, every purchase involves compromise. So consumers feel uneasy about acquiring the drawbacks of the chosen brand and about losing the benefits of the brands not purchased. Thus, consumers feel at least some postpurchase dissonance for every purchase. Why is it so important to satisfy the customer? Customer satisfaction is a key to building profitable relationships with consumers—to keeping and growing consumers and reaping their customer lifetime value. Satisfied customers buy a product again, talk favorably to others about the product, pay less attention to competing brands and advertising, and buy other products from Postpurchase cognitive dissonance: Postpurchase customer satisfaction is a key to building profitable customer relationships. Many marketers go beyond merely meetthe company. Most marketers go beyond merely meeting the customer ing the expectations of customers—they aim to delight expectations—they aim to delight customers. customers. Dusit/Shutterstock A dissatisfied consumer responds differently. Bad word of mouth often travels farther and faster than good word of Cognitive dissonance mouth. It can quickly damage consumer attitudes about a company and its products. But Buyer discomfort caused by companies cannot simply wait for dissatisfied customers to volunteer their complaints. postpurchase conflict. Most unhappy customers never tell the company about their problems. Therefore, a company should measure customer satisfaction regularly. It should set up systems that encourage customers to complain. In this way, the company can learn how well it is doing and how it can improve. By studying the overall buyer decision process, marketers may be able to find ways to help consumers move through it. For example, if consumers are not buying a new product because they do not perceive a need for it, marketing might launch advertising messages that trigger the need and show how the product solves customers’ problems. If customers know about the product but are not buying because they hold unfavorable attitudes toward it, marketers must find ways to change either the product or consumer perceptions. Author Here we look at some Comment special considerations in new product buying decisions. New product A good, service, or idea that is perceived by some potential customers as new. adoption process The mental process through which an individual passes from first hearing about an innovation to final adoption. The Buyer Decision Process for New Products We now look at how buyers approach the purchase of new products. A new product is a good, service, or idea that is perceived by some potential customers as new. It may have been around for a while, but our interest is in how consumers learn about products for the first time and make decisions on whether to adopt them. We define the adoption process as the mental process through which an individual passes from first learning about an innovation to final adoption. Adoption is the decision by an individual to become a regular user of the product.30 Stages in the Adoption Process Consumers go through five stages in the process of adopting a new product: Awareness. The consumer becomes aware of the new product but lacks information about it. Interest. The consumer seeks information about the new product. ChapTer 5 | Consumer Markets and Buyer Behavior 179 Evaluation. The consumer considers whether trying the new product makes sense. Trial. The consumer tries the new product on a small scale to improve his or her estimate of its value. Adoption. The consumer decides to make full and regular use of the new product. This model suggests that marketers should think about how to help consumers move through these stages. For example, if a company finds that many consumers are considering its products but are still tentative about buying one, it might offer sales prices or special promotions that help get consumers over the decision hump. To help car buyers past purchase-decision hurdles following the economic meltdown in 2008, Hyundai offered a unique Hyundai Assurance Plan. It promised buyers who financed or leased new Hyundais that they could return them at no cost and with no harm to their credit rating if they lost their jobs or incomes within a year. Sales of the Hyundai Sonata surged 85 percent in the month following the start of the campaign. Individual Differences in Innovativeness People differ greatly in their readiness to try new products. In each product area, there are “consumption pioneers” and early adopters. Other individuals adopt new products Figure 5.6.31 much later. People can be classified into the adopter categories shown in As shown by the curve, after a slow start, an increasing number of people adopt the new product. As successive groups of consumers adopt the innovation, it eventually reaches its cumulative saturation level. Innovators are defined as the first 2.5 percent of buyers to adopt a new idea (those beyond two standard deviations from mean adoption time); the early adopters are the next 13.5 percent (between one and two standard deviations); and then come early mainstream, late mainstream, and lagging adopters. The five adopter groups have differing values. Innovators are venturesome—they try new ideas at some risk. Early adopters are guided by respect—they are opinion leaders in their communities and adopt new ideas early but carefully. Early mainstream adopters are deliberate—although they rarely are leaders, they adopt new ideas before the average person. Late mainstream adopters are skeptical—they adopt an innovation only after a majority of people have tried it. Finally, lagging adopters are tradition bound—they are suspicious of changes and adopt the innovation only when it has become something of a tradition itself. This adopter classification suggests that an innovating firm should research the characteristics of innovators and early adopters in their product categories and direct initial marketing efforts toward them. Influence of Product Characteristics on Rate of Adoption The characteristics of the new product affect its rate of adoption. Some products catch on almost overnight. For example, Apple’s iPod, iPhone, and iPad flew off retailers’ shelves New product marketers often target innovators and early adopters, who in turn influence later adopters. Lagging adopters 16% 100 % share of all adopters Figure 5.6 Adopter Categories Based on Relative Time of Adoption of Innovations Late mainstream 34% 75 Early mainstream 34% 50 25 Innovators 2.5% Early adopters 13.5% 0 Time of adoption of innovation 180 | parT 2 Understanding the Marketplace and Customer Value at an astounding rate from the day they were first introduced. Others take a longer time to gain acceptance. For example, all-electric cars were first introduced in the United States in 2010, led by models such as the Nissan Leaf and the Tesla Model S. However, electric vehicles still account for far less than 1 percent of total U.S. automobile sales. It will likely be years or even decades before they replace the gasoline-powered cars.32 Five characteristics are especially important in influencing an innovation’s rate of adoption. For example, consider the characteristics of all-electric vehicles in relation to their rate of adoption: Relative advantage. The degree to which the innovation appears superior to existing products. All-electric cars require no gas and use clean, less costly energy. This will accelerate their rate of adoption. However, they have limited driving range before recharging and cost more initially, which will slow the adoption rate. Compatibility. The degree to which the innovation fits the values and experiences of potential consumers. Electric cars are driven the same way as gas-powered cars. However, they are not compatible with the nation’s current refueling network. Plug-in electric charging stations are few and far between. Increased adoption will depend on the development of a national network of recharging stations, which may take considerable time. Complexity. The degree to which the innovation is difficult to understand or use. Electric cars are not different or complex to drive, which will help to speed up adoption. However, the “conceptual complexity” of the new technologies and concerns about how well they will likely work slow down the adoption rate. Divisibility. The degree to which the innovation may be tried on a limited basis. Consumers can test-drive electric cars, a positive for the adoption rate. However, current high prices to own and fully experience these new technologies will likely slow adoption. Communicability. The degree to which the results of using the innovation can be observed or described to others. To the extent that electric cars lend themselves to demonstration and description, their use will spread faster among consumers. Other characteristics influence the rate of adoption, such as initial and ongoing costs, risk and uncertainty, and social approval. The new product marketer must research all these factors when developing the new product and its marketing program. 5 Reviewing and Extending the Concepts OBjECtiVEs REViEw aNd KEy tERms Objectives review The American consumer market consists of more than 323 million people who consume more than $11.8 trillion worth of goods and services each year, making it one of the most attractive consumer markets in the world. Consumers vary greatly in terms of cultural, social, personal, and psychological makeup. Understanding how these differences affect consumer buying behavior is one of the biggest challenges marketers face. Objective 5-1 Define the consumer market and construct a simple model of consumer buyer behavior. (pp 158–159) The consumer market consists of all the individuals and households that buy or acquire goods and services for personal consumption. The simplest model of consumer buyer behavior is the stimulusresponse model. According to this model, marketing stimuli (the four Ps) and other major forces (economic, technological, political, cultural) enter the consumer’s “black box” and produce certain responses. Once in the black box, these inputs produce observable buyer responses, such as brand choice, purchase location and timing, and brand engagement and relationship behavior. Objective 5-2 Name the four major factors that influence consumer buyer behavior. (pp 159–173) Consumer buyer behavior is influenced by four key sets of buyer characteristics: cultural, social, personal, and psychological. Although many of these factors cannot be influenced by the marketer, they can be useful in identifying interested buyers and shaping products and appeals to serve consumer needs better. ChapTer 5 Culture is the most basic determinant of a person’s wants and behavior. Subcultures are “cultures within cultures” that have distinct values and lifestyles and can be based on anything from age to ethnicity. Many companies focus their marketing programs on the special needs of certain cultural and subcultural segments, such as Hispanic American, African American, and Asian American consumers. Social factors also influence a buyer’s behavior. A person’s reference groups—family, friends, social networks, professional associations—strongly affect product and brand choices. The buyer’s age, life-cycle stage, occupation, economic circumstances, personality, and other personal characteristics influence his or her buying decisions. Consumer lifestyles—the whole pattern of acting and interacting in the world—are also an important influence on purchase decisions. Finally, consumer buying behavior is influenced by four major psychological factors: motivation, perception, learning, and beliefs and attitudes. Each of these factors provides a different perspective for understanding the workings of the buyer’s black box. Objective 5-3 List and define the major types of buying decision behavior and the stages in the buyer decision process. (pp 174–178) Buying behavior may vary greatly across different types of products and buying decisions. Consumers undertake complex buying behavior when they are highly involved in a purchase and perceive significant differences among brands. Dissonancereducing behavior occurs when consumers are highly involved but see little difference among brands. Habitual buying behavior occurs under conditions of low involvement and little significant brand difference. In situations characterized by low involvement but significant perceived brand differences, consumers engage in variety-seeking buying behavior. | Consumer Markets and Buyer Behavior 181 When making a purchase, the buyer goes through a decision process consisting of need recognition, information search, evaluation of alternatives, purchase decision, and postpurchase behavior. The marketer’s job is to understand the buyer’s behavior at each stage and the influences that are operating. During need recognition, the consumer recognizes a problem or need that could be satisfied by a product or service in the market. Once the need is recognized, the consumer is aroused to seek more information and moves into the information search stage. With information in hand, the consumer proceeds to alternative evaluation, during which the information is used to evaluate brands in the choice set. From there, the consumer makes a purchase decision and actually buys the product. In the final stage of the buyer decision process, postpurchase behavior, the consumer takes action based on satisfaction or dissatisfaction. Objective 5-4 Describe the adoption and diffusion process for new products. (pp 178–180) The product adoption process is made up of five stages: awareness, interest, evaluation, trial, and adoption. New-product marketers must think about how to help consumers move through these stages. With regard to the diffusion process for new products, consumers respond at different rates, depending on consumer and product characteristics. Consumers may be innovators, early adopters, early mainstream, late mainstream, or lagging adopters. Each group may require different marketing approaches. Marketers often try to bring their new products to the attention of potential early adopters, especially those who are opinion leaders. Finally, several characteristics influence the rate of adoption: relative advantage, compatibility, complexity, divisibility, and communicability. Key Terms Objective 5-1 Consumer buyer behavior (p 158) Consumer market (p 158) Objective 5-2 Culture (p 159) Subculture (p 160) Total market strategy (p 161) Social class (p 162) group (p 162) Word-of-mouth influence (p 163) Opinion leader (p 163) Online social networks (p 163) Lifestyle (p 168) personality (p 168) Motive (drive) (p 169) perception (p 172) Learning (p 173) Belief (p 173) attitude (p 173) Variety-seeking buying behavior (p 175) Need recognition (p 176) information search (p 176) alternative evaluation (p 177) purchase decision (p 177) postpurchase behavior (p 177) Cognitive dissonance (p 178) Objective 5-3 Objective 5-4 Complex buying behavior (p 174) Dissonance-reducing buying behavior (p 174) habitual buying behavior (p 174) New product (p 178) adoption process (p 178) 182 | parT 2 Understanding the Marketplace and Customer Value disCUssiON aNd CRitiCaL thiNKiNg MyLab Marketing Go to mymktlab.com to complete the problems marked with this icon . Discussion Questions 5-1 Define the consumer market and describe the four major sets of factors that influence consumer buyer behavior. Which characteristics influenced your choice when deciding on the school you would attend? Are those the same characteristics that would influence you when deciding what to do on Saturday night? Explain. (AACSB: Communication; Reflective Thinking) 5-2 What is a total market strategy, and why do marketers use this approach? Provide a recent example of a product or service that uses the total market strategy approach and discuss the components that make it effective or ineffective. (AACSB: Communication, Diversity, Reflective Thinking) 5-3 What is subculture? Describe at least two subcultures to which you belong and identify any reference groups that might influence your consumption behavior. (AACSB: Communication; Diversity; Reflective Thinking) 5-4 What is the significance of complex consumer buying behavior and the level of consumer involvement to marketers? (AACSB: Communication; Reflective Thinking) 5-5 How is the need recognition triggered in the buyer deci- sion making process? Provide examples of the two different types of triggers. (AACSB: Communication; Reflective Thinking) Critical Thinking exercises 5-6 Researchers study the role of personality on consumer purchase behavior. One research project—Beyond the Purchase—offers a range of surveys consumers can take to learn more about their own personality in general and their consumer personality in particular. Register at http:// www.beyondthepurchase.org/ and take the “Spending Habits” surveys along with any of the other surveys that interest you. What do these surveys tell you about your general and consumer personality? Do you agree with the findings? Why or why not? (AACSB: Communication; Use of IT; Diversity; Reflective Thinking) 5-7 Late adopters are those that tend to be suspicious of new technology and new products. Generally, they fail to see the value of the new capabilities or they don’t feel they can engage with it. These are not necessarily all older consumers. How would you target them? (AACSB: Communication; Reflective Thinking) 5-8 The characteristics of a new product affect its rate of adoption. Identify the five characteristics that influence the rate of adoption and describe how each factor will influence the rate of adoption of the Apple Watch. (AACSB: Communication; Reflective Thinking) aPPLiCatiONs aNd CasEs Online, Mobile, and Social Media Marketing Blogvertorials Bloggers can be highly influential. On the one hand, we read their pieces because we value their opinions and ideas, but on the other, do we really know their motivations? There is a growing trend for social media and public relations agencies to approach bloggers to get them to “blogvertize” on their behalf. The agencies also insist that such bloggers make no mention of the fact that they are being paid to make positive statements about certain products and services. In the United Kingdom, the Advertising Standards Authority (ASA) state that it is acceptable for a blogger to receive payment for a positive review, but the blogger has to be clear that they are advertising. The ASA suggests signpost- ing paid for posts. The ASA argues that just like any other media, consumers need to be able to judge whether or not they are seeing an advertisement. The clear rules are that advertisements must be obviously identifiable as such and not likely to mislead. 5-9 Have you encountered this type of blog posting before? Was it clear that the post was an advertisement? How might the fact that the blogger is being paid for an opinion change your view? Write a brief report of your observations. (AACSB: Use of IT; Communication; Reflective Thinking) ChapTer 5 5-10 | Consumer Markets and Buyer Behavior 183 in controlling blogvertorials written in other countries? What sanctions should be imposed on those who promote blogvertorials without calling them so? (AACSB: Communication; Reflective Thinking) Are there clear rules in your country concerning blogvertorials, such as the U.S. Federal Trade Commission’s disclosure rules on using social media for the promotion of products and services? If yes, can the rules help Marketing ethics Make Yourself Feel Good The Ethical Superstore (http://www.ethicalsuperstore.com) states its mission as enabling customers to make choices that let them feel good about their purchases. To this end, they offer a broad range of products from ethical sources around the world. The Ethical Superstore takes all the angst out of ethically conscious buying and relies on customers’ passions rather than price sensitivity. The website is a one-stop-shop to protect the planet, find eco-friendly alternatives, support farmers and small businesses in developing countries, buy fair-trade items, use local resources, and cut carbon emissions. With scarcely a thought, the environmentally concerned consumer has had all the hard work taken out of purchasing decisions. Customers can even make an extra charitable donation at the checkout! 5-11 What are the likely buying factors for customers making purchases from a business like this? (AACSB: Communication; Reflective Thinking) 5-12 Is it ethical to charge a premium price for ethically sourced products? (AACSB: Communication; Ethical Reasoning) Marketing by the Numbers Evaluating Alternatives One way consumers can evaluate alternatives is to identify important attributes and assess how purchase alternatives perform on those attributes. Consider the purchase of a tablet. Each attribute, such as screen size, is given a weight to reflect its level of importance to that consumer. Then the consumer evaluates each alternative on each attribute. For example, in the following table, price (weighted at 0.5) is the most important attribute for this consumer. The consumer believes that Brand C performs best on price, rating it 7 (higher ratings indicate higher performance). Brand B is perceived as performing the worst on this attribute (rating of 3). Screen size and available apps are the consumer’s next most important attributes. Operating system is least important. Attributes importance Weight (e) Screen size A score can be calculated for each brand by multiplying the importance weight for each attribute by the brand’s score on that attribute. These weighted scores are then summed to determine the score for that brand. For example, ScoreBrand A = (0.2 * 4) + (0.5 * 6) + (0.1 * 5) + (0.2 * 4) = 0.8 + 3.0 + 0.5 + 0.8 = 5.1. This consumer will select the brand with the highest score. 5-13 Calculate the scores for brands B and C. Which brand would this consumer likely choose? (AACSB: Communication; Analytic Reasoning) 5-14 Which brand is this consumer least likely to purchase? Discuss two ways the marketer of this brand can enhance consumer attitudes toward purchasing its brand. (AACSB: Communication; Reflective Thinking; Analytic Reasoning) Alternative Brands A B C 0.2 4 6 2 Price 0.5 6 3 7 Operating system 0.1 5 5 4 Apps available 0.2 4 6 7 Video Case IMG Worldwide IMG Worldwide is the world’s largest sports entertainment media company. In years past, IMG was all about professional golf and tennis marketing. But today, IMG handles sales and marketing activities for 70 to 80 colleges, making college sports marketing the company’s highest-growth business. In short, IMG handles anything and everything that touches the college sports consumer short of actually playing games on the court or field. Although you might think that all college sports fans are created equal, IMG finds that nothing could be further from the truth. How different fans consume sports and sports-related activities is affected by geographical, generational, and institutional factors. IMG focuses on comprehensively understanding the process that consumers go through to view or attend a sporting event. It then connects with consumers at each and every stage. After viewing the video featuring IMG Worldwide, answer the following questions: 5-15 5-16 5-17 What “product” is a college athletics department selling? Discuss how a college sports fan might go through the buying decision process, providing examples for each stage. Of the four sets of factors affecting consumer behavior, which most strongly affects how college sports fans consume a sport? 184 | parT 2 Understanding the Marketplace and Customer Value Company Case GoldieBlox: Swimming Upstream against Consumer Perceptions When Debbie Sterling was in high school, her math teacher recognized her quantitative talent and suggested she pursue engineering as a college major. At the time, Sterling couldn’t figure out why her teacher thought she should drive trains for a living. But the suggestion was enough to get her started down the right path. After four years at Stanford, Sterling graduated with a degree in mechanical engineering. But throughout the course of her studies, Sterling noticed the lack of women in her engineering program—a characteristic phenomenon in a field where men outnumber women 86 percent to 14 percent. This observation ignited an obsession in Sterling. She set out on a mission to inspire a future generation of female engineers by disrupting the pink aisle in toy stores. During the past few years, among other accolades, Sterling has been named Time’s “Person of the Moment” and one of Business Insider’s “30 Women Who Are Changing the World.” Why? Because Sterling is the founder and CEO of GoldieBlox, a toy company that is making Sterling’s mission a reality. A Different Kind of Toy Company After graduating, Sterling started researching everything from childhood development to gender roles. She discovered that in order to gain interest in and pursue a given field, a person must be exposed to the right inputs at an early age. This fact became particularly bothersome as Sterling became more and more familiar with the contents of the average toy aisle in stores. Toys for girls were in the pink aisle, dominated by dolls, stuffed animals, and princesses, whereas toys for boys were found in the blue aisle, filled with macho action figures, various toy weapons, and a huge variety of building block sets. Most experts agree that the toys served up to young girls do little to encourage an interest in STEM subjects (science, technology, engineering, and math). This knowledge led Sterling to develop a plan to create a different kind of toy for girls. As she began developing ideas for toys, another research finding struck her—girls possess stellar verbal skills and tend to learn better by interacting with stories. That insight was instrumental in the creation of the GoldieBlox line of construction sets. Part erector set and part storybook, the combination was designed to engage girls through their verbal skills and encourage them to build through narratives that feature the adventures of Goldie, a freckled-faced blonde girl donning overalls and a tool belt. Although Goldie comes off as a bit of a tomboy, she’s still girlish. Skinny, blonde, and cute, she favors pinks and purples. The toys and stories feature animals and ribbons, and characters are more likely to help others than to succeed on their own. After her innovative toy sets received little interest at the American International Toy Fair in New York City, Sterling started her own company. That decision sparked more interest than she could have ever imagined. To raise the $150,000 needed for the first round of production, Sterling launched a Kickstarter crowdsourced funding campaign. Her funding goal was reached in just four days, and the funding topped out at $285,000. With little to spend on traditional advertising, Sterling first promoted her inventive toys with some YouTube ads, including “Princess Machine,” featuring young girls who take their stereotypically girly toys and create a sophisticated Rube Goldberg device. That video went viral to the tune of 8 million views in little more than a week. Shortly thereafter, GoldieBlox’s first two products became Amazon’s top two selling toys during the industry’s busiest month of December. And if all that wasn’t enough, GoldieBlox beat out 15,000 contenders in Intuit’s “Small Business Big Game” Super Bowl ad contest, winning a $4 million spot during the big game. Today, only a few years after the launch of its first product, GoldieBlox’s toys are sold at Target, Toys”R”Us, Amazon, and 6,000 other retailers worldwide. The brand features dozens of play sets designed for girls ages 3 through 11, the Bloxtown interactive website and app, a collection of original music videos, a Goldie action figure, and a “More Than Just a Princess” line of T-shirts and hoodies. GoldieBlox has won numerous industry awards, and its toys have succeeded in raising awareness about the lack of women in technical and scientific fields as well as the issues associated with the traditional pink aisle. All That Glitters Is Not Goldie With all this success, you would think that GoldieBlox would be heralded by anyone and everyone wanting to change gender-based stereotypes in toys. But GoldieBlox has sparked substantial debate over whether it is really helping the cause it claims to be serving. The opposition, led by many feminist voices, claims that GoldieBox’s approach is little more than window dressing. The debate got really ugly after the launch of GoldieBlox and the Parade Float, a construction set based on a new challenge faced by Goldie and her friends—to create a float to transport the winner of a beauty pageant. “You cannot create a toy meant to break down stereotypes when you start off with the ideal that ‘we know all girls love princesses,’” argues author Melissa Atkins Wardy. Those in the opposition camp call for toys that are gender-neutral. “When we use princess culture, pinkification, and beauty norms to sell STEM toys to girls and fool ourselves that we are amazing and progressive and raising an incredible generation of female engineers, we continue to sell our girls short,” says Wardy. Additionally, although the toys are designed to stir interest in girls by having them build and create, critics have raised concerns that GoldieBlox toys are too simplistic. But Sterling is quick to respond to all such arguments and show that GoldieBlox isn’t just trying to hook parents with a gimmick that doesn’t deliver. “There’s nothing wrong with being a princess,” says the 32-year-old entrepreneur. “We just think girls can build their own castles too.” This idea is backed by many advocates who recognize that to disrupt the pink aisle, you can’t start out by trying to obliterate it. To influence through play the types of hobbies and academic fields that women pursue, a company first must penetrate a very competitive market. Creating toys that are void of things that girls find appealing will only send girls scrambling for the nearest Bratz or Disney princess doll. GoldieBlox toys may incorporate traditional gender stereotypes, but they tweak and reframe them. GoldieBlox spent years researching gender differences, seeking significant input from Harvard neuroscientists, and observing children’s play patterns. “Our stories leverage girls’ advanced verbal skills to help develop and build self-confidence in their spatial skills,” Sterling asserts. Besides, Sterling was just getting started. Today, the GoldieBlox portfolio is not only growing in number of play sets, it’s becoming more diverse with three new characters who ChapTer 5 have joined Goldie to create a team to which just about any girl can relate. There’s Ruby Rails, a popular African American girl who is a whiz at coding; Valentina Voltz, a Hispanic engineer; and Li Gravity, Goldie’s long-time neighbor and best friend who is an expert at physics who knows how to apply the laws of his favorite science, performing stunts with superhero-like precision. Together, these characters take girls on a variety of adventures that go way beyond princess escapades— such as skydiving, ziplining, and auto racing. Then there’s the “Invention Mansion,” the play set Sterling refers to as the “anti-dollhouse”—a 300-piece play set featuring a “Hacker Hideway” that can be figured and reconfigured into hundreds of different formats. Whether or not the two sides to the debate will resolve their differences in trying to achieve the same goal, there is no question that GoldieBlox has taken the toy industry by storm. If the most recent annual North American International Toy Fair is any indication, a little GoldieBlox seems to have rubbed off on just about every other toy company. The first year that GoldieBlox set up its booth at the trade show, the tech toy section was a wasteland. Today, nearly every booth features STEM toys, robots, and a lot of not-so-pink products targeted at girls. Although clearly motivated to put an end to the stereotypes that have long been generated by the toy and entertainment industries, Sterling makes it clear that the goal is to become a multiplatform character brand à la Disney. “We want to be the brand that kids are whining for.” If the next few years are anything like GoldieBlox’s first few, it’s easy to envision a new kind of toy aisle at the local supercenter—one that heavily features GoldieBlox’s multiplatform brand. | Consumer Markets and Buyer Behavior 185 Questions for Discussion 5-18 Of the factors that influence consumer behavior, which category or categories (cultural, social, personal, or psychological) best explain the existence of a blue toy aisle and a pink toy aisle? Why? 5-19 Choose the specific factor (for example, culture, family, occupation, attitudes) that most accounts for the blue/pink toy aisle phenomenon. Explain the challenges faced by GoldieBlox in attempting to market toys that “swim against the stream” or push back against the forces of that factor. 