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attached is the instructions and the required reading materials (chapter 1 and 2). please respond substantively to the questions using the reading material to support claims.

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I'll take the job! Here’s the scenario to imagine: a new 5-week marketing manager internship has opened up at each of the organizations listed below. And based on your past accomplishments (and that awesome business card), they all want you. The internship involves researching your employer’s current marketing efforts and then creating a marketing plan for a new product or service that you dream up. So, the question is – who would you choose to work for and why? The List Your choices span a variety of categories as well as marketing approaches. We've provided website links, so you can learn more before making a decision. You will be working with this brand throughout the course, so choose carefully. • • • • Toms Shoes- https://www.toms.com/ Netflix - https://www.toms.com/ Dunkin' Donuts -https://www.dunkindonuts.com/en Red Bull - https://www.redbull.com/us/en Guided Response: You're going to create a discussion post that includes the information below. See our sample post for Harley Davidson (which is not one of your choices). 1. The brand you've selected to do your marketing internship with • Choose from the list above 2. The reasons you selected the brand you did • Give at least two reasons. No right and wrong answers here! 3. A link to a representative tweet from your brand • • That you believe captures their brand essence See the step-by-step tutorial on how to find a tweet and copy the link. – (Sorry, but this link does not open, I will notify you if there are any changes) 4. The answers to these questions about your brand's unique selling proposition • • • How would you describe your brand's unique selling proposition? How is that USP reflected by your chosen tweet? Refer back to the text as to what constitutes a USP. Your initial post should be at least 250 words in length. Your post should make reference to the required reading materials with in-text citations. 1 Yoshio Tomii/SuperStock Marketing Fundamentals Learning Objectives After studying this chapter, you should be able to: • Summarize the development of marketing thought since its emergence as a business discipline in the early twentieth century. • Describe how marketing thought is evolving in the 21st century. • Explain how customer value is conceptualized. • Recall four categories of consumer criteria for determining value. • Describe three major forces affecting contemporary marketing practices. © 2016 Bridgepoint Education, Inc. All rights reserved. Not for resale or redistribution. whi80045_01_c01_001-030.indd 1 4/8/16 10:31 AM CHAPTER 1 Introduction Introduction T he American Marketing Association (AMA) defines marketing as “the activity, set of institutions, and processes for creating, communicating, delivering, and exchanging offerings that have value for customers, clients, partners, and society at large” (Marketingpower.com, 2011). This definition introduces the term value, which this chapter will explore in depth. Value is the fundamental concept on which marketing is based. Value is the perceived trade-off between benefits and the sacrifice required to take possession of those benefits— a relationship that changes constantly based on shifting circumstances. All the activities of marketers are essentially carried out to convince would-be buyers that they have found a good value—a satisfactory trade-off—and so should exchange their money for that value. Exchange is key to achieving the objectives of marketing. Exchange is characterized by trading things of value between buyer and seller so that each perceives him- or herself as better off after the trade. While marketing has been a core business activity since the early twentieth century, and has existed in some form since the first cave dwellers thought of swapping food for furs with their neighbors, its practice is rapidly evolving as marketers adapt to the influences of changing consumers, advancing technologies, and globalization. This chapter introduces the fundamentals that endure from traditional marketing and then builds on that base with insights into the methodology of contemporary marketing practice. Let’s begin by imagining it’s a summer morning in Anywhere, U.S.A. In the town square a farm-stand operator positions his produce in appealing pyramids and greets the first buyers of the day. In the industrial park across town a marketing manager at a corporate office reviews a bid from an ad agency to create a campaign for a new mobile communications product. Back on Main Street, a florist urges a bride to select her wedding’s theme so she can prepare a floral design estimate. What’s going on here? The answer is marketing. In each situation, an exchange process is taking place—two or more parties are going to give something of value in order to receive something perceived to satisfy a need. Buyers are about to give money to sellers in exchange for vegetables, advertising services, and wedding flowers. All that remains is for both parties in each exchange to be convinced that the relationship between the thing given and the thing received is fair. Each of these sellers is engaged in a marketing function, which must be managed for their companies to bring out the profit potential in the exchange. The American Marketing Association defines marketing management as “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” (Marketingpower.com, 2011). The goal of this book is to prepare learners for a role in marketing management in today’s—and tomorrow’s—workplace. The goal of this chapter, and the next, is to give you a solid grounding in contemporary marketing principles and practice, the foundation for contextual understanding of marketing management. © 2016 Bridgepoint Education, Inc. All rights reserved. Not for resale or redistribution. whi80045_01_c01_001-030.indd 2 4/8/16 10:31 AM Section 1.1 A Brief History of Marketing CHAPTER 1 Understanding contemporary marketing thought and its implications for tomorrow’s marketing practitioners, however, requires an understanding of the history of marketing. 1.1 A Brief History of Marketing W hile marketing has always been a function in business, its importance has grown over time. Marketing educators have identified four eras in the history of marketing: 1. 2. 3. 4. Production Era, Sales Era, Marketing Era, and Relationship Era. As each of these eras gave way to the next, prevailing attitudes and practices in marketing changed significantly (Kurtz, 2010). Today, businesses appear to be on the cusp of what may be a fifth era (Kotler, 2010). Marketing took shape as a key business function in the early twentieth century, but it is rooted in exchanges of goods and services that have been with us from the early formation of human societies. Marketing is just one of several means to accomplish the social objective of meeting and satisfying people’s needs. Societies have achieved this objective in several ways throughout history. The earliest form of marketing could be said to have emerged when individuals went beyond producing goods for their own use to some form of reciprocity. Some societies practiced redistribution, a system in which an authority assembles goods and redistributes them, as a medieval lord might manage the needs of his serfs. As societies became more sophisticated, social systems based on trade emerged. This form of exchange involves price equivalencies determined by treaties or administrative decisions. When economic forces (primarily supply and demand) supplant other systems for supplying a society’s material needs, that society has achieved a market system recognizable as the model currently in use throughout most developed countries (Bartels, 1976). In some lesserdeveloped countries, market systems have not yet supplanted other means of exchanging value to meet material needs. Gift-giving, reciprocity, or trade are still valid systems for exchanging value, but there is little place for marketers in those systems. The Production Era After the Industrial Revolution (roughly 1750–1850) brought the ability to distribute goods more widely, opportunity arose for production on a larger scale. The transition from an agricultural economy to an industrial economy created both markets for goods and great quantities of goods to buy. By the end of the 19th century, the shift from production for use to production for exchange was well established. Business managers began using concepts from economics related to distribution (Bartels, 1976). © 2016 Bridgepoint Education, Inc. All rights reserved. Not for resale or redistribution. whi80045_01_c01_001-030.indd 3 4/8/16 10:31 AM Section 1.1 A Brief History of Marketing CHAPTER 1 As the twentieth century commenced, a buyer’s market (in which there are more goods and services available than people wanting to buy them) was replacing a seller’s market (in which buyers outnumber the goods and services they want to buy). The proliferation of goods introduced the need for those goods to be differentiated from each other. In response, marketThe rise of the industrial economy created both goods to buy ing rose in importance. The first and markets with the means to buy them. marketing practitioners strove to comprehend the concept of Associated Press value, leading to our current understanding of the exchange of money for goods or services that deliver needed or desired benefits (utility). Still, the prevailing attitude was that “a good product will sell itself.” Manufacturers focused on production of goods and then looked for customers to buy them (Kurtz, 2010). The Sales Era Early in the twentieth century, what we recognize as modern marketing thought emerged from the work of economists who recognized that demand consisted of more than simple purchasing power. Desire and ability to purchase also affected demand. The breakthrough that created a recognizable discipline of marketing was the realization that desire could be driven by factors other than merely supply—and that the effectiveness of selling, advertising, and promotional activity could be enhanced through study of social sciences such as psychology and sociology. Between 1900 and 1930 the advertising discipline came into being, concerned with copy and layout in advertising campaigns, based on principles of economics and psychology but also trends in the arts and cultural environment. Market research also took shape as a discipline, and the paradigm of marketing as a blend of art and science was established. By the 1940s, market research was driven by rigorous statistical methodology. The functions of middlemen (distributors, sales agents, etc.) were recognized. The power of advertising to persuade and motivate was also recognized. When major business strategies were discussed, people with a marketing perspective began to take a seat at the table alongside production and engineering leaders. However, they tended to remain subordinates in terms of power and tended to hold titles like “sales manager” rather than “marketing director” (Kurtz, 2010). The belief that a sufficiently powerful sales message could overcome any consumer’s resistance prevailed. The Marketing Era The emergence of the Marketing Era can be linked to the end of World War II, when factories shifted from producing for the war effort back to manufacturing consumer products. © 2016 Bridgepoint Education, Inc. All rights reserved. Not for resale or redistribution. whi80045_01_c01_001-030.indd 4 4/8/16 10:31 AM Section 1.1 A Brief History of Marketing CHAPTER 1 The seller’s market created by wartime shortages became a buyer’s market again, booming with pent-up demand. The Marketing Era was characterized by increasing professional specialization in the marketing discipline, with an emphasis on managerial decision-making, quantitative analysis, and recognition of the societal aspects of marketing (Bartels, 1976). In the postwar 1950s and 1960s, marketing thought developed along two main avenues— the power of creativity and the power of science. Those decades were characterized by increasing