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Marketing Strategy
TEXT
AND
CASES
SEVENTH EDITION
O.C. Ferrell
Belmont University
Michael D. Hartline
Florida State University
Australia • Brazil • Mexico • Singapore • United Kingdom • United States
Copyright 2017 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part. WCN 02-200-203
Marketing Strategy: Text and Cases,
Seventh Edition
O.C. Ferrell and Michael D. Hartline
Senior Vice President, General Manager,
Social Sciences, Humanities, and
Business: Erin Joyner
Product Director: Jason Fremder
Senior Product Manager: Mike Roche
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Marketing Manager: Katie Jergens
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Cengage Learning
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To my wife, Linda
O.C. Ferrell
To my girls, Marsha, Meghan, Madison, and Mallory
Michael D. Hartline
Copyright 2017 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part. WCN 02-200-203
Brief Contents
Preface xiii
About the Authors xvii
1
2
3
4
5
6
7
8
9
10
MARKETING IN TODAY’S ECONOMY 1
STRATEGIC MARKETING PLANNING 27
COLLECTING AND ANALYZING MARKETING INFORMATION 56
DEVELOPING COMPETITIVE ADVANTAGE AND STRATEGIC FOCUS
89
CUSTOMERS, SEGMENTATION, AND TARGET MARKETING 119
THE MARKETING PROGRAM 153
BRANDING AND POSITIONING 203
ETHICS AND SOCIAL RESPONSIBILITY IN MARKETING STRATEGY 230
MARKETING IMPLEMENTATION AND CONTROL 260
DEVELOPING AND MAINTAINING LONG-TERM CUSTOMER RELATIONSHIPS 289
CASES
CASE 1 USA TODAY: INNOVATION IN AN EVOLVING INDUSTRY
CASE 2 CONSUMERS TAKE A SHINE TO APPLE, INC.
318
331
CASE 3 MONSANTO BALANCES THE INTERESTS OF MULTIPLE STAKEHOLDERS
342
CASE 4 NEW BELGIUM BREWING (A): SOCIAL RESPONSIBILITY AS COMPETITIVE ADVANTAGE 355
CASE 5 NEW BELGIUM BREWING (B): DEVELOPING A BRAND PERSONALITY
CASE 6 MATTEL CONFRONTS ITS MARKETING CHALLENGES
364
373
CASE 7 MISTINE: DIRECT SELLING IN THE THAI COSMETICS MARKET
CASE 8 BP STRUGGLES TO REPAIR ITS TARNISHED REPUTATION
384
396
CASE 9 CHEVROLET: A CENTURY OF PRODUCT INNOVATION
407
CASE 10 WYNDHAM WORLDWIDE ADOPTS A STAKEHOLDER ORIENTATION MARKETING
STRATEGY 422
CASE 11 NASCAR: CAN’T KEEP A GOOD BRAND DOWN
431
iv
Copyright 2017 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part. WCN 02-200-203
Brief Contents
CASE 12 INDYCAR: SEEKING A RETURN TO MOTORSPORTS’ FAST LANE
443
CASE 13 ZAPPOS: DELIVERING HAPPINESS
454
CASE 14 NETFLIX FIGHTS TO STAY AHEAD OF A RAPIDLY CHANGING MARKET 465
CASE 15 GILLETTE: WHY INNOVATION MAY NOT BE ENOUGH
475
CASE 16 IKEA SLOWLY EXPANDS ITS U.S. MARKET PRESENCE 487
CASE 17 UBER: THE OPPORTUNITIES AND CHALLENGES OF MARKET DISRUPTION
CASE 18 SCENTSY, INC.: A SUCCESSFUL DIRECT SELLING BUSINESS MODEL
496
507
CASE 19 SIGMA MARKETING: STRATEGIC MARKETING ADAPTATION
515
CASE 20 BELLE MEADE PLANTATION: A SOCIAL ENTREPRENEURSHIP MARKETING STRATEGY 525
CASE 21 COCA-COLA: INTEGRATED MARKETING COMMUNICATIONS
534
Index 544
Copyright 2017 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part. WCN 02-200-203
v
Contents
Preface xiii
About the Authors xvii
1
MARKETING IN TODAY’S ECONOMY 1
THE CHALLENGES AND OPPORTUNITIES OF MARKETING IN TODAY’S ECONOMY 2
Power Shift to Customers 3
Massive Increase in Product Selection 4
Audience and Media Fragmentation 4
Changing Value Propositions 4
Shifting Demand Patterns 5
Privacy, Security, and Ethical Concerns 5
Unclear Legal Jurisdiction 6
BASIC MARKETING CONCEPTS 7
What Is a Market? 8
What Is Exchange? 9
What Is a Product? 10
MAJOR MARKETING ACTIVITIES AND DECISIONS 13
Strategic Planning 15
Research and Analysis 15
Developing Competitive Advantage 16
Marketing Strategy Decisions 16
Social Responsibility and Ethics 19
Implementation and Control 20
Developing and Maintaining Customer Relationships 20
vi
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Contents
TAKING ON THE CHALLENGES OF MARKETING STRATEGY 21
LESSONS FROM CHAPTER 1 23
NOTES 24
2
STRATEGIC MARKETING PLANNING 27
THE STRATEGIC PLANNING PROCESS 29
Organizational Mission versus Organizational Vision 30
Corporate or Business-Unit Strategy 34
Functional Goals and Objectives 35
Functional Strategy 36
Implementation 36
Evaluation and Control 36
THE MARKETING PLAN 37
Marketing Plan Structure 37
Using the Marketing Plan Structure 43
Purposes and Significance of the Marketing Plan 44
Organizational Aspects of the Marketing Plan 45
MAINTAINING CUSTOMER FOCUS AND BALANCE IN STRATEGIC PLANNING 46
Customer-Focused Planning 46
Balanced Strategic Planning 49
LESSONS FROM CHAPTER 2 51
NOTES 53
3
COLLECTING AND ANALYZING MARKETING INFORMATION 56
CONDUCTING A SITUATION ANALYSIS 58
Analysis Alone Is Not a Solution 58
Data Are Not the Same as Information 59
The Benefits of Analysis Must Outweigh the Costs 59
Conducting a Situation Analysis Is a Challenging Exercise 59
THE INTERNAL ENVIRONMENT 61
Review of Current Objectives, Strategy, and Performance 61
Availability of Resources 62
Organizational Culture and Structure 63
THE CUSTOMER ENVIRONMENT 63
Who Are Our Current and Potential Customers? 65
What Do Customers Do with Our Products? 65
Where Do Customers Purchase Our Products? 66
When Do Customers Purchase Our Products? 66
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vii
viii
Contents
Why (and How) Do Customers Select Our Products? 68
Why Do Potential Customers Not Purchase Our Products? 68
THE EXTERNAL ENVIRONMENT 69
Competition 71
Economic Growth and Stability 73
Political Trends 74
Legal and Regulatory Issues 74
Technological Advancements 75
Sociocultural Trends 76
COLLECTING MARKETING DATA AND INFORMATION 79
Secondary Information Sources 79
Primary Data Collection 82
Overcoming Problems in Data Collection 83
LESSONS FROM CHAPTER 3 84
NOTES 85
4
DEVELOPING COMPETITIVE ADVANTAGE AND STRATEGIC FOCUS 89
MAKING SWOT ANALYSIS PRODUCTIVE 91
Stay Focused 91
Search Extensively for Competitors 93
Collaborate with Other Functional Areas 93
Examine Issues from the Customers’ Perspective 93
Look for Causes, Not Characteristics 95
Separate Internal Issues from External Issues 96
SWOT-DRIVEN STRATEGIC PLANNING 97
Strengths and Weaknesses 97
Opportunities and Threats 97
The SWOT Matrix 99
DEVELOPING AND LEVERAGING COMPETITIVE ADVANTAGES 102
ESTABLISHING A STRATEGIC FOCUS 104
DEVELOPING MARKETING GOALS AND OBJECTIVES 109
Developing Marketing Goals 111
Developing Marketing Objectives 112
Moving beyond Goals and Objectives 115
LESSONS FROM CHAPTER 4 115
NOTES 117
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Contents
5
CUSTOMERS, SEGMENTATION, AND TARGET MARKETING 119
BUYER BEHAVIOR IN CONSUMER MARKETS 121
The Consumer Buying Process 121
Factors that Affect the Consumer Buying Process 127
BUYER BEHAVIOR IN BUSINESS MARKETS 129
Unique Characteristics of Business Markets 130
The Business Buying Process 132
MARKET SEGMENTATION 133
Traditional Market Segmentation Approaches 133
Individualized Segmentation Approaches 136
Criteria for Successful Segmentation 138
IDENTIFYING MARKET SEGMENTS 139
Segmenting Consumer Markets 139
Segmenting Business Markets 144
TARGET MARKETING STRATEGIES 145
LESSONS FROM CHAPTER 5 147
NOTES 151
6
THE MARKETING PROGRAM 153
PRODUCT STRATEGY 155
Strategic Issues in the Product Portfolio 155
The Challenges of Service Products 158
Developing New Products 160
PRICING STRATEGY 162
Key Issues in Pricing Strategy 162
Pricing Service Products 168
Base Pricing Strategies 170
Adjusting the Base Price 171
SUPPLY CHAIN STRATEGY 172
Strategic Supply Chain Issues 173
Trends in Supply Chain Strategy 178
INTEGRATED MARKETING COMMUNICATIONS 182
Strategic Issues in Integrated Marketing Communications 183
Advertising 185
Public Relations 187
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ix
x
Contents
Personal Selling and Sales Management 189
Sales Promotion 191
LESSONS FROM CHAPTER 6 195
NOTES 200
7
BRANDING AND POSITIONING 203
STRATEGIC ISSUES IN BRANDING 206
Basic Branding Decisions 206
Strategic Brand Alliances 209
Brand Value 209
Packaging and Labeling 212
DIFFERENTIATION AND POSITIONING 213
Bases for Differentiation 215
Positioning Strategies 217
MANANGING BRANDS OVER TIME 218
Development Stage 220
Introduction Stage 221
Growth Stage 221
Maturity Stage 223
Decline Stage 224
LESSONS FROM CHAPTER 7 226
NOTES 228
8
ETHICS AND SOCIAL RESPONSIBILITY IN MARKETING STRATEGY 230
ETHICS AND SOCIAL RESPONSIBILITY IN MARKETING STRATEGY 231
Dimensions of Social Responsibility 232
Sustainability 235
Marketing Ethics and Strategy 237
The Challenges of Being Ethical and Socially Responsible 239
ETHICAL ISSUES IN THE MARKETING PROGRAM 241
Product-Related Ethical Issues 241
Pricing-Related Ethical Issues 243
Supply Chain–Related Ethical Issues 244
Promotion-Related Ethical Issues 245
Copyright 2017 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part. WCN 02-200-203
Contents
MANAGING AND CONTROLLING ETHICAL ISSUES 246
Regulating Marketing Ethics 246
Codes of Conduct 248
Ethical Leadership 249
RELATIONSHIP TO MARKETING AND FINANCIAL PERFORMANCE 250
Stakeholder Orientation 250
Marketing Financial Performance 251