5-20 To what degree is GoldieBlox bucking the blue/pink toy aisle system? 5-21 If GoldieBlox succeeds at selling lots of its toys, will that accomplish the mission of increasing the presence of females in the field of engineering? Sources: John Kell, “How Toy Startup GoldieBlox Made Diversity a Priority,” Fortune, April 1, 2016, www.fortune.com/2016/04/01/ goldieblox-toy-startup-diversity/; “Hottest Toys of 2016: On the Ground with GoldieBlox at the Toy Fair,” GeekGirlRising, www.geekgirlrising. com/ hottest-toys-of-2016-focus-on-steam-ggr-and-goldieblox-onthe-ground-at-ny-toy-fair/, accessed June, 2016; Katy Waldman, “GoldieBlox: Great for Girls? Terrible for Girls? Or Just Selling Toys?” Slate, November 26, 2013, www.slate.com/blogs/xx_factor/2013/11/26/ goldieblox_disrupting_the_pink_aisle_or_just_selling_toys.html; Jennifer Reingold, “Watch Out Disney: This Toy Startup’s Coming for You,” Fortune, November 26, 2014, http://fortune.com/2014/11/26/goldieblox-toy-startup/; and information from www.goldieblox.com, accessed June 2016. MyLab Marketing Go to mymktlab.com for the following Assisted-graded writing questions: 5-22 Explain the stages of the consumer buyer decision process and describe how you or your family went through this process to make a recent purchase. 5-23 Discuss how lifestyle influences consumers’ buying behavior and how marketers measure lifestyle. Chapter preview 6 PART 1: Defining Marketing and the Marketing Process (Chapters 1–2) PART 2: Understanding the Marketplace and Consumer Value (Chapters 3–6) PART 3: Designing a Customer Value–Driven Strategy and Mix (Chapters 7–17) PART 4: Extending Marketing (Chapters 18–20) Business Markets and Business Buyer Behavior In the previous chapter, you studied final consumer buying behavior and factors that influence it. In this chapter, we’ll do the same for business customers— those that buy goods and services for use in producing their own products and services or for resale to others. As when selling to final buyers, firms marketing to businesses must engage business customers and build profitable relationships with them by creating superior customer value. To start, let’s look at IBM. Although the IBM brand is very familiar to most final consumers, nearly all of the company’s almost $100 billion in annual revenues comes from business and institutional customers. More than just “selling” its products and services to B-to-B customers, IBM succeeds by working closely and deeply with them to develop complete solutions to their information and data analytics problems. From its lofty customer-solutions mission to the “boots on the ground,” IBM wants to become a strategic information and insights partner with its business customers. IBM: The World’s Most Valuable Business-to-Business Brand I BM is a household word to most of us. However, throughout Solving customer problems has always been a hallmark its long history, IBM’s fortunes have come not from final conof IBM’s strategy, culture, and success. Over the years, IBM sumers but from large business and institutional customers. has transformed itself time and again to meet changing cus“Big Blue”—as it’s often called—is the quintessential B-to-B tomer needs. For example, two decades ago, IBM was known brand. In fact, corporate brand tracker Millward Brown remostly for peddling mainframe computers, PCs, and other cently named IBM the most valuable B-to-B brand in the world. basic computer system components. Back then, if you’d asked Valued at $94 billion, IBM is worth about 50 percent more than top managers at Big Blue what their mission was, they’d have the number-two B-to-B brand, giant GE. Even more impresanswered, “To sell computer hardware and software.” sive, IBM has survived and thrived for more than 100 years, By the early 1990s, however, IBM’s sales had plateaued. something no other Fortune top-25 company has managed. To learn why, IBM sent its top managers to meet face-to-face In some ways, IBM selling B-to-B is like P&G selling to with important customers—what it called “bear-hugging final consumers. It requires a deep-down understanding of customers”—to relearn about their problems and priorities. The customer  needs and a customermanagers learned that in the new driven marketing strategy that connected digital age, companies IBM has become the world’s most engages customers and delivers face a perplexing array of data and valuable business-to-business brand by superior customer value. But that’s information technologies. Today’s solving customer problems and helping where most of the similarities end. customers don’t need just comRather than selling small-ticket puters and software. Instead, they them to “outthink” their challenges, purchases to masses of individual need total solutions to ever-morecompetitors, and limits in the new consumers, IBM sells complex bigbewildering data, information, and cognitive era. ticket purchases to a smaller set analytics problems. of much bigger buyers, with each This realization led to a fundapurchase involving perhaps dozens of decision makers. So mental transformation of IBM’s business. Now, if you ask IBM IBM’s B-to-B emphasis is less on selling to customers and more managers to define the company’s mission, they’ll tell you, “We on partnering with them to help solve their complex informadeliver insights and solutions to customers’ data and information and analytics problems. tion technology problems.” Under this new customer-solutions Chapter 6 | Business Markets and Business Buyer Behavior 187 focus, IBM shifted emphasis away from mainframes and computer hardware. Instead, it added a full slate of integrated information technology, software, and business consulting services. Most recently, to meet customers’ ever-changing digital needs, IBM has shifted even more deeply into data analytics, cloud computing, cybersecurity, social networking, and mobile technology solutions. Thus, customers can still buy mainframe computers from IBM, but they are more likely to buy solutions involving a complex, integrated mix of hardware, software, services, consulting, and advice across collaborative online, mobile, and social networks. The transformed IBM now works arm-in-arm with B-to-B customers on everything from assessing, planning, designing, and implementing their data and analytics systems to Business-to-business marketing: IBM’s “Cognitive Business: Outthink” campaign positions the company as one that works closely with business customers to help actually running those systems for customers. them thrive in the new “cognitive era.” According to IBM CEO Ginni Rometty, the NurPhoto/Getty Images company’s focus on working closely with customGupta finally sold Vodafone—the same people who vowed ers and changing to meet their needs is what makes IBM special. never to do business with IBM—on a gigantic five-year, $600 “We’re 104 years old,” she says. “The reason we’re the only tech million turnkey contract to handle everything from Vodafone’s company still here at 104 is how many times we’ve transformed.” customer service to its finances. Gupta became such a wellIBM’s customer-solutions focus is summed up by its new marketknown figure at Vodafone’s offices in Mumbai that many ing campaign: “Cognitive Business: Outthink.” The campaign popeople there were surprised that his badge said “IBM” and not sitions IBM as a company that helps customers to “outthink your “Vodafone.” Gupta thrives on rooting out customer problems challenges, competitors, and limits” in the new “cognitive era.” to solve. “You have to understand [customers’] pain points,” he But good B-to-B marketing at IBM goes well beyond a explains. “And they are not going to spell them out.” high-level customer-solutions mission, sweeping transformaFlush with success, Gupta set his sights on still bigger targets. tions, and imaginative positioning campaigns. At the most He realized that many big Indian telecoms were so busy simply basic level, it involves “boots on the ground”—IBM teams and hammering out their basic back-office operating systems that individuals developing close day-in, day-out working relationthey had little money and brainpower left for strategy, branding, ships with customers. and marketing. However, IBM had all the technology and experConsider the classic example of IBMer Vivek Gupta and tise required to build and maintain such systems. What if IBM how he became IBM’s top salesperson in its fastest-growing were to take over managing the system innards, freeing the cusindustry (telecommunications) and fastest-growing market tomer to attend to strategy and marketing? Gupta proposed just (India). When Gupta first joined IBM some years ago, he strugsuch a novel solution to Bharti Airtel, then a relative newcomer gled to gain a foothold in a market where more than 70 percent to India’s wireless industry. The result: IBM now runs the bulk of of corporations are family controlled and where relationships, Bharti Airtel’s back-office operations, while Bharti Airtel focuses trust, and family ties trump almost everything else. In addition on taking care of its own customers. In the first five years, the deal to his formal IBM training, Gupta launched his own extensive produced an incredible $1 billion for IBM. Bharti Airtel is now investigative effort, getting to know people, learning about IBM India’s wireless industry leader and the deal is a staple “how-to” and its customers, and developing a rock-solid knowledge of case study in IBM’s emerging markets sales training. how the company’s products and services fit customer needs. The IBM and Vivek Gupta stories highlight the essentials of When Gupta first approached potential customer B-to-B marketing success. It starts with a customer-focused misVodafone—the dominant firm in India’s exploding mobile sion that translates down to individuals working closely with phone market—the managing director there told him, “I don’t customers to find complete solutions. Gupta doesn’t just sell IBM do any business with IBM, and I don’t intend to.” But the quicomputer hardware, software, and analytics. He works with cusetly determined Gupta kept at it, getting to know Vodafone’s tomers, feels their pain, finds solutions, and sells the IBM systems key decision makers and patiently listening, observing, and and people that will deliver results for the customer. “It’s at once identifying how IBM might be able to help Vodafone succeed in radically simple and just plain radical,” says an analyst. “He wants its volatile and competitive markets. to convince you that IBM can run your business—your entire busiGupta came to know more about Vodafone than many ness, save for strategy and marketing—better than you can.”1 people who worked there. It took him nearly four years, but 188 | part 2 Understanding the Marketplace and Customer Value Objectives Outline Objective 6-1 Define the business market and explain how business markets differ from consumer markets. Business Markets Objective 6-2 (pp 188–190) Identify the major factors that influence business buyer behavior. Business Buyer Behavior Objective 6-3 (pp 190–195) List and define the steps in the business buying decision process. The Business Buyer Decision Process Objective 6-4 (pp 195–197) Discuss how new information technologies and online, mobile, and social media have changed business-to-business marketing. Engaging Business Buyers with Digital and Social Marketing Objective 6-5 (pp 197–199) Compare the institutional and government markets and explain how institutional and government buyers make their buying decisions. Institutional and Government Markets Business buyer behavior The buying behavior of organizations that buy goods and services for use in the production of other products and services that are sold, rented, or supplied to others. Business buying process The decision process by which business buyers determine which products and services their organizations need to purchase and then find, evaluate, and choose among alternative suppliers and brands. Business markets operate Author Comment “behind the scenes” to most consumers. Most of the things you buy involve many sets of business purchases before you ever see them. (pp 199–203) In OnE wAy OR another, most large companies sell to other organizations. Companies such as IBM, Boeing, DuPont, Caterpillar, and countless other firms sell most of their products to other businesses. Even large consumer products companies, which make products used by final consumers, must first sell their products to other businesses. For example, General Mills makes many familiar consumer brands—Big G cereals (Cheerios, Wheaties, Trix, Chex, Total, Fiber One), baking products (Pillsbury, Betty Crocker, Bisquick, Gold Medal flour), snacks (Nature Valley, Bugles, Chex Mix), Yoplait yogurt, Häagen-Dazs ice cream, and many others. But to sell these products to consumers, General Mills must first sell them to its wholesaler and retailer customers, who in turn serve the consumer market. Business buyer behavior refers to the buying behavior of organizations that buy goods and services for use in the production of other products and services that are sold, rented, or supplied to others. It also includes the behavior of retailing and wholesaling firms that acquire goods to resell or rent to others at a profit. In the business buying process, business buyers determine which products and services their organizations need to purchase and then find, evaluate, and choose among alternative suppliers and brands. Businessto-business (B-to-B) marketers must do their best to understand business markets and business buyer behavior. Then, like businesses that sell to final buyers, they must engage business customers and build profitable relationships with them by creating superior customer value. Business Markets The business market is huge. In fact, business markets involve far more dollars and items than do consumer markets. For example, think about the large number of business transactions involved in the production and sale of a single set of Goodyear tires. Various suppliers sell Goodyear the rubber, steel, equipment, and other goods that it needs to produce tires. Goodyear then sells the finished tires to retailers, which in turn sell them to consumers. Thus, many sets of business purchases were made for only one set of consumer purchases. In addition, Goodyear sells tires as original equipment to manufacturers that install them on new vehicles and as replacement tires to companies that maintain their own fleets of company cars, trucks, or other vehicles. Chapter 6 | Business Markets and Business Buyer Behavior 189 In some ways, business markets are similar to consumer markets. Both involve people who assume buying roles and make purchase decisions to satisfy needs. However, business markets differ in many ways from consumer markets. The main differences are in market structure and demand, the nature of the buying unit, and the types of decisions and the decision process involved. Market Structure and Demand The business marketer normally deals with far fewer but far larger buyers than the consumer marketer does. Even in large business markets, a few buyers often account for most of the purchasing. For example, when Goodyear sells replacement tires to final consumers, its potential market includes millions of car owners around the world. But its fate in business markets depends on getting orders from only a handful of large automakers. Further, many business markets have inelastic and more fluctuating demand. The total demand for many business products is not much affected by price changes, especially in the short run. A drop in the price of leather will not cause shoe manufacturers to buy much more leather unless it results in lower shoe prices that, in turn, increase consumer demand for shoes. And the demand for many business goods and services tends to change more— Derived demand and more quickly—than does the demand for consumer goods and services. A small perBusiness demand that ultimately comes centage increase in consumer demand can cause large increases in business demand. from (derives from) the demand for consumer goods. Finally, business demand is derived demand—it ultimately derives from the demand for consumer goods. For example, demand for Gore-Tex fabrics derives from consumer purchases of outdoor apparel brands made from Gore-Tex. And consumers buy Corning’s Gorilla Glass only when they buy laptops, tablets, and smartphones with Gorilla Glass screens from producers such as Apple, Samsung, Lenovo, Dell, HP, Sony, and Microsoft. If consumer demand for these end products increases, so does the demand for the Gore-Tex fabrics or Gorilla Glass they contain. Therefore, B-to-B marketers sometimes promote their products directly to final consumers to increase For example, Corning’s longbusiness demand. running “Tough, yet beautiful” consumer marketing campaign features a family of gorillas who are out to convince final buyers that it makes sense to choose digital devices with screens made of Gorilla Glass rather than a less-tough competitor. Such advertising benefits both Corning and the partner brands that incorporate Derived demand: Corning’s long-running “Tough, yet beautiful” its durable, scratch-resistant glass. Thanks in part to the consumer marketing campaign convinces final users that it makes consumer marketing campaign, Corning’s Gorilla Glass sense to buy devices with screens made of Gorilla Glass, to the benefit of both Corning and its partner brands. has to date been featured in more than 40 major brands Photo courtesy Corning Incorporated. and more than 4.5 billion devices worldwide.2 Nature of the Buying Unit Compared with consumer purchases, a business purchase usually involves more decision participants and a more professional purchasing effort. Often, business buying is done by trained purchasing agents who spend their working lives learning how to buy better. The more complex the purchase, the more likely it is that several people will participate in the decision-making process. Buying committees composed of technical experts and top management are common in the buying of major goods. Beyond this, B-to-B marketers now face a new breed of higher-level, better-trained supply managers. Therefore, companies must have well-trained marketers and salespeople to deal with these well-trained buyers. Types of Decisions and the Decision Process Business buyers usually face more complex buying decisions than do consumer buyers. Business purchases often involve large sums of money, complex technical and economic considerations, and interactions among people at many levels of the buyer’s organization. The business buying process also tends to be longer and more formalized. Large 190 | part 2 Understanding the Marketplace and Customer Value business purchases usually call for detailed product specifications, written purchase orders, careful supplier searches, and formal approval. Finally, in the business buying process, the buyer and seller are often much more dependent on each other. B-to-B marketers may roll up their sleeves and work closely with customers during all stages of the buying process—from helping customers define problems to finding solutions to supporting after-sale operation. In the short run, sales go to suppliers who meet buyers’ immediate product and service needs. In the long run, however, business-to-business marketers keep customers by meeting current needs and by partnering with them to help solve their problems. 3  For example, consider agricultural and food giant Cargill’s Cocoa & Chocolate division: The business buyer decision process: Cargill’s Cocoa & Chocolate division does more than sell it products to consumers. It partners closely with customers to help them use its products to serve their own customers better and more profitably. Cargill Supplier development Systematic development of networks of supplier-partners to ensure an appropriate and dependable supply of products and materials for use in making products or reselling them to others. Business buying decisions Author Comment can range from routine to incredibly complex, involving only a few or very many decision makers and buying influences. Cargill’s Cocoa & Chocolate division sells cocoa and chocolate products to business customers around the world, including giants such as Mars and Mondelēz. But its success lies in doing much more than just selling its products to such customers. Instead, Cargill partners closely them, applying its deep expertise to help customers use its products to serve their own customers better and more profitably. For example, Cargill’s researchers keep customers up to date on the latest global consumer food trends. Its research and development teams give customers personalized product development support. And its technical services specialists provide help in resolving customer ingredient and applications challenges. “Whether you need laboratory or pilot work on finished products or help with production start-up,” says the company, “Cargill’s applications experts can assist you—from developing new end-product recipes, achieving better pricing for your products, or getting to market more quickly.” Thus, more than just selling cocoa and chocolate, Cargill sells customer success in using those products. Its goal is to “[apply] our deep chocolate expertise and broad food knowledge…to provide you with more opportunities to grow your business across a wide range of cocoa and chocolate products and applications . . . helping you thrive, today and into the future.”4 As in Cargill’s case, in recent years, relationships between most customers and suppliers have been changing from downright adversarial to close and chummy. In fact, many customer companies are now practicing supplier development, systematically developing networks of supplier-partners to ensure a dependable supply of the products and materials that they use in making their own products or reselling to others. For example, Walmart doesn’t have a “Purchasing Department”; it has a “Supplier Development Department.” The giant retailer knows that it can’t just rely on spot suppliers who might be available when needed. Instead, Walmart manages a huge network of supplier-partners that help provide the hundreds of billions of dollars of goods that it sells to its customers each year. Business Buyer Behavior At the most basic level, marketers want to know how business buyers will respond to variFigure 6.1 shows a model of business buyer behavior. In this ous marketing stimuli. model, marketing and other stimuli affect the buying organization and produce certain buyer responses. To design good marketing strategies, marketers must understand what happens within the organization to turn stimuli into purchase responses. Within the organization, buying activity consists of two major parts: the buying center, composed of all the people involved in the buying decision, and the buying decision process. The model shows that the buying center and the buying decision process are influenced by internal organizational, interpersonal, and individual factors as well as external environmental factors. The model in Figure 6.1 suggests four questions about business buyer behavior: What buying decisions do business buyers make? Who participates in the business buying process? What are the major influences on buyers? How do business buyers make their buying decisions? Chapter 6 FIgure | 6.1 A Model of Business Buyer Behavior In some ways, business markets are similar to consumer markets—this model looks a lot like the model of consumer buyer behavior presented in Figure 5.1. But there are some major differences, especially in the nature of the buying unit, the types of decisions made, and the decision process. Straight rebuy A business buying situation in which the buyer routinely reorders something without modifications. Modified rebuy A business buying situation in which the buyer wants to modify product specifications, prices, terms, or suppliers. New task A business buying situation in which the buyer purchases a product or service for the first time. Systems selling (or solutions selling) Buying a packaged solution to a problem from a single seller, thus avoiding all the separate decisions involved in a complex buying situation. | Business Markets and Business Buyer Behavior The environment Marketing stimuli Other stimuli Product Economic Price Technological Place Political Promotion Cultural Competitive The buying organization Buyer responses The buying center Product or service choice Buying decision process (Interpersonal and individual influences) (Organizational influences) Supplier choice Order quantities Delivery terms and times Service terms Payment Major Types of Buying Situations There are three major types of buying situations.5 In a straight rebuy, the buyer reorders something without any modifications. It is usually handled on a routine basis by the purchasing department. To keep the business, “in” suppliers try to maintain customer engagement and product and service quality. “Out” suppliers try to find new ways to add value or exploit dissatisfaction so that the buyer will consider them. In a modified rebuy, the buyer wants to modify product specifications, prices, terms, or suppliers. The “in” suppliers may become nervous and feel pressured to put their best foot forward to protect an account. “Out” suppliers may see the modified rebuy situation as an opportunity to make a better offer and gain new business. A company buying a product or service for the first time faces a new task situation. In such cases, the greater the cost or risk, the larger the number of decision participants and the greater the company’s efforts to collect information. The new task situation is the marketer’s greatest opportunity and challenge. The marketer not only tries to reach as many key buying influences as possible but also provides help and information. The buyer makes the fewest decisions in the straight rebuy and the most in the new task decision. Many business buyers prefer to buy a complete solution to a problem from a single seller rather than buying separate products and services from several suppliers and putting them together. The sale often goes to the firm that engages business customers deeply and provides the most complete system for meeting a customer’s needs and solving its problems. Such systems selling (or solutions selling) is often a key business marketing strategy for winning and holding accounts. Consider IBM and its customer Six Flags Entertainment Corporation:6 Solutions selling: Delivering a fun and safe experience for Six Flags guests requires careful and effective management of thousands of park assets across its 19 regional theme parks. IBM works hand in hand with Six Flags to provide not just software but a complete solution. Matthew Imaging/Getty Images 191 Six Flags operates 19 regional theme parks across North America featuring exciting rides and water attractions, world-class roller coasters, and special shows and concerts. To deliver a fun and safe experience for guests, Six Flags must carefully and effectively manage thousands of park assets—from rides and equipment to buildings and other facilities. Six Flags needed a tool for managing all those assets efficiently and effectively across its far-flung collection of parks. So it turned to IBM, which has software—called Maximo Asset Management software—that handles that very problem well. But IBM didn’t just hand the software over to Six Flags with best wishes for happy implementation. Instead, IBM’s Maximo Professional 192 | part 2 Understanding the Marketplace and Customer Value Services group combined the software with an entire set of services designed to get and keep the software up and running. IBM worked hand in hand with Six Flags to customize the application and strategically implement and run it across Six Flags’s far-flung facilities, along with on-site immersion training and planning workshops. Thus, IBM isn’t just selling the software; it’s selling a complete solution to Six Flags’s complex asset management problem. Participants in the Business Buying Process Buying center All the individuals and units that play a role in the purchase decision-making process. users Members of the buying organization who will actually use the purchased product or service. Influencers People in an organization’s buying center who affect the buying decision; they often help define specifications and also provide information for evaluating alternatives. Buyers People in an organization’s buying center who make an actual purchase. Deciders People in an organization’s buying center who have formal or informal power to select or approve the final suppliers. gatekeepers People in an organization’s buying center who control the flow of information to others. Who does the buying of the trillions of dollars’ worth of goods and services needed by business organizations? The decision-making unit of a buying organization is called its buying center. It consists of all the individuals and units that play a role in the business purchase decision-making process. This group includes the actual users of the product or service, those who make the buying decision, those who influence the buying decision, those who do the actual buying, and those who control buying information. The buying center includes all members of the organization who play any of five roles in the purchase decision process.7 • Users are members of the organization who will use the product or service. In many cases, users initiate the buying proposal and help define product specifications. • Influencers often help define specifications and also provide information for evaluating alternatives. Technical personnel are particularly important influencers. • Buyers have formal authority to select the supplier and arrange terms of purchase. Buyers may help shape product specifications, but their major role is in selecting vendors and negotiating. In more complex purchases, buyers might include high-level officers participating in the negotiations. • Deciders have formal or informal power to select or approve the final suppliers. In routine buying, the buyers are often the deciders, or at least the approvers. • Gatekeepers control the flow of information to others. For example, purchasing agents often have authority to prevent salespersons from seeing users or deciders. Other gatekeepers include technical personnel and even personal secretaries. The buying center is not a fixed and formally identified unit within the buying organization. It is a set of buying roles assumed by different people for different purchases. Within the organization, the size and makeup of the buying center will vary for different products and for different buying situations. For some routine purchases, one person—say, a purchasing agent—may assume all the buying center roles and serve as the only person involved in the buying decision. For more complex purchases in large companies, the buying center may include 20, 30, or even more people from different levels and departments in the organization.8 The buying center concept presents a major marketing challenge. The business marketer must learn who participates in the decision, each participant’s relative influence, and what evaluation criteria each decision participant uses. This can be difficult. The buying center usually includes some obvious participants who are involved formally in the buying decision. For example, the decision to buy a corporate jet will probably involve the company’s CEO, the chief pilot, a purchasing agent, some legal staff, a member of top management, and others formally charged with the buying decision. It may also involve less obvious, informal participants, some of whom may actually make or strongly affect the buying decision. Sometimes, even the people in the buying center are not aware of all the buying participants. For example, the decision about which corporate jet to buy may actually be made by a corporate board