Principles of Marketing, 12th Edition

Principles of

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The goal of every marketer is to create more value for customers. So it makes sense that our goal for the twelfth 1 edition of Kotler/Armstrong Principles of Marketing is to create more value for you-more value in the content, more value in the support package, more value in learning, and more value in

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Just download chapter reviews from your text and listen to them on any mp3 player. Now wherever you are-whatever you're doing--you can study by listening to the following for each chapter of your textbook:

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ue, integrative, a "The authors do a superb job of covering customer value. It is a conspicuous cornerstone of the book. The concept is well integrated into each chapter." "The [text's] establishment of a framework for marketing, with customer value and satisfaction at its core, is very good-students can really relate to it. " "[The customer value framework] is effective because it emphasizes the core of the marketing concept in focusing on the customer. Other texts lack in addressing issues of customer relationships, customer lifetime value, and measuring return on marketing. " "I think that Kotler and Armstrong really have a tiger by the tail in emphasizing customer value and relationships as their dominant theme. "

"Excellent and thorough coverage of a vast topic. Easy to read with lots of good examples. Topical and up-to-date. "

"Serious and well-written; much deeper and more comprehensive than other books.

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"It is comprehensive, integrates global and ethics issues, and offers excellent examples that are both current and relevant. " "Kotler and Armstrong have stayed con temporary with everything going on in the field. "

An interesting, releva "Kotler and Armstrong is current and straightforward, with lots of practical applications.

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"Kotler and Armstrong is quite refreshing-it draws the reader into the fascinating areas of marketing via use of real-life examples right off the bat. " "I love the diversity of the products and companies chosen for the company examples and cases, examples that all ages can relate to that are of interest to young professionals. "

"Well-covered basics; integrated, intriguing examples; vivid color splashed all over the place

"I was very impressed with the quality and relevance of the videos. " "I'm starting to use the videos a lot and I like them, and the students like them too. I use the supplemental Web site also.. .. "

"I have aggressively sought to utilize various assessment tools in m y curriculum and have been v e ~ pleased y with the Kotler/Armstrong support and value-added materials. Ifind the students offen list them as "most helpful" in course evaluations. "

"The strengths of Kotler and Armstrong are that the focus is on the customer-which is very important-and that they define marketing in an understandable manner. I am impressed." "Kotler and Armstrong are superior in their coverage of this material. I feel m y students would be better ofjC with Kotler and Armstrong's text." "Kotler and Armstrong have the best text on the market."

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As a team, Philip Kotler and Gary Armstrong provide a blend of skills uniquely suited to writing an introductory marketing text. Professor Kotler is one of the world's leading authorities on marketing. Professor Armstrong is an award-winning teacher of undergraduate business students. Together they make the complex world of marketing practical, approachable, and enjoyable. is the S. C. Johnson & Son Distinguished Professor of International Marketing at the Kellogg Graduate School of Management, Northwestern University. He received his master's degree at the University of Chicago and his Ph.D. at M.I.T., both in economics. Dr. Kotler is the author of Marketing Management (Prentice Hall), now in its twelfth edition and the world's most widely used marketing textbook in graduate schools of business worldwide. He has authored dozens of other successful books and has written more than 100 articles in leading journals. He is the only three-time winner of the coveted Alpha Kappa Psi award for the best annual article in the Journal of Marketing. Professor Kotler was named the first recipient of two major awards: the Distinguished Marketing Educator of the Year Award given by the American Marketing Association and the Philip Kotler Award for Excellence i n Health Care Marketing presented by the Academy for Health Care Services Marketing. His numerous other major honors include the Sales and Marketing Executives International Marketing Educator of the Year Award; The European Association of Marketing Consultants and Trainers Marketing Excellence Award; the Charles Coolidge Parlin Marketing Research Award; and the Paul D. Converse Award, given by the American Marketing Association to honor "outstanding contributions to science in marketing." In a recent Financial Times poll of 1,000 senior executives across the world, Professor Kotler was ranked as the fourth "most influential business writerlguru" of the twenty-first century. Dr. Kotler has served as chairman of the College of Marketing of the Institute of Management Sciences, a director of the American Marketing Association, and a trustee of the Marketing Science Institute. He has consulted with many major US. and international companies in the areas of marketing strategy and planning, marketing organization, and international marketing. He has traveled extensively throughout Europe, Asia, and South America, advising companies and governments about global marketing practices and opportunities. is the Crist W. Blackwell Distinguished Professor of Undergraduate Education in the Kenan-Flagler Business School at the University of North Carolina at Chapel Hill. He holds undergraduate and master's degrees in business from Wayne State University in Detroit, and he received his Ph.D. in marketing from Northwestern University. Dr. Armstrong has contributed numerous articles to leading business journals. As a consultant and researcher, he has worked with many companies on marketing research, sales management, and marketing strategy. But Professor Armstrong's first love is teaching. His Blackwell Distinguished Professorship is the only permanent endowed professorship for distinguished undergraduate teaching at the University of North Carolina at Chapel Hill. He has been very active in the teaching and administration of Kenan-Flagler's undergraduate program. His administrative posts have included Chair of Marketing, Associate Director of the Undergraduate Business Program, Director of the Business Honors Program, and many others. He works closely with business student groups and has received several campuswide and Business School teaching awards. He is the only repeat recipient of school's highly regarded Award for Excellence in Undergraduate Teaching, which he has received three times. Professor Armstrong recently received the UNC Board of Governors Award for Excellence in Teaching, the highest teaching honor bestowed by the sixteen-campus University of North Carolina system.

Preface xxi

2 Company and Marketing Strategy: Partnering t o Build Customer Relationships 34

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Managing Marketing Information 94

5 Consumer Markets and Consumer Buyer Behavior 128 6

Business Markets and Business Buyer Behavior 158

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9 New-Product Development and Product Life-Cycle Strategies 250 10 Pricing Products: Understanding and Capturing Customer Value 282 11 Pricing Products: Pricing Strategies 306

12 Marketing Channels and Supply Chain Management 332 13 Retailing and Wholesaling 364 14 Communicating Customer Value: Integrated Marketing Communications Strategy 396 15 Advertising and Public Relations 424 16 Personal Selling and Sales Promotion 450 17 Direct and Online Marketing: Building Direct Customer Relationships 478

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18 Creating Competitive Advantage 514 19 The Global Marketplace 540 20 - Marketing Ethics and Social Responsibility 570 Appendix 1 Marketing Plan A-1 Appendix 2 Marketing by the Numbers A-11 Appendix 3 Careers i n Marketing A-27 References R-1 Glossary G - 1 Credits C - 1 Index 1-1

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Planning Marketing: Partnering to Build Customer Relationships 44

Preface xxi Part l % Defining f4a;keB.F:ngar:d the Ihrlteeing Pra~ess2

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Marketing: Managing Profitable Customer Relationships 2 What Is Marketing? 4 Marketing Defined 5 1 The Marketing Process 5

Understanding the Marketplace and Customer Meeds 6 Customer Needs, Wants, and Demands 6 $t Market Offerings-Products, Services, and Experiences 6 C Customer Value and Satisfaction 7 1 Exchanges and Relationships 7 B Markets 7

Designing a Customer-Driven Marketing Strategy 8 Selecting Customers to Serve 8 1 Choosing a Value Proposition 9 1 Marketing Management Orientations 9

Partnering with Other Company Departments 45 1 Partnering with Others @ the Marketing System 46

Marketing Strategy and the Marketing Mix 47 Customer-Driven Marketing Strategy 48 1 Developing an Integrated Marketing Mix 50

Managing the Marketing Effort 52 Marketing Analysis 52 B Marketing Planning 52 1 Marketing Implementation 53 1 Marketing Department Organization 54 81 Marketing Control 55

Measuring and Managing Return on Markeang Investment 56 Reviewing the Concepts 57 1 Reviewing the Key Terms 58 1 Discussing the Concepts 59 1 Applying the Concepts 59 B Focus on Technology 59 1 Focus on Ethics 59

Wdeo case: Harley-Davidson 60

any Case: Pap-Ease America: The Big Cheese of Mousetraps 60

Preparing an Integrated Marketing Plan and Program 12 Building Customer Relationships 12 Customer Relationship Management 13 5 The Changing Nature of Customer Relationships 16 1 Partner Relationship Management 18

Capturing Value from Customers 19 Creating Customer Loyalty and Retention 20 1 Growing Share of Customer 20 B Building Customer Equity 21

The Mew Marketing Landscape 23 The New Digital Age 23 i Rapid Globalization 25 3 The Call for More Ethics and Social Responsibility 26 % The Growth of Not-for-Profit Marketing 27

So, What Is Marketing? Pulling It A11 Together 28 Reviewing the Concepts 29 1 Reviewing the Key Terms 30 B Discussing the Concepts 30 I Applying the Concepts 3 1 B Focus on Technology 31 1 Focus on Ethics 31

@dE% Case: Dunkin' Donuts 31 pany case: Build-A-Bear: Build-A-Memory 32 rM-.a

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The Marketing Environment 62 The Company's Microenvironment 64 The Company 65 1 Suppliers 65 1 Marketing Intermediaries 65 Customers 66 1 Competitors 66 B Publics 67

The Company's Macroenvironment 67 Demographic Environment 68 1 Economic Environment 77 1 Natural Environment 79 1 Technological Environment 80 P Political Environment 82 1 Cultural Environment 86

Responding to the Marketing Environment 89 Reviewing the Concepts 90 1 Reviewing the Key Terms 90 El Discussing the Concepts 90 E Applying the Concepts 91 H Focus on Technology 91 C Focus on Ethics 9 1

Video Case: American Express 91 any Case: Prius: Leading a Wave of Hybrids

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Company and Marketing Strategy: Partnering to Build Customer Relationships 34 Companywide Strategic Planning: Defining Marketing's Role 36 Defining a Market-Oriented Mission 37 2 Setting Company Objectives and Goals 38 1 Designing the Business Portfolio 39

Managing Marketing Information 94 Assessing Marketing Information Needs 97 Developing Marketing Information 98 Internal Data 98 El Marketing Intelligence 99

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Marketing Research 100 Defining the Problem and Research Objectives 101 1 Developing the Research Plan 101 1 Gathering

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Contents

Institutional and Government Markets 174

Secondary Data 102 1 Primary Data Collection 103 1 Implementing the Research Plan 110 Et Interpreting and Reporting the Findings 111

Institutional Markets 174 1 Government Markets 174 EJ Reviewing the Concepts 176 J! keviewing the Key Terms 177 4 Discussing the Concepts 177 Ba Applying the Concepts 177 B Focus on Technology 177 fJ Focus on Ethics 178

Analyzing Marketing Information I 11 Customer Relationship Management (CRM) 112

Distributing and Using Marketing Information 113 Other Marketing Information Considerations 113

Video case: Eaton 178 Company Case: Kodak: changing the Picture 1.78

Marketing Research in Small Businesses and Nonprofit Organizations 114 1 International Marketing Research 117 bl Public Policy and Ethics in Marketing Research 118 1 Reviewing the Concepts 122 B Reviewing the Key Terms 123 fJ Discussing the Concepts 123 B Applying the Concepts 123 1 Focus on Technology 123 %1 Focus on Ethics 124 Wdeo Case::Burke 124

Part 3 B De&rjisg a &usPomes-Driven Pkxke'tjng Yirategy and Integrated Marketifig - M i j [ 182 Customer-Driven Marketing Strategy: Creating Value for Target Customers 182 Market Segmentation 185

C0mpany Case: Enterprise Rent-A-Car: Measuring Service Quality 124

Segmenting Consumer Markets 185 1 Segmenting Business Markets 192 1 Segmenting - International Markets 193 0 Requirements for Effective Segmentation 194

Consumer Markets and Consumer Buyer Behavior 128 Model of Consumer Behavior 130 Characteristics affecting Consumer Behavior 131 Cultural Factors 131 1 Social Factors 134 Factors 139 E Psychological Factors 142

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Market Targeting 195 Evaluating Market Segments 195 1 Selecting Target Market Segments 195 1 Socially Responsible Target Marketing 202

Personal

a5lpes of Buying Decision Behavior 145

Differentiation and Positioning 203 Positioning Maps 203 B Choosing a Differentiation

Complex Buying Behavior 145 1 Dissonance-Reducing Buying Behavior 146 1 Habitual Buying Behavior 146 1 Variety-SeekingBuying Behavior 147

and Positioning Strategy 203 1 Communicating and Delivering the Chosen Position 210 1 Reviewing the Concepts 211 1 Reviewing the Key Terms 211 1 Discussing the Concepts 212 1 Applying the Concepts 212 1 Focus on Technology 2 12 1 Focus on Ethics 212

The Buyer Decision Process 147 Need Recognition 147 I Information Search 147 5 Evaluation of Alternatives 148 1 Purchase Decision 148 1 Postpurchase Behavior 149

The Buyer Decision Process for Mew Products 150

\d%eo Case: Procter & Gamble 213

Stages in the Adoption Process 150 1 Individual Differences in Innovativeness 151 1 Influence of Product Characteristics on Rate of Adoption 152

Company Case: Saturn: An Image Makeover 213

Consumer Behavior Across International Borders 153 Reviewing the Concepts 153 1 Reviewing the Key Terms 154 1 Discussing the Concepts 154 1 Applying the Concepts 154 1 Focus on 'Ethnology 155 1 Focus onEthics 155 Video Case: Wild Planet 155

c~mpanyCase: Victoria's Secret Pink: Keeping the Brand Hot 156

E T 9 >"";" Business Markets and Business Buyer

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Behavior 158 Business Markets 160 Market Structure and Demand 161 1 Nature of the Buying Unit 162 Ea Types of Decisions and the Decision Process 162 . Business

Buyer Behavior 162

Major Types of Buying Situations 163 1 Participants in the Business Buying Process 166 fl( Major Influences on Business Buyers 167 B The Business Buying Process 169 1 E-Procurement:Buying on the Internet 172

Product, Services, Strategy 216 What Is a Product? 218 ,

and Branding

Products, Services, and Experiences 218 1 Levels of Product and Services 2 19 tii Product and Service Classifications 220

Product and Service Decisions 223 Individual Product and Service Decisions 223 1 Product Line Decisions 228 t3 Product Mix Decisions 229

Branding Strategy: Building Strong Brands 230 Brand Equity 230 1 Building Strong Brands 231 %1 Managing Brands 238 1

Services Marketing 239 Nature and Characteristics of a Service 239 B Marketing Strategies for Service 240 1 Reviewing the Concepts 245 1 Reviewing the Key Terms 246 1 Discussing the Concepts 246 $ Applying the Concepts 246 8 Focus on Technology 247 9 Focus on Ethics 247 Video faset Accenture 247 C~tllpallyCase: Converse: We Love You, Chucks! 248

Contents

Brice Changes 320 New-Product Development Strategy 253 The New-Product Development Process 254 Idea Generation 254 63 Idea Screening 256 Development and Testing 257 P Marketing Development 258 1 Business Analysis 259 1 Product Development 259 1 Test Marketing 260 5 Commercialirzration 262

Initiating Price Changes 320 Changes 322

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Responding to Price

Public Policy and Pricing 323 Pricing Within Channel Levels 324 1 Pricing Across Channel Levels 324 B Reviewing the Concepts 327 1 Reviewing the Key Terms 327 fa Discussing the Concepts 328 D Applying the Concepts 328 1 Focus on Technology 328 1 Focus on Ethics 328 1

Video Case: GE 329 Company Case: ExxonMobil: Achieving Big Profits During Hard Times 329

New-Product Development 264

Product Life-Cycle Strategies 267 Introduction Stage 269 5 Growth Stage 270 1 Maturity Stage 270 1 Decline Stage 271

Additional Product and Service Considerations 274 Product Decisions and Social Responsibility 274 1 International Product and Services Marketing 275 1

eting Channels and Supply C anagement 332 Supply Chains and the Value Delivery I Network 334 The Nature and Importance of Marketing Channels 335 How Channel Members Add Value 336 kl Number of Channel Levels 338

Channel Behavior and Organization 338 Ethics 278

Video Case: eGO Bikes 278

any Case: Sony: Betting It All on Blu-Ray 278

Channel Behavior 339 1 Vertical Marketing Systems 340 1 Horizontal Marketing Systems 343 1 Multichannel Distribution Systems 343 1 Changing Channel Organization 344

Channel Design Decisions 346

and Capturing Customer Value 282 What Is a Price? 284 Factors to Consider When Setting Prices 285 Value-Based Pricing 285 1 Company and Product Costs 288 1 Other Internal and External Considerations Affecting Price Decisions 293 1 Reviewing the Concepts 300 1 Reviewing the Key Terms 300 1 Discussing the Concepts 301 1 Applying the Concepts 301 ffi Focus on Technology 301 1 Focus on Ethics 301

Vides Case:: Song 302

y Case: Southwest Airlines: Waging War in Philly 302

Strategies 306 New-Product Pricing Strategies 308

Analyzing Consumer Needs 347 1 Setting Channel Objectives 347 1 Identifying Major Alternatives 348 B Evaluating the Major Alternatives 349 1 Designing International Distribution Channels 349 Channel Management Decisions 350 Selecting Channel Members 350 5 Managing and Motivating Channel Members 350 El Evaluating Channel Members 351

Public Policy and Distribution Decisions 351 Marketing Logistics and S8pply Chain Management 352 Nature and Importance of Marketing Logistics 352 !I Goals of the Logistics System 353 e3 Major Logistics Functions 354 D Integrated Logistics Management 356 C Reviewing the Concepts 358 1 Reviewing the Key Terms 359 1 Discussing the Concepts 359 1 Applying the Concepts 359 1 Focus on Technology 360 P Focus on Ethics 360 1

%de0 Case: Hasbro 360 any Case: Zara: The Technology Giant of the Fashion World 361

Market-Skimming Pricing 308 Ed Market-Penetration Pricing 309

etailing and Wholesaling 364

Product M i x Pricing Strategies 309 Product Line Pricing 309 1 Optional-Product Pricing 310 1 Captive-Product Pricing 310 1 By-product Pricing 3 11 1 Product Bundle Pricing 312

Price-Adjustment Strategies 312 Discount and Allowance Pricing 312 1 Segmented Pricing 312 1 Psychological Pricing 314 1 Promotional Pricing 316 0 Geographical Pricing 317 1 Dynamic Pricing 318 P International Pricing 320

Retailing 367 Types of Retailers 367 &! Retailer Marketing Decisions 374 1 The Future of Retailing 381

Wholesaling 385 Types of Wholesalers 386 D Wholesaler Marketing Decisions 388 1 Trends in Wholesaling 389 1 Beviewing the Concepts 390 8 Reviewing the Key Term 391 Discussing the Concepts 391 Fi Applying the

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xvi

Contents

Concepts 391 P Focus on Technology 391 5 Focus on Ethics 392

Video Case: Wellbeing 392 C0mpany Case: Peapod: Thriving in the World of Online

Managing the Sales Force 454 Designing Sales Force Strategy and Structure 454 ~f Recruiting and Selecting Salespeople 459 P =ug Salespeople 460 Bi Compensating Salespeople 461

Supervising and Motivating Salespeople 462

Groceries 392

Evaluating Salespeople and Sales-Force Performance 464

The Personal Selling Process 466

Communicating Customer Value: Integrated Marketing Communications Strategy -- 396 The Promotion Mix 398 Integrated Marketing Communications 399 The New Marketing Communications Landscape 399 81 The Shifting Marketing Communications Model 399 The Need for Integrated Marketing Communications 4

A View of the CommunicationProcess 402 Steps in Developing Effective Communication 404 Identifying the Target Audience 404 D Determining the Communication Objectives 404 gl Designing a Message 405 88 Choosing Media 407 El Selecting the Message Source 409 B Collecting Feedback 411

Sales Promotion 468 Rapid Growth of Sales Promotion 469 1 Sales Promotion Objectives 469 Il Major Sales Promotion Tools 470 1 Developing the Sales Promotion Program 473 8 Reviewing the Concepts 473 1 Reviewing the Key B r m s 474 1 Discussing the Concepts 474 gl ~ p p l y i n g Focus on Technology 475 !I FOCUS on Ethics 475

Video Case: Nudie 475

Company Case: Personal Selling at the L e a Corporation 476

Setting the Total Promotion Budget and Mix 412 Setting the Total Promotion Budget 412 B Shaping the Overall Promotion Mix 413 1 Integrating the Promotion Mix 417

Socially Responsible Marketing Communication 4 18

Direct and Online Marketing: Building Direct Customer Relationships 478 The New Direct-Marketing Model 480 Growth and Benefits of Direct Marketing 48 1 Benefits to Buyers 482

Advertising and Sales Promotion 418 1 Personal Selling 419 B1 Reviewing the Concepts 419 1 Reviewing the Key Terms 420 1 Discussing the Concepts 420 3! Applying the Concepts 420 1 Focus on Technology 420 Focus on Ethics 420

Video Case: Motorola 421 Company Case: Burger King: Promoting a ~ o o Fight d

421

Advertising and Public Relations 424 Advertising 426 Setting Advertising Objectives 426 B Setting the Advertising Budget 428 1 Developing Advertising Strategy 428 B Evaluating Advertising Effectiveness and Return on Advertising Investment 438 B Other Advertising Considerations 439

Public Relations 441 The Role and Impact of Public Relations 441 1 Major Public Relations Tbols 442 1 Reviewing the Concepts 445 &1 Reviewing the Key Terms 445 1 Discussing the Concepts 445 81 Applying the Concepts 446 19 Focus on Technology 446 1 Focus on Ethics 446

Video Case: DDB Worldwide 446 Company Case: Pepsi: Promoting Nothing

Steps in the Selling Process 466 1 Personal Selling and Customer Relationship Management 468

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Benefits to Sellers 482

Customer Databases and Direct Marketing 483 Forms of Direct Marketing 484 ~irect-MailMarketing 484 1 Catalog Marketing 485 1 Telephone Marketing 487B Direct-Response Television Marketing 488 1 Kiosk Marketing 491 1 New Digital Direct Marketing Technologies 491

Online Marketing 493 Marketing and the Internet 493 1 Online Marketing Domains 494 1 Types of Online Marketers 496 Zj Setting u p a n Online Marketing Presence 498 Challenges of Online Marketing 504

Integrated Direct Marketing 505 Public Policy Issues in Direct Marketing 506 Irritation, Unfairness, Deception, and Fraud 506 1 Invasion of Privacy 507 1 A Need for Action 508 1 Reviewing the Concepts 509 8 Reviewing the Key Terms 510 BI Discussing the Concepts 510 Concepts 510 I1 Focus on Technology 510 1 FOCUS on Ethics 51 1 Video Case: NineMsN 511

Company Case: StubHub: Ticket Scalping Becomes Respectable 511

447

Personal Selling and Sales Promotion 450 Personal Selling 452 The Nature of Personal Selling 452 1 The Role of the Sales Force 453

Creating Competitive Advantage 514 Competitor Analysis 5 16 Identifying Competitors 5I7 Q Assessing Competitors 518 B Selecting Competitors to Attack and Avoid 520 &1 Designing a Competitive Intelligence System 522

Contents

Competitive Strategies 522 Approaches to Marketing Strategy 522 Strategies 523 1 Competitive Positions 527 1 Market 527 1 Market Challenger Market Follower Strategies 531 1 Market Nicher Strategies 531

Balancing Customer and Competitor Orientations 535 Reviewing the Concepts 534 iii Reviewing the Key Terms 535 1 Discussing the Concepts 535 1 Applying the Concepts 535 B Focus on Technology 535 1 Focus on Ethics 536

Video Case: Nike 536 Company Case: Bose: Competing by Being Truly Different 536

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the Concepts 564 1 Focus on Technology 564 5 Focus on Ethics 565

Video Case: Nivea 565 C~mpanyCase: Wal-Mart Takes On the World 565

Marketing Ethics and Social esponsibility 568 Social Criticisms of Marketing 571 Marketing's Impact on Individual Consumers 571 1 Marketing's Impact on Society as a Whole 577 0 Marketing's Impact on Other Businesses 580

Citizen and Public Actions to Regulate Marketing 581 Consumerism 581 1 Environmentalism 582 1 Public Actions to Regulate Marketing 585

Business Actions toward Socially Responsible Marketing 586 Global Marketing Today 542 Looking at the Global Marketing Environment 644 The International Trade System 544 lii Economic Environment 546 1 Political-Legal Environment 548 1 Cultural Environment 548

Deciding Vlhether to Go Global 551 Deciding Which Markets to Enter 552 Deciding How to Enter the Market 552 Exporting 552 El Joint Venturing 553 1 Direct Investment 555

Deciding on the Global Marketing Program 555 Product 556 1 Promotion 559 1 Price 561 1 Distribution Channels 562

Deciding on the Global Masketing Organization 563 Reviewing the Concepts 563 1 Reviewing the Key Terms 564 1 Discussing the Concepts 564 1 Applying

Enlightened Marketing 586 B Marketing Ethics 591 1 Reviewing the Concepts 595 1 Reviewing the Key Terms 596 1 Discussing the Concepts 596 1 Applying the Concepts 596 1 Focus on Technology 596 1 Focus on Ethics 596

Video Case: NFL 597 Company Case: Vitango: Fighting Malnutrition 597

Appendix 1: Marketing Plan A-1 Appendix 2: Marketing by the Numbers A-11 Appendix 3: Careers in Marketing A-27 References R- 1 Glossary G-1 Credits C-1 Index 1-1

1

Welcome to the twelfth edition of Principles of Marketing! With each new edition, we work to bring you the freshest and most authoritative insights into the fascinating world of marketing. As we present this new edition, we want to again thank you and the millions of other marketing students and professors who have used our text over the years. You've been our inspiration. With your help, this book remains a market leader and international best seller. Thank you. The goal of every marketer is to create more value for customers. So it makes sense that our goal for the twelfth edition is to create more value for you-our customer. How does this text bring you more value? First, it builds on a unique, integrative, and intuitive marketing framework: Simply put, marketing is the art and science of creating value for customers in order to capture value from customers in return. Marketers lead the way in developing and managing profitable, value-based customer relationships. We introduce this customer-value framework in the first two chapters and then build upon it throughout the book. Beyond the strengthened customer-relationships framework, we emphasize four additional customer-value themes. First, we expand our emphasis on building strong brands and .brand value. After all, customer value and profitable customer relationships are built upon strong brands. Second, we focus on the importance of measuring and managing return on marketing-of capturing value in return for the customer value that the company creates. Third, we present all of the latest developments in the marketing technologies that are rapidly changing how marketers create and communicate customer value. Finally, we emphasize the importance of socially responsible marketing around the globe. As the world becomes an increasingly smaller place, marketers must be good at marketing their brands globally and in socially responsible ways that create long-term value to society as a whole. In addition to providing all the latest marketing thinking, to add even more value, we've worked to make learning about and teaching marketing easier and more exciting for both students and instructors. The twelfth edition presents marketing in a complete yet practical, exciting, and easy-to-digest way. For example, to help bring marketing to life, we've filled the text with interesting examples and stories about real companies and their marketing practices. Moreover, the integrated, cutting-edge teaching and learning package lets you customize your learning and teaching experience. We highlight the twelfth edition's many new features and enhancements in the pages that follow. So, the twelfth edition creates more value for you-more value in the content, more value in the supplements, more value in learning, and more value in YOUR classroom. We think that it's the best edition yet. We hope that you'll find Principles of Marketing the very best text from which to learn about and teach marketing. Sincerely,

Gary Armstrong University of North Carolina-Chapel Hill

Philip Kotler North western University

The goal of Principles of Marketing, twelfth edition, is to introduce new marketing students to the fascinating world of modern marketing in an innovative yet practical and enjoyable way. Like any good marketer, we're out to create more value for you, our customer. We've poured over every page, table, figure, fact, and example in an effort to make this the best text from which to learn about and teach marketing. Today's marketing is all about creating customer value and building profitable customer relationships. It starts with understanding consumer needs and wants, deciding which target markets the organization can serve best, and developing a compelling value proposition by which the organization can win, keep, and grow targeted consumers. If an organization does these things well, it will reap the rewards in terms of market share, profits, and customer equity. Marketing is much more than just an isolated business function-it is a philosophy that guides the entire organization. The marketing department cannot create customer value and build profitable customer relationships by itself. This is a companywide undertaking that involves broad decisions about who the company wants as its customers, which needs to satisfy, what products and services to offer, what prices to set, what communications to send, and what partnerships to develop. Marketing must work closely with other company departments and with other organizations throughout its entire value-delivery system to delight customers by creating superior customer value. ,--.

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From beginning to end, Principles of Marketing develops an innovative customer-value and customer-relationships framework that captures the essence of today's marketing.

Five &IajosValue Themes The twelfth edition builds on five major value themes: rar Creating value for customers in order to capture value from customers in return. "G Marketing: Creating and Capturing Customer Value Create ~ t u forcustomem e and

FIGURE 1.6

An expandedmodel of lhe marketing process

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Capture value fmm

Today's marketers must be good at creating customer value and managing customer relationships. They must attract targeted customers with strong value propositions. Then, they must keep and grow customers by delivering superior customer value and effectively managing the company-customer interface. Today's outstanding marketing companies understand the marketplace and customer needs, design value-creating marketing strategies, develop integrated marketing programs that deliver customer value and delight, and build strong customer relationships. In return, they capture value from customers in the form of sales, profits, and customer loyalty.

Preface

This innovative customer-valueframework is introduced at the start of Chapter 1 in a five-stepmarketing process model, which details how marketing creates customer value and captures value in return. The framework is carefully explained in the first two chapters, pro- viding students with a solid foundation. The framework is then integrated throughout the remainder of the text. ta Building and managing strong, value-creating brands. Well-positioned brands with

strong brand equity provide the basis upon which to build customer value and profitable customer relationships. Today's marketers must position their brands powerfully and manage them well. Managing return on marketing to recapture value. In order to capture value from customers in return, marketing managers must be good at measuring and managing the return on their marketing investments. They must ensure that their marketing dollars are being well spent. In the past, many marketers spent freely on big, expensive marketing programs, often Measuring and anaging Re%urn I, without thinking carefully about the finanarketing Investment cia1 and customer response returns on their ! spending. But all that is changing rapidly. Measuring and managing return on marketing investments has become an important part of strategic marketing decision making. ~i

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FIGURE 2.8 Return on marketing Source: Adapted from Roland T. Rust, Katherine N. Lemon, and Valerie A. Zeithamal, "Return on Marketing: Using Consumer Equity to Focus Marketing Strategy,"Journalof Markehng, January 2034, p. 112.

1

Harnessing new marketing technologies. New digital and other high-tech marketing developments are dramatically changing how marketers create and communication customer value. Today's marketers must know how to leverage new computer, information, communication, and distribution technologies to connect more effectively with customers and marketing partners in this digital age. Marketing in a socially responsible way around the globe. As technological developments make the world an increasingly smaller place, marketers must be good at marketing their brands globally and in socially responsible ways that create not just short-term value for individual customers but also long-term value for society as a whole. iaa

Important

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We've thoroughly revised the twelfth edition of Principles of Marketing to reflect the major trends and forces impacting marketing in this era of customer value and relationships. Here are just some of the major changes you'll find in this edition. srt

This new edition builds on and extends the innovative customer-valueframework from previous editions. No other marketing text presents such a clear and comprehensive customervalue approach. The integrated marketing communications chapters have been completely restructured to reflect sweeping shifts in how today's marketers communicate value to customers. EZI A newly revised Chapter 14-Communicating Customer Value-addresses today's shifting integrated marketing communications model. It tells how marketers are now adding a host new-age media---everything from interactive TV and the Internet to S o d s and cell phones to reach targeted customers with more personalized messages. Advertising and public relations are now combined in Chapter 15, which includes important new discussions on "Madison & Vine" (the merging of advertising and entertainment to break through the clutter), return on advertising, and other important topics. A restructured Chapter 16 now combines personal selling and sales promotion. EJ The new Chapter 17-Direct and Online Marketing-provides focused new coverage of direct marketing and its fastest-growing arm, marketing on the Internet. The new chapter includes a section on new digital direct-marketing technologies, such as mobile phone marketing, podcasts and vodcasts, and interactive TV.

Preface

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We've revised the pricing discussions in Chapter 10-Pricing: Understanding and Capturing Customer Value. It now focuses on customer-value-based pricing-on understanding and capturing customer value as the basis for setting and adjusting prices. The revised chapter includes new discussions of ccgood-value"and "value-added" pricing strategies, dynamic pricing, and competitive pricing considerations. In line with the text's emphasis on measuring and managing return on marketing, we've added a new Appendix 2: Marketing by the Numbers. This comprehensive new appendix introduces students to the marketing financial analysis that .. -.... helps to guide, assess, and support marketing decisions in this age of marketing accountability. The Return on Marketing section in Chapter 2 has also been revised, and we've added return on advertising and return on selling discussions in later chapters. Chapter 9 contains a new section on managing new-product development, covering new customer-driven, team-based, "G Pricing, Break-Even,and Margin Anal$ holistic new-product developPricing Considen~tions ment approaches. Chapter 5 (Consumer Behavior) provides a new discussion on "online social networks" that tells how marketers are tapping digital online networks such as YouTube, MySpace, and others to build stronger relationships between their brands and customers. EJ

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The twelfth edition also includes new and expanded material on a wide range of other topics, including managing customer relationships and CRM, brand strategy and positioning, SWOT analysis, data mining and data networks, ethnographic consumer research, marketing and diversity, generational marketing, buzz marketing, services marketing, supplier satisfaction and partnering, environmental sustainability, cause-related marketing, socially responsible marketing, global marketing strategies, and much, much more. Countless new examples have been added within the running text. All tables, examples, and references throughout the text have been thoroughly updated. The twelfth edition of Principles of Marketing contains mostly new photos and advertisements that illustrate key points and make the text more effective and appealing. All new or revised company cases and many new video cases help to bring the real world directly into the classroom. The text even has a new look, with freshly designed figures. We don't think you'll find a fresher, more current, or more approachable text anywhere.

Principles of Marketing features in-depth, real-world examples and stories that show concepts in action and reveal the drama of modern marketing. In the twelfth edition, every chapter-opening vignette and Real Marketing highlight has been updated or replaced to provide fresh and relevant insights into real marketing practices. Learn how: NASCAR creates avidly loyal fans by selling not just stock car racing but a high-octane, totally involving experience Best Buy builds the right relationships with the right customers by going out of its way to attract and keep profitable "angel" customers while exorcizing unprofitable "demons" Nike's "Just do it!" marketing strategy has matured as this venerable market leader has moved from maverick to mainstream

Preface

Harrah's, the world's largest casino operator, maintains a vast customer database and uses CRM to manage day-to-day customer relationships and build customer loyalty Dunkin' Donuts targets the "Dunkin' Tribeu-not the Starbucks snob but the average Joe

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Tiny nicher Bike Friday creates customer evangelistsdelighted customers who can't wait to tell others about the company PJ Apple Computer founder Steve Jobs used dazzling customer- driven innovation to first start the company and then to remake it again 20 years later s Staples held back its nowfamiliar "Staples: That was easy" repositioning campaign for more than a year. First, it had to live the slogan. Ryanair-Europe's original, largest, and most profitable low-fares airline-appears to have found a radical new pricing solution: Fly bee! The NBA has become one of today's hottest global brands, jamming down one international slam dunk after another Dove-with its Campaign for Real Beauty campaign featuring candid and confident images of real women of all types-is on a bold mission to create a broader and healthier view of e

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~"ec.,zenn-guMm-~ have enjoyed a boom.17 Generation Y oldsters have now graduated from college and are moving up in their careers. Like the trailing edge of the Generation Xers ahead of them, one distinguishing characteristic of Generation Y is their utter . Some 87 percent of half of the 87 percent go online every day, and 84 percent of teens own at least one networked device, such as a cell phone, blackberry, or computer. In all, they are an impatient, now-oriented bunch. "Blame it on the relentless and dizzying pace of the Internet, 24-hour cable news cycles, cell phones, and TiVo for creating the on-demand, gottaget-it-now universe in which we live," says one observer. "Perhaps nowhere is the trend more pronounced than among the Gen Y set."18 Generation Y represents an message-saturated segment effective the popularity of action sports with Gen Yers has provided creative marketing opportunities for products ranging from clothes to video games, movies, and even beverages. Mountain Dew's edgy and irreverent positioning makes it a natural for the action-sport crowd. But more than just showing snowboarders, skateboarders, and surfers in its ads, Mountain Dew has become a true action-sports supporter. It sponsors the ESPN XGames, the Vans Triple Crown, and numerous action-sport athletes. It even started its own grassroots skate park tour, the Mountain Dew Free Flow Tour. As a result of these and other actions, Mountain Dew has become the beverage of choice for men ages 18 to 24.19 The automobile industry is aggressively targeting this future generation of car buyers. By 2010, Generation Y will buy one of every four new cars sold in the United States. Toyota even created a completely new brand-the Scion-targeted to Gen Yers (see Real Marketing 3.1). Scion and other automakers are using a variety of programs and pitches to lure Generation Y as they move into their key car-buying years20 Recently, Toyota quietly began an unusual virtual promotion of its small, boxy Scion: It paid for the car's product placement in Whyville.net, an online interactive community populated almost entirely by 8- to 15-year-olds. Never mind that they cannot actually buy the car. Toyota is counting on Whyvillians to do two things-influence their parents' car purchases and maybe grow up with some Toyota brand loyalty. It may appear counterintuitive, but Toyota says the promotion is working. Ten days into the campaign, visitors to the site had used the word "Scion" in online chats more than 78,000 times; hundreds of virtual Scions were purchased, using "clams," the currency of Whyville; and the community meeting place, "Club Scion," was visited 33,741 times. These online Scion owners customized their cars, drove around the virtual Whyville, and picked up their Scion-less friends for a ride. DOmarketers need to create separate products and marketing programs for each generation? Some experts warn that marketers must be careful about turning off one generation each time they craft a product or message that appeals effectively to another.

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In the late 1990s, as Toyota's management team peered through the corporate windshield, it took great pride in the company's accomplishments in the US. market. Riding a wave of loyal baby boomers who had grown up with its Toyota and Lexus models, the company had become one of the nation's most powerful automobile brands. Yet when the team looked down at the corporate dashboard, they saw the "check engine" light flashing. As the baby boomers had aged, the age of the average Toyota customer had risen as well. The median Toyota buyer was 49; the median Lexus buyer, 54. Too few younger customers were lining up to buy Toyotas. Gen Yers by the millions were now reaching driving age, and Toyota wasn't speaking their language. In fact, Toyota's strong reputation among the baby boomers for quality, efficiency, and value had translated to more youthful consumers as, well, "stodgy." Other auto manufacturers were facing this same Gen Y problem. Honda's durable, easy-to-customize Civic had met with some success with younger buyers, but that brand's appeal was fading. Honda followed with the boxy Element, which one observer described as a "Swiss Army knife on wheels," and which Honda promoted as "a dorm room on wheels." The Element sold well but often attracted the wrong market-boomers and Gen Xers (average age 43) looking for something to transport their flowers and power tools. Toyota had also tried before with three vehicles in its Genesis Project: the frumpy Echo, an edgy Celica, and a pricey but impractical MR2 Spider. Each had failed to score with young people.

So, in the early 2000s, Toyota went back to the drawing board. The challenge was to keep Gen Y from seeing Toyota as "old people trying to make a young person's car." Success depended on understanding this new generation of buyers, a segment of strangers to most car marketers. "They demand authenticity, respect for their time, and products built just for them," observed a senior Toyota executive. "They are in their early 205 new to us, and have changed every category they have touched so far. It's the most diverse generation ever seen." The search for a new, more youthful model began in Toyota's own driveway. Following orders to "loosen up," Toyota engineers in Japan had designed and successfully introduced a boxy microvan, the bB, and a five-door hatchback, the "ist" (pronounced "east"). The company decided to rename these vehicles and introduce them in the United States. Thus was born Toyota's Gen Y brand, the Scion (Sighun). Following soon after, Toyota added the Scion tC coupe, which adds more power and driving pleasure to the Scion equation. In the Scion, Toyota created not just a new car brand, but new marketing approaches as well. Accelerate to Memorial Day weekend in late May 2003. Twentysomething Toyota reps sporting goatees and sunglasses have set up shop near a major intersection in San Francisco's Haight-Ashbury district. Standing under banners heralding the new Scion brand, with hip-hop music blaring in the background, the reps encourage young passersby to test drive two new models, the Scion xA hatchback and the Scion xB van.

To target Gen Yers, with their "built-just-for-them"

"Personalization besins here-

Others caution that each generation spans decades of time and many socioeconomic levels. For example, marketers often split the baby boomers into three smaller groups-leading boomers, core boomers, and trailing boomers-each with its o w n beliefs and behaviors. Similarly, they split Generation Y i n t o Gen Y adults and Gen Y teens. Thus, marketers need to form more precise qe-specific segments within each group. More important, defining people b y their birth date may be less effective than segmenting them b

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The "traditional household" consists o f a husband, wife, a n d children (and sometimes grandparents). Yet, the once American i d e a l o f the two-child, two-car suburban family has lately been losing some o f its luster. In the U n i t e d States today, married couples w i t h children make u p o n l y 23 percent o f the nation's 111 m i l l i o n households; married couples w i t h o u t c h i l d r e n make up 28 percent;

Chapter 3

This was not your typical Toyota sales event-it was the opening round in a campaign to solve, finally, the Gen Y riddle. And it signaled the most unorthodox new-car campaign in the company's 70-year history-a campaign that was edgy, urban, and underground. To speak to Gen Y, Toyota shunned traditional marketing approaches and employed guerrilla tactics. Its young marketing team put up posters with slogans such as "No Clone Zone" and "Ban Normality," even projecting those slogans onto buildings at night. It held "rideand-drive" events, like the one in San Francisco, to generate spontaneous test-drives by taking its cars to potential customers instead of waiting for them to find their way to stiowrooms. It put brochures in alternative publications such as Urb and Tokion, and it sponsored events at venues ranging from hip-hop nightclubs and urban pubs to library lawns. Toyota assigned Dawn Ahmed and Brian Bolain, two young members of its product development staff, to head the US. promotional campaign. Understanding the "built-just-for-them" preferences of the Gen Y target market, Ahmed and Bolain decided to position the Scion on personalization. They appealed to the new youth-culture club of "tuners," young fans of tricked-out vehicles (such as BMW's wildly successful Mini Cooper) who wanted to customize their cars from bumper to bumper. "We saw that the tuner phenomenon was really spreading, and took that idea of customization to a totally different level," Ahmed notes. "It comes back to that thing of rational versus emotional," observes Bolain. "Scion buyers have all the rational demands of a Toyota buyer, but they also want more fun, personality, and character." So, along with all of the traditional Toyota features-like lots of airbags, remote keyless entry, and a 160-watt Pioneer stereo with MP3 capability-the Scion offers lots of room for individual selfexpression. The staff worked with after-market auto-parts suppliers to develop specially designed Scion add-ons. To create their own oneof-a-kind cars, customers can select from 40 different accessory products, such as LED interior lighting and illuminated cup holders, wake-the-dead stereo systems, and stiffer shocks. As Bolain points out, "[We wanted the Scion to be a] blank canvas on which the consumer can make the car what they would like it to be." Toyota dealers who have agreed to sell Scions provide special areas in their showrooms where customers can relax, check out the

The Marketing Environment

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cars, and create their own customized Scions on computers linked to Scion's Web site. And Scion buyers do, indeed, customize their cars. The Scion xA and Scion xB start at "no haggle" prices around $13,000 and $14,000, respectively. But 48 percent of Scion buyers spend another $1,000 to $3,000 to customize their cars. Two-thirds of buyers labor at the Scion Web site, configuring just the car they want before ever walking into the dealership. How is Toyota's Scion strategy working? The California launch was so successful that Toyota quickly rolled out the Scion nationally, finishing the process in June 2004. Scion blew past its first-year, 60,000-unit sales target by mid-2004, selling 100,000 units for the year. Toyota sold nearly 160,000 Scions the next year and sales remain brisk. Most importantly, the Scion is bringing a new generation of buyers into the Toyota family. Eighty percent of Scion buyers have never before owned a Toyota. And the average age of a Scion buyer is 31, the youngest in the automotive industry. That overstates the average age of a Scion driver, given that many parents are buying the car for their kids. All this success, however, brings new challenges. For example, according to an industry analyst, Gen Y consumers "disdain cornmercialism and don't really want 'their brand' to be discovered." To maintain its appeal to these young buyers, as the brand becomes more mainstream, Scion will have to keep its models and messages fresh and honest. Says VP Jim Farley, "We want to [reach out to youthful buyers] without shouting 'Buy This Car.' " Sources: Quotes from Lillie Guyer, "Scion Connects in Out-of-Way Places," Advertising Age, February 21, 2005, p. 38. Also see Brett Corbin, "Toyota's Scion Line Banks on Tech-Savvy Younger Drivers," Business First, June 18, 2004, p. 11; Nick Kurczewski, "Who's Your Daddy?Staid Toyota Gets a Hip Implant," New York Times, July 25, 2004, p. 12; Patrick Paternie, "Driven by Personality," Los Angeles Times, January 6,2005, p. E34; Karl Greenberg, "Dawn Ahrned," Brandweek, April 11, 2005, p. 33; Chris Woodyard, "Outside-the-Box Scion Scores Big with Young Drivers," May 3, 2005, accessed at

www.detnews.corn/2005/autosinsider/0505/03/1auto-170121.htm; Mark Rechtin, "Scion's Delimrna: Be Hip-But Avoid the Mainstream," Automotive News, May 22, 2006, pp. 42-45; and Julie Bosrnan, "Hey, Kid, You Want to Buy A Scion?" New York Times, June 14,2006, p. C2.

a n d single parents comprise another 16 percent. A full 32 percent are n o n f a m i l y households-single live-alones or adult live-togethers o f one or b o t h sexes.21 M o r e people are divorcing or separating, choosing n o t to marry, marrying later, or marryi n g w i t h o u t i n t e n d i n g to have children. Marketers m u s t increasingly consider the special needs of nontraditional households, because they are n o w growing more r a p i d l y than traditional households. Each group has distinctive needs a n d b u y i n g habits. The number o f working women has also increased greatly, growing from under 40 percent of the U.S. workforce in the late 1950s to around 77 percent in 2000. However, research i n d i cates that the trend m a y be slowing. After increasing steadily since 1976, the percentage of w o m e n w i t h children under age one in the workforce has fallen during the past few years.22 Meanwhile, more m e n are staying home w i t h their children, managing the household w h i l e their wives go to work. According t o the census, the number of stay-at-home dads has risen 1 8 percent since 1 9 9 4 . ~ ~

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INTRODUCING DREAMDINNERS.' All the jy of a family meal. None of the hassle.

Dream Dinners lets you choose 12 wonderful entrees you assemble once a month and then serve to your family in the weeks ahead. Dream Dinners. All the ingredients for a great meal."