analysis of consumer motivation, drawing on concepts from the behavioral sciences. This analysis brought recognition of markets as having segments distinguished by geography, mental attitudes, density of population, and ethnic/racial characteristics (Bartels, 1976). This gave rise to use of psychological constructs like consumer motivation, beliefs, and attitudes to develop sales appeals. These new techniques drove the era of “Advertising’s creative revolution” (Ad Age, 2003). The 1970s brought awareness that not only did society influence marketing, but marketing influenced society. Deceptive marketing practices were increasingly criticized (Ad Age, 2003). This marked the first glimmer of another radical shift in marketing thought. Companies began to not just measure and observe the consumers, but listen to them. Businesses shifted toward a consumer orientation—the philosophy that by determining the unmet needs of a consumer the business could better design goods and services to satisfy them. This in turn led to companies committed to the marketing concept. The objective became companywide consumer orientation in order to enjoy longterm success. Even during economic downturns, when companies sought to cut costs to raise revenues, the marketing concept kept companies focused on the objective of long-term success rather than short-term profits (Kurtz, 2010). Companywide, the word went out that During the Marketing Era, marketers began to develop products the customer was king, and the to meet the varying preferences of different customer segments. company’s duty was to identify Gary Leonard/Corbis potential customers’ needs and fill them. Marketers began to realize the need to develop products to meet the varying preferences of different customer segments, and quickly embraced segmentation systems based on the work of social scientists. The first system to gain broad acceptance was the VALS (Values, Attitudes, and Lifestyles) framework, developed in 1978 by SRI International, which segmented consumers by primary motivation and resources (Lawson & Todd, 2002). © 2016 Bridgepoint Education, Inc. All rights reserved. Not for resale or redistribution. whi80045_01_c01_001-030.indd 5 4/8/16 10:31 AM Section 1.1 A Brief History of Marketing CHAPTER 1 Segmentation brought greater understanding of consumer behavior. Fast on its heels came the concept of target marketing—the realization that not all segments can be served profitably. Targeting is essential to focus marketing resources on the people who are likely to have the most use for a company’s offerings but also likely to be the most profitable as customers. Marketers began focusing attention on positioning their products and services—creating an image or identity in the minds of the target market, striving for a unique place (position) that would allow one offering to stand out among many. Marketers termed this goal competitive differentiation. In 1980 Theodore Levitt made a compelling case that the key to differentiation lay in recognizing that buyers purchase more than just a particular physical product or service in the buying exchange. They also place value on the ease of the transaction, the credit terms offered, the reliability of the seller, and more. “Even when the physical product or service is immutable, the augmented product is invariably differentiable,” he wrote (Levitt, 1980). By the close of the Marketing Era, marketing practice was characterized by the “STP” approach—segmentation, targeting, and positioning. A rising emphasis on differentiation matched the increasing array of goods and services available in a burgeoning consumer marketplace. The Relationship Era Toward the close of the twentieth century, companies increasingly focused on controlling costs to maintain profitability in the face of increasing competition. Marketers recognized that long-term relationships with customers not only reduced investment in newcustomer acquisition but created more value for both the customers and the companies themselves. Relationship marketing began to emerge about 1990. In the Relationship Era, organizations realized that by focusing on establishing enduring relationships with customers, suppliers, and other partners, they could not just capture today’s sale, but convert today’s new customer into tomorrow’s regular purchaser and perhaps a customer loyal for a lifetime. The concept of Customer Lifetime Value was recognized and defined—a calculation that could put a dollar value on these relationships by estimating the total profit (or loss) likely to result from an ongoing business relationship with a customer over the life of that relationship. About this time another important consumer shift was taking place that reshaped marketing. It began with proliferation of the personal computer. Technology reshaped access to information, leading to better-informed consumers with greater ability to compare similar product offerings. By the end of the twentieth century, marketers faced a new challenge: how to differentiate offerings in a crowded marketplace in the minds of these well-informed and savvy shoppers. The key marketing insight of the Relationship Era is that the profitability promised by long-term relationships with customers is sufficient to make the difficult act of differentiating offerings worth the considerable investment required. The imperative for marketers is to find and hold a unique position in the minds of consumers, in order to gain and maintain those valuable relationships. Table 1.1 depicts the Four Eras of Marketing History as defined by marketing professor and author David L. Kurtz (Kurtz, 2010). © 2016 Bridgepoint Education, Inc. All rights reserved. Not for resale or redistribution. whi80045_01_c01_001-030.indd 6 4/8/16 10:31 AM CHAPTER 1 Section 1.2 Marketing in the 21st Century Table 1.1: Kurtz’s four eras of marketing Production Era Sales Era Marketing Era Relationship Era Objective Produce quality products with increasing efficiency. Match output to customer demand. Determine consumers’ unmet needs; design goods and services to satisfy them. Develop longterm relationships with customers, suppliers, and other partners. Time frame Roughly 1750–1920 1920–1950 1950–1990 1990–Present Insights The essence of marketing is the exchange process. Desire can be affected by other factors beyond supply. Company-wide, “the customer is king.” Better-informed consumers can compare similar offerings more easily. Marketing response Recognize concept of value in exchange of money for utility. Develop sales techniques to overcome any consumer resistance. Increase specialization in the practice of marketing; increase application of analysis and creativity. Differentiate using positioning; place value on relationships with customers. The “Four Eras of Marketing History” defined by Kurtz is but one possible framework for understanding the evolution of marketing thought and practice. Field Trip 1.1: American Marketing Association History Resources Follow this link to resources on the history of marketing collected in the Academic Resource Center of the American Marketing Association. http://www.marketingpower.com/Community/ARC/Pages/Additional/History/default.aspx Questions to Consider Are any companies still operating as if we are doing business in a previous era? Name a company that is marketing in the manner of a Production Era, Sales Era, or Marketing Era company. Discuss why you think it has chosen that strategy. Would you have preferred to work in marketing in a previous era? Which era appeals to you and why? 1.2 Marketing in the 21st Century M arketing thought leader Philip Kotler conceptualizes development of the marketing profession somewhat differently than the model introduced in the previous section. © 2016 Bridgepoint Education, Inc. All rights reserved. Not for resale or redistribution. whi80045_01_c01_001-030.indd 7 4/8/16 10:31 AM Section 1.2 Marketing in the 21st Century CHAPTER 1 According to Kotler, professor of international marketing at the Kellogg School of Management at Northwestern University, the terms product-centric, consumer-centric, and humanity-centric characterize three major generations of marketing thought. Most of the twentieth century was dominated by product-centric marketing, in which the goal was to scale up production of standardized products with an emphasis on lowering costs of production so the goods could be made more Philip Kotler has been a leading marketing practitioner and affordable to more buyers (Kotteacher for decades. In 2010 Kotler observed that marketing is ler, 2010). But consumers vary undergoing another radical shift. widely in their preferences. By Associated Press the 1980s computing power and research techniques brought new methodologies to understand and respond to consumers (Lawson and Todd, 2002). To use Kotler’s terms, the practice of marketing became consumer-centric. As the 21st century gets under way, Kotler has observed that marketing is undergoing another radical shift. The marketing discipline is evolving away from consumer-centricity, which for all its emphasis on the consumer still viewed them as passive targets of marketing. The discipline is recognizing the collaborative and participatory nature of the business landscape, transformed by the latest wave of communication technology. Consumers increasingly influence each other by sharing opinions and experiences, diminishing marketers’ influence through advertising channels. Consumers increasingly participate directly in business by contributing ideas for product development and advertising messages. Recognizable in this shift described by Kotler are elements of the Relationship Era, with its focus on collaboration and participation. But Kotler takes the idea further. Kotler characterized this new generation as humanity-centric—concerned with “whole human beings with minds, hearts, and spirits” (Kotler, 2010). Marketing now seeks to contribute to sustaining and improving the world, not just meet customer expectations or serve corporate goals. Following the practice of numbering software generations, Kotler has dubbed the new generation Marketing 3.0. Kotler differentiates the humanity-centric Marketing 3.0 now emerging from the two past generations of Marketing 2.0 (information-driven and consumer-centric) and Marketing 1.0 (industry-driven and product-centric). Table 1.2 summarizes the characteristics of the three generations defined by Kotler. © 2016 Bridgepoint Education, Inc. All rights reserved. Not for resale or redistribution. whi80045_01_c01_001-030.indd 8 4/8/16 10:31 AM CHAPTER 1 Section 1.2 Marketing in the 21st Century Table 1.2: Kotler’s three generations of marketing thought and practice Product-centric Consumer-centric Humanity-centric Kotler’s label Marketing 1.0 Marketing 2.0 Marketing 3.0 Objective Manufacture more at lower cost. Segment markets, develop products to meet various segment preferences. Contribute to sustaining and improving the world. Time frame Roughly 1750–1970 1970–2000 2000–Present Insights Shift from production for use to production for exchange created supply and demand. Desire and ability to purchase affected demand. View of customers shifts from passive targets to collaborative partners. Marketing response Focus on product development. Apply science from fields of economics, psychology, and sociology; use segmentation systems. Invite customers into collaboration; co-creation of value. The “Three Generations of Marketing Thought and Practice” defined by Kotler is another possible framework for understanding the evolution of marketing. Kotler’s framework, while too new to be considered proven, is useful in that it points toward significant consumer shifts not recognized by the earlier “four eras” framework. What Comes Next? As you enter the marketing field, will you take your place in the Relationship Era, or Marketing 3.0’s humanity-centric era, or will other terms have come into use? How will marketing objectives, insights, and responses to the business environment be characterized as the 21st century unfolds? What’s in a name? Marketing thought and practice change at different paces in different industries, and within different companies. There is still a lot of consumer-centric Marketing 