Marketing Strategy
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Marketing
Strategy
Text and Cases
SIXTH EDITION
O.C. FERRELL
The University of New Mexico
MICHAEL D. HARTLINE
The Florida State University
Australia • Brazil • Japan • Korea • Mexico • Singapore • Spain • United Kingdom • United States
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Marketing Strategy: Text and Cases,
Sixth Edition
O.C. Ferrell and Michael D. Hartline
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To my wife, Linda
O.C. Ferrell
To Huck and ReRe
Michael D. Hartline
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Brief Contents
PART 1
Setting the Stage for Marketing Strategy
CHAPTER
1
Marketing in Today’s Economy
CHAPTER
2
Strategic Marketing Planning
PART 2
1
27
Discovering Market Opportunities
CHAPTER
3
Collecting and Analyzing Marketing Information
CHAPTER
4
Developing Competitive Advantage and Strategic Focus 85
PART 3
Developing Marketing Strategy
CHAPTER
5
Customers, Segmentation, and Target Marketing
CHAPTER
6
The Marketing Program
CHAPTER
7
Branding and Positioning
PART 4
53
115
149
199
Putting Strategy into Action
CHAPTER
8
Ethics and Social Responsibility in Marketing Strategy
CHAPTER
9
Marketing Implementation and Control
CHAPTER
10
PART 5
227
255
Developing and Maintaining Long-Term Customer
Relationships 283
Cases
CASE
1
USA Today: Innovation in an Evolving Industry
CASE
2
Apple’s Winning Marketing Strategy
CASE
3
Monsanto Balances the Interests of Multiple Stakeholders
CASE
4
New Belgium Brewing (A): Gaining Competitive Advantage Through
Socially Responsible Marketing 351
CASE
5
New Belgium Brewing (B): Developing a Brand Personality
CASE
6
Mattel Confronts Its Marketing Challenges
CASE
7
Mistine: Direct Selling in the Thai Cosmetics Market
CASE
8
BP Struggles to Repair Its Tarnished Reputation
CASE
9
Chevrolet: 100 Years of Product Innovation
313
327
339
361
371
381
393
405
vii
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viii
Brief Contents
CASE
10
Wyndham Worldwide Adopts a Stakeholder Orientation Marketing
Strategy 419
CASE
11
NASCAR: Can’t Keep a Good Brand Down
CASE
12
IndyCar: Seeking a Return to Motorsports’ Fast Lane
CASE
13
Zappos: Delivering Happiness
CASE
14
Sigma Marketing: Strategic Marketing Adaptation
CASE
15
Netflix Fights to Stay Ahead of a Rapidly Changing Market
CASE
16
Gillette: Why Innovation May Not Be Enough
CASE
17
IKEA Slowly Expands Its U.S. Market Presence
493
CASE
18
Sushilicious: Standing Out In A Crowded Field
501
CASE
19
Trouble Brews at Starbucks
CASE
20
Groupon
Appendix
429
441
451
461
471
481
517
533
Marketing Plan Worksheets
547
Brands and Companies Index 557
Name Index 571
Subject Index 575
Copyright 2013 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part. Due to electronic rights, some third party content may be suppressed from the eBook and/or eChapter(s).
Editorial review has deemed that any suppressed content does not materially affect the overall learning experience. Cengage Learning reserves the right to remove additional content at any time if subsequent rights restrictions require it.