The significant number of women in the workforce has spawned the child day care business and increased consumption of careeroriented women's clothing, financial services, and convenience foods and services. An example is Dream Dinners, Inc., a national franchise chain created by a busy working mom who invited fellow busy moms to her catering kitchen to prepare make-ahead meals. People visiting a Dream Dinners store can prepare up to a dozen family meals i n under two hours, with cleanup handled by the store's staff. Using workstations, they prepare healthy meals ranging from Kung Pao Chicken to New England Pot Roast, take them home i n coolers, and store them i n the freezer until needed. A dozen meals, each serving four to six people, cost under $200. With over 155 locations, Dream Dinners gives precious family time back to harried working parents.24

This is a period of great migratory movements between and within co example, are a mobile percent of all U.S. residents moving each year. Over the past two decades, the U.S. population has shifted toward the Sunbelt states. The West dreamdinners. corn and South have grown, while the Midwest and ~ o r t h e a s states t have lost p ~ p u l a t i o n Such .~~ cause Businesses like Dream Dinners have arisen to serve the growing number of y. For working women. The chain was created by a busy working mom who invited fellow example, research shows that people in Seattle busy mothers to her catering kitchen to prepare make-ahead meals. With Dream buy more toothbrushes per capita than people Dinners, you get "All the joy of a family meal. None of the hassle." in any other U.S. city; people in Salt Lake City eat more candy bars; and people in Miami drink more prune juice. Also, for more than a century, Americans have been areas. In the 1950s, they made a massive exit from th migration to the suburbs continues. And more and more Americans are moving to "micropolitan areas," small cities located beyond congested metropolitan areas. Drawing refugees from rural and suburban America, these smaller micros offer many of the advantages of metro areas-jobs, restaurants, diversions, community organizations-but without the population crush, traffic jams, high crime rates, and high property taxes often associated with heavily urbanized areas.26 The shift in where people live has also caused a shift in For example, the migration toward micropolitan and suburban areas has resulted in a rapid increase -work at home or in a remote office and con'

telecomm&ed at least one day a month last year, twice the n u i b e r from 2000, with the help of electronic conveniences such as PCs, cell phones, fax machines, PDA devices, and fast Internet access.27 Many marketers are actively courting the home office segment of this lucrative SOH0 market. For example, FedEx Kinko's is much more than just a self-service copy shop. Targeting small officelhome office customers, it services as a well-appointed office outside the home. People can come to a FedEx Kinko's store to do all their office jobs: They can copy, send and receive faxes, use various programs on the computer, go on the Internet, order stationery and other printed supplies, ship packages, and even rent a conference room or conduct a teleconference. As more and more people join the work-at-home trend,

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FedEx Kinko's offers an escape from the isolation of the home office. Its ads proclaim, "Our office is your office."

The U.S. population is becoming b a e r eduof the U.S. population over age 25 had completed high school and 28 percent had completed college, compared with 69 percent and 17 percent in 1980. Moreover, nearly two-thirds of high school graduates now enroll in college within

4 For example, in 2004, 85 percent

orkforce also is becoming more white-collar. Between 1950 and 1985, the proportion of white-collar workers rose from 41 percent to 54 percent, that of blue-collar workers declined from 47 percent to 33 percent, and that of service workers increased from 12 percent to 14 percent. Between 1983 and 1999, the proportion of managers and professionals in the workforce increased from 23 percent to more than 30 percent. Job growth is now strongest for professional workers and weakest for manufacturers. Between 2004 and 2014, the number of professional workers is expected to increase 2 1 percent and manufacturing is expected to decline 5 percent.2g

E 4 Geographic shifts: To serve the burgeoning small office/home office market,

FedEx Kinko's has reinvented itself as the well-appointed office outside the home. "Our ofice is your office," says the company.

Countries vary in their ethnic and racial makeup. At one extreme is Japan, where almost everyone is Japanese. At the other e m n i t e d States, with people from virtually all nations. The United States has often b,e diverse groups from many nations and cultures have melted into a whole. Instead, the United States seems to have become more of a arious groups have mixed together but have maintained their diversity by retaining and valuing important ethnic and cultural differences. Marketers are facing increasingly diverse markets, ations become more international in scope. The U.S. with Hispanics at 14.4 percent and African Americans at 13.4 percent. The U.S. Asian American population now totals about 4 percent of the population, with the remaining 1percent made up of American Indian, Eskimo, and Aleut. Moreover, more than 34 million people living in the United States-more than 1 2 percent of the population-were born in another country. The nation's ethnic populations are expected to explode in coming decades. By 2050, Hispanics will comprise an estimated 24 percent of the U.S. population, with African Americans at 13 percent and Asians at 9 percent.30 Most large companies, from Procter & Gamble, Sears, Wal-Mart, Allstate, and Bank of America to Levi Strauss and General Mills, now designed products, ads, and promotions to one or more of F tate worked with Kang & Lee Advertising, a leading multicu ing agency, to create an award-winning marketing campaign aimed at the single largest Asian group in the country-Chinese Americans. Creating culturally significant messages for this market was no easy matter. Perhaps the most daunting task was translating Allstate's iconic "You're In Good Hands With ~ l l s t a t e ~ slogan " into Chinese.31 There's nary a U.S.-born citizen who doesn't know that, when it comes to insurance, you are in good hands with Allstate. But to Chinese Americans, Allstate was not the first insurance company that came to mind. So Allstate asked Kang & Lee Advertising to help it translate the "good hands" concept into the Chinese market.

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The trick was to somehow make the company's longtime brand identity relevant to this group. Problem was, the English slogan just doesn't make sense in any Chinese dialect. After months of qualitative consumer research and discussion with Chinese American Allstate agents, Kang & Lee came up with a Chinese-language version of the tag line, which, roughly translated, says "turn to our hands, relax your heart, and be free of worry." The campaign started in Seattle and New York and has since expanded to California. Studies in the first two cities show that awareness of Allstate in the Chinese American community had doubled within six month of the start of the campaign. Diversity goes beyond ethnic heritage. For example, y Newspaper Guild's publications found that, compared to the average American, respondents are 12 times more likely to be in professional jobs, almost twice as likely to own a vacation home, eight times more likely to own a notebook computer, and twice as likely to own individual stocks. More than two-thirds have graduated from college and 2 1 percent hold a master's degree. They are twice as likely as the general population to have a household income over $250,000. In all, the gay and lesbian market spent more than $640 billion on goods and services last year.32 With hit TV shows such as Queer Eye for the Straight Guy and The Ellen DeGeneres Show, and Oscarwinning movies such as Brokeback Mountain and Capote, the gay and lesbian community has increasingly emerged into the public eye. A number of media now provide companies with access to this market. For !B Multicultural marketing: Allstate created an aw8rd-winning example, Planetout Inc., a leading global media commarketing campaign aimed a t the single largest Asian group i n the pany, exclusively serves the gay, lesbian, bisexual, and county-Chinese Americans. The most daunting task: translating transgender (GLBT) community with several successful Allstate's iconic "You're I n Good Hands With Allstate@" slogan into magazines (Out, The Advocate, Out Traveler) and Web Chinese. sites (Gay.com, PlanetOut.com, Out&About.com). In 2005, media giant Viacom introduced Logo, a cable television network aimed at the gay men and lesbians and their friends and family. Logo is now available in 23 million U.S. households. More than 60 mainstream marketers have advertised on Logo, including Ameriprise Financial, Anheuser-Busch, Continental Airlines, Dell, eBay, General Motors, Johnson &Johnson, Orbitz, Sears, Sony, and Subaru. Here are examples of some gay and lesbian marketing efforts:33 12

With an estimated $65 billion in annual travel expenditures, the American gay and lesbian community is a much sought-after leisure travel segment. Some 53 percent of this segment spends $5,000 or more per person on vacations each year, and 98 percent say that a destination's "gay-friendly reputation" factors into their decision to travel there. Las Vegas, like other cities, aims to snag a larger slice of the gay and lesbian travel pie. The city recently unveiled its first gay promotional push. It placed ads from its universally appealing Vegas ad campaign, "What happens here, stays here," in leading gay publications: The Advocate, Out, and Out Traveler. It also placed ads on the Logo network, along with sponsorship of episodes of Queer Eye for the Straight Guy. Whereas other popular gay getaways, such as Key West, Florida and Palm Springs, California, promote +emselves as places where guests will enjoy a largely gay community, Las Vegas urges gays to experience the same attractions that appeal to everyone else. "We're trying to attract this subculture here to immerse themselves into the Las Vegas experience," says the Las Vegas Convention and Visitors Authority's vice president of marketing. So far, the push seems to be work-

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77

ing. Gays and lesbians now rank Las Vegas as their second-favorite travel destination, behind only New York City. IBM fields a paid, full-time sales team dedicated to bringing GLBT decision makers in contact with DM. The company targeted the gay small-business community with an ad that ran in The Advocate, Out, and about 40 other gay-themed publications. The ad pictures a diverse group of men and women and links IBM's Armonk, New York headquarters with well-known gay communities: "Chelsea/ Provincetown/The Castro/Armonk." The six people shown in the ad are among the 1,100 IBM employees who make up the company's GLBT Network. IBM launched the GLBT group three years ago when research showed that gay business owners are more likely to buy from gay salespeople. Over the past several years, IBM has received numerous awards acknowledging its commitment to the GLBT community. Another attractive segment is the nearly 60 million people with-abiliti_es-in the United States-a market larger than African Americans or Hispanics-representing over $220 billion in annual spending power. This market is expected to grow as the baby boomers age. People with disabilities appreciate products that work for them. Explains Jim Tobias, president of Inclusive Technologies, a consultancy specializing in accessible products, "those with disabilities tend to be brand evangelists for products they love. Whereas consumers may typically tell 10 friends about a favorite product, people with disabilities might spread the word to 10 times that [many]."34 How are companies trying to reach these consumers? Many marketers now recognize that the worlds of people with disabilities and those without disabilities are one in the same. Says one marketer, "The 'us and them' paradigm is obsolete." Consider the following Avis example:35 A common theme in much of the recent crop of mainstream ads, in fact, is that the disability is virtually an afterthought. A recent New York Marathon-themed print ad for car rental company Avis features an image of a marathoner in a wheelchair, but the copy-"We honor participants of the New York Marathon for spirit, courage, and unrelenting drive"-addresses the racers at large. Since 2003, Avis has offered a suite of products and services that make vehicles more accessible to renters with disabilities, helping to make travel easier and less stressful for everyone. Most recently, Avis has become the official sponsor of the Achilles Track Club, an international organization that supports individuals with disabilities who want to participate in mainstream athletics. Says an Avis marketing executive, "The Achilles athletes themselves truly exemplify the character we strive for at Avis, with their 'we try harder' Avis targets people w i t h disabilities by offering a suite of products and services spirit. Some are amputees back from t h a t make vehicles more accessible. It also sponsors t h e Achilles Track Club, which Iraq; others are visually impaired. But now all of them are setting their sights supports individuals with disabilities who want t o participate i n mainstream athletics. on what they can achieve." ,

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Economic environment Factors that affect consumer buying power and spending patterns.

As the population i n the United States grows more diverse, successful marketers will continue to diversify their marketing programs to take advantage of opportunities in fastgrowing s-egments.

Ecowsaic Eaviro~xmen$ Markets require buying power as well as people. The economic environment consists of factors that affect consumer purchasing power and spending patterns. their levels and distribution of income. Some countries have subsistence economies-they

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Part 2

Understanding the Marketplace and Consumers consume most of their own agricultural and industrial output. These countries offer few mares. At the other extreme are industrial economies, which constitute kets for many different kinds of goods. Marketers must pay close attention to major trends and consumer spending patterns both across and within their world markets. Following are some of the major economic trends in the United States.

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Throughout the 1990s, American consumers fell into a consumption frenzy, fueled by income growth, a boom in the stock market, rapid increases in housing values, and other economic good fortune. They bought and bought, seemingly without caution, amassing record levels of debt. However, the .free spending and high expectations of those days were dashed . In fact, we are now facing the age of the "squeezed by the recent consumer." Along with rising incomes in some segments have come increased financial burdens. consumers now face7repaying debts acquired during earlier spending splurges, increased household and family expenses, and saving ahead for college tuition payments and retirement. These financially squeezed consumers have adjusted to their changing financial situations and are spending more carefully. Value marketing has become the watchword for many marketers. Rather than offering high quality at a high price, or lesser quality at very low prices, marketers are looking for ways to offer today's more financially cautious buyers greater value-just the right combination of product quality and good service at a fair price. Marketers should pay attention to income distribution as well as average income. Income distribution in the United States is still very skewed. At the top are upper-class consumers, whose spending patterns are not affected by current economic events and who are a major market for luxury goods. There is a comfortable middle class that is somewhat careful about its spending but can still afford the good life some of the time. The working class must stick close to the basics of food, clothing, and shelter and must try hard to save. Finally, the underclass (persons on welfare and many retirees) must count their pennies when making even the most basic purchases.

families now control 30.4 percent of the net worth, down 3.5 points.36 This distribution of income has created a t Nordstrom and Neiman-Marcus department stores such as Dollar General and Family Dollar stores-target those with more modest means. In fact, such dollar stores are now the fastest growing retailers in the nation. Still other companies tailor their marketing offers across a range of markets, from the affluent to the less affluent. For example, Levi-Strauss currently markets several different jeans lines. The Signature line of low-priced Levi's are found on the shelves of low-end retailers such as Wal-Mart and Target. Levi's moderately priced Red Tab line sells at retailers such as Kohl's and J.C. Penney. Boutique lines, such as Levi's [Capital El and Warhol Factory X Levi's, sell in the Levi's Store and at high-end retailers such as Nordstrom and Urban Outfitters. You can buy Levi 501 jeans at any of three different price levels. The Red Tab 501s sell for around $35, the Levi's [Capital El for about $100, and the Warhol Factory X Levi's for $250 or more.37

Food, housing, and transportation use up the most household income. However, consumers at different income levels have different spending patterns. Some of these differences were noted over a century ago by Ernst Engel, who studied how people shifted their spending as their income rose. -H&found that a; familv income rises: the ~ e r c e n t a ~mee i t on food Engel's

laws

Differences noted over a century ago by Ernst Engel in how people shift their spending across food, housing, transportation, health care, and other goods and services categories as family income rises.

gas, electricity, and public services, Changes in major economic variables such as income, cost of living, interest rates, and savings and borrowing patterns have a large impact on the marketplace. Compies watcb Businesses do not have to be wiped out by an . With adequate warning, they can take advantage of changes in the economic environment.

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r".

atural environment Natural resources that are needed as inputs by marketers or that are affected by marketing activities.

H Responding to consumer

demands for more environmentally responsible products, G E is using "ecomagination" to create products for a better world.

The natural environment involves the natural resources that are needed as inputs by marketers or that are affected by marketing activities. Environmental concerns have grown steadily during the past three decades. In many cities around the world, air and water pollution have reached dangerous levels. World concern continues to mount about the possibilities of global warming, and many environmentalists fear that we soon will be buried in our own trash. Marketers should be aware of several trends in the natural environment. The first involves growing shortages of raw materials. Air and water may seem to be infinite resources, but some groups see long-run dangers. Air pollution chokes many of the world's large cities, and water shortages are already a big problem in some parts of the United States and the world. Renewable resources, such as forests and food, also have to be used wisely. Nonrenewable resources, such as oil, coal, and various minerals, pose a serious problem. Firms making products that require these scarce resources face large cost increases, even if the materials do remain available. A second environmental trend is increased pollution. Industry will almost always damage the quality of the natural environment. Consider the disposal of chemical and nuclear wastes; the dangerous mercury levels in the ocean; the quantity of chemical pollutants in the soil and food supply; and the littering of the environment with nonbiodegradable bottles, plastics, and other packaging materials. A third trend is increased government intervention in natural resource management. The governments of different countries vary in their concern and efforts to promote a clean environment. Some, like the German government, vigorously pursue environmental quality. Others, especially many poorer nations, do little about pollution, largely because they lack the needed funds or political will. Even the richer nations lack the vast funds and political accord needed to mount a worldwide environmental effort. The general hope is that companies around the world will accept more social responsibility, and that less expensive devices can be found to control and reduce pollution. In the United States, the-~nvironmental Protection A m y (EPA) was created in 1970 to set and enforce pollution standards and to conduct pollution research. In the future, companies doing business-in the United states can expect continued strong controls from and pressure groups. Instead of opposing regulation, marketers should help develop solutions to the material and energy problems facing the world. Concern for .the natural environment has spawned the so-called green movement. Today, enlightened companies go beyond what government regulations dictate. They are developing environmentally sustainable strategies and practices in an effort to create a world economy

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that the planet can support indefinitely. They are responding to consumer demands with more environmentally responsible products. For example, GE is using its "ecomagination" to create products for a better world-cleaner aircraft engines, cleaner locomotives, cleaner fuel technologies. Other companies are developing recyclable or biodegradable packaging, recycled materials and components, better pollution controls, and more energy-efficient operations. For example, HP is pushing legislation to force recycling of old TVs, computers, and other electronic gear:38 HP wants your old PCs back. A few years ago, when environmentalists in Washington State began agitating to banish high-tech junk from landfills and scrub the nation's air and water of lead, chromium, mercury, and other toxins prevalent in digital debris, they found an unexp.ected ally: Hewlett-Packard. Teaming up with greens and retailers, HP took on IBM, Apple Computer, and several major TV manufacturers, which were resisting recycling programs because of the costs. Aided by HP's energetic lobbying, the greens persuaded state lawmakers to adopt a landmark program that forces electronics companies to foot the bill for recycling their old equipment. With HP's help, the movement to recycle electronic refuse, or "e-waste," is now spreading across the nation. HP's efforts have made it the darling of environmentalists, but its agenda isn't entirely altruistic. Take-back laws play to the company's strategic strengths. For decades the computer maker has invested in recycling systems, giving it a head start against competitors. Last year, HP recycled more than 70,000 tons of product, the equivalent of about 10 percent of company sales. And it collected more than 2.5 million units of hardware to be refurbished for resale or donation. No other electronics maker has a recycling and resale program on this scale. "We see legislation coming," says HP's vice-president for corporate, social, and environmental responsibility. "A lot of companies haven't stepped up to the plate. . . . If we do this right, it becomes an advantage to us." Thus, companies today are looking to do more than just good deeds. More and more, they are recognizing the link between a healthy ecology and a healthy economy. They are learning that environmentally responsible actions can also be good business (see Real Marketing 3 . 2 ) . ;

Technological Environment Technological environment Forces that create new technologies, creating new product and market opportunities.

The technological environment is perhaps the most dramatic force now shaping our destiny. Technology has released such wonders as antibiotics, robotic surgery, miniaturized electronics, laptop computers, and the Internet. It also has released such horrors as nuclear missiles, chemical weapons, and assault rifles. It has released such mixed blessings as the automobile, television, and credit cards. Our attitude toward technology depends on whether we are more impressed with its wonders or its blunders. For example, what would you think about having tiny little transmitters implanted in all of the products you buy that would allow tracking products from their point of production through use and disposal? On the one hand, it would provide ,many advantages to both buyers and sellers. On the other hand, it could be a bit scary. Either way, it's already Envision a world in which every product contains a tiny transmitter, loaded with information. As you stroll through the supermarket aisles, shelf sensors detect your selections and beam ads to your shopping cart screen, offering special deals on related products. As your cart fills, scanners detect that you might be buying for a dinner party; the screen suggests a wine to go with the meal you've planned. When you leave the store, exit scanners total up your purchases and automatically charge them to your credit card. At home, readers track what goes into and out of your pantry, updating your shopping list when stocks run low. For Sunday dinner, you pop a Butterball turkey into your "smart oven," which follows instructions from an embedded chip and cooks the bird to perfection. Seem far-fetched? Not really. In fact, it might soon become a reality, thanks to tiny radio-frequency identification (RFID) transmitters-or "smart chips"-that can be embedded in the products you buy. Beyond benefits to consumers, the RFID chips also give producers and retailers an amazing new way to track their products electronically-anywhere in the world, anytime, automatically-from factories, to

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If a tree falls in the rain forest and no one is there to trumpet its eco-friendliness, does it still make a sound? It at wood is destined for an electric guitar. Gibson Guitar, the iconic guitar maker, has worked since the late 1980s to make its wood supply environmentally sustainable. Gibson's electric-guitar division recently switched to 100 percent fair-trade-certified wood. Other Gibson divisions, including Baldwin Piano, plan to follow suit. Yet, unlike Starbucks, The Body Shop, and other businesses that eagerly brandish their green deeds, Gibson CEO Henry Juszkiewicz doesn't much care to flaunt his environmental credentials (the guy drives a Hummer, after all). What matters to him is ensuring that Gibson has enough exotic wood, mostly mahogany, to keep making guitars for generations. "We're mercenaries. We're a company. We're for-profit," Juszkiewicz says in his Nashville office, packed with so many musicindustry mementos it looks like his own private Hard Rock Cafe. "I'm not a conservationist." High-end guitar enthusiasts, after all, demand that their instruments be made of exotic woods. But prices for exotics can swing wildly, governed by an unsteady supply and the threat that some species may be placed on an extinction watch list. Juszkiewicz wanted to eliminate the guesswork by building a network of growers rather than relying on brokers scouring world markets for the best prices. He approached the Rainforest Alliance, a nonprofit conservation group, to discuss buying wood from Mexican suppliers certified as sustainable. (Such growers are graded against environmental, labor, and community standards-and for responsible harvesting.) But that hardly made a dent in Gibson's sourcing problems. So the company hired away two Rainforest Alliance employees to source wood in Costa Rica and Brazil. "Within the first year of hiring these guys, they were able to develop significant sources," Juszkiewicz says. "We went from less than 1percent usage of certified product to something like 80 percent." Since then, Gibson has forged a direct relationship with growers i? Guatemala. That provides both stability of supply and quality, because Gibson is able to instruct farmers on its exacting specifications. Initially, Juszkiewicz says, Gibson paid a premium for purchasing wood this way. Now buying direct creates modest savings-and the relationships help curb traditional slash-and-burn harvesting,

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Gibson Guitar works to make i t s exotic hardwood supply environmentally sustainable. The company has learned that environmentally friendly practices can also be good business.

which threatens supplies of precious woods. "In the short run, a slight price increase won't necessarily hurt them because a guitar is a higher-value product," says an industry expert. "In the long run, it helps ensure that they can tap this supply not just in five years but in fifty years." Tensie Whelan, executive director of the Rainforest Alliance, says she's seeing a critical mass of CEOs discoveringthat environmentally friendly practices can be good business. But she still teases Juszkiewicz, one of the first: "He'll say he's a businessman, that he's just out to make money. But believe me, he's passionate about wanting to leave the world a better place." Source: Adapted from Ryan Underwood, "In Tune with the Environment," Fast Company, February 2005, p. 26.

warehouses, to r e t a i l shelves, to recycling centers. RFID technology i s already in use. Every time consumers flash an E x x o n M o b i l Speed-Pass card to purchase gas at the p u m p or breeze through a n automated t o l l booth, they're using a n RFID chip. M a n y large firms are adding f u e l to the RFID fire. Procter & Gamble plans to have the chips o n products in broad distribution as soon as 2008. A n d at the request of mega-retailers s u c h as Wal-Mart, Best Buy, a n d Albertson's, suppliers have' n o w begun placing RFID tags o n selected products. The teclmological environment changes rapidly. ~ h i n of k a l l of today's common products that were n o t available 100 years ago, or even 30 years ago. Abraham L i n c o l n d i d n o t k n o w about automobiles, airplanes, radios, or the electric light. Woodrow W i l s o n d i d n o t k n o w about television, aerosol cans, automatic dishwashers, air conditioners, antibiotics, or computers. F r a n k l i n Delano Roosevelt did n o t k n o w about xerography, synthetic detergents, tape recorders, b i r t h control pills, or earth satellites. John F. Kennedy did n o t k n o w about personal computers, cell phones, iPods, or the Internet.

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carbon-paper business, CDs hurt phonograph records, and digital photography hurt the film business. When old industries fought or ignored new technologies, their businesses declined. Thus, marketers should watch the technological environment closely. Companies that do not keep up will soon find their products outdated. And they will miss new product and market opportunities. The United States leads the world i n research and development spending. Total U.S. R&D spending reached an estimated $329 billion in 2006. The federal government was the H Technological environment: Technology is perhaps the most dramatic force largest R&D spender at about $132 billion.*O shaping the marketing environment. Here, a herder makes a call on his cell phone. Scientists today are researching a wide range of promising new products and services, ranging from practical solar energy, electric cars, and organ transplants to mind-controlled computers and genetically engineered food crops. Today's research usually is carried out by research teams rather than by lone inventors like Thomas Edison, Samuel Morse, or Alexander Graham Bell. Many companies are adding marketing people to R&D teams to try to obtain a stronger marketing orientation. Scientists also speculate on fantasy products, such as flying cars, three-dimensional televisions, and space colonies. The challenge in each case is not only technical but also commercial-to make practical, afjordable versions of these products. As products and technology become more complex, the public needs to know that these are safe. Thus, government agencies investigate and ban potentially unsafe products. In the United States, the Food and Drug Administration (FDA) has set up complex regulations for testing new drugs. The Consumer Product Safety Commission sets safety standards for consumer products and penalizes companies that fail to meet them. Such regulations have resulted in much higher research costs and in longer times between new-product ideas and their introduction. Marketers should be aware of these regulations when applying new technologies and developing new products.

Political environment Laws, government agencies, and pressure groups that influence and limit various organizat~onsand individuals in a given society.

Marketing decisions are strongly affected by developments in the political environment. The political environment consists of 1 that influence or limit various organizations and individuals in a given society.

Legisiatioll Reglllating Business Even the most liberal advocates of free-market economies agree that the system works best with at least some regulation. Well-concei ensure fair markets.for goods and services. T commerce-sets of laws and regulations that Almost every marketing activity is subject to Legislation affecting business around the world has increased steadily over the years. The United States has many laws covering issues such as c , fair trade ~ r a c t i w e privacy, packaging ~an1ommissl"o ork of laws covering competitive behavior, product standards, product liabiiity, and commercial transactions for the nations of the European Union. Several countries have gone further than the United States i n passing strong consumerism legislation. For example, Norway bans several forms of sales promotion-trading stamps, contests, premiums-as being inappropriate or unfair ways of promoting products.

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Major U.S. Legislation Affecting Marketing

Purpose

Legislation

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Sherman Antitrust Act ( 1890) Federal Food and Drug Act (1906) Clayton Act (1914)

Federal Trade Commission Act (19 14) Robinson-Patman Act (1936)

Wheeler-Lea Act (1938) Lanham Trademark Act (1946) National Traffic and Safety Act (1958) Fair Packaging and Labeling Act (1966) Child Protection Act (1966) Federal Cigarette Labeling and Advertising Act (1967) National Environmental Policy Act (1969) Consumer Product Safety Act (1972)

Magnuson-Moss Warranty Act (1975) Children's Television Act (1990) Nutrition Labeling and Education Act (1990) Telephone Consumer Protection Act (1991) Americans with Disabilities Act (1991) Children's Online Privacy Protection Act (2000) Do-Not-Call Implementation Act (2003)

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Prohibits monopolies and activities (price fixing, predatory pricing) that restrain trade or competition in interstate commerce. Forbids the manufacture or sale of adulterated or fraudulently labeled foods and drugs. Created the Food and Drug Administration. Supplements the Sherman Act by prohibiting certain types of price discrimination, exclusive dealing, and tying clauses (which require a dealer to take additional products in a seller's line). Establishes a commission to monitor and remedy unfair trade methods. Amends Clayton Act to define price discrimination as unlawful. Empowers FTC to establish limits on quantity discounts, forbid some brokerage allowances, and prohibit promotional allowances except when made available on proportionately equal terms. Makes deceptive, misleading, and unfair practices illegal regardless of injury to competition. Places advertising of food and drugs under FTC jurisdiction. Protects and regulates distinctive brand names and trademarks. Provides for the creation of compulsory safety standards for automobiles and tires. Provides for the regulation of packaging and labeling of consumer goods. Requires that manufacturers state what the package contains, who made it, and how much it contains. Bans sale of hazardous toys and articles. Sets standards for child resistant packaging. Requires that cigarette packages contain the following statement: "Warning: The Surgeon General Has Determined That Cigarette Smoking Is Dangerous to Your Health." Establishes a national policy on the environment. The 1970 Reorganization Plan established the Environmental Protection Agency. Establishes the Consumer Product Safety Commission and authorizes it to set safety standards for consumer products as well as exact penalties for failure to uphold those standards. Authorizes the FTC to determine rules and regulations for consumer warranties and provides consumer access to redress, such as the class action suit. Limits number of commercials aired during children's programs. ~ e ~ u i r that e s food product labels provide detailed nutritional information. Establishes procedures to avoid unwanted telephone solicitations. Limits marketers' use of automatic telephone dialing systems and artificial or prerecorded voices. Makes discrimination against people with disabilities illegal in public accommodations, transportation, and telecommunications. Prohibits Web sites or online services operators from collecting personal information from children without obtaining consent from a parent and allowing parents to review information collected from their children. Authorized the FTC to collect fees from sellers and telemarketers for the implementation and enforcement of a National Do-Not-Call Registry.

T h a i l a n d requires f o o d processors selling n a t i o n a l b r q d s t o also market low-price brands, so that l o w - i n c o m e consumers c a n find economy brands o n t h e shelves. In India, f o o d companies m u s t o b t a i n special approval t o l a u n c h brarids t h a t duplicate those already existing o n t h e market, s u c h as a d d i t i o n a l c o l a d r i n k s o r n e w brands o f rice. Understanding t h e p u b l i c p o l i c y i m p l i c a t i o n s of a particular marketing a c t i v i t y i s n o t a s i m p l e matter. F o r example, in t h e U n i t e d States, there are many l a w s created a t t h e national, state, and l o c a l levels, and these regulations o f t e n overlap. A s p i r i n s s o l d in Dallas are governed b o t h by federal labeling l a w s and by Texas state advertising laws. Moreover, regulations are constantly changing-what w a s a l l o w e d last year m a y n o w b e prohibited, and w h a t was p r o h i b i t e d m a y n o w b e allowed. Marketers m u s t w o r k hard t o keep up with changes in r e p lations and t h e i r interpretations. h a s b e e n enacted for a n u m b e r of reasons. T h e f i r s t i s t o protect other. A l t h o u g h business executives m a y praise competition, t h e y

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Understanding the Marketplace and Consumers sometimes try to neutralize it when it threatens them. So laws are passed to define and prevent unfair competition. In the United States, such laws are enforced by the Federal Trade Commission and the Antitrust Division of the Attorney General's office. The second purpose of government regulation is to protect consumers from unfair busiand deceive co

unrestrained business behavior. Profitable business activity does not always create a better quality of life. Regulation arises to ensure that firms take responsibility for the social costs of their production or products. International marketers will encounter dozens, or even hundreds, of agencies set up to enforce trade policies and regulations. In the United States, Congress has established federal regulatory agencies, such as the Federal Trade Commission, the Food and Drug Administration, the Federal Communications Commission, the Federal Energy .Regulatory Commission, the Federal Aviation Administration, the Consumer Product Safety Commission, and the Environmental Protection Agency. e of the agencies sometimes have been dominated by lawyers and economists who lacked a practical sense of how business and marketing work. In recent years, the Federal Trade Commission has added staff marketing experts, who can better understand complex business issues. New laws and their enforcement will continue to increase. B need to understand these laws at the&cal, state, national, and international levels. P

Written regulations cannot possibly cover all potential marketing abuses, and existing laws are often difficult to enforce. However, beyond written laws and regulations, business is also governed by social codes and rules of professional ethics. Enlightened companies encourage their managers to look beyond what the regulatory system allows and simply responsible firms actively seek out ways to protect the 1 and the environment. The recent rash of business scandals and increased concerns about the environment have created fresh interest in the issues of ethics and social responsibility. Almost every aspect of marketing involves such issues. Unfortunately, because these issues usually involve conflicting interests, well-meaning people can honestly disagree about the right course of action in a given situation. Thus, many industrial and professional trade associations have suggested codes of ethics. And more companies are now developing policies, guidelines, and other responses to complex social responsibility issues. as created a new set of social and ethical issues. Critics There has been an explosion in the amount of perselves, supply some of it. They voluntarily place highly private information on social networking sites such as MySpace or on geneologyktes, which are easily searched by anyone with a PC. However, much of the information is systematically developed by businesses seeking to learn more about their customers, often without consumers realizing that they are under the microscope. Legitimate businesses plant cookies on consumers' PCs and collect, analyze, and share digital consumer information from every mouse click consumers make at their Web sites. Critics are concerned that companies may now know too much, and that some companies might use digital data to take unfair advantage of consumers. Although most companies fully disclose their Internet privacy policies, and most work to use data to benefit their customers, abuses do occur. As H resdt,consumer advocates and policymakers are taking action Throughout the text, we present Real Marketing exhibits that summarize the main public policy and social responsibility issues surrounding major marketing decisions. These exhibits

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discuss the legal issues that marketers should understand and the common ethical and societal concerns that marketers face. In Chapter 20, we discuss a broad range of societal marketing issues in greater depth.

cancer research. Shop at EddieBauer.com &d have a percentage of your purchase go to support your local grade school. Purchase Habitat Coffee.and help Habitat for Humanity build a house for a needy family. Order the City Harvest Tasting Menu at Le Bernardin in New York City, and the restaurant donates $5 to City Harvest, which feeds the hungry by rescuing millions of pounds of edible food thrown away each year by the city's food businesses. Pay for these purchases with the right charge card and you can support a local cultural arts group or help fight heart disease. Cause-related marketing has become a primary form of corporate giving. It lets companies "do well by doing good" by linking purchases of the company's products or services with fund-raising for worthwhile causes or charitable organizations. Companies now sponsor dozens of cause-related marketing campaigns each year. Many are backed by large budgets and a full complement of marketing activities. Consider the cause-marketing activities of Home Depot. In 2006, the home improvement retailer received the Golden Halo Award, given each year by the Cause Marketing Forum to one business for its leadership and outstanding efforts in the field of cause marketing. Here's just one example of Home ~ e h o t j smany causermarketing initiatives: Home Depot is a founding sponsor of KaBoom!, a nonprofit organization that envisions a great place to play within walking distance of every.child in America through the construction of community playgrounds around the nation. Home Depot provides financial support, materials, and volunteers in an ongoing effort to help KaBoom! accomplish this mission. For example, last year, Home Depot announced that it would work with KaBoom! to create and refurbish 1,000 playspaces in 1,000 days, a commitment of $25 million and one million volunteer hours. Home Depot also works with its suppliers to develop cause-marketing initiatives that support KaBoom!. It recently partnered with Swing-N-Slide, a do-it-yourself backyard play system producer, to raise money by conkibuting $30 to KaBoom! for each Brookview No-Cut backyard playground kit sold at Home Depot. Swing-N-Slide also released a special edition of its Racing Roadster toddler swing in Home Depot orange. Home Depot donates 5 percent of the retail price of each Racing Roadster swing to KaBoom!. E3 Cause-related marketing: Home Depot links with KaBoom! to "create a great place to play within walking distance of every child in America." Supporting KaBoom! helps Home Depot to build stronger relationships with customers by giving back to the communities its stores serve.

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Understanding the Marketplace and Consumers Such efforts "will help KaBoom! and Home Depot bring the gift of play to countless communities nationwide," says KaBoom!'~CEO. They will also help Home Depot to build closer relationships with consumers in the communities that its stores serve.41 Cause-related marketing has stirred some controversy. Critics worry that cause-related marketing is more a strategy for selling than a strategy for giving-that "cause-related" marketing is really "cause-exploitative" marketing. Thus, companies using cause-related marketing might find themselves walking a fine line between increased sales and an improved image, and facing charges of exploitation. However, if handled well, cause-related marketing can greatly benefit both the company and the cause. The company gains an effective marketing tool while building a more positive public image. The charitable organization or cause gains greater visibility and important new sources of funding. Spending on cause-related marketing has skyrocketed from only $120 million in 1990 to more than 1.1 billion last year.42

Cultural environment Institutions and other forces that affect society's basic values, perceptions, preferences, and behaviors.

The cultural environment is made up of institutions and other forces that affect a society's basic values, perceptions, preferences, and behaviors. People grow up in a particular society that shapes their basic beliefs and values. They absorb a worldview that defines their relationships with others. The following cultural characteristics can affect marketing decision making.

old many beliefs and values. Their core beliefs and values have a or example, most Americans ied, giving to charity, and being honest. These beliefs shape more specific attitudes and behaviors on from parents to children and are found in everyday life. CO& beliefs and values are reinforced by schools, churches, businesses, and governments. ~ e c o n d & ybeliefs and values are . Believing in marriage is a core belief; believing that people should ge is a secondary belief. Marketers have some chance of changing secondary values but little chance of changing core values. For example, family-planning marketers could argue more effectively that people should get married later in life than that they should not get married at all.

Although core values are fairly persistent, cultural swings do take place. Consider the impact of popular music groups, movie personalities, and other celebrities on young people's hairstyling and clothing norms. Marketers want to predict cultural shifts in order to spot new opportunities or threats. Several firms offer "futures" forecasts in this connection. For example, the Yankelovich Monitor has tracked consumer value trends for years. At the dawn of the twenty-first century, it looked back to capture lessons from the past decade that might offer insight into the 2 0 0 0 s . ~ Yankelovich ~ maintains that the "decade drivers" for the 2000s will primarily come from the baby boomers and Generation Xers. The baby boomers will be driven by four factors in the 2000s: "adventure" (fueled by a sense of youthfulness), "smarts" (fueled by a sense of empowerment and willingness to accept change), "intergenerational support" (caring for younger and older, often in nontraditional arrangements), and "retreading" (embracing early retirement with a second career or phase of their work life). Gen Xers will be driven by three factors: "redefining the good life" (being highly motivated to improve their economic well-being and remain in control), "new rituals" (returning to traditional values but with a tolerant mind-set and active lifestyle), and "cutting and pasting" (balancing work, play, sleep, family, and other aspects of their lives). The major cultural values of a society are expressed in people's views of themselves and others, as well as in their views of organizations, society, nature, and the universe. People vary in their emphasis on serving themselves versus serving others. Some people seek personal pleasure, wanting fun, change, and escape. Others seek self-realization through religion, recreatioa, or the avid pursuit of careers or other life goals. People use products, .brands, and services as a means of self-expression, and they buy products and services that match their views of themselves. The Yankelovich Monitor identifies several consumer segments whose purchases are motivated by self-views. Here are two examples:44

Chapter 3 The Marketing Environment Do-It-Yourselfers-Recent Movers. Embodying the whole do-it-yourself attitude, these active consumers not only tackle home improvement projects on their own, but they also view the experience as a form of self-expression. They view their homes as their havens, especially when it's time to kick back and relax. Undertaking decorating, remodeling, and auto maintenance projects to save money and have fun, Do-ItYourselfers view their projects as personal victories over the high-priced marketplace. Mostly Gen-X families with children at home, these consumers also enjoy playing board and card games and renting movies. As recent movers, they're actively spending to turn their new home into a castle. Adventurers. These adventuresome individuals rarely follow a single path or do the same thing twice. These folks view the experience as far more exciting than the entertainment value. Although they may be appreciative of the arts (including movies, museums, photography, and music), they are more likely to engage in activities most think are too dangerous, and they like to view themselves doing things others wouldn't dare to do.

Marketers can target their products and services based on such self-views. For example, MasterCard targets Adventurers who might want to use their credits cards to quickly set up the experience of a lifetime. It tells these consumers, "There are some things in life that money can't buy. For everything else, there's MasterCard."

In past decades, observers have noted several shifts in people's attitudes toward others. Recently, for example, some trend trackers have seen a new wave of "cocooning," in which people are going out less with others and staying home more to enjoy the creature comforts of home and hearth. Nearly half of major league baseball's 30 clubs are luring smaller crowds this year. Empty seats aren't just a baseball phenomenon. Rock concert attendance was off 12 percent. Entertainment promoters blame everything from unseasonable weather to high gas prices for the lousy attendance numbers. . . . But industry watchers alao believe shifting consumer behavior is at work: Call it Cocooning in the Digital Age. With DVD players in most homes, broadband connections proliferating, scores of new video game titles being released each year, and nearly 400 cable channels, consumers can be endlessly entertained right i n their own living room-or home theater. Add in the high costs and bother of going out, and more and more people are trading the bleachers for the couch.45

entertain more often, th home industry analyst. People are adding bigger decks with fancy gas-ready barbeques, outdoor Jacuzzis, and other amenities that make the old house "home, sweet home" for family and friends.46

he late 1980s saw a sharp decrease in confidence in and loyalty toward America's business and political organizations and institutions. In the workplace, there has been an overall decline in organizational loyalty. During the 1990s, waves of company downsizings bred cynicism and distrust. And in this decade, corporate scandals at Enron, WorldCom, and Tyco; record-breaking profits for big oil companies during a time of all-time high prices at the pump; and other questionable activities have resulted in a further loss of confidence in big find new ways to win consumer and employee confidence. People varv in their attitudes toward their society; patriots

ever, following the September 11th terror& attacks and the Iraq war. For example, the summer following the start of the Iraq war saw a surge of pumped-up Americans visiting U.S. historic sites, ranging from the Washington, D.C. monuments, Mount Rushmore, the Gettysburg

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battlefield, and the USS Constitution ("Old Ironsides") to Pearl Harbor and the Alamo. Following these peak periods, patriotism in the United States still remains high. A recent global survey on "national pride" found that Americans ranked number one among the 34 democracies polled.47 Marketers respond with patriotic products and promotions, offering everything from floral bouquets to clothing with patriotic themes.-Although most of these marketing efforts are tasteful and well received, waving the red, white, and blue can prove tricky. Except in cases where companies tie product sales to charitable contributions, such flag-waving promotions can be viewed as attempts to cash in on triumph or tragedy. Marketers must take care when responding to such strong national emotions. . People vary in their attitudes toward the natural world. Some feel ruled by it, others feel in harmony with it, and still others seek to master it. A long-term trend has been people's growing mastery over nature through technology and the belief that nature is bountiful. More recently, however, people have recognized that nature is finite and fragile, that it can be destroyed or spoiled by human activities. This renewed love of things natural has created a 63-million-person "lifestyles of health and sustainability" (LOHAS) market, consumers who seek out everything from natural, organic, and nutritional products to fuel-efficient cars and alternative medicine. In the words of one such consumer:48 I am not an early adopter, a fast follower, or a mass-market stampeder. But I am a gas-conscious driver. So that's why I was standing in a Toyota dealership . . . this week, the latest person to check out a hybrid car. Who needs $40 fill-ups? After tooling around in three different hybrid car brands-Toyota, Honda and a Ford-I thought: How cool could this be? Saving gas money and doing well by the environment. Turns out there's a whole trend-watchers' classification for people who think like that: LOHAS. Lifestyles of Health and Sustainability. Buy a hybrid. Shop at places like Whole Foods. Pick u p the Seventh Generation paper towels at Albertsons. No skin off our noses. Conscientious shopping, with no sacrifice or hippie stigma.

Riding the trend towards a l l things natural, Earthbound Farm has grown t o become the world's largest producer of organic salads, fruits, and vegetables, with i t s product i n 80 percent o f America's supermarkets.

Business has responded by offering more products and services catering to such interests. For example, food producers have found fastgrowing markets for natural and organic foods. Consider Earthbound Farm, a company that grows and sells organic produce. It started in 1984 as a 2.5-acre raspberry farm in California's Carmel Valley. Founders Drew and Myra Goodman wanted to do the right thing by farming the land organically and producing food they'd feel good about serving to their family, friends, and neighbors. Today, Earthbound Farm has grown to become the world's largest producer of organic vegetables, with 30,000 acres under plow, annual sales of $278 million, and products avajlable in 80 percent of America's supermarkets. In total, the will exceed $15.5 billion in sales this year, a 325 percent increase since 1997. Niche marketers, such as Whole Foods Market, have sprung up to serve this market, and traditional food chains such as Kroger and Safeway have added separate natural and organic food sections. Even pet owners are joining the movement as they

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become more aware of what goes into Fido's food. Almost every major pet food brand now offers several types of natural foods.49 Finally, people vary in their beliefs about the origin of the universe and their place in it. Although most Americans practice religion, religious conviction and practice have been dropping off gradually through the years. Some futurists, however, have noted a renewed interest in spirituality, perhaps as a part of a broader search for a new inner purpose. People have been moving away from materialism and dog-eat-dog arnbition to seek more permanent values-family, community, earth, faith-and a more certain grasp of right and wrong. "Americans are on a spiritual journey, increasingly concerned with the meaning of life and issues of the soul and spirit," observes one expert. People say "they are increasingly looking to religion-Christianity, Judaism, Hinduism, Islam, and others-as a source of comfort in a chaotic world." This new spiritualism affects consumers in everything from the television shows they watch and the books they read to the products and services they buy. "Since consumers don't park their beliefs and values on the bench outside the marketplace," adds the expert, "they are bringing this awareness to the brands they buy. Tapping into this heightened sensitivity presents a unique marketing opportunity for brands.'150

Someone once observed, "There are three kinds of companies: those who make things happen, those who watch things happen, and those who wonder what's happened."51 Many companies view the marketing environment as an uncontrollable element to which they must react and adapt. They passively accept the marketing environment and do not try to change it. They analyze the environments! forces and design strategies that will help the company avoid the threats and take advantage of the opportunities the environment provides. Other companies take a proactive stance toward the marketing environment. Rather than

advertorials (ads expressing editorial points of view) to shape public opinion. They press lawsuits and file complaints with regulators to keep competitors in line, and they form contractual agreements to better control their distribution channels. By taking action, companies can often overcome seemingly uncontrollable environmental events. For example, whereas some companies view the ceaseless online rumor mill as something over which they have no control, others work proactively to prevent or counter negative word of mouth:52 One e-mail recently circulating in Washington, D.C said that a former government lawyer knew a guy whose dog had to be put to sleep because he walked on a floor cleaned with Procter & Gamble's Swiffer WetJet, licked his paws and developed liver disease. Although the claim was proved false by toxicologists, it has been neither quick nor easy for P&Gto squelch the story. But P&G learned long ago that it was best to face a false rumor head-on. Years before, P&G endured a nasty rumor that the stars-and-moon trademark the company then displayed on its packaging was linked with Satanism. The rumor was disseminated through fliers and, much later, e-mails. At one point, fliers even claimed that P&G officials had appeared on TV talk shows confirming the rumor. Rather than letting the rumor lie, P&G reacted strongly by soliciting support from a range of religious leaders as well as from its employees, who worked to convince members of their own churches that the rumors were false. It publicized letters from the TV networks saying that no P&G executives had appeared on the TV shows. And once P&G identified people it said had spread-the rumor-some of whom it says worked for competitors-it pressed charges to get them to confess and stop distributing the information. Some of them did confess, and litigation is still pending against others. Marketing management cannot always control .environmental forces. In many cases, .it must settle for simply watching and reacting to the environment. For example, a company 1

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In this chapter and the next two chapters, you'll examine the environments of marketing and how companies analyze these environments to better understand the marketplace and consumers. Companies must constantly watch and manage the marketingenvironmentin order to seek opportunities and ward off threats. The marketing environment consists of all the actors and forces influencing the company's ability to transact business effectively with its target market.

sumer concern for value and shifting consumer spending patterns. Today's squeezed consumers are seeking greater value-just the right combination of good quality and service at a fair price. The distribution of income also is shifting. The rich have grown richer, the middle class has shrunk, and the poor have remained poor, leading to a two-tiered market. Many companies now tailor their marketing offers to two different markets-the affluent and the less affluent.

1. Describe the environmental forces that affect the company's ability to serve its customers. The company's microenvironment consists of other actors close to the company that combine to form the company's value delivery network or that affect its ability to serve its customers. It includes the company's internal environment-its several departments and management levels-as it influences marketing decision making. Marketingchannel firms--suppliers and marketing intermediaries, including resellers, physical distribution firms, marketing services agencies, and financial intermediaries-cooperate to create customer value. Five types of customer markets include consumer, business, reseller, government, and international markets. Competitors vie with the company in an effort to serve customers better. Finally, various publics have an actual or potential interest in or impact on the company's ability to meet its objectives. The macroenvironment consists of larger societal forces that affect the entire microenvironment.The six forces making up the company's macroenvironmentinclude demographic, economic, natural, technological, political, and cultural forces. These forces shape opportunities and pose threats to the company.