INCORPORATING ETHICS AND SOCIAL RESPONSIBILITY
INTO STRATEGIC PLANNING 251
LESSONS FROM CHAPTER 8 252
NOTES 255
9
MARKETING IMPLEMENTATION AND CONTROL 260
STRATEGIC ISSUES IN MARKETING IMPLEMENTATION 262
The Link Between Planning and Implementation 262
The Elements of Marketing Implementation 264
APPROACHES TO MARKETING IMPLEMENTATION 268
Implementation by Command 268
Implementation through Change 270
Implementation through Consensus 271
Implementation as Organizational Culture 271
INTERNAL MARKETING AND MARKETING IMPLEMENTATION 272
The Internal Marketing Approach 272
The Internal Marketing Process 274
EVALUATING AND CONTROLLING MARKETING ACTIVITIES 275
Formal Marketing Controls 276
Informal Marketing Controls 279
Scheduling Marketing Activities 281
LESSONS FROM CHAPTER 9 283
NOTES 286
10
DEVELOPING AND MAINTAINING LONG-TERM CUSTOMER
RELATIONSHIPS 289
MANAGING CUSTOMER RELATIONSHIPS 290
Developing Relationships in Consumer Markets 292
Developing Relationships in Business Markets 294
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xi
xii
Contents
QUALITY AND VALUE: THE KEYS TO DEVELOPING CUSTOMER RELATIONSHIPS 296
Understanding the Role of Quality 296
Delivering Superior Quality 298
Understanding the Role of Value 299
Competing on Value 303
CUSTOMER SATISFACTION: THE KEY TO CUSTOMER RETENTION 304
Understanding Customer Expectations 304
Satisfaction versus Quality versus Value 307
Customer Satisfaction and Customer Retention 310
Customer Satisfaction Measurement 312
LESSONS FROM CHAPTER 10 313
NOTES 317
CASES
CASE 1 USA TODAY: INNOVATION IN AN EVOLVING INDUSTRY
318
CASE 2 CONSUMERS TAKE A SHINE TO APPLE, INC.
331
CASE 3 MONSANTO BALANCES THE INTERESTS OF MULTIPLE STAKEHOLDERS 342
CASE 4 NEW BELGIUM BREWING (A): SOCIAL RESPONSIBILITY AS COMPETITIVE ADVANTAGE
CASE 5 NEW BELGIUM BREWING (B): DEVELOPING A BRAND PERSONALITY
355
364
CASE 6 MATTEL CONFRONTS ITS MARKETING CHALLENGES
373
CASE 7 MISTINE: DIRECT SELLING IN THE THAI COSMETICS MARKET 384
CASE 8 BP STRUGGLES TO REPAIR ITS TARNISHED REPUTATION
CASE 9 CHEVROLET: A CENTURY OF PRODUCT INNOVATION
396
407
CASE 10 WYNDHAM WORLDWIDE ADOPTS A STAKEHOLDER ORIENTATION MARKETING
STRATEGY 422
CASE 11 NASCAR: CAN’T KEEP A GOOD BRAND DOWN 431
CASE 12 INDYCAR: SEEKING A RETURN TO MOTORSPORTS’ FAST LANE
CASE 13 ZAPPOS: DELIVERING HAPPINESS
443
454
CASE 14 NETFLIX FIGHTS TO STAY AHEAD OF A RAPIDLY CHANGING MARKET
CASE 15 GILLETTE: WHY INNOVATION MAY NOT BE ENOUGH
465
475
CASE 16 IKEA SLOWLY EXPANDS ITS U.S. MARKET PRESENCE
487
CASE 17 UBER: THE OPPORTUNITIES AND CHALLENGES OF MARKET DISRUPTION 496
CASE 18 SCENTSY, INC.: A SUCCESSFUL DIRECT SELLING BUSINESS MODEL
CASE 19 SIGMA MARKETING: STRATEGIC MARKETING ADAPTATION
507
515
CASE 20 BELLE MEADE PLANTATION: A SOCIAL ENTREPRENEURSHIP MARKETING STRATEGY
CASE 21 COCA-COLA: INTEGRATED MARKETING COMMUNICATIONS
534
Index 544
Copyright 2017 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part. WCN 02-200-203
525
Preface
Welcome to one of the most interesting, challenging, and important topics in your
business education. What makes marketing strategy so interesting, challenging, and
important you ask? To begin, marketing strategy is interesting because (1) it is inherently people-driven and (2) it is never stagnant. A distinct blend of both art and science, marketing strategy is about people (inside an organization) finding ways to
deliver exceptional value by fulfilling the needs and wants of other people (customers, shareholders, business partners, society at large), as well as the needs of
the organization itself. Marketing strategy draws from psychology, sociology, and
economics to better understand the basic needs and motivations of these people—
whether they are the organization’s customers (typically considered the most
critical), its employees, or its stakeholders. In short, marketing strategy is about people serving people.
For this reason, marketing strategy is interesting because it is never stagnant.
The simple fact is that people change. A strategy that works today might not work
tomorrow. Products that are popular today are forgotten next week. These truisms
are important because truly understanding marketing strategy means accepting the
fact that there are few concrete rules for developing and implementing marketing
activities. Given the constant state of change in the marketing environment, it is virtually impossible to say that given “this customer need” and “these competitors”
and “this level of government regulation” that Product A, Price B, Promotion C, and
Distribution D will produce the best results. Marketing simply doesn’t work that way.
The lack of concrete rules and the ever changing economic, sociocultural, competitive, technological, and political/legal landscapes make marketing strategy a terribly
fascinating subject.
Now that you know why marketing strategy is so interesting, it should be easy
to see why it is also challenging. A perfect marketing strategy that is executed
flawlessly can still fail. Sometimes, organizations are lucky and have success despite
having a terrible strategy and/or execution. The nature of marketing can make marketing planning quite frustrating.
Finally, the importance of marketing strategy is undeniable. No other business
function focuses on developing relationships with customers—the lifeblood of all
organizations (even non-profits). This statement does not diminish the importance
of other business functions, as they all are necessary for an organization to be successful. In fact, coordination with other functions is critical to marketing success.
However, without customers, and marketing programs in place to cultivate customer
relationships, no organization can survive.
xiii
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xiv
Preface
OUR FOCUS
Given this marketing landscape, Marketing Strategy: Text and Cases, 7th Edition
provides a practical, straightforward approach to analyzing, planning, and implementing marketing strategies. Our focus is based on the creative process involved
in applying the knowledge and concepts of marketing to the development and implementation of marketing strategy. Our goal is to encourage students of marketing to
think and act like a marketer. By discussing the key concepts and tools of marketing
strategy, our emphasis on critical thinking, both analytical and creative, allows students to understand the essence of how marketing decisions fit together to create a
coherent strategy.
Our approach in Marketing Strategy: Text and Cases, 7th Edition is also
grounded in the development and execution of the marketing plan. Throughout the
text, we provide a comprehensive planning framework based on conducting sound
background research, developing market capabilities and competitive advantages,
designing integrated marketing programs, and managing customer relationships for
the long term. We also emphasize the need for integrity in the strategic planning process as well as the design of marketing programs that are both ethical and socially
responsible. We also stress the integration and coordination of marketing decisions
with other functional business decisions as the key to achieving an organization’s
overall mission and vision. Throughout the text, we offer examples of successful
planning and implementation to illustrate how firms face the challenges of marketing
strategy in today’s economy.
PURPOSE
We view strategic marketing planning not only as a process for achieving organizational goals, but also as a means of building long-term relationships with customers.
Creating a customer orientation takes imagination, vision, and courage, especially in
today’s rapidly changing economic and technological environments. To help meet
these challenges, our text approaches marketing strategy from both “traditional” and
“cutting-edge” practices. We cover topics such as segmentation, creating a competitive advantage, marketing program development, and the implementation process
with a solid grounding in traditional marketing, but also with an eye toward emerging
practices. Lessons learned from the rise, fall, and reemergence of the dotcom sector,
recent corporate scandals, and the most recent economic recession illustrate the
importance of balancing the traditional and emerging practices of marketing strategy. Our text never loses sight of this balance.
Although our approach allows for the use of sophisticated research and
decision-making processes, we have employed a practical perspective that permits
marketing managers in any sized organization to develop and implement a marketing
plan. We have avoided esoteric, abstract, and highly academic material that does not
relate to typical marketing strategy decisions in most organizations. The marketing
plan framework that we utilize throughout the text has been used by a number of
organizations to successfully plan their marketing strategies. Many companies report
great success in using our approach partially due to the ease of communicating the
plan to all functional areas of the business.