Contents
PART 1 Setting the Stage for Marketing Strategy
CHAPTER 1
1
Marketing in Today’s Economy
Introduction
1
Beyond the Pages 1.1 Thriving in Commodity Hell
2
The Challenges and Opportunities of Marketing in Today’s Economy
3
7
Basic Marketing Concepts
What Is a Market? 8
What Is Exchange? 9
What Is a Product? 11
Major Marketing Activities and Decisions
Strategic Planning 14
14
Beyond the Pages 1.2 Innovative Marketing Strategies for a Tough Economy
Research and Analysis 16
Developing Competitive Advantage 16
Marketing Strategy Decisions 17
Beyond the Pages 1.3 Targeting Consumers via Online Social Networking
Social Responsibility and Ethics 20
Implementation and Control 20
Developing and Maintaining Customer Relationships
21
24
Questions for Discussion
Exercises
18
22
Taking On the Challenges of Marketing Strategy
Lessons from Chapter 1
15
25
25
CHAPTER 2
Strategic Marketing Planning
Introduction
27
27
Beyond the Pages 2.1 Redbox’s Success Story
28
The Strategic Planning Process 29
Organizational Mission versus Organizational Vision
Corporate or Business-Unit Strategy 34
Functional Goals and Objectives 35
Functional Strategy 35
Implementation 36
Evaluation and Control 36
The Marketing Plan 36
Marketing Plan Structure
30
37
Beyond the Pages 2.2 Sell Below Cost, They Will Come
Using the Marketing Plan Structure
41
42
ix
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x
Contents
Purposes and Significance of the Marketing Plan 44
Organizational Aspects of the Marketing Plan 44
Maintaining Customer Focus and Balance in Strategic Planning
Customer-Focused Planning 46
Beyond the Pages 2.3 Amazon Is on Fire
Balanced Strategic Planning
Lessons from Chapter 2
Questions for Discussion
Exercises
45
47
48
50
51
51
PART 2 Discovering Market Opportunities
CHAPTER 3
Collecting and Analyzing Marketing Information
Introduction
53
53
Beyond the Pages 3.1 Baby Boomers Deserve Careful Analysis
Conducting a Situation Analysis 55
Analysis Alone Is Not a Solution 55
Data Is Not the Same as Information 56
The Benefits of Analysis Must Outweigh the Costs 56
Conducting a Situation Analysis Is a Challenging Exercise
The Internal Environment 58
Review of Current Objectives, Strategy, and Performance
Availability of Resources 59
Organizational Culture and Structure 60
54
56
59
The Customer Environment 60
Who Are Our Current and Potential Customers? 62
What Do Customers Do with Our Products? 62
Where Do Customers Purchase Our Products? 63
When Do Customers Purchase Our Products? 63
Beyond the Pages 3.2 The Ongoing Challenge of E-Waste
Why (and How) Do Customers Select Our Products? 65
Why Do Potential Customers Not Purchase Our Products?
64
65
The External Environment 66
Competition 66
Economic Growth and Stability 70
Political Trends 71
Legal and Regulatory Issues 71
Technological Advancements 72
Sociocultural Trends 73
Collecting Marketing Data and Information
Secondary Information Sources 76
76
Beyond the Pages 3.3 A Corporate Affairs Primer
Primary Data Collection 80
Overcoming Problems in Data Collection
Lessons from Chapter 3
Questions for Discussion
Exercises
77
81
82
82
83
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Editorial review has deemed that any suppressed content does not materially affect the overall learning experience. Cengage Learning reserves the right to remove additional content at any time if subsequent rights restrictions require it.
Contents
CHAPTER 4
85
Developing Competitive Advantage and Strategic Focus
Introduction
85
Beyond the Pages 4.1 Innovation: A Major Key to Success
86
Making SWOT Analysis Productive 87
Stay Focused 88
Search Extensively for Competitors 89
Collaborate with Other Functional Areas 89
Examine Issues from the Customers’ Perspective 90
Look for Causes, Not Characteristics 92
Separate Internal Issues from External Issues 92
SWOT-Driven Strategic Planning
Strengths and Weaknesses 93
Opportunities and Threats 95
The SWOT Matrix 96
93
98
Developing and Leveraging Competitive Advantages
Establishing a Strategic Focus
100
Beyond the Pages 4.2 Successful Product Leadership at 3M
Developing Marketing Goals and Objectives
101
105
Beyond the Pages 4.3 A Closer Look at Blue Ocean Strategy
106
Developing Marketing Goals 107
Developing Marketing Objectives 108
Moving Beyond Goals and Objectives 111
Lessons from Chapter 4
Questions for Discussion
Exercises
111
112
112
PART 3 Developing Marketing Strategy
CHAPTER 5
Customers, Segmentation, and Target Marketing
Introduction
115
115
Beyond the Pages 5.1 Data Mining Allows Companies to Know Our Secrets
Buyer Behavior in Consumer Markets 117
The Consumer Buying Process 117
Factors That Affect the Consumer Buying Process
Buyer Behavior in Business Markets 125
Unique Characteristics of Business Markets
The Business Buying Process 128
Market Segmentation 129
Traditional Market Segmentation Approaches
116
123
126
129
Beyond the Pages 5.2 The Challenges and Opportunities of Population Diversity
Individualized Segmentation Approaches 132
Criteria for Successful Segmentation 134
Beyond the Pages 5.3 Shifting Strategies in the Cereal Market
130
135
Identifying Market Segments 135
Segmenting Consumer Markets 136
Segmenting Business Markets 141
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xi
xii
Contents
142
Target Marketing Strategies
Lessons from Chapter 5
143
146
Questions for Discussion
Exercises
146
CHAPTER 6
149
The Marketing Program
Introduction
149
Beyond the Pages 6.1 Can Good Marketing Save Barnes & Noble?