3. Identify the major trends in the firm's natural and technological environments. The natural environment shows three major trends: shortages of certain raw materials, higher pollution levels, and more government intervention in natural resource management. Environmental concerns create marketing opportunitiesfor alert companies. The technological environment creates both opportunities and challenges. Companies that fail to keep up with technological change will miss out on new product and marketing opportunities.

Explain how changes in the demographic and economic environments affect marketing decisions. Demography is the study of the characteristics of human populations. Today's demographic environment shows a changing age structure, shifting family profiles, geographic population shifts, a better-educated and more white-collar population, and increasing diversity. The economic environment consists of factors that affect buying power and patterns. The economic environment is characterized by more con-

4. Explain the key changes in the political and cultural environments. The political environment consists of laws, agencies, and groups that influence or limit marketing actions. The political environment has undergone three changes that affect marketing worldwide: increasing legislation regulating business, strong government agency enforcement, and greater emphasis on ethics and socially responsible actions. The cultural environment is made up of institutions and forces that affect a society's values, perceptions, preferences, and behaviors. The environment shows trends toward digital "cocooning," a lessening trust of institutions, increasing patriotism, greater appreciation for nature, a new spiritualism, and the search for more meaningful and enduring values. 5. Discuss how companies can react to the marketing environment. Companies can passively accept the marketing environment as an uncontrollable element to which they must adapt, avoiding threats and taking advantage of opportunities as they arise. Or they can take a proactive stance, working to change the environment rather than simply reacting to it. Whenever possible, companies should try to be proactive rather than reactive.

eviewing the Baby boomers 69 Cultural environment 86 Demography 68 Economic environment 77

Engel's laws 78 Generation X 70 Generation Y 71 Macroenvironment 64

1. Assume you are a marketing manager for an automobile company. Your job is to reposition an SUV model that was once identified as a "fuel guzzler." The model now comes with a superefficient, nonpolluting hybrid engine. Which of the seven types of publics discussed in the chapter would have the greatest impact on your plans to the more fuel-efficient model? 2. What leading demographic factors must an Internet like AOL consider when marketing its products?Why is each factor so important to AOL? 3. Discuss the primary reasons why a company would hire a lobbyist in Washington D.C. Would it make sense for the same company to also hire lobbyists at the state level?Why?

Marketing environment 64 Marketing intermediaries 65 Microenvironment 64 Natural environment 79

Political environment 82 Public 67 Technological environment 80

4. Is it a certainty that a company will lose out on new opportunities if it does not keep up with new technology? Explain. Can you think of an industry segment where technology may not play an important role? 5. What can a mobile phones marketer do to take a more proactive approach to the changes in the marketing environment? Discuss specific forces, including macroenvironmental and microenvironmental forces. 6. Much of the US. culture is based on products from Hollywood,

including movies and television shows. Choose a current toprated television show and explain how it might affect the cultural , environment.

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1. Go to Shonenjump.com and you will see a Web site devoted to Japanese Anime and Manga. In fact, these products are gaining in popularity in the U.S. market. What environmental forces are involved in the increased demand for this Japanese entertainment?

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how smaller companies with more limited resources can implement successful cause-related marketing efforts. How can such organizations help the charities with which they partner while successfully promoting their own products and services?

2. Most well-known cause-related marketing campaigns are launched by companies with substantial resources. In a small group, discuss

Television is hitting the small screen-the mobile phones that more than 80 percent of adults now carry. Networks are now producing "mobisodes," two-minute episodes produced exclusively for mobile phones. Services such as Verizon's Vcast let you watch TV or stream content for a monthly fee. Who will subscribe to this? Certainly the younger segment of the Generation Y demographic-the growing 57 percent of US. teens, ages 13 to 17 years, who now own mobile phones. Although this is below the percentage of all adults owning mobile phones, this group displays the most intense connectivityto their phones and the most interest in new features.

1. Explain why younger Gen Yers might be more likely to adapt new mobile phone technologies as compared to other demographic groups. 2. What other macroenvironmental and microenvironmental forces might affect the growth of mobile TV? 3. How can other marketers use mobile marketing to communicate with and promote to consumers?

In February, 2005, R.J. Reynolds began a promotion that included directmail pieces to young adults on their birthdays. The campaign, entitled "Drinks on Us," included a birthday greeting as well as a set of drink coasters that included recipes for many drinks. The drink recipes, which were for mixed drinks of high alcohol content, included many distiller brands such as Jack Daniels, Southern Comfort, and Finlandia Vodka. With the recipe on one side of the coaster, the flip side included a tag line such as "Go 'ti1 Daybreak, and Make Sure You're sittin:" Shortly after its release, the promotion came under attack from several attorney generals,

public advocacy groups, and the alcohol distillers themselves. The attorney generals and advocacy groups said the promotion endorsed heavy drinking. The distillers were angry because their brands were used without permission. In addition, the distillers argued that the promotion violates the alcohol industry advertisingcode, which prohibits marketingthat encourages excessive drinking.

Understanding consumers and their needs can be a challenge. As the American population diversifies, and as consumers redefine their values and preferences, marketers work to provide relevant products and services that meet consumers' changing needs and wants. For American Express, keeping up with environmental shifts translates into creating new marketing offers. American Express issued its first charge card in 1958. Within five years, it had more than one million cards in use. Eight years later, the company introduced the American Express Gold Card. The company now offers more than 20 consumer cards and 14 smallbusiness cards, in addition to its customizable corporate cards. Some cards target very specific consumers. For example, the IN:CHICAGO, IN:NYC, and IN:LA cards offer cardholders special perks, including saving 10 percent at select retailers, spas, and nightclubs; skipping lines at some of these cities' hottest clubs; access to select VIP rooms; and sav-

ings on concert tickets. By targeting such specific consumers, American Express builds strong relationshipswith the right customers. After viewing the video featuring American Express, answer the following questions about the marketing environment.

1. What prominent environmental forces come into play in this situation? 2. Is this promotion wrong? Should R.J. Reynolds stop the promotion?

1. Visit the American Express Web site (www.americanexpress.com) to learn more about the different cards that American Express offers. Select three of the macroenvironmental forces discussed in the chapter. How do the different card options reflect the changes in those forces? 2. What sections of the Web site reflect American Express's efforts to deal with the various publics in its microenvironment?

3. Is American Express taking a proactive approach to managing its marketing environment?How?

Americans love their cars. In a country where SUVs sell briskly and the biggest sport is stockcar racing, you wouldn't expect a small, hybrid, sluggish vehicle to sell well. Despite such expectations, Honda successfully introduced the Insight in 1999 as a 2000 model. Toyota closely followed Honda's lead, bringing the 2001 Prius to market one year later. Introducing a fuel sipper in a market where vehicle size and horsepower reigned led one Toyota executive to profess, "Frankly, it was one of the biggest crapshoots I've ever been involved in." Considering these issues, it is nothing short of amazing that a mere five years later, the Prius is such a runaway success that Toyota Motor Sales U.S.A. President Jim Press has dubbed it "the hottest car we've ever had." Like other hybrids currently available or in development, the Prius (pronounced PREE-us, not PRY-us) combines a gas engine with an electric motor. Different hybrid vehicles employ this combination of power sources in different ways to boost both fuel efficiency and power. The Prius runs on only the electric motor when starting up and under initial acceleration. At roughly 15 mph, the gas engine kicks in. This means that the auto gets power from only the battery at low speeds, and from both the gas engine and electric motor during heavy acceleration. Once up to speed, the gas engine sends power directly to the wheels and, through the generator, to the electric motor or battery. When braking, energy from the slowing wheels-energy that is wasted in a conventional car-is sent back through the electric motor to charge the battery. At a stop, the gas engine shuts off, saving fuel. When starting up and operating at low speeds, the auto does not make noise, which seems eerie to some drivers and to pedestrians who don't hear it coming! The original Prius was a small, cramped compact with a dull design. It had a total of 114 horsepower-70 from its fourcylinder gas engine and 44 &om the electric motor. It went from 0 to 60 in a woeful 14.5 seconds. But it got 42 miles per gallon. Although the second-generation Prius, introduced as a 2004 model, benefited from a modest power increase, the car was still hardly a muscle car. But there were countless other improvements. The sleek, Asian-inspired design was much better looking than the first-generation Prius and came in seven colors. The interior was roomy and practical, .with plenty of rear legroom and gobs of storage space. The new Prius also provided expensive touches typically found only in luxury vehicles. A single push button brought the car to life. A seven-inch energy monitor touch screen displayed fuel consumption, outside temperature, and battery charge level. It also indicated when the car was running on gas, electricity, regenerated energy, or a combination of these. Multiple screens within the monitor also provided controls for air conditioning, audio, and a satellite navigation system. But perhaps the most important improvement was an increase in fuel efficiency to a claimed 60 miles per gallon in city driving. Apparently, consumers liked the improvements. In its inaugural year, the Prius saw moderate sales of just over 15,000

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units-not bad considering Toyota put minimal promotional effort into the new vehicle. But for 2005, more than 107,000 Priuses were sold in the United States alone, making it Toyota's third-bestselling passenger car following the Camry and Corolla. Perhaps more significantly, Toyota announced that as of April, 2006, the Prius had achieved a major milestone, having sold over 500,000 units worldwide. The rapid increase in demand for the Prius has created a rare automotive phenomenon. During a time period when most automotive companies have offered substantial incentives in order to move vehicles, many Toyota dealers have had no problem getting premiums of up to $5,000 over sticker price for the Prius. By June 2004, waiting lists for the Prius stretched to six months or more. At one point, spots on dealers' waiting lists were being auctioned on eBay for $500. By 2006, the Prius had become the "hottest" car in the United States, based on industry metrics of time spent on dealer lots, sales incentives, and average sale price relative to sticker price. In fact, demand for new Priuses is currently so strong, that Kelley Blue Book puts the price of a used 2005 Prius with 20,000 miles at $25,970, more than $4,500 higher than the original sticker price. There are many reasons for the success of the Prius. For starters, Toyota's targeting strategy has been spot-on fiom the beginning. It focused first on early adopters, techies who were attracted by the car's advanced technology. Such buyers not only bought the car, but found ways to modify it by hacking into the Prius's computer system. Soon, owners were sharing their hacking secrets through chat rooms such as Priusenvy.com, boasting such modifications as using the dashboard display screen to play video games, show files from a laptop, watch TV, and look at images taken by a rearview camera. One savvy owner found a way to plug the Prius into a wall socket and boost fuel efficiency to as much as 100 miles per gallon. By 2004, Toyota had skimmed off the market of techies and adopters. It knew that the second-generation Prius needed to appeal to a wider market. Toyota anticipated that environmentally conscious consumers as well as those desiring more fuel efficiency would be drawn to the vehicle. To launch the new Prius, Toyota spent more than $40 million spread over media in consumer-oriented magazines and TV. With the accuracy of a fortune teller, Toyota hit the nail right on the head. In the summer of 2004, gasoline prices began to r i s e g o i n g to over $2 a gallon in some locations. By the summer of 2005, gas prices had skyrocketed to over $3 a gallon. As a result, buyers moved toward smaller SUVs, cars, and hybrids while sales of full-sized SUVs such as the Ford Expedition, Chevy Tahoe, and H m e r H2 fell significantly. In addition to Toyota's effective targeting tactics, various external incentives have helped to spur Prius sales. For example, some states allow single-occupant hybrids in HOV (High Occupancy Vehicle) lanes. Some cities, including Albuquerque, Los Angeles, San Jose, and New Haven, provide fiee parking for hybrids. But the biggest incentives contribute real dollars toward the price of the Prius, making it more affordable. Currently, the federal government gives a tax break of up to $3,150. This tax break will expire under the

current rules in 2007, but there are various efforts to extend tax incentives for the Prius and other hybrid vehicles. Some state governments are also getting in the game. West Virginia, New York, and various other states are offering tax breaks over and above any IRS kickbacks. The most generous is Colorado, giving a tax credit of up to $3,434. And if a chunk of money from these two sources isn't enough, employees of certain companies can cash i n for even more. A select few companies are anteing up in order to do their bit for the environment. Eco-hiendly Timberland contributes $3,000 as well as preferred parking spaces. Google and Hyperion Solutions, the California-based software company, each give employees a whopping $5,000 toward hybrids such as the Prius.

Although Honda's Insight was the first to market in the United States, its sales have been miniscule compared to the Prius. Thus, after the 2006 model year, Honda will drop the Insight. And although Toyota's Japanese rival has had much better results with its Civic hybrid, its sales goal of 25,000 units for 2006 is less than one-fourth of the Prius's anticipated sales. The overall category of gas-electric vehicles in the United States appears to be hotter than ever, with unit sales up 140 percent from 2004 to 2005, to a total of 205,749 units. The Prius alone commands over 50 percent of the market and is largely responsible for category growth. It appears that consumers like their green cars very green. Whereas sales of the ultra-high-mileage Prius and Civic have grown significantly each year since their introductions, less efficient (and more expensive) hybrid models such as the Honda Accord, Toyota Highlander; Ford Escape, and Mercury Mariner have had flat or even declining sales. Some analysts believe it is because consumers are doing the math and realizing that even with better fuel efficiency, they may not save money with a hybrid. In fact, a widely publicized report by Consumer Reports revealed that of six hybrid models studied, the Prius and the Civic were the only two to recover the price premium and save consumers money after five years and 75,000 miles. However, although car makers are scaling back on some models, almost every automotive nameplate wants a piece of the growing pie. Ford blames the lack of success with the Escape and Mariner on a boggled promotional effort. With a lofty goal of producing 250,000 hybrids per year by 2010, it plans to put more money into campaigns for its existing models as well as introduce new models. General Motors also has big plans, beginning with the Saturn Vue Greenline, which will have the advantage of a low $2,000 price tag for the hybrid option. GM plans to extend the Saturn hybrid line to almost every vehicle in the lineup. It also plans to introduce hybrids in other divisions, including full-size trucks and SUVs. And while Subaru, Nissan, Hyundai, and Honda are all promoting upcoming hybrid models, Audi, BMW, and numerous others are busy developing hybrid vehicles of their own.

Even with all the activity from these automotive brands, Toyota is currently the clear leader in hybrid sales and will likely be for some time to come. 2006 Prius sales have actually dropped, but only because the company has dedicated production capacity to the 2006 Camry hybrid. The supply limitation has made demand for the Prius stronger than ever. In the past, Toyota Vice Chairman Fujio Cho had asserted that the company would not open a second plant for the production of hybrids, but he has quickly changed his tune. "[Given] the way American consumers have snapped up the [Prius]," he says, "I have been urging the company, almost as a matter of strategy, to produce [it] in the U.S." Given that Toyota plans to offer hybrid versions for all vehicle classes and quadruple worldwide hybrid sales to one million vehicles by 2012, it would seem that Mr. Cho's statement is conservative.

1. What microenvironmental factors affected the introduc-

tion and relaunch of the Toyota Prius? How well has Toyota dealt with these factors? 2. Outline the major macroenvironmental factorsdemographic, economic, natural, technological, political and cultural-that affected the introduction and relaunch of the Toyota Prius. How well has Toyota dealt with each of these factors? 3. Evaluate Toyota's marketing strategy so far. What has Toyota done well? How might it improve its strategy? 4. GM's marketing director for new ventures, Ken Stewart, says, "If you want to get a lot of hybrids on the road, you put them in vehicles that people are buying now.": This tends to summarize the U.S. automakers' approach to hybrids. Would you agree with Mr. Stewart? Why or why not? Sources: David Kushner, "How to Hack a Hybrid," Business 2.0 Magazine, July 13,2006; "Toyota Prius Reaches Sales Milestone," Car and Driver, June 9 , 2006, accessed online at www.caranddriver.com; Thane Peterson, "Harnessing Hybrid Tax Credits," Business Week, June 8 , 2006, accessed at www.businessweek.corn; Norihiko Shirouzu, "Toyota Seeks to Improve Prius and Plans to Produce Car in U.S.," Wall Street Journal, May 22, 2006, p. A2; Peter Valdes-Dapena, "Mad Market for Used Fuel Sippers," CNNMoney.com,May 18,2006; John D. Stoll a d Gina Chon, "Consumer Drive for Hybrid Autos Is Slowing Down," Wall Streef Journal, April 7 , 2006, p. A2; Matt Naurnan, "Hybrid Sales Growth Slowing,"San Jose Mercury News, April 14, 2006; "Toyota to Offer Hybrids for All Vehicle Classes by 2012," The Wall Street Journal, April 1,2006, accessed at www.wsj.com; Peter Valdes-Dapena,"Toyota Tops Hottest Cars in America," CNNiWoneycom, March 18,2006; David Kiley and David Welch, "lnvasion of the Hybrids," Business Week,January 10, 2006, accessed at www.businessweek.com; "Testing Toyota's Hybrid Car," GP, June 7, 2004; Gary S. Vasilash, "Is Toyota Prius the Most Important 2004 Model?" Motor Trend, November 11, 2003, accessed online at www. motortrend.com.

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..s~~,joachfirst opened its doors in 1941 as a family-owned, leather-goods work shop. Over the next 1 0 years, the company developed i strong following fo ....- its classically styled, high-quality leather handbags and accessories. In those early years, it seemed, Coach didn't need a lot of marketing research tc understand its customers. For most buyers, handbags were largely functional, usec for carrying keys, a wallet, and cosmetics. Women typically bought only two purses 2 year-one for everyday use and one for special occasions. The everyday handba~ lasted a long time and styles changed infrequently. Women didn't waste much timc or energy on their purse-buying decisions. Coach offered basic handbag designs in understated colors, black and brown The classic Coach bag's only ornamentation was a small gold latch and a smal leather tag embossed with the Coach name. Over the years, with their understatec styling and quality image, Coach handbags earned a reputation as classy but "tradi. tional sturdy standbys." Conservative professionals, who liked the look, quality, anc value of Coach's handbags, became the company's loyal core customers. Coach, bl then a unit of Sara Lee Corporation, cruised along comfortably. By the mid-1990s, however, Coach's world had changed dramatically and sale: started to slow. As more and more women entered the workforce, they needed dif. ferent types of bags to carry their work and their laptops. These increasingly influential women fueled the "mass luxury movement." They wanted the designer brand: that only affluent women had been able to afford. And they wanted more stylish anc colorful bags to spruce up the plain fashions of the day. High-end designers such as Prada, Fendi, Gucci, and Chanel were responding tc these trends. According to one analyst, the industry saw "a sharp uptick in demanc for handbags with extra flair, such as bright colors, exotic leathers, and even materi. als such as wool, velvet, and fur." Many of these designer bags sold for more thar $1,000, some for as much as $3,000. By comparison, Coach's traditional style: began to look downright plain. It was time for an extreme makeover. But where to start? To gain a .better understanding of the new handbag buyer, Coach began with marketing research-lots omarketing research. "Coach started thinking like a consumer-products company,' says the analyst, "relentlessly testing the market to see what holes it could fill." Based on extensive marketing research, Coach overhauled its strategy. In the process, it helped engineer a shift in the way women shop for handbags.

[Coach] decided to translate the elite notion of the handbag as a fashion statement into something the average American woman could afford, [dubbing] the strategy "accessible luxury." Coach [nowl creates and markets new kinds of bags to fill what it calls "usage voids," activities that range from weekend getaways to dancing at nightclubs to trips to the grocery store. . . . Known for decades as a sturdy purveyor of conservative, long-lasting handbags, it has [nowl successfully convinced women to buy weekend bags, evening bags, backpacks, satchels, clutches, totes, briefcases, diaper bags, coin purses, duffels, and a minihandbag that doubles as a bagwithin-a-bag ... [Coach nowl updates its collections nearly every month with new colors, fabrics, and sizes. It prices bags lower than luxury designers but high enough for women to buy as a special treat.

/

As a starter, consumer research revealed that even Coach's conservative customers wanted more fashion pizzazz in their handbags. So, in early 2001, the company launched the "Signature" collection, stylish and colorful bags made of leather and fabric and covered in the IeQer C, Coach designers even began to use adjectives such as sexy, fun, sophisticated, playful, grounded, luxurious, and quality driven to describe Coach's customers and the company itself. About that same time, research revealed another "usage void." Women were carrying small Coach cosmetic cases inside their larger handbags to hold essentialssuch as keys, credit cards, and even cell phones-making them easier to find. However, when crammed into larger bags, these smaller cases caused bulges, making the larger bags appear misshapen and bulky. To fill the void, Coach designed a four-inch by six-inch zippered bag with a looped strap, which a woman could either dangle from her wrist or clip inside a larger bag. Coach called the new product the "wristlet" and introduced it at prices as low as $38. In only the first 10 months, women snapped up more than 100,000 wristlets. By 2004, Coach was selling more than a million wristlets a year in 75 styles. Still more research revealed additional usage voids. For example, Coach's consumer researchers learned that women were increasingly interested in nonleather bags. They also faced the problem that customers did most of their handbag shopping only during the holiday season. To fill both voids, the company developed its

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Understanding the Marketplace and Consumers "Hamptons Weekend" line, stylish fabric bags designed for summer weekend use. Unlike competitors' uninspired black nylon or basic canvas bags, the new Coach line featured an easily foldable shape, hot colors, and a durable, water-resistant material befitting a "relaxed-but-sophisticated" lifestyle.The new bags flew off the shelves at Coach's retail stores. Now, Coach thinks that its research points to yet another market void. Researchers noticed that more women are now mixing formal clothing, stilettos, and diamonds with blue jeans and other casual clothes. This suggests an opportunity to get women to use formal accessories-including evening bags-during daylight hours. So Coach has introduced the "Madison" collection, sleek satin or bejeweled versions of its more traditional purses. Ads for the line show a casually dressed woman carrying a Madison bag in daylight, while also carrying a larger, casual tote bag. Coach also plans to offer a line of jewelry and is looking to add fragrances. Thus, Coach watches its customers closely, looking for trends that might suggest new market voids to fill. Last year alone, Coach spent $3 million on marketing research, interviewing 14,000 women about everything from lifestyles to purse styles to strap lengths. According to a Coach executive, everything Coach does is thoroughly "girlfriend tested, down to the last stitch." Such exhaustive marketing research has more than paid for itself. The company's sales, profits, and share prices are now soaring. Coach has achieved double-digit sales and earnings growth every period since spinning off from Sara Lee and going public in 2000. Over the past five years, sales are up over 177 percent and profits have increased sixfold. It looks like investors are going to need bigger purses1

In order to produce superior customer value and satisfaction, companies need information at almost every turn. As the Coach story highlights, good products and marketing programs begin with solid information on consumer needs and wants. Companies also need an abundance of information on competitors, resellers, and other actors and forces in the marketplace. With the recent explosion of information technologies, companies can now generate information in great quantities. For example, Wal-Mart maintains a huge database that can provide deep insights for marketing decisions. A few years ago, as Hurricane Ivan roared toward the Florida coast, reports one observer, the giant retailer "knew exactly what to rush onto the shelves of stores in the hurricane's path-strawberry Pop Tarts. By analyzing years of sales data from just prior to other hurricanes, [Wal-Mart] figured out that shoppers would stock up on Pop Tarts-which don't require refrigeration or cooking. "2 In fact, today's managers often receive too much information. For example, Wal-Mart refreshes sales data from check-out scanners hourly, adding a billion rows of data a day, equivalent to about 96,000 DVD movies. That's a lot of data to analyze. Thus, running out of information is not a problem, but seeing through the "data smog" is. "In this oh-so-overwhelming Information Age," comments one observer, "it's all too easy to be buried, burdened, and burned out by data overload. Despite this data glut, marketers frequently complain that they lack enough information of the right kind. They don't need more information, they need better .-----.. information. And they need to make better use o f ~ i n f o r m a t iAo nthev alreadv have. A former CEO at Unilever once said that if Unilever only knew what it knows, it would double its profits.' The meaning is @ Information overload: "In this oh-so-overwhelminginformation age, it's clear: Many companies sit on rich information but fail all too easy to be buried, burdened, and burned out by data overload." ' j 3

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to manage and use it well. Companies must design effective marketing information systems that give managers the right information, in the right form, at the right time to help them make better marketing decisions. Am_arke~ti.ginformtiin system(F-S) consists of people, equipment, and procedures Marketing i n f o m i o n to gather, sort, analyze, evaluate, and distribute needed, timely, and accurate information to system (MJS) marketing decision makers. Figure 4.1 shows that the MIS begins and ends with information -- Peode,equlpment&dd procedures to g a t h e s ~ r t , ~ users-marketing managers, internal and external partners, and others who need marketing information. First, it interacts with these information users to assess info_rym&&n-_n_e,e.ds. analyze, evaluate, and Next, it&v&_o~s-g+edinfor,m,a$o2 from internal company databases, marketing intelli-distr~b~e-needed~tune~~,-arrd gence activities, and marketing research. Then it helps users to 3nalyze informationto put it accurate informat!o_nnJo_ ____-----.-marketing decis@oJn,a&e~ in the right form for making marketing decisions and managing customer relationships. -*,-,--"-I-.----the marketi Finally, the MIS distributes and helps managers, use it in their ________.decision making.

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The marketing information system primarily serves the company's marketing and other managers. However, it may also provide information to external partners, such as suppliers, resellers, or marketing services agencies. For example, Wal-Mart gives key suppliers access to information on customer buying patterns and inventory levels. And Dell creates tailored Premium Pages for large customers, giving them access to product design, order status, and product support and service information. In designing an information system, the company must consider the needs of all of these users. A good marketing information system balances the information-u,s=~~puld & h a v e fea,~_~&~.b~effe;. The company begins by interviewagainst whia,t,,t_he~~;!al&- _n~ed-s,d~~h_a,t_~k ing managers to find out what information they would like. Some managers will ask for whatever information they can get without thinking carefully about what they really need. J's much information too Jiitl_e, Other managers may omit things they ought - --._ .__-_--c-%be a~~hg~m~f.1 to know, or they may not know to ask for some types of information they should have. For example, managers might need to know about a new product that a competitor plans to introduce during the coming year. Because they do not know about the new product, they do not think to ask about it. The MIS must monitor the marketing environment in order to provide decision makers with information they should have to make key marketing decisions. e---

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Understanding the Marketplace and Consumers Sometimes the company cannot provide the needed information, either because it is available or because -of MIS limitations. For example, a brand manager might want to know how competitors will change their advertising budgets next year and how these changes will affect industry market shares. The information on planned budgets probably is not available. Even if it is, the company's MIS may not be advanced enough to forecast resulting changes in market shares. Finally, ~ ~ & s f ~ & t a i n i n g . ~ ~ ~ s _ s ~ . s t ~ g & g , - ~can ~ mount ~ d e & ~ e r ~ ~ quickly. The company must decide whether the benefits of having additional information are worth the costs of providing it, and both va_lal~&cost are often hard,to assess. By itself, information has no worth; its value comes &om itsIn many cases, additional information will do little to change or improve a manager's d&iS&n, or the costs of the information may exceed the returns from the improved decision. Marketers should not assume that additional information will always be worth obtaining. Rather, they should weigh carefully the costs of getting more information against the benefits resulting from it. -=-____cI--_

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Many companies build extensive j & e r z a h a ~ s ,electronic collections of consumer and market information obtained from data sources within the company network. Marketin--agers can readily- access and work - with - information - ----.Lo in the database to iin_ti-fy-m*ng ~oxp~torti$s,and proble_ks,, plan programs, and evaluate performance. Information in the database can come f r o ~ ~ ~ ? ~ ~ T E ~ 2 c c .,odepartment u n t i n n prepares financial statements and keeps detailed records of sales, costs, and cash flows. Operations reports on production schedules, shipments, and inventories. The marketing department furnishes information on customer transactions, demographics, psychographics, and buying behavior. The customer service department keeps records of customer satisfaction or service problems. The sales force reports on reseller reactions and competitor activities, and marketing channel provide data on point-of-sale transactions. Harnessing such information can provide a powerful competitive advantage. Here is an example of how one company uses its internal database to make better marketing decisions: 5

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El Internal databases: Pizza Hut can slice and dice its extensive customer database by favorite toppings, what you ordered last, and whether you buy a salad with your cheese and pepperoni pizza, targeting coupon offers to specific households based on past buying behaviors and preferences.

Pizza Hut claims to have the largest fast-food customer database in the world. The database contains detailed customer information data on 40 million U.S. households, gleaned from phone orders, online orders, and pointof-sale transactions at its more than 7,500 restaurants around the nation. The company can slice and dice the data by favorite toppings, what you ordered last, and whether you buy a salad with your cheese and pepperoni pizza. Pizza Hut also tracks in real time what commercials people are watching and responding to. It then uses all this data to enhance customer relationships. For example, it can target coupon offers to specific households based on past buying behaviors and preferences5

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Internal databases usually can be accessed more quickly-and-y,than other information sources, but they also present some problems. Because internal information was often .c o l l e c t & ~ & ~ ~ g - ~ _itumay r~~ be~incomplete ~, or in the wrong form for making marketing decisions. For example, sales and cost data used by the a c m e p a r t m e n t for preparing financial statements must be adapted for use in evaluating the value of specific customer segment, sales force, or channel performance. Data also ages quickly; m n ~ + h l a t ! b a s e c=-rent requires a major effort. In addition, a large company produces mountains of information, which must be well integrated and readily accessible so that managers can find it easily and use it effectively, Managing that much data requires highly sophisticated equipment and techniques.

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Msketing intellkence is the systematic collection and analysis of publicly available information about competitors and developments i n the marketplace. The goal of marketing intelligence is toimprove strategic,dcgion,@n,g, assess and tr-wkcampetitor_s_t~i~s, and

EFvide-~~ly-w~~m~p-p~rt~ti~ss,and~~ats_. and developments in the rnarElng environment.*

Competitive intelligence gathering has grown dramatically as more and more companies are now busily snooping on their competitors. Techniques range hom quizzing the company's own employees and benchmarking competitors' products to researching the Internet, lurking around industry trade shows, and even rooting through rivals' trash bins. Much intelligence can be collected from people*ins_idLe, tJqcompany-executives, engineers and scientists, purchasing agents, and the sales force. The company can also obtain important intelligence information horn swp&e_r&1;.esslm and l a y . c.us_t,om:~.Or it can get good information by ~Er~~4~~mE_t~~~rsSandm0,P~t_oE~ng their publishedjnformatio?. It can buy and analyze competitors' products, monitor their~Eiles,~cKed?fornewmFalents,and examine various types of physical evidence. For example, one company regularly checks out competitors' parking lots-full lots might indicate plenty of work and prosperity; half-full lots might suggest hard times. Some companies have even rifled their competitors' garbage, which is legally considered abandoned property once it leaves the premises. In one elaborate garbage-snatching incident, AirCanada was recently caught rifling through rival WestJet7sdumpsters in efforts to find evidence that WestJet was illegally tapping into Air Canada's computer^.^ In Gother &e, ~ r o c t e r& Gamble admitted to "dumpster diving" at rival Unilever's headquarters. "P&G got its mitts on just about every iota of info there was to be had about Unilever's [hair-care] brands," notes an analyst. However, when news of the questionable tactics reached top P&G managers, they were shocked. They immediately stopped the project and voluntarily set up negotiations with Unilever to right whatever competitive wrongs had been done. Although P&G claims it broke no laws, the company reported that the dumpster raids "violated our strict guidelines regarding our business policies. "7 s p e t i t o r s oftennreveal intelEgexxinf:rmation t h r o u w r . a . n r & ~ p o r t s , business _publications, t r a d e - ~ q h 2 y ~ i t s ,-p~65F -----..-releases, Xiiertisements, and F e b ~ m g e 5The '1nfZrrZ$ is proving to be a vast new source of competitor-supplied information. Using Internet search engines, marketers can search specific Marketing Intelligence: Procter & Gamble admitted to "dumpster diving" at competitor names, events, or trends and see rival Unilevefs Helene Curtis headquarters. When P&Gfstop management Learned what turns up. Moreover, most companies now of the questionable practice, it stopped the project, voluntarily informed Unilever, place volumes of information on their Web sites, and set up talks to right whatever competitive wrongs had been done. providing details to attract customers, partners,

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suppliers, investors, or franchisees. This can provide a wealth of useful information about

tito&-s-tratew , m~~k_e_ts,~~new.pr~d~c~., .fac&@, and _o@ey_bappfxn&g,~. .compe Something as simple as a competitor's job postings can be very revealing. For example, a a -

few years back, while poking around on Google's company Web site, Microsoft's Bill Gates came across a help-wanted page describing all of the jobs available at Google. To his surprise, he noted that Google was looking for engineers with backgrounds that had nothing to do with its Web-search business but everything to do with Microsoft's core software businesses. Forewarned that Google might be preparing to become more than just a search engine company, Gates emailed a handful of Microsoft executives, saying, in effect, "We have to watch these guys. It looks like they are building something to compete with us." Notes a marketing intelligence consultant, companies "are often surprised that there's so much out there to know. They're busy with their day-to-day operations and they don't realize how much information can be obtained with a few strategic keystroke^."^ Intelligence seekers can also pore through any of thousands of online databases. Some are free. For example, t h ~ e c ~ i f ~ Exchange a n d Commission'! database provides a huge stockpile of financial information on public competitors, and the U.S. Patent Office and Trademark database reveals patents competitors have filed. And for a fee, companies can sub~ e r -as ~es scribe to any of the more than 3,000 online d a t a b a s e ~ a n d - i n f a r m ~ ~ n ; ~ ~ - h , ssuch Dialog, Hoover's, Datastar, LexisNexis, Dow Jones News Retrieval, ProQuest, and Dun & Bradstreet's Online Access. The intelligence game goes both ways. Facing determined marketing intelligence efforts by competitors, most companies are now & n g t e ~ t o ~r&e_ct&ir-om,info~m_a@~For example, Unilever conducts widespread competitive intelligence training. Employees are taught not just how to collect intelligence information but also how to protect company information hom competitors. According to a former Unilever staffer, "We were even warned that spies from competitors could be posing as drivers at the minicab company we used." Unilever even performs random checks on internal security. Says the former staffer, "At one [internal marketing] conference, we were set up when an actor was employed to infiltrate the group. The idea was to see who spoke to him, how much they told him, and how long it took to realize that no one knew him. He ended up being there for a long time."g The growing use of marketing intelligence raises a number of ethical issues. Although most of the preceding techniques are legal, and some are considered to be shrewdly competitive, some &ay invoGe questionable etkics. Clearly, companies should take advantage of publicly available information. However, they should not stoop to snoop. With all the legitimate intelligence sources now available, a company does not need to break the law or accepted codes of ethics to get good intelligence.

In addition to information about competitor and marketplace happenings, marketers often need fm-mals~_u~&.ofsp&fic situations. For example, Budweiser wants to know what appeals will be most effective in its Super Bowl advertising. Or Samsung wants to know how many and what kinds of people will buy its next-generation plasma televisions. In such situations, marketing intelligence will not provide the detailed information needed. Managers will need marketing researcli'. ~ a r k g i ~ ~ , ~isethe s esystematic ~ h design, collection, analysis, and reporting of data relevant to a specific marketing situation facing an organization. Companies use marketing research in wide 7'%3~tjr~~i~t~0li??;rexample, marketing research can help marketers understand customer satisfaction and p-yrrhaa.&~havio~ It can help them to asseFs markzt ----.-p o t e n t i a l - ~ = ~ ~ k s l ~ ~ h % ~ ~thq ~ Tg : if 'f ~e~~ ~ ~g~,uer ~ e e & p ~ distribution, ~p20~u~ *------=---=-=and g ~ o ~ n o t i.activities. on Some large companies have their own research dep,-~-Eents~that work with marketing o w Kraft, Citigroup, managers on marketing r e ~ e ~ r o ~ ~ ~~ r o' c tie r&i -Gamble, and other corporate giants handle marketing research. In addition, these companieslike their smaller c&terpafts--frequently hire outside research specialists to c o n d t with management on specific marketing problems and conduct marketing research studies. Sometimes firms simply purchase data collected by outside firms to aid in their decision __Y-=-._Y___ ---* making. The marketing research process has four steps (see Figure 4.2): defining the problem and research objectives, developing the research plan, implementing the research plan, and interpreting and reporting the findings.

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research process

Marketing managers and resewers must work closely together to define the probl research objectives. The manager best understands the decision for which information is needed; the researcher best understands marketingresearch and how to obtain the information. De•’iningthe problem and research objectives is often th@&dest s t z i n the research process. The manager may &ow that something is wrong, without knowing the specific causes. After the problem has been defined carefully, the manager and researcher must set the research objectives. A marketing research project might have one of $rextmes -of objective% Exaloratorv research r ctohgather preliminary information that will help define The objective of ~ l o r a ~ o ~ r e s e ais --Market.i ng--resea~ h t a g a e r the problem an%suggest hypotheses. The objective of descriptivemesearc~is to describe things, preliminary informatio~;$L such as the market potential for a product or the demographics and attitudes of consumers who - . will help aefine problems an_d buy the product. he objective of causal research is test hypotheses about cause-and-effect = :-. suggest hypotheses, relationships. For example, woulz a 1 0 p e r c x e c r e a s e in tuition at a private college result in an enrollment increase sufficient to offset the reduced tuition? ~ & a ~ e often-start rs with Descriptive research exploratory research and later follow with descriptive or causal research. Marketing researcfi?~better - The statement of the problem and research objectives guides the entire research process. describe marketing problems, ----___I____-----. * The manager and researcher should put the statement in writing to be certain that they agree situations,or markets, suchon the purpose and expected results of the research. - as the r n - i ~ t e n t i a fl a ~ a

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Once the research problems and objectives have been defined, researchers must determine - g i f , ~ ~ n and g present the plan the ~ ~ t t ~ o f m ~ ~ - n e e d g d , . & - v , ~ ~ a , ~ & n _ f _ o ~itefficen;E!y, hyp_othesgab~utc,a>,~_e~and-to management. The research plan outlines sources of existing data and spells out the specific research approaches, contact methods, sampling plans, and instruments that researchers will em3Sat ~ nhsI ps, use to gather new data. Research objectives must be translated into specific information needs. For example, suppose Campbell Soup Company decides to conduct research on how consumers would react to the introduction of new heat-and-go microwavable cups for its Campbell's SpaghettiOs. Such packaging has been successful for Campbell's soups-including its Soup at Hand line of hand-held, shippable soups and its Chunky and Select soup line i n microwavable bowls, dubbed "M'm! M'm! Good! To Go!" The containers would cost more but would allow consumers to heat their SpaghettiOs in a microwave oven and to eat them without using dishes. This research might call for the following specific information:

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a n _ d , , ~ ~ s ~ i y l ~ ~ h _ a rof~ current ~ ~ i s ~ ~Spaghe c s ttiOs users. The demomaphj~~,g,c~xtpmic, (Busy working couples might find the convenience of the new packaging worth the price; families with children might want to pay less and wash the bowls.) ~gn,~~m~;~,u,s_a~epatternafor SpaghettiOs and related products: how much they eat, where, and when. (The new packaging might be ideal for adults eating lunch on the go, but less convenient for parents feeding lunch to several children.) H & e _ t a i ! ~ L r ~ ~ ~ t t ~ O t h , e e n ~ e p (Failure a ~ k ~ i ntogget . retailer support could hurt sales of the new package.) a J?o~e,c~as;s of .sales _orf b~tbLn_ewWgddc~-egtt~ackages. (Will the new packaging create new sales or simply take sales from the currentop&kaging? Will the package increase Campbell's profits?) Q

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fact, by 2006, companies were spending an estimated 30 percent of their marketing research dollars online, making it the largest single data collection methodology.16 Online research can take many forms. A company can include~~e~io,~a~~e_gnnifssW~~ site and offer incentives for completing it. Or it can use 2-mail,-Web 1ink~,~or~Web~~~o_p-~uj~~ to invite people to answer questions and possibly win a prize. The company can sponsor&:a ro_om-andintroduce questions fcom time to time or conduct live discussions c~~o_n~~ne-.o~,u~ groups. A company can learn about the behavior of online customers by following their click -- streams as they visit the Web site and move to other sites. A company can experiment with different prices, use different headlines, or offer different product features on different Web sites or at different times to learn the relative effectiveness of its offerings. It can float "trial balloons" to quickly test new product concepts. Web research offers some real advantages over traditional surveys and focus groups. The most obvious advantages are-speed-~d20,w-c_osts.Online focus groups require some advance scheduling, but results are pra&cally,instantane&s,17 Looking for better methods of predicting consumer acceptance to potential new products, Pepsi recently turned to Invoke Solutions, an online consumer research company, which maintained several instant-message-style online panels of 80 to 100 people. Using the panels, Pepsi delved into attitudes among Gen Xers toward drinking mineral water. In just a few hours, the beverage marketer was able to gather and process detailed feedback from hundreds of consumers. At first, Pepsi marketers were jazzed that the group liked the idea of high levels of mineral content in water. But after further exchanges with the online panel, Pepsi beverage scientists on the scene squelched higher mineral levels; that would require adding sugar, which consumers didn't want, to make the taste acceptable. Using the online panels, "conclusions that could take three to four months to sort out through regular focus groups . . . got settled in a few hours," says an Invoke executive. Internet research is also relatively ~ _ O B Y = & I I . Participants can dial in for a focus group tra~ml,lodging, &d fadity~cmts,.For surveys, the fcom anywhere i n the world,&m&&ing $tern$ eliminates most ~f~~~p~t,age~-ph?ne,-[rabor,~ and printingc&+ associated with other approaches. As a result, an Internet survey may be only 1.0 to-20 percent as expensive as mail, telephone, or personal surveys. Moreove~_~~~~@~~,s~z&~~1.jttle_ i~fllen~~e_e_o,n,co~fs. Once the

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questionnaire is set up, there's little difference in cost between 10 and 10,000 respondents on the Web. , W n e surveysand f o m g r o are ~ ~also ~ excellent for reaching the_-h-grdZ=tos~h-the d a & often-elusivew g d u c a _ f _ e d a m s .It's also good for reaching working mothers and other people who lead busy lives. They respond to it in their own space and at their own convenience. The Internet also works well for bringing together people from different parts of the country, especially those in higher-income groups who can't spare the time to travel to a central site. Using the Internet to conduct marketing research does have some drawbacks. For one, restricted -Internet access canmakeyt difficult to get a broad cross section of Americans. with Internet household penetration now at 64 percent in the United States, this is less of a problem. Another major problem is controlling who's in the sample. Without see. -. ing respondents, it's difficult tO&ow who they really are. Even when you reach the right respondents, online surveys and focus groups can lack the dynamics of more personal amroaches. he online world is devoid of the body language, -- eye contact, ----==----_- and direct personal interactions found in..-=--traditionaTfoES-@Ep -" -- research. And the Internet forstt-it;n'-n'-n?iiig, typed commentary and online "emoticons" marks that express emotion, such as :-) to signify happiness)-greatly restricts Increasingly, companies are moving their research onto the Web. According to r e s ~--.,"*."-- - & a n a g e ~ beyond means and standard deviations in the data and to answer questions about markets, marketing activities, and outcomes. Information analysis might also involve a collection of analytic-al--msde&: that will help marketers make better decisions. Each model represents so&e real system, process, or outof--if and which is best. Marketing come. These models can help answer the scientists have developed numerous models to help marketing manazeEi -~2~b~ter-g-.k$.ing mix decisions, design sales territories, and -sales call plaps, sele-ci sites*for --__fetii.1 outlzs, c-r, =. -,>-,=--.develop optimal advertising 1

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The question of how best to analyze and use individual customer data presents special problems. Most companies are awash in information about their customers. In fact, smart companies capture information at every possible customer tpuch point. These touch points include customer-purchases, sales force contacts, s~rvic~-g-pport calls, Web site visits, satisfact w s u r v e y s , d i t m r a c t f o n s , market researchY-ts ?ZiEiEF* b &ween the cus~~%E~ZiZd-fh~~anZi~-The trouble is that this inform~tionis usually scattered - ,_--.- --~ . l y ~ o ~c q ~5 a- n +m ~. It is buried deep in the separate databases and records of different company departments. To overcome such problems, many companies are now turning to customer relationship manCustomer relationship C-m-R MI agement (CRM) to manage detailed information about i n d i v i d u i 1 ~ ~ G i s m ~ ---MZi@ing detailed m m a g e T ~ t T m T"touch points" in order to maximize customer loyalty. CRM first burst onto the scene in the early 2000s. Many companies rushed in, impleinformation about individuaL cusforners and carefully menting overly ambitious CRM programs that produced disappointing results and many -"managing customer "touc_h failures. More recently, however, companies are moving ahead more cautiously and implepoints in order to rnaxirnlze menting CRM systems that really work. A recent study by Gartner Group found that 60 percustomer loyalty. cent of the businesses surveyed intend to adopt or expand their CRM usage over the next two years. By 2007, U.S. companies will spend an estimated $73.8 billion on CRM systems from companies such as Oracle, Microsoft, and SAS.~O CRM consists of_so;~histicated-software and_-intn~y~~&~~s. that integrate customer information from all sources, analyze it in depth, and apply the results to build stronger customer relationships. CRM integrates everything that a company's sales, service, and marketing teams know about individual customers to provide-a 360-degreevA:ww of th_e-customer relationship. --CRM analysts develop datg A w a r e h o eand techniques to use sophisticated & a t c z , m z ~ ~ unearth the riches hidden i n customer data. A d - - - w ~ e & ~is_" e ._a elecgo&c of finej-y-de).ed c u s t ~ r n e r i n f o r ~ g ~ n _-database =-- _."__,--$at needs to be&fted -&xough_€qrggm,s. The purposeof a ?&a warehouse is not just to gather information, but to puUili&ge&<Jio_ a central, accessible 1ocatToK I ~ h e n once , the data ware= -----ouse brings the data together, the company uses high-powered data mining-techniques-Lopsift - -+ p ~ g h ~ ~ e . m o u aofd sdata agd_dig-p_utinterest-- -----\ about customers. .ing findings __ By using CRM to understand customers better, companies can provide higher levels of customer serv&e and develop deeper customer relationships. They can use CRM to pinpoint high-value customers, target them more effectively, cross-sell the company's products, and create offers tailored to specific customer requirements. For example, Harrah's Entertainment, the world's largest casino operator, maintains a vast customer database and uses its CRM system to manage day-to-day relationships with important customers at its 4 3 casi. Your campelilnrs are doing Walevw mey can lo have customers walk [heir way. And since nos around the world (see Real Marketing 4.1). allrilionis conlagious, a largeled, personalizedresponse lo wslomw needs is mOR important . man ever in the llnancial services induslry. % S business inleiligence and analytlcs soRware CRM benefits don't come without cost or risk, . ,.. .. , now onem me bniadesr w d msl so@s(mled capabfme; lo genwale and leveragew l o r n ~ t inl&enceSoyoucanrec~nizeand-teradamltion~alewsr~lwdups~op~unitier ! not only in collecting the original customer data but ,... .. ..... . Undmtand me W e m N of wt~pajgm.Pnd keep a pnifilabk lqal ~ s l o r n base s vbla d"ving toward gmwth. Learn vhy 98% of FORNNE Global MO' banks and more lhan o n e m ol me also in-maintaining-and mi&g it. The most comwodd's w u r m rely on SAS lo m a s e awueness pmfilsand shareholds W u e mon CRM mistake is to view CRM only as a technology and software solution. But technology alone cannot build profitable customer relationships. "CRM is not a technology solution-you can't achieve . . . improved customer relationships by " c. -. -,, . . ?.'-- - -. simply slapping in some software," says a CRM ..----- - - -"--- - - - -expert. Instead, CRM is just one part of an effective CRM: SAS customer intelligence software helps companies to keep a overall customer relationship management strategy. profitable, Loyal customer base by leveraging customer information and "Focus on the R," advises the expert. "Remember, a developing targeted, personalized responses to customer needs. relationship is what CRM is all about."z1 a=

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When it works,Lhe benefits of CRM can-far-ogxggh the-c0stk.d risks: Based on a recent study by SAP, customers using iFEi=p CRM software reported an average 10percent increase in customer retention and a 30 percent increase in sales leads. overall, 90 percent of the companies surveyed increased in value from use of the software and reported an attractive return on investment. The study's conclusion: "CRM pays off." "No question that companies are getting tremendous value out of this," says a CRM consultant. "Companies [are] looking for ways to bring disparate sources of customer information together, then get it to all the customer touch points." The powerful new CRM techniques can unearth "a wealth of information to target that customer, to hit their hot button."z2

Marketing information has no value until it is& to-make-&ttermarketing~dec~~~oqs. Thus, the marketing information system must make the information readily available to the managers and others who make marketing decisions or deal with ~ < ~ o m i i - f n i %cases, ~ e this means providing managers with r e g u l a ~ - ~ e ~ f o r m e'oorts, a n ~ jn.sgence updates, and p t o _ r e s u l f s o f.researchstudies informatir0.r for special situations and But marketing managers may also need nonroutine -_ -_ -- -on-the-spot decisions. For example, a sales manager having trouble with a large customer may want a summary of the account's sales and profitability over the past year. Or a retail store manager who has run out of a best-selling product may want to know the current inventory levels in the chain's other stores. Increasingly, therefore, information distribution involves entering information into database=-dmaking it available in a t i m _ e & , ~ s ~ ~ ; ~ ~ eway. nd_ly Many firms use? co;PZPan&!&ranetjb facilitate this p r z s . ~ k intranet e provide; ready shared work documents, contact information -- access to research _-_------ information, - - stOredT_eports, -__J~~mp~y,egs_s_gand~o-@e~~,t&gho1ders2~~d more; exarGple;i~6 aUcatalGgi?dWeb-r et ailef, integrates incoming customer service call;-with up-to-date database information about customers' Web purchases and e-mail inquiries. By accessing this information on the intm.net while speaking with the customer, iGo's service representatives can get a well-rounded picture of each customer's purchasing history and previous contacts with the company. In addition, companies are increasingly allowing bers to access account, product, and other data on de ->jmZrs;5e;elle?E; - - a S ~ --T e- ~ ~ E ~ T ~ ~ ~ 3 ~ r P P m m g m b - -- - update their accounts, arrange purchases, and check orders against inventories to improve cistomer service. For exampie, bne insurance firm allows its 200 independent agents access to a Web-based database of claim information covering one million customers. This allows the agents to avoid high-risk customers and to compare claim data with their own customer databases. And Wal-Mart's RetailLink extm.net system provides suppliers with a two-year history of every product's daily sales in every Wal-Mart store worldwide, letting them track when and where their products are selling and current inventory levels. Other retailers-are rolling out similar data-sharing systems,. including Lowe's (LowesLink) and Target (Partnersonline).23 Thanks to modern technology, today's marketing managers can gain direct access to the information system at any time and from virtually any location. They can tap into the system while working at a home office, from a hotel room, or from the local Starbuck's through a wireless network-anyplace where they can turn on a laptop and link up. Such systems allow managers to get the information they need directly and quickly and to tailor it to their own needs. From just about anywhere, they can obtain information from company or outside databases, analyze it using statistical software, prepare reports and presentations, and communicate directly with others in the network. I

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Companies everywhere covet the title "The world's greatest." Giant casino operator Harrah's Entertainment s that title in the gaming industry. Following its recent acquisition of Caesars Entertainment, Harrah's now captures a huge $7.1 billion in revenues from its 43 properties around the nation and world. The Harrah's portfolio includes such star-studded casino and gaming brands as Harrah's, Caesars, Horseshoe, Bally's, Flamingo, Showboat, and The World Series of Poker. The recent Caesars acquisition only adds to the luster of what was an already very successful company. In the four years prior to the acquisition, Harrah's annual sales grew 37 percent and profits soared 76 percent. Harrah's stock is worth nearly two-and-a-half times its value five years ago, suggesting that Wall Street is betting on a bright future for the gaming giant. Why has Harrah's been so successful? Everyone at Harrah's will quickly tell you that it's all about managing customer relationships. When you get right down to it, in physical terms, all casinos are pretty much alike. Most customers can't distinguish one company's slot machines, game tables, restaurants, and hotel rooms from another's. What sets Harrah's apart is the way it relates to its customers and creates customer loyalty. During the past decade, Harrah's has become the model for good CRM and customer-loyalty management. At the heart of the Harrah's CRM strategy is its pioneering cardbased Total Rewards program, the gaming industry's first and by far most successful loyalty program. Total Rewards members receive points based on the amount they spend at Harrah's facilities. They can then redeem the points for a variety of perks, such as cash, food, merchandise, rooms, and hotel show tickets. Total Rewards forms the basis for a two-part CRM process. First, the company uses Total Rewards to collect a mother lode of information about customers. Then, it mines this information to identify important customers and finely tune its market offerings to their specific needs. Harrah's maintains a vast customer database. More than 80 percent of Harrah's customers worldwide--40 million customers in alluse a Total Rewards card. That's roughly one out of six adults in the United States alone. Information from every swipe of every card at each of Harrah's 43 casinos zips off to a central computer in

Customer relationship management: Harrah's CRM system helps the company to focus its branding, marketing, and service development strategies on the needs of its most important customers. "We're trying to figure out which products sell, and we're trying to increase our customer loyalty." Memphis, Tennessee. That's a lot of information. Harrah's current data warehouse can store up to 30 terabytes (30 trillion bytes) of data, roughly three times the volume of data contained in the U.S. Library of Congress. Amazingly, Harrah's is rapidly reaching full information capacity and plans to double its data storage capabilities.