TARGET AUDIENCE
Our text is relevant for a number of educational environments, including undergraduate, graduate, and corporate training courses. At the undergraduate level, our text
is appropriate for the capstone course or any upper-level integrating course such as
Copyright 2017 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part. WCN 02-200-203
Preface
“Marketing Management,” “Marketing Strategy,” or “Marketing Policy.” At this level,
the text provides an excellent framework to use with our included text-based cases,
live-client cases, or a computer simulation. At the graduate level, our text is appropriate for courses addressing strategic marketing planning, competitive marketing strategies, or as a supplement for any simulation-based course. A growing segment of the
market, corporate training, can utilize our text when educating business professionals interested in developing marketing plans of their own, or interpreting and
implementing the plans of others.
Each of the 21 cases included in our text describes the strategic situations of
real-world, identifiable organizations. Because these cases feature real situations,
instructors have the option of using the case material as published, or they may
give students the opportunity to update the cases by conducting research to find
the latest information. Many additional resources for students and instructors can
be found at our text’s companion website, www.cengagebrain.com.
ACKNOWLEDGMENTS
Throughout the development of this text, several extraordinary individuals provided their talent and expertise to make important contributions. A number of individuals have made many useful comments and recommendations as reviewers of
this text.
We also deeply appreciate the assistance of several individuals who played a
major role in developing cases or other materials. Specifically, we thank the following individuals:
Joe Alexander, Belmont University
Noushin Laila Ansari, University of New Mexico
Timothy W. Aurand, Northern Illinois University
Harper Baird, University of New Mexico
Chandani Bhasin, University of New Mexico
Christin Copeland, Florida State University
Linda Ferrell, Belmont University
John Fraedrich, Southern Illinois University – Carbondale
Bernadette Gallegos, University of New Mexico
Sederick Hood, University of New Mexico
Jennifer Jackson, University of New Mexico
Danielle Jolley, University of New Mexico
Kimberly Judson, Illinois State University
Robert P. Lambert, Belmont University
Cassondra Lopez, University of New Mexico
Julian Mathias, University of New Mexico
Kevin Mihaly, Florida State University
Christian Otto, University of New Mexico
Greg Owsley, New Belgium Brewing Company
Kelsey Reddick, Florida State University
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xv
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Preface
Don Roy, Middle Tennessee State University
Mike Sapit, Sigma Marketing
Jennifer Sawayda, University of New Mexico
Beau Shelton, University of New Mexico
Bryan Simpson, New Belgium Brewing Company
Debbie Thorne, Texas State University
Jacqueline Trent, University of New Mexico
Robyn Watson, Florida State University
Lecia Weber, University of New Mexico
Celeste Wood, Florida State University
We greatly appreciate the efforts of Jennifer Sawayda, University of New
Mexico, for coordinating much of the new case development in this edition. The
editorial, production, and marketing staff at Cengage cannot be thanked enough.
With a deep sense of appreciation, we thank Mike Roche and Zach Fleischer.
Finally, we express appreciation for the support and encouragement of
our families and friends, and our colleagues at Belmont University, Florida State
University, and the University of New Mexico.
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About the Authors
O.C. FERRELL, PH.D.
Belmont University
O.C. Ferrell (Ph.D., Louisiana State University) is University Distinguished Chair of
Business Ethics at Belmont University. He recently served 9 years as University Distinguished Professor of Marketing at the Anderson School of Management, University of New Mexico. He also served at the University of Wyoming and was Chair of
the Marketing Department at Colorado State University. Prior to his arrival at CSU,
Dr. Ferrell was the Distinguished Professor of Marketing and Business Ethics at the
University of Memphis. He has also served as a professor at the University of Tampa,
Texas A&M University, Illinois State University, and Southern Illinois University. His
MBA and BA degrees are from Florida State University.
Dr. Ferrell is past president of the Academic Council of the American Marketing
Association and former chair of the American Marketing Association Ethics Committee. Under his leadership, the committee developed the AMA Code of Ethics and the
AMA Code of Ethics for Marketing on the Internet. He is a Society for Marketing
Advances Fellow and the Vice President of Publications for the Academy of Marketing Science. He is a former member of the Board of Governors as a Distinguished
Fellow for the Academy of Marketing Science. He received the Cutco Vector Distinguished Marketing Educator Award from the Academy of Marketing Science. In addition, he received the first Innovative Educator award from the Marketing
Management Association.
Dr. Ferrell has taught a wide variety of courses, including marketing strategy,
principles of marketing, marketing ethics, international marketing, as well as most
undergraduate courses in marketing. For 16 years he taught a graduate course in
competitive marketing strategies at Thammasat University in Bangkok, Thailand.
He has also been a visiting professor at University of Wisconsin, University of
Michigan–Ann Arbor, and University of Hanover, Germany.
Dr. Ferrell is the co-author of over 20 books and more than 100 articles. His
research is published in the Journal of Marketing Research, the Journal of Marketing, the Journal of Business Ethics, the Journal of Business Research, the Journal
of the Academy of Marketing Science, as well as other journals. His Marketing: Concepts and Strategies text, co-authored with Bill Pride, is one of the most widely
adopted principles of marketing texts in the world. Furthermore, his Business
Ethics: Decision Making and Cases is the leading business ethics text.
Dr. Ferrell has served as an expert witness in many high-profile civil litigation
cases related to marketing ethics. More recently he has assisted international corporations and worked with state regulatory agencies in modifying marketing programs to maintain compliance with both ethical and legal requirements. Currently,
xvii
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xviii
About the Authors
he is working with the National Association of State Boards of Accountancy to
develop an ethical leadership certification for students. He has appeared on the
NBC Today show and he has been quoted in national papers such as USA Today.
Dr. Ferrell and his wife Linda (also a faculty member at Belmont University) live
in Nashville, Tennessee. He continues to help coordinate the Daniels Fund Ethics Initiative at the University of New Mexico. He enjoys golf, skiing, reading, and travel.
MICHAEL D. HARTLINE, PH.D.
Florida State University
Michael D. Hartline (Ph.D., University of Memphis) is Interim Dean and Charles A.
Bruning Professor of Business Administration in the College of Business at Florida
State University. Previously, he served as Associate Dean for Strategic Initiatives
and Chair of the Department of Marketing. Prior to joining the FSU faculty in 2001,
Dr. Hartline served on faculty at the University of Arkansas at Little Rock, Louisiana
State University, and Samford University. His MBA and B.S. degrees are from
Jacksonville State University in Alabama.
Dr. Hartline primarily teaches graduate courses in Marketing Strategy and
undergraduate courses in Services Marketing. He has won many teaching and
research awards and made many presentations to industry and academic audiences.
Dr. Hartline has also served as a consultant to several for-profit and nonprofit organizations in the areas of marketing plan development, market feasibility analysis,
customer satisfaction measurement, customer service training, and pricing policy.
He currently serves on the Academic Advisory Council of the Direct Selling Education Foundation and on the board of the Knight Creative Communities Initiative in
Tallahassee, Florida. He has previously served on the executive committee of the
Academy of Marketing Science, co-chaired two international conferences for the
American Marketing Association, and has served on the editorial review boards of a
number of leading marketing journals.
Dr. Hartline’s research addresses marketing implementation issues in service
firms. Specifically, his work examines the role of customer-contact employees and
workgroups in the effective delivery of quality service to customers. Dr. Hartline’s
research appears in the Journal of Marketing, the Journal of Service Research, the
Journal of Business Research, the Journal of Relationship Marketing, the Journal
of Services Marketing, the Cornell Quarterly, the Journal of Strategic Marketing,
the Journal of Business Ethics, and the Marketing Science Institute Working
Paper Series.
Dr. Hartline and his wife Marsha live in Tallahassee with their three daughters
Meghan, Madison, and Mallory. They have two dogs, Bella and Chief (both Japanese
Chins), and two cats, Snickers and Sammie. Dr. Hartline is a self-professed electronics and gadget enthusiast who enjoys music, reading, computers, travel, college
football (Go Seminoles!), and being a dad.
Copyright 2017 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part. WCN 02-200-203
Marketing in Today’s
Economy
CHAPTER
1
INTRODUCTION
As noted in the opening Beyond the Pages 1.1 story, competing in today’s economy
means finding ways to break out of commodity status to meet customers’ needs better than competing firms. All organizations—both for-profit and nonprofit—require
effective planning and a sound marketing strategy to do this effectively. Without
these efforts, organizations would not be able to satisfy customers or meet the
needs of other stakeholders. For example, having an effective marketing strategy
allows Apple to develop popular products, such as the iPhone, iPad, iWatch, and its
MacBook line of computers. Further, effective planning and strategy allows ColaCola to continue its leadership in soft drinks, make key acquisitions, and continue
its expansion into the lucrative Chinese market. These and other organizations use
sound marketing strategy to leverage their strengths and capitalize on opportunities
that exist in the market. Every organization—from your favorite local restaurant to
giant multinational corporations; from city, state, and federal governments, to charities such as Habitat for Humanity and the American Red Cross—develops and implements marketing strategies.
How organizations plan, develop, and implement marketing strategies is the
focus of this book. To achieve this focus, we provide a systematic process for developing customer-oriented marketing strategies and marketing plans that match an
organization to its internal and external environments. Our approach focuses on
real-world applications and practical methods of marketing planning, including the
process of developing a marketing plan. The chapters of this book focus on the
steps of this process. Our goal is to give the reader a deeper understanding of marketing planning, the ability to organize the vast amount of information needed to
complete the planning process, and an actual feel for the development of marketing
plans.
In this first chapter, we review some of the major challenges and opportunities
that exist in planning marketing strategy in today’s economy. We also review the
nature and scope of major marketing activities and decisions that occur throughout
the planning process. Finally, we look at some of the major challenges involved in
developing marketing strategy.