2.0 being practiced. Even product-centric Marketing 1.0 can be observed—and in surprising places. Steve Jobs, former CEO of Apple, famously said, “It’s not the consumers’ job to know what they want” (Carr, 2011). Kotler’s proposition that the era of Marketing 3.0 is dawning is not yet proven, and will no doubt evolve over time. Still, given his track record as a leader in marketing thought, his proposition is worth closer study. As we begin to do business in a Marketing 3.0 world, Kotler states that three major forces are shaping the business landscape: © 2016 Bridgepoint Education, Inc. All rights reserved. Not for resale or redistribution. whi80045_01_c01_001-030.indd 9 4/8/16 10:31 AM Section 1.3 Delivering Customer Value CHAPTER 1 1. Consumers’ demand for participation, via meaningful dialogue and engagement; 2. The globalization paradox, in which businesses must serve individuals who are feeling the pressure to be both global as well as local citizens; and 3. The age of a creative society, in which more people work and live like creative scientists and artists. Kotler draws these threads together, observing that spirituality has replaced survival as the prime need of human beings. He states “Supplying meaning is the future value proposition of marketing” (Kotler, 2010). At the close of this chapter we’ll return for a closer look at the three major forces identified by Kotler. But first, let’s consider the needs of humans—what they want, desire, and how they place monetary value on the goods and services that meets those needs and desires. Field Trip 1.2: TED Talks TED Talks (TED stands for Technology, Entertainment, Design) are a living example of Marketing 3.0, in that these conferences are global, focused on improving the world, and invite participants into cocreation of value. For more leading-edge marketing thought, follow this link to an article titled “4 TED Talks Every Marketer Should Watch,” with links to those videos. 4 TED Talks Every Marketer Should Watch http://blog.hubspot.com/marketing/marketing-ted-talks Questions to Consider Does Kotler’s framework of Marketing 1.0, 2.0, and 3.0 gloss over significant developments in the evolution of marketing thought? Why do you think he chose to build a new proposed framework rather than simply add to the prevailing thought of other marketers? 1.3 Delivering Customer Value I n the introduction, marketing was defined as an activity designed to stimulate exchanges that have value for customers, partners, and society at large. Value was defined as the perceived trade-off between benefits and the sacrifice required to take possession of those benefits. Another definition of value states: “Value is what customers get (benefits, quality, worth, utility) from the purchase and use of a product versus what they pay (price, costs, sacrifices), resulting in an attitude toward, or an emotional bond with, the product” (Smith & Colgate, 2007). Customer value, then, is simply a name for the value a specific exchange has for the customer (buyer) as opposed to for the company (seller). No one questions whether or not companies attempt to deliver customer value in the goods and services they offer. © 2016 Bridgepoint Education, Inc. All rights reserved. Not for resale or redistribution. whi80045_01_c01_001-030.indd 10 4/8/16 10:31 AM CHAPTER 1 Section 1.3 Delivering Customer Value The question is how well they succeed in that attempt. To study that question requires a framework for understanding customer value. “Value” doesn’t stand still to be studied under a microscope. It is, in the words of Smith and Colgate, interactive, conditional, relativistic, and dynamic (2007). What do they mean? Let’s take it word by word. • • • • Interactive: Value is perceived uniquely by individuals; thus value interacts with the person perceiving it. The value Bob places on a box of Froot Loops will be different from the value Katie places on the same box of cereal. Conditional: Value changes depending on context—the individual, the situation, and the product(s) involved at the moment value is appraised. The value Bob or Katie places on Froot Loops goes up or down with how hungry each is while considering purchasing it. Relativistic: Value depends on comparison with known or imagined alternatives. If Bob prefers unsweetened cereal, the value he places on Froot Loops will be lower than the value he places on Shredded Wheat. Dynamic: Value changes within an individual over time. If Bob and Katie ate Froot Loops frequently as children, as adults they may regard Froot Loops with nostalgia that creates desire for an If you ate Froot Loops frequently as a child, you might occasionally occasional bowlful, even want a bowlful as an adult, even though it’s not your usual though it’s not their usual choice—evidence of the marketing insight that value is dynamic. breakfast choice. iStockphoto/Thinkstock How great a value an individual places on any particular exchange depends on that individual’s needs and wants. To deepen our understanding of customer value, then, we must turn our attention to the aspect of human behavior concerned with needs and desires. Value Is Driven by Needs and Desires Persons in a market economy must acquire goods and services continually to fill certain needs, while those in other social systems make what they need, or engage in gift-giving or reciprocal exchanges to fill their needs. Every individual and organization has needs and desires, the distinction being that needs are essential to survival, while desires (wants) are nonessential. © 2016 Bridgepoint Education, Inc. All rights reserved. Not for resale or redistribution. whi80045_01_c01_001-030.indd 11 4/8/16 10:31 AM CHAPTER 1 Section 1.3 Delivering Customer Value People in a market economy become consumers when they are driven to fulfill their needs and desires through exchanges. The purchases they make transform them into customers of the organizations they buy from. Individuals aren’t the only ones driven to fill needs and wants—organizations too are buyers with needs for supplies, personnel, and resources to fulfill their missions. When consumers perceive a need or desire, the inner drive that moves them toward fulfillment of the need is called motivation. We’ll look closer at motivation in Chapter 7 when we address consumer buying behavior and decision-making as part of the larger topic of target markets. For now, let us focus on the implications of customers’ needs and desires, and how marketing responds. The Customer Value Equation As stated earlier, customers place a value on a particular exchange in terms of the perceived trade-off between benefits and the sacrifice required to get those benefits. That relationship can be described as a ratio of perceived benefits to price, money being the typical sacrifice required. Mathematically, it can be expressed as follows (Churchill & Peter, 2003): Value = Perceived benefits Price This is easily understood by envisioning the ratio as a traditional pan scale. On a scale, it’s easy to tell when two items are equal—the pans hang in balance. In commercial transactions in which value is defined by weight, a scale is a perfect tool to determine the equality of two values—money and the goods to be exchanged for it. On one side of the scale hang the benefits of an offering, on the other the sacrifices required to gain the benefits. Customers perceive value when the scale meets expectations. A pan scale gives tangible evidence of a formula that’s present in every purchase transaction: the Customer Value Equation. When customers perceive a balance between the value given— money—and the value received—the goods or services—they perceive a good value. If the scale hangs a bit out of balance, with the value-received side heavier than the money side—customers see a bargain. But if the scales are too far out of balance, customers begin to think something’s not right. “Too good to be true,” they murmur and start to look more closely to see if there’s a hidden cost that, if known, would change the Customer Value Equation. A marketer’s objective is to develop an offering and price it in such a way that its value attracts customers and creates a profitable bottom line. Getty Images/Thinkstock © 2016 Bridgepoint Education, Inc. All rights reserved. Not for resale or redistribution. whi80045_01_c01_001-030.indd 12 4/8/16 10:31 AM Section 1.3 Delivering Customer Value CHAPTER 1 But what’s all this talk about benefits? People buy stuff to get stuff, don’t they? In the Production Era, that was indeed how consumer behavior was perceived. But as marketing thought moved forward, a new understanding emerged. People don’t buy stuff to get stuff—they buy to get the benefits (solutions) those purchases deliver. Solutions for Sale Betty has a dining room chair that wobbles. A dowel that pins a cross-brace in place has sheered off, and that brace no longer keeps the chair stable. Someday soon Betty is going to sit down and crash to the floor. Betty has a problem. What’s the solution? A hole, and a dowel just slightly smaller than that hole, so she can drill out the sheered-off dowel, fix the cross-brace, and sit down to dinner without fear. Betty never wanted a bit, a drill, a dowel, or even a Saturday project. She just wanted her dining room chair whole again. But she’s going to buy a drill and a dowel, and maybe even an instructional booklet on furniture repair. Somewhere out there a solution is for sale, and she’s looking for it. At the same time, a marketer is looking for her. Right now he’s probably writing ad copy that says something like “Buy high-quality drill bits for less.” The fundamental marketing insight behind this story is that people don’t buy goods or services to possess them—they buy to get the benefit that derives from possession. This insight reflects marketing thought in Kotler’s consumer-centric Marketing 2.0 generation or, in other words, the Marketing Era. Service-Dominant Logic A new way of describing this insight moves it forward to the current era, whatever we choose to call it. The concept of service-dominant logic was proposed in 2004 by Stephen Vargo and Robert Lusch to describe the relationship between benefits and possessions. Their term quickly found resonance in the marketing community. Service-dominant logic proposes that organizations, markets, and society are fundamentally concerned with the exchange of services, for the benefits of all parties. Put another way, “Customers do not buy goods or services. They buy offerings which render services, which create value. . . activities render services, things render services,” wrote Evert Gummesson in 1995 (Vargo & Lusch, 2007). Under this proposition all firms are service firms, all markets are centered on the exchange of services, and all economies and societies are service-based. This replaced the inadequate “goods-dominant logic” of the past (Vargo & Lusch, 2004). That logic focused on tangible resources, embedded value, and transactions. Vargo and Lusch reframed the discussion to focus on intangible resources, the co-creation of value, and the importance of relationships. Experiences Matter, Not Transactions From the viewpoint of service-dominant logic, experiences matter—not transactions. Customers buy offerings that render services, which create value. This approach embraces © 2016 Bridgepoint Education, Inc. All rights reserved. Not for resale or redistribution. whi80045_01_c01_001-030.indd 13 4/8/16 10:31 AM CHAPTER 1 Section 1.3 Delivering Customer Value the concepts of value-in-use (benefits accruing to a specific owner during a specific use) and cocreation of value, wherein customers are able to customize and personalize their experience through interacting with the service (benefits) of the offering. Consider an ice cube tray. In a product-centric interpretation, it is what it is—a rectangular grid of small receptacles designed to facilitate the freezing of water in small units suitable for chilling beverages. Using service-dominant logic, the ice cube tray is reconceptualized as a tool for chilling beverages via creation of ice. From a purely service-dominant logic point of view, consumers don’t want an ice cube tray—they don’t even want ice. What they want is an ice-cold beverage. They make the