Just l i k e larger firms, small organizations need market information. Start-up businesses need information about their industries, competitors, potential customers, and reactions to n e w market offers. Existing small businesses m u s t track changes in customer needs a n d wants, reactions to n e w products, and changes in the competitive environment. Managers o f s m a l l businesses a n d n o n p r o f i t organizations often think that marketing research can b e done o n l y b y experts in large companies w i t h b i g research budget:. True, large-scale research studies arebeyond the budgets o f most small businesses. However, many o f the marketing research techniques discussed in this chapter also can b e used b y smaller organizations in a less formal manner and at l i t t l e or n o expense. Consider h o w one smallbusiness owner conducted market research o n a shoestring before even opening h i s doors:24 After a string o f b a d experiences w i t h h i s local d r y cleaner, Robert Byerley decided to open h i s o w n dry-cleaning business. B u t before jumping in, h e conducted plenty of

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Analyzing all this information gives Harrah's detailed insights into casino operations. For example, "visualization software" can generate a dynamic "heat map" of a casino floor, with machines glowing red when at peak activity, then turning blue and then white as the action moves elsewhere. More importantly, the information provides insights into the characteristics and behavior of individual customers-who they are, how often they visit, how long they stay, and how much they gamble and entertain. From its Total Rewards data, Harrah's has learned that 26 percent of its customers produce 82 percent of revenues. And these best customers aren't the "high-rollers" that have long been the focus of the industry. Rather, they are ordinary folks from all walks of life-middle-aged and retired teachers, bankers, and doctors who have discretionary income and time. More often than not, these customers visit casinos for an evening, rather than staying overnight at the hotel, and they are more likely to play at the slots than at tables. What motivates them? It's mostly the intense anticipation and excitement of gambling itself. Using such insights, Harrah's focuses its marketing and service development strategies on the needs of its best customers. For example, the company's advertising reflects the feeling of exuberance that target customers seek. The data insights also help Harrah's do a better job of managing day-to-day customer relationships. After a day's gaming, by the next morning, it knows which customers should be rewarded with free show tickets, dinner vouchers, or room upgrades. In fact, Harrah's is now starting to process customer information in real time, from the moment customers swipe their rewards cards, creating the ideal link between data and the customer experience. Harrah's chief information officer calls this "operational CRM." Based on up-to-the-minute customer information, he explains, "the hotel clerk can see your history and determine whether you should get a room upgrade, based on booking levels in the hotel at that time and on your past level of play. A person might walk up to you while you're playing and offer you $5 to play more slots, or a free meal, or maybe just wish you a happy birthday." Harrah's CRM and customer-loyalty efforts are paying off in spades. The company has found that happy customers are much

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more loyal-whereas customer spending decreases by 10 percent based on an unhappy casino experience, it increases by 24 percent with a happy experience. And Harrah's Total Rewards customers appear to be a happier bunch. Compared with nonmembers, member customers visit the company's casinos more frequently, stay longer, and spend more of their gambling and entertainment dollars in Harrah's rather than in rival casinos. Since setting up Total Rewards, Harrah's has seen its share of customers' average annual gambling budgets rise 20 percent, and revenue from customers gambling at Harrah's rather than their "home casino" has risen 18 percent. Harrah's CEO Gary Loveman calls Total Rewards "the vertebrae of our business" and says, "it touches, in some form or fashion, 85 percent of our revenue." He says that Harrah's "customer-loyalty strategy [and] relationship marketing . . . are constantly bringing us closer to our customers so we better understand their preferences, and from that understanding we are able to improve the entertainment experiences we offer." Another Harrah's executive puts it even more simply: "It's no different from what a good retailer or grocery store does. We're trying to figure out which products sell, and we're trying to increase our customer loyalty." Ka-ching! Through smart CRM investments, Harrah's has hit the customerloyalty jackpot. Sources: Quotes and other information from Phil Bligh and Doug Turk, "Cashing In on Customer Loyalty," Customer Relationship Management, June 1,2004,p. 48;Thomas Hoffman, "Harrah's Bets on Loyalty Program in Caesars Deal," Computerworld, June 27,2005, p. 10;Daniel Lyons, "Too Much Information," Forbes, December 13, 2004,p. 110;Suzette Parmley, "When Its Customers Return, a Casino Always Wins," Philadelphia Inquirer, April 15,2005;Kai Ryssdal and Andrew Park, "Harrah's Database of Gamblers," transcript from Marketplace, August 4,2005;Neal A. Martin, "A Tempting Wager," Barron's, April 10,2006,pp. 28-30; John S. Webster, "Harrah's CTO Tim Stanley Plays 'Operational CRM,' " June 7,2006,accessed at www.computerworld.com~and Harrah's annual reports and other information accessed at http://investor.harrahs.com/ phoeni~.zhtml?c=84772&p=irol-reportsAnnuaI August 2006.

market research. M a k i n g a careful tour o f the town, h e observed a dry-cleaning establ i s h m e n t in practically every s t r i p m a l l . H o w w o u l d h i s stand out? To find a n answer, Byerley spent an entire week in the library, researching the dry-cleaning industry. F r o m government reports and trade publications, h e learned i t was a $16 billion-a-year industry dominated b y mom-and-pop establishments. Better Business Bureau reports showed that d r y cleaners accounted for a h i g h number o f complaints. The number one criticism: "Cleaners didn't stand b e h i n d what they did," h e says. To get input f r o m potential customers, u s i n g a marketing firm, Byerley h e l d focus groups o n the store's name, look, a n d brochure. H e also took clothes t o the 1 5 best cleaners in t o w n and h a d focus-group members critique their work. In all, Byerley says h e spent about $15,000 for the focus groups. Based o n h i s research, h e made a l i s t o f features for h i s n e w business. F i r s t o n h i s list: H i s business w o u l d stand b e h i n d everything i t did. N o t o n the list: cheap prices. Creating the perfect dry-cleani n g establishment simply wasn't compatible w i t h a discount operation. H i s research complete, Byerley opened Bibbentuckers, a high-end d r y cleaner p o s i t i o n e d o n h i g h - q u a l i t y service a n d convenience. ~ i b b e n t u c k e r sfeatured a

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banklike drive-through area with curbside delivery. A computerized bar-code system read customer cleaning preferences and tracked clothes all the way through the cleaning process. Byerley added other differeritiators, such as decorative awnings, refreshments, and TV screens. "I wanted a place people would be comfortable leaving their best clothes, a place that paired five-star service and quality with an establishment that didn't look like a dry cleaner," h e says. The market research yielded results-Bibbentuckers' business took off, turning a profit after only four months. Today, it's a thriving threeF i Small businesses need market research, too. Before opening his own drystore operation. "Too many smallcleaning business, Bibbentuckers owner Robert Byerley conducted plenty of Lowbusiness owners have a technician's budget market research, including talking with prospective customers. "You have to mind-set rather than a marketing think like Procter & Gamble." mind-set," says a small-business consultant. "You have to think like Procter & Gamble. What would they do before launching a new product? They would find out who their customer is and who their competition is." Thus, managers of small businesses and nonprofit organizations can obtain good marS ~ example, ~ ~ U n retailers d ~ e ~ can keting information simply b y ~ P b ~ e r v i & g g ~ ~ , For evaluate new locations by observing vehicle and pedestrian traffic. They can monitor competitor advertising by collecting ads from local media. They can evaluate their customer mix by recording how many and what kinds of customers shop in the store at different times.-In addition, many small business managers routinely visii their rivals n ad& >with comuetitors to gain insiehts. --*.mxA--. =-------" anagers can conduct ,inf~or,aJtlsu~evs, using small convenience_sampil% The director of an art museum can learn what patrons think--eT&~h%$"s by-ionducting i.nnf~rnnfz-g_r?~p,s-inviting small groups to lunch and having discussions on topics of interest. Retail salespeople can talk with customers visiting the store; hospital officials can interview patients. Restaurant managers might make random phone calls during slack hours to interview consumers about where they eat out and what they think of various restaurants in the area. Managers also can conduct their own simple experiments. For example, by changing the themes in regular fund-raising "mailings &d iiGaTchi~-6e~"ults, a nonprofit manager can find out much about which marketing strategies work best. By varying newspaper advertisements, a store manager can learn the effects of things such as ad size and position, price coupons, and media used. Small organizations can.obtain most of the2econdary data avajkaple to large b u ~ i +ness%s.In addition, many ~ g i ~ n s , l g ~ ~ ~ d i a , c h a m b e r sFommerceThd -of goyernment agencies-provide special help to small organizations. The U.S. Small ~ u s i n e s s .~dml'nistrationoffers dozens of free publications and a Web site (www.sbaonline.sba.gov) that give advice on topics ranging from starting, financing, and expanding a small business to ordering business cards. Other excellent Web resources for small businesses include the U.S. Census Bureau (www.census.gov) and the Bureau of Economic Analysis (www.bea.gov). The business at localiibr_aries can also be a good source of information. Local .---" sections newspapers often provide informationX&%l shoppers and their buying patterns. Finally, small businesses can collect a considerable amount of information at very little cost on the ,I g t e ~ s They . can scour competitor and customer Web sites and use Internet search engines to research specific companies and issues. In summary, secondary data collection, observation, surveys, and e x ~ & m e n t ~ _ call y budgets.Althou~h mall these informal be used e f f e c t i v ~ ~ ~ ~ ~ i-~; ahndi zl a t ~ o % F % i t E ~ ~ research methods are less complex and less costly, they still must be conducted carefully. Managers must think carefully about the objectives of the research, formulate questions in 0.-

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advance, recognize the biases introduced by smaller samples and less skilled researchers, and conduct the research s y ~ t e m a t i c a l l y . ~ ~

International IHarketing International marketing researchers follow the same steps as domestic researchers, from - ~ cto h interpreting and reporting defining the research p r o b l e m - a n ~ ~ ~ & - ~ ~ n g _ a ~plan m o r e ~ ~ d iff~r%iit~r~b-le~~:~~hereas~ i m e ~ v ~ " e ~ ~ ~ r e s often w c face h e r s a,. domestisesearchers deal with fairly homogenous markets within a single country, international researchers deal g t h d i v e r ; ~ m & e ~ a n y j d i f f e r e n t n t r i e s . These markets often vary greatly in their levels of economic development, cultures iZEGstoms, and buying patterns. In many foreign markets, the international researcher may have a difficult time findi n g ~ o o dsecondary .----. &ts. Whereas U.S. marketing researchers can o%fa'EZeli~%lkTFGondary data from dozens of domestic research services, many countries have almost no research services at all. Some of the largest international research services do operate in many countries. For example, ACNielsen Corporation (owned by VNU NV, the world's largest marketing research company) has offices in more than 100 countries. And 67 percent of the revenues of the world's 25 largest marketing research firms comes from outside their home countries.26However, m o g ~ ~ - = c f : & f i r m , s ~ go_n_1y g t ~arelati? n_ handful of countries. Thus, even when secondary information is available, it usually mustle _ obtained from many different sources on a country-by-country basis, making the information,difficult~~omhinear-compare. Because of the scarcity of good secondary data, international researchers often must_c_oJZ lect their own data. Here again, researchers face problems not found domestically. - primary ,-----For example, &ey may findit diffifiult simply to d e v e l o ~ g w & a m p k ~U.S. . researchers can use current telephone directories, census t r ~ ~ $ ~any & ofd several sources of socioeconomic data to construct samples. However, such information is largely lacking in many countries. Once the sample is drawn, the U.S. researcher usually can reach most respondents easily by telephone, by mail, on the Internet, or in person. Reaching respondents is often not so e a s f i ~ Z ~ ~ ~ s s ~ ~ ? h ~ ~ o Y l X ~ X X 5 cannot e X ~ hrely ~ ionn telephone, -~e~ic~ Internet, and mail data collection-most data collection is door to door and concentrated in three or four of the largest cities. In some countries, few people have phones or personal computers. For example, whereas there are 1,118 telephone subscriptions and 544 PCs per thousand people in the United States, there are only 354 phone subscriptions and 54 PCs per thousand in Mexico. In Ghana, the numbers drop to 21 phone subscriptions and 3 PCs

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Understanding the Marketplace and Consumers per thousand people. In some countries, the postal system is notoriously unreliable. In Brazil, for instance, an estimated 30 percent of the mail is never delivered. In many developing countries, poor roads and transportation systems make certain areas hard to reach, making personal interviews difficult and expensive.27 Cultural differences from country to country cause additional problems for international --researchxEguagGthe ------ --most obvious obstacle. For example, questionnaires must be prepared in one language and then translated into the languages of each country researched. Responses then must be translated back into the original language for analysis and interpretaof~sor. tion This adds to.se_se~cAcnsisand_~i~~~~se~~he~-~is_ks Translating a questionnaire from one language to another is anything but easy. Many idioms, phrases, and statements mean different things in different cultures. For example, a Danish executive noted, "Check this out by having a different translator put back into English what you've translated from English. You'll get the shock of your life. I remember [an example in which] 'out of sight, out of mind' had become 'invisible things are insane.' "28 Consumers in different countries also vary istheir attitudeGo~~g-d.m-ilr,k,e_t&gresearch. People in one country may be very willing to respond; in other countries, nonres'p~njicin be a major problem. Customs in somv-coufit-rieKay prohibit people @om-tslking with strangers. In certain cultures, research questions often are considered too personal. For example, in many Latin American countries, people may feel embarrassed to talk with researchers about their choices of shampoo, deodorant, or other personal care products. Similarly, in most Muslim countries, mixed-gender focus groups are taboo, as is videotaping female-only focus groups. Even when respondents are willing to respond, they may not be able to because of high functional And middle-class people in developing countries often m a k e z e ----illiteracySrates. F-====* claims in orxer to appear well-off. For example, in a study of tea consumption in India, over 70 percent of middle-income respondents claimed that they used one of several national brands. However, the researchers had good reason to doubt these results-more than 60 percent of the tea sold in India is unbranded generic tea. Despite these problems, the recent growth of international marketing has resulted in a rapid increase in the use of international marketing research. Global companies have little choice but to conduct such research. Although the costs and problems associated with international research may be high, the costs of not doing it-in terms of missed opportunities and mistakes-might be even higher. Once recognized, many of the problems associated with international marketing research can be overcome or avoided. D ; -

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Public Policy and Ethics in Most marketing research benefits both the sponsoring company and its consumers. Through marketing research, companies learn more about consumers' needs, resulting in more satisfying products and services and stronger customer relationships. However, the misuse of marketing research can also harm or annoy consumers. Two major public policy and ethics consumer privacy issues in marketing research are intrusion_son ------ and the misuse of research findings.

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Intrusions sm Gomsuxner Privacy Many consumers feel positive about marketing research and believe that it serves a useful purpose. Some actually enjoy being interviewed and giving their opinions. However, others strongly %____ resent .-or_-even mistrust research. A few consumers fear that researchers - -_..,--..-marketing ,----=. --might use sophisticated techniques to probe our deepest feelings pr peek over our shoulders 4.2). Or they and then use this knowledge to manipulate=oEb'uTiG--cs% ~ e aMarketing l worry that marketers are building h~g_e-d&a_b_as~~fUlof personal information about cus---.---_= -=-. tomers. For example, consider a company called Acxiom: A-z.-..

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Never heard of Acxiom? Chances are it's heard of you. Once upon a time in America, a savvy local store clerk knew that you had, say, three kids, an old Ford, a pool, and a passion for golf and yellow sweaters. Today Acxiom is that store clerk. It's the world's largest processor of consumer data, collecting and massaging more than a billion records a day. Acxiom's database on 96 percent of U.S. households gives marketers a so-called real-time, 360-degree view.of their customers. How? Acxiom provides a 13-digit code for every person, "so we can identify you wherever you go,"

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Managing Marketing Information

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says the company's demographics guru. Each person is placed into one of 70 lifestyle clusters, ranging from "Rolling Stones" and "Single City Struggles" to "Timeless Elders." Acxiom's catalog offers businesses hundreds of lists, including a "premovers file," updated daily, of people preparing to change residences, as well as lists of people sorted by the frequency with which they use credit cards, the square footage of their homes, and their interest in the "strange and unusual." Its customers include eight of the country's top ten credit-card issuers, seven of the top ten retail banks, seven of the top 10 retailers, and all of the top 10 automakers. Acxiom may even know things about you that you don't know yourself.29 Other consumers may have been taken in by previous "=ch surv~ys"that actually ~ e d p u t t o b e - g t e m p t s - ~ ~ ~ e , l ~ _ t h e m T gStill ~ g ~other ~ f t gconsumers . confuse legitimate marketing research studies with telemarketing efforts and say "no" before the interviewer can even begin. Most, however, simply resent the intrusion. They -mail, teleedme, or Web surveys that a r ~ s long-or o too personal or that interrupt them at inconvenient times. Increasing consumer reZeGbGeKfK$s become a major problem for the research industry. One recent survey found that 70 percent of Americans say that companies have too much of consumers' personal information, and 76 percent feel that their privacy has been compromised if a company uses the collected personal information to sell them products. These concerns have led to lower survey response rates in recent years.30 Other studies found that 59 percent of constimers had refused to give information to a company because they thought it was not really needed or too personal, up from 42 percent five years earlier. And 71 percent of consumers believe that protecting information is more of a concern now than it was a few years ago. "Some shoppers are unnerved by the idea of giving up any information at all," says an analyst. When asked for something as seemingly harmless as a zip code, "one woman told me she always gives the zip code for Guam, and another said she never surrenders any information, not even a zip code, because "I don't get paid to help them with market research."31 The research industry is considering several options for responding to this problem. One example is the Council for Marketing and Opinion Research's "Your Opinion Counts" and "Respondent Bill of Rights" initiatives to _eduqateco-~~-~erga~o~u~&g&~fi_t~f_~m~keting research, and to d i ~ t i n ~ ~ ~ h ~ ~ ~ f . o , ~ ~ ~ lcl,af.a,se-bdil,ng. ~ p ~ _ o ~ ~ ~ $The l f industry n g ~ ~ dalso has considered adopting_b_gads_t-g,d_ar&, perhaps based on The ~nterngtionalChamber of Commerce's International Code of Marketing and Social Research Practice. This code outlines researchers' ---__ _ responsibilities to respondents and to the general p b l i c . For example, it says that research%G*5Kfi1d m&e theb%%~s-Eid-id&&&is&aiiable G a r t i c i pants. It also bans companies from representing activities such as database compilation or sales and promotional pitches as research.32 Most major companies-including IBM, CitiGroup, American Express, Bank of America, and Microsoft-have nowaPPointe_dd-a-"h?f pr&acy officer (cPo)," whose job is to s+f.g~afd--@e_prkV_aC~Sf:C@n~gmeswho do t business with the company. The chief privacy officer for Microsoft says that his job is to come up with data policies for the company to follow, make certain that every program the company creates enhances_customer privacy, and inform -a__nd..rl-e d~~ee~gmpcal?.YYem~&lyj~~&o,~t - privacy issues and concerns. Similarly, IBM's C P O d I g i m m h e r job re4uires "multidisciplinary thinking and attitude." She needs to get all company departments, from technology, legal, and accounting to marketing and communications working together to safeguard customer privacy. 33 American Express, which deals with a considerable volume of consumer information, has long taken privacy issues seriously. The company developed a set of formal privacy princi@ Consumer privacy: American Express was one of the first companies t o post i t s ples in 1991, and in 1998 it became one of the first companies to p o s t m y , p , ~ L c i e son its privacy policies on the Web. "American Express respects your privacy and is Web site. Its online Internet privacy s f a E i e n t committed t o protecting it a t a l l times."

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Stepping into a Gap store at the South Shore Shopping Plaza on a recent evening, Laura Munro became a research statistic. Twelve feet above her, a device resembling a smoke detector, mounted on the ceiling and equipped with a hidden camera, took a picture of her head and shoulders. The image was fed to a computer and shipped to a database in Chicago, where ShopperTrak, a consumer research firm, keeps count of shoppers nationwide using 40,000 cameras placed in stores and malls. ShopperTrak is a leader in an emerging market research field called "video mining." Video miners use advanced computer software to sort through video images, plucking data of interest. to marketers, without a human ever seeing the video. ShopperTrak says it doesn't take pictures of faces. The company worries that shoppers would perceive that as an invasion of privacy. But nearly all of its videotaping is done without the knowledge of the people being taped. "I didn't even know there was a camera up there," says Ms. Munro, who popped into the mall on her way home from work to find a gift for her 12-year-old daughter. Using such video information, ShopperTrak calculates and sells many valuable tidbits of data. For example, by comparing the number of people taped entering the store with the number of transactions, it arrives at a so-called "conversion ratew-the percentage of shoppers that buys versus the percentage that only browses. At a broader level, by combining video data gleaned from 130 retail clients and 380 malls with consumer spending data obtained from

credit-card companies and banks, ShopperTrak can estimate sales and store traffic figures for the entire retail industry. Gap and other retail clients pay ShopperTrak for the store-level data. ShopperTrak sells the broader industry data to economists, bankers, and retailers. More and more companies are now employing video miners to help them peek in on their customers. Video-tracking cameras, with lenses as small as a quarter, can provide data on everythingfrom the density of shopping traffic in an aisle to the reactions of a shopper gazing at the latest plasma TV set. The cash register is a popular spot for cameras. But cameras can also be found in banks, fast-food outlets, and hotel lobbies (but not guest rooms). Many companies now use video mining along with other traditional methods to help gain more rapid, accurate, and complete insights. For example, Kahn Research Group recently used video mining along with sales analysis and in-store behavioral tracking to determine what was and was not working to increase sales at Subway fast-food restaurants. Kahn's researchers hid golf-ball-sized cameras in several Subway restaurants to track customers' eye movements during the order process. Video analysis revealed that before and while sandwiches were being assembled, customers focused on the "sandwich artists" rather than on the menu board or promotional displays. In particular, drinks and sides received little customer notice. The researchers suggested that Subway move drinks and sides to a point where consumers would view them after making the major

Serving customers better or invading their privacy?Video miners use advanced computer software to sort through video images, plucking data of interest to marketers. Smile, you're being video mined!

tells customers in clear terms what information American Express collects and h o w i t uses it, h o w i t safeguards the information, and h o w i t uses the information to market t o its customers ( w i t h instructions o n h o w to opt out). In t h e end, i f researchers p r o v i d e value in exchange for information, customers w i l l gladly provide it. F o r example, Amazon.com's customers do n o t mind i f the firm b u i l d s a database o f products they b u y in order to p r o v i d e future p r o d u c t recommendations. This saves t i m e a n d p r o v i d e s value. Similarly, Bizrate users g l a d l y complete surveys r a t i n g o n l i n e seller sites because they can v i e w the overall ratings o f others w h e n m a k i n g p u r chase decisions. T h e best approach i s for researchers to ask o n l y for the j n f o r m a t i o n -$hz need, to- use i t r e s p o n s i b l y t o p ~ o v i d ecustomer value, a n d t o a v o i d sharing i n f o r m a t i o n w i t h o u t the customer's permission.

Research studies c a n b e p o w e r f u l persuasion tools; companies often use s t u d y results as claims in their advertising a n d promotion. Today, however, many research studies appear to be l i t t l e more than vehicles for p i t c h i n g the sponsor's products. In fact, in some cases, the

Chapter 4

sandwich decision but before reaching the cash register. The research also revealed that promotions dangling from the ceiling were often ignored-Subway now uses table tents to remind customers to buy a snack for later. Video mining software is fast-taking only hours to complete image interpretation tasks that might have taken weeks for humans to do. For example, Kahn's computers took only a couple of days to sift'through 192 hours of tape on some 1,200 shoppers. Had Kahn tried to personally interview that many people, the process would have taken much longer, and the presence of the researchers might have annoyed shoppers and affected the results. "Nobody knew they were being recorded," says Greg Kahn of Kahn Research Group, "and our work didnlt interfere with the store environment." Moreover, had people known they were being taped, he says, "I know many of the shoppers would have stuck their hands in front of the camera lens and refused to be recorded." Video mining proponents say their research cameras are less invasive than security cameras, because their subjects aren't scrutinized as closely as security suspects. The images are studied only by the software and not by people, they say, and the videos are destroyed when the research is done. And marketers use the information to give their customers improved products and better service. "A driving force behind this technology is the fact that businesses want to be better prepared to serve their customers," says one marketing professor. Still, the eavesdropping potential of video mining can be a bit unnerving. For example, VideoMining, another shopper-monitoring firm, set up cameras in two McDonald's restaurants to find out which customer types would find a new salad item most appealing. The research was done without consumers' knowledge. By measuring the shapes of people's faces, VideoMining's sensors were able to provide a breakdown of each salad buyers' race, gender, and age. The videos also revealed the length of time these customers spent waiting in line or looking at the menu before ordering. Looking ahead, the technology already exists for matching a photo with an individual's identity. Theoretically, retailers with customer databases built from the use of loyalty cards, store credit cards, and other in-house programs could link a transaction at a cash register with the face of a shopper appearing on the videotape. Smile, you're being video mined!

Managing Marketing Information

121

So, although video mining offers much promise for marketers and researchers, it also raises important privacy issues. People have pretty much learned to live with the approximately 29 million security cameras around the nation videotaping them in airports, government buildings, offices, schools, stores, busy intersections, and elsewhere. But few consumers are aware that they are being filmed for market research. Security is one thing, but the American public isn't likely to be as tolerant of secret market research using videotape. Marketers appear to recognize this fact. ShopperTrak discloses its clients-the list includes, among others, Gap and its Banana Republic unit, The Limited and its Victoria's Secret chain, Payless Shoesource; American Eagle Outfitters, and Children's Place Retail Stores. However, several other research companies that videotape shopp'ers say they sign agreements with clients in which they pledge not to disclose their names. Their clients want the taping to be secret, worrying that shoppers would feel alienated or complain of privacy invasion if they knew. They're probably right to worry. Katherine Albrecht, founder and director of Caspian, a consumer-advocacy group, says consumers have "no idea such things as video tracking are going on," and they should be informed. When she tells them about such activities, she says the response she often hears is, "Isn't this illegal, like stalking? Shouldn't there be a law against it?" Robert Bulmash, a consumerprivacy advocate, says that being in a retailer's store doesn't give a retailer "the right to treat me like a guinea pig." He says he wonders about assurances that images are destroyed, because there isn't any way to verify such claims. The pictures "could be saved somewhere in that vast digital universe and some day come back to haunt us," he says. Source: Portions adapted from Joseph Pereira, "Spying on the Sales Floor: 'Video Miners' Use Cameras Hidden in Stores to Analyze Who Shops, What p. B1.Other informaThey Like," Wall SfreetJournal, December 21,2004, tion from Kelly Sitch, "'Mining' Software Studies Shoppers," The Digital Collegian,January 11,2005,accessed at www.collegian.psu.edu/archive/ 2005/01/01-11-05tdc/01-11-05d~~ihealth-01.asp; Kahn Research Group (www.webehavior.corn),July 2006;and www.videomining.com, July 2006.

research surveys appear t o have b e e n designed just t o p r o d u c e t h e i n t e n d e d effect. F e w advertisers o p e n l y r i g t h e i r research designs o r blatantly,misrepresent t h e findings; m o s t abuses t e n d t o b e subtle "stretches.: Consider t h e f o l l o w i n g examples:35

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A study by Chrysler contends that Americans o v e r w h e l m i n g l y prefer Chrysler t o Toyota after test-driving both. However, t h e s t u d y i n c l u d e d just 100 people in each o f t w o tests. M o r e importantly, n o n e o f the people surveyed o w n e d a foreign car brand, so they appear t o b e favorably predisposed t o U.S. brands. A B l a c k Flag survey asked: "A r o a c h d i s k . . . poisons a r o a c h slowly. T h e d y i n g r o a c h returns t o t h e nest a n d after i t dies i s eaten b y other roaches. In turn these roaches become poisoned a n d die. H o w effective d o y o u think this t y p e o f p r o d u c t w o u l d b e in k i l l i n g roaches?" N o t surprisingly, 79 percent s a i d effective. A p o l l sponsored by t h e disposable diaper i n d u s t r y asked: "It i s estimated that disposable diapers account for less t h a n 2 percent o f t h e trash in today's landfills. In contrast, beverage containers, third-class m a i l , and y a r d waste are estimated t o account for about 2 1 percent o f the trash in landfills. G i v e n this, in y o u r opinion, w o u l d i t b e fair t o ban disposable diapers?" Again, n o t surprisingly, 84 percent said n o .

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Part 2

Understanding the Marketplace and Consumers

Thus, s u b t l e ~ m m @ p u l a t i o nos f t h e study's sample o r t h e c h o i c e o r w o r d i n g o f questions c a n greatlyzffeci t h e conclusions reached. In other cases, so-called i n d e p e n d e n t research studies are a c t u a l l y p a i d f o r by companies with an interest in t h e o u t c ~ m e . ~ ~ ~ ~ ~ ~ ~ g e ~ ~ n ~ s f ~ doyr in , ahsoswwresults n p t iare ons i n t e r p r e t e d c a n s u b t l y affect t h e d i r e c t i o n o f t h e results. Far rrefEp1e, a t least f o u r w i d e l y q u o t e d s t u d i e s c o m p a r e t h e e n v i r o n m e n t a l effects o f u s i n g disposable diapers t o those o f u s i n g c l o t h diapers. T h e t w o studies sponsored by t h e c l o t h d i a p e r i n d u s t r y c o n c l u d e t h a t c l o t h d i a p e r s are m o r e e n v i r o n m e n t a l l y f r i e n d l y . N o t s u r p r i s i n g l y , t h e o t h e r t w o studies, sponsored by t h e disposable d i a p e r industry, c o n c l u d e just t h e opposite. Y e t b o t h appear t o b e correct g i v e n t h e u n d e r l y i n g assumptions used. R e c o g n i z i n g t h a t surveys c a n b e abused, several associations-including the 9 e r i c a n M a r k e t i=-.-.-n- g Association, Mark&ngR@~ar~hA.s~sociari~n,a n d t h e C,g.unciI o f & n r k a n _ \ q y R~O~annp_iza~on,s&,ASRO)-havedeveloped ~ ~ d ~ - ~ f f e ~ e g & e t h i c ~ ~ ~ d - s to _f ~ d ~ d s conduct. F o r example, t h e C A S R O Code o f Standards and E t h i c s f o r S u r v e y Research ou%s .----researcher respo~_sjb~~~t~~too_re_sp~~d~g,ts,inciu~~ngg~~pfi4~nti_.L5~~~pri_v_a~~ izy&~~:~ o f harassme& It also o u t l i n e s m a j o r r e s p o n s i b i l i t i e s in r e p o r t i n g results t o c l i e n t s and the' In t h e end, however, u n e t h i c a l o r i n a p p r o p r i a t e actions cannot s i m p l y b e regulated away. E a c h c o m p a n y m u s t accept- resp~o_nsjb~j~~~foyr_9-01~ing and-rep?-ing-afiti; o w n m a r k e t i n g research&o p r o t e c t c c o n s ~ ~ e j ~ ~ b ~ s t i n t ~ ~ e , s f S f S f S ~ d c i ~ ~ ~ _ o w n .

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In today's complex and rapidly changing marketplace, marketing managers need more and better information to make effective and timely decisions. This greater need for information has been matched by the explosion of information technologies for supplying information. Using today's new technologies, companies can now obtain great quantities of information, sometimes even too much. Yet marketers often complain that they lack enough of the right kind of information or have an excess of the wrong kind. In response, many companies are now studying their managers' information needs and designing information systems to help managers develop and manage market and customer information. 1. Explain the importance of information to the company and its understanding of the marketplace. The marketing process starts with a complete understanding of the marketplace and consumer needs and wants. Thus, the company needs sound information in order to produce superior value and satisfaction for customers. The company also requires information on competitors, resellers, and other actors and forces in the marketplace. Increasingly, marketers are viewing information not only as an input for making better decisions but also as an important strategic asset and marketing tool. 2. Define the marketing information system and discuss its parts. The marketing information system (MIS) consists of people, equipment, and procedures to gather, sort, analyze, evaluate, and distribute needed, timely, and accurate information to marketing decision makers. A well-designed information system begins and ends with users. The MIS first assesses information needs. The marketing information system primarily serves the company's marketing and other managers, but it may also provide information to external partners. Then, the MIS develops information from internal databases, marketing intelligence activities, and marketing research. Internal databases provide information on the company's own operations and departments. Such data can be obtained quickly and cheaply but often needs to be adapted for marketing decisions. Marketing intelligence activities supply everyday information about developments in the external marketing environment. Market research consists of collecting information relevant to a specific marketing problem faced by the company. Lastly, the MIS distributes information gathered from these sources to the right managers in the right form and at the right time.

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3. Outline the steps in the marketing research process. The first step in the marketing research process involves defining the problem and setting the research objectives, which may be exploratory, descriptive, or causal research. The second step consists of developing a research plan for collecting data from primary and secondary sources. The third step calls for implementing the marketing research plan by gathering, processing, and analyzing the information. The fourth step consists of interpreting and reporting the findings. Additional information analysis helps marketing managers apply the informationand provides them with sophisticated statistical procedures and models from which to develop more rigorous findings. Both internal and external secondary data sources often provide information more quickly and at a lower cost than primary data sources, and they can sometimes yield information that a company cannot collect by itself. However, needed information might not exist in secondary sources. Researchers must also evaluate secondary information to ensure that it is relevant, accurate, current, and impartial. Primary research must also be evaluated for these features. Each primary data collection method-observational, survey, and experimental-has its own advantages and disadvantages. Each of the various primary research contact methods-mail, telephone, personal interview, and online--also has its own advantages and drawbacks. Similarly, each contact method has its pluses and minuses. 4. Explain how companies analyze and distribute marketing information. Information gathered in internal databases and through marketing intelligence and marketing research usually requires more analysis. This may include advanced statistical analysis or the application of analytical models that will help marketers make better decisions. To analyze individual customer data, many companies have now acquired or developed special software and analysis techniques-called customer relationship management (CRMI--that integrate, analyze, and apply the mountains of individual customer data contained in their databases. Marketing information has no value until it is used to make better marketing decisions. Thus, the marketing information system must make the information available to the managers and others who make marketing decisions or deal with customers. In some cases, this means providing regular reports and updates; in other cases it means making nonroutine information available for special situations and onthe-spot decisions. Many firms use company intranets and extranets

Chapter 4 Managing Marketing Information to facilitate this process. Thanks to modern technology, today's marketing managers can gain direct access to the information system at any time and from virtually any location. 5. Discuss the special issues some marketing researchers face, including public policy and ethics issues. Some marketers face special marketing research situations, such as those conducting research in small business, nonprofit, or interna-

Causal research 101 Customer relationship management (CRM) 112 Descriptive research 101 Ethnographic research 104 Experimental research 105

Exploratory research 101 Focus group interviewing 106 Internal data bases 98 Marketing information system (MIS) 97

1123

tional situations. Marketing research can be conducted effectively by small businesses and nonprofit organizations with limited budgets. International marketing researchers follow the same steps as domestic researchers but often face more and different problems. All organizations need to respond responsibly to major public policy and ethical issues surrounding marketing research, including issues of intrusions on consumer privacy and misuse of research findings.

Marketing intelligence 99 Marketing research 100 Observational research 104 Online databases 103 Online marketing research 106

Primary data 102 Sample 108 Secondary data 102 Survey research 105

1. Figure 4.1 describes four marketing information system activities for developing information. In groups of four, determine how these activities would apply to Reebok developing the information it needs to market a new running shoe.

4. According to the text, "The most common cause of CRM failures is that companies mistakenly view CRM only as a technology and software solution." What does this statement mean?

2. Assume that you are a regional marketing manager for a cellular phone company. List at least three different sources of internal data and discuss how these data would help you create cellular services that provide greater customer value and satisfaction.

6. Small businesses and nonprofit organizations often lack the resources to conduct extensive market research. Assume that you are the director of fundraising for a small nonprofit organization that focuses on a social issue. List three ways, using limited resources, that you could gather information about your primary donor group.

3. Marketing research over the Internet has increased significantly in the past decade. Outline the strengths and weaknesses of marketing research conducted online.

1. Imagine you are an owner of a small children's retail clothing store that specializes in upscale girls' fashions from sizes 2 to 6. You have found a potential clothing line but you are unsure whether the line will generate the sales needed to be profitable. Which type of research methodology (exploratory, descriptive, or causal) is best suited to solve your research objective? Why? 2. Many consumer rights advocates argue that research data can be manipulated to support any conclusion. Assume you are attending a

Several companies offer technology that assists marketers in observational research. These techniques include cameras to monitor a shopper's movements, Web-tracking software to follow a visitor's click stream, and mechanisms to monitor the mo~ementof a ~0nSumer'seyeballs. Visit eyetracking.com to learn more about eye-tracking devices. A visit to the "solutions" area of the Web site provides many examples of consumer marketing solutions, including television commercials, Web site branding, and package design. Eye-tracking measurements can help a

5. How does your college use an intranet to help its students access data?

meeting where a research project for a new product in a new market is being presented. List five questions that you would ask to test the interpretation and objectivity of the findings being presented. 3. Visit zoomerang.com or another free online Web survey site. Using the tools at the site, design a short five-question survey on the dining services for your school. Send the survey to six friends and look at the results. What did you think of the online survey method?

television advertiser know whether the brand is noticed and, amazingly, report on whether the viewer's emotional reaction to the ad was pleasing or aversive. 1. What can marketers learn from eye-tracking technology in areas other than television advertising? 2. HOWcan marketers use this technology to improve their marketing? 3. What might be some weaknesses with this technology?

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Part 2 Understanding the Marketplace and Consumers

In 2001, Procter & Gamble (P&G) created Tremor, a network of approximately 280,000 young consumers ages 13-19. Tremor uses these teens, identified as being very connected to and influential with others, to spread word of mouth regarding not just its own products but also those of companies as diverse as AOL, Coca-Cola, and Toyota. Tremor does not pay the teens. Nor does it tell them what to say about specific products. But does provide them with extensive free samples and the knowledge that their input will be important to marketing decisions.

For more than 75 years, Burke has been helping marketers to understand the marketplace and build stronger relationships with customers. As a full-service, custom marketing research firm, the company helps its clients better understand everything from how consumers make purchase decisions to what drives customer loyalty. In the beginning in 1931, researchers with Burke went door to door to gather information. Today, the company uses a rich array of avenues to reach consumers, including telephone and Web interviewing, direct mail, and online surveys. Burke helps marketers discover information about customers, competitors, products, and marketing programs. But more than just gathering information, Burke's services help clients use the information. With

shiny blue BMW coupe into his driveway, put the gearshift into park, set the parking brake, and got out to check his mailbox as he did every day when he returned home. As he flipped through the deluge of catalogs and credit card offers, he noticed a letter from Enterprise Rent-A-Car. He wondered why Enterprise would be writing him. Then he remembered. Earlier that month, Kevin had been involved in a wreck. As he was driving to work one rainy morning, another car had been unable to stop on the slick pavement and had plowed into his car as he waited at a stoplight. Thankfully, neither he nor the other driver was hurt, but both cars had sustained considerable damage. In fact, he was not able to drive his car. Kevin had used his cell phone to call the police, and while he was waiting for the officers to come, he had called his auto insurance agent. The agent had assured Kevin that his policy included coverage to pay for a rental car while he was having his car repaired. He told Kevin to have the car towed to a nearby auto repair shop and gave him the telephone number for the Enterprise Rent-A-Car

1. How might P&G identify, attract, and then qualify teens to be members of Tremor? 2. what do you think of using teens to spread word of mouth about products and brands?Are there any ethics issues?

sophisticated computer analysis, Burke offers the right information, in the right form, at the right time to help them make better marketing decisions. After viewing the video featuring Burke, answer the following questions about marketing research. 1. What process does Burke use to define the research question? 2. How does Burke's process for marketicg research compare to the steps outlined in the chapter? 3. How does Burke help clients build strong relationships with customers?

office that served his area. The agent noted that his company recommended using Enterprise for replacement rentals and that Kevin's policy would cover up to $20 per day of the rental fee. Once Kevin had checked his car in at the body shop and made the necessary arrangements, he telephoned the Enterprise office. Within 10 minutes, an Enterprise employee had driven to the repair shop and picked him up. They drove back to the Enterprise office, where Kevin completed the paperwork and rented a Ford Taurus. He drove the rental car for 1 2 days before the repair shop completed work on his car. "Don't know why Enterprise would be writing me," Kevin thought. "The insurance company paid the $20 per day, and I paid the extra because the Taurus cost more than that. Wonder what the problem could be?"

TRACKING SATISFACTION Kevin tossed the mail on the passenger's seat and drove up the driveway. Once inside his house, he opened the Enterprise letter to find that it was a survey to determine how satisfied he was with his rental. The survey itself was only one page long and consisted of 13 questions (see Exhibit 1).

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SERVICE QUALITY SURVEY Please mark the box that best reflects your response to each question. I. Overall, how satisfied were you with your recent car rental from Enterprise on January 1,2003?

Completely Satisfied

Somewhat Satisfied

Neither Satisfied Nor Dissatisfied

Somewhat Dissatisfied

Completely Dissatisfied

0

0

0

CI

0

2. What, if anything, could Enterprise have done better? (Please be specific)

3a. Did you experience any problems during the rental process?

Yes 0 No 0

3b. If you mentioned any problems to Enterprise, did they resolve them to your satisfaction?

If you personally called Enterprise to reserve a vehicle, how would you rate the telephone reservation process?

Excellent

Good

Fair

Poor

N/A

0

0

0

0

0

Both at start and end of rental

Just at start of rental

Just at end of rental

0

0

a

Neither time

Both at start and end of rental

Just at start of rental

Just at end of rental

Neither time

0

0

0

0

Did you go to the Enterprise office. . . Did an Enterprise employee give you a ride to help with your transportation needs. . . . After you arrived at the Enterprise office, how long did it take you to: pick up your rental car? return your rental car?

Less than 5 minutes

Yes 0 No 0 Did not mention 0

5-10 minutes

11-15 minutes

-

16-2 0 minutes

0

21-30 minutes

More than 30 minutes

N/A

0 0

@

@

How would you rate the . . . timeliness with which you were either picked up at the start of the rental or dropped off afterwards? @timelinesswith which the rental car was either brought to your location and left with you or picked up from your location afterwards? Enterprise employee who handled your paperwork . . at the START of the rental? at the END of the rental? mechanical condition of the car? cleanliness of the car interiodexterior?