1
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Chapter 1 • Marketing in Today’s Economy
BEYOND THE PAGES 1.1
Thriving in Commodity Hell1
Have you noticed that regardless of the industry,
most goods and services offered by competing
companies are eerily the same? Most household
appliances, such as refrigerators, washing
machines, and stoves, offer the same basic
features and come in white, beige, black, or stainless steel. Virtually all Android-based smartphones
offer the same features at similar prices. Even airline flights from New York to Los Angeles are
essentially the same. Everywhere you look, most
companies offer the same basic products to the
same customer groups at roughly the same prices.
This situation is referred to as “commodity hell”
and it’s a tough situation for most companies.
Commoditization is everywhere and is the result
of mature markets where goods and services lack
any real means of differentiation. Unfortunately
for companies, when customers begin to see all
competing products as offering roughly the same
benefits, price is the only thing that matters.
Commoditization is a consequence of mature
industries where slowing innovation, extensive
product assortment, excess supply, and frugal
consumers force margins to the floor. Since
firms have few competitive differences, they are
unable to increase margins. They must also spend
a great deal on promotion to attract new customers. This situation makes firms more vulnerable
to the entry of new competitors. Consider the airline industry. Notwithstanding a few minor differences, most air travelers see all airlines as being
roughly the same. They all get passengers from
Point A to Point B while offering the same basic
customer services. This makes price the driving
force in consumer decision-making and allows
discount airlines such as Southwest and Jet Blue
to steal customers away from traditional fullservice carriers. This same precarious situation
exists in a broad range of industries including
telephone service, hotels, packaged goods, automobiles, household appliances, and retailing.
As you might expect, low price leaders can
do quite well in commoditized markets. Southwest, for example, was profitable for over
33 years until the economic recession hit the
industry hard in 2008. To counteract the downturn, Southwest expanded routes by acquiring
rival companies such as AirTran. The company
also stands apart from others with its innovative
“No Bag Fees” policy. Other firms, however,
avoid commodity status through the most basic
of marketing tactics: brand building. Here, firms
break free from commodity status by developing
a distinctive brand position that separates them
and their products from the competition. Firms
that come to mind are Apple, Coca-Cola, and
Chick-fil-A. By offering compelling reasons for
consumers to buy products, brand building
allows firms to increase margins. Apple, in particular, enjoys the highest profit margins of any firm
in the technology sector.
Starbucks is another case in point. Starbucks
clearly sells one of the most commoditized, ubiquitous products of all time: coffee. Starbucks
Chairman Howard Schultz, however, does not
accept that his firm is in the coffee business.
Instead, Schultz sees Starbucks as a “third place”
to hang out (with home and work being number 1
and number 2, respectively). Through this mentality, Starbucks offers its customers much more
than coffee, including wireless Internet access,
music, food, and relaxation. Starbucks has continued its brand-building activities by introducing
breakfast combos, Via instant coffee, and the continued push of its Seattle’s Best brand into restaurants, offices, hospitals, and vending machines.
Getting out of commodity hell is not an easy
feat. To do so, firms must give consumers a compelling reason to buy their products over competing products. Ultimately, winning the commodity
game is all about innovation. Consider the firms
that top Fast Company’s list of the World’s Most
Innovative Companies for 2014 (in order): Google, Bloomberg Philanthropies, Xiaomi, Dropbox,
Netflix, Airbnb, Nike, and ZipDial. Each of these
companies offers innovative products, processes,
or experiences that stand apart from the competition; yet each competes in mature industries
known for commoditization. These companies
prove that innovation and good marketing strategy are the antidotes for commodity hell.
THE CHALLENGES AND OPPORTUNITIES OF MARKETING
IN TODAY’S ECONOMY
Traditional ideas about marketing strategy began to change forever during the mid1990s. Advances in computer, communication, and information technology forever
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Chapter 1 • Marketing in Today’s Economy
changed the world and the ways that marketers reach potential customers. The collapse of the dot-com bubble in the late 1990s was followed by a historic collapse of
the worldwide economy in 2008. The powerhouse companies of the past have weakened and lost relevance in an economy marked by constant change and consumer
skepticism. Consider the following fundamental changes to marketing and business
practice, as well as our own personal buying behavior.
Power Shift to Customers
Daniel Koebe/Fancy/Corbis
Perhaps the single most important change during the last two decades is the shift in
power from marketers to consumers. Rather than businesses having the ability to
manipulate customers via technology, customers often manipulate businesses
because of their access to information, the ability to comparison shop, and the control they have over spending. Individual consumers and business customers can
compare prices and product specifications in a matter of minutes. Using a smartphone and the Amazon app, customers can walk Target’s aisles, scan bar codes to
check prices on Amazon, and order items for 2-day delivery while in the store. This
fact is the reason that Target, and other retailers like Best Buy, now price matches
Amazon and other online competitors. In other cases, customers are able to set
their own prices, such as purchasing airline tickets at Priceline.com. Customers can
now interact with one another, as merchants such as Amazon and eBay allow customers to share opinions on product quality and supplier reliability. As power continues to shift to customers, marketers have little choice but to ensure that their
products are unique and of high quality, thereby giving customers a reason to purchase their products and remain loyal to them.
Consumers can instantly find competitors’ prices while in the store.
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Chapter 1 • Marketing in Today’s Economy
Massive Increase in Product Selection
The variety and assortment of goods and services offered for sale on the Internet and
in traditional stores is staggering. In grocery stores alone, customers are faced with
countless options in most aisles, such as in cereal and soft drinks. The growth in
online retailing now allows customers to purchase a car from CarsDirect, handmade
gifts from over 1.2 million shops on Etsy, or a case of their favorite wine from
Wine.com. Increased transaction efficiency (e.g., 24/7 access, delivery to home or
office even on weekends) allows customers to fulfill their needs more easily and conveniently than ever before. Furthermore, the vast amounts of information available
online has changed the way we communicate, read the news, and entertain ourselves. Customers can now have the news delivered to them automatically via smartphone apps, such as Flipboard, that pull from hundreds of sources. This radical
increase in product selection and availability has exposed marketers to inroads by
competitors from every corner of the globe.
Audience and Media Fragmentation
Changes in media usage and the availability of new media outlets have forced marketers to rethink the way they communicate with potential customers. Since the
advent of cable television in the 1970s, mass media audiences have become increasingly fragmented. Television audiences, for example, shifted from the big three networks (ABC, CBS, NBC) and began watching programming on ESPN, HGTV,
Nickelodeon, and the Discovery Channel. When the growth of the Internet, satellite
radio, and mobile communication is added to this mix, it becomes increasingly difficult for marketers to reach a true mass audience. Media audiences have become
fragmented due to (1) the sheer number of media choices we have available today,
and (2) the limited time we have to devote to any one medium. Today, customers
increasingly get information and news from Facebook and Twitter rather than the
New York Times or CBS. They spend a growing amount of time interacting with
handheld devices than they do reading magazines, listening to the radio, or watching
television. As shown in Exhibit 1.1, consumer usage of traditional media is declining,
while the usage of mobile media is on the rise. However, despite the challenge of
reaching mass audiences today, media fragmentation does have a big advantage: It
is easier to reach small, highly targeted audiences who are more receptive to specific
marketing messages.
Changing Value Propositions
Even before “The Great Recession” began in 2008, consumers and business
buyers were already facing increasing costs associated with energy, food, building
EXHIBIT 1.1
Television
Desktop Online
Tablets
Smartphones
Radio
Newspapers
Magazines
Change in Daily Media Usage by U.S. Adults, 2010–2014.
Percent Change (%)
3.7
−13.6
676.2
235.0
−15.5
−9.4
−34.9
SOURCE: Statista, “Average Daily Media Use in the United States from 2010 to 2014,” Statista, http://www.statista.com/
statistics/270781/average-daily-media-use-in-the-us/, accessed February 18, 2015.
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Chapter 1 • Marketing in Today’s Economy
materials, and other essentials. Then, as the economy weakened, buyers were forced
to tighten their belts and look for other ways to lower expenses. This trend actually
began after the dot-com collapse as consumers saw for the first time that they could
bypass some types of firms and do things for themselves. For example, travel agents
and real estate agents have been hit hard by e-commerce. Many customers now turn
to Travelocity and Expedia, rather than travel agents, for assistance in booking airline tickets, cruises, or hotel stays. A similar change has taken place in the real estate
industry as buyers are moving their house hunting online, while sellers are increasingly taking the “for sale by owner” route. Consequently, many marketers learned a
tough lesson: In situations where customers see goods and services as commodities,
they will turn to the most convenient, least-expensive alternative.
Today, many of these same consumers face pay cuts or losing their jobs in addition to increased expenses. These and other economic hardships have forced consumer and business buyers to rethink value propositions and focus on the
importance of frugality. The effects on business have been dramatic. For example,
Radio Shack filed for Chapter 11 bankruptcy in early 2015 in the face of a highly
commoditized market and stiff competition from other electronics retailers, particularly Amazon.2 A similar shakeout is happening in the book retailing segment. Borders, for instance, closed its doors after fierce competition from Barnes & Noble,
Amazon, Walmart, and Target lured its shoppers away. Likewise, e-book readers,
like Amazon’s Kindle, have had a profound impact on traditional book publishing.
Because books have become highly commoditized, consumers typically search for
the lowest prices rather than the fringe benefits offered by traditional bookstores.
E-book readers add to that by being more ecologically advantageous. This is the
essence of being frugal, as customers look for ways to cut spending on unnecessary
parts of their lives.