purchase that will render the service of making ice cubes that will render the service of chilling their drink. Let’s return to the concept of customer value and see how the four attributes presented earlier appear through the lens of service-dominant logic. • • • • Is an ice cube tray merely an object designed to facilitate the freezing of water for beverages? Seen through the lens of service-dominant logic, it’s a potentially icechilled drink. photocuisine/Corbis Interactive: Service value interacts with the person perceiving it; the value placed on a chilled drink will be different among individuals from different cultures. Conditional: Service value changes depending on the situation at the moment value is appraised. The service ice renders has more value to an individual finishing a grueling workout than an individual rising from a nap in the shade. Relativistic: Service value depends on comparison. Given a choice between crushed ice and a block of ice to put on a sprained ankle, the injured person is more likely to value the service the crushed ice can deliver as it adjusts to the shape of the ankle. Dynamic: Service value changes within an individual over time. The service ice renders loses much of its value in winter. For another example, look at a reading lamp. In a transactional, product-centric sense, it is simply an object composed of some electric wiring, a light bulb, a shade, and a supporting structure. Now see it with service-dominant logic—it’s a pool of light, delivered. What’s valuable is not the transaction of purchasing a lamp but the solution achieved through the purpose—the experience of reading comfortably from a well-lit page. Field Trip 1.3: Service-Dominant Logic To learn more about service-dominant logic, follow this link to the website of Robert F. Lusch and Stephen L. Vargo. http://sdlogic.net/ © 2016 Bridgepoint Education, Inc. All rights reserved. Not for resale or redistribution. whi80045_01_c01_001-030.indd 14 4/8/16 10:31 AM CHAPTER 1 Section 1.4 Customer Criteria for Determining Value Concepts in any discipline get reframed on a cyclical basis; the “solutions for sale” taught in marketing classes with a consumer-centric focus have morphed into the current concept of “service-dominant logic.” The terms used to parse the implications of the basic insight that “people don’t buy products; they buy solutions to problems” will no doubt evolve further. Questions to Consider Is service-dominant logic consistent with the insights and marketing responses of the Relationship Era of marketing? With Marketing 3.0 as described by Kotler? How might marketers change their approach to promoting goods and services based on service-dominant logic? 1.4 Customer Criteria for Determining Value Y ou’ve learned that people value things for how they can use them, not just for what they are. Different offerings will serve in different ways, to different degrees. Consumers make comparisons, weighing the relative value of competing alternatives, using purchase criteria that reflect their expectations and beliefs about what will satisfy the want or need driving their search for a solution. The Four Utilities of Customer Value Marketers have categorized consumers’ purchase criteria into four categories, termed the four utilities of customer value. These are explained in Table 1.3. Table 1.3: The four utilities of customer value Utility Description Example: Espresso maker Form The attributes that make an offering useful to customers. Form utility is created as the company converts raw materials and components into deliverable products and services. Moka pot: a hexagonal steel stovetop device that produces coffee by forcing hot water pressurized by steam through ground coffee. Time Making offerings available when customers want them. Can be purchased by mail (delay for shipping) or directly through some retail stores. Place Where the consumer takes ownership of the offering. This utility can add or subtract value in the consumer’s eye. Available through online catalogs and many kitchen stores. Ease of Possession The attributes that make it possible to transfer title to an offering from the seller to the buyer— price, payment plan, and any warranties or guarantees that go into a purchase. Inexpensive, reliable, no need for reassurance via money-back guarantees or facilitation of possession via payment plans. The four utilities of customer value are categories to which consumers’ various purchase criteria may be assigned. © 2016 Bridgepoint Education, Inc. All rights reserved. Not for resale or redistribution. whi80045_01_c01_001-030.indd 15 4/8/16 10:31 AM Section 1.4 Customer Criteria for Determining Value CHAPTER 1 The Form utility consists of everything the manufacturer has put into a product, from its aesthetics to its durability. The Time and Place utilities add value when consumers find the product or service available when and where they want to buy it. The Ease of Possession utility adds value by reducing reasons not to buy or adding incentives to purchase. It’s worth noting that the four utilities of customer value are not just limited to products; they also hold true for the marketing of services and are valid for both consumer and organizational buyers. The four utilities of form, time, place, and ease of possession represent what the consumer hopes to get out of a purchasing a particular offering. All products or services that might deliver the four utilities adequately become part of a consideration set—a group of alternatives that meet purchase criteria. Field Trip 1.4: Four Utilities of Customer Value in Action Use your favorite search engine to find web pages selling espresso machines. Pick two options to compare using the four utilities of customer value. How do different vendors’ offerings vary in terms of form, time, place, and ease of possession? Strategic Response: Targeting and the Marketing Mix An understanding of the four utilities of customer value is essential to the development of marketing strategy. The STP approach involving segmentation, targeting, and positioning is as relevant as ever to marketers, and in it lies the strategic response to customers’ perception of value based on the Four Utilities. The ever-increasing need to differentiate goods and services in a crowded field of competitors only increases the importance of selecting profitable customer segments to target, then positioning offerings in ways that appeal to specific segments. Consumers’ criteria for making purchase decisions represent a powerful means of separating them into unique segments for targeting. Once marketers have selected a market niche to target, they manipulate thousands of variables to design the exact offering that will stand out as the best value in comparison to competing offerings. These thousands of decisions can be grouped into four strategic areas that, taken together, make up the marketing mix. First popularized in the 1960s, the term “marketing mix” continues to be used to identify the concept of the four p’s of product, price, place, and promotion—the controllable elements of a marketing strategy for any particular offering. Table 1.4 defines the four p’s of the marketing mix. Table 1.4: Marketing mix: The “four p’s” Product: The combination of tangible goods, services, and beliefs offered at a specific price. Price: The amount of money or other consideration a customer must exchange for the offering. Place: The strategy by which a company gets the right goods in the right quantity to the right place. Promotion: The advertising and selling activity a company undertakes to create demand for the offering. The marketing mix describes the controllable elements of a product’s marketing plan: decisions about product, price, place, and promotion. © 2016 Bridgepoint Education, Inc. All rights reserved. Not for resale or redistribution. whi80045_01_c01_001-030.indd 16 4/8/16 10:31 AM Section 1.4 Customer Criteria for Determining Value CHAPTER 1 “Product” addresses the Form utility, describing what makes an offering useful or, in the language of service-dominant logic, how it renders service. “Price” is driven by value, because the customer must find the price reasonable in exchange for the “solution for sale” the product or service delivers. “Place” can mean an actual retail location, an online presence, or a distribution strategy—and usually covers all three. “Promotion” represents the campaign development process by which the company creates demand. “Promotion” defines all selling activity and advertising that will take place—for example, specifying what media will be used to deliver a message and how it will be used to create demand. Chapters 3, 4, 5, and 6 cover each of the four p’s in much greater detail. The marketing mix represents the elements of a product’s marketing strategy that marketers can control—or at least have significant input on. The Product aspect is the only one of the four that springs from an organization’s production function. Since most companies no longer function in a product-centric mode, the marketing department typically has significant impact on product design to create the form utility consumers want. The Place aspect of marketing strategy responds to consumers’ wants in terms of Time and Place utilities, while the Price aspect responds to consumers’ expectations regarding ease of possession. The marketing response to the four utilities of customer value is to develop Product, Place, Price, and Promotion strategies that deliver the mix that will satisfy customers in a specific target market, thus winning the purchase and, hopefully, a long-term relationship. From Customer Value to Marketing Response You’ve now been exposed to each facet of the Customer Value Equation. It should be clear how value is created by companies and evaluated by consumers, with the goal of making buying exchanges. You’ve learned how value is created by responding to consumers’ needs and desires, with attention to the relationship between price paid (sacrifice) and solution received (benefit). You’ve learned to see the exchange as taking possession of an experience, rather than a transaction about tangible goods. Value is created by companies and evaluated by consumers who view the purchase experience as more than a mere transaction about tangible goods. You’ve learned about the criteria by which customers evaluate the merits of various alternatives, using the language of the marketers’ four utilities of customer value. And finally, you’ve encountered the marketing mix and its four p’s of Product, Price, Place, and Promotion—variables that marketers blend to satisfy the needs of target markets and serve organizational goals. Digital Vision/Thinkstock © 2016 Bridgepoint Education, Inc. All rights reserved. Not for resale or redistribution. whi80045_01_c01_001-030.indd 17 4/8/16 10:31 AM Section 1.5 The Marketing 3.0 Landscape CHAPTER 1 Questions to Consider Give examples of how three of the four utilities of customer value are manipulated through marketing strategy. 