Excellent

Good

Fair

N/A

@

0 El

@

CI CI

@

17

@

If you asked for a specific type or size of vehicle, was Enterprise able to meet your needs? Car repairs due to accident For what reason did you rent this car? 11. The next time you need to pick up a rental car in the city or area in which you live, how likely are you to call Enterprise?

Yes

No

N/ A

0

0

0

All other car repairs1 maintenance

Car was stolen

Business

Leisure/ vacation

Some other reason

0

0

0

0

0

Definitely will call

Probably will call

Might or might not call

Probably will not call

Definitely will not call

0

0

0

0

0

12. Approximately how many times in total have you

2 times

times

6-10 times

11 or more

was first time

0

0

0

0

0

0 times

1 time

2 times

3-5 times

6-10 times

0

0

0

rented from Enterprise (including this rental)? 13. Considering all rental companies, approximately how many times within the past year have you rented a car in the city or area in which you live (including this rental)?

times

11or more

a

times

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I n the previous chapter, you studied how marketers obtain, analyze, and use information t o understand the .marketplace and t o assess marketing programs. I n this and the next chapter, we'll continue with a closer look a t the most important element of the marketplace-customers. The aim o f marketing i s t o affect how customers t h i n k about and behave toward the organization and i t s market offerings. To affect the whats, whens, and hows of buying behavior, marketers must first understand the whys. I n this chapter, we Look at final consumer buying influences and processes. I n the next chapter, we'll study the buyer behavior of business customers. You'll see t h a t understanding buyer behavior i s an essential b u t very difficult task. To get a better sense of the importance of understanding consumer behavior, let's look first a t Harley-Davidson, maker o f the nation's top-selling heavyweight motorcycles. Who rides these big ~ a r l "Hogs"? What moves them t o tattoo their bodies with the Harley emblem, abandon home and hearth for the open road, and flock t o Harley rallies by the hundreds of thousands? You might be surprised, b u t Harley-Davidson knows very well.

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brands engender such intense loyalty as that found in the hearts of -ley-Davidson owners. Harley buyers are granitelike in their devotion to brand. "You don't see people tattooing Yamaha on their bodies," observes the publisher of American Iron, an industry publication. And according to i 1 another industry insider, "For a lot of people, it's not that they want a motorcycle; it's that they want a Harley-the brand is that strong." Each year, in early March, more than 350,000 Harley bikers rumble through the i streets of Daytona Beach, Florida, to attend Harley-Davidson's Bike Week celebration. Bikers from across the nation lounge on their low-slung Harleys, swap biker ! tales, and sport T-shirts proclaiming "I'd rather push a Harley than drive a Honda." : Riding such intense emotions, Harley-Davidson has rumbled its way to the top of the heavyweight motorcycle market. Harley's "Hogs" capture 23 percent of all U.S. I bike sales and almost 50 percent of the heavyweight segment. For several years runi ning, sales have outstripped supply, with customer waiting lists of up to two years for popular models and street prices running well above suggested list prices. During just the past 5 years, Harley sales have increased more than 50 percent, and earnings have jumped more than 75 percent. By 2006, the company had experienced 20 straight years of record, sales and income. ' Harley-Davidson's marketers spend a great deal of time thinking about customers and their buying behavior. They want to know who their customers are, what ' they think and how they feel, and why they buy a Harley Fat Boy Softail rather than a Yamaha or a Kawasaki or a big Honda American Classic. What is it that makes e ~Harley buyers so fiercely loyal? These are difficult questions; even Harley owners themselves don't know exactly what motivates their buying. But Harley management puts top priority on understanding customers and what makes them tick. Who rides a Harley?You might be surprised. It's no longer just the Hell's Angels , crowd-the burly, black-leather-jacketedrebels and biker chicks who once made up , Harley's core clientele. Motorcycles are attracting a new breed of riders-older, more affluent, and better educated. Harley now appeals more to "rubbies" (rich urban bikers) than to rebels. "While the outlaw bad-boy biker image is what we might typically associate with Harley riders," says an analyst, "they're just as likely to be CEOs and investment bankers." The average Harley customer is a 46-year-old husband with a median household income of $82,000. More than 10 percent of Harley puri chases today are made by women.

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Harley-Davidson makes good bikes, and to keep up with its shifting market, the company has upgraded its showrooms and sales approaches. But Harley customers are buying a lot more than just a quality bike and a smooth sales pitch. To gain a better understanding of customers' deeper motivations, Harley-Davidson conducted focus groups in which it invited bikers to make cut-andpaste collages of pictures that expressed their feelings about Harley-Davidsons. (Can't you just see a bunch of hard-core bikers doing this?) It then mailed out 16,000 surveys containing a typical battery of psychological, sociological, and demographic questions as well as subjective questions such as "Is Harley more typified by a brown bear or a lion?" The research revealed seven core customer types: adventure-loving traditionalists, sensitive pragmatists, stylish status seekers, laid-back campers, classy capitalists, cool-headed loners, and cocky misfits. However, all owners appreciated their Harleys for the same basic reasons. "It didn't matter if you were the guy who swept the floors of the factory or if you were the CEO at that factory, the attract~onto Harley was i very similar," says a Harley executive. "Independence, freedom, and power were the universal Harley appeals." "It's much more than a machine," says the analyst. "It is part of their own selfexpression and lifestyle." Another analyst suggests that owning a Harley makes you "the toughest, baddest guy on the block. Never mind that [you're] a dentist or an accountant. You [feel] wicked astride all that power." Your Harley renews your spirits and announces your independence. As the Harley Web site's home page announces, "Thumbing the starter of a Harley-Davidson does a lot more than fire the engine. It fires the imagination." Adds a Harley dealer: "We sell a dream here." The classic look, the throaty sound, .the very idea of a Harley-all contribute to its mystique. Owning this "American legend" makes you a part of something bigger, a member of the Harley family. Such strong emotions and motivations are captured in a classic Harley-Davidson advertisement. The ad shows a close-up of an arm, the bicep adorned with a HarleyDavidson tattoo. The headline asks, "When was the last time you felt this strongly about anything?" The ad copy outlines the problem and suggests a solution: "Wake up in the morning and life picks up where it left off. . . . What once seemed exciting has now become part of the numbing routine. It all begins to feel the same. Except

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Understanding the Marketplace and Consumers when you've got a Harley-Davidson. Something strikes a nerve. The heartfelt thunder rises up, refusing to become part of the background. Suddenly things are different. Clearer. More real. As they should have been all along. Riding a Harley changes you from within. The effect is permanent. Maybe are differenton a Harley."l

Consumer buyer behavior The buying behavior of final consumers-individuals and households who buy goods and services for personal consumption. Consumer market All the individuals and households who buy or

acquire goods and services for personal consumption.

The Harley-Davidson example shows that many different factors affect consumer buyer behavior. Buyer behavior is never simple, yet understanding it is the essential task of marketing management. Consumer buyer behavior refers to the buying behavior of final consumers-individuals and households who buy goods and services for personal consumption. All of these final consumers combine to make up the consumer market. The American consumer market consists of more than 300 million people who consume more than $12 trillion worth of goods and services each year, making it one of the most attractive consumer markets in the world. The world consumer market consists of more than 6.5 billion people who annually consume an estimated $61 trillion worth of goods and service^.^ Consumers around the world vary tremendously in age, income, education level, and tastes. They also buy an incredible variety of goods and services. How these diverse consumers relate with each other and with other elements of the world around them impacts their choices among various products, services, and companies. Here we examine the fascinating array of factors that affect consumer behavior.

Consumers make many buying decisions every day. Most large companies research consumer buying decisions in great detail to answer questions about what consumers buy, where they buy, how and how much they buy, when they buy, and why they buy. Marketers can study actual consumer purchases to find out what they buy, where, and how much. But learning about the whys of consumer buying behavior is not so easy-the answers are often locked deep within the consumer's mind. "For companies with billions of dollars on the line, the buying decision is the most crucial part of their enterprise," states one consumer behavior analyst. "Yet no one really knows how the human brain makes that choice." Often, consumers themselves don't know exactly what influences their purchases. "Buying decisions are made at an unconscious level," says the analyst, "and . . . consumers don't generally give very reliable answers if you simply ask them, 'Why did you buy this?' "3 The central question for marketers is: How do consumers respond to various marketing efforts the company might use? The starting point is the stimulus response model of buyer behavior shown in Figure 5.1. This figure shows that marketing and other stimuli enter the consumer's "black box" and produce certain responses. Marketers must figure out what is in the buyer's black box. Marketing stimuli consist of the Four Ps: product, price, place, and promotion. Other stimuli include major forces and events in the buyer's environment: economic, technological, political, and cultural. All these inputs enter the buyer's black box, where they are turned into a set of observable buyer responses: product choice, brand choice, dealer choice, purchase timing, and purchase amount. The marketer wants to understand how the stimuli are changed into responses inside the consumer's black box, which has two parts. First, the buyer's characteristics influence how he

5.1 Model of buyer behavior

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or she perceives and reacts to the stimuli. Second, the buyer's decision process itself affects the buyer's behavior. We look first at buyer characteristics as they affect buyer behavior and then discuss the buyer decision process.

Consumer purchases are influenced strongly by cultural, social, personal, and psychological characteristics, shown in Figure 5.2. For the most part, marketers cannot control such factors, but they must take them into account.

Cultural factors exert a broad and deep influence on consumer behavior. The marketer needs to understand the role played by the buyer's culture, subculture, and social class.

CtxPkare Culture The set of basic values, perceptions, wants, and behaviors learned by a member of society from family and other important institutions.

Culture is the most basic cause of a person's wants and behavior. Human behavior is largely learned. Growing up in a society, a child learns basic values, perceptions, wants, and behaviors from the family and other important institutions. A child in the United States normally learns or is exposed to the following values: achievement and success, activity and involvement, efficiency and practicality, progress, material comfort, individualism, freedom, humanitarianism, youthfulness, and fitness and health. Every group or society has a culture, and cultural influences on buying behavior may vary greatly from country to country. Failure to adjust to these differences can result in ineffective marketing or embarrassing mistakes. Marketers are always trying to spot cultural shifts in order to discover new products that might be wanted. For example, the cultural shift toward greater concern about health. and fitness has created a huge industry for health-and-fitness services, exercise equipment and clothing, more-natural foods, and a variety of diets. The shift toward informality has resulted in more demand for casual clothing and simpler home furnishings.

Subculture A group of people with shared value systems based on common life experiences and situations.

Each culture contains smaller subcultures, or groups of people with shared value systems based on common life experiences and situations. Subcultures include nationalities, religions, racial groups, and geographic regions. Many subcultures make up important market segments, and marketers often design products and marketing programs tailored to their needs. Examples of four such important subculture groups include Hispanic, African American, Asian American, and mature consumers. The U.S. Hispanic market-Americans of Cuban, Mexican, Central American, South American, and Puerto Rican descent-consists of more than 41 million consumers. It's the fastest growing U.S. subsegment-one in every two new Americans since 2000 is Hispanic. By 2050, this group will make up about 25 percent of the U.S. population. Hispanic

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Understanding the Marketplace and Consumers purchasing power, estimated at $700 billion annually, is expected to increase to more than $1 trillion by 2010. One out of every ten U.S. small businesses is Hispanic owned.* Hispanic consumers tend to buy more branded, higher-quality products-generics don't sell well to this group. They tend to make shopping a family affair, and children have a big say in what brands they buy. Perhaps more important, Hispanics are very brand loyal, and they favor companies who show special interest in them. Most major marketers now produce products tailored to the Hispanic market and promote them using Spanish-language ads and media. For example, Procter & Gamble, one of the nation's leading multicultural marketers, spent almost $160 million last year on Hispanic print and television advertising for major brands such as Pantene, Tide, Crest, and Pampem5 It creates special Hispanic versions of some of its products. For instance, its Pantene Extra Liso (extra straight) line of hair-care products is specially formulated with Hispanic women in mind. But P&G7sHispanic marketing efforts run much deeper. Consider the following e ~ a m p l e : ~ Julieta Parilla, a new mother living in a predominantly Hispanic working-class suburb of Los Angeles, is a diehard Pampers fan. She first heard about Pampers from her sister. But strong marketing from Procter & Gamble has turned the 21-year-old single mother into a very loyal customer. Julieta recalls a Pampers television ad she liked, broadcast in both English and Spanish, showing a smiling baby crawling i n the diapers. The nurses at the medical center where she had her baby, Fatima, gave her free samples of Pampers as she checked out, along with other P&G brands such as Crest and Tide. At a local health clinic, Julieta picked up a copy of Avanzando con Tu Familia (Helping Your Family Move Ahead), a P&G-published, Martha Stewart Living-type magazine for recent Hispanic immigrants that reaches a million homes across the country. Besides coupons for P&G products, the magazine provides recipes, exercise tips, and lifestyle. advice. Julieta especially liked a story on how to clean her newborn, and she has been impressed by P&G's support for the Hispanic Scholarship Fund.

BB Procter & Gamble spends heavily on marketing to

Hispanics. As a result, consumers like Julieta Parilla are diehard fans of Pampers and other P&G brands.

Over the past five years, such targeted marketing efforts have helped P&G to increase Pampers' share of the Hispanic market by 25 percent. More broadly, 6 of the 12 brands managed by P&G's ethnic-marketing division are now ranked number one among Hispanics in their categories, and five others rank second.

. With annual buying power of $762 million, estimated to reach $981 billion by 2010, the nation's 39.7 million African American consumers also attract much marketing attention. The U.S. black population is growing i n affluence and sophistication. Although more price conscious than other segments, blacks are also strongly motivated by quality and selection. Brands are important. So is shopping-black consumers seem to enjoy shopping more than other groups, even for something as mundane as groceries. Black consumers are also the most fashion conscious of the ethnic groups.7 In recent years, many companies have developed special products and services, appeals, and marketing programs to reach African Americans consumers. For example, Hallmark launched its Afrocentric brand, Mahogany, with only 16 cards in 1987. Today the brand features more than 800 cards designed to celebrate African American culture, heritage, and trad i t i o n ~St. . ~ Joseph Aspirin, focusing on unique African American health issues, runs print ads noting that their aspirin comes in the dosage recommended by the Association of Black Cardiologists for daily heart therapy. Financial services provider J.P. Morgan Chase makes a special effort to target black consumers with home financing products and services. Rather than the standard approach of touting low interest rates, Chase stresses the benefits of home ownership. It sponsors and participates in hundreds of conferences for minority professional groups, such as the National

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Association of Real Estate Brokers, the Urban League, 100 Black Men, and local gatherings of community leaders and politician^.^ A wide variety of magazines, television channels, and other media now target Akican American consumers. Marketers are also reaching out to the African American virtual community. Per capita, black consumers spend twice as much as white consumers for online services. African Americans are increasingly turning to Web sites such as BlackPlanet.com, an African American community site with more than 13 million registered users. BlackPlanet.comls mission is to enable members to "cultivate meaningful personal and professional relationships, stay informed about the world, and gain access to goods and services that allow members to do more i n life." Other popular sites include BET.com and BlackVoices.com.lo Asian Americans are the most affluent U.S. demographic segment. They now number more than 14.4 million and wield more than $396.5 billion in annual spending power. They are the second-fastest-growing population subsegment after Hispanics. Chinese Americans constitute the largest group, followed by Filipinos, Japanese Americans, Asian Indians, and Korean Americans. The U.S. Asian American population is expected to more than double by 2050, when it will make up more than 9 percent of the U.S. population.ll Asian consumers may be the most tech-sawy segment-more than 85 percent of Englishspeaking Asian Americans go online regularly and are most comfortable with Internet technologies such as online banking and instant messaging. As a group, Asian consumers shop frequently and are the most brand conscious of all the ethnic groups. They can be fiercely brand loyal.lz Because of the segment's rapidly growing buying power, many firms are now targeting the Asian American market. For example, consider Wal-Mart. Today, in one Seattle store, where Asian Americans represent over 1 3 percent of the population, Wal-Mart stocks a large selection of CDs and videos from Asian artists, Asian-favored health and beauty products, and children's learning videos that feature multiple language tracks. The giant retailer recently launched an Asian-language television, radio, and print advertising blitz in markets with high concentrations. of Asian Americans, such as Los Angeles, San Francisco, San Diego, and Houston., The ads feature actual Asian American shoppers speaking in their native languages about why they shop at Wal-Mart. In a Chinese ad, a family recounts how its weekly Wal-Mart shopping trip is a family bonding experience.13

f9Targeting Asian American consumers: Wal-Mart print ads feature actual Asian American shoppers speaking i n their native ianguages about why they shop a t Wal-Mart. I n this Chinese ad, a family recounts how its weekly Wal-Mart: shopping trip is a family bonding experience.

As the U.S. population ages, mature consumers are becoming a very attractive market. Now 68 million strong, the population of U.S. seniors will more than double in the next 25 years. The 65-and-over crowd alone numbers close to 37 million, more than 1 2 percent of the population. Mature consumers are better off financially than are younger consumer groups. Because mature consumers have more time and money, they are an ideal market for exotic travel, restaurants, high-tech home entertainment products, leisure goods and services, designer furniture and fashions, financial services, and health care services.14 Their desire to look as young as they feel also makes moremature consumers good candidates for cosmetics and personal care products, health foods, fitness products, and other items that combat the effects of aging. The best strategy is to appeal to their active, multidimensional lives. For example, Kellogg aired a TV spot for All-Bran cereal in which individuals ranging in age from 53 to 81 are featured playing ice hockey, water skiing, running hurdles, and playing baseball, all to the tune of "Wild Thing." A Pepsi ad features a young man at a rock concert who turns around to see his father rocking out nearby. And an Aetna commercial portrays a senior who, after retiring from a career as a lawyer, fulfills a lifelong dream of becoming an archeologist.

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SsciaS Class Social class Relatively permanent and ordered divisions in a society whose members share similar values, interests, and behaviors.

Almost every society has some form of social class structure. Social classes are society's relatively permanent and ordered divisions whose members share similar values, interests, and behaviors. Social scientists have identified the seven American social classes shown in Figure 5.3. Social class is not determined by a single factor, such as income, but is measured as a combination of occupation, income, education, wealth, and other variables. In some social systems, members of different classes are reared for certain roles and cannot change their social positions. In the United States, however, the lines between social classes are not fixed and rigid; people can move to a higher social class or drop into a lower one. Marketers are interested in social class because people within a given social class tend to exhibit similar buying behavior. Social classes show distinct product and brand preferences in areas such as clothing, home furnishings, leisure activity, and automobiles.

Social Factors A consumer's behavior also is influenced by social factors, such as the consumer's small groups, family, and social roles and status.

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Group Two or more people who interact to accomplish individual or mutual goals.

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The major American social classes

A person's behavior is influenced by many small groups. Groups that have a direct influence and to which a person belongs are called membership groups. In contrast, reference groups

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Opinion leader Person within a reference group who, because of special skills, knowledge, personality, or other characteristics, exerts social influence on others.

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serve as direct (face-to-face) or indirect points of comparison or reference in forming a person's attitudes or behavior. People often are influenced by reference groups to which they do not belong. For example, an aspirational group is one to which the individual wishes to belong, as when a young girl soccer player hopes to someday emulate Mia Hamm and play on the U.S. women's Olympic soccer team. Marketers try to identify the reference groups of their target markets. Reference groups expose a person to new behaviors and lifestyles, influence the person's attitudes and selfconcept, and create pressures to conform that may affect the person's product and brand choices. The importance of group influence varies across products and brands. It tends to be strongest when the product is visible to others whom the buyer respects. Manufacturers of products and brands subjected to strong group influence must figure out how to reach opinion leaders-people within a reference group who, because of special skills, knowledge, personality, or other characteristics, exert social influence on others. Some experts call this 10 percent of Americans the influentials or leading adopters. These consumers "drive trends, influence mass opinion and, most importantly, sell a great many products," says one expert. They often use their big circle of acquaintances to "spread their knowledge on what's good and what's bad."15 Marketers often try to identify opinion leaders for their products and direct marketing efforts toward them. They use buzz marketing by enlisting or even creating opinion leaders to spread the word about their brands. For example, Tremor and Vocalpoint, separate marketing arms of Procter & Gamble, have enlisted armies of buzzers to create word of mouth, not just for P&G products but for those of other client companies as well (see Real Marketing 5.1). In the past few years, a new type of social interaction has exploded onto the sceneonline social networking-carried out over Internet media ranging fiom blogs to social networking sites such as MySpace.com and Facebook.com. This new form of high-tech buzz has big implications for marketers. Personal connections-forged through words, pictures, video, and audio posted just for the [heck] of it-are the life of the new Web, bringing together the estimated 60 million bloggers, [an unbelievable] 72 million MySpace.com users, and millions more on single-use social networks where people share one category of stuff, like Flickr (photos), De1.icio.u~(links),Digg (news stories), Wikipedia (encyclopedia articles), and YouTube (video). . . . It's hard to overstate the coming impact of these new network technologies on business: They hatch trends and build immense waves of interest in specific products. They serve [up] giant, targeted audiences to advertisers. They edge out old media with the loving labor of amateurs. They effortlessly provide hyperdetailed data to marketers. If your customers are satisfied, networks can help build fanatical loyalty; if not, they'll amplify every complaint until you do something about it. [The new social networking technologies] provide an authentic, peer-to-peer channel of communication that is far more credible than any corporate flackery.16 Marketers are working to harness the power of these new social networks to promote their products and build closer customer relationships. For example, when Volkswagen set up a MySpace.com site for Helga, the German-accented, dominatrix-type blonde who appears in its controversial Volkswagen GTI ads, tens of thousands of fans signed up as And companies regularly post ads or custom videos on video-sharing sites such as YouTube. When Adidas recently reintroduced its adicolor shoe, a customizable white-on-white sneaker with a set of seven color markers, it signed on seven top creative directors to develop innovative videos designed especially for downloading to iPods and other

4F! Social networking: Adidas harnessed the power of social networks t o reintroduce its customizable adicolor shoe. It developed innovative downloadable videos that celebrate color and personal expression-here i n pink-and then released them through e h a i l and social networking sites like YouTube.

who apply are accepted. In addition to connectedness, the company is looking for natural talkers with large doses of inquisitiveness and persuasiveness. Except for educating Tremorites and Vocalpointers about products and supplying them samples and coupons, the company doesn't coach the teens and moms. The connectors themselves choose whether or not to pitch the product to friends and what to say. For example, when Gina Lavagna learned from Tremor about Clairol Herbal Essences Fruit Fusions Shampoo and Noxzema face wash, it was her own idea to invite her pals over so they could try it. Tremorites and Vocalpointers also do the work without pay. What's in it for them? For one thing, they receive a steady flow of coupons and samples. But more than that, says CEO Knox, the company promises two things. First, it "provides you with cool new ideas before your friends have them," with the thrill of being an insider. Second, it Multiply Gina Lavanga by 250,000 teens, and Donna Wetherell by gives them a voice. "They're filled with great ideas, and they don't 600,000 moms, and you'll get a notion of the size and impact of P&G's think anybody listens to them," says Knox. "It's an empowering huge and carefully cultivated stealth marketing force. Gina and Donna proposition [just to be heard]." aren't just any consumers. They're members of P&G's Tremor and Buzz marketing is one of today's hottest new marketing practices. Vocalpoint word-of-mouth marketing arms-natural-born buzzers on a Still, jumping onto the buzz bandwagon carries some risks. For mission to spread the word about P&G and other companies' brands example, because Tremor and Vocalpoint connectors aren't coached among their peers. or controlled, word of mouth can quickly backfire. If the teens and It all started five years ago when P&G created Tremor, a word-ofmoms like what they see, they'll be quick to share the good news. If mouth network to reach teens. Teens are maddeningly difficult to not, they might be even quicker to share the bad. Says one word-ofreach through traditional channels-more than other consumer mouth expert, it's "like playing with fire: It can be a positive force groups, they tend to ignore mass-media messages or even to resent when harnessed for the good, but fires are very destructive when they them. Tremor taps the power of peer-to-peer personal endorsements are out of control. If word of mouth goes against you, you're sunk." that cut through the advertising clutter. Tremorites deliver the word in Moreover, some advocacy groups and others question the ethics, school cafeterias, at sleepovers, by cell phone, and by e-mail. even the legality, of recruiting people to promote products by word of Initially focused only on P&G brands, Tremor's forces were soon mouth without disclosing that fact. One such group, Commercial being tapped to talk up other companies' brands. More than Alert, has filed a complaint with the FTC against Tremor and several 80 percent of Tremor's campaigns are now for non-P&G brands, small buzz marketing agencies. But Tremor insiders ardently defend such as Coca-Cola, Toyota, Kraft, and shoe company Vans. ~ r e m o r their own campaigns and buzz marketing in general. "We encourage has been so successful that P&G has built a massive new net[connectors1to talk freely, whether positively or negatively. We do not work-Vocalpoint-focusing on moms. The moms market is a give them a script," says a company spokeswoman. "We think that's much bigger and more affluent target than teens, and a market a very important part of the model," agrees Knox. "The connectors that's more relevant to most P&G products. Initially, Vocalpoint has need to be free to say whatever it is they want to say. It's [really just1 focused on moms with school-age kids, women who interact more natural human behavior. . . . People like talking to people about with other moms. things they think help them." To fill their enormous ranks, Tremor and Vocalpoint recruit online Despite the risks and criticisms, Tremor and Vocalpoint are profor what they call "connectors"-people with vast n e t ~ o r k s ~ o f ducing striking results. According to one analyst, most companies friends and a gift for gab. For example, whereas average teens have see a 10 to 30 percent boost in sales after employing the word-ofonly about 30 names on their instant messaging buddy lists, mouth networks. Consider these examples: Tremorites average 150 to 200 names. Vocalpoint moms have five to Shamrock Farms of Phoenix launched a new chocolate-maltsix times the average number of friends and acquaintances. These flavored milk in Phoenix and Tucson. The launch tactics were connectors are carefully screened-only about 10 percent of those Gina Lavagna is the ideal pitch gal. After receiving information about Sony's latest compact digital music player and six $10-off coupons, she rushed four of her teen chums to a mall near her home to show them the cool new device, which sells for $99 and up. "I've probably told 20 people about it," she says, adding, "At least 10 are extremely interested in getting one." Her parents got her one for Christmas. Procter & Gamble couldn't ask for a better salesperson than Donna Wetherell. The gregarious Columbus, Ohio, mom works at a customer service call center unaffiliated with P&G, where she knows some 300 coworkers by name. Lately, Wetherell has spent so much time at work talking about P&G products and handing out discount coupons that her colleagues have given her a nickname. "I am called the coupon lady," Wetherell says.

handhelds. T h e directors were given complete creative c o n t r o l t o interpret t h e i r assigned color as they saw fit. "The directors that w e chose w e feel have a good deal o f underground street cred," says a n Adidas marketing executive. The project was n o t t i e d specifically t o the product. Rather, the directors were asked to "celebrate color, customization, and personal expression." The diverse set o f short films was then released, one film a week, v i a e-mail a n d sites such as YouTube. The films drew more than 2.1 m i l l i o n viewers w i t h i n three weeks, 20 m i l l i o n w i t h i n the first t w o months, and the numbers were growing exponentially w i t h each n e w release.18

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identical in both cities, with one exception: 2,100 Phoenix Tremorites received product information, coupons, and stickers. Shamrock reports that after 23 weeks, sales of the new milk flavor were 18 percent higher in Phoenix than in Tucson. Coupon redemption in Phoenix was 21 percent, higher than the dairy had ever achieved. To Shamrock's pleasant surprise, overall milk sales in Phoenix rose by 4 percent as well. In traditional ads introducing new Dawn Direct Foam, P&G stressed its potent grease-cutting power. But in packets mailed to Vocalpoint moms, it showed the detergent and a smiling girl on the outside with these words in big letters: "Mom, can I help?" A Pamphlet inside explained that the soap is so fun to use that kids would want to help out with the dishes. To reinforce the point, the packet included a little sponge in the shape of a child's foot, plus a dozen $1.50 coupons. "We have to enable a conversation to take place," CEO Knox says. "Kids not doing enough chores is a conversation taking place among moms." Donna Wetherell, the Vocalpoint connector in Columbus, says she talked about Dawn Direct Foam with about Tremor and Vocalpoint, separate marketing arms of Procter & Gamble, have enlisted armies of 100 female coworkers at her call tenbuzzers to create word-of-mouth for brands. "We know that the most powerful form of ter. "There are a lot of women there marketing is a message from a trusted friend." who have kids," says Wetherell, 51, who has a daughter, 17. "We were all interested." Adds Lavonda Harrington, 28, another Columbus Sources: Extracts adapted from Robert Berner, "I Sold It through the connector: "My daughter loves the foot-shaped sponge." That Grapevine,"Businessweek, May 29, 2006, pp. 32-34; and Melanie Wells, kind of buzz may explain the explosive sales results in the "Kid Nabbing," Forbes, February 2,2004, p. 84. Quotesand other inforthree test markets. Dawn unit sales in those locations were mation from Samar Farah, "Making Waves," CMO Magazine, July 2005; double those of markets without a Vocalpoint effort. Jeff Geiles, "Tremor:Shaky Stuff," The Seattle Times, December 4,2005, p. L6; Bruce Horovitz, "P&G'Buzz Marketing' Unit Hit With Complaint," Thus, business is buzzing at P&G-and the Tremor and USA Today, October 19,2005,p. 18; Todd Wasserman, "Q+A: P&G Buzz Vocalpoint grapevines are growing faster then Jack's beanstalk. Says Program Tremor Moving on to Mothers," Brandweek, September26, 2006, CEO Knox, "We know that the most powerful form of marketing is [a1 p. 15;and Jack Neff, "P&GProvides Product Launchpad, A Buzz Network Of Moms," Advertising Age, March 20, 2006, p. 1. message from a trusted friend."

But marketers need to be careful when tapping into online social networking. Ultimately, the users control the content, and online network marketing attempts can easily backfire. For example, when Chevrolet recently launched a Web contest inviting folks to create their own ads for its Chevy Tahoe, it quickly lost control. Says one observer, "the entries that got passed around, blogged about, and eventually covered in the mainstream media were all about the SUV's abysmal gas mileage and melting polar ice caps." One user-generated ad proclaimed, "Like this snowy wilderness? Better get your fill of it now. Then say hello to global warming." Another concluded, "$70 to fill up the tank, which will last less than 400 miles. Chevy Tahoe."lg

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Family members can strongly influence buyer behavior. The family is the most important consumer buying organization in society, and it has been researched extensively. Marketers are interested in the roles and influence of the husband, wife, and children on the purchase of different products and services. Husband-wife involvement varies widely by product category and by stage in the buying process, Buying roles change with evolving consumer lifestyles. In the United States, the wife traditionally has been the main purchasing agent for the familyin the areas of food, household products, and clothing. But with 70 percent of women holding jobs outside the home and the willingness of husbands to do more of the family's purchasing, all this is changing. Men now account for about 40 percent of all food-shopping dollars. And whereas women make up just 40 percent of drivers, they now influence more than 80 percent of car-buying decisions. In all, women now make almost 85 percent of all purchases, spending $6 trillion each year.20 Such changes suggest that marketers in industries that have sold their products to only men or only women are now courting the opposite sex. For example, after realizing that women today account for 50 percent of all technology purchases, Dell has stepped up its efforts to woo women buyers.21 Managers from Dell's marketing and public relations staff met earlier this year with editors and sales reps at a dozen publications. Their mission wasn't too surprising: Get editors to print more about Dell's computers, televisions, and pocketPCs. It was the choice of magazines that was unusual, including Oprah Winfrey's 0 at Home, Ladies' Home Journal, and CosrnoGIGnot exactly publications on the company's regular radar screen. In barely six months, though, Dell's laser printer, plasma TV, and notebook computer were featured as must-haves in gift guides in shelter magazines Real Simple and 0 at Home. And in a recent issue, CosmoGIRL gave Dell's Inspiron 700m, four-pound notebook a "kiss of approval." Why the new emphasis on women buyers? Dell's has realized that women are its fastest-growing customer group and a key to its growth strategy, especially as it branches out to TVs and MP3 players. Its own research shows that women make up half of its buyers and are as likely as men to prefer buying PCs online. So besides the women's magazines, Dell is running ads on women-centric cable-TV channels such as Oxygen and Lifetime Television. Until recently, says Dell's director of customer experience, "you wouldn't have seen any Dell ads on these women's channels."

Children may have a strong influence on family buying decisions for everything from cell phones t o restaurants to cars. To capture such family buying influences, Chevrolet runs ads Like this one for i t s Uplander sports van i n kid-focused Nickelodeon Magazine, featuring a family Big Wish Sweepstakes.

Children may also have a strong influence on family buying decisions. The nation's 36 million kids age 3 to 11 wield an estimated $18 billion in disposable income. They also influence an additional $115 billion that their families spend on them in areas such as food, clothing, entertainment, and personal care items. For example, one recent study found that kids significantly influence family decisions about where they take vacations and what cars and cell phones they buy. As a result, marketers of cars, fullservice restaurants, cell phones, and travel destinations are now placing ads on networks such as Cartoon Network and Toon Disney. Nickelodeon recently signed multimillion-dollar advertising deals with Chevrolet and Kia. Chevrolet runs TV ads on Nickelodeon television and print ads in Nickelodeon Magazine for its Uplander sports van.22

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A person belongs to many groups-family, clubs, and organizations. The person's position in each group can be defined in terms of both role and status. A role consists of the activities people are expected to perform according to the persons around them. Each role carries a status reflecting the general esteem given to it by society. People usually choose products appropriate to their roles and status. Consider the various roles a working mother plays. In her company, she plays the role of a brand manager; in her family, she plays the role of wife and mother; at her favorite sporting events, she plays the role of avid fan. As a brand manager, she will buy the kind of clothing that reflects her role and status in her company.

A buyer's decisions also are influenced by personal characteristics such as the buyer's age and life-cycle stage, occupation, economic situation, lifestyle, and personality and self-concept.

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People change the goods and services they bu Tastes in food, clothes, furniture, and recreation are often age related. Buying is also shaped by the stage of the family life cycle-the stages through which families might pass as they mature over time. Marketers often define their target markets in terms of life-cycle stage and develop appropriate products and marketing plans for each stage. Traditional family life-cycle stages include young singles and married couples with children. Today, however, marketers are increasingly catering to a growing number of alternative, nontraditional stages such as unmarried couples, singles marrying later in life, childless couples, same-sex couples, single parents, extended parents (those with young adult children returning home), and others. RBC Royal Bank has identified five life-stage segments. The youth segment includes customers younger than 18. Gktting Started consists of customers aged 18 to 35 who are going through first experiences, such as graduation, first credit card, first car, first loan, marriage, and first child. Builders, customers aged 35 to 50, are in their peak earning years. As they build careers and family, they tend to borrow more than they invest. Accumulators, aged 50 to 60, worry about saving for retirement and investing wisely. Finally, Preservers, customers over 60, want to maximize their retirement income to maintain a desired lifestyle. RBC markets different services to the different segments. For example, with Builders, who face many expenses, it emphasizes loans and debt-load management services.z3

Occupation: Carhartt makes rugged, durable, no-nonsense work clothes-what it calls "original equipment for the American worker."

A person's occupation affects the goods and services bought: Bluecollar workers tend to buy more rugged work clothes, whereas executives buy more business suits. Marketers try to identify the occupational groups that have an above-average interest in their products and services. A company can even specialize in making products needed by a given occupational group. For example, Carhartt makes rugged, durable, nononsense work clothes-what it calls "original equipment for the American worker. From coats to jackets, bibs to overalls . . . if the apparel carries the name Carhartt, the performance will be legendary." Its Web site carries real-life testimonials of hard-working Carhartt customers. One electrician, battling the cold in Canada's arctic region, reports wearing Carhartt's lined Arctic bib overalls, Arctic jacket, and other clothing for more than two years without a single

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Economic Situation A person's economic situation will affect product choice. Marketers of income-sensitive goods watch trends in personal income, savings, and interest rates. If economic indicators point to a recession, marketers can take steps to redesign, reposition, and reprice their products closely. Some marketers target consumers who have lots of money and resources, charging prices to match. For example, Rolex positions its luxury watches as "a tribute to elegance, an object of passion, a symbol for all time." Other marketers target consumers with more modest means. Timex makes more affordable watches that "take a licking and keep on ticking."

Lifestyle A person's pattern of living as expressed in his or her activities, interests, and opinions.

People coming from the same subculture, social class, and occupation may have quite different lifestyles. Lifestyle is a person's pattern of living as expressed in his or her psychographics. It involves measuring consumers' major A10 dimensions-activities (work, hobbies, shopping, sports, social events), interests (food, fashion, family, recreation), and opinions (about themsel~es,social issues, business, products). Lifestyle captures something more than the person's social class or personality. It profiles a person's whole pattern of acting and interacting in the world. When used carefully,the lifestyle concept can help marketers understand changing consumer values and how they affect buying behavior. Several research h s have developed lifestyle classifications. The one most widely used is SRI Consulting Business Intelligence's VALSTM typology (see Figure 5.4). VALS classifies people by psychological characteristics and four demographics that correlate with purchase behavior-

High resources High innovation

Primary motivation

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how they spend their time and money. It divides consumers into eight groups based on two major dimensions: primary motivation and resources. include ideals, achievement, and self-expression. According to SRI-BI, consumers who are primarily motivated by ideals are guided by knowledge and principles. Consumers who are primarily motivated by achievement look for products and services that demonstrate success to their peers. Consumers who are primarily motivated by self-expression desire social or physical activity, variety, and risk. Consumers within each orientation are further classified into those with high resources and those with low resources, depending on whether they have high or low levels of income, education, health, self-confidence, energy, and other factors. Cons~unerswith either very high or very low levels of resources are classified without regard to their primary motivations (Innovators, Survivors). Innovators are people with so many resources that they exhibit all three primary motivations i n varying degrees. In contrast, Survivors are people with so few resources that they do not show a strong primary motivation. They must focus on meeting needs rather than fulfilling desires. Iron City beer, a well-known brand i n Pittsburgh, used VALS to update its image and improve sales. Iron City was losing sales-its aging core users were drinking less beer, and younger men weren't buying the brand. VALS research showed that one VALS segment, male Experiencers, drink the most beer, followed by Strivers. Men in these segments perceived Iron City drinkers as blue-collar steelworkers stopping off at the local bar. However, they saw themselves as more modern, hardworking, and fun loving. They strongly rejected the outmoded, heavy-industry image of Pittsburgh. Based on this research, Iron City created ads linking its beer to the new self-image of target consumers. The ads mingled images of the old Pittsburgh with those of the new, dynamic city and scenes of young Experiencers and Strivers having fun and working hard. Within just one month of the start of the campaign, Iron City sales shot up by 26 percent.25

Personality The unique psychological characteristicsthat lead to relatively consistent and lasting responses to one's

Brand personality The specific mix of human traits that may be attributed to a particular brand.

Each person's distinct personality influences his or her buying behavior. Personality refers to the unique psychological characteristics that lead to relatively consistent and lasting responses to one's own environment. Personality is usually described in terms of traits such as self-confidence, dominance, sociability, autonomy, defensiveness, adaptability, and aggressiveness. Personality can be useful in analyzing consumer behavior for certain product or brand choices. For example, coffee marketers have discovered that heavy coffee drinkers tend to be high on sociability. Thus, to attract customers, Starbucks and other coffeehouses create environments in which people can relax and socialize over a cup of steaming coffee. The idea is that brands also have personalities, and that consumers are likely to choose brands with personalities that match their own. A brand personality is the specific mix of human traits that may be attributed to a particular brand. One researcher identified five brand personality traits:26 1. Sincerity (down-to-earth, honest, wholesome, and cheerful) 2. Excitement (daring, spirited, imaginative, and up-to-date) 3. Competence (reliable, intelligent, and successful)

4. Sophistication (upper class and charming) 5 . Ruggedness (outdoorsy and tough)

The researcher found that a number of well-known brands tended to be strongly associated with one particular trait: Levi's with "ruggedness," MTV with "excitement," CNN with "competence," and Campbell with "sincerity." Hence, these brands will attract persons who are high on the same personality traits. Many marketers use a concept related to personality-a person's self-concept (also called selfimage). The basic self-concept premise is that people's possessions contribute to and reflect their identities; that is, "we are what we have." Thus, in order to understand consumer behavior, the marketer must first understand the relationship between consumer self-concept and possessions~ Apple applies this concept in a recent set of ads that characterize two people as computersone guy plays the part of an Apple Mac and the other plays a PC. "Hello, I'm a Mac," says the guy on the right, who's younger and dressed in jeans. "And I'm a PC," says the one on the left, who's wearing dweeby glasses and a jacket and tie. The two men discuss the relative advantages of Macs versus PCs, with the Mac coming out on top. The ad presents the Mac brand personality as young, laid back, and hip. The PC is portrayed as buttoned down, corporate, and a bit dorky. The message? If you see yourself as young and with it, you need a Macz7

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A person's buying choices are further influenced by four major psychological factors: motivation, perception, learning, and beliefs and attitudes.

A person has many needs at any given time. Some are biological, arising fiom states of tension

Motive (or drive) A need that is sufficiently

pressing to direct the person to seek satisfaction of the need.

such as hunger, thirst,_or discomfort. Others are psychological, arising from the need for recognition, esteem, or belonging. A need becomes a motive when it is aroused to a sufficient level of intensity. A motive (or drive) is a need that is sufficiently pressing to direct the person to seek satisfaction. Psychologists have developed theories of human motivation. Two of the most popular-the theories of Sigmund Freud and Abraham Maslow-have quite different meanings for consumer analysis and marketing. Sigmund Freud assumed that people are largely unconscious about the real psychological forces shaping their behavior. He saw the person as growing up and repressing many urges. These urges are never eliminated or under perfect control; they emerge in dreams, i n slips of the tongue, in neurotic and obsessive behavior, or ultimately in psychoses. Freud's theory suggests that a person's buying decisions are affected by subconscious motives that even the buyer may not f d y understand. Thus, an aging baby boomer who buys a sporty BMW 330Ci convertible might explain that he simply likes the feel of the wind in his thinning hair. At a deeper level, he may be trying to impress others with his success. At a still deeper level, he may be buying the car to feel young and independent again. The tern motivation research refers to qualitative research designed to probe consumers' hidden, subconscious motivations. Consumers often don't know or can't describe just why they act as they do. Thus, motivation researchers use a variety of probing techniques to uncover underlying emotions and attitudes toward brands and buying situations. These sometimes bizarre techniques range from sentence completion, word association, and inkblot or cartoon interpretation tests, to having consumers form daydreams and fantasies about brands or buying situations. One writer offers the following tongue-in-cheek summary of a motivation research session:z8 Good morning, ladies and gentlemen. We've called you here today for a little consumer research. Now, lie down on the couch, toss your inhibitions out the window, and let's try a little free association. First, think about brands as if they were your friends. Imagine you could talk to your TV dinner. What would he say? And what would you say to him? . . . Now, think of your shampoo as an animal. Go on, don't be shy. Would it be a panda or a lion? A snake or a wooly worm? For our final exercise, let's all sit up and pull out our magic markers. Draw a picture of a typical cake-mix user. Would she wear an apron or a negligee? A business suit or a can-can dress?

El' Motivation: An aging baby boomer who buys a sporty convertible might explain that he simply likes t o feel the wind i n his thinning hair. At a deeper level, he may be buying the car t o feel young and independent again.

Such projective techniques seem pretty goofy, and some marketers dismiss such motivation research as mumbo jumbo. But many marketers routinely use such touchyfeely approaches to dig deeply into consumer psyches and develop better marketing strategies. Many companies employ teams of psychologists, anthropologists, and other social scientists to carry out motivation research. One ad agency routinely conducts one-onone, therapy-like interviews to delve into the inner workings of consumers. Another company asks consumers to describe their favorite brands as animals or cars (say, Cadillacs versus Chevrolets) in order to assess the prestige associated with various brands. Still others rely on hypnosis, dream therapy, or soft lights and mood music to plumb the murky depths of consumer psyches.

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Maslow's hierarchy of needs

Abraham Maslow sought to explain why people are driven by particular needs at particular times. Why does one person spend much time and energy on personal safety and another on gaining the esteem of others? Maslow's answer is that human needs are arranged in a hierarchy, as shown in Figure 5.5, from the most pressing at the bottom to the least pressing at the top.29They include physiological needs, safety needs, social needs, esteem needs, and selfactualization needs. A person tries to satisfy the most important need first. When that need is satisfied, it will stop being a motivator and the person will then try to satisfy the next most important need. For example, starving people (physiological need) will not take an interest in the latest happenings in the art world (self-actualization needs), nor in how they are seen or esteemed by others (social or esteem needs), nor even in whether they are breathing clean air (safety needs). But as each important need is satisfied, the next most important need will come into play.

Perception The process by which people select, organize, and interpret information to form a meaningful picture of the world.

A motivated person is ready to act. How the person acts is influenced by his or her own perception of the situation. All of us learn by the flow of information through our five senses: sight, hearing, smell, touch, and taste. However, each of us receives, organizes, and interprets this sensory information in an individual way. Perception is the process by which people select, organize, and interpret information to form a meaningful picture of the world. People can form different perceptions of the same stimulus because of three perceptual processes: selective attention, selective distortion, and selective retention. People are exposed to a great amount of stimuli every day. For example, people are exposed to an estimated 3,000 to 5,000 ad messages every day.30 It is impossible for a person to pay attention to all these stimuli. Selective attention-the tendency for people to screen out most of the information to which they are exposed-means that marketers must work especially hard to attract the consumer's attention. Even noticed stimuli do not always come across in the intended way. Each person fits incoming information into an existing mind-set. Selective distortion describes the tendency of people to interpret information in a way that will support what they already believe. For example, if you distrust a company, you might perceive even honest ads from the company as questionable. Selective distortion means that marketers must try to understand the mind-sets of consumers and how these will affect interpretations of advertising and sales information. People also will forget much of what they learn. They tend to retain information that SUPports their attitudes and beliefs. Because of selective retention, consumers are likely to remember good points made about a brand they favor and to forget good points made about competing brands. Because of selective exposure, distortion, and retention, marketers must work hard to get their messages through. This fact explains why marketers use so much drama and repetition in sending messages to their market. Interestingly, although most marketers worry about whether their offers will be perceived at all, some consumers worry that they will be affected by marketing messages without even knowing it-through subliminal advertising. In 1957, a researcher announced that he had

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flashed the phrases "Eat popcorn" and "Drink Coca-Cola" on a screen in a New Jersey movie theater every five seconds for 11300th of a second. He reported that although viewers did not consciously recognize these messages, they absorbed them subconsciously and bought 58 percent more popcorn and 18 percent more Coke. Suddenly advertisers and consumerprotection groups became intensely interested in subliminal perception. People voiced fears of being brainwashed, and California and Canada declared the practice illegal. Although the researcher later admitted to making up the data, the issue has not died. Some consumers still fear that they are being manipulated by subliminal messages. Numerous studies by psychologists and K3 Selective perception: It's impossible for people to pay attention to the consumer researchers have found little or no thousands of ads they're exposed to every day, so they screen most of them out. link between subliminal messages and consumer behavior. It appears that subliminal advertising simply doesn't have the power attributed to it by its critics. Most advertisers scoff at the notion of an industry conspiracy to manipulate consumers through "invisible" messages. Says one industry insider: "[Some consumers believe we are] wizards who can manipulate them at will. Ha! Snort! Oh my sides! As we know, just between us, most of [us] have difficulty getting a 2 percent increase in sales with the help of $50 million in media and extremely liminal images of sex, money, power, and other [motivators] of human emotion. The very idea of [US]as puppeteers, cruelly pulling the strings of consumer marionettes, is almost too much to bear."31

Learning Changes in an individual's behavior arising from experience. '

'

Belief A descriptive thought that a person has about something.