member who has an interest in flying and who knows a lot about airplanes. This board member may work behind the scenes to sway the decision. Many business buying decisions result from the complex interactions of everchanging buying center participants. Major Influences on Business Buyers Business buyers are subject to many influences when they make their buying decisions. Some marketers assume that the major influences are economic. They think buyers will favor the supplier who offers the lowest price or the best product or the most service. They concentrate on offering strong economic benefits to buyers. Such economic factors are very Chapter 6 | Business Markets and Business Buyer Behavior 193 important to most buyers, especially in a tough economy. However, business buyers actually respond to both economic and personal factors. Far from being cold, calculating, and impersonal, business buyers are human and social as well. They react to both reason and emotion. Today, most B-to-B marketers recognize that emotion plays an important role in business buying decisions. Consider this example:9 Emotions play a role in business buying. Ads like this one from USG’s “It’s your world. Build It.” corporate marketing campaign pack a decidedly emotional wallop. USG FIgure | 6.2 A Model of Business Buyer Behavior Figure 6.2 lists various groups of influences on business buyers—environmental, organizational, interpersonal, and individual. Business buyers are heavily influenced by factors in the current and expected economic environment, such as the level of primary demand, the economic outlook, and the cost of money. Another environmental factor is the supply of key materials. Business buyers also are affected by technological, political, and competitive developments in the environment. Finally, culture and customs can strongly influence business buyer reactions to the marketer’s behavior and strategies, especially in the international marketing environment (see Real Marketing 6.1). The business buyer must watch these factors, determine how they will affect the buyer, and try to turn these challenges into opportunities. Organizational factors are also important. Each buying organization has its own objectives, strategies, structure, systems, and procedures, and the business marketer must understand these factors well. Questions such as these arise: How many people are involved in the buying decision? Who are they? What are their evaluative criteria? What are the company’s policies and limits on its buyers? The buying center usually includes many participants who influence each other, so interpersonal factors also influence the business buying process. However, it is often difficult to assess such interpersonal factors and group dynamics. Buying center participants do not wear tags that label them as “key decision maker” or “not influential.” Nor do buying center participants with the highest rank always have the most influence. Environmental Like consumer buying decisions in Figure 5.2, business buying decisions are affected by an incredibly complex combination of environmental, interpersonal, and individual influences, but with an extra layer of organizational factors thrown into the mix. USG Corporation is a leading manufacturer of gypsum wallboard and other building materials for the construction and remodeling industries. Given its construction contractor, architect, and builder audience, you might expect USG’s B-to-B ads to focus heavily on performance features and benefits, such as strength, impact resistance, ease of installation, and costs. USG does promote these benefits. However, its most recent corporate marketing campaign, built around its new “It’s Your World. Build It.” positioning, packs a decidedly more emotional wallop. The campaign focuses not on how USG’s products perform but on what the company and its products stand for and mean. For example, one split-image ad shows excited children building a sand castle on one side and a worker at a construction site, hard hat in hand, on the other. The headline states: “As children we imagine great kingdoms. Build them.” As one analyst concludes, “Building materials and emotion aren’t something you would link immediately, but the [USG] campaign captures a powerful sentiment about the human need to build.” The economy Supply conditions Technology Politics/regulation Competition Culture and customs Organizational Objectives Strategies Structure Systems Procedures Interpersonal Influence Expertise Authority Dynamics Individual Age/education Job position Motives Personality Preferences Buying style Buyers Real Marketing 194 | part 2 Understanding the Marketplace and Customer Value 6.1 International Marketing Manners Picture this: Consolidated Amalgamation Inc. thinks it’s time that the rest of the world enjoyed the same fine products it has offered American consumers for two generations. It dispatches Vice President Harry E. Slicksmile to Europe, Asia, and Africa to explore the territory. Mr. Slicksmile stops first in London, where he makes short work of some bankers—he rings them up on the phone. He handles Parisians with similar ease: After securing a table at La Tour d’Argent, he greets his luncheon guest, the director of an industrial engineering firm, with the words, “Just call me Harry, Jacques.” In Germany, Mr. Slicksmile is a powerhouse. Whisking through a flashy multimedia presentation on his iPad and an ultra-compact projector, he shows ’em that this Georgia boy knows how to make a buck. Mr. Slicksmile next swings through Saudi Arabia, where he coolly presents a potential client with a multimillion-dollar proposal in a classy pigskin binder. Heading on to Moscow, Harry strikes up a conversation with the Japanese businessman sitting next to him on the plane. Harry compliments the man’s cuff links several times, recognizing him as a man of importance. As the two say good-bye, the man gifts his cuff links to Harry, presents his business card with both hands, and bows at the waist. Harry places his hand firmly on the man’s back to express sincere thanks, then slips his own business card into the man’s shirt pocket. Harry takes Russia by storm as he meets with the CEO of a start-up tech firm. Feeling very at ease with the Russia executive, Harry sheds his suit coat, leans back, crosses one foot over the other knee, and slips his hands into his pockets. At his next stop in Beijing, China, Harry talks business over lunch with a group of Chinese executives. After completing the meal, he drops his chopsticks into his bowl of rice and presents each guest with a gift as a gesture of his desire to do business with them—an elegant Tiffany clock. A great tour, sure to generate a pile of orders, right? Wrong. Six months later, Consolidated Amalgamation has nothing to show for the extended trip but a stack of bills. Abroad, they weren’t wild about Harry. This hypothetical case has been exaggerated for emphasis. Americans are seldom such dolts. But experts say success in international business has a lot to do with knowing the territory and its people. By learning English and extending themselves in other ways, the world’s business leaders have met Americans more than halfway. In contrast, Americans too often do little except assume that others will march to their music. “We want things to be ‘American’ when we travel. Fast. Convenient. Easy. So we become ‘ugly Americans’ by demanding that others change,” says one American world trade expert. “I think more business would be done if we tried harder.” Poor Harry tried, all right, but in all the wrong ways. The British do not, as a rule, make deals over the phone as much as Americans do. It’s not so much a “cultural” difference as a difference in approach. A proper Frenchman neither likes instant familiarity nor refers to strangers by their first names. “That poor fellow, Jacques, probably wouldn’t show anything, but he’d not be pleased,” explains an expert on French business practices. Harry’s flashy presentation would likely have been a flop with the Germans, who dislike overstatement and showiness. And to the Saudi Arabians, the pigskin binder would have been considered vile. An American salesperson who actually presented such a binder was unceremoniously tossed out of the country and his company was blacklisted from working with Saudi businesses. Harry also committed numerous faux pas with his new Japanese acquaintance. Because the Japanese strive to please others, especially when someone admires their possessions, the executive likely felt obligated rather than pleased to give up his cuff links. Harry’s “hand on the back” probably labeled him as disrespectful and presumptuous. Japan, like many Asian countries, is a “no-contact culture” in which even shaking hands is a strange experience. Harry made matters worse with his casual treatment of the business cards. Japanese people revere the business card as an extension of self and as an indicator of rank. They do not hand it to people; they present it—with both hands. Things didn’t go well in Russia, either. Russian businesspeople maintain a conservative, professional appearance, with dark suits and dress shoes. Taking one’s coat off during negotiations of any kind is taken as a sign of weakness. Placing hands in one’s pockets is considered rude, and showing the bottoms of one’s shoes is a disgusting gesture. Similarly, in China, Harry casually dropping his chopsticks could have been misinterpreted as an act of aggression. Stabbing chopsticks into a bowl of rice and leaving them signifies death to the Chinese. International marketing manners: To compete successfully in global markets, companies must help their managers to understand the needs, customs, and cultures of international business buyers. ©David Crockett/Shutterstock Chapter 6 The clocks Harry offered as gifts might have confirmed such dark intentions. To “give a clock” in Chinese sounds the same as “seeing someone off to his end.” Thus, to compete successfully in global markets, or even to deal effectively with international firms in their home markets, companies must help their managers to understand the needs, customs, and cultures of international business buyers. Several companies now offer smartphone apps that provide tips to international travelers and help prevent them from making embarrassing mistakes | Business Markets and Business Buyer Behavior while abroad. Cultures around the world differ greatly, and marketers must dig deeply to make certain they adapt to these differences. “When doing business in a foreign 195 country and a foreign culture . . . take nothing for granted,” advises an international business specialist. “Turn every stone. Ask every question. Dig into every detail.” Sources: Portions adapted from Susan Harte, “When in Rome, You Should Learn to Do What the Romans Do,” The Atlanta Journal-Constitution, January 22, 1990, pp. D1, D6. Additional information and examples can be found in Susan Adams, “Business Etiquette Tips for International Travel,” Forbes, June 6, 2012, www.forbes.com/ sites/susanadams/2012/06/15/business-etiquette-tips-for-international-travel/; Jeanette S. Martin and Lillian H. Cheney, Global Business Etiquette (Santa Barbara, CA: Praeger Publishers, 2013); “A Quick Guide to Business Etiquette around the World,” Business Insider, May 12, 2015, www.businessinsider.com/a-guide-to-businessetiquette-around-the-world-2015-5; and “International Business Etiquette, Manners, & Culture,” www.cyborlink. com, accessed September 2016. Participants may influence the buying decision because they control rewards and punishments, are well liked, have special expertise, or have a special relationship with other important participants. Interpersonal factors are often very subtle. Whenever possible, business marketers must try to understand these factors and design strategies that take them into account. Each participant in the business buying decision process brings in personal motives, perceptions, and preferences. These individual factors are affected by personal characteristics such as age, income, education, professional identification, personality, and attitudes toward risk. Also, buyers have different buying styles. Some may be technical types who make in-depth analyses of competitive proposals before choosing a supplier. Other buyers may be intuitive negotiators who are adept at pitting the sellers against one another for the best deal. The Business Buyer Decision Process Figure 6.3 lists the eight stages of the business buyer decision process.10 Buyers who face a new task buying situation usually go through all stages of the buying process. Buyers making modified or straight rebuys, in contrast, may skip some of the stages. We will examine these steps for the typical new task buying situation. Problem Recognition problem recognition The first stage of the business buying process in which someone in the company recognizes a problem or need that can be met by acquiring a good or a service. The buying process begins when someone in the company recognizes a problem or need that can be met by acquiring a specific product or service. Problem recognition can result from internal or external stimuli. Internally, the company may decide to launch a new product that requires new production equipment and materials. Or a machine may break down and need new parts. Perhaps a purchasing manager is unhappy with a current supplier’s product quality, service, or prices. Externally, the buyer may get some new ideas at a trade show, see an ad or website, or receive a call from a salesperson who offers a better product or a lower price. FIgure | 6.3 Stages of the Business Buyer Decision Process Buyers facing new, complex buying decisions usually go through all of these stages. Those making rebuys often skip some of the stages. Either way, the business buyer decision process is usually much more complicated than this simple flow diagram suggests. Problem recognition General need description Product specification Supplier search Proposal solicitation Supplier selection Order-routine specification Performance review 196 | part 2 Understanding the Marketplace and Customer Value In fact, business marketers often alert customers to potential problems and then show how their products and services provide soluFor example, consulting firm Accenture’s award-winning “High tions. Performance. Delivered.” B-to-B ads do this. One Accenture ad points to the urgent need for a business to get up to speed with digital technology. “Accenture Digital can help you attract more customers.” the ad states, showing moths drawn to a brightly lit smartphone screen. Accenture’s solution: “Our industry expertise, coupled with our integrated capabilities across interactive, analytics, and mobility, can help you take advantage of the opportunity to innovate and compete.” Other ads in the series tell success stories of how Accenture has helped client companies recognize and solve a variety of other problems.11 General Need Description Having recognized a need, the buyer next prepares a general need description that describes the characteristics and quantity of the needed item. For standard items, this process presents few problems. For complex items, however, the buyer may need to work with others— engineers, users, consultants—to define the item. The team may want to rank the importance of reliability, durability, price, and other attributes desired in the item. In this phase, the alert business marketer can help the buyers define their needs and provide information about the value of different product characteristics. Problem recognition: This Accenture ad alerts customers to the problem of getting up to speed with digital technology, then suggests a solution. It promises “High Performance. Delivered.” Accenture general need description The stage in the business buying process in which a buyer describes the general characteristics and quantity of a needed item. product specification The stage of the business buying process in which the buying organization decides on and specifies the best technical product characteristics for a needed item. Supplier search The stage of the business buying process in which the buyer tries to find the best vendors. Product Specification The buying organization next develops the item’s technical product specifications, often with the help of a value analysis engineering team. Product value analysis is an approach to cost reduction in which components are studied carefully to determine if they can be redesigned, standardized, or made by less costly methods of production. The team decides on the best product characteristics and specifies them accordingly. Sellers, too, can use value analysis as a tool to help secure a new account. By showing buyers a better way to make an object, outside sellers can turn straight rebuy situations into new task situations that give them a chance to obtain new business. Supplier Search The buyer now conducts a supplier search to find the best vendors. The buyer can compile a small list of qualified suppliers by reviewing trade directories, doing online searches, or phoning other companies for recommendations. Today, more and more companies are turning to the internet to find suppliers. For marketers, this has leveled the playing field— the internet gives smaller suppliers many of the same advantages as larger competitors. The newer the buying task and the more complex and costly the item, the greater the amount of time the buyer will spend searching for suppliers. The supplier’s task is to get listed in major directories and build a good reputation in the marketplace. Salespeople should watch for companies in the process of searching for suppliers and make certain that their firm is considered. Proposal Solicitation proposal solicitation The stage of the business buying process in which the buyer invites qualified suppliers to submit proposals. In the proposal solicitation stage of the business buying process, the buyer invites qualified suppliers to submit proposals. In response, some suppliers will refer the buyer to their website or promotional materials or send a salesperson to call on the prospect. However, when the item is complex or expensive, the buyer will usually require a detailed written proposal or formal presentation from each potential supplier. Business marketers must be skilled in researching, writing, and presenting proposals in response to buyer proposal solicitations. Proposals should be marketing documents, not just technical documents. Presentations should inspire confidence and should make the marketer’s company stand out from the competition. Chapter 6 | Business Markets and Business Buyer Behavior 197 Supplier Selection Supplier selection The stage of the business buying process in which the buyer reviews proposals and selects a supplier or suppliers. The members of the buying center now review the proposals and select a supplier or suppliers. During supplier selection, the buying center often will draw up a list of the desired supplier attributes and their relative importance. Such attributes include product and service quality, reputation, on-time delivery, ethical corporate behavior, honest communication, and competitive prices. The members of the buying center will rate suppliers against these attributes and identify the best suppliers. Buyers may attempt to negotiate with preferred suppliers for better prices and terms before making the final selections. In the end, they may select a single supplier or a few suppliers. Many buyers prefer multiple sources of supplies to avoid being totally dependent on one supplier and to allow comparisons of prices and performance of several suppliers over time. Today’s supplier development managers want to develop a full network of supplier-partners that can help the company bring more value to its customers. Order-Routine Specification Order-routine specification The stage of the business buying process in which the buyer writes the final order with the chosen supplier(s), listing the technical specifications, quantity needed, expected time of delivery, return policies, and warranties. The buyer now prepares an order-routine specification. It includes the final order with the chosen supplier or suppliers and lists items such as technical specifications, quantity needed, expected delivery time, return policies, and warranties. In the case of maintenance, repair, and operating items, buyers may use blanket contracts rather than periodic purchase orders. A blanket contract creates a long-term relationship in which the supplier promises to resupply the buyer as needed at agreed prices for a set time period. Many large buyers now practice vendor-managed inventory, in which they turn over ordering and inventory responsibilities to their suppliers. Under such systems, buyers share sales and inventory information directly with key suppliers. The suppliers then monitor inventories and replenish stock automatically as needed. For example, most major suppliers to large retailers such as Walmart, Target, Home Depot, and Lowe’s assume vendormanaged inventory responsibilities. Performance Review performance review The stage of the business buying process in which the buyer assesses the performance of the supplier and decides to continue, modify, or drop the arrangement. In this stage, the buyer reviews supplier performance. The buyer may contact users and ask them to rate their satisfaction. The performance review may lead the buyer to continue, modify, or drop the arrangement. The seller’s job is to monitor the same factors used by the buyer to make sure that the seller is giving the expected satisfaction. In all, the eight-stage buying-process model shown in Figure 6.3 provides a simple view of the business buying as it might occur in a new task buying situation. However, the actual process is usually much more complex. In the modified rebuy or straight rebuy situation, some of these stages would be compressed or bypassed. Each organization buys in its own way, and each buying situation has unique requirements. Different buying center participants may be involved at different stages of the process. Although certain buying-process steps usually do occur, buyers do not always follow them in the same order, and they may add other steps. Often, buyers will repeat certain stages of the process. Finally, a customer relationship might involve many different types of purchases ongoing at a given time, all in different stages of the buying process. The seller must manage the total customer relationship, not just individual purchases. Engaging Business Buyers with Digital and Social Marketing As in every other area of marketing, the explosion of information technologies and online, mobile, and social media has changed the face of the B-to-B buying and marketing process. In the following sections, we discuss two important technology advancements: e-procurement and online purchasing and B-to-B digital and social media marketing. e-procurement Purchasing through electronic connections between buyers and sellers—usually online. E-procurement and Online Purchasing Advances in information technology have dramatically affected the face of the B-to-B buying process. Online purchasing, often called e-procurement, has grown rapidly in recent 198 | part 2 Understanding the Marketplace and Customer Value years. Virtually unknown two decades ago, online purchasing is standard procedure for most companies today. In turn, business marketers can connect with customers online to share marketing information, sell products and services, provide customer support services, and maintain ongoing customer relationships. Companies can do e-procurement in any of several ways. They can conduct reverse auctions, in which they put their purchasing requests online and invite suppliers to bid for the business. Or they can engage in online trading exchanges, through which companies work collectively to facilitate the trading process. Companies also can conduct e-procurement by setting up their own company buying sites. For example, GE operates a company trading site on which it posts its buying needs and invites bids, negotiates terms, and places orders. Or companies can create extranet links with key suppliers. For instance, they can create direct procurement accounts with suppliers such as Dell or Staples through which company buyers can purchase equipment, materials, and supplies directly.   Staples operates a business-to-business procurement division called Staples Business Advantage, which serves the office supplies and services buying needs of businesses of any size, from 10 employees to the Fortune 1000. Business-to-business e-procurement yields many benefits. First, it shaves transaction costs and results in more efficient purchasing for both buyers and suppliers. E-procurement reduces the time between order and delivery. And an online-powered purchasing program eliminates the paperwork associated with traditional requisition and ordering procedures and helps an organization keep better track of all purchases. Finally, beyond the cost and time savings, e-procurement frees purchasing people from a lot of drudgery and paperwork. Instead, they can focus on morestrategic issues, such as finding better supply sources and working with suppliers to reduce costs and develop new products. The rapidly expanding use of e-procurement, however, also presents some problems. For example, at the same time that the internet makes it possible for suppliers and customers to share business data and even collaborate on product design, it can also Online buying: Staples operates a business-to-business erode decades-old customer–supplier relationships. Many buyers procurement division called Staples Business Advantage, which now use the power of the internet to pit suppliers against one anserves the office supplies and services buying needs of business customers of any size. other and search out better deals, products, and turnaround times Staples on a purchase-by-purchase basis. Business-to-Business Digital and Social Media Marketing B-to-B digital and social media marketing Using digital and social media marketing approaches to engage business customers and manage customer relationships anywhere, anytime. In response to business customers’ rapid shift toward online buying, today’s B-to-B marketers are now using a wide range of digital and social media marketing approaches—from websites, blogs, mobile apps, e-newsletters, and proprietary online networks to mainstream social media such as Facebook, LinkedIn, YouTube, Google+, and Twitter—to engage business customers and manage customer relationships anywhere, anytime. B-to-B digital and social media marketing isn’t just growing, it’s exploding. Digital and social media marketing have rapidly become the new space for engaging business customers. Consider Maersk Line, the world’s leading container shipping and transport company, serving business customers through 374 offices in 160 countries:12 You might not expect much by way of new-age marketing from an old-line container shipping company, but think again. Maersk Line is one of the most forward-looking and accomplished B-to-B digital and social media marketers in any industry. Maersk Line has sailed full steam ahead into the social media waters with eight global accounts on primary social media networks including Facebook, LinkedIn, Twitter, and YouTube. Maersk Line has more than 1.1 million Facebook followers with an average engagement of 7 percent per post, making Facebook a platform for engaging a broad audience of customers and other stakeholders interested in the brand. On Instagram, the company shares customer and employee images and stories to help visualize the brand. On YouTube it posts informational and educational Chapter 6 | Business Markets and Business Buyer Behavior 199 videos detailing Maersk Line’s activities, services, and people. Maersk Line’s Twitter feed presents the latest news and events, creating conversation and buzz with and among its more than 123,000 Twitter followers. The company’s LinkedIn account, with more than 155,500 followers, lets Maersk Line engage customers, opinion leaders, and industry influencers, who share information and discuss industry challenges and opportunities with shipping and logistics experts. Why all this social media? “The goal is to use social media to get closer to our customers,” says Maersk Line. Container shipping giant Maersk Line engages business customers through a boatload of digital and social media. “The goal is to get closer to our customers.” Compared with traditional media and sales approaches, digital and social media can create greater customer engagement and interaction. B-to-B marketers know that they aren’t really targeting businesses, they are targeting individuals in those businesses who affect buying decisions. And today’s business buyers are always connected via their digital devices—whether it’s PCs, tablets, or smartphones. Digital and social media play an important role in engaging these alwaysconnected business buyers in a way that personal selling alone cannot. Instead of the old model of sales reps calling on business customers at work or maybe meeting up with them at trade shows, the new digital approaches facilitate anytime, anywhere connections between a wide range of people in the selling and customer organizations. It gives both sellers and buyers more control of and access to important information. B-to-B marketing has always been social network marketing, but today’s digital environment offers an exciting array of new networking tools and applications. Some B-to-B companies mistakenly assume that today’s digital and social media are useful primarily to consumer products and services companies. But no matter what the industry, digital platforms can be powerful tools for engaging customers and other important publics. For example, industrial powerhouse GE uses a wide array of digital and social media, not just to engage and support its business customers directly but also to tell the compelling GE brand story more broadly and to keep the company relevant, contemporary, and accessible (see Real Marketing 6.2). A.P. Møller-Mærsk A/S Institutional and Government Markets So far, our discussion of organizational buying has focused largely on the buying behavior of business buyers. Much of this discussion also applies to the buying practices of institutional and government organizations. However, these two nonbusiness markets have additional characteristics and needs. In this final section, we address the special features of institutional and government markets. Institutional Markets Institutional market Schools, hospitals, nursing homes, prisons, and other institutions that provide goods and services to people in their care. The institutional market consists of schools, hospitals, nursing homes, prisons, and other institutions that provide goods and services to people in their care. Institutions differ from one another in their sponsors and their objectives. For example, Community Health Systems runs 203 for-profit hospitals in 29 states, generating $18 billion in annual revenues. By contrast, the Shriners Hospitals for Children is a nonprofit organization with 21 facilities that provide free specialized health care for children, whereas the government-run Veterans Affairs Medical Centers located across the country provide special services to veterans.13 Each institution has different buying needs and resources. Institutional markets can be huge. Consider the massive and expanding U.S. prisons economy: More than 720 out of every 100,000 people in the United States are in prison—that’s 2.2 million people. Criminal correction spending has outpaced budget growth in education, transportation, and public assistance. U.S. prisons spend about $74 billion annually—an average of $31,000 per prisoner—to keep their facilities running, an amount greater than the GDP of 133 nations. The ultimate captive market, it translates into plenty of work for companies looking to break into the prison market. “Our core business touches so many things—security, medicine, education, food service, maintenance, technology—that it presents a unique opportunity for any number of vendors to do business with us,” says an executive at Corrections Corporation of America, the largest private prison operator in the country.14 Real Marketing 200 | part 2 Understanding the Marketplace and Customer Value 6.2 GE: A Model for B-to-B Digital and Social Media Marketing Few brands are