1.5 The Marketing 3.0 Landscape A s stated earlier, Philip Kotler defined three major forces at work in the Marketing 3.0 landscape: 1. Consumers’ demand for participation, 2. The globalization paradox; and 3. An increasingly creative society. A closer look at these three factors and how they are affecting marketing practice will close this chapter’s investigation of marketing fundamentals. Consumers as Business Partners As social media becomes more pervasive, consumers are increasingly sharing their opinions about and experiences with companies. The influence of corporate advertising on buying behavior is diminishing as consumers’ ability to influence each other increases (Kotler, 2010). Marketers no longer fully control their brands; consumers are doing that for them. A new model of consumers as business partners is taking shape. Consumers are helping companies develop products, contributing ideas for advertising, and engaging in co-creation of value as they customize goods and services to their individual tastes. The Globalization Paradox Globalization is creating a more uniform culture worldwide, increasing the speed and reach of business but also heightening consumers’ anxiety about unintended consequences. This has several implications for marketers. But first, we must understand what is driving this increasing globalization. Technology has contributed to the globalization of business by making possible: • • • Faster communications, Faster transportation, and Faster financial transactions. The near-instantaneous exchange of information across the globe has been one of the most dramatic shifts in history. Not only can we communicate anywhere, in real time, but we can also pay for and take delivery of goods and services (such as fonts or use of computing applications) over the Internet. Financial transactions now take place in near real time as well. There is relatively little cost associated with these Internet-enabled transactions. All of this communication, transportation, and financial activity is available to any business, © 2016 Bridgepoint Education, Inc. All rights reserved. Not for resale or redistribution. whi80045_01_c01_001-030.indd 18 4/8/16 10:31 AM Section 1.5 The Marketing 3.0 Landscape CHAPTER 1 from the smallest craft workshop to the biggest corporation. Both consumer exchanges and business-to-business relationships have been dramatically reshaped by the evolution of technology and the resulting globalization. Thanks to technology, companies now do business in a marketplace without borders and with few barriers to entry. New markets become available due to easier and faster communication, transportation, and financial services—an opportunity. But competition increases when anyone in the world can sell anywhere in the world—a threat. This powerful shift leaves marketers struggling to find and maintain a competitive advantage in the world of Marketing 3.0. Increasingly, that competitive advantage comes from the authenticity of the mission, vision, and values of the company itself. Consumers seek companies that have a philosophical center and express commitment to humanity-centric values. When exploring global issues, ethical concerns come into play. Consider the case of quinoa. This grain-like Andean seed, which has been consumed for thousands of years in Columbia, Peru, Chile, Bolivia, and other South American countries, provides an exceptional balance of protein, fiber, and amino acids (Romaro & Shahriari, 2011). Quinoa has recently been gaining attention outside of South America. Vegetarians find it appealing because it offers a complete protein source. Even non-vegetarians interested in a healthy, low-fat, high-fiber, cho- Globalization brings new opportunities for profit—but at a lesterol-free diet are drawn to cost. The major opportunity for quinoa growers, exporters, and quinoa. The nutty flavor works marketers abroad represents a threat to the sustainability of well in any dish that typically their home markets. requires grains. It’s even popuLaurent Giraudou/Corbis lar as a breakfast alternative to hot oatmeal. Recognizing its market potential, European and American foreign aid organizations began in the 1980s to help South American farmers grow quinoa for export. So where’s the catch? Demand for quinoa is rising rapidly in rich countries, such as the United States and the European Union. This is helping South America’s farmers across a number of poorer countries. Rising exports are lifting living standards in quinoa-growing areas. But while cultivation of quinoa is reducing economic emigration and strengthening local families—the price of quinoa has almost tripled over the last five years—it’s also robbing those families of a food staple. In many areas of South America, quinoa is no longer affordable for mass consumption. The balanced nutrition of quinoa is being replaced with less complete foodstuffs. Recent studies have shown that chronic malnutrition in children is increasing in quinoa-growing areas. A shift in taste preference has also begun to undermine quinoa consumption in South American homes, where children raised on loaves of © 2016 Bridgepoint Education, Inc. All rights reserved. Not for resale or redistribution. whi80045_01_c01_001-030.indd 19 4/8/16 10:31 AM Section 1.5 The Marketing 3.0 Landscape CHAPTER 1 bread and packaged noodles find quinoa unappealing. With consumers in America and Europe competing for quinoa, the consequences are a cause for concern (Romaro & Shahriari, 2011). What began as a major opportunity for quinoa growers, exporters, and marketers has become a threat to the sustainability of the home market from which it comes. The globalization driven by faster communications, transportation, and financial transactions has brought new opportunities for profit—but at a cost, as the quinoa example shows. Some companies are responding by operating under a new business model in which they are responsible to a triple bottom line of economic value, environmental health, and social progress. These firms develop and offer value propositions based on the inherent interconnectedness of all stakeholders in the marketplace; thus, financial profit cannot take priority over social or environmental impacts (Mish & Scammon, 2010). Consumers’ anxieties about the effects of globalization can be addressed by companies that adopt an authentically ethical, values-driven business model. In fact, aligning with companies that do good in the world allows consumers to experience self-actualization— thus addressing the third major force of Marketing 3.0 identified by Kotler. Self-Actualization in a Creative Society A number of contemporary authors, including Daniel Pink (A Whole New Mind) and Richard Florida (The Rise of the Creative Class) have offered views of the worldwide rise of a creative society. Creativity is playing an increasingly dominant role in society as more people are working as artists and scientists, or in other creative professions (Kotler, 2010). A key characteristic of this new creative class of connected consumers is an increasing craving for meaning. In part this is possible because so many people in modern consumer culture are relatively affluent. For these people, self-actualization is a prime need as relevant as shelter, food, or security. There is some debate whether this aspect of Kotler’s Marketing 3.0 is relevant in developing countries, where the standard of living is not so high. Many of the markets emerging as globalization continues will not share the same freedom to focus on higher meaning until they, too, reach the level of affluence and connectivity of the fully developed world. Kotler argues that creativity and technology are relevant even in low-income markets (2010). Ultimately, time will prove or disprove his belief. The Marketing 3.0 Response How are marketers responding to the major forces identified with Marketing 3.0? By searching for authentic competitive differentiation and communicating it in ways that engage consumers, alleviate their anxieties about globalization, and serve the spirit as well as the mind, body, and heart. In response to consumers’ desire for participation, companies are increasingly inviting their collaboration in creation of advertising, discussion of brands, and customization of goods and services. Companies are adopting a business model that balances financial profit with social and environmental impacts, recognizing that a company is not sustainable unless all three aspects of the triple bottom line are neutral or positive. © 2016 Bridgepoint Education, Inc. All rights reserved. Not for resale or redistribution. whi80045_01_c01_001-030.indd 20 4/8/16 10:31 AM Section 1.5 The Marketing 3.0 Landscape CHAPTER 1 Marketing must evolve to be relevant to all aspects of the human—mind, body, heart, and spirit (thus Kotler’s use of the term humanity-centric to characterize Marketing 3.0). The most visible of marketers’ response to Marketing 3.0 expectations is the increased use of tie-ins between companies and causes. Many of today’s advertising messages appeal to self-actualization by including in the pitch an aspect of “doing good.” When you see an advertiser offer to donate a percentage of sales to a charitable cause, you’re seeing Marketing 3.0 in action. Such campaigns are known as cause-related marketing. Launched in January 2011, Walgreens’ “Way to Well Fund” provides an example of cause marketing used to respond to consumers’ desire for meaningful engagement. In this program, consumers’ purchases of Walgreens brand health and wellness products helped support wellness services in local communities. Walgreens donated 1 cent from those purchases (up to $3 million) to support bringing preventive wellness services to local communities. Through these campaigns, purchases that fill fairly basic needs (food and health products) are elevated to meaningful charitable acts that satisfy a higher need (Walgreens, 2011). See Field Trip 1.5 for more on these and other Marketing 3.0 campaigns that fall under the umbrella of cause marketing. Field Trip 1.5: Cause-Related Marketing for Self-Actualization Visit the Cause Marketing Forum to read more about cause marketing and campaigns like Walgreens’. Find the page that lists current cause marketing campaigns, and then follow links to see these campaigns in action. Cause Marketing Forum http://www.causemarketingforum.com/ The key insight of Marketing 3.0—that customers are collaborative partners—demands that, above all, companies be authentic. They must hold a vision, mission, and values consonant with their brand, position, and competitive differentiation. Customers will accept nothing less. These marketing responses answer the three major forces Kotler identifies: 1. Respect the consumer community as partners in creation of value. 2. Respond to consumers’ anxieties by heeding the triple bottom line of economic value, environmental health, and social progress. 3. Address the whole human, recognizing that creative people value self-actualization. Questions to Consider Answer the following questions with examples. Have you engaged with companies through social media? Have you experienced anxiety about the impact of globalization by the companies you buy from? Did you inquire into a company’s social or environmental impact? Have you made a consumer purchase specifically because of a cause-related marketing tie-in? © 2016 Bridgepoint Education, Inc. All rights reserved. Not for resale or redistribution. whi80045_01_c01_001-030.indd 21 4/8/16 10:31 AM CHAPTER 1 Case Study: The Craft Beer Movement Case Study: The Craft Beer Movement There’s a revolution going on in America’s beer industry. An underdog category is challenging the dominant brands in the beer aisle. Consumer tastes are driving remarkable growth in a category called “craft beer,” a term that refers to the hand-crafted, small-batch quality of its manufacture. This shift in consumer taste presents an opportunity to consider the marketing fundamentals discussed in this chapter. Consumers interested in the quality of the beer they drink represent a market distinct from the mass-market drinkers who focus on quantity and want “beer you can drink more of.” The craft beer drinker focuses on the distinct flavor and body of various beer styles. Consumption usually amounts to savoring one or two beverages, taking time to appreciate the unique properties of each. This revolution focuses on a very different consumer, and different marketing strategies are needed. This case study investigates the marketing of craft beers, using the example of the New Albanian Brewing Company (NABC) in New Albany, Indiana. (Tagline: “Brewing ahead of the curve.”) This company, located just outside Louisville, Kentucky, has chosen to stand out by striking an attitude. Right from the start, the brand’s images and messages drew heavily on the propaganda symbols and rhetoric of the Russian Revolution of the early twentieth century. Owner Roger Baylor’s blog reminds readers that beer is “far too important to be left to the unreconstructed swillocrats.” The company refers to its distributors (tavern owners) as “publicanistas.” They sell to a regional market that includes Jefferson County, Kentucky, and the entire state of Indiana. For more information, visit the New Albanian Brewery website, http://www.newalbanian.com/, or Baylor’s blog, at http://potablecurmudgeon.blogspot.com/. The New Albanian brand image draws heavily on propaganda symbols. New Albanian Brewery © 2016 Bridgepoint Education, Inc. All rights reserved. Not for resale or redistribution. whi80045_01_c01_001-030.indd 22 4/8/16 10:31 AM Case Study: The Craft Beer Movement CHAPTER 1 Consider the four utilities of customer value as they apply to this brand of craft beer. How does a bottle (or can or glass) of craft beer deliver value to meet potential buyers’ purchase criteria, when compared with mass-market beers? Form • • • • • Higher-quality ingredients Strong brand identity communicated through packaging, advertising, and social media Artisanal craftsmanship More flavor Fewer or no preservatives and additives Time • • Fresh product meant to be consumed promptly (since most contain no preservatives) Bottles, growlers, and kegs allow the product to travel Place • • • • Difficulty getting distribution (distributors, required by liquor laws, are predisposed toward mass-market brewers) Competition with many brands for a place among a tavern’s tap lines (where the number of lines is typically limited to 6–12 taps) Expanding availability through local retailers (more convenience stores now carry craft beers) Mail order available in some states where permitted by law Ease of Possession • • • Must be of legal drinking age Premium price makes trying a craft beer a greater risk (cost is often twice that of mass-market products) Attractive to consumers interested in the “buy-local” movement NABC must find ways to differentiate its beers from competitors’ by manipulating these four aspects of customer value to its advantage. Form: NABC has begun packaging selected beers in 22-oz bottles (called “bombers”). On the blog, founder and “carnival barker” Roger Baylor states, “NABC’s decision to package beer in bombers reflects our preference for the communal utility of the size. Bombers contain two or more servings of beer, ideal for sharing among friends.” Time: NABC sells through its own brewpubs in two locations, delivering the freshest possible beer to consumers. Fans of NABC’s fresh-brewed products can purchase “take-out beer” in growlers (half-gallon reusable bottles) and 50-liter kegs. Bottles are also available. Place: NABC leverages its Russian Revolution–inspired brand identity to stand out both in its brewpub locations and on retailers’ shelves. A visitor to Ratebeer.com commented on the brewpub, “I love this place. One side pizza sports bar, and the other side makes you feel like you’re an American spy infiltrating a popular bar of the former USSR (except this bar has © 2016 Bridgepoint Education, Inc. All rights reserved. Not for resale or redistribution. whi80045_01_c01_001-030.indd 23 4/8/16 10:31 AM Case Study: The Craft Beer Movement CHAPTER 1 beer and not vodka).” On retailers’ shelves, the distinctive label designs compete for attention. (The NABC blog carries the slogan “Think Globally, Drink Locally—Indiana Beer.” Ease of Possession: No craft beers—or any beers, for that matter—come with a warranty or payment plan. The premium price of craft beer functions as both a mark of premium quality and a barrier to checking out an unknown brand. New Albanian, like other craft brewers, participates in many beer festivals and tasting events and offers free samples in its restaurants to help consumers make a choice. Imagine you are in charge of marketing for the New Albanian Brewery as you consider the following questions. 1. What “solutions for sale” are found in the beer aisle—in other words, what features translate to consumer benefits that a craft brewer could leverage for competitive differentiation? 2. How are craft brewers engaging customers in meaningful dialogue? 3. How are Marketing 3.0 shifts, especially globalization, helping or hindering craft brewers? See Field Trip 1.6 for more on the economic opportunity presented by the increasing consumer taste for craft beer. Field Trip 1.6: Good Beer Leads to Good Profits The Motley Fools website publishes investment advice. An article posted on February 10, 2011, reports the economic investment potential of craft beers. Visit The Motley Fool website to read the article. http://www.fool.com/investing/general/2011/02/10/good-beer-leads-to-good-profits.aspx Challenge Question Pick a product that interests you, or use the examples of quinoa or craft beer presented in this chapter. You are now in charge of marketing this product. Describe your offering in terms of its Customer Value Equation, commenting on each aspect of its four utilities of customer value. Describe the “solution for sale” in terms of services rendered by the product (benefits). Explain how your marketing of this product will respond to consumers’ demand for participation, concerns about globalization, and search for self-actualization. © 2016 Bridgepoint Education, Inc. All rights reserved. Not for resale or redistribution. whi80045_01_c01_001-030.indd 24 4/8/16 10:31 AM Post-Assessment CHAPTER 1 Post-Assessment 1. When individuals meet their material needs through trade based primarily on supply and demand, that social system is termed a a. b. c. d. redistribution system. barter system. reciprocity system. market system. 2. A concept that emerged during the Relationship Era was a. b. c. d. target marketing. Customer Lifetime Value. consumer orientation. market research. 3. Choose the statement that BEST defines the concept of service-dominant logic. a. Value-in-use separates producers of intangibles from producers of tangible goods. b. Service-dominant logic places value on needs essential to survival or nonessential desires. c. Benefits accrue to buyers and sellers equally in a buying exchange, leading to co-creation of value. d. All firms are in the business of providing value by rendering services, for the benefit of both buyers and sellers. 4. Kotler stated that all of the following affect businesses in the Marketing 3.0 era, EXCEPT for a. b. c. d. concerns of globalization. emergence of an increasingly creative society. increasingly sophisticated technology. consumers’ demand for participation in the marketing process. 5. Which of the following lists contains all three of the outcomes defined as components of the triple bottom line? a. The financial, social, and environmental effects of a company’s actions. b. The fiscal, social, and economic effects of a company’s actions. c. The impact of consumers’ demand for engagement, globalization, and participation in creative work. d. The effects of faster communications, transportation, and financial transactions on a company’s actions. Answers 1. d. Market system. The answer can be found in Section 1.1. 2. b. Customer Lifetime Value. The answer can be found in Section 1.1. 3. d. A  ll firms are in the business of providing value by rendering services, for the benefit of both buyers and sellers. The answer can be found in Section 1.3. 4. c. Increasingly sophisticated technology. The answer can be found in Section 1.5. 5. a. The financial, social, and environmental effects of a company’s actions. The answer can be found in Section 1.5. © 2016 Bridgepoint Education, Inc. All rights reserved. Not for resale or redistribution. whi80045_01_c01_001-030.indd 25 4/8/16 10:32 AM Critical Thinking Questions CHAPTER 1 Key Ideas to Remember • • • • • The history of marketing thought can be summarized in four time periods: the Production Era, the Sales Era, the Marketing Era, and the Relationship Era. Philip Kotler envisions a coming era of humanity-centric marketing, characterized as Marketing 3.0, that is fundamentally different from previous eras of product-centric and consumer-centric thought and practice. Consumers assign a monetary value to the benefits and sacrifices represented by a potential purchase, which is termed the Customer Value Equation. Consumers develop criteria to determine value based on the service or utility the goods or services will deliver, which can be assigned to four categories; the four utilities of customer value include Form, Time, Place, and Ease of Possession; marketers respond with marketing mix strategies concerning Product, Place, Price, and Promotion. Kotler’s Marketing 3.0 is characterized by consumers’ demand for engagement and collaboration, by the globalization paradox, and by the drive for self-actualization. Critical Thinking Questions 1. What can today’s marketers learn from the marketing responses for the four eras in the history of marketing as defined by David L. Kurtz? 2. How does Philip Kotler’s proposed framework of Marketing 1.0, 2.0, and 3.0 resemble or differ from the previous framework attributed to Kurtz? 3. Drawing on your own experience, give an example that demonstrates how value is interactive, conditional, relativistic, and dynamic. 4. Do you agree with the statement that “all markets are centered on the exchange of services, and all economies and societies are service-based”? Consider a recent purchase of a product; describe it in terms of service rendered by the object purchased. 5. When is a customer not a consumer? Consider the settings in which the purchaser of an item is not the person who uses or consumes it. Name two situations in which the purchaser of an item is not the end-user. (Clue: think about how parents shop for their children or how purchasing agents operate within businesses.) 6. Why is the concept of utility so important in marketing thought? 7. It has been stated that marketers no longer fully control their brands. For example, a couple planning a trip to London is now more likely to book a hotel, choose restaurants, and plan sight-seeing using online reviews from travelers like themselves than to gather ideas from advertising or professional travel agents. Give another example of how consumers are taking over the role of marketers. 8. Evaluate the concept of the triple bottom line of economic value, environmental health, and social progress. Is it feasible for companies to hold themselves to this standard in a tight economy or a highly competitive situation? © 2016 Bridgepoint Education, Inc. All rights reserved. Not for resale or redistribution. whi80045_01_c01_001-030.indd 26 4/8/16 10:32 AM CHAPTER 1 Key Terms to Remember Key Terms to Remember authenticity The quality of being authentic, reliable, trustworthy. bottom line Net income after tax; a purely profit-based view of the effects of a company’s actions and policies on its sustainability as an organization. buyer’s market A market condition in which more goods and services are available than people wanting to buy them. cause-related marketing Use of tie-ins with causes motivated by the pursuit of profits for the company’s bottom line. co-creation of value A business strategy focusing on interactive relationships with customers that allow them to create a value-rich experience. competitive differentiation Result of efforts to create perceptible differences in or between goods or services; making a product or brand stand out as of unique value to customers when compared with competing offerings. consideration set Group of alternatives that meet purchase criteria. consumer-centric Philip Kotler’s term for the business philosophy of consumer orientation, with its emphasis on segmentation of markets and taking inspiration for the development and promotion of products from the people who will purchase or use them. consumer orientation A business philosophy emphasizing the importance of first determining the unmet needs of a consumer before designing goods and services to satisfy them. consumers Purchasers of a good or service or end users who are not necessarily the purchasers. customer The person who acquires, or agrees to acquire, the goods or benefits of usage conveyed by ownership, in exchange for money or other consideration under a contract of sale; the person who has the ability to choose between different products and suppliers. Also known as the buyer or purchaser. Customer Lifetime Value The total profit (or loss) estimated to result from an ongoing business relationship with a customer over the life of relationship. customer value The value a customer (buyer) places on a specific exchange, as opposed to the value placed on the exchange by the company (seller). Customer Value Equation The relationship between the value given (usually money) and the value the received in exchange (goods or services) as