- Attitude A person's relatively consistent evaluations, feelings, and tendencies toward an object or idea.

When people act, they learn. Learning describes changes in an individual's behavior arising from experience. Learning theorists say that most human behavior is learned. Learning occurs through the interplay of drives, stimuli, cues, responses, and reinforcement. A drive is a strong internal stimulus that calls for action. A drive becomes a motive when it is directed toward a particular stimulus object. For example, a person's drive for self-actualization might motivate him or her to look into buying a digital camera. The consumer's response to the idea of buying a camera is conditionedby the surrounding cues. Cues are minor stimuli that determine when, where, and how the person responds. For example, the person might spot several camera brands in a shop window, hear of a special sale price, or discuss cameras with a friend. These are all cues that might influence a consumer's response to his or her interest in buying the product. Suppose the consumer buys a Nikon digital camera. If the experience is rewarding, the consumer will probably use the camera more and more, and his or her response will be reinforced. Then, the next time the consumer shops for a camera, or for binoculars or some similar product, the probability is greater that he or she will buy a Nikon product. The practical sigrdicance of learning theory for marketers is that they can build up demand for a product by associating it with strong drives, using motivating cues, and providing positive reinforcement.

Through doing and learning, people acquire beliefs and attitudes. These, in turn, influence their buying behavior. A belief is a descriptive thought that a person has about something. Beliefs may be based on real knowledge, opinion, or faith and may or may not carry an-emotional charge. Marketers are interested in the beliefs that people formulate about specific products and services, because these beliefs make up product and brand images that affect buying behavior. If some of the beliefs are wrong and prevent purchase, the marketer will want to launch a campaign to correct them. People have attitudes regarding religion, politics, clothes, music, food, and almost everything else. Attitude describes a person's relatively consistent evaluations, feelings, and tendencies toward an object or idea. Attitudes put people into a frame of mind of liking or disliking things, of moving toward or away from them. Our digital camera buyer may hold attitudes such as "Buy the best," "The Japanese make the best electronics products in the

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world," and "Creativity and self-expression are among the most important things in life." If so, the Nikon camera would fit well into the consumer's existing attitudes. Attitudes are difficult to change. A person's attitudes fit into a pattern, and to change one attitude may require difficult adjustments in many others. Thus, a company should usually try to fit its products into existing attitudes rather than attempt to change attitudes. Of course, there are exceptions in which the cost of trying to change attitudes may pay off handsomely:

By 1994, milk consumption had been in decline for 20 years. The general perception was that milk was unhealthy, outdated, just for kids, or good only with cookies and cake. To counter these notions, the National Fluid Milk Processors Education Program (MilkPEP) began an ad campaign featuring milk bemustached celebrities and the tag line Got Milk? The campaign has not only been wildly popular, it has been successful as well-not only did it stop the decline, milk consumption actually increased. The campaign is still running. Although initially the target market was women in their 20s, the campaign has. been expanded to other target markets and has gained cult status with teens, much to their parents' delight. Teens collect the print ads featuring celebrities ranging -from music stars Kelly Clarkson and Nelly, to El Attitudes are difficult to change, but the National Fluid Milk Processots actors such as Jessica Alba and Lindsay . wildly popular milk moustache campaign succeeded in changing attitudes Lohan, to sports idols such as Jeff Gordon, toward milk. Tracy McGrady, and Venus and Serena Williams. Building'on this popularity with teens, the industry set up a Web site (www.whymilk.com) where young folks can make their own mustache, check out the latest Got Milk? ads, or get facts about "everything you ever need to know about milk." The industry also promotes milk to them through grassroots marketing efforts. It recently launched an online promotion searching for America's 50 healthiest student bodies. People who enter their school can win prizes from various sponsors and a grant to support fitness and nutrition programs in the winner's We can now appreciate the many forces acting on consumer behavior. The consumer's choice results from the complex interplay of cultural, social, personal, and psychological factors.

Complex buying behavior Consumer buying behavior in situations characterized by high consumer involvement in a purchase and significant perceived differencesamong brands.

Buying behavior differs greatly for a tube of toothpaste, an iPod, financial services, and a new car. More complex decisions usually involve more buying participants and more buyer deliberation. Figure 5.6 shows types of consumer buying behavior based on the degree of buyer involvement and the degree of differences among brands.

Cozaplels Buying Beha~zio~ Consumers undertake complex buying behavior when they are highly involved in a purchase and perceive significant differences among brands. Consumers may be highly involved when the product is expensive, risky, purchased in•’requently, and highly self-expressive. Typically, the

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FI1GURE 5.6 Four types of buying

behavior Source: Adapted from Henry Assael, Consumer Behavior and Marketing Action (Boston:Kent Publishing Company, 19871, p. 87. Copyright O 1987 by Wadsworth, Inc. Printed by permission of Kent Publishing Company, a division of Wadsworth. lnc.

Low involvernent

Significant differences between brands Few differences between brands

consumer has much to learn about the product category. For example, a PC buyer may not know what attributes to consider. Many product features carry no real meaning: a "3.4GHz Pentium processor," "WUXGA active matrix screen," or "4GB dual-channel DDR2 DRAM memory." This buyer will pass through a learning process, first developing beliefs about the product, then attitudes, and then making a thoughtful purchase choice. Marketers of highinvolvement products must understand the information-gathering and evaluation behavior of high-involvement consumers. They need to help buyers learn about product-class attributes and their relative importance. They need to differentiate their brand's features, perhaps by describing the brand's benefits using print media with long copy. They must motivate store salespeople and the buyer's acquaintances to influence the final brand choice.

Dissonance-Ee ueing Buying Behavior Dissonance-reducing buying behavior Consumer buying behavior in situations characterized by high involvement but few perceived differences among brands.

Dissonance-reducing buying behavior occurs when consumers are highly involved with an expensive, infrequent, or risky purchase, but see little difference among brands. For example, consumers buying carpeting may face a high-involvement decision because carpeting is expensive and self-expressive. Yet buyers may consider most carpet brands in a given price range to be the same. In this case, because perceived brand differences are not large, buyers may shop around to learn what is available, but buy relatively quickly. They may respond primarily to a good price or to purchase convenience. After the purchase, consumers might experience postpurchase dissonance (after-sale discomfort) when they notice certain disadvantages of the purchased carpet brand or hear favorable things about brands not purchased. To counter such dissonance, the marketer's after-sale communications should provide evidence and support to help consumers feel good about their brand choices.

Habitual Buyin Habitual buying behavior Consumer buying behavior in situations characterized by low consumer involvement and few significant perceived brand differences.

Habitual buying behavior occurs under conditions of low consumer involvement and little significant brand difference. For example, take salt. Consumers have little involvement in this product category-they simplygo to the store and reach for a brand. If they keep reaching for the same brand, it is out of habit rather than strong brand loyalty. Consumers appear to have low involvement with most low-cost, frequently purchased products. In such cases, consumer behavior does not pass through the usual belief-attitude-behavior sequence. Consumers do not search extensively for information about the brands, evaluate brand characteristics,and make weighty decisions about which brands to buy. Instead, they passively receive information as they watch television or read magazines. Ad repetition creates brand familiarityrather than brand conviction. Consumers do not form strong attitudes toward a brand; they select the brand because it is familiar. Because they are not highly involved with the product, consumers may not evaluate the choice even after purchase. Thus, the buying process involves brand beliefs formed by passive learning, followed by purchase behavior, which may or may not be followed by evaluation. Because buyers are not highly committed to any brands, marketers of low-involvement products with few brand differences often use price and sales promotions to stimulate product trial. In advertising for a low-involvement product, ad copy should stress only a few key points. Visual symbols and imagery are important because they can be remembered easily and associated with the brand. Ad campaigns should include high repetition of short-duration

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messages. Television is usually more effective than print media because it is a low-involvement medium suitable for passive learning. Advertising planning should be based on classical conditioning theory, in which buyers learn to identify a certain product by a symbol repeatedly attached to it.

Variety-Seeking Bugin Variety-seeking buying behavior Consumer buying behavior in situations characterized by low consumer involvement but significant perceived brand differences.

Consumers undertake variety-seeking buying behavior in situations characterized by low consumer involvement but significant perceived brand differences. In such cases, consumers often do a lot of brand switching. For example, when buying cookies, a consumer may hold some beliefs, choose a cookie brand without much evaluation, and then evaluate that brand during consumption. But the next time, the consumer might pick another brand out of boredom or simply to try something different. Brand switching occurs for the sake of variety rather than because of dissatisfaction. In such product categories, the marketing strategy may differ for the market leader and minor brands. The market leader will try to encourage habitual buying behavior by dominating shelf space, keeping shelves fully stocked, and running frequent reminder advertising. Challenger firms will encourage variety seeking by offering lower prices, special deals, coupons, free samples, and advertising that presents reasons for trying something new.

NOWthat we have looked at the influences that affect buyers, we are ready to look at how consumers make buying decisions. Figure 5.7 shows that the buyer decision process consists of five stages: need recognition, information search, evaluation of alternatives, purchase decision, and postpurchase behavior. Clearly, the buying process starts long before the actual purchase and continues long after. Marketers need to focus on the entire buying process rather than on just the purchase decision.33 The figure suggests that consumers pass through all five stages with every purchase. But in more routine purchases, consumers often skip or reverse some of these stages. A woman buying her regular brand of toothpaste would recognize the need and go right to the purchase decision, skipping information search and evaluation. However, we use the model in Figure 5.7 because it shows all the considerations that arise when a consumer faces a new and complex purchase situation.

Need Reeasgnition eed recognition The first stage of the buyer decision process, in which the consumer recognizes a problem or need.

The buying process starts with need recognition-the buyer recognizes a problem or need. The need can be triggered by internal stimuli when one of the person's normal needs-hunger, thirst, sex-rises to a level high enough to become a drive. A need can also be triggered by external stimuli. For example, an advertisement or a discussion with a friend might get you ~hinkingabout buying a new car, At this stage, the marketer should research consumers to 'find out what kinds of needs or problems arise, what brought them about, and how they led the consumer to this particular product.

Information search The stage of the buyer decision process in which the consumer is aroused to search for more information; the consumer may simply have heightened attention or may go into active information search.

An interested consumer may or may not search for more information. If the consumer's drive is strong and a satisfying product is near at hand, the consumer is likely to buy it then. If not, the consumer may store the need in memory or undertake an information search related to the need. For example, once you've decided you need a new car, at the least, you will probably pay more attention to car ads, cars owned by friends, and car conversations. Or you may actively look for reading material, phone friends, and gather information in other ways. The amount of searching you do will depend on the strength of your drive, the amount of information you start with, the ease of obtaining more information, the

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value you place on additional information, and the satisfaction you get from searching. Consumers can obtain information from any of several sources. These include personal sources (family, friends, neighbors, acquaintances), commercial sources (advertising, salespeople, Web sites, dealers, packaging, displays), public sources (mass media, consumer-rating organizations, Internet searches), and experiential sources (handling, examining, using the product). The relative influence of these information sources varies with the product and the buyer. Generally, the consumer receives the most information about a product from commercial sources-those controlled by the marketer. The most effective sources, however, tend to be personal. Need recognition can be triggered by advertising. This inventive ad from The LEG0 Company Commercial sources normally inform the invites consumers to think about where the first little block might lead-"imagine. . . ." buyer, but personal sources legitimize or evaluate products for the buyer. As one marketer states, "It's rare that an advertising campaign can be as effective as a neighbor leaning over the fence and saying, 'This is a wonderful product.' "34 As more information is obtained, the consumer's awareness and knowledge of the available brands and features increase. In your car information search, you may learn about the several brands available. The information might also help you to drop certain brands from consideration. A company must design its marketing mix to make prospects aware of and knowledgeable about its brand. It should carefully identify consumers' sources of information and the importance of each source.

Alternative evaluation The stage of the buyer decision process in which the consumer uses information to evaluate alternative brands in the choice set.

Purchase decision The buyer's decision about which brand to purchase.

We have seen how the consumer uses information to arrive at a set of final brand choices. How does the consumer choose among the alternative brands? The marketer needs to know about alternative evaluation-that is, how the consumer processes information to arrive at brand choices. Unfortunately, consumers do not use a simple and single evaluation process in all buying situations. Instead, several evaluation processes are at work. The consumer arrives at attitudes toward different brands through some evaluation procedure. How consumers go about evaluating purchase alternatives depends on the individual consumer and the specific buying situation. In some cases, consumers use careful calculations and logical thinking. At other times, the same consumers do little or no evaluating; instead they buy on impulse and rely on intuition. Sometimes consumers make buying decisions on their own; sometimes they turn to fciends, consumer guides, or salespeople for buying advice. Suppose you've narrowed your car choices to three brands. And suppose that you are primarily interested in four attributes-styling, operating economy, warranty, and price. By this time, you've probably formed beliefs about how each brand rates on each attribute. Clearly, if one car rated best on all the attributes, we could predict that you would choose it. However, the brands will no doubt vary in appeal. You might base your buying decision on only one attribute, and your choice would be easy to predict. If you wanted styling above everything else, you would buy the car that you think has the best styling. But most buyers consider several attributes, each with different importance. If we knew the importance that you assigned to each of the four attributes, we could predict your car choice more reliably. Marketers should study buyers to find out how they actually evaluate brand alternatives. If they know what evaluative processes go on, marketers can take steps to influence the buyer's decision.

Purchase In the evaluation stage, the consumer ranks brands and forms purchase intentions. Generally, the consumer's purchase decision will be to buy the most preferred brand,

,

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but two factors can come between the purchase intention and the purchase decision. The first factor is the attitudes of others. If someone important to you thinks that you should buy the lowest-priced car, then the chances of your buying a more expensive car are reduced. The second factor is unexpected situational factors. The consumer may form a purchase intention based on factors such as expected income, expected price, and expected product benefits. However, unexpected events may change the purchase intention. For example, the economy might take a turn for the worse, a close competitor might drop its price, or a fiiend might report being disappointed in your preferred car. Thus, preferences and even purchase intentions do not always result in actual purchase choice.

Postpur,chase behavior The stage of the buyer decision process in which the consumers takes further action after purchase, based on their satisfaction or dissatisfaction.

Cognitive dissonance Buyer discomfort caused by postpurchase conflict.

The marketer's job does not end when the product is bought. After purchasing the product, the consumer will be satisfied or dissatisfied and will engage in postpurchase behavior of interest to the marketer. What determines whether the buyer is satisfied or dissatisfied with a purchase? The answer lies in the relationship between the consumer's expectations and the product's perceived performance. If the product falls short of expectations, the consumer is disappointed; if it meets expectations, the consumer is satisfied; if it exceeds expectations, the consumer is delighted. The larger the gap between expectations and performance, the greater the consumer's dissatisfaction. This suggests that sellers shouid promise only what their brands can deliver so that buyers are satisfied. Some sellers might even understate product performance levels to boost later consumer satisfaction. For example, Boeing's salespeople tend to be conservative when they estimate the potential benefits of their aircraft. They almost always underestimate fuel efficiency-they promise a 5 percent savings that turns out to be 8 percent. Customers are delighted with better-than-expected performance; they buy again and tell other potential customers that Boeing lives up to its promises. Almost all major purchases result in cognitive dissonance, or discomfort caused by postpurchase conflict. After the purchase, consumers are satisfied with the benefits of the chosen brand and are glad to avoid the drawbacks of the brands not bought. However, every purchase involves compromise. Consumers feel uneasy about acquiring the drawbacks of the chosen brand and about losing the benefits of the brands not purchased. Thus, consumers feel at least some postpurchase dissonance for every purchase.35 Why is it so important to satisfy the customer? Customer satisfaction is a key to building profitable relationships with consumers-to keeping and growing consumers and reaping their customer lifetime value. Satisfied customers buy a product again, talk favorably to others about the product, pay less attention to competing brands and advertising, and buy other products fiom the company. Many marketers go beyond merely meeting the expectations of customers-they aim to delight the customer (see Real Marketing 5.2). A dissatisfied consumer responds differently. Bad word of mouth often travels farther and faster than good word of mouth. It can quickly damage consumer attitudes about a company and its products. But companies cannot simply rely on dissatisfied customers to volunteer their complaints when they are dissatisfied. Most unhappy customers never tell the company about their problem. Therefore, a company should measure customer satisfaction regularly. It should set up systems that encourage customers to complain. In this way, the company can learn how well it is doing and how it can improve. But what should companies do about dissatisfied customers? At a minimum, most companies offer toll-free numbers and Web sites to handle complaints and inquiries. For example, over the past 25 years, the Gerber help line (1-800-4-GERBER) has received millions of calls. Help line staffers, most of them mothers or grandmothers themselves, handle customer concerns and provide baby care advice 24 hours a day, 365 days a year to more than 2,400 callers a day. Customers can also log onto the Gerber Web site (www.gerber.com/contactus)and enter a phone number, and a staffer will call them. By studying the overall buyer decision, marketers may be able to find ways to help consumers move through it. For example, if consumers are not buying a new product because they do not perceive a need for it, marketing might launch advertising messages that trigger the need and show how the product solves customers' problems. If customers know about the product but are not buying because they hold unfavorable attitudes toward it, the marketer must find ways either to change the product or change consumer perceptions.

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u , t u e c ~ ~ d ~ im u ~enMarketplace g and Consumers

Close your eyes for a minute and picture a typical car dealership. Not impressed? Talk to a friend who owns a Lexus, and you'll no doubt get a very different picture. The typical Lexus deaiership is . . . well, anything but typical. And some Lexus dealers will go to almost any extreme to take care of customers and keep them coming back: >.-7:

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r f o r m & : e - e v e r to consumers. In the final analysis, brands exist hthe m n d s of consumers. The real value of a strong brand is its power to Brands vary in the amount of power and value they such as Coca-Cola, Tide, Nike, Harley-Davidson,Disney, and others-become larger-than-life icons that maintain their power in the market for years, even generations. These brands win in the marketplace not simply because they deliver unique benefits or reliable service. Rather, they succeed because they forge deep connections with customers. Consumers sometimes bond very closely with specific brands. Consider the feelings of one Michigan couple about Black & Decker's DeWalt power tool brand:21 Rick and Rose Whitaker weren't comfortable with the idea of a white-gown-and-tux wedding. They kept coming back to the fact that Rick, a carpenter, had a passion for power tools. Specifically,DeWalt power tools. So at the July nuptials, 50-plus guests gathered in Rick's backyard wearing DeWaltJstrademark yellow-and-black T-shirts. The Michigan couple-both are now $$-dressed in shirts emblazoned with an image of DeWalt-sponsored NASCAR driver Matt Kenseth. They made their way to a wooden chapel that they had built with their DeWalt gear. There they exchanged power tools, cutting the cake with a power saw.

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tomers would pay a 20 percent premium for their brand of choice relative to the closest competing brand; 40 percent said they would pay a 50 percent premium. Tide and Heinz lovers are willing to pay a 100 percent premium.22 A brand with strong brand equity is a very valuable asset. Brand valuation is the process of estimat------=-Lng the t % ~ l ~ i n ~ r i ~ i T ~ o ~ Me a basxurmg a ~ d . *such value is difficult. However, according to one estimate, the brand value of Coca-Cola is $67 billion, Microsoft is $57 billion, and IBM is $56 billion. Other brands rating among the world's most valuable include GE, Intel, Nokia, Toyota, Disney, McDonald's, and M e r c e d e s - B e n ~ . ~ ~ High brand equity provides a company with many competitive advantages. A powerful brand enjoys a high level of consumer brand awareness and loyalty. Because consumers expect stores to carry the brand, the company has more leverage in bargaining with resellers. Because the brand name carries high credibility, the company can more easily launch line and brand extensions. A powerful brand offers the company some defense against fierce price competition. Above all, however, a powerful brand forms the basis for building strong and profitable customer ~ e l a El Consumers sometimes bond very closely with specific brands. Jokes the tionships. The fundamental asset underlying brand bride: "He loves DeWalt nearly as much as he loves me." equity i s p s ..___.__I__ t o m e r eoav-the value of the customer relationshias -that the bran . is important, but what it really r e p r e s " e " ; ; - t ~ ~ ~ ~ ~ 3 ~ uThe ~ proper f o m ~ r s . Brand equ-iy focus of marketing is building customer equity, with brand management serving as a major ' ~ & i i i ~ % f f e r e n t l a leffect tm'knowing the brand marketing tool. Says one marketing expert, "Companies need to be thought of as portfolios of has on cusGKer .----respon2sto customers and not portfolios of products."24 -s--L---;i

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Marketers need to position their brands clearly i n _ t a n _ t a r ~ t c u s ~ ~ r s s b ~They ~ d s . can position , they can position the brand on brands at any of three levels.25 At t k about their products' natural, Thus, The Body Shop m iendly ingredients, unique scents, and special textures. However, attributes are the least desirable level for brand positioning. ~ompetitorscan easily copy attributes. More

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.3

Major brand strategy decisions

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Designing a Customer-Driven Marketing Strategy and Integrated Marketing Mix important, customers are not interested in attributes as such; they are interested i n what the attributes will do for them. A brand can be better positioned by associating its name with a desirabl Thus, The Body Shop can go beyond pro edients and talk about the resulting beauty benefits, such as clearer skin from its Tea Tree Oil Facial Wash and sun-kissed cheeks fiom its Bronzing Powder. Some successful brands positioned on benefits are Volvo (safety),FedEx (guaranteed o n - b e delivery), Nike (performance), and Lexus (quality).

Brand positioning: The strongest brands go beyond attribute or benefit positioning. Godiva engages customers on a deeper Level, touching universal emotions.

strong These brands pack an emotional wallop. Thus, The Body Shop can talk not just about environmentally MendG ingredients and skin-care benefits, but about how purchasing these products empowers its socially conscious customer to "make up your mind, not just your face."26 Successful brands engage customers on a deep, emotional level. Brands such as Starbucks, Victoria's Secret, and Godiva rely less on a product's tangible attributes and more on creating surprise, passion, and excitement surrounding a brand. When positioning a brand, the marketer should establish a mission for the brand and a vision of whatthe b r q d must be and do..> bianvd GXiver a sFcific set of t s the c o m G y ' s features, benefits, services, and experiences consistently to the buyers. The brand promise must be simple and honest. Motel 6, for example, offers clean rooms, low prices, and good service but does not promise expensive furniture or large bathrooms. In contrast, The Ritz-Carlton offers luxurious rooms and a truly memorable experience but does not promise low prices.

A good name can add greatly to a product's success. However, finding the best brand name is a difficult task. It begins with a careful review of the product and its benefits, the target market, and proposed marketing strategies. After that, naming a brand becomes part science, part art, and a measure of instinct (see Real Marketing 8.1).

eign markets. It found that the name Enco referred to a stalled engine when pronounced i n . A brand name cannot be Japanese. (6) It should be capable of registration and leg registered if it - ~ - ~ i s ~ a f ; - Z E T e s . Many firms try to build a brand name that will eventu oduct category. Brand names such as Kleenex, Levi's, Jell-0, BAND-AID, Scotch Tape, Formica, Ziploc, and Fiberglass have succeeded in this way. However, their very success may threaten the company's rights to the name. Many originally protected brand names-such as cellophane, aspirin, nylon, kerosene,

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linoleum, yo-yo, trampoline, escalator, thermos, and shredded wheat-are now generic names that any seller can use. To protect their brands, marketers present them carefully using the word "brand" and the registered trademark symbol, as in "BAND-AID@Brand Adhesive Bdndages."

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> m & ~ a % u (orX national r sponsorship options. The product may be launched as a brand), as when Kellogg and Apple sell their output under urer's brand names. Or the manufacturer may sell to resellers who give it alled a sfore brand or d i s ~ t ~ ~ _ b ~Although , n d ) . most manufacturers brand name=ersm&ket licensed brands. Finally, two companies can join forces and co-brand a product.

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Manufacturers' brands have long dominated the retail scene. In recent times, however, an increasing number of retailers and wholesalers have created their own private brands (or store brands). And in many industries, these private brands are giving man?iTac&e~' 6r$ds'a~a1r30r their money:

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Melanie Turner has forgotten her shopping list, but the 42-year-old pension consultant doesn't seem to mind. Entering her local Costco store, Turner knows right where she's going. In the dish detergent section, her hand goes past Procter & Gamble's Cascade to grab two 96-ounce bottles of Kirkland Signature, the in-store brand that Costco has plastered on everything from cashews to cross-trainer sneakers. Trolling for some fresh fish for dinner, she hauls in a 2 1/2-pound package of tilapia-it, too, emblazoned with the bold red, white, and black Kirkland logo. Then it's off to the paper aisle, where she picks up mammoth packs of Kirkland dinher napkins, Kirkland toilet paper, and . . . wait, where are the Kirkland paper towels? Her eyes scan the store's maze of hulking pallets-no sign of them-before coming to rest on a 12-pack of P&G's Bounty. A moment of decision. "1'11 wait on this," she says finally. And there, in microcosm, is why Melanie Turner scares the pants off Procter & Gamble, Unilever, Kraft, and just about every'consumer-goods company out there. Her shopping cart is headed for the checkout aisle, and there's hardly a national brand in it. . . . A subtle tectonic shift has been reshaping the world of brands. Retailersonce the lowly peddlers of brands that were made and marketed by big, Ed An increasing number of retailers have created their own store brands. Costco's important manufacturers-are now Kirkland brand adorns everything from baby wipes to barbeques. behaving like full-fledged marketemz7 It seems that almost every retailer now carries its own store brands. Wal-Mart offers Sam's Choice beverages and food products, Equate pharmacy and health and beauty products, and White Cloud brand toilet tissue, diapers, detergent, and fabric softener. More than half the products at your local Target are private brands, and grocery giant Kroger markets some 8,000 items under a variety of private brands, such as Private Selection, Kroger Brand, F.M.V. (For Maximum Value), Naturally Preferred, and Everyday Living. And private labels make up more than 80 percent of Trader Joe's merchandise. At the other end of the spectrum, upscale retailer Saks Fifth Avenue carries its own clothing line, which features $98 men's ties, $200 halter-tops, and $250 cotton dress shirts. In all, private brands capture more than 20 percent of all U S . consumer products sales. Private-label apparel, such as Gap, The Limited, Arizona Jeans (JC Penney), and Liz Lange (Target),captures a 36 percent share of all U.S. apparel sales.28

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z 2 Every company wants a name that's *,: % : ,& 'lsti~ky'r-~nethat stands out from the crowd, a catchy handle that will remain fresh and memorable over time. But the issue of stickiness turns out to be kind of, well, sticky. Such names are hard to find, especially because naming trends change-often decade by decade. Whereas the giddy 1990s were all about quirky names (Yahoo, Google, Fogdog) or trademark-proof monikers concocted from scratch (Novartis, Aventis, Lycos), tastes have shifted amid the uncertainties of the new millennium. Today's style is to build corporate identity around words that have real meaning, to name things in the spirit of what they actually are. The new names are all about purity, clarity, and organicism. For example, names like Silk (soy milk), Method (home products), Blackboard (school software), and Smartwater (beverages)are simple and make intuhve sense. "There's a trend toward meaning in words. When it comes down to evocative words versus straightforward names, straightforward will win in testing every time,"says an executive from a New - .--- -- - --*. --Eod~tsatgg~~z.nonF!nfthecom example, Toyota created the separate Sci ~ a t s i s h i t auses separate names for its different farniiies of consumer electronics products: Panasonic, Technics, JVC, and Quasar, to name just a few. As with multibranding, offering too many new brands can result in a company spreading its resources too thin. And in some industries, such as consumer packaged goods, consumers and retailers have become concerned that there are already too many brands, with too few differences between them. Thus, Procter & Gamble, Frito-Lay, and other large consumer product marketers are now pursuing megabrand strategies-weeding out weaker brands and focusing their marketing dollars only on brands that can achieve the number-one or number-two market share positions in their categories. "We . . . sort through our smaller brands," says P&GYs CEO, and "divest the ones that don't have a strategic role or cannot deliver."35 &

arefully. First, the brand's positioning must be conMajor brand marketers often spend huge amounts s and to build preference and loyalty. For example, Verizon spends more than $1.7 billion annually to promote its brand. Coca-Cola spends $317 million on its Coca-Cola and Diet Coke brands.36 Such advertising campaigns can help to create , Today, customers come to know a wide range of contacts These include advertising, but also ence with the b r q d . . w ~ g g m f o u ~ c o ~Web p ~pBes, - ~ and m a n m e r s . The company m%tFiasmuch c&e into managing these-touch points a x m t o produ%ng its ads. "A brand is a living entity," says former Disney chief executive Michael Eisner, "and it is enriched or undermined cumulatively over time, the product of a thousand small gestures."37 The brand's positioning will not take hold fully unless everyone in the company lives the brand. Therefore the company needs to train its people to be customer centered. Even better,

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the ixmpany should carry on internal brand building to help employees understand and be enthusiastic about the'brand promise. Many companies go even further by training and encouraging their distributors and dealers to serve their customers well. All of this suggests that managing a company's brand assets can no longer be left only to brand managers. Brand managers do not have enough power or scope to do all the things necessary to build and enhance their brands. Moreover, brand managers often pursue short-term results, whereas managing brands as assets calls for longer-term strategy. Thus, some companies are now setting u manage their major brands. Canada Dry and Colgate-Pal managers to maintain and protect their brands' images, associations, and quality and to prevent short-term actions by overeager brand managers from hurting the brand. 38 Finally, companies need to periodical They should ask: Does our brand excel at 1s the brand properly positioned? Do all of our consumer touch points support the brand's positioning? Do the brand's managers understand what the brand means to consumers? Does the brand receive proper, sustained support? The brand audit may turn up brands that need more support, brands that need to be dropped, or brands that must be rebranded or repositioned because of changing customer preferences or new competitors.

Services have grown dramatically in recent years. Services now account for close to 79 percent of U.S. gross domestic product. And the service industry is growing. By 2014, it is estimated that nearly four out of five jobs in the United States will be in service industries. Services are growing even faster in the world economy, making up 37 percent of the value of all international trade.39 Service industries vary grea r services through courts, employment fire departments, postal services, and services, hospitals, military se schools. Private not-for-profit organizations offer services through museums, charities, churches,"c";;lmfo~T1'3~~ns;-an-d-h-o~it5Ts~ large n ~ m b e r ~ o ~ h u s i a e s s services-airlines, banks, hotels, insurance companies, consulting firms, practices, entertainment companies, real-estate firms, retailers, and others.

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Four service characteristics

A company must consider four special service characteristics when designing marketing - -prov r i a b;iitiy, an? perishabiii~(sek ~ i & e 8.5). a~servicescannot be seen, tasted, felt, heard, or smelled . For example, people undergoing cosmetic surgery cannot see the result before the purchase. Airline passengers have nothing but a ticket and the promise that they and their luggage will arrive safely at the intended destination, hopefully at the same time. To reduce uncertainty, buyers look for "signals" of service quality. They draw conclusions about quality from the place, people, price, equipment, and communications that they can see.

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capabilities. The Mayo Clinic practices good evidence management:40 *-L.-----L

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When it comes to hospitals, it's very hard for the average patient to judge the quality of the "product." You can't try it on, you can't return it if you don't like it, and you need an advanced degree to understand it. And so, when we're considering a medical facility, most of us unconsciously turn detective, looking for evidence of competence, caring, and integrity. The Mayo Clinic doesn't leave that evidence to chance. By carefully managing a set of visual and experiential clues, Mayo offers patients and their families concrete evidence of its strengths and values. For example, staff people at the clinic are trained to act in a way that clearly signals its patient-first focus. "My doctor calls me at home to check on how I am doing," marvels one patient. "She wants to work with what is best for my schedule." Mayo's physical facilities also send the right signals. They've been carefully designed to relieve stress, offer a place of refuge, create positive distractions, convey caring and respect, signal competence, accommodate families, and make it easy to find your way around. The result? Exceptionally positive word of mouth and abiding customer loyalty, which have allowed Mayo Clinic to build what is arguably the most powerful brand in health care-with very little advertising. Physical goods are produced, then stored, later sold, and still later consumed. In contrast, A major characteristic-o& TerVices-they-a~e-prod uc* s_and consumed at theL2ame 7 time and cannot be separated -----.--= ,from their proyvidgg

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torner affect the service outcome. Service variability means that the quality on who-provides-&!I? as ---- of servicesdepends -- .---w - m d how t h e t a p P r O ~ d e $For example, some hotels-say, Marriottave reputations for providing better service thin others. Still, within a given Marriott hotel, one registration-counter employee may be cheerful and efficient, whereas another standing just a few feet away may be unpleasant and slow. Even the quality of a single Marriott employee's service varies according to his or her energy and frame of mind at the time of each customer encounter. Service perishability means that services cannot be stored for later sale or use. Some doctors $5arge c i i f i & m i s s e d appointments because the service value existed only at that point and disappeared when the patient did not show up. The perishability of services is not a problem when demand is steady. However, when demand fluctuates, service firms often have difficult problems. For example, because of rush-hour demand, public transportation companies have to own much more equipment than they would if demand were even throughout the day. Thus, service firms often design strategies for producing a better match between demand and supply. Hotels and resorts charge lower prices in the off-season to attract more guests. And restaurants hire part-time employees to serve during peak periods.

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pmfit-chaig, which links service firm profits with employee and customer satisfaction. This chain consists of five links:41 a Internal service q ualjty: s u p ~ g &employee selection. and training, a-qua!ilywork envg~s---merit, and strong ~ ' u 5 ~ ofor r t those &iTing ust tome%, wh* rresu.@ in . . . - - - -"--A -

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satisfied customers who remain loyal, repeat purchase, and esults in . . . es =thy sevice profits and growth :superiars.ex-vice firm performance. .----,-----. -Therefore, reaching service profits and growth goals begins with taking care of those who take care of customers (see Real Marketing 8.2). In fact, legendary founder and former CEO of Southwest Airlines, Herb Kelleher, always put employees first, not customers. His reasons? "If they're happy, satisfied, dedicated, and energetic, they'll take good care of customers," he says. "When the customers are happy, they come back, and that makes shareholders happy."42 Consider Wegmans, a 71-store grocery chain in the Mid-Atlantic States. ~i

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BI The service-profit chain: Happy employees make for happy customers. "The biggest reason Wegmans is a shopping experience like no other i s that it is a n employer like no other."

_

Wegmans customers have a zeal for the store that borders on obsession. Says one regular, "Going there isn't just shopping, it's an event." A recent national survey of food retailer customer satisfaction put Wegmans at the top. Last, year, Wegmans received more than 7,000 letters from around the country, about half of them asking Wegmans to come to their town, The secret? Wegmans knows that happy, satisfied employees produce happy, satisfied customers. So Wegmans takes care of its employees. It pays higher salaries, shells out money for employee college scholarships, covers 100 percent of health insurance premiums for employees making less than $55,000 a year, and invests heavily in employee training. In fact, last year Wegmans topped Fortune magazine's best-companies-to-work-for list. "The biggest reason Wegmans is a shopping experience like no other is that it is an employer like no other," says a Wegmans

Thus, sewice marketing requires more than just tradition Four Ps. Figure 8.6 shows that ser'vice mark$~G@I$%dr'eq " interadiTe marketing. Internal marketing means that the service firm m 7 ; _ ---_ -- ---

-3

Company

Three fype~~oJservice m"am"arkiting

r-,---

EmplOyeeS

sh-prpducts, through t h e tradiitional stages of the productlife-cycle. ' ' ~ Y ~ e t e instinctively r s embrace the old life-cycle paradigm, they n6edlessly c 0 n S i S h e i r products to following the curve into maturity and decline," notes one marketing professor. Instead, marketers often defy the "rules" of the life cycle and position their products in unexpected ways. By doing this, "companies can rescue products foundering in the maturity phase of their life cycles and return them to the growth phase. And they can catapult new products forward into the growth phase, leapfrogging obstacles that could slow consumers' a ~ c e p t a n c e . " ~ ~ We looked at the product development stage of the product life cycle in the first part of the chapter. We now look at strategies for each of the other life-cycle stages. r?--=====l

%product life-Cycle stage ~n'whictithe newpf6?KEs 7iraktributed and mad?-' -- - -' available for purch3se:--+

a

. cn

cn

A temporary period of

V)

-m

-

Zntroduotiajn Stags --The i~&oPdduction stage starts when the new product is f i r s t e d . Introduction takes time, and sales growth is apt to be slow. Wellknown such as -instant coffee and frozen foods lingered for many years before they entered a stage of rapid growth. In this stage, as compared to other stages, p r o f i ~ ~ g - e g g ~ i ; ~ - c because ! r ~ w of the low s&s and & M u t i ----o n and p-.romom gzpenses. M u . moneyis.needed to2ttrac!-d$: _tributG&d builbthe&ig~entor~esr-. Promotion spending is relatively high to inform consumers of the new product and get them t r t w t . Because the market is not generally ready for __._

Fads: Pet rocks, introduced one October, had sunk Like a stone by the next February.

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Designing a Customer-Driven Marketing Strategy and Integrated Marketing Mix product refinements at this stage, the company and its few competitors produce basic versions of the product. These firms focus their selling on those buyers who are the most ready to buy. must choose a launch strategy that is consisA company, especially th ould realize that the initial strategy is just the tent with the intended produc first step in a grander marketing plan for the product's entire life cycle. If the pioneer chooses its launch strategy to make a "killing," it may be sacrificing long-run revenue for the sake of short-run gain. As the pioneer moves through later stages of the life cycle, it must continuously formulate new pricing, promotion, and other marketing strategies. It has the best chance of building and retaining market leadership if it plays its cards correctly from the start.

_Grow_tkstgge

If the new product satisfies the market, it will enter

in which a product's s a k e ? start cllmbrng quickly. ..==-------- . ---

--

slightly higher level. Educating the market remains a goal, but now the company must also meet the competition:' Profits increase during the growth stage, as promotion costs are spread over-&rge_vol-,=&-and as u x a n u f a c t u r i n g costs fall. ~ h e ~ ' u s e ~ ; e ~strategies & a l to& d-s -- product qu$ig and aas-newpro-duct ef-s market growih as long as possibl-ves t7 entersenew market' se@heriti and ~ d i s ~ u t i o shifts ~ some - ~ ~ -- advertising f r o m m i n g p r o d u c t ~ & = ~ ~to b u i l d i n g ~ r o d u gconviction and purchase, and it 1gwxs-pricg~atthe right time-to-am&-more-buy%rs. In the growth stage, the firm faces a trade-off between high market share and high current theIp;c;c~&. By spending a lot of money on p r Z c ~ i " m 7 5 " : m e n tp_r^?irnoti~~~ddi%ibution, , company can capture a dominant position. In doing so, however, it gives up maximum current profit, which it hopes to make up in the next stage. *-

~

-x-

Maturity stage 'Theprodkt l8e-cycle stage Iin which sales growth slo@ --or levels qf- _

-

- -

,jand the product will enter a-maturity , and it poses s t r z g tage of the life cycle, challenges to marketing manageme and therefore most of marketing management deals with the mature product.

stags This ma

competitors start d r o ~ , , o u t and , .the industry eventually contains only w e l k s b b l ~ d , competitors. - --- ~ l t h G many h products in the mature stage appear long periacp+d~?v&ing to meet changing co ods, m-ost successfuzJon~~~re s. Product managers should do more simply ride along Wth or defend their m a t u r e ~ d u c t s - a good offense is the best defense. They should con -marketing-r&c In modi$ng fh_~p_rket, the company tries to increase the consumption of the--current prWi It may look for n z s e r s and new market s e m s , a3Ghen John Deere tiigeted3Be retiring baby-boomer market with the Gator, a vehicle traditionally used on a farm. For this new market, Deere has repositioned the Gator, promising that it c& "take you from a do-ityourselfer to a do-it-a-lot-easier." The manager may also look for ways to increase usage amo_ng,~-e_n.c~~t_o~mers. Amazon.com does this by sending p e r r n i s s i o n - b a s e ~ to s regular customers letting the& know when their favorite authors or performers publish new books or CDs. The WD-40 Company has shown a real knack for expanding the market by finding new uses for its popular substance.

t

Chapter 9 New-Produd Development and Product Life-Cycle Strategies

273.

In 2000, the company launched a search to uncover 2,000 unique uses for WD-40. After receiving 300,000 individual submissions, it narrowed the list to the best 2,000 and posted it on the company's Web site. Some consumers suggest simple and practical uses. One teacher uses WD-40 to clean old chalkboards i n her classroom. "Amazingly, the boards started coming to life again," she reports. "Not only were they restored, but years of masking and Scotch tape residue came off as well." Others, however, report some pretty unusual applications. One man uses W - 4 0 to polish his glass eye; another uses it to remove a prosthetic leg. And did you hear about the nude burglary suspect who had wedged himself in a vent at a cafe in Denver? The fire department extracted him with a large dose of WD-40. Or how about the Mississippi naval officer who used WD-40 to repel an angry bear? Then there's the college student who wrote to say that a friend's nightly amorous activities in the next room were causing everyone in his dorm to lose sleep-he solved the problem by treating the squeaky bedsprings with lNJl-40.~~ The company might also try mo&fy&g-$e pc~ducL-changing characteristics -such - - - -- -as qualify, features, style, or packaging to attract new users and to inspire more usage. It might improve the poducfs-quality-aad peyfo~mace-its durab_&y, taste. It-can improve the prod- reliability,-speed, @ The WD-40 Company's knack for finding new uses has.,madethis popular uct's styling and attractiveness. Thus, car manufacsubstance one of the truly essential survival items in mdst American homes. turers restyle their cars to attract buyers who want a new lodk. The makers of consumer food and household products introduce new flavors, colors, ingredients, or packages to revitalize consumer buying. Or the company might add new features that expand the product5 usefulness, safety, or convenience. For example, WD-40 has recently introduced a new Smart Straw can featuring a permanently attached straw that never gets lost. And it brought out a No-Mess Pen, with a handy pen-shaped applicator that lets users "put W - 4 0 where you want it and nowhere else." Finally, the company can tr-ysodi@ngthe-mazk&n=g~-improving sale~~b-y~chang~ing one or more marketingmix-elem_ents. It can cut prices to attract new users and competitors' customers. It can launch a better advertising campaign or use aggressive sales promotionstrade deals, cents-off, premiums, and contests. In addition to pricing and promotion, the company can also move into larger market channels, using mass merchandisers, if these channels are growing. Finally, the company can offer new or improved services to buyers. I-----

Decline Stage

Decline stage

TfT= e--product d life-cygle stage i m c h - a product'szs dediire. -.--

Tbe sales of most product forms and brands eventually dip. The decline may be slow, as in the case of oatmeal cereal, or rapid, as in the cases of c a s s e = m ~ tapes. Sales may plunge to zero, or they may drop to a low level where they continue for many years. This is the ,ded&pstage. ~all_d~zg~~ for many reasons, including technological advances, shifts in consumer tastex andincreased competition. As sales and pgofits decline, some firms withdraw from the market. Those remaining may prune their prod= T ~ F drop A smaller ~ ~ m&?%t * the promotio-ce.. , _ --_.. -segments and marginal trade channels, or they may cut -- a!ir prices further.

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Not so long ago, Procter & Gamble was a slumbering giant. Mired in mature markets with megabrands such as Tide, Crest, Pampers, and Pantene, growth had slowed and earnings languished. But no longer. Now, thanks to a potent mixture of renewed creativity and marketing muscle, P&G is once again on the move. In the past five years,, P&G1s stock price and profits have doubled. The key to this success has been a renewed knack for innovation and a string of successful new products. As you've no doubt noted, P&G innovations have popped up repeatedly as examples in this chapter. "From its Swiffer mop to battery-powered Crest SpinBrush toothbrushes and Whitestrip tooth whiteners," says one observer, "P&G has simply done a better job than rivals of coming up with new products that consumers crave." But it's not just new products-P&G has been working at both ends of the product life cycle. Along with creating innovative new products, P&G has become adept at turning yesterday's faded favorites into today's hot new products. Here are two examples. i

Mr. Clean Mr. Clean's share of the all-purpose household cleaner market had plunged more than 45 percent in just ten years. But rather than abandon the 48-year-old iconic brand, P&G chose to modify and extend it. First, it reformulated the core Mr. Clean all-purpose liquid cleaner, adding antibacterial properties and several new scents. Then came some real creativity. P&G extended the brand to include several revolutionary new products. The first was Mr. Clean Magic Eraser, a soft, disposable selfcleaning pad that acts like an eraser to lift away tough dirt, including difficult scuff and crayon marks. The Magic Eraser was soon followed by products such as the Mr. Clean AutoDry Carwash system, which gives your car a spot-free clean and shine with no need to hand dry, and the Mr. Clean MagicReach bathroom cleaner,

Working at both ends of the product life cycle: Along with creating innovative new products, P&G has become adept at turning yesterday's faded favorites into today's hot new products. For example, its Mr. Clean brand has now muscled its way back into a market-leading position.

Carrying a weak product can be very costly to a firm, and n o t just in p r o f i t terms. There are many h i d d e n costs. A weak product m a y take u p too m u c h o f management's time. It often requires frequent p r i c e a n d inventory adjustments. I t requires advertising and sales-force attention that m i g h t be better used to make "healthy" products more profitable. A product's failing reputation can cause customer concerns about the company a n d its other products. The biggest cost m a y w e l l l i e in the future. Keeping weak products delays the search for replacements, creates a lopsided product mix, hurts current profits, and weakens the company's foothold o n the future. For these reasons, companies need to pay more attention to their aninn products. The firm's first task i s t o identify@ose~rod~_c_ts~i~%%~d~~lini i i a g e b y c T i Y ~sales, g market shares, c o s W X d p r o f i t trends. Then, management must decide-whether to m a i n t z n , - ---harvest, o r drop each o f these declining products, Management m a y decide to maintain i t s brand_without_changein the hope that comp,e?tors w i l l leave the industry. F o r example, Procter & Gamble mad6 g o o d ~ o ~ t S b ~ r e m a i n in ing

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Chapter 9

New-Product Development and Product Life-Cycle Strategies

which helps ease the tough job of cleaning those hard-to-reach bathroom spots. As for the marketing muscle, P&G backed the new-product launches with millions of dollars in marketing support. It spent $75 million on marketing the first version of the AutoDry Carwash alone. Now, after a decade of playing the 98-pound weakling, Mr. Clean has muscled its way back to a market-leading position as a P&G billion-dollar brand.