more familiar than GE. For more than 130 years, we’ve packed our homes with GE products—from good ol’ GE lightbulbs to refrigerators, ranges, clothes washers and dryers, microwave ovens, and hundreds of other products bearing the familiar GE script logo. But here’s a fact that might startle you. Less than a meager 8 percent of GE’s $117 billion in annual sales comes from consumer products. The vast majority of the company’s sales comes from industrial products and services across a wide range of energy, transportation, and health-care industries. Far beyond lightbulbs and appliances, GE sells everything from jet aircraft engines, giant wind turbines, and diesel locomotives to water processing systems and high-tech medical imaging equipment. GE bills itself as an “industrial infrastructure company,” one that’s on a mission to “invent the next industrial era, to build, move, power, and cure the world.” Jet engines? Diesel locomotives? Power turbines? Yawn. To many people, “industrial” translates to “dull.” It’s hardy the fodder for stimulating digital and social media content. But GE doesn’t see it that way. GE has a brand story to tell—a story of big, bad machines and innovative technologies that are changing the world and how we live in it. And it sees digital as an ideal platform for sharing that story. As a result, GE has become a model for B-to-B use of digital and social media. At a core level, GE covers the digital basics well through a wide variety of platforms that inform and engage business customers directly, connect them with GE salespeople, and promote customer purchasing and relationships. For example, GE’s various divisions—from GE Aviation to GE Healthcare and GE Energy— offer dozens of industry-specific websites, containing thousands of individual site areas and tens of thousands of pages that provide B-to-B customers with purchasing solutions, product overviews, detailed technical information, online videos and webinars, live chats, and real-time customer support. GE also helps its sales force engage business customers more deeply through a comprehensive presence in major social media such as Facebook, Twitter, LinkedIn, Google+, Salesforce.com, and even Instagram, Pinterest, and Vine. “We have a core belief that business is social,” says GE’s chief marketing officer (CMO). “If you’re in business you need social because it’s going to get you closer to your customers. We want to get our sales team 100 percent digitized.” But GE’s most inspired use of digital and social media goes well beyond the basics of engaging and supporting customers directly. GE also uses digital platforms to reach out to other important publics. “The more people know GE, the more they like GE,” says the company’s director of global media. “So our [digital] content strategy is about uncovering and telling great stories about innovation, technology, big data, developing healthcare, and so on. We want our customers, our shareholders, our employees to know what GE thinks about the world,” a task ideally suited to digital and social media. The goal is to make the GE brand relevant, contemporary, and accessible. “No one remembers product specs and features. But a great story well told hits home,” says GE’s CMO. “Compelling stories bring a brand to life—they make us relevant, poignant, vibrant, droll, and hopefully memorable.” To that end, over the past several years, GE has unleashed a remarkable array of digital content that connects the brand with consumers and positions the 130-year-old company as a youthful, contemporary technology leader in the new digital industrial era. For example, one of GE’s first and most successful social media campaigns was #sixsecondscience, a program launched on Vine asking people to share their favorite science experiments in video clips of six seconds or less. The campaign drew in 400 videos in a week, including demonstrations of everything from how to make a volcano using a pile of sand, vinegar, and baking soda to a homemade Tesla coil in action. The Vine campaign won awards and accolades. More important, it got people to spend time with the GE brand. You’ll find GE actively engaged on all the major social media. For example, GE’s numerous Pinterest, Tumblr, and Instagram sites introduce tech enthusiasts to the raw beauty of the company’s innovative industrial products and technologies. “I love our Instagram feed,” says the CMO. “It shows the majesty and scale of our big machines. It’s GE at our badass best.” In fact, the very first board at the GE Pinterest site is “Badass Machines.” Others include “From the Factory Floor,” “Minds and Machines,” and “Brilliant Machines.” Through its inspired use of digital and social media, industrial powerhouse GE engages customers and keeps the GE brand relevant, contemporary, and accessible to important publics in today’s digital industrial era. GE Chapter 6 GE also publishes an innovative daily online B-to-B blog, called GE Reports, which features science fiction–like stories on topics such as moon power, digital pathology, and 3D printing done by hand. The blog includes original content from various GE sources, including GE Garages—an initiative designed to reinvigorate innovation and manufacturing by providing a collaborative space where technologists, entrepreneurs, and everyday Americans can engage in hands-on experiences with 3D printers, computer-controlled milling machines, laser cutters, and injection molders. As with GE’s other digital content, GE Reports offers easily digestible material that gets people excited about the future of technology and science while positioning GE as a company that is leading them into that future. GE has also mastered the art of digital video content. An example is the company’s recent award-winning “Childlike Imagination” campaign, a series of video ads that show the scope of GE’s product lines through | Business Markets and Business Buyer Behavior the eyes of a little girl whose Mom works at GE. The magical videos bring GE’s industrial products—from jet engines, diesel locomotives, and giant wind turbines to hospital diagnostics machines—to life through the eyes of an amazed young girl whose mom works at GE. “My mom? She makes underwater fans that are powered by the moon,” declares the girl. “My mom makes airplane engines that can talk.” Although these videos can be shown as ads on traditional broadcast TV, they drive substantial online traffic through GE’s social media channels. Thus, in its digital efforts, GE acts less like an advertiser and more like a brand content 201 publisher—creating, curating, and shaping brand content and conversations in real time. “For a brand that has the history that we do, staying modern, contemporary, and relevant is something we think about every single day,” says GE’s CMO. “We think about who shares our passion and our interest in science, technology, and engineering and we go after that. We do that on platforms as diverse as Instagram, Vine, Snapchat, Yo, and many others.” In all, few companies do digital better than GE. “When it comes to innovative social media campaigns,” says one analyst, GE is “often light-years ahead of most marketers,” regardless of industry. Sources: Katie Richards, “GE’s Chief Marketing Officer on Storytelling in the New Digital Industrial Era,” Adweek, October 12, 2015, pp. 11–12; Bill Sobel, “GE’s Linda Boff: Content Created to Help Is What Sells,” CMSWire, September 24, 2015, www.cmswire.com/cms/customer-experience/ges-linda-boff-content-created-to-help-is -what-sells-027470.php; Jason Hill, “GE: From an Advertiser to a Publishing Company,” in Deborah Malone, The Reinvention of Marketing (New York: The Internationalist Press, 2014), Kindle locations 399–400; Anthony Gaenzle, “GE Raises the Bar for B2B Content Marketing,” March 2, 2015, http://enveritasgroup.com/2015/03/02/ge-raises -the-bar-for-b2b-content-marketing/; and www.youtube.com/watch?v=Co0qkWRqTdM, www.gereports.com, www.pinterest.com/generalelectric/, www.ge.com, and www.ge.com/investor-relations, accessed September 2016. General Mills Convenience and Foodservice produces, packages, prices, and markets its broad assortment of foods to better serve the specific food service requirements of various institutional markets. Justin Sullivan/Getty Images Many institutional markets are characterized by low budgets and captive patrons. For example, hospital patients have little choice but to eat whatever food the hospital supplies. A hospital purchasing agent has to decide on the  quality of food to buy for patients. Because the food is provided as a part of a total service package, the buying objective is not profit. Nor is strict cost minimization the goal—patients receiving poor-quality food will complain to others and damage the hospital’s reputation. Thus, the hospital purchasing agent must search for institutional food vendors whose quality meets or exceeds a certain minimum standard and whose prices are low. Many marketers set up separate divisions to meet the special characteristics and needs of institutional For example General Mills Convenience and buyers. Foodservice unit produces, packages, prices, and markets its broad assortment of cereals, cookies, snacks, and other products to better serve the specific food service requirements of hospitals, schools, hotels, and other institutional markets in addition to traditional B-to-B businesses such as convenience stores.15 Government Markets government market Governmental units—federal, state, and local—that purchase or rent goods and services for carrying out the main functions of government. The government market offers large opportunities for many companies, both big and small. In most countries, government organizations are major buyers of goods and services. In the United States alone, federal, state, and local governments contain more than 89,000 buying units that purchase more than $3 trillion in goods and services each year.16 Government buying and business buying are similar in many ways. But there are also differences that must be understood by companies that wish to sell products and services to governments. To succeed in the government market, sellers must locate key decision makers, identify the factors that affect buyer behavior, and understand the buying decision process. 202 | part 2 Understanding the Marketplace and Customer Value Government organizations typically require suppliers to submit bids, and normally they award the contract to the lowest bidder. In some cases, a governmental unit will make allowances for the supplier’s superior quality or reputation for completing contracts on time. Governments will also buy on a negotiated contract basis, primarily in the case of complex projects involving major R&D costs and risks and in cases where there is little competition. Government organizations tend to favor domestic suppliers over foreign suppliers. A  major complaint of multinationals operating in Europe is that each country shows favoritism toward its nationals in spite of superior offers that are made by foreign firms. The European Economic Commission is gradually removing this bias. Like consumer and business buyers, government buyers are affected by environmental, organizational, interpersonal, and individual factors. One unique thing about government buying is that it is carefully watched by outside publics, ranging from Congress to a variety of private groups interested in how the government spends taxpayers’ money. Because their spending decisions are subject to public review, government organizations require considerable documentation from suppliers, who often complain about excessive paperwork, bureaucracy, regulations, decision-making delays, and frequent shifts in procurement personnel. Given all the red tape, why would any firm want to do business with the U.S. government? The reasons are quite simple: The U.S. government is the world’s largest buyer of products and services—about $450 billion last year—and its checks don’t bounce. The government buys everything from socks to stealth bombers. For example, this year, the federal government will spend a whopping $80 billion on information technology, $11.4  billion of which is for managing the technology of the Department of Health and Human Services.17 Most governments provide would-be suppliers with detailed guides describing how to sell to the government. For example, the U.S. Small Business Administration provides on its website detailed advice for small businesses seeking government contracting opportunities (www.sba.gov/category/navigation-structure/contracting /contracting-opportunities). And the U.S. Commerce Department’s website is loaded with information and advice on international trade opportunities (www.commerce.gov /about-commerce/grants-contracting-trade-opportunities). In several major cities, the General Services Administration operates Business Service Centers with staffs to provide a complete education on the way government agencies buy, the steps that suppliers should follow, and the procurement opportunities available. Various trade magazines and associations provide information on how to reach schools, hospitals, highway departments, and other government agencies. And almost all of these government organizations and associations maintain internet sites offering up-to-date information and advice. Still, suppliers have to master the system and find ways to cut through the red tape, especially for large government purchases. Noneconomic criteria are playing a growing role in government buying. Government buyers are asked to favor depressed business firms and areas; small business firms; minority-owned firms; and business firms that avoid race, gender, or age discrimination. Sellers need to keep these factors in mind when seeking government business. Many companies that sell to the government have not been very marketing oriented for a number of reasons. Total government spending is determined by elected officials rather than by any marketing effort to develop this market. Government buying has emphasized price, making suppliers invest their effort in technology to bring costs down. When the product’s characteristics are specified carefully, product differentiation is not a marketing factor. Nor do advertising or personal selling matter much in winning bids on an open-bid basis. Several companies, however, have established separate government marketing departments, including GE, Boeing, and Goodyear. Other companies sell primarily to government buyers, such as Lockheed Martin, which makes more than 80 percent of its sales from the U.S. government, either as a prime contractor or a subcontractor. These companies anticipate government needs and projects, participate in the product specification phase, gather competitive intelligence, prepare bids carefully, and produce stronger communications to describe and enhance their companies’ reputations. Other companies have established customized marketing programs for government buyers. For example, Dell has specific business units tailored to meet the needs of federal Chapter 6 | Business Markets and Business Buyer Behavior 203 as well as state and local government buyers. Dell offers its customers tailor-made Premier web pages that include special pricing, online purchasing, and service and support for each city, state, and federal government entity. During the past decade, a great deal of the government’s buying has gone online. The Federal Business Opportunities website (www.fbo.gov) provides a single point of entry through which commercial vendors and government buyers can post, search, monitor, and retrieve opportunities solicited by the entire federal contracting community. The three federal agencies that act as purchasing agents for the rest of government have also launched websites supporting online government purchasing activity. The General Services Administration, which influences more than one-quarter of the federal government’s total procurement dollars, has set up a GSA Advantage! website (www.gsaadvantage.gov). The Defense Logistics Agency offers an Internet Bid Board System (www.dibbs.bsm.dla.mil) for purchases by America’s military services. And the Department of Veterans Affairs facilitates e-procurement through its VA Advantage! website (https://VAadvantage.gsa.gov). Such sites allow authorized defense and civilian agencies to buy everything from office supplies, food, and information technology equipment to construction services through online purchasing. The General Services Administration, the Defense Logistics Agency, and the Department of Veterans Affairs not only sell stocked merchandise through their websites but also create direct links between government buyers and contract suppliers. For example, the branch of the Defense Logistics Agency that sells 160,000 types of medical supplies to military forces transmits orders directly to vendors such as BristolMyers Squibb. Such online systems promise to eliminate much of the hassle sometimes found in dealing with government purchasing.18 6 Reviewing and Extending the Concepts OBjecTIVes ReVIeW and Key TeRMs Objectives review Business markets and consumer markets are alike in some key ways. For example, both include people in buying roles who make purchase decisions to satisfy needs. But business markets also differ in many ways from consumer markets. For one thing, the business market is huge, far larger than the consumer market. Within the United States alone, the business market includes organizations that annually purchase trillions of dollars’ worth of goods and services. Objective 6-1 Define the business market and explain how business markets differ from consumer markets. (pp 188–190) The business market comprises all organizations that buy goods and services for use in the production of other products and services or for the purpose of reselling or renting them to others at a profit. As compared to consumer markets, business markets usually have fewer but larger buyers. Business demand is derived demand, which tends to be more inelastic and fluctuating than consumer demand. The business buying decision usually involves more, and more professional, buyers. Business buyers usually face more complex buying decisions, and the buying process tends to be more formalized. Finally, business buyers and sellers are often more dependent on each other. Objective 6-2 Identify the major factors that influence business buyer behavior. (pp 190–195) Business buyers make decisions that vary with the three types of buying situations: straight rebuys, modified rebuys, and new tasks. The decision-making unit of a buying organization—the buying center—can consist of many different persons playing many different roles. The business marketer needs to know the following: Who are the major buying center participants? In what decisions do they exercise influence and to what degree? What evaluation criteria does each decision participant use? The business marketer also needs to understand the major environmental, organizational, interpersonal, and individual influences on the buying process. Objective 6-3 List and define the steps in the business buying decision process. (pp 195–197) The business buying decision process itself can be quite involved, with eight basic stages: problem recognition, general need description, product specification, supplier search, proposal solicitation, supplier selection, order-routine specification, and performance review. Buyers who face a new task buying situation usually go through all stages of the buying process. 204 | part 2 Understanding the Marketplace and Customer Value Buyers making modified or straight rebuys may skip some of the stages. Companies must manage the overall customer relationship, which often includes many different buying decisions in various stages of the buying decision process. Objective 6-5 Compare the institutional and government markets and explain how institutional and government buyers make their buying decisions. Objective 6-4 Discuss how new information technologies and online, mobile, and social media have changed business-to-business marketing. The institutional market consists of schools, hospitals, prisons, and other institutions that provide goods and services to people in their care. These markets are characterized by low budgets and captive patrons. The government market, which is vast, consists of government units—federal, state, and local—that purchase or rent goods and services for carrying out the main functions of government. Government buyers purchase products and services for defense, education, public welfare, and other public needs. Government buying practices are highly specialized and specified, with open bidding or negotiated contracts characterizing most of the buying. Government buyers operate under the watchful eye of the U.S. Congress and many private watchdog groups. Hence, they tend to require more forms and signatures and respond more slowly and deliberately when placing orders. (pp 197–199) Recent advances in information and digital technology have given birth to “e-procurement,” by which business buyers are purchasing all kinds of products and services online. The internet gives business buyers access to new suppliers, lowers purchasing costs, and hastens order processing and delivery. Business marketers also are increasingly connecting with customers online and through digital, mobile, and social media to engage customers, share marketing information, sell products and services, provide customer support services, and maintain ongoing customer relationships. (pp 199–203) Key terms Objective 6-1 Business buyer behavior (p 188) Business buying process (p 188) Derived demand (p 189) Supplier development (p 190) Buying center (p 192) users (p 192) Influencers (p 192) Buyers (p 192) Deciders (p 192) gatekeepers (p 192) Supplier selection (p 197) Order-routine specification (p 197) performance review (p 197) Objective 6-4 Objective 6-2 Objective 6-3 Straight rebuy (p 191) Modified rebuy (p 191) New task (p 191) Systems selling (solutions selling) (p 191) problem recognition (p 195) general need description (p 196) product specification (p 196) Supplier search (p 196) proposal solicitation (p 196) e-procurement (p 197) B-to-B digital and social media marketing (p 198) Objective 6-5 Institutional market (p 199) government market (p 201) dIscussIOn and cRITIcal ThInKIng MyLab Marketing Go to mymktlab.com to complete the problems marked with this icon . Discussion Questions 6-1 Explain how the market structure and demand differ for business markets compared with consumer markets. (AACSB: Communication; Reflective Thinking) 6-2 Describe the tools B-to-B marketers use to engage cus- tomers. What are the challenges with B-to-B social media marketing? (AACSB: Communication; Reflective Thinking) 6-3 What are systems or solutions selling? How can an organization be successful in this area of sales? What are customers looking for from suppliers? (AACSB: Communication; Reflective Thinking) 6-4 What are the major influences on business buyers? (AACSB: Communication; Reflective Thinking) 6-5 Compare the institutional and government markets and explain how institutional and government buyers make their buying decisions. (AACSB: Communication) Chapter 6 | Business Markets and Business Buyer Behavior 205 Critical thinking exercises 6-6 Business buying can be a very involved process. Many companies employ procurement or purchasing experts dedicated to managing the firm’s buying process. Visit www.glassdoor.com/salaries and www.indeed.com/salary to conduct a search of the salary ranges for “procurement specialists” and similar positions in purchasing. Present your findings. Can e-procurement help to streamline the buying process? Might it eventually replace employees in these careers? Discuss if it is possible for all buying functions to be performed through e-procurement. (AACSB: Communication, Reflective Thinking, Use of IT) situation? Ask the businessperson to explain the role he or she played in a recent purchase and to discuss the factors that influenced the decision. Write a brief report of your interview by applying the concepts you learned in this chapter regarding business buyer behavior. (AACSB: Communication; Reflective Thinking) 6-8 At various times, many governments have favored a procurement process that requires government buyers to choose domestic rather than foreign suppliers. This approach has also been used by some retailers as integral parts of their advertising, encouraging consumers to buy domestic rather than overseas brands. Investigate the government procurement policy in your own country and try to find a retailer that has run an advertising campaign like this. How were these policies and campaigns received? What was their longevity? (AACSB: Communication; Reflective Thinking) 6-7 Interview a businessperson to learn how purchases are made in his or her organization. Ask this person to describe a straight rebuy, a modified rebuy, and a new-task buying situation that took place recently or of which he or she is aware (define them if necessary). Did the buying process differ based on the type of product or purchase applIcaTIOns and cases Online, Mobile, and Social Media Marketing E-procurement and Mobile Procurement Gone are the days of tedious, paper-laden, and labor-intensive procurement duties. E-procurement is changing the way buyers and sellers do business, specifically via mobile procurement that offers cloud-based platforms that reduce the search, order, and approval cycle. Most large companies have adopted some form of e-procurement. A recent study found that almost 70 percent of companies utilize some form of e-procurement, mobile procurement, or supply chain management applications. A leading industry platform, Coupa, provides a suite of cloud-based applications for finance, including accounts payable, sourcing, procurement, and expense management that allows customers full functionality from their mobile devices. Employees now enjoy the flexibility and time savings of viewing, approving, or denying requisitions, purchase orders, and invoices. One of Coupa’s large retail clients claimed a reduction from 10 days to 5 hours in their requisition-approval-process cycle by implementing Coupa’s mobile procurement platform. Talk about savings! Visit www .coupa.com/software/procurement/to learn more about how this company is revolutionizing the e-procurement and mobile procurement environments. 6-9 Discuss the advantages of e-procurement to both buyers and sellers. What are the disadvantages? (AACSB: Communication; Reflective Thinking) 6-10 Research mobile procurement and discuss the roles in the buying center that are affected most by this technology. (AACSB: Communication; Reflective Thinking) Marketing ethics Innocent: Proven Guilty? Innocent, a smoothie brand, is one of the companies that focuses on the importance of a healthy diet to promote its drinks. Innocent was an especially well-regarded brand in the United Kingdom for its positioning on sustainability and ethical sourcing from fair-trade suppliers (it also donates 10 percent of its profit to help charities); so it drew fire when it entered a controversial partnership with the fast-food chain McDonald’s. Many enthusiasts said that partnering with McDonald’s would reduce Innocent’s brand value. Innocent aimed to expand the market internationally through McDonald’s outlets, and the company’s founder insisted that the tie-up with McDonald’s was only a business decision that it 206 | part 2 Understanding the Marketplace and Customer Value would not impact any of the brand’s ethical commitment, and that smoothies were a better alternative than Coke for kids and consumers. However, after a five-year-trial failed to attract customers, Innocent was dropped from McDonald’s menu in 2012. In 2013, to further the company’s commercial interest, Innocent was sold to Coca-Cola in a deal that valued the brand at £320 million. 6-11 What are the likely reasons for the tie-up between Innocent and McDonald’s? 6-12 Do you think that Innocent has lost its “innocence” from a consumer perspective following their B2B decisions? (AACSB: Written and Oral Communication; Ethical Understanding and Reasoning) Marketing by the Numbers NAICS The North American Industry Classification System (NAICS) code is very useful for marketers. It replaces the old product-based Standard Industrial Classification (SIC) system introduced in the 1930s. The NAICS system classifies businesses by production processes, better reflecting changes in the global economy, especially in the service and technology industries. It was developed jointly by the United States, Canada, and Mexico in 1997 in concert with the North American Free Trade Agreement (NAFTA), providing a common classification system for the three countries and better compatibility with the International Standard Industrial Classification (ISIC) system. This six-digit number (in some cases, seven or ten digits) is very useful for understanding business markets. 