150
Product Strategy 151
Strategic Issues in the Product Portfolio 151
The Challenges of Service Products 154
Developing New Products 156
Pricing Strategy 158
Key Issues in Pricing Strategy
159
Beyond the Pages 6.2 Pricing Around the World
160
Pricing Service Products 165
Base Pricing Strategies 166
Adjusting the Base Price 167
Supply Chain Strategy 169
Strategic Supply Chain Issues 170
Trends in Supply Chain Strategy 175
Beyond the Pages 6.3 Walmart’s Supply Chain Advantages
Integrated Marketing Communications
176
179
Beyond the Pages 6.4 Fragmentation Forever Changes Media Advertising
Strategic Issues in Integrated Marketing Communications
Advertising 182
Public Relations 184
Personal Selling and Sales Management 186
Sales Promotion 188
Lessons from Chapter 6
Questions for Discussion
Exercises
180
181
192
195
195
CHAPTER 7
Branding and Positioning
Introduction
199
199
Beyond the Pages 7.1 Steinway: More Than a Piano
200
Strategic Issues in Branding 202
Basic Branding Decisions 204
Strategic Brand Alliances 206
Brand Value 206
Packaging and Labeling 209
Beyond the Pages 7.2 Tropicana’s Packaging Debacle
210
Differentiation and Positioning 210
Bases for Differentiation 212
Positioning Strategies 214
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Editorial review has deemed that any suppressed content does not materially affect the overall learning experience. Cengage Learning reserves the right to remove additional content at any time if subsequent rights restrictions require it.
Contents
Mananging Brands over Time
Development Stage 217
Introduction Stage 218
Growth Stage 219
Maturity Stage 220
215
Beyond the Pages 7.3 Nintendo’s Rebranding Strategy
Decline Stage
222
223
Lessons from Chapter 7
Questions for Discussion
Exercises
xiii
224
225
225
PART 4 Putting Strategy into Action
CHAPTER 8
227
Ethics and Social Responsibility in Marketing Strategy
Introduction
227
Beyond the Pages 8.1 Salesforce.com Adopts a Stakeholder Orientation
Ethics and Social Responsibility in Marketing Strategy
Dimensions of Social Responsibility 229
Sustainability 232
Marketing Ethics and Strategy 233
228
229
Beyond the Pages 8.2 Finding the Real Green Products
234
The Challenges of Being Ethical and Socially Responsible
236
Ethical Issues in the Marketing Program 237
Product-Related Ethical Issues 238
Pricing-Related Ethical Issues 239
Supply Chain-Related Ethical Issues 240
Promotion-Related Ethical Issues 241
Managing and Controlling Ethical Issues
Regulating Marketing Ethics 242
Codes of Conduct 243
242
Beyond the Pages 8.3 The Consumer Financial Protection Bureau Aims to Build Trust in the
Banking System
Ethical Leadership
244
245
Relationship to Marketing and Financial Performance
Stakeholder Orientation 247
Marketing Financial Performance 247
246
Incorporating Ethics and Social Responsibility into Strategic Planning
Lessons from Chapter 8
Questions for Discussion
Exercises
249
250
251
251
CHAPTER 9
Marketing Implementation and Control
Introduction
255
255
Beyond the Pages 9.1 Green Mountain Coffee Gets It Done
256
Strategic Issues in Marketing Implementation 257
The Link Between Planning and Implementation 257
The Elements of Marketing Implementation 259
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xiv
Contents
Approaches to Marketing Implementation
Implementation by Command 263
Implementation Through Change 263
263
Beyond the Pages 9.2 The New Rules of CEO Leadership
264
Implementation Through Consensus 265
Implementation as Organizational Culture 266
268
Internal Marketing and Marketing Implementation
The Internal Marketing Approach 268
The Internal Marketing Process 269
Evaluating and Controlling Marketing Activities
Formal Marketing Controls 271
Informal Marketing Controls 275
Scheduling Marketing Activities 276
270
Beyond the Pages 9.3 Managing Risk Through Culture
Lessons from Chapter 9
Questions for Discussion
Exercises
277
279
280
280
CHAPTER 10
283
Developing and Maintaining Long-Term Customer Relationships
Introduction
283
Beyond the Pages 10.1 1-800-Flowers.com Focuses on Customers
284
Managing Customer Relationships 284
Developing Relationships in Consumer Markets 286
Developing Relationships in Business Markets 288
Quality and Value: The Keys to Developing Customer Relationships
Understanding the Role of Quality 290
Delivering Superior Quality 293
Beyond the Pages 10.2 Customer Service versus Efficiency
Understanding the Role of Value
Competing on Value 298
Beyond the Pages 10.3 Satisfied, But Not Loyal
302
Satisfaction versus Quality versus Value 303
Customer Satisfaction and Customer Retention
Customer Satisfaction Measurement 306
304
308
Questions for Discussion
310
Exercises
294
295
Customer Satisfaction: The Key to Customer Retention
Understanding Customer Expectations 299
Lessons from Chapter 10
290
299
310
PART 5 Cases
CASE
1
USA Today: Innovation in an Evolving Industry
CASE
2
Apple’s Winning Marketing Strategy
CASE
3
Monsanto Balances the Interests of Multiple Stakeholders
313
327
339
Copyright 2013 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part. Due to electronic rights, some third party content may be suppressed from the eBook and/or eChapter(s).