perceived by a customer. demand Desire for certain goods or services supported by the capacity to purchase them. desires Longings or cravings, as for something that brings satisfaction or enjoyment; expressed wishes (as opposed to needs). Ease of Possession One of the four utilities of customer value, the attribute that makes it possible to transfer title to an offering from the seller to the buyer—price, payment plan, and any warranties or guarantees. exchange The trading of things of value between buyer and seller so that each perceives him- or herself as better off after the trade. exchange process An action in which two or more parties give something of value to each other to satisfy perceived wants or needs. © 2016 Bridgepoint Education, Inc. All rights reserved. Not for resale or redistribution. whi80045_01_c01_001-030.indd 27 4/8/16 10:32 AM CHAPTER 1 Key Terms to Remember Form One of the four utilities of customer value, the attribute that makes an offering useful to customers, created as the company converts raw materials and components into deliverable products and services. four p’s Product, price, place, and promotion make up the marketing mix, the controllable elements of a product’s marketing plan. four utilities of customer value Form, Time, Place, and Ease of Possession; aspects of a company’s offerings that are useful (provide utility, hence the name) to customers. Buyers think of these aspects as purchase criteria that a product or service must meet in order to deliver value. globalization paradox Recognition that on one hand, globalization is creating a more uniform culture worldwide, and at the same time it is creating a more diverse culture as a counterbalance; this causes anxiety for individuals who are feeling the pressure to be global as well as local citizens. humanity-centric The concept of marketing that focuses attention on the fulfillment of higher human needs, such as the need for community, as opposed to productcentric or consumer-centric marketing. market research The pursuit of knowledge of a specific market by using scientific methods to measure its size and other characteristics. market system The social system for supplying a society’s material needs governed by economic forces such as supply and demand, rather than treaties or administrative decisions. marketing The activity, set of institutions, and processes for creating, communicating, delivering, and exchanging offerings that have value for customers, clients, partners, and society at large. Marketing 3.0 According to Philip Kotler, the evolution of marketing practice to a third generation that focuses on fulfillment of higher human needs, such as the need for community. marketing concept Management philosophy according to which a firm’s goals can be best achieved through identification and satisfaction of the customers’ stated and unstated needs and wants. marketing management 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. marketing mix A planned mix of the controllable elements of a product’s marketing plan, which is made up of the four p’s of product, price, place, and promotion. needs A motivating force that compels action, ranging from basic survival to cultural, intellectual, and social needs. Needs require satisfaction (as opposed to desires, which can go unmet). Place One of the four utilities of customer value, the location or means by which the buyer/consumer takes ownership of the offering. positioning The practice of creating an image or identity in the minds of prospective customers that allows one offering to stand out among many. product-centric The concept of marketing that focuses attention on the development and promotion of products, as opposed to focusing on the consumers who will purchase or use them. relationship marketing Development and maintenance of long-term relationships with individual customers, suppliers, and other partners for the benefit of all. © 2016 Bridgepoint Education, Inc. All rights reserved. Not for resale or redistribution. whi80045_01_c01_001-030.indd 28 4/8/16 10:32 AM CHAPTER 1 Key Terms to Remember segmentation The practice of subdividing a population into groups (segments) with similar characteristics, such as geography, income, age, education, or lifestyle. seller’s market A market condition in which buyers outnumber the goods and services they want to buy. service-dominant logic An understanding of the purpose and nature of marketing based on the proposition that organizations, markets, and society are fundamentally concerned with the exchange of services, for the benefits of all parties. target market A segment of the population at which a marketing campaign is focused, based on the likelihood that people in the segment are likely to have a need or desire for a company’s offerings and can be profitably served. target marketing Identifying a segment of the population through detailed research, and developing specific marketing campaigns focused on it. Time One of the four utilities of customer value, the availability of offerings when customers want them. trade Exchange carried out in the absence of markets, involving price equivalencies determined by treaties or administrative decisions, rather than behavior of a marketplace. triple bottom line The financial, social, and environmental effects of a company’s actions and policies that determine its sustainability as an organization. value In a marketing context (as opposed to a sociological one), the monetary or material worth for which an offering may be exchanged; the perceived trade-off between benefits and the sacrifice required to take possession of those benefits. value-in-use The service rendered or benefits that an asset generates for a specific owner under a specific use. © 2016 Bridgepoint Education, Inc. All rights reserved. Not for resale or redistribution. whi80045_01_c01_001-030.indd 29 4/8/16 10:32 AM © 2016 Bridgepoint Education, Inc. All rights reserved. Not for resale or redistribution. whi80045_01_c01_001-030.indd 30 4/8/16 10:32 AM 2 Corbis The Marketing Process Learning Objectives After studying this chapter, you should be able to: • Describe the marketing process and how it fits into business operations. • Summarize the reasons for conducting market research. • Explain how campaign development is affected by the increasing ability to use customer data to trigger marketing processes. • Recognize the tasks involved in execution of marketing campaigns. • Discuss the reasons for measuring the results of marketing processes. © 2016 Bridgepoint Education, Inc. All rights reserved. Not for resale or redistribution. whi80045_02_c02_031-062.indd 31 4/8/16 10:34 AM CHAPTER 2 Section 2.1 The Marketing Process: Crucial to Business Operations Introduction T oday’s marketing is a humanity-centric practice that contributes to sustaining and improving the world and invites customers into collaboration to create the value they seek. What is the role of the marketing department in this new paradigm? The focus of this chapter is the marketing process—the series of logical steps based on sound business planning that is carried out by corporate marketing departments and others in an organization. Situation analysis, marketing strategy, and campaign development, followed by execution and measurement, make up that process. Later you’ll build on these fundamental process concepts to gain a deeper understanding of the marketing function. 2.1 The Marketing Process: Crucial to Business Operations M arketing is one of many business processes that support the execution of a company’s strategic plan. Strategic planning is itself a business process—the one that drives all others. In strategic planning, an organization selects an overall direction. The strategic planning process calls for top-level executives and other stakeholders in a business (such as customers, board members, employees, creditors, and suppliers) to examine its current status to set long-term objectives, devise strategies and tactics to achieve those objectives, and summarize all those decisions in a strategic plan document. The marketing department—like all the departments in a company—takes its “marching orders” from that strategic plan. A key tool in both strategic planning and the marketing process is the SWOT analysis. This framework for analyzing internal and external forces affecting the business either positively or negatively is depicted in Table 2.1. The acronym derives from strengths, weaknesses, opportunities, and threats. Table 2.1: SWOT analysis Internal External Positive Strengths Opportunities Negative Weaknesses Threats Strengths and weaknesses are internal factors over which a business has some measure of control; opportunities and threats are external factors that the business cannot control. Most large firms carry out a formalized, top-down strategic planning process on a regular cycle, usually every year. Many other companies, including those in start-up mode and businesses going through transitions such as a merger or change of leadership, also do formal strategic planning. © 2016 Bridgepoint Education, Inc. All rights reserved. Not for resale or redistribution. whi80045_02_c02_031-062.indd 32 4/8/16 10:34 AM Section 2.1 The Marketing Process: Crucial to Business Operations CHAPTER 2 The marketing department is in a unique position in relation to strategic planning, because it alone is equally knowledgeable about consumers’ behavior and needs and the strengths and weaknesses of the company itself. In some organizations the marketing department will have the power to set strategy for other departments. In all organizations, marketers stand at the gateway between consumer and producer, helping each to understand the others’ needs and wants. The marketing process is the means by which the marketing department drives the whole organization to encourage buying exchanges. The Steps of the Marketing Process The marketing process involves situation analysis, selection of a marketing strategy, and development of a campaign, followed by execution and measurement. Figure 2.1 presents the marketing process as a series of steps. Factors identified in the SWOT analysis are particularly useful in the first two phases of the marketing process. It provides inputs to the situation analysis and dictates the objectives that the marketing strategy is designed to achieve. Figure 2.1: The marketing process Situation analysis Marketing strategy Campaign development Execution Measurement • Identify opportunity to fill an unmet customer need. • Conduct market research, leading to innovation, segmentation, targeting, and positioning. • Make marketing mix decisions covering product development, pricing, place/distribution issues, and promotions. • Implement campaign, monitor, and adjust if needed. • Use market research and sales results to measure impact of the strategy and its execution. The marketing process reflects the planning model by which top executives formulate a company’s strategy and communicate it throughout the organization for execution. The marketing process helps a business select and attract a customer, make the sale, and please the customer to such an extent that he or she returns and also makes referrals. This isn’t going to happen without thoughtful planning, so that’s where the marketing process © 2016 Bridgepoint Education, Inc. All rights reserved. Not for resale or redistribution. whi80045_02_c02_031-062.indd 33 4/8/16 10:34 AM CHAPTER 2 Section 2.2 Marketing Process Step 1: Situation Analysis begins. To avoid confusing this planning step of the marketing process with strategic planning, remember that the strategic plan comes first. Everything marketers do throughout the marketing process responds to objectives laid out in the company’s strategic plan. Field Trip 2.1: Marketing Process Applied to the Library System Do libraries need marketing? With the Internet offering access to oceans of information, libraries must communicate their relevance and benefits. Follow this link to view a planning guide created by the Ohio Library Council to aid libraries in the marketing process. http://www.olc.org/marketing/2process.htm Questions to Consider Imagine yourself in the position of a head librarian, whose board of directors has requested that your library take a more marketing-focused approach to operations. Describe how the marketing process fits into the operations of the library institution. 