6-13 What do the six digits of the NAICS code represent? What industry is represented by the NAICS code 721110? How many businesses comprise this code? (AACSB: Communication) 6-14 How can marketers use NAICS codes to better deliver customer satisfaction and value? (AACSB: Communication; Reflective Thinking) Video Case Eaton With approximately 70,000 employees in more than 150 countries and annual revenues of nearly $12 billion, Eaton is one of the world’s largest suppliers of diversified industrial goods. Eaton has been known for products that make cars peppier and 18-wheelers safer to drive. But a recent restructuring has made Eaton a powerhouse in the growing field of power management. In short, Eaton is making electrical, hydraulic, and mechanical power systems more accessible to and more efficient for its global customers. But Eaton isn’t successful only because of the products and services that it sells. It is successful because it works closely with its business customers to help them solve their problems and create better products and services of their own. Eaton is known for high-quality, dependable customer service and product support. In this manner, Eaton builds strong relationships with its clients. After viewing the video featuring Eaton, answer the following questions: 6-15 6-16 6-17 What is Eaton’s value proposition? Who are Eaton’s customers? Describe Eaton’s customer relationships. Discuss the different ways that Eaton provides value beyond that which customers can provide for themselves. Company Case Procter & Gamble: Treating Business Customers as Strategic Partners For decades, Procter & Gamble has been at the top of almost every expert’s A list of outstanding marketing companies. The experts point to P&G’s stable of top-selling consumer brands or to the fact that year in and year out P&G is the world’s largest advertiser. Consumers seem to agree. You’ll find at least one of P&G’s blockbuster brands in 99 percent of all American households; in many homes, you’ll find a dozen or more familiar P&G products. But P&G is also highly respected for something else—maintaining strategic partnerships with business buyers. P&G recognizes that building enduring relationships between consumers and its category leading brands starts with building enduring relationships with its large retail clients. On the front lines of this effort is P&G’s iconic sales force. When it comes to selecting, training, and managing salespeople, P&G sets the gold standard. The company employs a massive sales force of more than 5,000 salespeople worldwide. But at P&G, it isn’t just “sales”—it’s “Customer Business Development” (CBD). This might seem trivial, but at P&G the distinction goes to the very core of the company’s customer relationship strategy. Chapter 6 Developing the Customer’s Business P&G understands that if its business customers don’t do well, neither will the company. To grow its own business, therefore, P&G must first grow the business of the retailers that sell its brands to final consumers. In P&G’s own words, “CBD is more than mere ‘selling’—it’s a P&G-specific approach which enables us to grow our business by working as a ‘strategic partner’ (as opposed to just a supplier) with those who ultimately sell our products to consumers.” Says one CBD manager, “We depend on them as much as they depend on us.” By partnering with each other, P&G and its customers create “win-win” relationships that help both to prosper. Most P&G customers are huge and complex businesses— such as Walmart, Walgreens, or Dollar General—with thousands of stores and billions of dollars in revenues. Working with and selling to such customers can be a very complex undertaking, more than any single salesperson or regular sales team could accomplish. Instead, P&G assigns a full CBD team to every large customer account. Each CBD team contains not only salespeople but also a full complement of specialists in every aspect of selling P&G’s consumer brands at the retail level. Teams vary in size depending on the customer. For example, it takes a team of 350 P&G specialists to properly serve Walmart, far and away its biggest customer. By contrast, the P&G Dollar General team consists of about 30 people. Regardless of size, every team constitutes a complete, multifunctional customer service unit. Each team includes a manager and several account executives (each responsible for a specific P&G product category), supported by specialists in marketing strategy, product development, operations, information systems, logistics, finance, and human resources. To deal effectively with large accounts, P&G salespeople must be smart, well trained, and strategically grounded. They deal daily with high-level retail category buyers who may purchase hundreds of millions of dollars’ worth of P&G and competing brands annually. It takes a lot more than a friendly smile and a firm handshake to interact with such buyers. Yet individual P&G salespeople can’t know everything. And because of the nature of P&G’s B-to-B interactions, they don’t have to. Instead, P&G salespeople have at hand all the resources they need to resolve even the most challenging customer problems. “I have everything I need right here,” says a household care account executive. “If my customer needs help from us with in-store promotions, I can go right down the hall and talk with someone on my team in marketing about doing some kind of promotional deal. It’s that simple.” The multifunctional nature of the CBD team also means that collaboration extends far beyond internal interactions. Each time a team member contacts the customer, he or she represents the entire team. For example, if during a customer call an account executive receives a question about a promotional, logistical, or financial matter, the account executive acts as the liaison with the appropriate specialist. So, although not each CBD member has specialized knowledge in every area, the CBD team as a unit does. Competitors have attempted to implement some aspects of P&G’s multifunctional approach. However, P&G pioneered the | Business Markets and Business Buyer Behavior 207 CBD structure. And it has built in some unique characteristics that have allowed it to leverage more power from its team structure than its rivals can, giving it real competitive advantage. A Competitive Edge One of the things that gives P&G an edge when it comes to maintaining deep relationships with its business customers is a CBD structure that is broader and more comprehensive, making it more multifunctional than similar team structures employed by other companies. But perhaps more important, P&G’s structure is designed to accomplish four key objectives. These objectives are so important that they are referred to internally as the “core work” of customer development. These four objectives are: • Align strategy: Create opportunities for both P&G and the  customer to benefit by collaborating in strategy development. • Create demand: Build profitable sales volume for P&G and the customer through consumer value and shopper satisfaction. • Optimize supply: Maximize the efficiency of the supply chain from P&G to the point of purchase to optimize cost and responsiveness. • Enable the organization: Develop capabilities to maximize business results by creating the capacity for frequent breakthrough. More than just corporate catchphrases jotted down in a P&G employee handbook, for sales personnel, these are words to live by. P&G trains sales staff in methods of achieving each objective and evaluates their effectiveness relative to each. In fact, P&G’s customer relationship strategy came about through the recognition that to develop true win-win relationships with each customer, P&G would need to accomplish the first objective. As one account executive puts it, “The true competitive advantage is achieved by taking a multi-functional approach from basic selling to strategic customer collaboration!” If the CBD team can effectively accomplish the first objective of aligning strategy and collaborating on strategic development, accomplishing the other three objectives will follow more easily. Building such strategic partnerships creates shopper value and satisfaction and drives profitable sales at the store level. When it comes to profitably moving Tide, Pampers, Gillette, or other P&G brands off store shelves and into consumers’ shopping carts, P&G reps and their teams often know more than the retail buyers they advise. In fact, P&G’s retail partners often rely on CBD teams to help them manage not only the P&G brands on their shelves but also entire product categories, including competing brands. Giving advice on the stocking and placement of competitors’ brands as well as its own might seem unwise. But believe it or not, it happens all the time at P&G. In fact, it isn’t uncommon for a P&G rep to tell a retail buyer to stock fewer P&G products and more of a competing brand. Although that may seem like retail suicide, keep in mind that a CBD team’s primary goal is to help the customer win in each product category. Sometimes, analysis 208 | part 2 Understanding the Marketplace and Customer Value shows that the best solution for the customer is “more of the other guy’s product.” For P&G, that’s OK. The company knows that creating the best situation for the retailer ultimately pulls in more customer traffic, which in turn will likely lead to increased sales for other P&G products in the same category. Because most of P&G’s brands are market-share leaders, it stands to benefit more from the increased traffic than competitors do. Again, what’s good for the customer is good for P&G—it’s a win-win situation. Honest and open dealings also help to build long-term customer relationships. P&G salespeople become trusted advisors to their retailer-partners, a status they work hard to maintain. “It took me four years to build the trust I now have with my buyer,” says a veteran P&G account executive. “If I talk her into buying P&G products that she can’t sell or out-of-stocking competing brands that she should be selling, I could lose that trust in a heartbeat.” At P&G, collaboration is usually a two-way street—P&G gives and customers give back in return. “We’ll help customers run a set of commercials or do some merchandising events, but there’s usually a return-on-investment,” explains another CBD manager. “Maybe it’s helping us with distribution of a new product or increasing space for fabric care. We’re very willing if the effort creates value for us as well as for the customer and the final consumer.” It’s Better to Give…Then to Receive As a result of collaborating with customers, P&G receives as much or more than it gives. For starters, P&G receives information that helps it to remain innovative and create better products. The collaborative nature of its customer relationships also allows for optimizing the product mix, which also optimizes revenue. And the kind of transparency that results from strategic partnerships enables P&G to remain efficient and keep costs low. Indeed, during the first decade of this millennium, P&G was flying high as revenues, profits, and stock price all maintained healthy growth. But P&G’s strong performance flattened out as its vast portfolio of brands began showing a major weakness. Despite holding top positions in many product categories, many of P&G’s brands were small, poor performers, or both. This limited the growth and profitability of its stronger brands. So P&G undertook a major restructuring of its product portfolio. Over the past few years, P&G has sold off about 100 brands (including Duracell, Aleve, Noxema, Iams, Clairol, Wella, and Covergirl) in order to focus on the 65 strongest-performing brands (such as Crest, Bounty, Tide, Gillette, and Dawn, to name just a few). Although it may sound like P&G dumped a big chunk of the company, the 65 remaining brands have long been responsible for about 90 percent of total revenues and 95 percent of profits. The now-leaner brand portfolio is also a much better fit with P&G’s approach to strategic customer partnerships. Of the 65 remaining brands, 18 bring in more than $1 billion a year each, whereas another 17 account for at least $500 million annually. Last year, P&G sold more than $10 billion worth of diaper products under the Pampers brand alone. Eliminating the weaker brands not only relieves P&G of a heavy financial burden, but the stronger portfolio also enables P&G to better meet the needs of its customers. The company expects that there will be far fewer occasions where the best solution for the customer will be to recommend a competing brand. P&G’s approach to maintaining customer relationships is much, much more than “selling.” “It’s a P&G-specific approach [that lets us] grow business by working as a ‘strategic partner’ with our accounts, focusing on mutually beneficial business-building opportunities,” states the CBD website. “All customers want to improve their businesses; it’s [our] role to help them identify the biggest opportunities.” At P&G, building and maintaining enduring customer relationships involves working with customers to solve their problems for mutual gain. The company knows that if customers succeed, it succeeds. Questions for Discussion 6-18 Compare and contrast the nature of the business market structure and demand relative to consumer market structure and demand for a specific P&G product. 6-19 For the same product, discuss the differences in the types of decisions and the decision process for business and consumer markets. 6-20 This case covers the various members of a P&G Customer Business Development team. For a P&G corporate client, illustrate how the different roles of the buying center might interact with that CBD team. Be specific. 6-21 Discuss some ways that P&G’s CBD structure is more effective than a single sales rep. 6-22 Why have P&G’s competitors not been able to duplicate its customer relationship strategy? 6-23 Will P&G’s divestment of 100 brands pay off? Why or why not? Sources: Based on information from numerous P&G managers, with additional information from Demitrios Kalogeropoulos, “The Procter & Gamble Company’s Best Product in 2015,” Motley Fool, December 27, 2015, www.fool.com/investing/general/2015/12/27/the-procter-gamble -companys-best-product-in-2015.aspx; Penny Morgan, “Why Procter & Gamble Is Selling Some of Its Brands,” Market Realist, March 8, 2016, www.marketrealist.com/2016/03/pgs-sale-brands-johnson-johnson -kimberly-clark/; Phil Whaba, “Procter & Gamble Selling Beauty Brands Like Clairol,” Fortune, July 9, 2015, www.fortune.com/2015/07/09/ procter-gamble-coty/; and www.us.pgcareers.com/career-areas-find-your -fit/sales/and www.pg.com/vn/careers/our_functions/customer_business _development.shtml, accessed June 2016. Chapter 6 | Business Markets and Business Buyer Behavior MyLab Marketing Go to mymktlab.com for the following Assisted-graded writing questions: 6-24 6-25 What is supplier development and why are companies practicing it? Describe how online purchasing has changed the business-to-business marketing process and discuss the advantages and disadvantages of electronic purchasing. 209 Chapter preview 7 PART 1: Defining Marketing and the Marketing Process (Chapters 1–2) PART 2: Understanding the Marketplace and Consumer Value (Chapters 3–6) PART 3: Designing a Customer Value–Driven Strategy and Mix (Chapters 7–17) PART 4: Extending Marketing (Chapters 18–20) Customer Value–Driven Marketing Strategy: Creating Value for Target Customers So far, you’ve learned what marketing is and about the importance of understanding consumers and the marketplace. With that as a background, we now delve deeper into marketing strategy and tactics. This chapter looks further into key customer value–driven marketing strategy decisions—dividing up markets into meaningful customer groups (segmentation), choosing which customer groups to serve (targeting), creating market offerings that best serve targeted customers (differentiation), and positioning the offerings in the minds of consumers (positioning). The chapters that follow explore the tactical marketing tools—the four Ps—by which marketers bring these strategies to life. To open our discussion of segmentation, targeting, differentiation, and positioning, let’s look at Henkel. For nearly 140 years, Henkel has wielded a leader’s influence with its varied offering of products that address the specialized needs of global customers. Henkel’s brand Persil has revolutionized the Middle Eastern market through sophisticated segmentation and targeting, with each product line offering a unique value proposition to a distinct segment of customers. Henkel’s Persil: A “Glocal” Marketing success H enkel AG & Company, KGaA, a well-known Persil. For over 109 years, Persil has been regarded as the expert German multinational company active both in in sparkling clean laundry. Its name has stood for quality and the consumer and industrial sector, was founded trust, making it, for example, Germany’s most trusted laundry in September 1876 by Fritz Henkel in Aachen, detergent. The Persil product line has included many successful Germany. The first product it launched was a silicate-based products since it was first introduced in the market back in 1907 universal detergent; ever since, the company has been sucand revolutionized the laundry process. The product combined cessful through continuous innovation in new products that sodium silicate with sodium perborate, which releases fine satisfy a range of diverse customers and their different needs pearling oxygen when the laundry is boiled. The result is an and preferences across the globe. Today, Henkel—which is especially textile-friendly and odorless bleach, in contrast headquartered in Düsseldorf, Germany—is globally ranked to the chlorine used till then. It also reduces the strenuous among the Fortune Global 500 companies. In the fiscal year and time-consuming rubbing, swinging, and scrubbing of 2015, Henkel reported sales of $18.97 billion and an operlaundry that had hitherto been the norm. The first self-acting ating profit of $3.06 billion. In Fortune’s recent “World’s detergent was born: Persil. Most Admired Companies” ranking, Henkel was confirmed Over its history, Henkel has wielded a leader’s influas one of the most reputable ence through different brands and companies in its industry cattechnology, enabling people to live By focusing on generating insights to egory, finishing in fourth place. easier and better lives. The comunderstand market trends and customers’ In 2016, Henkel was again the pany has managed to successfully special needs in different regions, Henkel only German company in the capitalize on its customer-driven found huge success with its brands. Top 50 of the world’s biggest “glocal” marketing strategy, consumer-goods manufacturblending global understanding ers worldwide according to consulting firm OC&C’s study with local implementation, as in Saudi Arabia, which is “Trends and Strategies on the Consumer-goods Market.” one of the Gulf Cooperation Council (GCC) countries. The Henkel’s force of around 50,000 employees worldwide other member states are Bahrain, Kuwait, Oman, Qatar, and is working hard to gain the trust of a customer base in more the United Arab Emirates. Each of these countries has very than 120 countries with several successful brands, particularly different needs based on its culture. Saudi Arabia offers an CHapter 7 excellent example that illustrates Henkel’s marketing strategy in more depth. Since its foundation, Henkel Saudi Arabia has enjoyed tremendous growth, and its workforce is currently comprised of more than 300 people, making the brand the no. 2 market player in the home-care category. As Amitabh Bose, the former Marketing Head of Henkel Saudi Arabia, notes, Henkel’s brand presence is epitomized by the success of its premium laundry detergent Persil, which has revolutionized the Middle Eastern market with its focus on developing strong brand equity, generating consumer insights, and evolving outstanding marketing campaigns. The Saudi Arabia region was targeted by Henkel a couple of years ago across two main segments—men and women—with three exceptionally innovative and, later, extremely successful products: Persil Abaya Shampoo for women, and Persil White liquid detergent and Persil Starch Spray for men. The introduction of both lines of products was based on extensive market research on regional consumer insights and preferences. Research by Henkel proved that nearly 75 percent of GCC consumers wash thobes (long white dresses traditionally worn by men in the region) with a mix of detergent and bleach, which, in time, negatively affects the brightness of the garments’ white color. Research also revealed the lack of a suitable starch spray in the detergent market that would give thobes the right level of firmness preferred by local consumers. Persil White and Persil Starch Spray, the first range of laundry products aimed at GCC men, achieved an enormous market share and sales 90 percent above forecasts within only four months after its launch. This success as a new laundry product was predominantly based on a deep understanding of the regional consumers’ needs and preferences. In addition, women traditionally wear abayas, loose robe- like garments that are typically black. As local men take pride in the brightness of their thobes’ white color and the fabric’s firmness, women exercise great care in maintaining the depth of their abayas’ black color and the richness of the fabric. Amal Murad, a well-known fashion designer, emphasizes that it is paramount that women take care of their abayas in order to maintain its look, feel, and color. As a result, Persil Abaya Shampoo (also known as Persil Black) was developed to offer the perfect retention of the black color by using the revolutionary Henkel technology “black color lock.” The liquid detergent combines true cleaning power with special color protection for black and dark garments—particularly important if these are washed frequently. Persil Abaya Shampoo also safeguards the fabric and gives the abaya an enduring floral scent. Research on local consumers revealed that almost 50 percent of them adopt inappropriate and damaging practices in cleaning their abayas, such as using powdered detergents, fabric softeners, or even hair and body shampoo. That’s why Persil Abaya Shampoo was viewed as revolutionary in the regional world of laundry. | Customer Value–Driven Marketing Strategy 211 Persil’s success in the Middle East is predominantly due to a deep understanding of the regional consumers’ needs and preferences. Newscast Online Limited/Alamy Stock Photo The marketing strategy applied by Henkel serves as an excellent example of how the mix of common global technology and scale (economies of scale or low-cost production) can be combined with a local and regional marketing strategy. The Persil brands have common product formulations, but with regionally tailored product strategies in the form of different packaging and marketing communication. Persil Abaya was launched in the Gulf States through a mix of TV commercials and a very successful online viral campaign. An interactive website was set up and Henkel also sponsored a reality TV designer competition in cooperation with Swarovski Elements in order to show that the abaya has transcended the traditional garment to become an individual fashion and personality statement. By focusing on generating insights to understand market trends and customers’ special needs in different regions, Henkel found huge success with its brands. Its marketing strategy has been considered a successful example of a totally customer-driven strategy.1 212 | part 3 Designing a Customer Value–Driven Strategy and Mix Objectives Outline Objective 7-1 Define the major steps in designing a customer value–driven marketing strategy: market segmentation, targeting, differentiation, and positioning. Marketing Strategy Objective 7-2 (pp 212–213) List and discuss the major bases for segmenting consumer and business markets. Market Segmentation (pp 213–221) Objective 7-3 explain how companies identify attractive market segments and choose a market-targeting strategy. Market Targeting (pp 221–228) Objective 7-4 Discuss how companies differentiate and position their products for maximum competitive advantage. Differentiation and Positioning (pp 228–236) CoMPAniES ToDAy RECognizE ThAT they cannot appeal to all buyers in the marketplace—or at least not to all buyers in the same way. Buyers are too numerous, widely scattered, and varied in their needs and buying practices. Moreover, companies themselves vary widely in their abilities to serve different market segments. Instead, like Henkel, companies must identify the parts of the market they can serve best and most profitably. They must design customer-driven marketing strategies that build the right relationships with the right customers. Thus, most companies have moved away from mass marketing and toward target marketing: identifying market segments, selecting one or more of them, and developing products and marketing programs tailored to each. Market segmentation Dividing a market into distinct groups of buyers who have different needs, characteristics, or behaviors and who might require separate marketing strategies or mixes. Market targeting (targeting) Evaluating each market segment’s attractiveness and selecting one or more segments to serve. Differentiation Actually differentiating the market offering to create superior customer value. Figure | 7.1 Designing a Customer-Driven Marketing Strategy In concept, marketing boils down to two questions: (1) Which customers will we serve? and (2) How will we serve them? Of course, the tough part is coming up with good answers to these simple-sounding yet difficult questions.The goal is to create more value for the customers we serve than competitors do. Marketing Strategy Figure 7.1 shows the four major steps in designing a customer value–driven marketing strategy. In the first two steps, the company selects the customers that it will serve. Market segmentation involves dividing a market into distinct groups of buyers who have different needs, characteristics, or behaviors and who might require separate marketing strategies or mixes. The company identifies different ways to segment the market and develops profiles of the resulting market segments. Market targeting (or targeting) consists of evaluating each market segment’s attractiveness and selecting one or more market segments to enter. In the final two steps, the company decides on a value proposition—how it will create value for target customers. Differentiation involves actually differentiating the Select Selectcustomers customers to toserve serve Decide Decideon on aa value value proposition proposition Segmentation Divide the total market into smaller segments Differentiation Differentiate the market offering to create superior customer value Targeting Select the segment or segments to enter Create value for targeted customers Positioning Position the market offering in the minds of target customers CHapter 7 positioning Arranging for a market offering to occupy a clear, distinctive, and desirable place relative to competing products in the minds of target consumers. Author Market segmentation Comment addresses the first simplesounding marketing question: What customers will we serve? | Customer Value–Driven Marketing Strategy 213 firm’s market offering to create superior customer value. Positioning consists of arranging for a market offering to occupy a clear, distinctive, and desirable place relative to competing products in the minds of target consumers. We discuss each of these steps in turn. Market Segmentation Buyers in any market differ in their wants, resources, locations, buying attitudes, and buying practices. Through market segmentation, companies divide large, diverse markets into smaller segments that can be reached more efficiently and effectively with products and services that match their unique needs. In this section, we discuss four important segmentation topics: segmenting consumer markets, segmenting business markets, segmenting international markets, and the requirements for effective segmentation. Segmenting Consumer Markets There is no single way to segment a market. A marketer has to try different segmentation variables, alone and in combination, to find the best way to view market structure.  Table 7.1 outlines variables that might be used in segmenting consumer markets. Here we look at the major geographic, demographic, psychographic, and behavioral variables. Geographic Segmentation geographic segmentation Dividing a market into different geographical units, such as nations, states, regions, counties, cities, or even neighborhoods. geographic segmentation calls for dividing the market into different geographical units, such as nations, regions, states, counties, cities, or even neighborhoods. A company may decide to operate in one or a few geographical areas or operate in all areas but pay attention to geographical differences in needs and wants. Moreover, many companies today are localizing their products, services, advertising, promotion, and sales efforts to fit the needs of individual regions, cities, and other localities. For example, many large retailers—from Target and Walmart to Kohl’s and Staples— are now opening smaller-format stores designed to fit the needs of densely packed urban neighborhoods not suited to their typical large suburban superstores. Target’s CityTarget stores average about half the size of a typical Super Target; its TargetExpress stores are even smaller at about one-fifth the size of a big-box outlet. These smaller, conveniently located stores carry a more limited assortment of goods that meet the needs of urban residents and commuters, such as groceries, home essentials, beauty products, and consumer electronics. They also offer pick-up-in-store services and a pharmacy.2 Beyond adjusting store size, many retailers also localize product assortments and services. For example, department store chain Macy’s has a localization program called MyMacy’s in which merchandise is customized under 69 different geographical districts. At stores around the country, Macy’s sales clerks record local shopper requests and pass them along to district managers. In turn, blending the customer requests with store Table 7.1 | Major Segmentation Variables for Consumer Markets Segmentation Variable Examples Geographic Nations, regions, states, counties, cities, neighborhoods, population density (urban, suburban, rural), climate Demographic Age, life-cycle stage, gender, income, occupation, education, religion, ethnicity, generation Psychographic Lifestyle, personality Behavioral Occasions, benefits, user status, usage rate, loyalty status 214 | part 3 Designing a Customer Value–Driven Strategy and Mix transaction data, the district managers customize the mix of merchandise in their stores. So, for instance, Macy’s stores in Michigan stock more locally made Sanders chocolate candies. In Orlando, Macy’s carries more swimsuits in stores near waterparks and more twin bedding in stores near condominium rentals. The chain stocks extra coffee percolators in its Long Island stores, where it sells more of the 1960s must-haves than anywhere else in the country. In all, the “MyMacy’s” strategy is to meet the needs of local markets, making the giant retailer seem smaller and more in touch.3 Demographic Segmentation Demographic segmentation Dividing the market into segments based on variables such as age, life-cycle stage, gender, income, occupation, education, religion, ethnicity, and generation. Demographic segmentation divides the market into segments based on variables such as age, life-cycle stage, gender, income, occupation, education, religion, ethnicity, and generation. Demographic factors are the most popular bases for segmenting customer groups. One reason is that consumer needs, wants, and usage rates often vary closely with demographic variables. Another is that demographic variables are easier to measure than most other types of variables. Even when marketers first define segments using other bases, such as benefits sought or behavior, they must know a segment’s demographic characteristics to assess the size of the target market and reach it efficiently. Age and Life-Cycle Stage. Consumer needs and wants change with age. Some compaage and life-cycle segmentation Dividing a market into different age and life-cycle groups. gender segmentation Dividing a market into different segments based on gender. nies use age and life-cycle segmentation, offering different products or using different marketing approaches for different age and life-cycle groups. For example, Kraft’s Oscar Mayer brand markets Lunchables, convenient prepackaged lunches for children. To extend the substantial success of Lunchables, however, Oscar Mayer later introduced Lunchables Uploaded, a version designed to meet the tastes and sensibilities of teenagers. Most recently, the brand launched an adult version, but with the more adult-friendly name P3 (Portable Protein Pack). Now, consumers of all ages can enjoy one of America’s favorite noontime meals. Marketers must be careful to guard against stereotypes when using age and life-cycle segmentation. For example, although some 80-year-olds fit the stereotypes of doddering shut-ins with fixed incomes, others ski and play tennis. Similarly, whereas some 40-year-old couples are sending their children off to college, others are just beginning new families. Thus, age is often a poor predictor of a person’s life cycle, health, work or family status, needs, and buying power. gender segmentation: in line with the “athleisure” trend that has more women wearing workout gear as everyday fashion, Dick’s Sporting goods recently launched its first-ever ads aimed directly at fitnessminded women. DICK’S Sporting Goods Gender. gender segmentation has long been used in marketing clothing, cosmetics, toiletries, toys, and magazines. For example, P&G was among the first to use gender segmentation with Secret, a deodorant brand specially formulated for a woman’s chemistry, packaged and advertised to reinforce the female image. More recently, the men’s personal care industry has exploded, and many cosmetics brands that previously catered mostly to women—from L’Oréal, Nivea, and Sephora to Unilever’s Dove brand—now successfully market men’s lines. For example, Dove’s Men+Care line calls itself “The authority on man maintenance.” The brand provides a full line of body washes (“skin care built in”), body bars (“fight skin dryness”), antiperspirants (“tough on sweat, not on skin”), face care (“take better care of your face”), and hair care (“3X stronger hair”).4 Going in the other direction, brands that have traditionally targeted men are now targeting women. For example, in line with the “athleisure” trend in which more women are wearing workout gear as everyday fashion, sports apparel makers and retailers—from Nike and Under Armour to Dick’s Sporting Goods—are boosting their marketing efforts aimed at women buyers. Women now make up half of all sporting good shoppers. Dick’s Sporting Goods recently launched its first-ever ads aimed directly at fitness-minded women, as part of its broader “Who Will You Be?” campaign. The ads feature women who must juggle their busy lives to meet their fitness goals. The first ad in the series shows one mom jogging rather than driving to pick up her sons at school. Another mom jogs on a treadmill while listening to her baby CHapter 7 | Customer Value–Driven Marketing Strategy 215 monitor. “Who will you be?” asks the ad. “Every run. Every workout. Every day. Every choice. Every season begins with Dick’s Sporting Goods.” Dick’s want women buyers to know that “we understand the choices that they have to make every single day . . . to fit in fitness,” says the retailer’s chief marketer.5 Income. The marketers of products and services such as automobiles, clothing, cosmetincome segmentation Dividing a market into different income segments. ics, financial services, and travel have long used income segmentation. Many companies target affluent consumers with luxury goods and convenience services. Other marketers use high-touch marketing programs to court the well-to-do. Upscale retailer Saks Fifth Avenue provides exclusive services to its elite clientele of Fifth Avenue Club members, some of whom spend as much as $150,000 to $200,000 a year on clothing and accessories from Saks alone. For example, Fifth Avenue Club members have access to a Saks Personal Stylist. The fashion-savvy, well-connected personal consultant gets to know and helps to shape each client’s personal sense of style, then guides him or her “through the maze of fashion must-haves.” The personal stylist puts the customer first. For example, if Saks doesn’t carry one of those must-haves that the client covets, the personal stylist will find it elsewhere at no added charge.6 However, not all companies that use income segmentation target the affluent. For example, many retailers—such as the Dollar General, Family Dollar, and Dollar Tree store chains—successfully target low- and middle-income groups. The core market for such stores is represented by families with incomes under $30,000. When Family Dollar real estate experts scout locations for new stores, they look for lower-middle-class neighborhoods where people wear less-expensive shoes and drive old cars that drip a lot of oil. With their low-income strategies, dollar stores are now the fastest-growing retailers in the nation. Psychographic Segmentation Psychographic segmentation divides buyers into different segments based on lifestyle or personality characteristics. People in the same demographic group can have very different psychographic characteristics. In Chapter 5, we discussed how the products people buy reflect their lifestyles. As a result, marketers often segment their markets by consumer lifestyles and base their marketing strategies on lifestyle appeals. For example, retailer Anthropologie, with its whimsical, “French flea market” store atmosphere, sells a Bohemian-chic lifestyle to which its young women customers aspire. And Athleta sells an urban-active lifestyle to women with its yoga, running, and other athletic clothing along with urban-causal, post-workout apparel. Royal Dutch Gazelle produces several types of bikes for different kinds of customers. City bikes are made for short trips to nearby locations, to work, Gazelle also produces a traditional city or for a regular shopping trip. bike known as the Robust Classic. Trekking bikes are for people who want a sporty and lightweight bike. These bikes come with high-grade components, a sleekly shaped aluminum frame and carbon front fork. The light weight makes for easy transport, so you could take with it you on a holiday trip. Lifestyle bikes, on the other hand, with tough, wide tires and a robust frame, are for the rider to cruise through the town in style. Gazelle also produces e-bikes for daily use, but the Gazelle Ultimate e-bike belongs to a top-flight range: made from lightweight high-end carbon or aluminum parts and frames, it is meant to combine sportiness and speed with great comfort.7 Marketers also use personality variables to segment markets. For example, ads for Sherwin Williams paint—headlined “Make the most for your color with the very best paint”—seem to appeal to older, more practical do-it-yourself personalities. By contrast, Benjamin Moore’s ads and social media pitches appeal to younger, more outgoing fashion individualists. One Benjamin Moore print ad—consisting of a single long line of text in a crazy quilt of fonts—describes Benjamin Moore’s Hot Lips paint color this way: “It’s somewhere between the color of your lips when you go outside in December with your Lifestyle segmentation: gazelle caters to a range of lifestyle segments, from daily users to the Dutch hair still wet and the color of a puddle left by a melted grape popsicle mixed royal family. with the color of that cough syrup that used to make me gag a little. Hot lips. Patrick Van Katwijk/dpa picture alliance/Alamy Stock Photo Perfect.” psychographic segmentation Dividing a market into different segments based on lifestyle or personality characteristics. 