Shifting Demand Patterns
In some cases, changes in technology have shifted customer demand for certain
product categories. News is one well-known example, where traditional newspapers
are slowly disappearing while online and mobile news continues to grow. Now, many
newspaper companies have folded, some are on the brink of folding, while others
have cut publication to only a few days per week. Another example is the explosive
growth in the digital distribution of music and video. The success of Apple’s iTunes,
YouTube, Spotify, and Netflix, along with the continuing integration of television and
computers, has dramatically shifted demand for the music and movie industries. Hollywood film studios are grappling with soft demand in theaters and the declining
popularity of DVDs as customers increasingly look for online movie options, or for
other forms of entertainment such as video games. This trend ultimately led to the
demise of industry pioneer Blockbuster video in 2011.
Privacy, Security, and Ethical Concerns
Changes in technology have made our society much more open than in the past. As a
result, these changes have forced marketers to address real concerns about security
and privacy, both online and offline. The fallout from the massive data breach at Target in 2013 is still being felt today. The estimated loss to Target from thieves hacking
into its systems is roughly $148 million, not to mention the losses incurred by Target’s
customers.3 Further, businesses have always collected routine information about their
customers. Now, customers are much more attuned to these efforts and the purposes
for which the information will be used. Though customers appreciate the convenience
of e-commerce and mobile access to information, they want assurances that their
information is safe and confidential. Concerns over privacy and security are especially
acute with respect to online businesses such as Facebook, Google, mobile banking,
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Chapter 1 • Marketing in Today’s Economy
EXHIBIT 1.2
The Children’s Online Privacy Protection Act (COPPA).
The Children’s Online Privacy Protection Act applies to operators of commercial websites and
online services that attempt to collect personal information from children under the age of
13. The law explains what must be included in the firm’s privacy policy, when and how to
seek verifiable consent from a parent or guardian, and the firm’s responsibilities to protect
children’s privacy and safety. Firms cannot evade the law’s provisions by claiming that children under 13 cannot visit their sites, nor can they make information optional or ask the
visitor’s age.
In implementing the provisions of COPPA, the FTC issued the Children’s Online Privacy
Protection Rule, which is designed to give parents control over the information that is collected from their children. The rule requires website operators to:
1. Determine if their company is a website or online service that collects personal information from kids under 13.
2. Post a privacy policy that complies with COPPA.
3. Notify parents directly before collecting personal information from their kids.
4. Get parents’ verifiable consent before collecting information from their kids.
5. Honor parents’ ongoing rights with respect to information collected from their kids.
6. Implement reasonable procedures to protect the security of kids’ personal information.
SOURCE: United States Federal Trade Commission, Bureau of Consumer Protection, http://www.ftc.gov/tips-advice/
business-center/guidance/childrens-online-privacy-protection-rule-six-step-compliance, accessed February 18, 2015.
and mobile devices that can potentially track every move we make, literally. These
same concerns are also keen with respect to children. For example, many wellknown and respected companies, including Mrs. Fields Cookies, Sony BMG, and Hershey Foods, have been fined for violating the standards of the Children’s Online Privacy Protection Act (COPPA). For example, Playdom, Inc., an online gaming
company owned by Disney, paid a $3 million fine to the Federal Trade Commission
for collecting, using, and disclosing personal information from children under the
age of 13 without their parents’ permission. This was the largest civil penalty ever levied for a violation of COPPA, which is overviewed in Exhibit 1.2.4
Unclear Legal Jurisdiction
When a company does business in more than one country (as many Internet-based
firms do), that company often faces a dilemma with respect to differing legal systems. Today, this difference is especially keen for firms that do business in both the
United States and China. Google, for example, faces a difficult situation in dealing
with the Chinese government’s censorship demands. Though Google is a U.S. firm,
it must comply with the Chinese request by operating a completely separate search
service that censors information considered sensitive by the Chinese government.5
Doing business in China is also an issue with respect to protection of intellectual
property rights, where Chinese laws do not offer the same protections found in the
United States. For example, the U.S. International Trade Commission estimates that
Chinese piracy costs the U.S. economy in excess of $48 billion each year. Most of this
is in the information sector, with high-tech and manufacturing also showing sizable
losses due to infringements of intellectual property rights by Chinese firms.6
Another important legal issue involves the collection of sales tax for online
transactions. In the early days of e-commerce, most online merchants did not collect
sales taxes for online transactions—giving them a big advantage against store-based
merchants. In fact, a 1992 U.S. Supreme Court decision exempted out-of-state retailers from collecting sales taxes in states where they had no physical presence.
States countered that they were losing millions in yearly tax revenue, but were
poorly organized to mount a collection effort. In 2003, major retailers—including
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Chapter 1 • Marketing in Today’s Economy
Walmart, Target, and Toys “R” Us—in an agreement with a consortium of 38 states
and the District of Columbia, agreed to collect online sales taxes. However, many
online merchants still did not charge sales taxes. Today, states—much more organized than before—estimate that they lose a collective $23 billion per year in lost
tax revenue. Amazon, for example, still collects sales tax from only 74 percent of
U.S. consumers.7
Although the full effect of these challenges will not be recognized for some time,
circumstances have forced businesses to move ahead by adjusting their marketing
activities at both the strategic and tactical levels. As we review the major marketing
concepts and activities in this chapter, we will look at how today’s challenges have
affected strategic planning in these areas.
BASIC MARKETING CONCEPTS
Marketing is many different things. Many people, especially those not employed in
marketing, see marketing as a function of business. From this perspective, marketing
parallels other business functions such as production/operations, research, management, human resources, and accounting. As a business function, the goal of marketing is to connect the organization to its customers. Other individuals, particularly
those working in marketing jobs, tend to see marketing as a process of managing
the flow of products from the point of conception to the point of consumption. The
field’s major trade organization, the American Marketing Association, has changed
the definition of marketing over time to reflect changes in the economic and business environments. From 1985 until 2005, the AMA defined marketing this way:
Marketing is the process of planning and executing the conception, pricing, promotion, and distribution of ideas, goods, and services to create
exchanges that satisfy individual and organizational objectives.8
Note how this definition focuses on the four Ps, or the marketing mix (product,
price, place, and promotion). In 2005, the AMA changed the definition to better
reflect the realities of competing in the marketplace:
Marketing is an organizational function and a set of processes for creating, communicating, and delivering value to customers and for managing customer relationships in ways that benefit the organization and its
stakeholders.9
This definition shifts the focus away from the marketing mix and toward value
creation for customers. In 2007, the AMA changed the definition of marketing again:
Marketing is the activity, set of institutions, and processes for creating,
communicating, delivering, and exchanging offerings that have value
for customers, clients, partners, and society at large.10
Notice that the changes in the definition are not merely cosmetic in nature. The
older definitions focused on the process of marketing to deliver value and manage
customer relationships. The most recent definition shifts from “value” to “offerings
that have value.” Also, the notion of stakeholders is made more explicit. Why would
the AMA make these changes? One reason has to do with commoditization as discussed in Beyond the Pages 1.1. Breaking free from commodity status means finding
ways to differentiate the offering. The new definition recognizes that differentiation
can come from any part of the offering, whereas older conceptualizations of marketing placed the burden of differentiation on the product itself. The second reason has
to do with marketing’s broader role in today’s corporation. Firms don’t just sell products; they sell the firm as a whole. Corporate relationships with partners, media,
government, investors, employees, and society are every bit as important as relationships with customers. These types of relationships—which grow and thrive on
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Chapter 1 • Marketing in Today’s Economy
exceptional value—are an absolute necessity in the commodity-driven status of
many product markets. While the older definitions of marketing had a decidedly
transactional focus, the new definition emphasizes long-term relationships that provide value for both the firm and its stakeholders.
A final way to think about marketing relates to meeting human and social needs.
This broad view links marketing with our standard of living, not only in terms of
enhanced consumption and prosperity, but also in terms of society’s well-being.
Through marketing activities, consumers can buy cars from South Korea and wines
from South Africa; and organizations can earn a viable profit, making both employees and shareholders happy. However, marketing must also bear responsibility for
any negative effects it may generate. This view demands that marketers consider
the social and ethical implications of their actions, and whether they practice good
citizenship by giving back to their communities. As exemplified in the New Belgium
Brewing case associated with this text, firms can successfully meet human and
social needs through socially responsible marketing and business practices.
Let’s take a closer look at several basic marketing concepts. As we will see,
ongoing changes in today’s economy have forever altered our way of thinking about
these foundational aspects of marketing.
What Is a Market?
At its most basic level, a market is a collection of buyers and sellers. We tend to think
of a market as a group of individuals or institutions that have similar needs that can
be met by a particular product. For example, the housing market is a collection of
buyers and sellers of residential real estate, while the automobile market includes
buyers and sellers of automotive transportation. Marketers or sellers tend to use
the word “market” to describe only the buyers. This basic understanding of a market
has not changed in a very long time. What has changed, however, is not so much the
“what” but the “where” of a market; that is, the location of the buyers and sellers. In
both consumer markets (like housing and automobiles) and business markets (like
replacement parts and raw materials), the answer to the “where” question is quickly
becoming “anywhere” as markets become less defined by geography.
Until recently, marketers have considered a market to be a physical location
where buyers and sellers meet to conduct transactions. Although those venues
(e.g., grocery stores, malls, flea markets) still exist, technology mediates some of
the fastest growing markets. Early in the beginning of the dot-com era, the term
marketspace was coined to describe these electronic marketplaces unbound by time
or space.11 Today, we refer to these electronic marketplaces as online markets or
e-commerce. In e-commerce, physical goods, services, and information are
exchanged through the Internet. Some of the largest marketspaces, such as Amazon,
eBay, and Monster, are now household names. In fact, Amazon has become the
e-commerce equivalent of a shopping mall as the company now sells shoes, apparel,
jewelry, beauty aids, and sporting goods in addition to its traditional offerings of
books and electronics. E-commerce also exists in the business-to-business realm.