Editorial review has deemed that any suppressed content does not materially affect the overall learning experience. Cengage Learning reserves the right to remove additional content at any time if subsequent rights restrictions require it.
Contents
xv
CASE
4
New Belgium Brewing (A): Gaining Competitive Advantage Through
Socially Responsible Marketing 351
CASE
5
New Belgium Brewing (B): Developing a Brand Personality
CASE
6
Mattel Confronts Its Marketing Challenges
CASE
7
Mistine: Direct Selling in the Thai Cosmetics Market
CASE
8
BP Struggles to Repair Its Tarnished Reputation
CASE
9
Chevrolet: 100 Years of Product Innovation
CASE
10
Wyndham Worldwide Adopts a Stakeholder Orientation Marketing
Strategy 419
CASE
11
NASCAR: Can’t Keep a Good Brand Down
CASE
12
IndyCar: Seeking a Return to Motorsports’ Fast Lane
CASE
13
Zappos: Delivering Happiness
CASE
14
Sigma Marketing: Strategic Marketing Adaptation
CASE
15
Netflix Fights to Stay Ahead of a Rapidly Changing Market
CASE
16
Gillette: Why Innovation May Not Be Enough
CASE
17
IKEA Slowly Expands Its U.S. Market Presence
493
CASE
18
Sushilicious: Standing Out In A Crowded Field
501
CASE
19
Trouble Brews at Starbucks
CASE
20
Groupon
Appendix
361
371
381
393
405
429
441
451
461
471
481
517
533
Marketing Plan Worksheets
Brands and Companies Index
Name Index 571
Subject Index 575
547
557
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Editorial review has deemed that any suppressed content does not materially affect the overall learning experience. Cengage Learning reserves the right to remove additional content at any time if subsequent rights restrictions require it.
Copyright 2013 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part. Due to electronic rights, some third party content may be suppressed from the eBook and/or eChapter(s).
Editorial review has deemed that any suppressed content does not materially affect the overall learning experience. Cengage Learning reserves the right to remove additional content at any time if subsequent rights restrictions require it.
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.
Our Focus
Given this marketing landscape, Marketing Strategy: Text and Cases, 6th 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.
xvii
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xviii
Preface
Our approach in Marketing Strategy: Text and Cases, 6th 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 decisionmaking processes, we have employed a practical perspective that permits marketing managers in any size 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 “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 twenty 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.
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Editorial review has deemed that any suppressed content does not materially affect the overall learning experience. Cengage Learning reserves the right to remove additional content at any time if subsequent rights restrictions require it.
Preface
xix
Key Features of the 6th Edition
The key features of Marketing Strategy: Text and Cases, 6th Edition include:
•
•
•
•
Revised and expanded coverage throughout the text of recent events in marketing
practice by well-known global companies.
A focus on the integration of the traditional marketing mix elements (product, price,
distribution, and promotion) into a consistent marketing program. Consequently, the
four separate marketing mix chapters have been condensed into a single chapter.
A new chapter on Branding and Positioning (Chapter 7) that adds increased emphasis on using every element of the marketing program to achieve branding and positioning success.
Five new cases written specifically for our text:
•
•
•
•
•
•
Case 2, “Apple’s Winning Marketing Strategy,” focuses on Apple’s phenomenal
rise to prominence through the use of masterful marketing, an entrepreneurial
spirit, and “cool” branding.