216 | part 3 Designing a Customer Value–Driven Strategy and Mix Behavioral Segmentation Behavioral segmentation Dividing a market into segments based on consumer knowledge, attitudes, uses of a product, or responses to a product. Occasion segmentation Dividing the market into segments according to occasions when buyers get the idea to buy, actually make their purchase, or use the purchased item. Benefit segmentation Dividing the market into segments according to the different benefits that consumers seek from the product. Behavioral segmentation divides buyers into segments based on their knowledge, attitudes, uses, or responses to a product. Many marketers believe that behavior variables are the best starting point for building market segments. Occasions. Buyers can be grouped according to occasions when they get the idea to buy, actually make their purchases, or use the purchased items. occasion segmentation can help firms build up product usage. Campbell’s advertises its soups more heavily in the cold winter months. And for more than a dozen years, Starbucks has welcomed the autumn season with its pumpkin spice latte (PSL). Sold only in the fall, PSLs pull in an estimated $100 million in revenues for Starbucks each year.8 Still other companies try to boost consumption by promoting usage during nontraditional occasions. For example, most consumers drink orange juice in the morning, but orange growers have promoted drinking orange juice as a cool, healthful refresher at other times of the day. Similarly, whereas consumers tend to drink soft drinks later in the day, Mountain Dew introduced Mtn Dew A.M. (a mixture of Mountain Dew and orange juice) to increase morning consumption. And Taco Bell’s First Meal campaign attempts to build business by promoting Mtn Dew A.M. (available only at Taco Bell) along with the chain’s A.M. Crunchwrap and other breakfast items as a great way to start the day. Benefits Sought. A powerful form of segmentation is grouping buyers according to the different benefits that they seek from a product. Benefit segmentation requires finding the major benefits people look for in a product class, the kinds of people who look for each benefit, and the major brands that deliver each benefit. For example, people who buy wearable health and activity trackers are looking for a variety of benefits, everything from counting steps taken and calories burned to heart rate monitoring and high-performance workout tracking and reporting. To meet these varying benefit preferences, Fitbit makes health and fitness tracking devices aimed at buyers in three major benefit segments: Everyday Fitness, Active Fitness, and Performance Fitness:9 Everyday Fitness buyers want only very basic fitness tracking. So Fitbit’s simplest device, the Fitbit Zip, offers these consumers “A fun, simple way to track your day.” It tracks steps taken, distance traveled, calories consumed, and active minutes. The Fitbit One, also aimed at Everyday Fitness buyers, does all that and also monitors how long and well they sleep; the Fitbit Charge adds a wristband and watch. At the other extreme, for the Performance Fitness segment, the high-tech Fitbit Surge helps serious athletes “Train smarter. Go Farther.” The Surge is “the ultimate fitness super watch,” with GPS tracking, heart rate monitoring, all-day activity tracking, automatic workout tracking and recording, sleep monitoring, text notification, music control, and wireless synching to Fitbit’s smartphone and computer app. In all, within Fitbit’s family of fitness products, no matter what bundle of benefits one seeks, “There’s a Fitbit product for everyone.” User Status. Markets can be segmented into nonusers, ex-users, potential users, first-time users, and regular users of a product. Marketers want to reinforce and retain regular users, attract targeted nonusers, and reinvigorate relationships with ex-users. Included in the potential users group are consumers facing life-stage changes—such as new parents and newlyweds—who can be turned into heavy users. For example, to get new parents off to the right start, P&G makes certain that its Pampers Swaddlers are the diaper most U.S. hospitals provide for newborns and then promotes them as “the #1 choice of hospitals.” Benefit segmentation: Within Fitbit’s family of health and fitness tracking products, no matter what bundle of benefits one seeks, “There’s a Fitbit for Everyone.” Paul Marotta/Stringer/Getty Images Usage Rate. Markets can also be segmented into light, medium, and heavy product users. Heavy users are often a small percentage of the market but account CHapter 7 | Customer Value–Driven Marketing Strategy 217 for a high percentage of total consumption. For instance, Carl’s Jr. and Hardee’s restaurants, both owned by parent company CKE Restaurants, focus on a target of “young, hungry men.” These young male customers, ages 18 to 34, fully embrace the chain’s “If you’re gonna eat, eat like you mean it” positioning. That means they wolf down a lot more Thickburgers and other To attract indulgent items featured on the chains’ menus. this audience, the company is known for its steamy hot-models-in-bikinis commercials, featuring models such as Kate Upton, Charlotte McKinney, Nina Agdal, and Hannah Ferguson to heat up the brands’ images. Such ads clearly show “what our target audience of young, hungry guys like,” says CKE’s chief executive.10 Loyalty Status. A market can also be segmented by consumer loyalty. Consumers can be loyal to brands (Tide), stores (Target), and companies (Apple). Buyers can be divided into groups according to their degree of loyalty. Some consumers Targeting heavy users: Sister chains hardee’s and Carl’s Jr. use are completely loyal—they buy one brand all the time and can’t steamy hot-models-in-bikinis commercials to attract an audience wait to tell others about it. For example, whether they own a of “young, hungry men,” who wolf down a lot more of the chains’ featured Thickburgers and other indulgent items than consumers MacBook Pro, an iPhone, or an iPad, Apple devotees are granin other segments. itelike in their devotion to the brand. At one end are the quietly CKE Restaurants/Splash News/Newscom satisfied Apple users, folks who own one or several Apple devices and use them for browsing, texting, email, and social networking. At the other extreme, however, are the Apple zealots—the so-called MacHeads or Macolytes—who can’t wait to tell anyone within earshot of their latest Apple gadget. Such loyal Apple devotees helped keep Apple afloat during the lean years a decade ago, and they are now at the forefront of Apple’s huge iPhone, iPad, iPod, and iTunes empire. Other consumers are somewhat loyal—they are loyal to two or three brands of a given product or favor one brand while sometimes buying others. Still other buyers show no loyalty to any brand—they either want something different each time they buy, or they buy whatever’s on sale. A company can learn a lot by analyzing loyalty patterns in its market. It should start by studying its own loyal customers. Highly loyal customers can be a real asset. They often promote the brand through personal word of mouth and social media. Instead of just marketing to loyal customers, companies should engage them fully and make them partners in building the brand and telling the brand story. For example, Mountain Dew has turned its loyal customers into a “Dew Nation” of passionate superfans who have made it the nation’s number-three liquid refreshment brand behind only Coca-Cola and Pepsi (see Real Marketing 7.1). Some companies actually put loyalists to work for the brand. For example, Patagonia relies on its most tried-and-true customers—what it calls Patagonia ambassadors—to field-test products in harsh environments, provide input for “ambassador-driven” lines of apparel and gear, and share their product experiences with others.11 In contrast, by studying its less-loyal buyers, a company can detect which brands are most competitive with its own. By looking at customers who are shifting away from its brand, the company can learn about its marketing weaknesses and take actions to correct them. Using Multiple Segmentation Bases Marketers rarely limit their segmentation analysis to only one or a few variables. Rather, they often use multiple segmentation bases in an effort to identify smaller, better-defined target groups. Several business information services—such as Nielsen, Acxiom, Esri, and Experian—provide multivariable segmentation systems that merge geographic, demographic, lifestyle, and behavioral data to help companies segment their markets down to zip codes, neighborhoods, and even households. One of the leading consumer segmentation systems is Experian Marketing Services’ It classifies U.S. households into one of 71 lifestyle segments and Mosaic USA system. 19 overarching groups based on income, age, buying habits, household composition, and life events. Mosaic USA segments carry exotic names such as Birkenstocks and Beemers, Real Marketing 218 | part 3 Designing a Customer Value–Driven Strategy and Mix 7.1 Mountain Dew: “Doin’ the Dew” with Brand Superfans Perhaps no brand has built a more passionately loyal and engaged following than PepsiCo’s high-flying Mountain Dew. For example, take Jason Hemperly, the shy high school kid who had his grandmother make him a tuxedo for his prom out of flattened Mountain Dew cans. And Chester Atkins and his wife Amy who sport matching Mountain Dew tattoos and who toasted their marriage proposal with champagne flutes filled with the citrusy green drink. Then there’s Chris Whitley from Jackson, Mississippi, who drinks some 40 cans of Mountain Dew a week, keeps a copious collection of Mountain Dew T-shirts and hats, and absolutely worships NASCAR driver and Mountain Dew spokesman Dale Earnhardt Jr. “It’s pretty much a religious obsession for me, I guess,” says Whitley about Mountain Dew. “I just don’t drink anything else.” Such fiercely loyal customers—who collectively make up the “Dew Nation”—have made Mountain Dew one of PepsiCo’s largest and fastest-growing brands. Mountain Dew’s avid superfans make up only 20 percent of its customers but consume a mindboggling 70 percent of the brand’s total volume. Thanks to such fans, even as overall soft drink sales have lost their fizz during the past decade, Mountain Dew’s sales are bubbling over. The hugely popular $9 billion brand is now the nation’s number-three liquid refreshment, behind only behemoths CocaCola and Pepsi. Such loyalty and sales don’t just flow automatically out of bottles and pop-top cans. Mountain Dew markets heavily to its superfans. The brand’s long-running “Do the Dew” slogan—what Mountain Dew calls its “iconic rallying cry and brand credo”—headlines the extreme moments and excitement behind the brand’s positioning. Mountain Dew spent an estimated $76 million on “Do the Dew” advertising and other brand content last year, 45 percent of it in digital media. One recent action-packed “Do the Dew” ad features professional skateboarder Sean Malto igniting a beach party bonfire by grinding over a line of matches. In another ad, Dale Earnhardt Jr., smokes his tires on a winding, wooded country road to lay down a smoke screen for his paintball team. The “Do the Dew” campaign is loaded with high-octane stunts. However, according to Mountain Dew’s chief marketer, the slogan is “more about enjoying the moment you’re in,” something highly relevant to the brand’s young, largely millennial-male target market. But marketing to the Dew Nation explains only one part of Mountain Dew’s success. The real story revolves around the brand’s skill in fueling customer loyalty by actively engaging brand superfans and creating close brand community. Mountain Dew doesn’t just market to loyal customers; it makes them partners in building the brand and being part of the brand story. For example, over the years, through several “DEWmocracy” campaigns, the company has involved Mountain Dew lovers in shaping the brand at all levels. Under DEWmocracy, the Dew Nation has participated via online and social media in everything from choosing and naming new flavors and designing the cans to submitting and selecting TV commercials and even picking an ad agency and media. DEWmocracy has produced hit flavors such as Voltage and White Out. More important, DEWmocracy has been a perfect forum for getting youthful, digitally-savvy Dew drinkers engaged with each other and the company, making the brand their own. In creating engagement and community among loyal brand fans, Mountain Dew views itself as the ultimate lifestyle brand. Offline, for more than a decade, Mountain Dew has teamed with NBC Sports to sponsor The Dew Tour, a slate of summer and winter action sports events in major cities across the country. At a Dew Tour, superfans can experience the adrenaline-packed Mountain Dew lifestyle firsthand and share their experiences with others in the Dew Nation. Online, Mountain Dew’s dozens of web, mobile, and social media sites provide more by way of entertainment and community building than product information. For example, the main “Do the Dew” website serves as a lifestyle hub where super-passionate fans can check out the latest #dothedew programs, ads, and videos; hang out in the gaming section; and follow the adventures of Mountain Dew’s action sports athletes in skateboarding (Paul Rodriguez, Sean Malto, and Trevor Colden), snowboarding (Danny Davis and Scotty Lago), basketball (Russell Westbrook), racing (Dale Earnhardt Jr.), and even fishing (Gerald Swindle). But the ultimate digital hangout for Mountain Dew superfans is a place called Green Label, a web and social media community created by Mountain Dew as a hub for youth culture, covering Dew-related content on sports, music, art, and style. Green Label “welcomes all kinds: derelict skaters, music nerds, and art doodlers, and focuses Mountain Dew has turned its loyal customers into a “Dew nation” of passionate superfans who avidly adhere to the brand’s iconic “Do the Dew” rallying cry. PepsiCo CHapter 7 on the genetically modified cross-pollination that occurs at the intersection of skate, music, and art.” Green Label produces a constant flow of engaging content that gets superfans interacting with the brand. Green Label has also spawned ambitious projects such Mountain Dew’s Green Label Experience—a cable TV series showcasing action sports from The Dew Tour—and We Are Blood—a featurelength film that follows amateur and pro skaters around the world, “celebrating the unconditional bond created by the simple act of skateboarding.” The main GreenLabel.com site now draws five times more traffic than MountainDew.com. In all, few brands can match Mountain Dew when it comes to engaging loyal customers and involving them with the brand. In turn, the cult-like loyalty of the Dew Nation has kept | Customer Value–Driven Marketing Strategy Mountain Dew flowing even as competitors face declines. “The thing that really makes it different from a lot of other drinks, certainly from a lot of other carbonated soft drinks, is its incredibly loyal and passionate consumer base,” says Mountain Dew’s top marketer. To such loyal fans, Mountain Dew is more than just a something you drink. In the words of PepsiCo’s CEO, to Dew fans, Mountain Dew is “an attitude. It’s a fantastic attitude.” Just ask a superfan like 20-yearold Steven Kearney, who’s been drinking 219 Mountain Dew every day since eighth grade. Kearney has a collection of 80 vintage cans and bottles—he collects a new can as a memento every time a new flavor is released. He always starts the show he hosts on his college radio station by popping open a can of Mountain Dew, and he hangs out with a group of friends he calls “The Mountain Dew buddies.” Will he ever outgrow his yen to “Do the Dew”? “I feel like it will definitely be something I’m going to drink for the rest of my life,” he says. Sources: Nathalie Tadena, “Mountain Dew Ads Go Global with Return of ‘Do The Dew,’” Wall Street Journal, March 29, 2015, http://blogs.wsj.com/cmo/2015/03/29/mountain-dew-ads-go-global-with-return-of-do-the-dew/; Jillian Berman, “Here’s Why Mountain Dew Will Survive the Death of Soda,” Huffington Post, January 25, 2015, www. huffingtonpost.com/2015/01/26/mountain-dew-regions_n_6524382.html; Venessa Wong, “Nobody Knows What Mountain Dew Is, and That’s the Key to Its Success,” Buzzfeed, November 1, 2015, www.buzzfeed.com/venessawong/what-is-mountain-dew#.ikdN7aw8X; and www.mountaindew.com and www.greenlabel.com, accessed September 2016. Bohemian Groove, Sports Utility Families, Colleges and Cafes, Heritage Heights, Small Town Shallow Pockets, and True Grit Americans.12 Such colorful names help bring the segments to life. For example, the Birkenstocks and Beemers group is located in the Middle-Class Melting Pot level of affluence and consists of 40- to 65-year-olds who have achieved financial security and left the urban rat race for rustic and artsy communities located near small cities. They find spirituality more important than religion. Colleges and Cafes consumers are part of the Singles and Starters affluence level and are mainly white, under-35 college graduates who are still finding themselves. They are often employed as support or service staff related to a university. They don’t make much money and tend to not have any savings. Mosaic USA and other such systems can help marketers Using Experian’s mosaic USA segmentation system, marketers to segment people and locations into marketable groups of can paint a surprisingly precise picture of who you are and what like-minded consumers. Each segment has its own pattern you might buy. Mosiac USA segments carry colorful names such as Colleges and Cafes, Birkenstocks and Beemers, Bohemian groove, of likes, dislikes, lifestyles, and purchase behaviors. For exhispanic harmony, Rolling the Dice, Small Town Shallow Pockets, ample, Bohemian Groove consumers, part of the Significant and True grit Americans that help bring the segments to life. Singles group, are urban singles ages 45 to 65 living in zeljkodan/Shutterstock apartments in smaller cities such as Sacramento, CA, and Harrisburg, PA. They tend to be laid back, maintain a large circle of friends, and stay active in community groups. They enjoy music, hobbies, and the creative arts. When they go out to eat, they choose places such as the Macaroni Grill or Red Robin. Their favorite TV channels are Bravo, Lifetime, Oxygen, and TNT, and they watch two times more CSI than the average American. Using the Mosaic system, marketers can paint a surprisingly precise picture of who you are and what you might buy. Such rich segmentation provides a powerful tool for marketers of all kinds. It can help companies identify and better understand key customer segments, reach them more efficiently, and tailor market offerings and messages to their specific needs. Segmenting Business Markets Consumer and business marketers use many of the same variables to segment their markets. Business buyers can be segmented geographically, demographically (industry, company size), or by benefits sought, user status, usage rate, and loyalty status. Yet 220 | part 3 Designing a Customer Value–Driven Strategy and Mix business marketers also use some additional variables, such as customer operating characteristics, purchasing approaches, situational factors, and personal characteristics. Almost every company serves at least some business markets. For example, Starbucks has developed distinct marketing programs for each of its two business segments: the office coffee segment and the food service segment. In the office coffee and vending segment, Starbucks Office Coffee Solutions markets a variety of workplace coffee services to businesses of any size, helping them to make Starbucks coffee and related products available to their employees in their workplaces. Starbucks helps these business customers design the best office solutions involving its coffees (the Starbucks or Seattle’s Best brands), teas (Tazo), syrups, and branded paper products and methods of serving them—portion packs, single cups, or vending. The Starbucks Foodservice division teams up with businesses and other organizations—ranging from airlines, restaurants, colleges, and hospitals to baseball stadiums—to help them serve the well-known Starbucks brand to their own customers. Starbucks provides not only the coffee, tea, and paper products to its food service partners but also equipment, training, and marketing and merchandising support.13 Many companies establish separate systems for dealing with larger or multiple-location customers. For example, Steelcase, a major producer of office furniture systems, first divides customers into several segments: health-care, education, hospitality, legal, U.S. and Canadian governments, and state and local governments. Next, company salespeople work with independent Steelcase dealers to handle smaller, local, or regional Steelcase customers in each segment. But many national, multiple-location customers, such as ExxonMobil or IBM, have special needs that may reach beyond the scope of individual dealers. Therefore, Steelcase uses national account managers to help its dealer networks handle national accounts. Segmenting International Markets intermarket (cross-market) segmentation Forming segments of consumers who have similar needs and buying behaviors even though they are located in different countries. Few companies have either the resources or the will to operate in all, or even most, of the countries that dot the globe. Although some large companies, such as Coca-Cola or Unilever, sell products in more than 200 countries, most international firms focus on a smaller set. Different countries, even those that are close together, can vary greatly in their economic, cultural, and political makeup. Thus, just as they do within their domestic markets, international firms need to group their world markets into segments with distinct buying needs and behaviors. Companies can segment international markets using one or a combination of several variables. They can segment by geographic location, grouping countries by regions such as Western Europe, the Pacific Rim, South Asia, or Africa. Geographic segmentation assumes that nations close to one another will have many common traits and behaviors. Although this is sometimes the case, there are many exceptions. For example, some U.S. marketers lump all Central and South American countries together. However, the Dominican Republic is no more like Brazil than Italy is like Sweden. Many Central and South Americans don’t even speak Spanish, including more than 200 million Portuguese-speaking Brazilians and the millions in other countries who speak a variety of Indian dialects. World markets can also be segmented based on economic factors. Countries might be grouped by population income levels or by their overall level of economic development. A  country’s economic structure shapes its population’s product and service needs and therefore the marketing opportunities it offers. For example, many companies are now targeting the BRIC countries—Brazil, Russia, India, and China—which are fast-growing developing economies with rapidly increasing buying power. Countries can also be segmented by political and legal factors such as the type and stability of government, receptivity to foreign firms, monetary regulations, and amount of bureaucracy. Cultural factors can also be used, grouping markets according to common languages, religions, values and attitudes, customs, and behavioral patterns. Segmenting international markets based on geographic, economic, political, cultural, and other factors presumes that segments should consist of clusters of countries. However, as new communications technologies, such as satellite TV and online and social media, connect consumers around the world, marketers can define and reach segments of like-minded consumers no matter where in the world they are. Using intermarket  segmentation (also called cross-market segmentation), they form segments of consumers who have CHapter 7 | Customer Value–Driven Marketing Strategy 221 similar needs and buying behaviors even though they are located in different countries. Since 1919, Bentley Motors has produced luxury automobiles known for their distinctive design, handcrafted luxury, and a refined but exhilarating driving experience. Given its high price, Bentley Motors has focused on economically developed markets such as the United States and Europe, positioning itself on luxury, prestige, and exclusivity, but most importantly its “Britishness.” When sales slumped in response to the 2008 financial crisis, Bentley began a search for new markets. Using cross-market segmentation, Bentley shifted its focus from targeting affluent markets to targeting affluent consumers. This allowed the company to identify and then capitalize on the burgeoning purchasing power in the high-income segments of emerging markets such as Russia and China, markets that Bentley intermarket segmentation: Bentley Motors targets high-income consumers around the world with its focus on luxury, prestige, heritage, and exclusivity. had previously not considered given their overall WENN Ltd/Alamy Stock Photo low per capita incomes. Bentley Motors now targets affluent consumers regardless of the market, who demand and are willing to pay for the superior-quality, quintessentially British luxury automobiles and driving experience the company has always produced. Requirements for Effective Segmentation Clearly, there are many ways to segment a market, but not all segmentations are effective. For example, buyers of table salt could be divided into blonde and brunette customers. But hair color obviously does not affect the purchase of salt. Furthermore, if all salt buyers bought the same amount of salt each month, believed that all salt is the same, and wanted to pay the same price, the company would not benefit from segmenting this market. To be useful, market segments must be • Measurable. The size, purchasing power, and profiles of the segments can be measured. • Accessible. The market segments can be effectively reached and served. • Substantial. The market segments are large or profitable enough to serve. A segment should be the largest possible homogeneous group worth pursuing with a tailored marketing program. It would not pay, for example, for an automobile manufacturer to develop cars especially for people whose height is greater than seven feet. • Differentiable. The segments are conceptually distinguishable and respond differently to different marketing mix elements and programs. If men and women respond similarly to marketing efforts for soft drinks, they do not constitute separate segments. • Actionable. Effective programs can be designed for attracting and serving the segments. For example, although one small airline identified seven market segments, its staff was too small to develop separate marketing programs for each segment. Author After dividing the market Comment into segments, it’s time to answer that first seemingly simple marketing strategy question we raised in Figure 7.1: Which customers will the company serve? Market Targeting Market segmentation reveals the firm’s market segment opportunities. The firm now has to evaluate the various segments and decide how many and which segments it can serve best. We now look at how companies evaluate and select target segments. Evaluating Market Segments In evaluating different market segments, a firm must look at three factors: segment size and growth, segment structural attractiveness, and company objectives and resources. First, a company wants to select segments that have the right size and growth characteristics. But 222 | part 3 Designing a Customer Value–Driven Strategy and Mix “right size and growth” is a relative matter. The largest, fastest-growing segments are not always the most attractive ones for every company. Smaller companies may lack the skills and resources needed to serve larger segments. Or they may find these segments too competitive. Such companies may target segments that are smaller and less attractive, in an absolute sense, but that are potentially more profitable for them. The company also needs to examine major structural