Old Spice When P&G acquired Old Spice in 1990, the brand was largely a has-been. It consisted mainly of a highly fragrant aftershave, marketed to a rapidly graying customer base through ads featuring a whistling sailor with a girl in every port. Old Spice deodorant ranked a dismal tenth in market share. But in a surprisingly short time, P&G has transformed a small stagnating brand into a men's personal care powerhouse. Old Spice is now one of the top-selling brands in the deodorant, antiperspirant, and body spray category, with 10 percent share of the almost $2.4 billion market. To get there, P&G pulled off one of the hardest tricks in marketing: reviving a familiar brand. To shed the image of "your father's aftershave," and to appeal to younger buyers, P&G refocused on performance, launching Old Spice High Endurance deodorant in 1994. It ditched the sailor ads and targeted guys 18 to 34. The deodorant business grew steadily, but P&G still wasn't drawing in men 25 to 45, who still remembered Old Spice as a relic from Dad's era. So P&G skipped a generation and aimed Old Spice at first-time deodorant users. It started handing out samples of High Endurance to fifth-grade health classes, covering 90 percent of the nation's schools. In 2000, P&G launched Old Spice Red Zone, a sub-brand that offered even more protection than High Endurance. Sales took

273

off, and by 2001, Old Spice was edging out Right Guard as the top teen brand. To reach teen boys, who spend less time watching TV, P&G's marketing for Old Spice has gone well beyond the 30-second TV commercial to include lots of grassroots marketing. P&G hands out Old Spice samples at skateboarding events and gets the product into locker rooms by sponsoring a contest for high-school football player of the year. Old Spice has even partnered with P&G brand Always to assemble sex-education packages for fifth-grade classrooms, entitled "Always Changing: About You-Puberty and Stuff." For boys, the package comes complete with reading material, a video, and Old Spice product samples. P&G now has that Old Spice sailor whistling a whole new tune. The once old and stodgy is young again, and hot. Beyond deodorant, P&G sees Old Spice as a beachhead into other products. It has already launched Old Spice body sprays and body washes and has licensed sales of razors and shaving cream. What was old just over five years ago is new again-and a lot younger. Sources: Examples adapted from portions of Robert Berner, "Extreme Makeover," Business Week, November 1, 2004, pp. 105-106; and Jack Neff, "Mr. Clean Gets $50 Million Push," Advertising Age, August 18, 2003, pp. 3, 32; with quotes and other information from Todd Wasserman, "Mr. Clean AutoDry Gets an Overhaul," Brandweek, February 28, 2005, p. 17;Marek Fuchs, "Sex Ed, Provided by Old Spice," New York Times, May 29, 2005, p. 14WC.1; Jack Neff, "Who's No. l? Depends on Who's Analyzing the Data," AdvertisingAge, June 12, 2006,. p. 8; Constantine von Hoffman, "A Washout or a Clean Sweep," Brandweek, June 19,2006, pp. S52-S54; P&G 2005 Annual Report, accessed at www.PG.com, July 2006; and information accessed at www.homemadesimple. com/mrclean/, December 2006.

the declining liquid soap business as others withdrew. Or management m a y decide to reposit i o n o r reinvigorate the brand in hopes o f m o v i n g i t back i n t o the growth stage o f the product l i f e cycle. Procter & Gamble has done this w i t h several brands, i n c l u d i n g Mr. Clean and O l d Spice (see Real Marketing 9.2). Management m a y decide to harvest-the ~rodmJ, w h i c h means ryducing ~v_ario.us.-~~o.sts (&ant and equipment, maintenance, R&Q advertising, sales force) and h o p i n g that sales h o l d If successful, harvesting w i l l increase the company's profits in the short run. Or manage--s cup. -d m e n t m a y decide to drop 2 e product &om &gJqe. I t can sell i t to another firm or simply l i q uidate it at salvage value. In recent years, Procter & Gamble has sold off a number of lesser or the company plans to find a buyer, i t declining brands such as Crisco and Jif peanut butter. If w i l l n o t w a n t to run d o w n the product through harvesting. Table 9.2 summarizes the k e y characteristics of each stage of the product l i f e cycle. The table also lists the marketing objectives and strategies for each stage.35

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Summary of Product LifeCycle Characteristics, Objectives, and Strategies

/

Characteristics

,_-

;

i i i I

_

.___-

-

Maturity

Growth

btroduction _ __ _

-.. . ---.

Sales

Low sales

Costs

High cost per customer Negative

Rapidly rising sales Average cost per customer Rising profits

l nnovators

Early adopters

Few

Growing number

Profits

i Customers I

I

i

i

Competitors

.-

Decline -- .-.. -

Peak sales

Declining sales

Low cost per customer High profits

Low cost per customer Declining profits Laggards

Middle majority Stable number beginning to decline

Declining number

Marketing Objectives -

-

-

-

- -

Maximize market share

Offer product extensions, service, warranty Price to penetrate market Build intensive distribution

i

Strategies

\

Product

Offer a basic product

:

Price

Use cost-plus

-

.

Create product awareness and trial

--

Maximize profit while defending market share

Reduce expenditure and milk the brand

- - - --.

i Distribution j

j

Build selective distribution

Diversify brand and models

Phase out weak items

Price to match or beat competitors Build more intensive distribution

Cut price

Stress brand differences and benefits

Go selective: phase out unprofitable outlets Reduce to level needed to retain hard-core loyals

Increase to encourage brand switching

Reduce to minimal level

I

I Advertising

Sales Promotion

Build product awareness among early adopters and dealers Use heavy sales promotion to entice trial

Build awareness and, interest in the mass market Reduce to take advantage of heavy consumer demand

Source: Philip Kotler, Marketing Management, 12th ed. (Upper Saddle River, NJ: Prentice Hall, 2006),

p. 332.

Here, we'll wrap up our discussion of products and services with two additional considera-

Product decisions have attracted much public attention. Marketers should carefullv consider ptecmp-+is from a_ddicgproducts oCCompanies droppingprodor 'implied, to their suppliers,

Chapter 9 New-Product Development and Product Life-Cycle Strategies

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dealers, and customers who have a stake in the dropped product. Companies must also obey U.S. patent laws when developing new products. A company cannot make its product gally similar to another company's established product. Manufacturers must comply with specific laws regardi Federal Food, Drug, and Cosmetic Act protects consumers drugs, and cosmetics. Various acts provide for the inspec meat- and poultry-processing industries. Safety legislation has been passed to regulate fabrics, chemical substances, automobiles, toys, and drugs and poisons. The Consumer Product Safety Act of 1972 established a Consumer Product Safety Commission, which has the authority to ban or seize potentially harmful products and set severe penalties for violation of the law. njured by a product that has been designed defectively, they can Product liability suits are now occurring in federal courts at the . Although manufacturers are found at fault in only 6 percent of all product liability cases, when they are found guilty, the median jury award is $1.5 million, and individual awards can run into the tens or even hundreds of millions of dollars. For example, a jury recently ordered Ford to pay nearly $369 million to a woman paralyzed in a rollover accident involving a Ford E ~ p l o r e r . ~ ~ lity insurance~e-mj--. se higher rates along to consumers by raising prices. Others are forced to discontinue high-risk product lines. Some companies are now appointing "product stewards," whose job is to protect consumers from harm and the company from liability by proactively ferreting out potential product problems. Many manufacturers offer written product warranties to convince customers of their s e d - t h 2 Warranty Act in products' quality. To p r o t & % ~ ~ ~ 6 n g r ~ s ~ P a ~Magnuson-Moss 1975. The act reqiiaes tnat ~ - U T Z E E t i emeet s certain minimum standards, including repair "within a reasonable time and without charge" or a replacement or full refund if the product does not work "after a reasonable number of attempts" at repair. Otherwise, the company must make it clear that it is offering only a limited warranty. The law has led several manufacturers to switch from full to limited warranties and others to drop warranties altogether.

--

and service marketers face special challenges. First, they must figure' ou-&s. Then, they must decide s f i w o r l d markets. their offerings. ~ h d a r d i z a t i o n helps a company to develop ?_cpg~is_tentworldwid3jmgge. It also lowers the product design, msufacLt@ng, -and m%ke2ng-cm&of offering a large variety o E ~ G ? E T E T i a , markets~anTco~S3im~s around the world differ widely. Companies must usually respond to these differences by adapting their product offerings. For example, Cadbury sells kiwi-filled Cadbury Kiwi Royale in New Zealand. Frito-Lay sells Nori Seaweed Lay's potato chips for Thailand and A la Turca corn chips with poppy seeds and a dried tomato flavor for ~ u r k e y . ~ ~ & P-g also presents new challenges for international marketers. Packaging issues can be subtle. For example, names, labels, and colors may not translate easily from one country to another. A firm using yellow flowers in its logo might fare well in the United States but meet with disaster in Mexico, where a yellow flower symbolizes death or disrespect. Similarly, although Nature's Gift might be an appealing name for gourmet mushrooms in America, it would be deadly in Germany, where gift means poison. Packaging may also need to be tailored to meet the physical characteristics of consumers in various parts of the world. For instance, soft drinks are sold in smaller cans in Japan to fit the smaller Japanese hand better. Thus, although product and package standardization can produce benefits, companies must usually adapt their offerings to the unique needs of specific international markets. Spvice marketers also face special challenges when going global. Some service industries G v e a l o n g s r y of international operations. For example, the commercial banking industry was one of the first to grow internationally. Banks had to ~ r o v i d eglobal services in order to meet the foreign exchange and credit needs of their home country clients wanting to sell overseas. In recent years, many banks have become truly global. Germany's Deutsche Bank, for example, serves more than 13 million customers in 73 countries. For its clients around the world who wish to grow globally, Deutsche Bank can raise money not only in Frankfurt but also in Zurich, London, Paris, and Tokyo.38 International

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&~rofess-siness services industries such as accounting, management consulting, and a d v ~ x & qh, a ~ b a l i ? e ~ n t e r n a t i o n agrowth l of these firms followed the globalization of the client companies they serve. For example, as more clients employ worldwide marketing and advertising strategies, advertising agencies have responded by globalizing their own operations. McCann Worldgroup, a large U3.-based advertising and marketing services agency, operates in more than 130 countries. It serves international clients such as Coca-Cola, General Motors, ExxonMobile, Microsoft, Mastercard, Johnson & Johnson, and Unilever in markets ranging from the United States and Canada to Korea and Kazakhstan. Moreover, McCann Worldgroup is one company in the Interpublic Group of Companies, an immense, worldwide network of advertising and marketing services ~ o m p a n i e s . ~ ~ Retailers are among the latest service businesses to go global. As their home markets become saturated, American retailers such as Wal-Mart, Office Depot, and Saks Fifth Avenue are expanding into faster-growing markets abroad. For example, since 1995, Wal-Mart has entered 14 countries; its international division's sales grew more than 11 percent last year, skyrocketing to more than $62.7 billion. Foreign retailers are making similar moves. Asian shoppers can now buy American products in Frentjh-owned Carrefour stores. Carrefour, the world's second-largest retailer behind Wal-Mart, now operates in more than 11,000 stores in more than 30 countries. It is the leading retailkr in Europe, Brazil, and Argentina and the largest foreign retailer in China.40 The trend toward growth of global service companies will continue, especially in banking, airlines, telecommunications, and professional services longer simply following their manufacturing customers.

,int,m~~Dasion.

eviewing the Concepts A company's current products face limited life spans and must be replaced by newer products. But new products can fail-the risks of innovation are as great as the rewards. The key to successful innovation lies in a total-company effort, strong planning, and a systematic newproduct development process.

Explain how companies find and develop new-product ideas. Companies find and develop new-product ideas from a variety of sources. Many new-product ideas stem from internal sources. Companies conduct formal research and development, pick the brains of their employees, and brainstorm at executive meetings. Other ideas come from external sources. By conducting surveys and focus groups and analyzing customer questions and complaints, companies can generate new-product ideas that will meet specific consumer needs. Companies track competitors'offerings and inspect new products, dismantling them, analyzing their performance, and deciding whether to introduce a similar or improved product. Distributorsand suppliers are close to the market and can pass along information about consumer problems and new-product possibilities. List and define the steps in the new-product development process and the major considerations in managing this process. The new-product development process consists of eight sequential stages. The process starts with idea generation. Next comes idea screening, which reduces the number of ideas based on the company's own criteria. Ideas that pass the screening stage continue through product concept development, in which a detailed version of the new-product idea is stated in meaningful consumer terms. In the next stage, concept testing, new-product concepts are tested with a group of target consumers to determine whether the concepts have strong consumer appeal. Strong concepts proceed to marketingstrategy development, in which an initial marketing strategy for the new product is developed from the product concept. In the businessanalysis stage, a review of the sales, costs, and profit projectionsfor a new product is conducted to determine whether the new product is

likely to satisfy the company's objectives. With positive results here, the ideas become more concrete through product developmentand test marketing and finally are launched during commercialization. New-product development involves more than just going through a set of steps. Companies must take a systematic, holistic approach to managing this process. Successful new-product development requires a customer-centered, team-based, systematic effort. 3. Describe the stages of the product life cycle. Each product has a life cycle marked by a changing set of problems and opportunities. The sales of the typical product follow an S-shaped curve made up of five stages. The cycle begins with the product development stage when the company finds and develops a newproduct idea. The introduction stage is marked by slow growth and low profits as the product is distributed to the market. If successful, the product enters a growth stage, which offers rapid sales growth and . increasing profits. Next comes a maturity stage when sales growth slows and profits stabilize. Finally, the product enters a decline stage in which sales and profits dwindle. The company's task during this stage is to recognize the decline and to decide whether it should maintain, harvest, or drop the product. 4. Describe how marketing strategies change during the product's life cycle. In the introduction stage, the company must choose a launch strategy consistent with its intended product positioning. Much money is needed to attract distributors and build their inventories and to inform consumers of the new product and achieve trial. In the growth stage, companies continue to educate potential consumers and distributors. In addition, the company works to stay ahead of the competition and sustain rapid market growth by improving product quality, adding new product features and models, entering new market segments and distribution channels, shifting advertising from building product awareness to building product conviction and purchase, and lowering prices at the right time to attract new buyers.

Chapter 9

New-Product Development and Product Life-Cycle Strategies

In the maturity stage, companies continue to invest in maturing products and consider modifying the market, the product, and the marketing mix. When modifyng the market, the company attempts to increase the consumption of the current product. When modifying the product, the company changes some of the product's characteristics-such as quality, features, or style-to attract new users or inspire more usage. When modifying the marketing mix, the company works to improve sales by changing one or more of the marketing-mix elements. Once the company recognizes that a product has entered the decline stage, management must decide whether to maintain the brand without change, hoping that competitors will drop out of the market; harvest the product, reducing

.....

277

costs and trying to maintain sales; or drop the product, selling it to another firm or liquidating it at salvage value. 5. Discuss two additional product issues: socially responsible product decisions and international product and services marketing. Marketers must consider two additional product issues. The first is social responsibility. This includes public policy issues and regulations involving acquiring or dropping products, patent protection, product quality and safety, and product warranties. The second involves the special challenges facing international product and service marketers. International marketers must decide how much to standardize or adapt their offerings for world markets.

@viewingthe Key Terms

Business analysis 259 Commercialization 262 Concept testing 257 Customer-centered new-product development 263 Decline stage 271

Fad 269 Fashion 268 Growth stage 270 ldea generation 254 Idea screening 256 Introduction stage 269

Marketing strategy development 258 Maturity stage 270 ' New-product development 253 Product concept 257 Product development 259

Product life cycle (PLC) 267 Style 268 Team-based new-product development 264 Test marketing 260

iseussinag the 1. Why is concept testing important? 2. Under what conditions would you consider not test marketing a product? Describe a product or service that meets these no-need-totest criteria.

3. Compare the sequential product development to the team-based approach. Is one approach better than the other? Explain.

5. The chapter states that "In the growth stage of the product life cycle, the firm faces a trade-off between high market share and high current profit." Explain this statement.

6. What are some of the major reasons a product reaches the decline stage of the product life cycle?

4. Identify and discuss some potential problems ,with the product life cycle.

1. Form a small group. Generate ideas for a new consumer product that fills an existing need but does not currently exist. Select the one idea that you think is best. What process did your group use for idea generation and screening? 2. Write a marketing strategy statement for a new full-functioning but folding bicycle.

In the United States, there are over 250,000 deaths per year from sudden cardiac arrest. That's 100,000 more deaths than the number caused by traffic accidents, house fires, handguns, breast cancer, and AIDS combined. Defibrillators are medical devices that are commonly used by firefighters and paramedics to treat victims of sudden cardiac arrest with an electrical charge that restarts their hearts. With more than 80 percent of sudden cardiac arrests occurring at home, and only 5 percent of victims receiving the lifesaving electrical charge, Philips is now marketing a portable consumer defibrillator called the HeartStart. The product, which is about the size of a handheld video game, can be operated by any individual and does not need a trained medical provider. Voice activation

3. You are a product manager in a firm that manufactures and markets a line of branded action figure toys. The branded toy line is five years old. Annual sales and profits for this period are presented in the chart. Prepare a one-sentence strategy for each of the 4 Ps based on the brand's current product life-cycle position.

guides a consumer through each step, and smart technology gives specific instructions based on feedback to the main system. The FDAapproved product, priced at $1,495, is available online from amazon.com and drugstore.com. Visit http://www.heartstart.com for recent information on this new product. 1. Explain how this product might have moved through the stages of new-product development. 2. How might the marketing strategy for HeartStart change as it moves through the product life cycle?

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oeus on Ethics A select group of European retailers is moving forward to manufacture shtml) According to the company, the new products are a reaction to conand market socially responsible clothing. This fashion trend grew 30 per- sumers' questions about how cotton is produced and their realization of cent in 2005. Marks & Spencer (M&S), one of the largest retailers in the the social and environmental issues that are involved. According to a UK with over 400 stores, is one of the retailers embracing socially respon- 2006 Yougov Brand Index poll, M&S's corporate reputation is on the sible fashion. Beginning in March 2006, M&S began selling fair-trade- upswing since the new campaign began. certified T-shirts. By July 2006, the line expanded to jeans, underwear, 1. How did M&S conduct test marketing with the fair-trade-certified shorts, vests, and socks. The philosophy behind fair trade is to support clothing? the more than 100 million households worldwide who are involved in cot2. In what stage of the product life cycle are these trade-certified clothton production. The farmers, especially in poor countries, are vulnerable ing products? to lower cotton prices. In fact, a common reaction is for the farmers to use 3. Do you think the product life-cycle curve will follow the shape of a more pesticides to increase their yields, thus fueling an environmental style, fashion, or fad? issue in addition to a social issue. According to Mike Barry, head of corporate responsibility at M&S, "Eighty percent of our consumers wanted to ..Fair Trade Fashion Takes Off io Europe,,, See: know more about how clothing products were made." M&S brought its Women's Wear Daily,May 3, 2006, p. 6. new products to consumers' attention with a look-behind-the-labelcampaign. (~2.marksandspencer.com/thecompany/trustyour~mands/index.

When it hit the market in 2002, the eGO was the first vehicle of its kind: an environmentally frie.ndly, compact electric cycle. At the time, the product was so unique that the company had to develop new channels to distribute and sell it. Along with its cool, retro styling and innovative electrical design, the eGO Cycle costs less than half a cent per mile to drive. One model is even equipped with front and rear turn signals and a backlit speedometer for those who commute in heavy traffic. Aside from being featured on national news broadcasts and in trade magazines, the eGO Cycle made Oprah Winfrey's list of favorite things and the Today Show's list for best Father's Day gifts. In addition, the company's Web site boasts testimonial after testimonial supporting the electric bike. Customers delight in using the bike for everything from commuting

and running errands to enhancing business services. Says one thrilled owner, "this is the first bike I ever had that's built like a BMW!" After viewing the video featuring eGO vehicles, answer the following questions about new-product development.

The year was 1976. Sony was entering into a format war with other consumer electronics manufacturers. The victor would capture the prize of owning the consumer home video market. Wait a minute. . . is this 1976, or is it 2006? Actually, it could be either. In 1976, Sony introduced the first VCR for home use. Called the Betamax, it was as big as a microwave oven and cost a whopping $1,295 (more than $6,000 in today's money). A year later, RCA was the k s t of many manufacturers to introduce a VCR using a different technology: VH;S. In terms of image quality, Beta was considered superior to VHS. Sony also had the advantage of being first to market. But VHS machines were cheaper and allowed longer recording times (initially, four hours versus Beta's two hours). In addition, there were far more movies avail-

able for purchase or rent in VHS than in Beta. Ultimately, consumers decided that those features were more important. VHS quickly surpassed Beta in market share, eventually wiping out Beta entirely. In 1988, after an eight-year battle, Sony surrendered by making the switch from Beta to. VHS.

1. Describe eGO's design process. How is it similar to the process detailed in the chapter? 2. How did eGO manage its lim.ited channel options to distribute the new product?

3. Visit eGO's Web site to learn more about products the company offers. What stage of the product life cycle is the eGO vehicle experiencing?

TWO MODERN TECHNOLOGIES: BLU-RAY Today, once again, Sony finds itself gearing up for a format war in the consumer home video market. This time, Sony will go to battle with Blu-ray technology, pitted against the competing HD DVD format. As in 1976, the two technologies will compete for dominance of the home video market, now worth more than $24 billion. Since the first DVD

players appeared in 1997, many companies have been working on a format capable of delivering high-definition video to the home market. Of the many technologies under development, Blu-ray and HD DVD have emerged as the frontrunners. Blu-ray was developed by the Blu-ray Disc Association, a coalition of companies that includes Sony, Hitachi, Pioneer, Philips, Panasonic, Sarnsung, LG, Sharp, Apple, HP, and a host of other companies. HD DVD was developed by a similar coalition and is being backed commercially by Toshiba, Sanyo, Kenwood, Intel, and NEC, among others. Although each of the technologies was developed by a coalition of companies, Sony and Toshiba appear to be the dominant players in their respective camps. And whereas Sony stood pretty much alone in pitting Beta against VHS, its Blu-ray forum has more corporate firepower in this battle. In a situation where the differences between the two technologies seem critical, the formats are surprisingly similar. Both use physical discs that are identical in diameter and thickness to current DVD discs. This allows the developers of the new-generation players to make them backward compatible (able to play previous-generation DVDs). Additionally, each technology employs a blue laser of the same wave length, as well as similar video encoding and basic copyright protection features.

Despite the similarities, the Blu-ray and HD DVD formats have notable differences. Interestingly, some of the key differences likely to affect the success of the two new DVD formats are the same features that differentiated Beta and VHS 30 years ago. Specifically, both sides are vying for image quality, disc capacity, price, and availability of content advantages. At least initially, Blu-ray captures the quality advantage in this race. However, both Blu-ray and HD DVD produce high-definition video far superior to current DVD images, and the quality difference between the two may be indistinguishable by the average human eye. Although Blu-ray and HD DVD discs look identical, there are fundamental differences in the way the discs are put together. Each technology utilizes multiple layers of data encoding, but Blu-ray uses more layers and can store more data on each layer. Thus, Blu-ray discs can store far more information-up to 200 GB versus HD DVD's 90 GB. For home video, this means that a single Blu-ray disc can hold longer movies. "Capacity is always going to be your number-one concern," says Andy Parsons, spokesman for the Blu-ray Disc Association and senior vice president of advanced product development for Pioneer. However, whereas capacity was critical in Beta versus VHS, many observers believe that it will be less of an issue today. Both Blu-ray and HD DVD discs will have more than enough capacity to hold a feature-length high-definition film. But Parsons is quick to point out that the consumers really like the bonus features on DVDs, so much so that many titles now come in two-disc sets-one disc for the movie and the other for bonus features. "We . . . have learned. . . not to try to squeeze the most we can out of mid-

'90s technology, which is what the HD DVD guys have done." Even so, given the compact size of modern discs, capacity may be less of an issue than it was when video tapes were the size of paperback books. Additionally, it has yet to be determined how many layers could be added to either technology, ultimately affecting data capacity. Whether or not capacity emerges as an important feature, price is a critical issue. Toshiba introduced the first HD DVD players in April of 2006 at price points of $499 and $799. Pioneer introduced the first Blu-ray machine in June of 2006 with a much higher price tag of $1,800. This price difference parallels that of Beta versus VHS in the 1970s. However, Andy Parsons shares some insights on the implications of Toshiba's introductory strategy: As part of a marketing strategy, certain companies such as Toshiba say, "Even though it costs us this much money to make this product, we're going to price it lower, even if it's below our factory cost, because taking that kind of loss up front might help to get the market populated with our product and help accelerate.adoption." That kind of thinking is generally not very successful, because it ignores one very important element: You have to build awareness for the new technology before you can assume that price is an important or overriding factor. This is why we have a natural curve with an earlyadopter group of people who are very focused on technology and performance. Right now in this space, the big buzzword is 1080P progressive scan, 24 frames per second, full-resolution HD TV-this is the Holy Grail, because it's the closest you can get to a theater experience in terms of frame rates, and [it's] a hot button for people who are following this story at the consumer level. Consumers interested in buying technology that gives them the best display or audio quality won't balk at the price. This is why our player is $1,800. We focused on getting 1080P, because that is somethingwe knew would resonate with the initial target market, whereas the $499 strategy is probably going off in the wrong direction, because the folks who are really paying attention to this right now want the highest resolution. Taking another cue from Beta versus VHS, the Blu-ray and HD DVD camps have fought to get the support of major movie studios. The idea is that the format offering more movies will have the advantage. As both technologies come to market, Blu-ray has signed seven studios; HD DVD has signed only three. And yet, although most studios are backing only one technology at this point, Warner Bros. indicates that it will ultimately release movies in both formats. Other studios may well pursue this same strategy. In the Beta versus VHS competition, image quality, capacity, price, and content availability were the deciding factors. In the current format war, only time will tell if these points of differentiation will have the same impact. But the (case con tin ues)

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HD DVD forum claims that new issues this time around will give its technology the advantage. For starters, manufacturing costs for Blu-ray will be significantly higher. (The Blu-ray camp counters that the cost difference is minimal and will likely disappear as volumes increase.) HD DVD software will also allow consumers to make copies of their discs to computer hard drives and portable devices. And with its iHD technology, HD DVD discs promise greater interactivity by allowing for enhanced content and navigation, as well as fancy features such as picture-in-picture capability. However, additional new issues could tilt the scales in favor of Blu-ray. Although Toshiba and HD DVD enjoy a brief first-to-market advantage, Blu-ray will likely experience a huge bump in market share when Sony introduces its long-awaited PlayStation 3 gaming platform in late 2006. The PlayStation 3 not only uses Blu-ray technology for its game discs, it will be able to play all Blu-ray movies as well. This could put millions of Blu-ray players into homes very quickly via the video consoles.

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Drawing comparisons to the BetaIVHS format war assumes that one of the two current competing formats will ultimately win and the other will die out. However, two other possibilities exist. First, both formats could succeed and do well. Most of the issues mentioned previously may become nonissues as the Blu-ray and HD DVD technologies evolve. Either of the two technologies could adopt features of the other. Additionally, at some point, hardware manufacturers may well release dual-format players, capable of playing both Blu-ray and HD DVD discs. Such a development could reduce the relevance of format labels. Stephen Nickerson, senior vice president at Warner Home Video, believes that both formats could easily succeed. Although most analysts compare the DVD format war to the VCR format war, he suggests another analogy. "The [video] games industry since the early '90s has had two or three incompatible formats and it hasn't slowed the adoption of game platforms." However, there is another potential outcome. Both formats might fail. Ted Schadler, analyst with Forrester Research, believes that most people are missing an important point. "The irony of this format war is that it comes at the tail end of the century-long era of physical media. While a high-definition video format does bring benefits over today's standard-definition discs, in movies as in music, consumers are moving beyond shiny discs." Schadler's statement refers to the fact that the consumption of all kinds of entertainment products, even television programming, has evolved dramatically since the mid-1990s. Consumers have far more options than they used to, and the dust has yet to settle on which options will dominate for any given type of product.

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For home video, more customers are choosing ondemand, nonphysical media, including online video and video-on-demand television. One in six cable subscribers has demonstrated significant interest in watching video-ondemand. As cable providers increase their video libraries and technologies improve, that number will only grow. Internet video is also spreading rapidly, with 46 percent of online consumers now watching movies via the Web. Additionally, with the success of the video Pod, major Hollywood studios aren't just considering which DVD formats to support. They're assessing how they can make money by selling movies directly to consumers in a file format that can be played on portable devices. According to Ted Schadler, the device more consumers age 12 to 21 now say they can't live without isn't their TV, it's their PC. Even Bill Gates has his doubts about the current DVD format war. "Understand that this is the last physical format there will ever be. Everything's going to be streamed directly or on a hard disk." Although these predictions may very well be true, there is likely still plenty of steam left in the DVD market. Physical discs still hold many advantages over the nonphysical media. Even with the significant threat of VHS, Beta survived for eight years. And no format will last forever. Only nine years passed between the introductions of the first home DVD and HD DVD players. So although there's clearly a home video war looming, the big questions concern who will be fighting and on what fronts.

1. Classify the high-definition DVD market using the

product life-cycle framework. Based on this analysis, what objectives and strategies should Sony and the other 'competitiors pursue? Are any of the competitiors deviating from this formula? 2. As sales of the new DVD players increase, what will happen to the characteristics of the home video market and the strategies employed by Sony and other competitors? 3. Analyze the development of Blu-ray and HD DVD according to the stages of the new-product development process. 4. Who are the current combatants in the battle for the . home video market? Who will they be in five years? Sources: Beth Snyder Bulik, "Marketing War Looms for Dueling DVD Formats," Advertising Age, April 10, 2006, p. 20; Gary Gentile, "BetaNHS-Like Battle Shaping Up for New High-Def DVDs," Associated Press Worldstream, January 6, 2006; AM Steffora Mutschler, "The Convergence War," Electronic Business, May 1,2006, p. 44; Sue Zeidler, "Hold On Tight; Going to the Store to Rent a DVD May Soon Be a Thing of the Past," Culgary Sun, p. 40; information on Beta and VHS accessed online at www.totalrewind.org.

Designing a Customer-Driven Marketing Strategy and Integrated Marketing Mix

inding the right pricing strategy and implementing it well can be critical to a company's success-even to its survival. Perhaps no company knows this better than giant toy retailer Toys 'R' Us. More than three decades ago, Toys 'R' Us taught smaller independent toy retailers and department-store chains in its industry a hard pricing lesson, driving many of them to extinction. In recent years, however, Toys 'R' Us has gotten a bitter taste of its own pricing medicine in return. In the late 1970s, Toys 'R' Us emerged as a toy retailing "category killer," offering consumers a vast selection of toys at everyday low prices. The then-prevalent smaller toy stores, and toy sections of larger department stores, soon fell by the wayside because they couldn't match Toys 'R' Us's selection, convenience, and low prices. Throughout the 1980s and early 1 9 9 0 ~ Toys ~ 'R' Us grew explosively to becornelhe nation's largest toy retailer, grabbing as much as a 25 percent share of the U.S. toy market. However, in the 1990s, Toys 'R' Us's heady success seemed to vanish almost overnight with the emergence of-you guessed it-Wal-Mart as a toy retailing force. Wal-Mart offered toy buyers an even more compelling value proposition. Like Toys 'R' Us, it offered good toy selection and convenience. But on prices, it did Toys 'R' Us one better. Wal-Mart offered not just eveyday low prices on toys, it offered rockbottom prices. Says one analyst, "With its mammoth stores, diverse array of products, and super efficient supply chain, Wal-Mart can provide consumers good quality, high levels of choice and convenience, and [incredibly low1 prices." What's more, he continues, "Because it is a mass retailer with a broad, diverse inventory, Wal-Mart can afford to use toys as a ,loss-leader, losing money on toy purchases to lure in customers who then purchase higher-margin goods. Focused retailers such as Toys 'R' Us just don't have that luxury." In 1998, Wal-Mart pushed Toys 'R' Us aside to become the country's largest toy seller. Toys 'R' Us fought back by trying to match Wal-Mart's super low prices, but with disastrous results. Consider this Business Week account of the 2003 Christmas season: He sings, he dances, he shakes it all about. For thousands of toddlers, Hokey Pokey Elmo was one of the great things about Christmas, 2003. But for Toys 'R' Us, Elmo was the fuzzy red embodiment of all that went wrong: He was just too cheap. In October, two months before the heart of the holiday rush, WalMart stores surprised all of its competition by dropping Elmo's price from $25 to $19.50, a full $4.50 below what many retailers had paid for it. Within days,

Toys 'R' Us dropped its price to $19.99. The price war dominoed all the way down the toy aisle. "Our choice was shortterm profit &. long-term market share; we chose to protect market share," says [former] CEO John Eyler, who thinks all stores could have sold out of the popular doll at $29.99. That's profit Toys 'R' Us couldn't afford to lose. The holiday season [its third disappointing one in a row] resulted in a 5 percent drop in sales at Toys 'R' Us stores open at least a year. Net income for the year fell 27 percent. Wal-Mart, on the other hand, Ewasl all smiles. . . . CEO Lee Scott called 2003 "an excellent toy season" and toys "a very profitable category with a very strong gross margin." Clearly, Toys 'R' Us has little hope of competing on price with Wal-Mart. "I wouldn't want to play that game," says [an industry expert]. By early 2005, Wal-Mart held a 25 percent share of the toy market; Toys 'R' Us's share had fallen to 15 percent. Later that year, new ownership took Toys 'R' Us private. Despite rumors that the once-dominant toy retailer would exit the toy business altogether and focus on its growing and profitable Babies 'R' Us unit, the new owners vowed to remain a player in the toy industry. However, Toys 'R' Us is now playing out a dramatically new game plan. For starters, management has closed nearly 100 underperforming stores to cut costs, and it's refocusing its marketing strategy. For example, the chain has stepped back from cut-throat price wars that it simply can't win. Instead, it's dropping slow-selling products and emphasizing top-selling brands and higher-margin exclusive items, such as special Bratz or Barbie dolls sold only at its stores. And in an effort to differentiate itself from the likes of Wal-Mart and Target, Toys 'R' Us is making a big push to improve store atmospheres, shopper experiences, and customer service. It's cleaning up its stores, uncluttering its aisles, and hiring more helpful employees who can offer customers toy-buying advice. Says CEO Gerald Storch, "When you go to a large, multiproduct discount chain, you'll be lucky to find someone who can point you to the toy department or will even take you there, much less answer specific questions. When a customer comes in our

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store, our people can tell them what's a great toy for a ten-year-old boy for their birthday, because all we do is toys." Storch hopes that brighter, less-cluttered stores and better service will support higher prices and margins. Still, Toys 'R' Us faces an uphill battle in its efforts to win back the now-price-sensitive toy buyers it helped to create decades ago. Consider this example.

t

Aurore Boone of Alpharetta, Georgia, was recently at her local Wal-Mart checking out kids' bikes. She shops at Toys 'R' Us to see what's on the shelves, but of the roughly $500 she and her husband Mark spend on toys a year, more than half goes to Wal-Mart, the rest to stores such as Target. It's cheaper, and she can do her other shopping there, too. It isn't a matter of whether Toys 'R' Us can selltoys-with more than $11 billion in sales, the company remains one of the world's largest retailers. It's a matter of whether Toys 'R' Us can sell toys profitably (despite big sales, it's still posting loses). And to do that, it must find the right customer value and pricing formulas. As Business Weekconcludes: "It's a harsh new world for Toys 'R' Us, which, as the industry's original 800-pound gorilla, wiped out legions of small toy stores in the '60s and '70s with its cut-price, no-frills, big-box outlets. Now, having taught consumers that toys should be cheap, the chain is finding that they learned the lesson all too we1Ln2

Price The amount of money charged for a product or service, or the sum of the values that consumers exchange for the benefits of having or using the product or service.

Companies today face a fierce and fast-changing pricing environment. Increasing customer price consciousness has put many companies in a "pricing vise." "Thank the Wal-Mart phenomenon," says one analyst. "These days, we're all cheapskates in search of a spend-less In response, it seems that almost every company is looking for ways to slash prices, ~trategy."~ and that is hurting their profits. Yet, cutting prices is often not the best answer. Reducing prices unnecessarily can lead to lost profits and damaging price wars. It can signal to customers that the price is more important than the customer value a brand delivers. Instead, companies should sell value, not price. They should persuade customers that paying a higher price for the company's brand is justified by the greater value they gain. The challenge is to find the price that will let the company make a fair profit by getting paid for the customer value it creates. "Give people something of value," says Ronald Shaich, CEO of Panera Bread Company, "and they'll happily pay for it."4 In this chapter and the next, we focus on the process of setting prices. This chapter defines prices, looks at the factors marketers must consider when setting prices, and examines general pricing approaches. In the next chapter, we look at pricing strategies for new-product pricing, product mix pricing, price adjustments for buyer and situational factors, and price changes.

E! Pricing: The challenge is to harvest the customer value the company creates. Says Panera's CEO, pictured here, "Give people something of value, and they'll happily pay for it."

In the narrowest sense, price is the amount of money charged for a product or service. More broadly, price is the sum of all the values that customers give up in order to gain the benefits of having or using a product or service. Historically, price has been the major factor affecting buyer choice. In recent decades, nonprice factors have gained increasing importance. However, price still remains one of the most important elements determining a firm's market share and profitability. Price is the only element in the marketing mix that produces revenue; all other elements represent costs. Price is also one of the most flexible marketing mix elements. Unlike prod-

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uct features and channel commitments, prices can be changed quickly. At the same time, pricing is the number-one problem facing many marketing executives, and many companies do not handle pricing well. One frequent problem is that companies are too quick to reduce prices in order to get a sale rather than convincing buyers that their product's greater value is worth a higher price. Other common mistakes include pricing that is too cost oriented rather than customer-value oriented, and pricing that does not take the rest of the marketing mix into account. Some managers view pricing as a big headache, preferring instead to focus on the other marketing mix elements. However, smart managers treat pricing as a key strategic tool for creating and capturing customer value. Prices have a direct impact on a firm's bottom line. According to one expert, "a 1 percent price improvement generates a 12.5 percent profit improvement for most organi~ations."~ More importantly, as a part of a company's overall value proposition, price plays a key role in creating customer value and building customer relationships. "Instead of running away from pricing," says the expert, ''savvy marketers are embracing it."

The price the company charges will fall somewhere between one that is too high to produce any demand and one that is too low to produce a profit. Figure 10.1 summarizes the major considerations in setting price. Customer perceptions of the product's value set the ceiling for prices. If customers perceive that the price is greater than the product's value, they will not buy the product. Product costs set the floor for prices. If the company prices the product below its costs, company profits will suffer. In setting its price between these two extremes, the company must consider a number of other internal and external factors, including its overall marketing strategy and mix, the nature of the market and demand, and competitors' strategies and prices. In the end, the customer will decide whether a product's price is right. Pricing decisions, like other marketing mix decisions, must start with customer value. When customers buy a product, they exchange something of value (the price) in order to get something of value (the benefits of having or using the product). Effective, customer-oriented pricing involves understanding how much value consumers place on the benefits they receive from the product and setting a price that captures this value.

Value-based pricing Setting prices based on buyers' perceptions of value rather than on the seller's cost.

Good pricing begins with a complete understanding of the value that a product or service creates for customers. Value-based pricing uses buyers' perceptions of value, not the seller's cost, as the key to pricing. Value-based pricing means that the marketer cannot design a product and marketing program and then set the price. Price is considered along with the other marketing mix variables before the marketing program is set. Figure 10.2 compares value-based pricing with cost-based pricing. Cost-based pricing is product driven. The company designs what it considers to be a good product, adds up the costs of making the product, and sets a price that covers costs plus a target profit. Marketing must then convince buyers that the product's value at that price justifies its purchase. If the price turns out to be too high, the company must settle for lower markups or lower sales, both resulting in disappointing profits. Value-based pricing reverses this process. The company sets its target price based on customer. perceptions of the product value. The targeted value and price then drive

F Considerations in setting price Price ceiling No demand above this price

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Cost-based pricing Value-based pricing versus cost-based pricing SourceThomasTNagleand Reed K. Holden, The Strategy and Tactics of Pricing, 3rd ed. (Upper Saddle River, NJ: Prentice Hall, 20021, p. 4.

Value-based pricing

decisions about product design and what costs can be incurred. As a result, pricing begins with analyzing consumer needs and value perceptions, and price is set to match consumers' perceived value. It's important to remember that "good value" is not the same as "low price." For example, prices for a Hermes Birkin Bag start at $6,000-a less expensive handbag might carry as much, but some consumers place great value on the intangibles they receive from a one-of-a kind handmade bag that has a year-long waiting list. Similarly, some car buyers consider the luxurious Bentley Continental GT automobile a real value, even at an eye-popping price of Stay with me here, because I'm about to [tell you why] a certain automobile costing $150,000 is not actually expensive, but is in fact a tremendous value. Every Bentley GT is built by hand, an Old World bit of automaking requiring 160 hours per vehicle. Craftsmen spend 18 hours simply stitching the perfectly joined leather of the GT's steering wheel, almost as long as it takes to assemble an entire VW Golf. The results are impressive: Dash and doors are mirrored with walnut veneer, floor pedals are carved from aluminum, window and seat toggles are cut from actual metal rather than plastic, and every air vent is perfectly chromed. . . . The sum of all this is a fitted cabin that approximates that of a $300,000 vehicle, matched to an engine the equal of a $200,000 automobile, within a car that has brilliantly incorporated . . . technological sophistication. As I said, the GT is a bargain. [Just ask anyone on the lengthy waiting list.] The waiting time to bring home your very own GT is currently half a year.6

Value-based pricing: "Good value" is not the same as "low price." Some car buyers consider the luxurious Bentley Continental GT automobile a real value, even at an eye-popping price of $150,000.

A company using value-based pricing must find out what value buyers assign to different competitive offers. However, companies often find it hard to measure the value customers will attach to its product. For example, calculating the cost of ingredients in a meal at a fancy restaurant is relatively easy. But assigning a value to other satisfactions such as taste, environment, relaxation, conversation, and status is very hard. And these values will vary both for different consumers and different situations. Still, consumers will use these perceived values to evaluate a product's price, so the company must

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work to measure them. Sometimes, companies ask consumers how much they would pay for a basic product and for each benefit added to the offer. Or a company might conduct experiments to test the perceived value of different product offers. According to an old Russian proverb, there are two fools in every market-one who asks too much and one who asks too little. If the seller charges more than the buyers' perceived value, the company's sales will suffer. If the seller charges less, its products sell very well. But they produce less revenue than they would if they were priced at the level of perceived value. We now examine two types of value-based pricing: good-value pricing and value-added pricing.

: ~ ~ o d - T $ Priei32g Tal~~~ During the past decade, marketers have noted a fundamental shift in consumer attitudes toward price and quality. Many companies have changed their pricing approaches to bring them into line with changing economic conditions and consumer price perceptions. More and more, marketers have adopted good-value pricing strategies-offering just the right comGood-value pricing bination of quality and good service at a fair price. Offering just the right In many cases, this has involved introducing less-expensive versions of established, combination of quality and brand name products. Fast-food restaurants such as Taco Bell and McDonald's offer "value good service at a fair price. menus." Armani offers the less-expensive, more casual Armani Exchange fashion line. Procter & Gamble created Charmin Basic-it is "slightly less 'squeezably soft' but it's a lot less pricey than Procter & Gamble's other toilet paper." It's "Soft. Strong. S e n ~ i b l e . "In ~ other cases, good-value pricing has involved redesigning existing brands to offer more quality for a given price or the same quality for less. An important type of good-value pricing at the retail level is everyday low pricing [EDLP). EDLP involves charging a constant, everyday low price with few or no temporary price discounts. In contrast, high-low pricing involves charging higher prices on an everyday basis but running frequent promotions to lower prices temporarily on selected items. In recent years, high-low pricing has given way to EDLP in retail settings ranging from Saturn car dealerships to Giant Eagle supermarkets to furniture store - --. ..-,.-,.-. "--.-. ..... , . .. .. . Room & Board. The king of EDLP is Wal-Mart, which practiGood-value pricing: Procter & Gamble's Charmin Basic is still "squeezably soft" cally defined the concept. Except for a few sale but it's a lot less pricey than P&G's other toilet paper. It's "the quality toilet items every month, Wal-Mart promises everyday tissue at the price you'll love." low prices on everything it sells. In contrast, Kmart's recent attempts to match Wal-Mart's EDLP strategy failed. To offer everyday low prices, a company must first have everyday low costs. However, because Krnart's costs are much higher than Wal-Mart's, it could not make money at the lower prices and quickly abandoned the a t t e m ~ t . ~ ROLLOVER THE VACKACLSTO LEARN MORE ABOUT 51215 ANOVIIRIETILS.

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Value-added pricing Attaching value-added features and services to differentiatea company's offers and to support charging higher prices.

In many business-to-business marketing situations, the challenge is to build the company's pricing power-its power to escape price competition and to justify higher prices and margins without losing market share. To retain pricing power, a firm mustretain or build the value of its market offering. This is especially true for suppliers of commodity products, which are characterized by little differentiation and intense price competition. If companies "rely on price to capture and retain business, they reduce whatever they're selling to a commodity," says an analyst. "Once that happens, there is no customer 10yalty."~ To increase their pricing power, many companies adopt value-added pricing strateges. Rather than cutting prices to match competitors, they attach value-added features and services to differentiate their offers and thus support higher prices (see Real Marketing 10.1). "Even in today's economic environment, it's not about price," says a pricing expert. "It's about keeping customers loyal by providing service they can't find anywhere else."1•‹

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When a company finds its major competitors offering a similar product at a lower price, the natural teny to match or beat that price. Although the idea of undercutting competitors' prices and watching customers flock to you is tempting, there are dangers. Successive rounds of pricecutting can lead to price wars that erode the profit margins of all competitors in an industry. Or worse, discounting a product can cheapen it in the minds of customers, greatly reducing the seller's power to maintain profitable prices in the long term. So, how can a company keep its pricing power when a competitor undercuts its price? Often, the best strategy is not to price below the competitor, but rather to price above and convince customers that the product is worth it. The company should ask, "What is the value of the product to the customer?" and then stand up for what the product is worth. In this way, the company shifts the focus from price to value. But what if the company is operating in a "commodity" business, in which the products of all competitors seem pretty much alike? In such cases, the company must find ways to "decommoditize" its products-to create superior value for customers. It can do this by developing value-added features and services that differentiate its offer and justify higher prices and margins. Here are some examples of how suppliers are using value-added features and services to give them a competitive edge: -

Caterpillar: Caterpillar charges premium prices for its heavy construction and mining equipment by convincing customers that its products and service justify every additional cent-or, rather, the extra tens of thousands of dollars. Caterpillar typically reaps a 20 to 30 percent price premium over competitors that can amount to an extra $200,000 or more on one of those huge yellow million-dollar dump trucks. When a large potential customer says, "I can get it for less from a competitor," the Caterpillar dealer doesn't discount the price. Instead, the dealer explains that, even at the higher price,

Cost-based pricing Setting prices based on the costs for producing, distributing, and selling the product plus a fair rate of return for effort and risk.

Fixed costs (overhead) Costs that do not vary with production or sales level.

Variable costs Costs that vary directly with the level of production.

Cat offers the best value. Caterpillar equipment is designed with modular components that can be removed and repaired quickly, minimizing machine downtime. Caterpillar dealers carry an extensive parts inventory and guarantee delivery within 48 hours anywhere in the world, again minimizing downtime. Cat's products are designed to be rebuilt, providing a "second life" that competitors cannot match. As a result, Caterpillar used-equipment prices are often 20 percent to 30 percent higher. Beyond its high-quality equipment and maintenance, Caterpillar offers a wide range of value-adding services, from financing and insurance to equipment training and investment management advice. In all, the dealer explains, even at the higher initial price, Caterpillar equipment delivers the lowest total cost per cubic yard of earth moved, ton of coal uncovered, or mile of road graded over the life of the product-guaranteed! Most customers seem to agree with Caterpillar's value proposition-the marketleading company dominates its markets with a more than 37 percent worldwide market share. And the big cat just keeps purring. In the past two years, sales are up 60 percent and profits have rocketed 250 percent. Despite its higher prices, demand is so strong that Caterpillar is having trouble making equipment fast enough to fill orders. Pioneer Hi-Bred International: A major producer of commercial seeds and other agricultural products often thought of as commodities, DuPont subsidiary Pioneer Hi-Bred lnternational (PHI) hardly acts like a commodity supplier. Its patented hybrid seeds yield 10 percent more crops than competitors' seeds. PHI'S researchers harvest tens of thousands of test plots worldwide each year to perfect product yields and traits. But beyond producing a superior product, PHI also provides a bundle of value-added services. For example, it equips its sales reps with laptop PCs and software that allow them to provide farmers with customized information and advice. The rep can plug in the type of hybrid that a farmer is using, along with infor-

Whereas customer-value perceptidils set the price ceiling, costs set the floor for the price that the company can charge. Cost-basedpricing involves setting prices based o n the costs for producing, distributing, and selling the product plus a fair rate of return for its effort and risk. A company's costs may be an important element in its pricing strategy. M a n y companies, such as Southwest Airlines, Wal-Mart, and Dell, w o r k to become the "low-cost producers" in their industries. Companies w i t h lower costs can set lower prices that result in greater sales and profits.