The shift from physical to electronic marketplaces has significant ramifications for
marketers. The fact that customers can shop, place orders, and exchange information 24/7 means that these businesses must be capable of operating in that same
time frame. In effect, online markets never take a break at closing time—they never
close. It also means that firms lose some control over the information that is disseminated about their company or products. Through blogs, discussion forums, or even
Twitter, customers can exchange information about an online merchant outside the
merchant’s own website. Furthermore, the substitution of technology for human
interaction can be both a blessing and a curse. Some sites, like CarsDirect, are successful because they eliminate the hassle of dealing with another human in the
buying process. Many customers, however, have been slow to embrace electronic
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Chapter 1 • Marketing in Today’s Economy
EXHIBIT 1.3
Common Metamarkets and Participants.
Metamediaries
Metamarket Participants
Automotive
www.edmunds.com
www.carsdirect.com
www.kbb.com
Buyers
Manufacturers
Car dealerships
Banks
Credit unions
Credit reporting services
Insurance firms
Rating services
Magazines
Television programs
Aftermarket parts/accessories
Repair services
Car rental firms
Auction houses
Metamarkets
Home Ownership
www.realtor.com
www.zillow.com
www.bhg.com
Homeowners
Builders
Real estate agents
Mortgage companies
Insurance companies
Home inspectors and appraisers
Pest control services
Magazines
Television programs
Retailers
Parenting
www.parenting.com
www.babycenter.com
newparent.com
Parents
Doctors
Retailers
Baby supply manufacturers
Insurance firms
Financial planners
Educational providers
Toy manufacturers
Television programs
Movies
markets because they lack the human element. In these cases, the design and implementation of the online experience is a serious challenge for online firms. Finally,
the wealth of information available through e-commerce not only makes customers
more educated than ever before, but also gives customers increased power through
comparison shopping and price negotiation.
Another interesting shift related to markets is the advent of metamarkets and
metamediaries. A metamarket is a cluster of closely related goods and services that
center around a specific consumption activity. A metamediary provides a single access
point where buyers can locate and contact many different sellers in the metamarket.12 Assume for example that you are engaged to be married. How many different
buying decisions will you and your fiancé have to make in the coming months? How
many newspaper ads, websites, and magazines will you explore? Although the businesses and decisions are diverse, they all converge on the single theme of wedding
planning. This is the driving principle behind a metamarket. Exhibit 1.3 shows examples of common metamarkets and metamediaries. Although customers don’t use
these terms, they fully understand the concept of finding information and solutions
in one place. For example, Parenting.com has become the Internet’s preeminent
metamediary for information and advice related to parenting, pregnancy, and children. Similarly, Edmunds.com is a popular site devoted to all things related to buying
and owning a vehicle. Metamediaries like these fulfill a vital need by offering quick
access and one-stop shopping to a wide variety of information, goods, and services.
What Is Exchange?
Closely related to the concept of a market, our ideas about exchange have changed
in recent years. Exchange is traditionally defined as the process of obtaining something of value from someone by offering something in return; this usually entails
obtaining products for money. For exchange to occur, five conditions must be met:
1. There must be at least two parties to the exchange. Although this has
always been the case, the exchange process today can potentially include an
unlimited number of participants. Online auctions provide a good example.
Customers who bid on an item at eBay may be one of many participants to the
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Chapter 1 • Marketing in Today’s Economy
2.
3.
4.
5.
exchange process. Each participant changes the process for the others, as well
as the ultimate outcome for the winning bidder. Some auctions include multiple
quantities of an item, so the potential exists for multiple transactions within a
single auction process.
Each party has something of value to the other party. Exchange would be
possible, but not very likely, without this basic requirement. The Internet has
exposed us to a vast array of goods and services that we did not know existed
previously. Today, not only can we buy a television or stereo receiver from a
local merchant; we also have access to hundreds of online merchants. Furthermore, the ability to comparison shop products and their prices allows customers
to seek out the best value.
Each party must be capable of communication and delivery. The advantages of today’s communication and distribution infrastructure are amazing. We
can find and communicate with potential exchange partners anywhere and anytime via telephone, computers, interactive television, and smartphones. We can
also conduct arm’s-length transactions in real time, with delivery of exchanged
items occurring in a matter of hours if necessary. For example, you can text message an order to Pizza Hut on your way home from work.
Each party must be free to accept or reject the exchange. In the online
world, this condition of exchange becomes a bit more complicated. Customers
have grown accustomed to the ease with which they can return items to local
merchants. Easy return policies are among the major strengths of traditional offline merchants. Returning items is more difficult with online transactions. In
some cases, the ability to reject an exchange is not allowed in online transactions. Ordering airline tickets on Priceline.com and winning a bid on an item at
eBay are contractually binding acts for the customer. Apple has a no refunds
policy in its App Store. In other words, once the actual purchasing process has
started, the customer is not free to reject the exchange.
Each party believes it is desirable to exchange with the other party. Customers typically have a great deal of information about, or even a history with,
offline merchants. In online exchange, customers often know nothing about the
other party. To help resolve this issue, a number of third-party firms have
stepped in to provide ratings and opinions about online merchants. Services
such as BizRate and Epinions not only provide these ratings, but also provide
product ratings and serve as shopping portals. eBay and Amazon go one step further by allowing buyers and sellers to rate each other. This gives both parties to
the exchange process some assurance that reputable individuals or organizations exist on the other side of the transaction.
The bottom line is that exchange has become all too easy in today’s economy.
Opportunities for exchange bombard us virtually everywhere we go. Customers don’t
even have to trouble themselves with giving credit cards or completing forms for shipping information. Most online merchants will remember this information for us if we let
them. For example, Amazon’s 1-Click® ordering feature allows customers to purchase
products with a single mouse click.13 The ease with which exchange can occur today
presents a problem in that individuals who do not have the authority to exchange can
still complete transactions. This is especially true for underage customers.
What Is a Product?
It should come as no surprise that the primary focus of marketing is the customer and
how the organization can design and deliver products that meet customers’ needs.
Organizations create essentially all marketing activities as a means toward this end;
this includes product design, pricing, promotion, and distribution. In short, an organization would have no reason to exist without customers and a product to offer them.
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Chapter 1 • Marketing in Today’s Economy
But what exactly is a product? A very simple definition is that a product is something that can be acquired via exchange to satisfy a need or a want. This definition
permits us to classify a broad number of “things” as products:
•
•
•
•
•
•
•
•
•
•
Goods. Goods are tangible items ranging from canned food to fighter jets, from
sports memorabilia to used clothing. The marketing of tangible goods is arguably
one of the most widely recognizable business activities in the world.
Services. Services are intangible products consisting of acts or deeds directed
toward people or their possessions. Banks, hospitals, lawyers, package delivery
companies, airlines, hotels, repair technicians, nannies, housekeepers, consultants, and taxi drivers all offer services. Services, rather than tangible goods,
dominate modern economies like the U.S. economy.
Ideas. Ideas include issues aimed at promoting a benefit for the customer.
Examples include cause-related or charitable organizations such as the Red
Cross, the American Cancer Society, Mothers Against Drunk Drivers, or the
American Legacy Foundation’s campaign against smoking.14
Information. Marketers of information include websites, magazine and book
publishers, schools and universities, research firms, churches, and charitable
organizations. Examples include Khan Academy, Wikipedia, and the popular
TED Talks. In the digital age, the production and distribution of information
has become a vital part of our economy.
Digital Products. Digital products such as software, music, and movies are
among the most profitable in our economy. Advancements in technology have
also wreaked havoc in these industries because pirates can easily copy and
redistribute digital products in violation of copyright law. Digital products are
interesting because content producers grant customers a license to use them,
rather than outright ownership.15
People. The individual promotion of people, such as athletes or celebrities, is a
huge business around the world. The exchange and trading of professional athletes takes place in a complex system of drafts, contracts, and free agency. Other
professions, such as politicians, actors, professional speakers, and news reporters, also engage in people marketing.
Places. When we think of the marketing of a place, we usually think of vacation
destinations like Rome or Orlando. However, the marketing of places is quite
diverse. Cities, states, and nations all market themselves to tourists, businesses,
and potential residents. The state of Alabama, for example, has done quite well
in attracting direct investment by foreign firms. Over the last 20 years, Alabama
has landed assembly plants from Mercedes, Honda, and Hyundai, as well as
many different parts plants and related firms. It’s no wonder that some people
think of Alabama as the new Detroit.16
Experiences and Events. Marketers can bring together a combination of
goods, services, ideas, information, or people to create one-of-a-kind experiences or single events. Examples include theme parks such as Disney World
and Universal Studios, sporting events like the Daytona 500 or the Super Bowl,
or stage and musical performances like The Phantom of the Opera or a concert
by Rihanna.
Real or Financial Property. The exchange of stocks, bonds, and real estate,
once marketed completely offline via real estate agents and investment companies, now occurs increasingly online. For example, Realtor.com is the nation’s
largest real estate listing service, with almost 4 million searchable listings. Likewise, Schwab.com is the world’s largest and top-rated online brokerage.
Organizations. Virtually all organizations strive to create favorable images
with the public—not only to increase sales or inquiries, but also to generate customer goodwill. In this sense, General Electric is no different than the United
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Chapter 1 • Marketing in Today’s Economy
Way: Both seek to enhance their images in order to attract more people (customers, volunteers, and clients) and money (sales, profit, and donations).
We should note that the products in this list are not mutually exclusive. For
example, firms that sell tangible goods almost always sell services to supplement
their offerings, and vice versa. Charitable organizations simultaneously market themselves, their ideas, and the information that they provide. Finally, special events like
the Daytona 500 combine people (drivers), a place (Daytona), an event (the race),
organizations (sponsors), and goods (souvenirs) to create a memorable and unique
experience for race fans.