Case 9, “Chevrolet: 100 Years of Product Innovation,” looks at Chevrolet’s use of
product innovation and branding to create practical, sporty, and affordable automotive products that compete with strong domestic and foreign manufacturers.
Case 10, “Wyndham Worldwide Adopts a Stakeholder Orientation Marketing
Strategy,” examines how Wyndham’s focus on stakeholder orientation has positioned the company as a global brand that is synonymous with quality, ethical
leadership, customer satisfaction, and sustainability.
Case 13, “Zappos: Delivering Happiness,” explores the company’s unique business model and corporate culture, and how they influence its relationships with
customers, employees, the environment, and its communities.
Case 15, “Netflix Fights to Stay Ahead of a Rapidly Changing Market,” looks at
how the dominant rent-by-mail and video streaming company bested its chief
rival, Blockbuster, and how the company must prepare for an uncertain future
as the DVD rental sector approaches the end of its life cycle.
A complete revision of the twelve cases that have been carried over from the 5th edition
of our text:
•
•
•
•
•
Case 1, “USA Today: Innovation in an Evolving Industry,” explores how the nation’s largest daily newspaper has used continuous innovation to stay ahead of the
technological and sociocultural shifts that threaten the very existence of the newspaper industry.
Case 3, “Monsanto Balances the Interests of Multiple Stakeholders,” focuses on
Monsanto’s shift from a chemical company to one focused on biotechnology, and
the resulting stakeholder concerns about safety and the environment that come
with such a change.
Case 4, “New Belgium Brewing (A): Gaining Competitive Advantage Through
Socially Responsible Marketing,” shows how a firm can use social responsibility
and customer intimacy as key competitive advantages in the highly competitive
craft beer market.
Case 5, “New Belgium Brewing (B): Developing a Brand Personality,” explains
how New Belgium expanded its branding and communication strategy after the
development of its “Brand Manifesto.”
Case 6, “Mattel Confronts Its Marketing Challenges,” looks at the threats that
Mattel faces in its ongoing global operations, including changing customer preferences, competition, product liability, and declining sales.
Copyright 2013 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part. Due to electronic rights, some third party content may be suppressed from the eBook and/or eChapter(s).
Editorial review has deemed that any suppressed content does not materially affect the overall learning experience. Cengage Learning reserves the right to remove additional content at any time if subsequent rights restrictions require it.
xx
Preface
•
•
•
•
•
•
•
•
The inclusion of three new outside cases from the Ivey School of Business at the
University of Western Ontario:
•
•
•
•
•
•
Case 7, “Mistine: Direct Selling in the Thai Cosmetics Market,” explores how
Mistine’s value-based positioning moved the company to the top of the direct
selling cosmetics market in Thailand.
Case 8, “BP Struggles to Repair Its Tarnished Reputation” considers how BP’s
growing reputation for sustainability was tarnished by the Gulf oil spill disaster.
Case 11, “NASCAR: Can’t Keep a Good Brand Down,” looks at NASCAR’s
marketing and branding successes and its newfound struggles to remain on top
of the motorsports market and the #1 spectator sport in the U.S.
Case 12, “IndyCar: Seeking a Return to Motorsports’ Fast Lane,” is an excellent
companion to the NASCAR case. The case examines the reunification of U.S.
open wheel racing and how the new IRL must reconnect with fans to improve
its standing in the U.S. motorsports market.
Case 14, “Sigma Marketing: Strategic Marketing Adaptation,” explores the innovation and market adaptation of this small, family-owned business as it grew
from a regional printing company to a global specialty advertising firm.
Case 16, “Gillette: Why Innovation May Not Be Enough,” examines Gillette’s
history of product and marketing innovation, and how past success may not be
enough to maintain supremacy in the global razor market.
Case 17, “IKEA Slowly Expands Its U.S. Market Presence,” discusses how
IKEA’s strategy of operational excellence may stand in the way of further
expansion into the U.S. furniture and home furnishings market.
Case 18, “Sushilicious: Standing Out in a Crowded Field,” examines the use of
social media in the marketing campaign for a California sushi restaurant.
Case 19, “Trouble Brews at Starbucks,” looks at how the company’s rapid
expansion actually worked against its long-term brand positioning and equity.
Case 20, “Groupon,” explores the rapid growth of the online coupon company,
its business model, and whether its future growth could depend on finding a
business partner to bring needed resources and capabilities to the table.
Our complete case package provides up-to-date coverage of topics that are important
and relevant to marketing practice in the 21st century. These topics include innovation, social responsibility, sustainability, global sourcing, technology, corporate affairs,
and entrepreneurship.