factors that affect long-run segment attractiveness.14 For example, a segment is less attractive if it already contains many strong and aggressive competitors or if it is easy for new entrants to come into the segment. The existence of many actual or potential substitute products may limit prices and the profits that can be earned in a segment. The relative power of buyers also affects segment attractiveness. Buyers with strong bargaining power relative to sellers will try to force prices down, demand more services, and set competitors against one another—all at the expense of seller profitability. Finally, a segment may be less attractive if it contains powerful suppliers that can control prices or reduce the quality or quantity of ordered goods and services. Even if a segment has the right size and growth and is structurally attractive, the company must consider its own objectives and resources. Some attractive segments can be dismissed quickly because they do not mesh with the company’s long-run objectives. Or the company may lack the skills and resources needed to succeed in an attractive segment. For example, the economy segment of the automobile market is large and growing. But given its objectives and resources, it would make little sense for luxuryperformance carmaker Mercedes-Benz to enter this segment. A company should only enter segments in which it can create superior customer value and gain advantages over its competitors. Selecting Target Market Segments target market A set of buyers who share common needs or characteristics that a company decides to serve. undifferentiated (mass) marketing A market-coverage strategy in which a firm decides to ignore market segment differences and go after the whole market with one offer. Differentiated (segmented) marketing A market-coverage strategy in which a firm targets several market segments and designs separate offers for each. After evaluating different segments, the company must decide which and how many segments it will target. A target market consists of a set of buyers who share common needs or characteristics that a company decides to serve. Market targeting can be carried out Figure 7.2 shows that companies can target very broadly at several different levels. (undifferentiated marketing), very narrowly (micromarketing), or somewhere in between (differentiated or concentrated marketing). Undifferentiated Marketing Using an undifferentiated marketing (or mass marketing) strategy, a firm might decide to ignore market segment differences and target the whole market with one offer. Such a strategy focuses on what is common in the needs of consumers rather than on what is different. The company designs a product and a marketing program that will appeal to the largest number of buyers. As noted earlier in the chapter, most modern marketers have strong doubts about this strategy. Difficulties arise in developing a product or brand that will satisfy all consumers. Moreover, mass marketers often have trouble competing with more-focused firms that do a better job of satisfying the needs of specific segments and niches. Differentiated Marketing Using a differentiated marketing (or segmented marketing) strategy, a firm decides to target several market segments and designs separate offers for each. For example, P&G Figure | 7.2 Market-Targeting Strategies This figure covers a broad range of targeting strategies, from mass marketing (virtually no targeting) to individual marketing (customizing products and programs to individual customers). Undifferentiated (mass) marketing Targeting broadly Differentiated (segmented) marketing Concentrated (niche) marketing Micromarketing (local or individual marketing) Targeting narrowly CHapter 7 | Customer Value–Driven Marketing Strategy 223 markets at least six different laundry detergent brands in the United States (Tide, Gain, Cheer, Era, Dreft, and Bold), which compete with each other on supermarket shelves. Then P&G further segments each detergent brand to serve even narrower niches. For example, you can buy any of dozens of versions of Tide—from Tide Original, Tide Coldwater, or Tide Pods to Tide Free & Gentle, Tide Vivid White + Bright, Tide Colorguard, Tide plus Febreze, or Tide with a Touch of Downy. By offering product and marketing variations to segments, companies hope for higher sales and a stronger position within each market segment. Developing a stronger position within several segments creates more total sales than undifferentiated marketing across all segments. Thanks to its differentiated approach, P&G is really cleaning up in the Incredibly, by $15 billion U.S. laundry detergent market. itself, the Tide family of brands captures a 38 percent share of all North American detergent sales; the Gain brand pulls in another 15 percent. Even more incredible, all P&G detergent brands combined capture a 60 percent U.S. market share.15 But differentiated marketing also increases the costs of doing business. A firm usually finds it more expensive to develop and produce, say, 10 units of 10 different products than 100 units of a single product. Developing separate marketing plans for separate segments requires extra marketing research, forecasting, sales analysis, promotion planDifferentiated marketing: P&g markets multiple laundry detergent ning, and channel management. And trying to reach differbrands, then further segments each brand to service even narrower ent market segments with different advertising campaigns niches. As a result, it’s really cleaning up in the U.S. laundry detergent increases promotion costs. Thus, the company must weigh market, with an almost 60 percent market share. increased sales against increased costs when deciding on a © Torontonian / Alamy Stock Photo differentiated marketing strategy. Concentrated Marketing Concentrated (niche) marketing A market-coverage strategy in which a firm goes after a large share of one or a few segments or niches. When using a concentrated marketing (or niche marketing) strategy, instead of going after a small share of a large market, a firm goes after a large share of one or a few smaller segments or niches. For example, consider nicher Stance Socks:16 “Rihanna designs them, Jay Z sings about them, and the rest of the world can’t seem to get enough of Stance socks,” says one observer. They’ve even become the official on-court sock of the NBA and a favorite of many professional players on game day. Nicher Stance sells socks and only socks. Yet it’s thriving in the shadows of much larger competitors who sell socks mostly as a sideline. Five years ago, Stance’s founders discovered socks as a large but largely overlooked and undervalued market. While walking through the sock section a local Target store, says Stance’s CEO and cofounder, Jeff Kearl, “It was like, black, white, brown, and gray— with some argyle—in plastic bags. I thought, we could totally [reinvent] socks, because everyone was ignoring them.” So Stance set out to breathe new life into the sock category by creating technically superior socks that also offered fun, style, and status. Mission accomplished. You’ll now find colorful displays of Stance’s comfortable but quirky socks in stores in more than 40 countries, from the local surf shop to Foot Locker to Nordstrom, Bloomingdale’s, and Macy’s. Selling at prices ranging from $10 to $40 a pair, Stance sold an estimated 12 million pairs of socks last year. That’s small potatoes for giant competitors such as Hanes or Nike, but it’s nicely profitable for nicher Stance. Next up? Another often overlooked niche—Stance men’s underwear. Concentrated marketing: innovative nicher Stance Socks thrives in the shadows of larger competitors. Stance, Inc. Through concentrated marketing, the firm achieves a strong market position because of its greater knowledge of consumer needs in the niches it serves and the special reputation it acquires. It can market more effectively by fine-tuning its products, prices, and programs to the needs of carefully defined segments. It can also market more efficiently, targeting its products or services, channels, and communications programs toward only consumers that it can serve best and most profitably. 224 | part 3 Designing a Customer Value–Driven Strategy and Mix Niching lets smaller companies focus their limited resources on serving niches that may be unimportant to or overlooked by larger competitors. Many companies start as nichers to get a foothold against larger, more resourceful competitors and then grow into broader competitors. For example, Southwest Airlines began by serving intrastate, no-frills commuters in Texas but is now one of the nation’s largest airlines. And Enterprise Rent-ACar began by building a network of neighborhood offices rather than competing with Hertz and Avis in airport locations. Enterprise is now the nation’s largest car rental company. Today, the low cost of setting up shop on the internet makes it even more profitable to serve seemingly small niches. Small businesses, in particular, are realizing riches from serving niches on the web. Consider online women’s fashion retailer Stitch Fix:17 Stitch Fix offers affordable personal styling services online to busy women on the go. It positions itself as “Your partner in personal style.” Although “personal service” and “online” might seem a contradiction, Stitch Fix pulls it off with a team of more than 2,000 personal stylists who apply a sophisticated algorithm to determine each customer’s unique sense of style. A customer begins by filling out a detailed style profile that goes far beyond the usual sizing charts. It probes personal preferences with questions such as “What do you like to flaunt?” and “How adventurous do you want your Fix selections to be?” (One answer choice: “Frequently: Adventure is my middle name, bring it on!”) The customer also rates photo montages of different fashions and can even submit links to her own Pinterest pages or other social media. Combining the algorithm with large doses of human judgment (the stylist may completely override the algorithm), the personal stylist assembles and ships the customer’s first fashion “Fix”—a box containing five clothing or accessory items pegged to the customer’s special tastes. “Our professional stylists will pick out items they think you’ll love—sometimes a little out of your comfort zone, but that’s part of the fun,” says the company. The customer keeps what she likes and returns the rest, along with detailed feedback. The first Fix is the hardest because the stylist and algorithm are still learning. But after that, the Stitch Fix experience becomes downright addictive for many shoppers. More than 80 percent of customers visit the site within 90 days for a second order, and one-third spend 50 percent of their clothing budget with Stitch Fix. Thanks to the power and personalization qualities of the internet, Stitch Fix is attracting attention and growing fast. The online nicher has inspired a virtual army of pro–Stitch Fix blog and social media posters, and its revenues have skyrocketed to more than $200 million annually. Concentrated marketing can be highly profitable. At the same time, it involves higher-than-normal risks. Companies that rely on one or a few segments for all of their business will suffer greatly if the segment turns sour. Or larger competitors may decide to enter the same segment with greater resources. In fact, many large companies develop or acquire niche brands of their own. For example, Coca-Cola’s Venturing and Emerging Brands unit markets a cooler full of niche beverages. Its brands include Honest Tea (the nation’s number-one organic bottled tea brand), NOS (an energy drink popular among auto enthusiasts), FUZE (a fusion of tea, fruit, and other flavors), Zico (pure premium coconut water), Odwalla (natural beverages and bars that “bring goodness to your life”), Fairlife (unfiltered milk), and many others. Such brands let Coca-Cola compete effectively in smaller, specialized markets, and some will grow into future powerhouse brands.18 online niching: Thanks to the power and personalization characteristics of online marketing, online women’s fashion retailer Stitch Fix is attracting attention and growing fast. STITCH FIX and FIX are trademarks of Stitch Fix, Inc. Micromarketing Micromarketing Tailoring products and marketing programs to the needs and wants of specific individuals and local customer segments; it includes local marketing and individual marketing. Local marketing Tailoring brands and marketing to the needs and wants of local customer segments—cities, neighborhoods, and even specific stores. Differentiated and concentrated marketers tailor their offers and marketing programs to meet the needs of various market segments and niches. At the same time, however, they do not customize their offers to each individual customer. Micromarketing is the practice of tailoring products and marketing programs to suit the tastes of specific individuals and local customer segments. Rather than seeing a customer in every individual, micromarketers see the individual in every customer. Micromarketing includes local marketing and individual marketing. Local Marketing. Local marketing involves tailoring brands and promotions to the needs and wants of local customers. For example, Marriott’s Renaissance Hotels has rolled out its Navigator program, which hyper-localizes guest experiences at each of its 155 lifestyle hotels around the world:19 CHapter 7 | Customer Value–Driven Marketing Strategy 225 Renaissance Hotels’ Navigator program puts a personal and local face on each location by “micro-localizing” recommendations for guests’ food, shopping, entertainment, and cultural experiences at each destination. The program is anchored by on-site Renaissance Hotels “Navigators” at each location. Whether it’s Omar Bennett, a restaurant-loving Brooklynite at the Renaissance New York Times Square Hotel, or James Elliott at the St. Pancras Renaissance London Hotel, a history buff and local pub expert, Navigators are extensively trained locals who are deeply passionate about the destination and often have a personal connection to the locale. Based on 100-plus hours of intense training plus their own personal experiences and ongoing research, they work with guests personally to help them experience “the hidden gems throughout the neighborhood of geographic segmentation: Marriott’s Renaissance hotels’ navigators and “Live Life each hotel through the eyes of those to Discover” program help guests to experience “the hidden gems around the unique who know it best.” neighborhood of each hotel through the eyes of those who know it best.” In addition, Renaissance Hotels Renaissance Hotels, Marriott International, Marriott Rewards. Renaissance is a registered trademark of Marriott International, Inc. engages locals in each city to participate by inviting them to follow their local Navigator via social media as well as adding their own favorites to the system, creating each hotel’s own version of Yelp. Navigators then cull through submitted tips and feature the best recommendations alongside their own for sharing within the hotel lobby or on its web, mobile, and social media channels. Since introducing the hyper-localized Navigator program as part of Renaissance Hotels’ “Live Life to Discover” campaign two years ago, the hotel’s website traffic has grown more than 80 percent, Facebook Likes have exploded from 40,000 to more than 900,000, and Twitter followers have surged from 5,000 to 110,000. Advances in communications technology have given rise to new high-tech versions of location-based marketing. Thanks to the explosion in smartphones and tablets that integrate geolocation technology, companies can now track consumers’ whereabouts closely and engage them on the go with localized deals and information fast, wherever they may be. It’s called SoLoMo (social+local+mobile) marketing. Services such as Foursquare and Shopkick and retailers ranging from REI and Starbucks to Walgreens and Macy’s have jumped onto the SoLoMo bandwagon, primarily in the form of smartphone and tablet apps. Mobile app Shopkick excels at SoLoMo:20 Shopkick sends special offers and rewards to shoppers simply for checking into client stores such as Target, Macy’s, Best Buy, Old Navy, or Crate & Barrel and buying brands from Shopkick partners such as P&G, Unilever, Disney, Kraft, and L’Oréal. When shoppers are near a participating store, the Shopkick app on their phone picks up a signal from the store and spits out store coupons, deal alerts, and product information. When Shopkickers walk into their favorite retail stores, the app automatically checks them in and they rack up rewards points or “kicks.” If they buy something or scan product bar codes, they get even more kicks. Users can use their kicks for discounted or free merchandise of their own choosing. Shopkick helps users get the most out of their efforts by mapping out potential kicks in a given geographic area. Shopkick has grown quickly to become one of the nation’s top shopping apps, with more 15 million users and 300 brand partners. Local marketing has some drawbacks, however. It can drive up manufacturing and marketing costs by reducing the economies of scale. It can also create logistics problems as companies try to meet the varied requirements of different local markets. Still, as companies face increasingly fragmented markets and as new supporting digital technologies develop, the advantages of local marketing often outweigh the drawbacks. 226 | part 3 Designing a Customer Value–Driven Strategy and Mix individual marketing Individual Marketing. In the extreme, micromarketing becomes individual marketing— Tailoring products and marketing programs to the needs and preferences of individual customers. tailoring products and marketing programs to the needs and preferences of individual customers. Individual marketing has also been labeled one-to-one marketing, mass customization, and markets-of-one marketing. The widespread use of mass marketing has obscured the fact that for centuries consumers were served as individuals: The tailor custom-made a suit, the cobbler designed shoes for an individual, and the cabinetmaker made furniture to order. Today, new technologies are permitting many companies to return to customized marketing. Detailed databases, robotic production and flexible manufacturing, and interactive technologies such as smartphones and online and social media have combined to foster mass customization. Mass customization is the process by which firms interact one to one with masses of customers to design products, services, and marketing programs tailor-made to individual needs. Companies these days are hyper-customizing everything from food, artwork, earphones, and sneakers to high-end luxury products. At one end of the spectrum, candy lovers can go to mymms.com and buy M&Ms with personalized messages or pictures embossed on each little candy. Visit Nike ID or Puma Factory online to design and order your very own personalized sneakers. JH Audio in Orlando makes customized earphones based on molds of customers’ ears to provide optimized fit and better and safer sound. The company even laser-prints designs on the tiny ear buds—some people request a kid for each ear; others prefer a dog. At the other extreme are “bespoke” luxury goods (a fancy word for “custom-made” or “made to order”). For the right price, well-heeled customers can buy custom-designed goods ranging from bespoke fashions and accessories by Hermes and Gucci to bespoke cars from Aston Martin or Rolls-Royce.21 Ninety-five percent of Rolls-Royce buyers customize their cars in some way. Customers can sit down with a Rolls-Royce Bespoke design team—color experts, leather-smiths, master woodworkers—in a lounge filled with images, materials, and other inspirational elements to design their own unique Rolls-Royces. Want to match the exterior paint and interior leather to your favorite pale pink leather gloves? No problem. Want to customize your door handles, have your initials and a meaningful logo stitched into the headrests, or install mother-of-pearl inlays, crocodile skin seating, rabbit-pelt linings, or mahogany trim? Easily done. One customer even wanted his car’s interior trim to be made from a favorite tree that had recently fallen on his estate. After analyzing a sample, a Rolls-Royce craftsman deemed the wood acceptable and the customer’s tree will now live forever in the dash and door panels of his custom Rolls-Royce. “Outside of compromising the safety of the car—or disfiguring the Spirit of Ecstasy— we won’t say no,” says a Rolls-Royce executive. individual marketing: The Rolls-Royce Bespoke design team works closely with individual customers to help them create their own unique Rolls-Royces. “outside of compromising the safety of the car—or disfiguring the Spirit of Ecstasy—we won’t say no.” Associated Press Beyond customizing products, marketers also customize their marketing messages to engage customers on a one-to-one basis. For example, Nike collected data on its most enthusiastic customers, those who train using FuelBands and apps such as Nike+ Running. It then used the data to create 100,000 customized animated videos based on each individual’s actual workout activities. For example, one video might feature an animation of a person in Los Angeles running past the Hollywood sign; another might show a New Yorker running in the rain along the East River. Nike then emailed the unique customized videos to each of the 100,000 Nike+ users, challenging them to achieve new heights in the coming year. The videos not only engaged Nike’s biggest fans, they also spread to the broader Nike community. “These are some of the most social people on the planet,” says one campaign manager. “They share like crazy. So that becomes a pretty awesome flagship marketing move for Nike.”22 CHapter 7 | Customer Value–Driven Marketing Strategy 227 Choosing a Targeting Strategy Companies need to consider many factors when choosing a market-targeting strategy. Which strategy is best depends on the company’s resources. When the firm’s resources are limited, concentrated marketing makes the most sense. The best strategy also depends on the degree of product variability. Undifferentiated marketing is more suited for uniform products, such as grapefruit or steel. Products that can vary in design, such as cameras and cars, are more suited to differentiation or concentration. The product’s life-cycle stage also must be considered. When a firm introduces a new product, it may be practical to launch one version only, and undifferentiated marketing or concentrated marketing may make the most sense. In the mature stage of the product life cycle, however, differentiated marketing often makes more sense. Another factor is market variability. If most buyers have the same tastes, buy the same amounts, and react the same way to marketing efforts, undifferentiated marketing is appropriate. Finally, competitors’ marketing strategies should be considered. When competitors use differentiated or concentrated marketing, undifferentiated marketing can be suicidal. Conversely, when competitors use undifferentiated marketing, a firm can gain an advantage by using differentiated or concentrated marketing, focusing on the needs of buyers in specific segments. Socially Responsible Target Marketing Smart targeting helps companies become more efficient and effective by focusing on the segments that they can satisfy best and most profitably. Targeting also benefits consumers—companies serve specific groups of consumers with offers carefully tailored to their needs. However, target marketing sometimes generates controversy and concern. The biggest issues usually involve the targeting of vulnerable or disadvantaged consumers with controversial or potentially harmful products. For example, fast-food chains have generated controversy over the years by their attempts to target inner-city minority consumers. They’ve been accused of pitching their high-fat, salt-laden fare to low-income, urban residents who are much more likely than suburbanites to be heavy consumers. Similarly, big banks and mortgage lenders have been criticized for targeting consumers in poor urban areas with attractive adjustable-rate home mortgages that they can’t really afford. Children are seen as an especially vulnerable audience. Marketers in a wide range of industries—from cereal, soft drinks, and fast food to toys and fashion—have been criticized for their marketing efforts directed toward children. Critics worry that enticing premium offers and high-powered advertising appeals will overwhelm children’s defenses. In recent years, for instance, McDonald’s has been criticized by various health advocates and parent groups concerned that its popular Happy Meals offers—featuring trinkets and other items tied in with popular children’s movies and TV shows—create a too-powerful connection between children and less-healthy eating. McDonald’s has responded by putting the Happy Meal on a diet, cutting the overall calorie count by 20 percent, adding fruit to every meal, and promoting Happy Meals only with milk, water, and juice. And for a two-week span each year, McDonald’s replaces the toys in its Happy Meals with children’s books.23 The digital era may make children even more vulnerable to targeted marketing messages. Traditional child-directed TV and print ads usually contain fairly obvious pitches that are easily detected and controlled by parents. However, marketing in digital media may be subtly embedded within the content and viewed by children on personal, smallscreen devices that are beyond even the most watchful parent’s eye. In digital platforms, the lines between educational, entertainment, and commercial content are often blurred. Thus, as children consume increasing amounts of online and digital content, one expert advises that kids “shouldn’t be entirely left to their own devices.”24 More broadly, the growth of the internet, smartphones, and other carefully targeted direct media has raised fresh concerns about potential targeting abuses. The internet and mobile marketing allow more precise targeting, letting the makers of questionable products or deceptive advertisers zero in on the most vulnerable audiences. Unscrupulous marketers can now send tailor-made, deceptive messages by email directly to millions of unsuspecting consumers. For example, the Federal Bureau of Investigation’s Internet Crime Complaint Center website alone received more than 269,000 complaints last year.25 228 | part 3 Designing a Customer Value–Driven Strategy and Mix Today’s marketers are also using sophisticated analytical techniques to track consumers’ digital movements and to build amazingly detailed customer profiles containing highly personal information. Such profiles can then be used to hypertarget individual consumers with personalized brand messages and offers. However, with such targeting, marketers often walk a fine line between serving customers better and stalking them: How well does your smartphone know you? What stories could your laptop tell? In truth, your digital devices probably know more about you than you know about yourself. Smartphones and other digital equipment have become fundamental extensions of our lives. Whatever you do—at work, at play, socializing, shopping—your phone, tablet, laptop, or desktop is almost always a part of the action. These devices go where you go, entertain you, connect you with friends, take you browsing and shopping, feed you news and information, and listen in on even your most intimate voice, text, and email conversations. And more and more, these devices are sharing all that personal information with marketers. Companies have now developed sophisticated new ways that border on wizardry to extract intimate insights about consumers. For brands and marketers, such information is pure gold. Marketers argue that using all of this up-close-and-personal information better serves both customers and a company. Customers receive tailored, relevant information and offers from brands that really understand and interest them. However, many consumers and privacy advocates are concerned that such intimate information in the hands of unscrupulous marketers could result in more harm than benefit to consumers. They often view big data and hypertargeting less as “getting to know consumers better to serve them better” and more as “stalking” consumers and “profiling” them. Although most conhypertargeting: Marketers have developed sophisticated new ways to extract intimate sumers are willing to share some perinsights about consumers that border on wizardry. But hypertargeting walks a fine line sonal information if it means getting between “serving” consumers and “stalking” them. better service or deals, many consumers Andrew Bret Wallis/Getty Images worry that marketers might go too far. Thus, in target marketing, the issue is not really who is targeted but rather how and for what. Controversies arise when marketers attempt to profit at the expense of targeted segments—when they unfairly target vulnerable segments or target them with questionable products or tactics. Socially responsible marketing calls for segmentation and targeting that serve not just the interests of the company but also the interests of those targeted. Author At the same time that a Comment company is answering the first simple-sounding question (Which customers will we serve?), it must also be asking the second question (How will we serve them?). product position The way a product is defined by consumers on important attributes—the place it occupies in consumers’ minds relative to competing products. Differentiation and Positioning Beyond deciding which segments of the market it will target, the company must decide on a value proposition—how it will create differentiated value for targeted segments and what positions it wants to occupy in those segments. A product position is the way a product is defined by consumers on important attributes—the place the product occupies in consumers’ minds relative to competing products. Products are made in factories, but brands happen in the minds of consumers. Method laundry detergent is positioned as a smarter, easier, and greener detergent; Tide is “a washing miracle,” an all-purpose, heavy-duty family detergent that gets out grime and tough stains. Your Visa card is “Everywhere you want to be”; with American Express, “The Journey Never Stops.” At IHOP, you “Come hungry. Leave happy”; at Buffalo Wild Wings, it’s “Wings. Beer. Sports.” In the automobile market, the Honda Fit and Nissan Versa are positioned on economy, Mercedes and Cadillac on luxury, and Porsche and BMW on performance. Home-improvement store Lowe’s helps you “Never CHapter 7 Positioning: iKEA does more than just sell affordable home furnishings: it’s the “Life improvement store.” | Customer Value–Driven Marketing Strategy 229 stop improving.” And IKEA does more than just sell affordable home furnishings; it’s the “Life improvement store.” Consumers are overloaded with information about products and services. They cannot reevaluate products every time they make a buying decision. To simplify the buying process, consumers organize products, services, and companies into categories and “position” them in their minds. A product’s position is the complex set of perceptions, impressions, and feelings that consumers have for the product compared with competing products. Consumers position products with or without the help of marketers. But marketers do not want to leave their products’ positions to chance. They must plan positions that will give their products the greatest advantage in selected target markets, and they must design marketing mixes to create these planned positions. Used with the permission of Inter IKEA Systems B.V. Positioning Maps In planning their differentiation and positioning strategies, marketers often prepare perceptual positioning maps that show consumer perceptions of their brands versus those of Figure 7.3 shows a positioning competing products on important buying dimensions. map for the U.S. large luxury SUV market.26 The position of each circle on the map indicates the brand’s perceived positioning on two dimensions: price and orientation (luxury versus performance). The size of each circle indicates the brand’s relative market share. Thus, customers view the market-leading Cadillac Escalade as a moderately priced, large, luxury SUV with a balance of luxury and performance. The Escalade is positioned