To effectively meet the needs of their customers and fulfill organizational objectives, marketers must be astute in creating products and combining them in ways
that make them unique from other offerings. A customer’s decision to purchase one
product or group of products over another is primarily a function of how well that
choice will fulfill their needs and satisfy their wants. Economists use the term utility
to describe the ability of a product to satisfy a customer’s desires. Customers usually
seek out exchanges with marketers who offer products that are high in one or more
of these five types of utility:
•
•
•
•
•
Form Utility. Products high in form utility have attributes or features that set
them apart from the competition. Often these differences result from the use of
high-quality raw materials, ingredients, or components, or from the use of highly
efficient production processes. For example, Ruth’s Chris Steakhouse, considered by many to be one of the nation’s top chain restaurants, provides higher
form utility than other national chains because of the quality of beef they use.
Papa John’s Pizza even stresses form utility in its slogan “Better Ingredients. Better Pizza.” In many product categories, higher priced product lines offer more
form utility because they have more features or bells-and-whistles. Luxury cars
are a good example.
Time Utility. Products high in time utility are available when customers want
them. Typically, this means that products are available now rather than later.
Grocery stores, restaurants, and other retailers that are open around the clock
provide exceptional time utility. Often the most successful restaurants around
college campuses are those that are open 24/7. Many customers are also willing
to pay more for products available in a shorter time frame (such as overnight
delivery via FedEx) or for products available at the most convenient times
(such as midmorning airline flights).
Place Utility. Products high in place utility are available where customers want
them, which is typically wherever the customer happens to be at that moment
(such as grocery delivery to a home) or where the product needs to be at that
moment (such as florist delivery to a work place). Home delivery of any product,
convenience stores, vending machines, and e-commerce are examples of good
place utility. Products that are high in both time and place utility are exceptionally valuable to customers because they provide the utmost in convenience.
Possession Utility. Possession utility deals with the transfer of ownership or
title from marketer to customer. Products higher in possession utility are more
satisfying because marketers make them easier to acquire. Marketers often combine supplemental services with tangible goods to increase possession utility.
For example, furniture stores that offer easy credit terms and home delivery
enhance the possession utility of their goods. In fact, any merchant that accepts
credit cards enhances possession utility for customers that do not carry cash or
checks. Expensive products, like a home or a new factory, require acceptable
financing arrangements to complete the exchange process.
Psychological Utility. Products high in psychological utility deliver positive
experiential or psychological attributes that customers find satisfying. Sporting
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Visions of America/Getty Images
Chapter 1 • Marketing in Today’s Economy
Sporting events deliver psychological utility that goes beyond the actual competition.
events often fall into this category, especially when the competition is based on
an intense rivalry. The atmosphere, energy, and excitement associated with
being at the game can all create psychological benefits for customers. Conversely, a product might offer exceptional psychological utility because it lacks
negative experiential or psychological attributes. For example, a vacation to the
beach or the mountains might offer more psychological utility to some customers because it is seen as less stressful than a vacation to Disney World.
The strategic and tactical planning of marketing activities involves the important
basic concepts we have explored in this section. Marketers often struggle with finding and reaching the appropriate markets for their products. In other cases, the market is easily accessible, but the product is wrong or does not offer customers a
compelling reason to purchase it. The ability to match markets and products in a
way that satisfies both customer and organizational objectives is truly an art and
a science. As described in Beyond the Pages 1.2, doing so in an environment
of never-ending change creates both opportunities and challenges for even the strongest and most respected organizations.
The process of planning marketing activities to achieve these ends is the focus of
this book. As we turn our attention to an overview of major marketing activities and
decisions, we also want to lay out the structure of the text. The chapters roughly
coincide with the major activities involved in developing marketing strategy and
writing a marketing plan. Although our approach is orderly and straightforward, it
provides a holistic representation of the marketing planning process from one period
to the next. As we will see, marketing planning is an evolving process that has no
definite beginning or ending point.
MAJOR MARKETING ACTIVITIES AND DECISIONS
Organizations must deal with a number of activities and decisions in marketing their
products to customers. These activities vary in both complexity and scope. Whether
the issue is a local restaurant’s change in copy for a newspaper ad or a large
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Chapter 1 • Marketing in Today’s Economy
BEYOND THE PAGES 1.2
Innovative Marketing Strategies for a
Rebounding Economy17
Innovation has long been considered the lifeblood of business, especially in terms of growth
and new market opportunities. Unfortunately,
our economy’s most recent struggles have
made it difficult for companies to maintain
innovation when they must also cut costs and
maintain market standing. The same is true for
consumers as they have reigned in spending
due to the economy. Still, some companies
managed to maintain their creativity and innovation even in a hesitant economy. They do so
by looking for the new opportunities that come
along with changing customer spending patterns. Here are three cases in point:
Walmart
When customers have fewer dollars to spend,
they try to make those dollars go further. In
the grocery business, this translates into stronger sales for store brands (private labels). Many
of Walmart’s store brands are well known:
Great Value, Sam’s Choice, Faded Glory, HomeTrends, Ol’ Roy, and Equate. To further take
advantage of changing shopping patterns, Walmart decided to reinvigorate Great Value—its
top-selling private label brand. To do this, Walmart improved the quality of roughly 750 food
and grocery products, updated the Great Value
logo, and freshened the packaging. In one bold
move, Walmart pulled Hefty brand storage bags
from its shelves in favor of their lower-priced
Great Value brand. The company later returned
Hefty to the shelves, but only after Hefty agreed
to make the Great Value brand for Walmart.
Other chains, such as CVS, Walgreens, Kroger,
and Target, have copied Walmart’s strategy.
Today, many of these store brands are among
Consumer Reports highest rated brands in
terms of quality and value.
Procter & Gamble
One result of a weakened economy is that customers forgo buying new cars and instead begin
taking better care of the cars they currently
own. P&G decided to capitalize on this trend
by launching a national chain of franchised
car washes under its Mr. Clean brand. Since
the car wash industry did not have a dominant
national brand, P&G hoped that its Mr. Clean
units would capture a good share of the
$35 billion industry. To begin, P&G acquired
Carnett’s—a small car wash chain. Next, P&G
took advantage of lower real estate prices to
find suitable locations, and rising unemployment to find talented employees. The result, a
12-unit chain of Mr. Clean Car Wash franchisees
(most are in the Atlanta area), has been a success. Buoyed by this success, P&G now plans to
launch 150 Tide-branded dry cleaners over the
next four years. One major benefit of the Tide
concept is the lower franchise fee. It costs
$950,000 to open a Tide Dry Cleaner, but up to
$5 million to open a Mr. Clean Car Wash.
Hulu
When customers have less money to spend on
entertainment, they tend to entertain themselves more at home. Hulu.com is perfectly
poised to take advantage of this trend. A joint
venture between Disney-ABC, NBCUniversal,
and Fox Entertainment, Hulu is an advertisingsupported, online video streaming service that
offers prime-time television programming via
the Internet and mobile apps. Hulu’s growth
comes from a growing trend of watching fulllength programming via the Internet instead
of network or cable television. The trend is
especially prevalent among the prized 18- to
44-year-old demographic—a statistic that has
advertisers buzzing. Hulu users spend an
average of 256 minutes per month watching
videos—each one embedded with advertising
from mainstream companies like Best Buy,
Bank of America, and Nissan. Customers can
also subscribe to Hulu Plus for roughly $8 per
month. In only 7 years, Hulu has become one of
the top Internet video websites and generates
over $1 billion in revenue each year. Hulu’s
next push is with original programming, including programs such as Battleground and Misfits.
The company spends over $500 million each
year on programming.
What do these three stories teach us? First,
companies can still be innovative in a weakened economy. The key is to conduct research
to closely follow changing customer preferences and spending. Second, it’s not enough to
do the research. Good innovation must be accurately timed to the market. Third, to be creative,
companies will often have to step outside their
comfort zones. P&G is a great example. Who
would have thought that a packaged goods
company could become a service provider?
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Chapter 1 • Marketing in Today’s Economy
multinational firm launching a new product in a foreign market, all marketing activities have one thing in common: They aim to give customers a reason to buy the organization’s product. In this section, we briefly introduce the activities and decisions
that will be the focus of the remaining chapters of this book.
Strategic Planning
If an organization is to have any chance of reaching its goals and objectives, it must
have a game plan or road map for getting there. A strategy, in effect, outlines the organization’s game plan for success. Effective marketing requires sound strategic planning at a number of levels in an organization. At the top levels of the organization,
planners concern themselves with macro issues such as the corporate mission, management of the mix of strategic business units, resource acquisition and assignments,
and corporate policy decisions. Planners at the middle levels, typically a division or
strategic business unit, concern themselves with similar issues, but focus on those
that pertain to their particular product/market. Strategic planning at the lower levels
of an organization is much more tactical in nature. Here, planners concern themselves with the development of marketing plans—more specific game plans for connecting products and markets in ways that satisfy both organizational and customer
objectives.
Although this book is essentially about strategic planning, it focuses on tactical
planning and the development of the marketing plan. Tactical planning addresses specific markets or market segments and the development of marketing programs that
will fulfill the needs of customers in those markets. The marketing plan provides the outline for how the organization will combine product, pricing, distribution, and promotion decisions to create an offering that customers will find attractive. The marketing
plan also addresses the implementation, control, and refinement of these decisions.
To stand a reasonable chance for success, marketing plans should be developed
with a keen appreciation of how they fit into the strategic plans of the middle and
upper levels of the firm. In Chapter 2, we discuss the connection among corporate,
business-unit, and marketing planning, as well as how marketing plans must be integrated with the plans of other functions in the organization (financial plans, production plans, etc.). We also discuss the structure of the marketing plan and some of the
challenges involved in creating one.
Research and Analysis
Strategic planning depends heavily on the availability and interpretation of information. Without this lifeblood, strategic planning would be a mindless exercise and a
waste of time. Thankfully, today’s planners are blessed with an abundance of information due to improving technology and the Internet. However, the challenge of finding
and analyzing the right information remains. As many marketing planners have found,
having the right information is just as important as having the right product.