An updated set of Marketing Plan Worksheets, provided in the Appendix. The worksheets reflect a concise approach to marketing plan development. However, the worksheets are comprehensive in scope to help ensure that students and/or managers do
not omit important issues in developing strategic marketing plans.
A continued user-friendly writing style that covers essential points without heavy use
of jargon. The text has also been reduced from 12 chapters to 10 chapters without a
loss in coverage.
Instructor Resources
The Instructor Resource materials for the 6th edition have been updated to match the
new organization of the text. These materials are available via an Instructor’s Resource
CD-ROM or online at the password-protected instructor’s resource website.
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Preface
xxi
These materials include:
•
•
A revised PowerPoint® package, which incorporates lecture outlines and summary of
key points, as well as select figures and tables from the text.
An updated Instructor’s Manual, which includes the following:
•
•
•
Chapter lecture outlines—These outlines for each chapter may be used to
quickly review chapter content before class or to gain an overview of the entire
text. The outlines can also be used by instructors to add their own personal
notes and examples before class.
Case teaching notes—Our teaching notes use a consistent format to help instructors evaluate cases before use, or to assist instructors in leading case analysis and class discussion. Although there are many different approaches to using
cases, our notes will help instructors identify key issues and alternatives as they
relate to the content of the case and corresponding text chapters.
An updated Test Bank. These examination materials include a variety of multiple
choice, true/false, and discussion questions. The Test Bank questions vary in levels of
difficulty, and meet a full range of tagging requirements, so that instructors can tailor
their testing to meet their specific needs.
The updated instructor’s resource website supports the text and cases. In addition to
the instructor resources already mentioned, instructors will find lecture outlines, case
teaching notes, and sample syllabi for use in their classes.
Student Resources
Our primary student resource is contained within the text. The Appendix includes a detailed set of marketing plan worksheets that assist students in developing marketing
plans. The remaining student resources can be found online at our website:
•
•
•
•
•
•
A downloadable Microsoft Word version of the Marketing Plan Worksheets found in
the Appendix. The worksheets are designed so students can fill-in material and edit
the worksheets outside of class.
Example marketing plans to help illustrate the format and writing style used in creating an actual marketing plan document.
A downloadable Microsoft Word version of the Lessons from each chapter. This document provides a complete outline of each chapter so that students may add to and
edit the lessons outside of class. Alternatively, the file can be used during class as a
way to organize note taking.
Online exercises for each chapter. These exercises allow students to practice the concepts learned in class.
Online quizzes for each chapter. These quizzes help students prepare for course exams.
A tutorial on how to perform a case analysis. The tutorial provides a suggested way to
conduct cases analyses. Instructors may use this tutorial or provide one of their own.
Acknowledgements
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
appreciate the generous help of these reviewers:
Lynn Allendorf, University of Iowa
Dr. Fazal Ahmed, University of Pennsylvania
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Editorial review has deemed that any suppressed content does not materially affect the overall learning experience. Cengage Learning reserves the right to remove additional content at any time if subsequent rights restrictions require it.
xxii
Preface
Julia Cronin-Gilmore, Bellevue University
A. Cemal Ekin, Providence College
Steven McClung, Mercer University
Joseph Ouellette, Bryant University
Jeffry Overby, Belmont University
Norman Alan Ross, Northern Arizona University
Kim Saxton, Indiana University
Herbert Sherman, Long Island University—Brooklyn Campus
George David Shows, Louisiana Tech University
Ziad Swaidan, University of Houston—Victoria
Uday Tate, Marshall University
Linda Wright, Longwood University
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:
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, University of New Mexico
John Fraedrich, Southern Illinois University - Carbondale
Bernadette Gallegos, University of New Mexico
Jennifer Jackson, University of New Mexico
Kimberly Judson, Illinois State University
Cassondra Lopez, University of New Mexico
Kevin Mihaly, Florida State University
Kelsey Reddick, Florida State University
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
Celeste Wood, Florida State University
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Preface
xxiii
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 since of
appreciation, we thank Mike Roche and Sarah Blasco.
Finally, we express appreciation for the support and encouragement of our families,
friends, and our colleagues at The University of New Mexico and The Florida State
University.
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Editorial review has deemed that any suppressed content does not materially affect the overall learning experience. Cengage Learning reserves the right to remove additional content at any time if subsequent rights restrictions require it.
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About the Authors
O.C. Ferrell, Ph.D.