on urban luxury, and in its case, “performance” probably means power and safety performance. You’ll find no mention of off-road adventuring in an Escalade ad. By contrast, the Range Rover and the Land Cruiser are positioned on luxury with nuances of off-road performance. For example, the Toyota Land Cruiser began in 1951 as a four-wheel-drive, jeep-like vehicle designed to conquer the world’s most grueling terrains and climates. In recent years, the Land Cruiser has retained this adventure and performance positioning but with luxury added. Its website brags of “legendary off-road capability,” with off-road technologies such as an Acoustic Control Induction System to get the most out of the RPMs, “so you can make molehills out of mountains.” Despite its ruggedness, however, the company notes that “its Bluetooth hands-free technology, DVD entertainment, and a sumptuous interior have softened its edges.” Figure | 7.3 Positioning map: Large luxury SUVs  2TKEG  VJQWUCPFUQH 6JGNQECVKQPQHGCEJEKTENGUJQYUYJGTG EQPUWOGTURQUKVKQPCDTCPFQPVYQFKOGPUKQPU RTKEGCPFNWZWT[RGTHQTOCPEGQTKGPVCVKQP6JG UK\GQHGCEJEKTENGKPFKECVGUVJGDTCPFoUTGNCVKXG OCTMGVUJCTGKPVJGUGIOGPV6JWU6Q[QVC U.CPF %TWKUGTKUCPKEJGDTCPFVJCVKURGTEGKXGFVQDG TGNCVKXGN[GZRGPUKXGCPFOQTGRGTHQTOCPEG QTKGPVGF  %CFKNNCE'UECNCFG +PƂPKVK3: .GZWU.: .KPEQNP0CXKICVQT 6Q[QVC.CPF%TWKUGT .CPF4QXGT4CPIG4QXGT      .WZWT[ Orientation 2GTHQTOCPEG 230 | part 3 Designing a Customer Value–Driven Strategy and Mix Choosing a Differentiation and Positioning Strategy Some firms find it easy to choose a differentiation and positioning strategy. For example, a firm well known for quality in certain segments will go after this position in a new segment if there are enough buyers seeking quality. But in many cases, two or more firms will go after the same position. Then each will have to find other ways to set itself apart. Each firm must differentiate its offer by building a unique bundle of benefits that appeal to a substantial group within the segment. Above all else, a brand’s positioning must serve the needs and preferences of welldefined target markets. For example, as discussed in the chapter-opening story, although both Dunkin’ Donuts and Starbucks are coffee and snack shops, they target very different customers who want very different things from their favorite coffee seller. Starbucks targets more upscale professionals with more high-brow positioning. In contrast, Dunkin’ Donuts targets the “average Joe” with a decidedly more low-brow, “everyman” kind of positioning. Yet each brand succeeds because it creates just the right value proposition for its unique mix of customers. The differentiation and positioning task consists of three steps: identifying a set of differentiating competitive advantages on which to build a position, choosing the right competitive advantages, and selecting an overall positioning strategy. The company must then effectively communicate and deliver the chosen position to the market. Identifying Possible Value Differences and Competitive Advantages To build profitable relationships with target customers, marketers must understand customer needs and deliver more customer value better than competitors do. To the extent that a company can differentiate and position itself as providing superior customer value, it gains competitive advantage. Competitive advantage An advantage over competitors gained But solid positions cannot be built on empty promises. If a company positions its by offering greater customer value either product as offering the best quality and service, it must actually differentiate the prodby having lower prices or providing more uct so that it delivers the promised quality and service. Companies must do much more benefits that justify higher prices. than simply shout out their positions with slogans and taglines. They must first live the slogan. For example, online shoes and accessories seller Zappos’s “powered by service” positioning would ring hollow if not backed by truly outstanding customer care. Zappos aligns its entire organization and all of its people around providing the best possible customer service. The online seller’s number-one core value: “Deliver WOW through service.”27 To find points of differentiation, marketers must think through the customer’s entire experience with the company’s product or service. An alert company can find ways to differentiate itself at every customer contact point. In what specific ways can a company differentiate itself or its market offer? It can differentiate along the lines of product, services, channels, people, or image. Through product differentiation, brands can be differentiated on features, performance, or style and design. Thus, premium audio brand Bose positions its audio products on the innovative, high-quality listening experiences it gives users. Bose promises “better sound through research.” And BMW positions itself as “The Ultimate Driving Machine” that’s “designed for driving pleasure.” Beyond differentiating its physical product, a firm can also differentiate the services that accompany the product. Some companies gain services Jimmy John’s doesn’t differentiation through speedy, convenient service. just offer fast food; its gourmet sandwiches come “Freaky Fast.” Other firms promise high-quality customer service. For example, in an age where customer satisfaction with airline service is in constant decline, Singapore Airlines sets itself apart through extraordinary customer care and the grace of its flight attendants. Firms that practice channel differentiation gain competitive advantage through the way they design their channel’s coverage, expertise, and performance. Amazon and GEICO, for example, set themselves apart with their smooth-functioning direct channels. Companies can also gain a strong Services differentiation: Jimmy John’s doesn’t competitive advantage through people differentiation—hiring and training betjust offer fast food; its gourmet sandwiches come “Freaky Fast.” ter people than their competitors do. People differentiation requires that a company select its customer-contact people carefully and train them well. Jimmy John’s Sandwiches CHapter 7 | Customer Value–Driven Marketing Strategy 231 For example, East Coast supermarket chain Wegmans has long been recognized as a customer service champ with a cult-like loyalty among its shoppers. The secret to its extraordinary customer service lies in its carefully selected, superbly trained, happy employees, who personify Wegmans’s commitment to customers: “Everyday You Get Your Best.” For example, the chain’s cashiers aren’t allowed to interact with customers until they’ve had at least 40 hours of training. “Our employees are our number one asset,” says the chain’s vice president for human resources.28 Even when competing offers look the same, buyers may perceive a difference based on company or brand image differentiation. A company or brand image should convey a product’s distinctive benefits and positioning. Developing a strong and distinctive image calls for creativity and hard work. A company cannot develop an image in the public’s mind overnight by using only a few ads. If Ritz-Carlton means quality, this image must be supported by everything the company is, says, and does. Symbols, such as the McDonald’s golden arches, the colorful Google logo, the Twitter bird, the Nike swoosh, or Apple’s “bite mark” logo, can provide strong company or brand recognition and image differentiation. The company might build a brand around a famous person, as Nike did with its Michael Jordan, Kobe Bryant, and LeBron James basketball shoe and apparel collections. Some companies even become associated with colors, such as Coca-Cola (red), IBM (blue), or UPS (brown). The chosen symbols, characters, and other image elements must be communicated through advertising that conveys the company’s or brand’s personality. Choosing the Right Competitive Advantages Suppose a company is fortunate enough to discover several potential differentiations that provide competitive advantages. It now must choose the ones on which it will build its positioning strategy. It must decide how many differences to promote and which ones. How Many Differences to Promote. Many marketers think that companies should aggressively promote only one benefit to the target market. Former advertising executive Rosser Reeves, for example, said a company should develop a unique selling proposition (USP) for each brand and stick to it. Each brand should pick an attribute and tout itself as “number one” on that attribute. Buyers tend to remember number one better, especially in this overcommunicated society. Thus, Walmart promotes its unbeatable low prices and Burger King promotes personal choice—“have it your way.” Other marketers think that companies should position themselves on more than one differentiator. This may be necessary if two or more firms are claiming to be best on the same attribute. For example, with its “Expect More. Pay Less.” positioning, Targets sets itself apart from Walmart by adding a touch of class to its low prices. And Microsoft differentiates its innovative Surface tablet as being both a laptop and tablet in one. It’s the “One device for everything in your life”—lighter and thinner than a laptop but with a click-in keyboard and fuller features than competing tablets. It’s “Powerful as a laptop, lighter than Air.” Microsoft’s challenge is to convince buyers that it’s one brand can do it all. Today, in a time when the mass market is fragmenting into many small segments, companies and brands are trying to broaden their positioning strategies to appeal to more segments. Which Differences to Promote. Not all brand differences are meaningful or worthwhile, and each difference has the potential to create company costs as well as customer benefits. A difference is worth establishing to the extent that it satisfies the following criteria: • Important. The difference delivers a highly valued benefit to target buyers. • Distinctive. Competitors do not offer the difference, or the company can offer it in a more distinctive way. • Superior. The difference is superior to other ways that customers might obtain the same benefit. • Communicable. The difference is communicable and visible to buyers. • Preemptive. Competitors cannot easily copy the difference. • Affordable. Buyers can afford to pay for the difference. • Profitable. The company can introduce the difference profitably. 232 | part 3 Designing a Customer Value–Driven Strategy and Mix Many companies have introduced differentiations that failed one or more of these tests. When the Westin Stamford Hotel in Singapore once advertised itself as the world’s tallest hotel, it was a distinction that was not important to most tourists; in fact, it turned many off. Similarly, Coca-Cola’s classic product failure—New Coke—failed the superiority and importance tests among core Coca-Cola drinkers: Extensive blind taste tests showed that 60 percent of all soft drink consumers chose a new, sweeter Coca-Cola formulation over the original Coke, and 52 percent chose it over Pepsi. So the brand dropped its original-formula Coke and, with much fanfare, replaced it with New Coke, a sweeter, smoother version. However, in its research, Coca-Cola overlooked the many intangibles that have made Coca-Cola so popular for 130 years. To loyal Coke drinkers, the original beverage stands alongside baseball, apple pie, and the Statue of Liberty as an American institution. As it turns out, Coca-Cola differentiates its brand not just by taste but by tradition. By dropping the original formula, Coca-Cola trampled on the sensitivities of the huge core of loyal Coke drinkers who loved Coke just the way it was. After only three months, the company brought the classic Coke back. Thus, choosing competitive advantages on which to position a product or service can be difficult, yet such choices are crucial to success. Choosing the right differentiators can help a brand stand out from the pack of competitors. Selecting an Overall Positioning Strategy Value proposition The full positioning of a brand—the full mix of benefits on which it is positioned. The full positioning of a brand is called the brand’s value proposition—the full mix of benefits on which a brand is differentiated and positioned. It is the answer to the customer’s question “Why should I buy your brand?” BMW’s “ultimate driving machine/ designed for driving pleasure” value proposition hinges on performance but also includes luxury and styling, all for a price that is higher than average but seems fair for this mix of benefits. Figure 7.4 shows possible value propositions on which a company might position its products. In the figure, the five green cells on the top and right represent winning value propositions—differentiation and positioning that give the company a competitive advantage. The red cells at the lower left, however, represent losing value propositions. The center cell represents at best a marginal proposition. In the following sections, we discuss the five winning value propositions: more for more, more for the same, the same for less, less for much less, and more for less. More for More. More-for-more positioning involves providing the most upscale product or service and charging a higher price to cover the higher costs. A more-for-more market offering not only offers higher quality, it also gives prestige to the buyer. It symbolizes status and a loftier lifestyle. Four Seasons hotels, Patek Philippe watches, Starbucks coffee, Louis Vuitton handbags, Mercedes automobiles, SubZero appliances—each claims superior quality, craftsmanship, durability, performance, or style and therefore charges a higher price. Similarly, the marketers of Hearts On Fire diamonds have created a more-for-more Hearts On Fire diamonds have a niche as “The World’s Most Perfectly Cut Diamond.” unique “hearts and arrow” design. When viewed under magnification from the bottom, a These are winning value propositions. More Benefits Figure | 7.4 Possible value propositions These are losing value propositions. The same Less More Price The same Less More for more More for the same More for less The same for less Less for much less CHapter 7 | Customer Value–Driven Marketing Strategy 233 perfect ring of eight hearts appears; from the top comes a perfectly formed Fireburst of light. Hearts On Fire diamonds aren’t for everyone, says the company. “Hearts On Fire is for those who expect more and give more in return.” The brand commands a 15 to 20 percent price premium over comparable competing diamonds.29 Although more-for-more can be profitable, this strategy can also be vulnerable. It often invites imitators who claim the same quality but at a lower price. For example, more-for-more brand Starbucks now faces “gourmet” coffee competitors ranging from Dunkin’ Donuts to McDonald’s. Also, luxury goods that sell well during good times may be at risk during economic downturns when buyers become more cautious in their spending. The recent gloomy economy hit premium brands, such as Starbucks, the hardest. More for the Same. A company can attack a competitor’s value proposition by positioning its brand as offering more for the same price. For example, Target positions itself as the “upscale discounter.” It claims to offer more in terms of store atmosphere, service, stylish merchandise, and classy brand image but at prices comparable to those of Walmart, Kohl’s, and other discounters. More-for-more positioning: hearts on Fire diamonds have created a more-for-more niche as “The World’s Most Perfectly Cut Diamond—for those who expect more and give more in return.” Used with permission of Hearts On Fire Company, LLC The Same for Less. Offering the same for less can be a powerful value proposition—everyone likes a good deal. Discount stores such as Walmart and “category killers” such as Best Buy, PetSmart, David’s Bridal, and DSW Shoes use this positioning. They don’t claim to offer different or better products. Instead, they offer many of the same brands as department stores and specialty stores but at deep discounts based on superior purchasing power and lower-cost operations. Other companies develop imitative but lower-priced brands in an effort to lure customers away from the market leader. For example, Amazon offers a line of Kindle Fire tablets, which sell for less than 40 percent of the price of the Apple iPad or Samsung Galaxy tablet. Amazon claims that it offers “Premium products at non-premium prices.” Less for Much Less. A market almost always exists for products that offer less and therefore cost less. Few people need, want, or can afford “the very best” in everything they buy. In many cases, consumers will gladly settle for less-than-optimal performance or give up some of the bells and whistles in exchange for a lower price. For example, many travelers seeking lodgings prefer not to pay for what they consider unnecessary extras, such as a pool, an attached restaurant, or mints on the pillow. Hotel chains such as Ramada Limited, Holiday Inn Express, and Motel 6 suspend some of these amenities and charge less accordingly. Less-for-much-less positioning involves meeting consumers’ lower performance or quality requirements at a much lower price. For example, Uber, the global leader of the app-based taxi booking service, faced tough competition in the Middle East from a local company who had differentiated its value proposition according to local preferences. (See Real Marketing 7.2.) More for Less. Of course, the winning value proposition would be to offer more for less. Many companies claim to do this. And, in the short run, some companies can actually achieve such lofty positions. For example, when it first opened for business, Home Depot had arguably the best product selection, the best service, and the lowest prices compared with local hardware stores and other home-improvement chains. Yet in the long run, companies will no doubt find it very difficult to sustain such bestof-both positioning. Offering more usually costs more, making it difficult to deliver on the “for-less” promise. Companies that try to deliver both may lose out to more focused competitors. For example, facing determined competition from Lowe’s stores, Home Depot must now decide whether it wants to compete primarily on superior service or on lower prices. All said, each brand must adopt a positioning strategy designed to serve the needs and wants of its target markets. More for more will draw one target market, less for much less will draw another, and so on. In any market, there is usually room for many different Real Marketing 234 | part 3 Designing a Customer Value–Driven Strategy and Mix 7.2 Ready, Steady, Ride: Careem versus Uber in the Middle East The immersion of technology within our lives has made it possible not only to deliver customer value more efficiently in B2B and B2C exchanges but has also made it much easier to have peer-to-peer (P2P) transactions. This concept was brought into the transport sector by Uber, which created a digital app-based platform to connect people who needed a reliable ride with people looking to earn money from their car. Although the service they provide customers is not a new one, their innovative marketing and targeting strategies created a new burgeoning segment, with the result that its service concept has become a generic term: “Uberfication.” The concept expanded rapidly to other parts of the world, with Uber successfully establishing itself as the leader in most global markets. Uber has now moved to 376 cities worldwide and has a net value of $50 billion, making it the fastest start-up ever to get to that value in such a short amount of time. However, in the Middle East, Uber’s app-based taxi-booking concept was adopted effectively and pre-emptively by Careem, a local start-up, before Uber could enter the region. It has since given tough competition to the global leader. In the Middle East, the Uberfication of the transport sector was started in 2012 by two entrepreneurs, Mudassir Sheikha and Magnus Olsson. The former McKinsey consultants launched the app-based ride-hailing service Careem in the city of Dubai in the UAE. Careem is among country’s most successful start-up stories, with a 30 percent growth month on month. In just four years, it has expanded to 44 cities across 10 countries in the region and claims to have over 6 million registered users. Sheikha and Olsson’s story is not very different from that of Kalanick and Camp. The Careem founders say that they were looking to do something meaningful and were looking for opportunities. As consultants, both of them traveled a lot for work and felt that there was a gap in the region in finding quick, efficient, and reliable means of transportation—something like Careem. In 2013, the competitive landscape of private taxi hiring in the MENA region changed as Uber also entered the region by making its debut in the UAE. By then, however, Careem already had the first-mover advantage. Both companies had their own competi- car seats. Careem’s operational model and its tive advantages. Uber was a well-established “generous” value proposition blends well with international company with a strong reputa- the Middle Eastern context. Key features of its tion and track record of success. On the model include the following: other hand, Careem was the local favorite 1. Customer call center: A large popuand launched first in the regional markets, lation in the Middle East prefers to call so it was more trustworthy. In the UAE, the instead of using apps, and Careem built private-taxi sector is highly regulated, espean entire call center for bookings and recially with regard to pricing and drivers’ licensporting issues. ing requirements. For instance, in the UAE, 2. Pay by cash: This provision addressed the law requires private-taxi companies to the population’s general antipathy tooperate with a minimum of 30 percent higher ward credit cards and their preference fare than public taxis. This makes the privatefor cash transactions. sector taxi services more of a luxury in this 3. Careem’s own location database: market, with both Uber and Careem trying to The GoogleMaps in the Middle East is compete and differentiate against each other. not very accurate and there are frequent Careem aims  to be the largest “mover road works, so Careem built its own of people” in the wider MENA region, from database of locations. This worked well Pakistan to Turkey. The brand name worked for the later booking option, which is a particularly well in the UAE and Middle East. unique feature of Careem. The word “Car-eem” is a play on a car-based 4. Book for someone else: This worked service, but it is also derived from the Arabic well in cases where bookings were made word “Ka-reem,” which means “generous.” This by secretaries for bosses or clients and communicates the value proposition of Careem also for school pickups. very effectively as a company that takes good 5. Captain call center: A centralized call care of its customers and tries to do more, with center helped in coordinating and coma big heart. This blended English–Arabic brand municating with the customers, ensuring worked well to target the large multicultural better security and privacy of customer expat population in the UAE and also helped information. to position it as a home-grown local brand for 6. Captain Loyalty: A four-tiered loyalty the wider Arab-speaking consumers throughpoints system ensured minimum earning out the Middle East. Careem drivers are called for the drivers and that there would be captains, and it differentiates itself by saying more cars on the roads for bookings and that where other companies call themselves pickups. limo services, Careen has a ride for everyone. The market coverage strategy used by Careem is to offer differentiated services to different customers by adapting to the local needs. For example, in Dubai, “Economy” Careem offers budget taxis, “Business” and “Firstclass” options are high-end luxury rides, and “MAX” cars are SUVs that can seat a larger number of people. “Ameera” offers ladiesonly rides with a woman chauffer. “Careads” allow parents to order books Uber has already found competition in many of the regions free of charge through the it seeks to expand into, often because of the very model it Careem app. “Careem pioneered. kids” offers cars with baby FocusTechnology/Alamy Stock Photo CHapter 7 Many of these aspects are difficult to incorporate in Uber’s global model. However, a score-based study in the UAE found that, overall, both Uber and Careem score similarly on aspects like the app, cars, booking process, prices, free rides, and community service. Uber scored more points for the app, prices, and free rides, and Careem scored better on certain aspects of the cars, the booking process, and community service. Although in the | Customer Value–Driven Marketing Strategy past the UAE has been the main battleground for Uber and Careem in the region, both companies are now looking to 235 expand aggressively to more cities and even add more differentiated services in their offerings. Sources: Nich Rego, “Careem vs Uber,” tbreak media, October 26, 2016, http://www.tbreak.com/careem-vsuber?page=1, accessed December 18, 2016; Frank Kane, “Gentlemen, Start Your Engines: It’s Uber vs Careem’ The National, November 24, 2015; http://www.thenational.ae/business/technology/gentlemen-start-your-engines-itsuber-vs-careem; Careem website, https://www.careem.com/dubai/node, accessed December 18, 2016; N. King, “In the Driving Seat: Careem,” Arabian Business, June 9, 2015, http://www.arabianbusiness.com/in-driving-seatcareem-595522.html, accessed December 18, 2016; Uber website, https://www.uber.com/our-story, accessed December 15, 2016; Mustafa Al Zarooni, “Uber in UAE Operating in Legal Vacuum,” Khaleej Times (online), 2016, http://www.khaleejtimes.com/nation/transport/uber-in-uae-operating-in-legal-vacuum, accessed March 15, 2016. companies, each successfully occupying different positions. The important thing is that each company must develop its own winning positioning strategy, one that makes the company special to its target consumers. Developing a Positioning Statement Company and brand positioning should be summed up in a positioning statement. The statement should follow the form: To (target segment and need) our (brand) is Here is an example using the popular digital (concept) that (point of difference).30 information management application Evernote: “To busy multitaskers who need help remembering things, Evernote is a digital content management application that makes it easy to capture and remember moments and ideas from your everyday life using your computer, phone, tablet, and the web.” Note that the positioning statement first states the product’s membership in a category (digital content management application) and then shows its point of difference from other members of the category (easily capture moments and ideas and remember them later). Evernote helps you “remember everything” by letting you take notes, capture photos, create to-do lists, and record voice reminders and then makes them easy to find and access using just about any device, anywhere—at home, at work, or on the go. Placing a brand in a specific category suggests similarities that it might share with other products in the category. But the case for the brand’s superiority is made on its points of difference. For example, the U.S. Postal Service ships packages just like UPS and FedEx, but it differentiates its Priority Mail from Positioning statement: Evernote is positioned as a digital content management competitors with convenient, low-price, application that helps busy people to capture and remember moments and ideas and find them fast later. flat-rate shipping boxes and envelopes. Evernote Corporation “If it fits, it ships,” promises USPS. positioning statement A statement that summarizes company or brand positioning using this form: To (target segment and need) our (brand) is (concept) that (point of difference). Communicating and Delivering the Chosen Position Once it has chosen a position, the company must take strong steps to deliver and communicate the desired position to its target consumers. All the company’s marketing mix efforts must support the positioning strategy. Positioning the company calls for concrete action, not just talk. If the company decides to build a position on better quality and service, it must first deliver that position. Designing 236 | part 3 Designing a Customer Value–Driven Strategy and Mix the marketing mix—product, price, place, and promotion—involves working out the tactical details of the positioning strategy. Thus, a firm that seizes on a more-for-more position knows that it must produce high-quality products, charge a high price, distribute through high-quality dealers, and advertise in high-quality media. It must hire and train more service people, find retailers that have a good reputation for service, and develop sales and advertising content that supports its superior offer. This is the only way to build a consistent and believable more-for-more position. Companies often find it easier to come up with a good positioning strategy than to implement it. Establishing a position or changing one usually takes a long time. In contrast, positions that have taken years to build can quickly be lost. Once a company has built the desired position, it must take care to maintain the position through consistent performance and communication. It must closely monitor and adapt the position over time to match changes in consumer needs and competitors’ strategies. However, the company should avoid abrupt changes that might confuse consumers. Instead, a product’s position should evolve gradually as it adapts to the ever-changing marketing environment. 7 Reviewing and Extending the Concepts Objectives review And key terMs Objectives review In this chapter, you learned about the major elements of a customer value–driven marketing strategy: segmentation, targeting, differentiation, and positioning. Marketers know that they cannot appeal to all buyers in their markets—or at least not to all buyers in the same way. Therefore, most companies today practice target marketing— identifying market segments, selecting one or more of them, and developing products and marketing mixes tailored to each. Objective 7-1 Define the major steps in designing a customer value–driven marketing strategy: market segmentation, targeting, differentiation, and positioning. (pp 212–213) A customer value–driven marketing strategy begins with selecting which customers to serve and determining a value proposition that best serves the targeted customers. It consists of four steps. Market segmentation is the act of dividing a market into distinct groups of buyers who have different needs, characteristics, or behaviors and who might require separate marketing strategies or mixes. Once the groups have been identified, market targeting evaluates each market segment’s attractiveness and selects one or more segments to serve. Differentiation involves actually differentiating the market offering to create superior customer value. Positioning consists of positioning the market offering in the minds of target customers. A customer value–driven marketing strategy seeks to build the right relationships with the right customers. Objective 7-2 List and discuss the major bases for segmenting consumer and business markets. (pp 213–221) There is no single way to segment a market. Therefore, the marketer tries different variables to see which give the best segmentation opportunities. For consumer marketing, the major segmentation variables are geographic, demographic, psychographic, and behavioral. In geographic segmentation, the market is divided into different geographical units, such as nations, regions, states, counties, cities, or even neighborhoods. In demographic segmentation, the market is divided into groups based on demographic variables, including age, life-cycle stage, gender, income, occupation, education, religion, ethnicity, and generation. In psychographic segmentation, the market is divided into different groups based on social class, lifestyle, or personality characteristics. In behavioral segmentation, the market is divided into groups based on consumers’ knowledge, attitudes, uses, or responses concerning a product. Business marketers use many of the same variables to segment their markets. But business markets also can be segmented by business demographics (industry, co