Marketers are accustomed to conducting and analyzing research, particularly
with respect to the needs, opinions, and attitudes of their customers. Although customer analysis is vital to the success of the marketing plan, the organization must
also have access to three other types of information and analysis: internal analysis,
competitive analysis, and environmental analysis. Internal analysis involves the objective review of internal information pertaining to the firm’s current strategy and performance, as well as the current and future availability of resources. Analysis of the
competitive environment, increasingly known as competitive intelligence, involves analyzing the capabilities, vulnerabilities, and intentions of competing businesses. Analysis of the external environment, also known as environmental scanning, involves the
analysis of economic, political, legal, technological, and cultural events and trends
that may affect the future of the organization and its marketing efforts. Some
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Chapter 1 • Marketing in Today’s Economy
marketing planners use the term situation analysis to refer to the overall process of collecting and interpreting internal, competitive, and environmental information.
The development of a sound marketing plan requires the analysis of information
on all fronts. In Chapter 3, we address the collection and analysis of internal, customer, competitive, and environmental information. We also discuss the challenges
involved in finding the right information from an overwhelming supply of available
information. The uncertainty and continual change in the external environment also
create challenges for marketers (as the Internet boom and bust have shown us). As
we will see, this type of research and analysis is perhaps the most difficult aspect of
developing a marketing plan.
Developing Competitive Advantage
To be successful, a firm must possess one or more competitive advantages that it
can leverage in the market in order to meet its objectives. A competitive advantage is
something that the firm does better than its competitors that gives it an edge in serving customers’ needs and/or maintaining mutually satisfying relationships with
important stakeholders. Competitive advantages are critical because they set the
tone, or strategic focus, of the entire marketing program. When these advantages
are tied to market opportunities, the firm can offer customers a compelling reason
to buy their products. Without a competitive advantage, the firm and its products
are likely to be just one more offering among a sea of commoditized products.
Apple, for example, has been quite successful in leveraging innovation and the customer experience to maintain a sizable competitive advantage in computers, smartphones, and music and movie distribution. A typical Mac computer costs
substantially more than a comparable PC running Windows. However, Apple bundles multimedia software and a top-rated user experience into the mix. As a result,
Apple computers continue to command a price premium, where most PC manufacturers engage in price wars.
In Chapter 4, we discuss the process of developing competitive advantages and
establishing a strategic focus for the marketing program. We also address the role of
SWOT analysis as a means of tying the firm’s strengths or internal capabilities to market opportunities. Further, we discuss the importance of developing goals and objectives. Having good goals and objectives is vital because these become the basis for
measuring the success of the entire marketing program. For example, Hampton Inn
has a goal of 100 percent customer satisfaction. Customers do not have to pay for
their stay if they are not completely satisfied.18 Goals like these are not only useful
in setting milestones for evaluating marketing performance; they also motivate
managers and employees. This can be especially true when marketing goals or objectives help to drive employee evaluation and compensation programs.
Marketing Strategy Decisions
An organization’s marketing strategy describes how the firm will fulfill the needs and
wants of its customers. It can also include activities associated with maintaining relationships with other stakeholders, such as employees, shareholders, or supply chain
partners. Stated another way, marketing strategy is a plan for how the organization
will use its strengths and capabilities to match the needs and requirements of the
market. A marketing strategy can be composed of one or more marketing programs;
each program consists of two elements—a target market or markets and a marketing
mix (sometimes known as the four Ps of product, price, place, and promotion). To
develop a marketing strategy, an organization must select the right combination of
target market(s) and marketing mix(es) in order to create distinct competitive
advantages over its rivals.
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Chapter 1 • Marketing in Today’s Economy
Market Segmentation and Target Marketing
The identification and selection of one or more target markets is the result of the
market segmentation process. Marketers engage in market segmentation when they
divide the total market into smaller, relatively homogeneous groups or segments
that share similar needs, wants, or characteristics. When a marketer selects one or
more target markets, they identify one or more segments of individuals, businesses, or
institutions toward which the firm’s marketing efforts will be directed. As described
in Beyond the Pages 1.3, marketers increasingly use online social networking as a
way to target specific markets.
Advances in technology have created some interesting changes in the ways
that organizations segment and target markets. Marketers can now analyze
customer-buying patterns in real time via point-of-purchase data collected from
sales transactions and credit card usage, as well as by analyzing clickstream data in
BEYOND THE PAGES 1.3
Targeting Consumers via Online Social
Networking19
Social networking has proven to be very popular with both users and advertisers. Sites like
Facebook, Instagram, Google Plus, LinkedIn,
Pinterest, and Twitter allow users to share
information, find old friends, or network with
like-minded individuals. Most users are teens
and young adults who use the sites to trade
messages, photos, music, and blogs. The largest
of these sites currently is Facebook, which
boasts over 1.2 billion active users worldwide.
Instagram has over 300 million active users,
while Twitter has over 232 million active
users. Other sites are also growing rapidly.
While social networks are very popular,
they have attracted a fair amount of criticism.
Many argue that these sites make it easier for
predators to reach teens and children through
the use of their online profiles. Business
experts have been skeptical of the long-term
success of social networking as a business
model. They argue that younger audiences are
fickle and will leave these sites for the next hot
thing on the Internet. For example, analysts
estimate that Twitter has over 651 million abandoned accounts—almost four times the number
of active Twitter users.
Despite these criticisms, online social
networking appears to have legs for the longterm—forcing media companies and advertisers to take notice. The reason is simple: The
demographic profile of the social networking
audience is extremely lucrative. Facebook’s
fastest growing age segment is the 25 and over
crowd. LinkedIn has a different profile of over
347 million registered members with an older,
more professional demographic. However,
LinkedIn’s profile has been shifting as more students and recent college graduates join the network. Powerful segmentation like this has
forced an increasing number of advertisers to
consider social networking as a viable media
strategy.
In addition to the demographic fortune,
social networking also allows firms to carefully
target promotions to the right audience and
collect a striking amount of information
about users. For example, Nike used Facebook
Places to target consumers in Portland, Oregon
with free athletic jackets for individuals who
checked in to a specified location in the city.
Vitamin Water used a Facebook campaign asking users to help them choose the next flavor of
the popular drink. Domino’s also used Facebook to distribute promotional codes to fans
of its page. American Airlines and IBM have
had similar success using Twitter to reach
potential customers.
Social networking sites have become so
successful that they are now the entry point to
the Internet for most users. In essence, social
networking sites have become one-stop shops
for communication, information, and commerce. Consumers can buy products without
having to leave these sites, and marketers are
paying attention. For example, when Facebook
added the ability to rent movies and buy music
directly from its site, competitors such as
Amazon, Netflix, and Apple were forced to take
notice.
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Chapter 1 • Marketing in Today’s Economy
online transactions. This allows organizations to target specific segments with product offers or promotional messages. Furthermore, technology now gives marketers
the ability to target individual customers through direct mail and e-mail campaigns.
This saves considerable time and expense by not wasting efforts on potential
customers who may not be interested in the organization’s product offering. However, these new opportunities for marketers come at a price: Many potential buyers
resent the ability of marketers to reach them individually. Consequently, customers
and governmental authorities have raised major concerns over privacy and
confidentiality.
Chapter 5 discusses the issues and strategies associated with market segmentation and target marketing. In that discussion, we will examine different approaches
to market segmentation and look at target marketing in both consumer and business
markets. Effective segmentation and target marketing sets the stage for the development of the product offering and the design of a marketing program that can effectively deliver the offering to targeted customers.
Marketing Program Decisions
As we will address in Chapter 6, successful marketing programs depend on a carefully crafted blend of the four major marketing mix elements (i.e., product, price, distribution, and promotion). Earlier in the chapter, we discussed the many different
types of products that can be offered to customers. Since the product and its attributes fulfill the basic needs and wants of the customer, it is no surprise that the product and the decisions that surround it are among the most important parts of the
marketing program. This importance hinges on the connection between the product
and the customers’ needs. Even large corporations fail to make this connection at
times. McDonald’s, for example, spent over $100 million in 1996 to launch the Arch
Deluxe—a hamburger designed for adult tastes. Considered the fourth worst product
failure in history, the Arch Deluxe failed miserably because it was designed for older
customers (who are not McDonald’s core market), was expensive, and had a very
high calorie content. McDonald’s customers avoided the Arch Deluxe and the sandwich was eventually discontinued.20 As this example illustrates, marketing is
unlikely to be effective unless there is a solid linkage between a product’s benefits
and customers’ needs.
Pricing decisions are important for several reasons. First, price is the only element of the marketing mix that leads to revenue and profit. All other elements of
the marketing mix, such as product development and promotion, represent
expenses. Second, price typically has a direct connection with customer demand.
This connection makes pricing the most overmanipulated element of the marketing
mix. Marketers routinely adjust the price of their products in an effort to stimulate or
curb demand. Third, pricing is the easiest element of the marketing program to
change. There are very few other aspects of marketing that can be altered in real
time. This is a huge plus for marketers who need to adjust prices to reflect local market conditions, or for online merchants who want to charge different prices for different customers based on total sales or customer loyalty. Finally, pricing is a major
quality cue for customers. In the absence of other information, customers tend to
equate higher prices with higher quality.
Distribution and supply chain issues are among the least apparent decisions
made in marketing, particularly with customers. The goal of distribution and supply
chain management is essentially to get the product to the right place, at the right time,
in the right quantities, at the lowest possible cost. Supply chain decisions involve a long
line of activities—from the sourcing of raw materials, through the production of finished products, to ultimate delivery to final customers. Most of these activities,
which customers take for granted, take place behind the scenes. Few customers,
for example, contemplate how their favorite cereal ends up on their grocer’s shelf
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