The University of New Mexico
O.C. Ferrell (Ph.D., Louisiana State University) is University Distinguished Professor
of Marketing and Bill Daniels Professor of Business Ethics at the Anderson School of
Management at the University of New Mexico. He served as the Bill Daniels Distinguished
Professor of Business Ethics 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. 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. Annually, Dr. Ferrell teaches a graduate
course in competitive marketing strategies at Thammasat University in Bangkok,
Thailand.
Dr. Ferrell is the co-author of 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 text 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, 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 the University of New
Mexico) live in Albuquerque. He enjoys golf, skiing, reading, and travel.
xxv
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xxvi
About the Authors
Michael D. Hartline, Ph.D.
The Florida State University
Michael D. Hartline (Ph.D., The University of Memphis) is Associate Dean for Strategic
Initiatives and Charles A. Bruning Professor of Business Administration in the College of
Business at Florida State University, where he is responsible for external relations, executive education, and strategic programs. Prior to joining the FSU faculty in 2001,
Dr. Hartline was 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 Corporate Affairs Management, as well as 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 non-profit organizations in the areas of marketing plan development, market feasibility analysis, customer satisfaction measurement, customer service training, and pricing
policy. He has also 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 daughters, Meghan,
Madison, and Mallory. They have two dogs, Bella and Chief (both Japanese Chins), and
a cat, Snickers. Dr. Hartline is a self-professed electronics and gadget enthusiast who enjoys music, reading, computers, travel, college football (Go Seminoles!), and being a dad.
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Editorial review has deemed that any suppressed content does not materially affect the overall learning experience. Cengage Learning reserves the right to remove additional content at any time if subsequent rights restrictions require it.
Marketing Strategy
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Editorial review has deemed that any suppressed content does not materially affect the overall learning experience. Cengage Learning reserves the right to remove additional content at any time if subsequent rights restrictions require it.
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CHAPTER
1
Marketing in Today’s
Economy
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, and its MacBook line
of notebook computers. Further, effective planning and strategy allows Cola-Cola to
continue its leadership in soft drinks, make a key acquisition in its purchase of the
Vitamin Water brand, all the while continuing 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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2
Part 1: Setting the Stage for Marketing Strategy
Beyond the Pages 1.1
Thriving in Commodity Hell
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 full-service 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.
1
Today, Southwest is expanding routes by acquiring
rival companies (such as AirTran). The company also
stands apart from others with its innovative “No Bag
Fees” promotional campaign. 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 brandbuilding activities by introducing breakfast combos,
an instant coffee (Via), 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
BusinessWeek’s list of the World’s Most Innovative
Companies for 2011 (in order): Apple, Twitter, Facebook,
Nissan, Groupon, and Google. 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.
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Chapter 1: Marketing in Today’s Economy
3
The Challenges and Opportunities of Marketing
in Today’s Economy
Traditional ideas about marketing strategy began to change forever during the mid
1990s. Advances in computer, communication, and information technology forever
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
these fundamental changes to marketing and business practice, as well as our own personal buying behavior:
© OmniTerra Images
• Power Shift to Customers. 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 two-day
delivery while in the store. 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.
• 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 the cereal and soft
drink aisles. The growth in online retailing now allows customers to purchase a car
from CarsDirect, handmade, exotic gifts from Mojo Tree (www.mojotree.co.uk), or a
Consumers can instantly find competitors’ prices while in the store.
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4
Part 1: Setting the Stage for Marketing Strategy
case of their favorite wine from Wine.com. Increased transaction efficiency (e.g., 24/7
access, delivery to home or office) 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 online or interacting with handheld devices than they do reading magazines
or watching television. As shown in Exhibit 1.1, consumer usage of traditional media
is declining, while the usage of Internet and 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, gasoline, food, 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
EXHIBIT 1.1
Change in Daily Media Usage by U.S. Adults, 2008–2011
Percent Change (%)
Television and Video
Internet
7.9
21.9
Radio
-7.8
Mobile
103.1
Newspapers
-31.8
Magazines
-28.0
Other
0.0
Source: Media Literacy Clearinghouse, “Media Use Statistics,” http://www.frankwbaker.com/mediause.htm,
accessed July 18, 2012.
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Chapter 1: Marketing in Today’s Economy
5
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, Kodak filed for
Chapter 11 bankruptcy in early 2012 in the face of a highly commoditized market and
stiff competition from other camera makers and smartphones with much improved
camera technology. As consumers realized that the best camera was the one they had
with them (i.e., their smartphones), they began to shy away from traditional camera
makers like Kodak.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, we are just
beginning to see the effects of e-book readers, like Amazon’s Kindle, and personal
publishing solutions, such as Apple’s iBooks, on the book publishing industry.