2.2 Marketing Process Step 1: Situation Analysis I n this step, marketers identify an opportunity to fill an unmet customer need or to improve on how competitors’ products fill a need. This first step has the goal of setting marketing objectives that support the strategic plan. What objective should marketing try to achieve? The situation analysis provides inputs to that decision. Any marketing objective selec‑ ted in this step should first of all be achievable. The marketing department is accountable to the organization as a whole, and it will function best when focused on goals it can reasonably expect to accomplish. Even a micro-business like a food truck benefits from performing a situation analysis to find a good match between the company’s strengths and potential customers’ needs. Associated Press Successful marketing processes require a competitive advantage. Every company has strengths that make some opportunities more appealing than others. A food truck entrepreneur is more likely to move on an opportunity to open a small restaurant than to one day open a bicyclerepair shop. But opportunities arise from customers’ unmet or © 2016 Bridgepoint Education, Inc. All rights reserved. Not for resale or redistribution. whi80045_02_c02_031-062.indd 34 4/8/16 10:34 AM Section 2.2 Marketing Process Step 1: Situation Analysis CHAPTER 2 poorly met needs, not from entrepreneurs’ ambitions. The purpose of the situation analysis is to find a good match between the company’s strengths and potential customers’ needs. When a company finds it is uniquely suited to deliver a product or service, or has identified a means to deliver better value than existing offerings, it has discovered a strategic competitive advantage. Finding an achievable strategy based on a meaningful competitive advantage is the key reason for undertaking a situation analysis. Performing a situation analysis requires looking both inward and outward—spending time reflecting on what the company is oriented to do well, and on what in the environment might help or hinder the company. In the language of business planning, marketers must conduct internal analysis and external analysis. Internal analysis focuses on inherent capacities of the organization, while external analysis focuses on contextual factors. Table 2.2 describes a framework for situation analysis including both internal and external analysis. Table 2.2: Framework for situation analysis Internal Analysis External Analysis Origins History Present state Strategic plan Micro-environment (factors specifically affecting this company) Macro-environment (factors affecting many companies) In a situation analysis the internal analysis focuses on inherent capacities of the organization, while the external analysis focuses on contextual factors. Internal analysis looks at a company in terms of its story—where it began, how it reached its current state of operations, what that present state is like, and what plans for the future have been made. Internal analysis focuses on factors inherent to the organization that give it advantages or disadvantages in meeting the needs of its target customers. External analysis focuses on context, including both the micro-environment (factors specifically affecting this company) and the macro-environment (factors affecting many companies). Each type of analysis—external and internal—will produce a list of challenges and opportunities. The situation analysis helps determine strategies for minimizing the threat from challenges and maximizing the potential in the opportunities identified. The ultimate goal of a situation analysis is to match a firm’s capabilities to market opportunities. When a situation analysis reveals something customers value, that a company can do better than any competitor, marketing planners have struck gold. The following example shows how the business known today as Patio Foods was born from a situation analysis that struck (frozen) gold in a challenging external environment in the late 1950s. © 2016 Bridgepoint Education, Inc. All rights reserved. Not for resale or redistribution. whi80045_02_c02_031-062.indd 35 4/8/16 10:34 AM Section 2.2 Marketing Process Step 1: Situation Analysis CHAPTER 2 Situation Analysis Example: Patio Foods When the Stumberg family in San Antonio turned to selling frozen Mexican food, it was an act of desperation. Henry Stumberg started a frozen vegetable business in 1946 with his sons Ed and Louis in San Antonio, but prices for frozen vegetables plummeted when other companies entered the national market. Competition knocked the bottom out of the Stumberg family business, which sold to supermarkets throughout Texas. Ed Stumberg observed that the five military bases in San Antonio were creating new fans for Tex-Mex cuisine. He reasoned that they might want to continue eating Tex-Mex when they returned home. The Stumbergs began shipping frozen tamales and chili across the state. In the late 1950s they formed Patio Foods and went on to distribute Tex-Mex food as TV dinners nationwide. We can only guess what went on around the Stumberg family’s conference room or dinner table as the family business made its shift from frozen vegetables to TV dinners. It’s likely the idea emerged from a situation analysis. Internal analysis would The Stumberg family business’s internal analysis revealed a reveal a declining customer declining customer base but an asset in its infrastructure and base as price competition ate distribution systems. The company became a leading purveyor of into frozen vegetable sales but Tex-Mex TV dinners. a positive asset in infrastructure age fotostock/SuperStock (freezers) and distribution systems. External analysis of the micro-environment would reveal enthusiasm for Tex-Mex food among military personnel on the local bases. Analysis of the macro-environment would reveal the growing popularity of the new frozen product called a TV dinner (introduced by C. A. Swanson & Sons in 1953). The marketing opportunity the Stumbergs discovered in the face of competition for frozen vegetable sales carried them to financial triumph. Patio Foods was acquired by R. J. Reynolds Tobacco Company in 1967, and Louis Stumberg was named vice chairman of RJR Foods Inc., the tobacco company’s food and beverage subsidiary. Subsequent acquisitions took the brand to Del Monte, ConAgra Foods, and most recently J&J Snack Brands (Hendricks, 2011). Situation analysis is where the process that leads to customer loyalty and referrals begins. But planning should never take place in a vacuum. The situation analysis will require more information before it can be considered complete. Market research will fill in the unknowns that have come to light as marketers look for opportunities to support the company’s strategic goals. Internal analysis is usually a fairly straightforward process. Unless the company is a recent acquisition, its planners will have a strong sense of its history, current situation, and future © 2016 Bridgepoint Education, Inc. All rights reserved. Not for resale or redistribution. whi80045_02_c02_031-062.indd 36 4/8/16 10:34 AM Section 2.3 Marketing Process Step 2: Marketing Strategy CHAPTER 2 direction. If research is needed for the internal analysis, it will be to quantify certain factors like market share or to gain insights into current customers through analysis of sales records, results of past marketing campaigns, and so on. External analysis tends to be more complex, and likely to raise more questions. Research will be needed to find out about competitors, potential target markets, industry and consumer trends, and more. At this point, marketing planners put the situation analysis on hold while they conduct the research needed to fill in these blanks. Chapter 8 explores external analysis in depth. Once research has produced the needed information, marketing planners circle back to this step in the marketing process to finish their situation analysis. When complete, it is a document that summarizes opportunities to satisfy customer needs. It will also summarize problems that must be resolved in order to take advantage of those opportunities. Plans are most effective when documented in writing. A company’s strategic plan will typically exist as a written document disseminated to managers throughout the organization. The marketing department will produce a marketing plan document, complete with sub-plans describing in detail what will take place and why, and how effectiveness will be measured. Chapter 9 includes a more detailed discussion of these documents used by marketing managers. Questions to Consider Imagine yourself in a situation like the Stumbergs of Patio Foods. You’ve got freezers and a distribution system and too much competition for the frozen vegetable business you once pursued profitably. Let’s say you were located in Seattle, Washington, instead of San Antonio, Texas. Apply internal and external analysis to your current situation. Can you find a new market opportunity? 2.3 Marketing Process Step 2: Marketing Strategy I n this step, marketers conduct research to provide the specific market information necessary to target a market segment and design a marketing mix that will profitably deliver value to those customers. As stated in Chapter 1, using segmentation and targeting is essential to focus marketing resources on the people likely to have the most need/ desire for a product or service and likely to be the most profitable as customers. The foremost reason to conduct market research is to gain a deep understanding of customer needs by identifying segments worthy of targeting and finding value propositions that will resonate with them—in other words, to support the three components of the STP approach. Every company needs a deep understanding of its specific situation in regard to the Customer Value Equation. Without that knowledge, a company cannot fully take advantage of the opportunity presented by unmet customer needs. The outcome of this step will be a value proposition to drive the choices in the next step, campaign development. A value proposition is a statement that targets potential customers and describes why they should buy a specific offering from a specific company. The concept of the value © 2016 Bridgepoint Education, Inc. All rights reserved. Not for resale or redistribution. whi80045_02_c02_031-062.indd 37 4/8/16 10:34 AM CHAPTER 2 Section 2.3 Marketing Process Step 2: Marketing Strategy proposition is credited to Rosser Reeves, chairman of the Ted Bates & Co. advertising agency in the 1950s, who dubbed it the Unique Selling Proposition (USP) (Daye, 2010). Reeves was one of the first to develop a technique for communicating in an overcrowded marketplace. His definition of what makes a USP or value proposition holds true today. According to Reeves, a value proposition has three component parts. First, it must make a proposition to the potential customer: “Buy this, and you will receive a specified benefit.” Second, that proposition must be something no competitor can claim or that competitors have not chosen to emphasize in their promotions. Finally, the proposition must be so compelling that it motivates individuals to act. Consider how the Mars candy company slogan for M&M’s delivers the three required components. “M&M’s melt in your mouth, not in your hand.” The slogan promises a specific benefit that no competing candy claims and that will compel people wary of messy chocolate to action. The M&M’s slogan promises a specific benefit that no competing candy claims. Envision/Corbis A concept closely related to the value proposition is positioning—marketers’ practice of creating an image or identity in the minds of prospective customers that allows one offering to stand out among many. The identity created through positioning reflects the reasoning behind the value proposition and the promise made by the USP. This suite of concepts is explored in more depth in Chapter 6, Promotions. Often research is required before planners finalize the value proposition (and ...
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