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 slowing 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 iPod and iTunes, YouTube, and Netflix, along with the
continuing integration of television and computers, has dramatically shifted demand
for the recording and movie industries. Hollywood film studios are grappling with
soft demand in theatres 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 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.
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, 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 well-known 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,
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6
Part 1: Setting the Stage for Marketing Strategy
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:
• Post a description of its privacy policy on the site’s homepage and any other area where personal
information is collected.
• Provide notice to parents about the site’s information collection practices. This full disclosure must
•
•
•
•
describe (1) the type of information collected, (2) why the information is being collected, (3) how the
information will be used and stored, (4) whether the information will be disclosed to third parties,
and (5) parental rights with regard to information content and usage.
Obtain verifiable parental consent to the collection and use of a child’s personal information for internal
use. The operator must also give parents the opportunity to choose not to have this information
disclosed to third parties.
Give parents access to their child’s information, give them the right and means to review and/or delete
this information, and give parents the choice to opt out of the future collection or use of the
information.
Not require that children provide more information than is reasonably necessary to participate in an
activity. Children cannot be required to provide information as a condition of participation.
Maintain the security, confidentiality, and integrity of all personal information collected from
children.
Source: United States Federal Trade Commission, Bureau of Consumer Protection, http://business.ftc.gov/privacy-and-security/
children’s-privacy.
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 1.2.3
• 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 U.S. 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.4 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 U.S. 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.5
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Chapter 1: Marketing in Today’s Economy
7
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
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. Amazon
plans to collect sales tax from consumers in an additional eight states over the
next four years. 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. More than a dozen states have
passed laws to force the collection of online sales taxes, and similar legislation is
pending in ten other states.6
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.” 7
Note how this definition focuses on the four Ps, or the marketing mix. 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.” 8
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.” 9
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8
Part 1: Setting the Stage for Marketing Strategy
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 onus 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 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 at the end of the 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. The term marketspace has been coined to describe these electronic marketplaces
unbound by time or space.10 In a marketspace, physical goods, services, and information
are exchanged through computer networks. Some of the largest marketspaces, such as
Amazon, eBay, and Monster, are now household names. In fact, Amazon has become
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Chapter 1: Marketing in Today’s Economy
9
the marketspace 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. Marketspaces also exist in the business-to-business realm. The shift from
marketplaces to marketspaces 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, marketspace
operators 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 a marketspace outside the marketspace itself. Furthermore, the substitution
of technology for human interaction can be both a blessing and a curse. Some marketspaces, 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 marketspaces because they lack the human element. In these cases, the design
and implementation of the online experience is a serious challenge for marketspace
operators. Finally, the wealth of information available through today’s marketspaces not
only makes customers more educated than ever before, it 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.11 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, iVillage
(www.ivillage.com) has become the Internet’s preeminent metamediary with respect to
women’s issues. One of its most popular sections deals with pregnancy and parenting,
which has become the first stop for many anxious parents in need of advice. Metamediaries like iVillage 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 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.
2. 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
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10
Part 1: Setting the Stage for Marketing Strategy
EXHIBIT 1.3
Common Metamarkets and Participants
Metamarkets
Metamediaries
Metamarket
Participants
Automotive
Home Ownership
Parenting
www.edmunds.com
http://autos.msn.com
www.carsdirect.com
www.kbb.com
www.realtor.com
http://realestate.msn.
com
www.bhg.com
www.ivillage.com/
pregnancyparenting
www.parenting.
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
Homeowners
Builders
Real estate agents
Mortgage companies
Insurance companies
Home inspectors and
appraisers
Pest control services
Magazines
Television programs
Retailers
Parents
Doctors
Retailers
Baby supply
manufacturers
Insurance firms
Financial planners
Educational
providers
Toy manufacturers
Television
programs
Movies
© Cengage Learning 2013
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.
3. 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.
4. 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.
5. 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. Sites like BizRate.com and Epinions.com
not only provide these ratings, they also provide product ratings and serve as shopping
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Chapter 1: Marketing in Today’s Economy
11
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.12 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.
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:13
• 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 towards
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 iTunesU, Khan Academy, and the popular TED
Talks website.15 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.
• 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.
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12
Part 1: Setting the Stage for Marketing Strategy
• 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 twenty 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 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 al...
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