A company's costs take t w o forms, f i x e d a n d variable. Fixed costs (also k n o w n as overhead) are costs that do n o t vary w i t h production or sales level. F o r example, a company must pay each month's b i l l s for rent, heat, interest, and executive salaries, whatever the company's output. Variable costs vary directly with the level o f production. Each PC produced b y HewlettPackard involves a cost of computer chips, wires, plastic, packaging, and other inputs. These costs tend to be the same for each unit produced. They are called variable because their total varies w i t h the number of units produced. Total costs are the sum o f the fixed and variable

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sales for Microsystems, a softwarecompany. "My product is twice as much as my nearest competitor's, but we sell as much as-if not more than--our competition." Rather than getting into price wars, Microsystems adds value to its products by adding new components and services. It builds close, value-added relationships with customers. "We foster strong working relationships with our clients,"declares the company's Web site, "and have built our industry-leading reputation on going the extra mile for them." As a result, customers "get more for their money," says Beckman. "We get the price because we understand what people want." When customers see the extra value, price becomes secondary. Ultimately, Beckman Value added: Caterpillar offer its dealers a wide range of value-added services-from asserts, "let the customer decide whether guaranteed parts delivery to investment management advice and equipment training. Such the price you're charging is worth all the added value supports a higher price. things they're getting." What if the answer is no? Beckman would suggest that dropping mation about pricing, acreage, and yield characteristics, and the price is the last thing you want to do. Instead, look to the then advise the farmer on how to do a better job of farm manvalue of value added. agement. The reps can also supply farmers with everything from agricultural research reports to assistance in comparison shopping. To add even more value, PHI offers farmers crop insurSources: William F. Kendy, "The Price Is Too High," Selling Power, April ance, financing, and marketing services. 2006, pp, 30-33; Ian Brat, "Caterpillar Posts 38% Profit Rise, Raises Backing its claim "We believe in customer success" with Outlook on Strong Demand," Wall Street Journal, July 22, 2006, p. A2; superior products and value-added services gives PHI plenty of Michael Arndt, "Cat Claws Its Way into Services,"BusinessWeek, pricing power. Despite charging a significant price premium-or December 5, 2005, pp. 56-59; Erin Stout, "Keep Them Coming Back for perhaps because of it-the company's share of the North More," Sales & MarketingManagement, February 2002, pp. 51-52; American corn market has grown from 35 percent during the "Global Construction & Farm Machinery: Industry Profile,"Datamonitor, mid-1980s to its current level of 44 percent. June 2006, accessed at w.datamonitor.com; and information Microsyslems Engineering Company: "The way we sell on value accessed online at w.pioneer.com, www.caterpillar.com, and is by differentiating ourselves,"says Mark Beckman, director of www.microsystems.com/about.php, December 2006.

Total costs The sum of the fixed and variable costs for any given level of production.

costs for any given level of production. Management wants to charge a price that will at least cover the total production costs at a given level of production. The company must watch its costs carefully. If it costs the company more than it costs competitors to produce and sell its product, the company must charge a higher price or make less profit, putting it at a competitive disadvantage.

To price wisely, management needs to know how its costs vary with different levels of production. For example, suppose Texas Instruments (TI) has built a plant to produce 1,000 calculators per day. Figure 10.3A shows the typical shortrun average cost (SRtiC) curve. It shows that the cost per calculator is high if TI'S factory produces only a few per day. But as production moves up to 1,000 calculators per day, average cost falls. This is because fixed costs are spread over more units, with each one bearing a smaller share of the fixed cost. TI can try to produce more than 1,000 calculators per day, but average costs will increase because the plant becomes inefficient. Workers wait for machines, the machines break down more often, and workers get in each other's way.

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Cost per unit at different levels of production per period

1,000 Quantity produced per day A. Cost behavior in a fixed-size plant

1,0002,000 3,0004,000 Quantity produced per day B. Cost behavior over different-size plants

If TI believed it could sell 2,000 calculators a day, it should consider building a larger plant. The plant would use more efficient machinery and work arrangements. Also, the unit cost of producing 2,000 calculators per day would be lower than the unit cost of producing 1,000 units per day, as shown in the long-run average cost (LRAC) curve (Figure 10.3B). In fact, a 3,000-capacity plant would even be more efficient, according to Figure 10.3B. But a 4,000-daily production plant would be less efficient because of increasing diseconomies of scale-too many workers to manage, paperwork slowing things down, and so on. Figure 10.3B shows that a 3,000-daily production plant is the best size to build if demand is. strong enough to support this level of production.

Experience curve (learning curve) The drop in the average perunit production cost that comes with accumulated production experience.

Cost-plus pricing Adding a standard markup to the cost of the product.

Suppose TI runs a plant that produces 3,000 calculators per day. As TI gains experience in producing calculators, it learns how to do it better. Workers learn shortcuts and become more familiar with their equipment. With practice, the work becomes better organized, and TI finds better equipment and production processes. With higher volume, TI becomes more efficient and gains economies of scale. As a result, average cost tends to fall with accumulated production experience. This is shown in Figure 1 0 . 4 . Thus, ~ ~ the average cost of producing the first 100,000 calculators is $10 per calculator. When the company has produced the first 200,000 calculators, the average cost has fallen to $9. After its accumulated production experience doubles again td 400,000, the average cost is $7. This drop in the average cost with accumulated production experience is called the experience curve (or the learning curve). If a downward-sloping experience curve exists, this is highly significant for the company. Not only will the company's unit production cost fall, but it will fall faster if the company makes and sells more during a given time period. But the market must stand ready to buy the higher output. And to take advantage of the experience curve, TI must get a large market share early in the product's life cycle. This suggests the following pricing strategy: TI should price its calculators low; its sales will then increase, and its costs will decrease through gaining more experience, and then it can lower its prices further. Some companies have built successful strategies around the experience curve. For example, Bausch & Lomb solidified its position in the soft contact lens market by using computerized lens design and steadily expanding its one Soflens plant. As a result, its market share climbed steadily to 65 percent. However, a single-minded focus on reducing costs and exploiting the experience curve will not always work. Experience-curve pricing carries some major risks. The aggressive pricing might give the product a cheap image. The strategy also assumes that competitors are weak and not willing to fight it out by meeting the company's price cuts. Finally, while the company is building volume under one technology, a competitor may find a lower-cost technology that lets it start at prices lower than those of the market leader, who still operates on the old experience curve.

The simplest pricing method is cost-plus pricing-adding a standard markup to the cost of the product. Construction companies, for example, submit job bids by estimating the total project cost and adding a standard markup for profit. Lawyers, accountants, and other professionals tmicallv rice bv addine a standard marlcur, to their costs. Some sellers tell their cus-

Chapter 10 Pricing Products: Understanding and Capturing Customer Value

Cost per unit as a function of accumulated production: The experience curve

$10 --g $8 .3

$

$6

100,000 200,000 400,000 800,000 Accumulated production

tomers they will charge cost plus a specified markup; for example, aerospace companies price this way to the government. To illustrate markup pricing, suppose a toaster manufacturer had the following costs and expected sales: Variable cost Fixed costs Expected unit sales

$10 $300,000 50,000

Then the manufacturer's cost per toaster is given by: Unit Cost = Variable Cost +

Fixed Costs = Unit Sales

+

$300,000 50,000 - $I6

Now suppose the manufacturer wants to earn a 20 percent markup on sales. The manufacturer's markup price is given by:12 Markup Price =

Unit Cost

--=$16

(1- Desired Return on Sales) - 1 - .2

$20

The manufacturer would charge dealers $20 per toaster and make a profit of $4 per unit. The dealers, in turn, will mark up the toaster. If dealers want to earn 50 percent on the sales price, they will mafk up the toaster to $40 ($20 + 50% of $40). This number is equivalent to a markup on cost of 100 percent ($20/$20). Does using standard markups to set prices make sense? Generally, no. Any pricing method that ignores demand and competitor prices is not likely to lead to the best price. Such cost-plus pricing wrongly assumes that prices can be set without affecting sales volume. In our toaster example, suppose that consumers saw the $40 retail price as too high relative to competitors' prices, reducing demand to only 30,000 toasters instead of 50,000. Then the producer's unit cost would have been higher because the fixed costs are spread over fewer units, and the realized percentage markup on sales would have been lower. Markup pricing works only if that price actually brings in the expected level of sales. Still, markup pricing remains popular for many reasons. First, sellers are more certain about costs than about demand. By tying the price to cost, sellers simplify pricing-they do not have to make frequent adjustments as demand changes. Second, when all firms in the industry use this pricing method, prices tend to be similar and price competition is thus minimized. Third, many people feel that cost-plus pricing is fairer to both buyers and sellers. Sellers earn a fair return on their investment but do not take advantage of buyers when buyers' demand becomes great.

Break-even pricing (target profit pricing) Setting prices to break even on the costs of making and marketing a product; or setting prices to make a target profit.

Another cost-oriented pricing approach is break-even pricing (or a variation called target profit pricing). The firm tries to determine the price at which it will break even or make the target profit it is seeking. Such pricing is used by General Motors, which prices its automobiles to achieve a 15 to 20 percent profit on its investment. This pricing method is also used by public utilities, which are constrained to make a fair return on their investment. Target pricing uses the concept of a break-even chart, which shows the total cost and total revenue expected at different sales volume levels. Figure 10.5 shows a break-even chart for the toaster manufacturer discussed here. Fixed costs are $300,000 regardless of sales volume. Variable costs are added to fixed costs to form total costs, which rise with volume. The total

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Break-even chart for determining target price

Total revenue

10

30

20

40

50

Sales volume in units (thousands) revenue curve starts at zero and rises with each unit sold. The slope of the total revenue curve reflects the price of $20 per unit. The total revenue and total cost curves cross at 30,000 units. This is the break-even volume. At $20, the company must sell at least 30,000 units to break even; that is, for total revenue to cover total cost. Break-even volume can be calculated using the following formula: Break-Even Volume =

Fixed Cost - $300,000 Price - Variable Cost - $20 - $10 = 30'000

If the company wants to make a target profit, it must sell more than 30,000 units at $20 each. Suppose the toaster manufacturer has invested $1,000,000 in the business and wants to set the price to earn a 20 percent return, or $200,000. In that case, it must sell at least 50,000 units at $20 each. If the company charges a higher price, it will not need to sell as many toasters to achieve its target return. But the market may not buy even this lower volume at the higher price. Much depends on the price elasticity and competitors' prices. The manufacturer should consider different prices and estimate break-even volumes, probable demand, and profits for each. This is done in Table 10.1. The table shows that as price increases, break-even volume drops (column 2). But as price increases, demand for the toasters also falls off (column 3). At the $14 price, because the manufacturer clears only $4 per toaster ($14 less $10 in variable costs), it must sell a very high volume to break even. Even though the low price attracts many buyers, demand still falls below the high break-even point, and the manufacturer loses money. At the other extreme, with a $22 price the manufacturer clears $12 per toaster and must sell only 25,000 units to break even. But at this high price, consumers buy too few toasters, and profits are negative. The table shows that a price of $18 yields the highest profits. Note that none of the prices produce the manufacturer's target profit of $200,000. To achieve this target return, the manufacturer will need to search for ways to lower fixed or variable costs, thus lowering the break-even volume.

hE 10.1 Break-Even Volume and Profits at Different Prices

(1)

(2)

Price

Unit Demand Needed to Break Even

-

' ,

-

-

$14 16 18 20 22 ?-

-

-

-

--

75,000 50,000 37,500 30,000 25,000 .-

-

-

(3) Expected Unit Demand at Given Price -

-

-

- - - ---

71,000 67,000 60,000 42,000 23,000 - - .- - - - - .--

(4) Total Revenue (1) X (3) -

(5) Total Costs*

- --

$ 994,000 1,072,000 1,080,000 840,000 506,000 - - * -

(6) Profit (4) - (5) -

$1,010,000 970,000 900,000 720,000 530,000 --

* Assumes fixed costs of $300,000 and constant unit var~ablecosts of $10.

-

-

-

-$16,000 102,000 180,000 120,000 -$24,000 -

- "

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Customer perceptions of value set the upper limit for prices, and costs set the lower limit. However, in setting prices within these limits, the company must consider a number of other internal and external factors. Internal factors affecting pricing include the company's overall marketing strategy, objectives, and marketing mix, as well as other organizational considerations. External factors include the nature of the market and demand, competitors' strategies and prices, and other environmental factors.

Target costing Pricing that starts with an ideal selling price, then targets costs that will ensure that the price is met.

Price is only one element of the company's broader marketing strategy. Thus, before setting price, the company must decide on its overall marketing strategy for the product or service. If the company has selected its target market and positioning carefully, then its marketing mix strategy, including price, will be fairly straightforward. For example, when Toyota developed its Lexus brand to compete with European luxury-performance cars in the higher-income segment, this required charging a high price. In contrast, when it introduced its Yaris model"the car that you can afford to drive is finally the car you actually want to driveJ'-this positioning required charging a low price. Thus, pricing strategy is largely determined by decisions on market positioning. General pricing objectives might include survival, current profit maximization, market share leadership, or customer retention and relationship building. At a more specific level, a company can set prices to attract new customers or to profitably retain existing ones. It can set prices low to prevent competition &om entering the market or set prices at competitors' levels to stabilize the market. It can price to keep the loyalty and support of resellers or to avoid government intervention. Prices can be reduced temporarily to create excitement for a brand. Or one product may be priced to help the sales of other products in the company's line. Thus, pricing may play an important role in helping to accomplish the company's objectives at many levels. Price is only one of the marketing mix tools that a company uses to achieve its marketing objectives. Price decisions must be coordinated with product design, distribution, and promotion decisions to form a consistent and effective integrated marketing program. Decisions made for other marketing mix variables may affect pricing decisions. For example, a decision to position the product on high-performance quality will mean that the seller must charge a higher price to cover higher costs. And producers whose resellers are expected to support and promote their products may have to build larger reseller margins into their prices. Companies often position their products on price and then tailor other marketing mix decisions to the prices they want to charge. Here, price is a crucial product-positioning factor that defines the product's market, competition, and design. Many firms support such pricepositioning strategies with a technique called target costing, a potent strategic weapon. Target costing reverses the usual process of first designing a new product, determining its cost, and then asking, "Can we sell it for that?" Instead, it starts with an ideal selling price based on customer-value considerations and then targets costs that will ensure that the price is met. P&G used target costing to price and develop its highly successful Crest SpinBrush electric toothbrush: P&G usually prices its goods at a premium. But with Crest SpinBrush, P&Greversed its usual thinking. It started with an attractive low market price and then found a way to make a profit at that price. SpinBrushYsinventors first came up with the idea of a low-priced electric toothbrush while walking through their local Wal-Mart, where they saw Sonicare, Interplak, and other electric toothbrushes priced at more than $50. These pricy brushes held only a fraction of the o.veral1toothbrush market. A less-expensive electric toothbrush, the designers reasoned, would have huge potential. They decided on a target price of just $5, batteries included-only $1more than the most expensive manual brushes-and set out to design a brush they could sell at that price. Every design element was carefully considered with the targeted price in mind. To meet the low price, P&G passed on the usual lavish new-product launch campaign. Instead, to give SpinBrush more point-of-sale impact, it.relied on "Try Me" packaging that allowed consumers to turn the brush on in stores. Target cost pricing has made Crest SpinBrush one of P&G's most successful new products ever. It has now become the nation's best-selling toothbrush, manual or electric, with a more than 40 percent share of the electric toothbrush market.13

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A devil on both shoulders. With blissfully dark intentions. the new Cayman just begs to be driven. Beneath sculpted curves sits a 2.7-liter, 245.hp mid.mount engine yearning Lo run. Its rigid body ready to respond instan* la your will. Never has bad felt so good. Porsche.'lhere is no substitute.

a

Other companies deemphasize price and use other marketing mix tools to create nonprice positions. Often, the best strategy is not to charge the lowest price, but rather to differentiate the marketing offer to make it worth a higher price. For example, Viking builds more value into its kitchen appliance products and charges a higher price than many competitors. Customers recognize Viking's higher quality and are willing to pay more to get it. Some marketers even feature high prices as part of their positioning. For example, Grand Marnier offers a $225 bottle of Cuvee du Cent Cinquantenaire that's marketed with the tagline "Hard to find, impossible to pronounce, and prohibitively expensive." Porsche proudly advertises its curvacious Cayman as "Starting at $49,400." And Steinway offers "the finest pianos in the world," with a price to match. Steinway's grand pianos can cost as much as $165,000 (see Real Marketing 10.2). Thus, marketers must consider the total marketing strategy and mix when setting prices. If the product is positioned on nonprice factors, then decisions about quality, promotion, and distribution will strongly affect price. If price is a crucial positioning factor, then price will strongly affect decisions made about the other marketing mix elements. But even when featuring price, marketers must remember that customers rarely buy on price alone. Instead, they seek products that give them the best value in terms of benefits received for the price paid.

Management must decide who within the organization should set prices. Companies handle pricing in a variel$ of ways. In small companies, prices are often set by top management rather than by the marketing or sales departments. In large companies, pricing is typically handled by divisional or product line managers. In industrial markets, salespeople may be allowed to negotiate with customers within certain price ranges. Even so, top management sets the pricing objectives and policies, and it often approves the prices proposed by lowerlevel management or salespeople. In industries in which pricing is a key factor (airlines, aerospace, steel, railroads, oil companies), companies often have pricing departments to set the best prices or to help others in setting them. These departments report to the marketing department or top management. Others who have an influence on pricing include sales managers, production managers, finance managers, and accountants.

Positioning on high price: Porsche proudly advertises its curvacious Cayman as "Starting at $49,400."

As noted earlier, good pricing starts with an understanding of how customers' perceptions of value affect the prices they are willing to pay. Both consumer and industrial buyers balance the price of a product or service against the benefits of owning it. Thus, before setting prices, the marketer must understand the relationship between price and demand for its product. In this section, we take a deeper look at the price-demand relationship and how it varies for different types of markets. We then discuss methods for analyzing the price-demand relationship. The seller's pricing freedom varies with different types of markets. Economists recognize four types of markets, each presenting a different pricing challenge. Under pure competition, the market consists of many buyers and sellers trading in a uniform commodity such as wheat, copper, or financial securities. No single buyer or seller has much effect on the going market price. A seller cannot charge more than the going price,

Chapter 10 Pricing Products: Understanding and Capturing Customer Value

A Steinway piano-any Steinway piano-costs a lot. A Steinway grand piano typically runs anywhere from $40,000 to $165,000. The most popular model sells for around $72,000. But Steinway buyers aren't looking for bargains. In fact, it seems, the higher the prices, the better. High prices confirm that a Steinway is the very best that money can buy-the epitome of handcrafted perfection. As important, the Steinway name is steeped in tradition. It evokes images of classical concert stages, sophisticated dinner parties, and the celebrities and performers who've owned and played Steinway pianos across more than 150 years. Since its founding in 1853, the company's motto has been "The Instrument of the Immortals." When it comes to Steinway, price is nothing, the Steinway experience is everything. To be sure, Steinway & Sons makes pianos of very high quality. With 115 patents to its credit, Steinway & Sons has done more than any other manufacturer to advance the art of piano building. Steinway pioneered the development of a one-piece piano rim produced out of 17 laminations of veneer. It invented a process for bendin,ga single 22-foot-long strip of these laminated sheets inside a massive piano-shaped vise. It's this strong frame that produces Steinway's distinctive clear tones. Steinway & Sons has continued perfecting this design, and today a Steinway piano's 243 tempered, hard-steel strings exert 35 tons of pressure-enough force to implode a three-bedroom house if the strings were strung between attic and cellar. In addition to cutting-edge technology, Steinway & Sons uses only the finest materials to construct each piano. Rock maple, spruce, birch, poplar, and four other species of wood each play a crucial functional role in the physical and acoustical beauty of a Steinway. The expansive wooden soundboard, which turns the string vibrations into sound, is made from select Alaskan Sitka spruce-one grade higher than aircraft grade. Through delicate handcraftsmanship, Steinway transforms these select materials into pianos of incomparable sound quality. From start to finish, it takes 450 skilled workers more than a year to handcraft and assemble a Steinway piano from its 12,000 component parts. Thus, Steinway is anything but mass market. Each year, Steinway's factories in Astoria, New York, and Hamburg, Germany, craft approximately 5,000 pianos. (By comparison, Yamaha produces 100,000 pianos per year.) Steinway's precision quality alone would command top dollar, but Steinway buyers get much more than just a well-made piano. They also get the Steinway mystique. Owning or playing a Steinway puts you in some very good company. Fully 98 percent of piano soloists with the world's major symphony orchestras prefer playing on a Steinway. More than 90 percent of the world's concert pianists, some 1,300 in all, bear the title of Steinway Artist-an elite club of Steinway-owning professional musicians. Steinway customers include composers and professional musicians (from Van Cliburn to Billy Joel), upscale customers (from Lamar Alexander to Paula Zahn), and heads of state (the 25,000th Steinway was sold to Czar Alexander of Russia, and Piano No. 300,000 graces the East Room of the White House, replacing Piano No. 100,000, which is now in the Smithsonian). But Steinways aren't just for world-class pianists and the wealthy. Ninety-nine percent of all Steinway buyers are amateurs who perform only in their dens. "We see a lot of corporate executives and physi-

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A Steinway piano costs a lot, but buyers aren't looking for bargains. When it comes to a Steinway, price is nothing, the Steinway experience i s everything.

cians buying Steinway grands," says a Steinway marketer. "But it is not unusual at all for a middle-income person to come in and buy a grand." The high prices don't appear to stop even the most cashpoor enthusiasts. Steinway offers a finance plan that lets them pay for their grand piano over a 12-year period. Performers of all kinds sing Steinway's praises. "Steinway is the only piano on which the pianist can do everything he wants. And everything he dreams," declares premier pianist and conductor Vladimir Ashkenazy. At the other end of the performing spectrum, contemporary singer-songwriter Randy Newman puts it this way: "I have owned and played a Steinway all my life. It's the best Beethoven piano. The best Chopin piano. And the best Ray Charles piano. I like it, too." Whereas some people want a Porsche in the garage, others prefer a Steinway in the living room-both cost about the same, and both make a statement about their owners. Even in the worst of times, Steinway & Sons has held true to its tradition and image-and to its premium prices. Although the company is no longer owned by the Steinway family, its current owners still prize and protect the brand's exclusivity. When they bought the troubled company in 1984, new management was burdened with 900 pianos of excess inventory. But rather than slashing prices to (confin ues)

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make a quick profit at the risk of tarnishing the brand, managers restored the company's health by holding the line on prices and renewing its commitment to quality. Through such actions, Steinway has retained its cult-like following and continues to dominate its market. Despite its very high prices--or more likely because of themSteinway enjoys a 95 percent market share in concert halls. So, you won't find any weekend sales on Steinway pianos. Charging significantly higher prices continues to be a cornerstone of the company's "much more for much more" value proposition. And high prices have been good for Steinway & Sons. Although the cornpany accounts for only 3 percent of all U.S. pianos sold each year, it captures 25 percent of the industry's sales dollars and close to 35 percent of the profits. To customers, whatever a Steinway costs, it's a small price to pay for the experience of owning one. Just ask the collector who recently commissioned a nine-foot re-creation of the famous Steinway AlmaTaderna piano built in 1887. The price for his dream Steinway? An eye-popping $675,000!Classical pianist Krystian Zimerman sums up his Steinway experience this way: "My friendship with the Steinway

piano is one of the most important and beautiful things in my life." Who can put a price on such feelings? Sources: See Rosemary Barnes, "The Price of Perfection: Steinway Piano Commands a Premier Price," Knight Ridder TN'bune Business News, February 26, 2005, p. 1; Andy Serwer, "Happy Birthday Steinway,"Fortune, March 17, 2003, p. 94; "Books and Arts: Making the Sound of Music; Piano Manufacturers," The Economist, June 7, 2003, p. 102; Brian T. Majeski, "The Steinway Story," Music Trades, September 2003, p. 18; "The Most Famous Name in Music," Music Trades, September 2003, p. 118-130;Stephan Wilkinson, "HighStrung. Powerful. Very Pricey," Popular Science, March 1, 2003, p. 32; "Steinway Musical Instruments, Inc.," Hoover's Company Capsules, Austin, July 2006, p. 48052; Michael Z. Wise, "Piano Versus Piano," New York Times, May 9, 2004; Lisa Gschwandtner, "Keys to Success," Selling Power, July-August 2006, p. 50; James Barron, Piano: The Making of a Steinway Concert Grand (New York:

Times Books, 2006);and quotes and information found at www.steinway.com, Decern ber 2006.

because buyers can obtain as much as they need at the going price. Nor would sellers charge less than the market price, because they can sell all they want at this price. If price and profits rise, new sellers can easily enter the market. In a purely competitive market, marketing research, product development, pricing, advertising, and sales promotion play little or no role. Thus, sellers in these markets do not spend much time on marketing strategy. Under m o n o p o l i s t i c c o m p e t i t i o n , the market consists of many buyers and sellers who trade over a range of prices rather than a single market price. A range of prices occurs because sellers can differentiate their offers to buyers. Either the physical product can be varied in quality, features, or style, or the accompanying services can be varied. Buyers see differences in sellers' products and will pay different prices for them. Sellers try to develop differentiated offers for different customer segments and, in addition to price, freely use branding, advertising, and personal selling to set their offers apart. Thus, pickle maker Bick's differentiates its pickles from dozens of other brands through strong branding and advertising, reducing the impact of price. Because there are many competitors in such markets, each firm is less affected by competitors' pricing strategies than in oligopolistic markets. Under o l i g o p o l i s t i c c o m p e t i t i o n , the market consists of a few sellers who are highly sensitive to each other's pricing and marketing strategies. The product can be uniform

E3 Monopolistic competition: Pickle marketer Bick's sets its pickles apart from dozens of other brands using both price and nonprice factors.

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Demand curves

4 Ql Quantity demanded per period

Quantity demanded per period

A. Inelastic demand

B. Elastic demand

Q;

Q'l

(steel, aluminum) or nonuniform (cars, computers]. There are few'sellers because it is difficult for new sellers to enter the market. Each seller is alert to competitors' strategies and moves. If a steel company slashes its price by 10 percent, buyers will quickly switch to this supplier. The other steelmakers must respond by lowering their prices or increasing their services. In a pure monopoly, the market consists of one seller. The seller may be a government monopoly (the U.S. Postal Service), a private regulated monopoly (a power company), or a private nonregulated monopoly (DuPont when it introduced nylon). Pricing is handled differently in each case. In a regulated monopoly, the government permits the company to set rates that will yield a "fair return." Nonregulated monopolies are kee to price at what the market will bear. However, they do not always charge the full price for a number of reasons: a desire not to attract competition, a desire to penetrate the market faster with a low price, or a fear of government regulation. Each price the company might charge will lead to a different level of demand. The relationship between the price charged and the resultDemand curve ing demand level is shown in the demand curve in Figure 10.6. The demand curve shows the A curve that shows the number of units the market will buy in a given time period at different prices that might be number of units the market charged. In the normal case, demand and price are inversely related; that is, the higher' the will buy in a given time price, the lower the demand. Thus, the company would sell less if it raised its price from PI period, at different prices that to P2. In short, consumers with limited budgets probably will buy less of something if its price might be charged. is too high. In the case of prestige goods, the demand curve sometimes slopes upward. Consumers think that higher prices mean more quality. For example, Gibson Guitar Corporation once toyed with the idea of lowering its prices to compete more effectively with Japanese rivals such as Yamaha and Ibanez. TO-its surprise, Gibson found that its instruments didn't sell as well at lower prices. "We had an inverse [pricedemand relationship]," noted Gibson's chief executive. "The more we charged, the more product we sold." At a time when other guitar manufacturers have chosen to build their instruments more quickly, cheaply, and in greater numbers, Gibson still promises guitars that "are made one-at-a-time, by hand. No shortcuts. No substitutions." It turns out that low prices simply aren't consistent with "Gibson's century-old tradition of creating investment-quality instruments that represent the highest standards of imaginative design and masterful craftsmanship."14 Still, if the company charges too high a price, the level of demand will be lower. Most companies try to measure their demand curves by estimating demand at differH The demand curve sometimes slopes upward: Gibson was surprised to learn that ent prices. The type of market makes a differits high-quality instruments didn't selt as well a t lower prices. ence. In a monopoly, the demand curve shows

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the total market demand resulting fiom different prices. If the company faces competition, its demand at different prices will depend on whether competitors' prices stay constant or change with the company's own prices. Price elasticity A measure of the sensitivity of demand lo changes in price.

Marketers also need to know price elasticity-how responsive n price. Consider the two demand curves in Figure 10.4. In Figure 10.4A, a price increase fiom PI to P2 leads to a relatively small drop in demand &om Q, to Q,. In Figure 10.4B, however, the same price increase leads to a large drop in demand from Q', to Q',. If demand hardly changes with a small change in price, we say the demand is inelastic. If demand changes greatly, we say the demand is elastic. The price elasticity of demand is given by the following formula: Price Elasticity of Demand =

% Change in Quantity Demanded % Change in Price

Suppose demand falls by 10 percent when a seller raises its price by 2 percent. Price elasticity of demand is therefore -5 (the minus sign confirms the inverse relation between price and demand) and demand is elastic. If demand falls by 2 percent with a 2 percent increase in price, then elasticity is -1. In this case, the seller's total revenue stays the same: The seller sells fewer items but at a higher price that preserves the same total revenue. If demand falls by 1percent when price is increased by 2 percent, then elasticity is -112 and demand is inelastic. The less elastic the demand, the more it pays for the seller to raise the price. What determines the price elasticity of demand? Buyers are less price sensitive when the product they are buying is unique or when it is high in quality, prestige, or exclusiveness. They are also less price sensitive when substitute products are hard to find or when they cannot easily compare the quality of substitutes. Finally, buyers are less price sensitive when the total expenditure for a product is low relative to their income or when the cost is shared by another party.15 If demand is elastic rather than inelastic, sellers will consider lowering their prices. A lower price will produce more total revenue. This practice makes sense as long as the extra costs of producing and selling more do not exceed the extra revenue. At the same time, most firms want to avoid pricing that turns their products into commodities. In recent years, forces such as deregulation and the instant price comparisons afforded by the Internet and other technologies have increased consumer price sensitivity, turning products ranging from telephones and computers to new automobiles into commodities in consumers' eyes. Marketers need to work harder than- ever to differentiate their offerings when a dozen competitors are selling virtually the same product at a comparable or lower price. More than ever, companies need to understand the price sensitivity of their customers and prospects and the trade-offs people are willing to make between price and product characteristics. In the words of marketing consultant Kevin Clancy, those who target only the price sensitive are "leaving money on the table." Even in the energy marketplace, where you would think that a kilowatt is a kilowatt is a kilowatt, some energy companies are beginning to wake up to this fact. They are differentiating their power, branding it, and marketing it on considerations other than price. For example, Green Mountain Energy Company targets consumers who are not only concerned with the environment but are also willing to support those attitudes with their choice of electricity providers. Green Mountain offers electricity made from cleaner, renewable sources such as water, wind, solar, and bioBy positioning itself as "the nation's leading brand of cleaner electricity products," mass. By positioning itself as "the nation's Green Mountain differentiates itself from comparably priced utilities and competes leading brand of cleaner electricity products," successfully against "cheaper" brands that focus only on more price-sensitive consumers. Green Mountain differentiates itself from com-

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parably priced utilities and competes successfully against "cheaper" brands that focus only on more price-sensitive consumers. l6

In setting its prices, the company must also consider competitors' costs, prices, and market offerings. Consumers will base their judgments of a product's value on the prices that competitors charge for similar products. A consumer who is thinking about buying a Canon digital camera will evaluate Canon's customer value and price against the value and prices of comparable products made by Kodak, Nikon, Sony, and others. In addition, the company's pricing strategy may affect the nature of the competition it faces. If Canon follows a high-price, high-margin strategy, it may attract competition. A lowprice, low-margin strategy, however, may stop competitors or drive them out of the market. Canon needs to benchmark its costs and value against competitors' costs and value. It can then use these benchmarks as a starting point for its own pricing. In assessing competitors' pricing strategies, the company should ask several questions. First, how does the company's market offering compare with competitors' offerings in terms of customer value? If consumers perceive that the company's product or service provides greater value, the company can charge a higher price. If consumers perceive less value relative to competing products, the company must either charge a lower price or change customer perceptions to justify a higher price. Next, how strong are current competitors and what are their current pricing strategies? If the company faces a host of smaller competitors charging high prices relative to the value they deliver, it might charge lower prices to drive weaker competitors out of the market. If the market is dominated by larger, low-price competitors, the company may decide to target unserved market niches with value-added products at higher prices. For example, your local independent bookstore isn't likely to win a price war against Amazon.com or Barnes & Noble. It would be wiser to add special customer services and personal touches that justify higher prices and margins. Finally, the company should ask, How does the competitive landscape influence customer price sensitivity?17For example, customers will be more price sensitive if they see few differences between competing products. They will buy whichever product costs the least. The more information customers have about competing products and prices before buying, the more price sensitive they will be. Easy product comparisons help customers to assess the value of different options and to decide what prices they are willing to pay. Finally, customers will be more price sensitive if they can switch easily from one product alternative to another. What principle should guide decisions about what price to charge relative to those of competitors? The answer is simple in concept but often difficult in practice: No matter what price you charge-high, low, or in between-be certain to give customers superior value for that price.

When setting prices, the company also must consider a number of other factors in its external environment. Economic conditions can have a strong impact on the firm's pricing strategies. Economic factors such as boom or recession, inflation, and interest rates affect pricing decisions because they affect both consumer perceptions of the product's price and value and the costs of producing a product. The company must also consider what impact its prices will have on other parties in its environment. How will resellers react to various prices? The company should set prices that give resellers a fair profit, encourage their support, and help them to sell the product effectively. The government is another important external influence on pricing decisions. Finally, social concerns may have to be taken into account. In setting prices, a company's short-term sales, market share, and profit goals may have to be tempered by broader societal considerations. We will examine public policy issues in pricing in the next chapter. We've now seen that pricing decisions are subject to an incredibly complex set of customer, company, competitive, and environmental forces. In the next chapter, we'll examine specific pricing strategies available to marketers.

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evie-wing the Costs are an important consideration in setting prices. However, cost-based pricing is product driven rather than customer driven. The company designs what it considers to be a good product and sets a price that covers costs plus a target profit. If the price turns out to be too high, the company must settle for lower markups or lower sales, both resulting in disappointing profits. The company must watch its costs carefully. If it costs the company more than it costs competitors to produce and sell its product, the company must charge a higher price or make less profit, putting it at a competitive disadvantage. Total costs are the sum of the fixed and variable costs for any given level of production. Management wants to charge a price that will at least cover the total costs at a given level of production. To price wisely, management also needs to know how its costs vary with different levels of production and accumulated production experience. Cost-based pricing approaches include cost-plus pricing and breakeven pricing (or target profit pricing).

Companies today face a fierce and fast-changing pricing environment. Firms successful at creating customer value with the other marketing mix activities must still capture some of this value in the prices they earn. This chapter looks at internal and external considerations that affect pricing decisions and examines general pricing approaches. Answer the question "What is price?" and discuss the importance of pricing in today's fast-changing environment. Price can be defined narrowly as the amount of money charged for a product or service. Or it can be defined more broadly as the sum of the values that consumers exchange for the benefits of having and using the product or service. The pricing challenge is to find the price that will let the company make a fair profit by getting paid for the customer value it creates. Despite the increased role of nonprice factors in the modern marketing process, price remains an important element in the marketing mix. It is the only marketing mix element that produces revenue; all other elements represent costs. Price is also one of the most flexible elements of the marketing mix. Unlike product features and channel commitments, price can be raised or lowered quickly. Even so, many companies are not good at handling pricing-pricing decisions and price competition are major problems for many marketing executives. Pricing problems often arise because managers are too quick to reduce prices, prices are too cost oriented rather than customervalue oriented, or prices are not consistent with the rest of the marketing mix. Discuss the importance of understanding customer value perceptions when setting prices. Good pricing begins with a complete understandingof the value that a product or service creates for customers and setting a price that captures the value. Customer perceptions of the product's value set the ceiling for prices. If customers perceive that the price is greater than the product's value, they will not buy the product. Value-based pricing uses buyers' perceptions of value, not the seller's cost, as the key to pricing. Companies can pursue either of two types of value-based pricing. Good-value pricinginvolves offering just the right combination of quality and good service at a fair price. Everyday low pricing (EDLP) is an example of this strategy. Value-addedpricing involves attaching valueadded features and services to differentiate the company's offers and support charging higher prices. Discuss the importance of company and product costs in setting prices. The price the company charges will fall somewhere between one that is too high to produce any demand and one that is too low to produce a profit. Whereas customer perceptions of value set the ceiling for prices, company and product costs set the floor. If the company prices the product below its costs, its profits will suffer. Cost-based pricing involves setting prices based on the costs for producing, distributing, and selling the product plus a fair rate of return for effort and risk.

Break-even pricing (target profit pricing) 291 Cost-based pricing 288 Cost-plus pricing 290

Demand curve 297 Experience curve (learning curve) 290 Fixed costs (overhead) 288

4. Identify and define the other important external and internal factors affecting a firm's pricing decisions. Other internal factors that influence pricing decisions include the company's overall marketing strategy, objectives, mix, and organization for pricing. Price is only one element of the company's broader marketing strategy. If the company has selected its target market and positioning carefully, then its marketing mix strategy, including price, will be fairly straightfoward. Some companies position their products on price and then tailor other marketing mix decisions to the prices they want to charge. Other companies deemphasize price and use other marketing mix tools to create nonprice positions. Common pricing objectives might include survival, current profit maximization, market share leadership, or customer retention and relationship building. Price decisions must be coordinated with product design, distribution, and promotion decisions to form a consistent and effective marketing program. Finally, in order to coordinate pricing gdals and decisions, management must decide who within the organization is responsible for setting price. Other external pricing considerations include the nature of the market and demand, competitors' strategies and prices, and environmental factors such as the economy, reseller needs, and government actions. The seller's pricing freedom varies with different types of markets. Ultimately, the customer decides whether the company has set the right price. The customer weighs the price against the perceived values of using the product-if the price exceeds the sum of the values, consumers will not buy. So the company must understand concepts such as demand curves (the price-demand relationship) and price elasticity (consumer sensitivity to prices). Consumers also compare a product's price to the prices of competitors' products. A company therefore must learn the customer value and prices of competitors' offers.

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Good-value pricing 287 Price 284 Price elasticity 298 Target costing 293

Total costs 289 Value-added pricing 287 Value-based pricing 285 Variable costs 288

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Discussi~~g the Concepts The chapter points out that many companies do not handle pricing well. Beyond focusing too much on cost, what are some of the other difficulties that marketers have in setting prices? What are the differences between cost-based and value-based pricing? Four recent MBA graduates are starting their own financial services firm. They plan to promote a "good value" pricing strategy to their customers. Would you recommend this pricing strategy?

4. How would the risks of experience curve pricing apply to a new manufacturer of ink-jet printers?

5. Pricing is based on customer perceptions of value and costs in addition to other internal factors. Discuss these other internal factors and how they might affect the pricing of a new Sony MP3 player. 6. Explain why elasticity of demand is such an important concept to

marketers who sell a "commodity" product.

1. Visit U.S. News & World Report at http://www.usnews.com/usnews/ edu/college/rankings/bvrankindex-brief.php for a list of schools that offer the best value. How is value defined here? Is this a valid definition of value? 2. Given the following information, calculate the number of meals a restaurant would need to sell to break even: @ Average meal price = $10.35 Meals sold = 8,560 8 Food = $27,653 @ Food labor = $18,386 Management = $4,855

Supplies = $3,133 Maintenance = $2,213 IE Marketing = $1,650 Insurance/legal = $1,904 Waste management = $988 EI Utilities = $3,159 rn Rent = $3,960 3. What does the following positioning statement suggest about the firm's marketing objectives, marketing-mix strategy, and costs? "No one beats our prices. We crush competition."

lnternet users have become used to receiving "for free" information. With some online revenues razor thin, many lnternet operations are interested in moving to more of a "for fee" model. But customers.-resistpaying and marketers are looking for creative ways to blend the models. Consider Google, one of the most visited sites on the lnternet and the top search engine. To produce user fees, Google has supplemented its free search om). with a service called Google Answers ( ~ ~ ~ . g ~ ~ g l e . a n S w e r S . cThis service, introduced in 2006, offers more than 500 carefully screened researchers to answer your questions. The user pays a nonrefundable listing fee of $.50 per question and sets a price that reflects how much he or she would pay for a well-researched answer. The user is charged this price only if the question is answered satisfactorily. Google pays three-

quarters of the revenue to the researcher who answers the question and keeps the other 25 percent. Fees start at $2.50 and average around the $75 point. A recent review of questions shows a $5 fee to answer a question on whether an artist is working on a new album and a fee of $150 to find the portion of the music industry's revenues derived from independent artists.

Independent retailers have difficulty competing against megastores such as Wal-Mart, Toys "R" Us, and Best Buy. The larger retailers can usually offer lower prices due to operational efficiencies. They make up for their lower margins with much higher sales volumes. But what happens when one of these megaretailers prices itfms below its costs to compete with independent retailers? Best Buy, long accused by independent music stores of using music as a loss leader, may have the line into predatory pricing when it priced independent label CDs (indies) below its own wholesale cost. In 2006, Best Buy ran a promotion including a week-long sale on 20 indie titles at $7.99, about $2 below wholesale prices. Marketwide, indie CD sales soared during the week of the sale, up 65 percent from the previous week. The problem, according to the independent retailers, was that little of that

surge came from independent stores. Music label executives claimed that they were unaware that Best Buy would be selling their CDs below the $9.99 wholesale price and were concerned about the future of the independent retailers.

1

1s Google Answers using cost-based or va\ue-ba& pricing?Explain.

2. What are Google's objectives with this product? 3. How will increased competition affect Google's marketing strategy for this product?

1. H~~ does the pricing of music C D fit ~ with Best ~~~~sbroader marketing-mix strategy? 2. Comment on the elasticity of demand for indie music. Do You think Best Buy broke even on the music?

3. Was Best Buy's promotion legal?Was it ethical? %plain. See: Todd Martens, "Best Buy Promo Raises Ire," illb board, February 18, 2006, p. 10.

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Trying to replicate the success enjoyed by competitors such as Southwest and Jet Blue, Delta launched a new experiment: a separately branded airline called Song. The pricing strategy behind this low-cost airline involved more than simple discounting. Song implemented an upfront pricing structure that took the mystery out of buying airline tickets. In addition, the airline offered amenities such as healthy gourmet organic food, vibrant colors, leather seats, and in-flight satellite television. Song even enlisted designer Kate Spade to craft fashionable new uniforms for its flight attendants. In the end, however, Delta could not sustain both Song and parent Delta airlines. When Delta declared bankruptcy in late 2005, it announced that it would merge Song back into the Delta fleet, thereby reducing the costs of marketing two separate airlines. It would use Song airplanes for its own flights, but it would also incorporate Song's successes back into Delta's operations. According to Delta, "Song's ideas and innovations will continue to play a vital role in the refreshment and

reinvigoration of the Delta product and experience." Delta plans to incorporate successful Song innovations, including zone boarding, faster aircraft turn times, all-leather seats, designer uniforms, improved food options, simplified fare structure, and upgraded online presence. After viewing the video featuring Song Airlines, answer the following questions about pricing considerations and strategies.

BAnLE STATIONS!

served a total of 58 cities and 59 airports in 30 states and was offering only 14 flights a day from Philly out of only two gates. And until its entry into Philadelphia, Southwest had a history of entering smaller, less-expensive, more out-of-theway airports where it didn't pose a direct threat to the major airlines like US Air. Did Southwest really have a chance? Southwest was used to that question. In 1971, when Kelleher and a partner concocted a business plan on a cocktail napkin, most people didn't give Southwest much of a chance. Its strategy completely countered the industry's conventional wisdom. Southwest's planes flew from "point to point" rather than using the "hub-and-spoke" pattern that is the backbone of the major airlines. This allowed more flexibility to move planes around based on demand. Southwest served no meals, only snacks. It did not charge paissengers a fee to change same-fare tickets. It had no assigned seats. It had no electronic entertainment, relying on comic flight attendants to entertain passengers. The airline did not offer a retirement plan; rather, it offered its employees a profit-sharing plan. Because of all this, Southwest had much lower costs than its competitors and was able to crush the competition with low fares. For 32 years, Southwest achieved unbelievable success by sticking to this basic no-frills, low-price strategy. Since it began operations in 1972, it was the only airline to post a profit every year. In 2003, just prior to taking the pl&ige in Philly, the company earned $442 million-more than all the other U.S. airlines combined. In the three prior years, Southwest had earned $1.2 billion, while its competitors lost a combined $22 billion. In May 2003, for the first time, Southwest boarded more domestic customers than any other airline. From 1972 through 2002, Southwest had the

In March 2004, US Airways CEO David Siegel addressed his employees via a Webcast. "They're coming for one reason: They're coming to kill us. They beat us on the West Coast, they beat us in Baltimore, but if they beat us in Philadelphia, they are going to kill us." Siegel exhorted his employees on, emphasizing that US Airways had to repel Southwest Airlines when the no-frills carrier began operations at the Philadelphia International Airport in May-or die. On Sunday, May 9, 2004, at 5:05 A.M. (yes, A.M.),leisure passengers and some thrift-minded business people lined up to secure seats on Southwest's 7 A.M. flight from Philadelphia to Chicago-its inaugural flight from the new market. Other passengers scurried to get in line for a flight to Orlando. And why not? One family of six indicated it bought tickets for $49 each way, or $98 round trip. An equivalent round-trip ticket on US Air would have cost $200. Southwest employees, dressed in golf shirts and khaki pants or shorts, had decorated the ticket counters with lavender, red, and gold balloons and hustled to assist the throng of passengers. As the crowd blew noisemakers and hurled confetti, Herb Kelleher, Southwest's quirky CEO, shouted, "I hereby declare Philadelphia fiee from the tyranny of high fares!" At 6:59 a.m., Southwest Flight 741 departed for Chicago.

WAR on! Was Southwest's entry into the Philadelphia market worth all this fuss? After all, US Air was firmly entrenched in Philadelphia, the nation's eighth-largest market, offering more than 375 flights per day and controlling two-thirds of the airport's 120 gates. Further, in 2004, little Southwest

1. How did Song lower fixed costs? How did the company lower variable costs? 2. Which of the external factors discussed in the text do you believe had the largest impact on Song's pricing decisions?

3. What pricing approach did Delta use when setting prices for passenger tickets on Song flights? 4. Can Delta successfully employ the lessons learned from Song?

nation's best-performing stock-growing at a compound annual rate of 26 percent over the period. Moreover, while competing airlines laid off thousands of workers following the September 11tragedy, Southwest didn't lay off a single employee. In 2004, its cost per average seat mile (CASMthe cost of flying one seat one mile) was 8.09 cents, as compared with between 9.42 to 11.18 for the big carriers. In the early 2000s, the major (or legacy) airlines, such as US Air, Delta, United, American, and Continental, faced three major problems. First, "little" Southwest was no longer little. Second, other airlines, such as JetBlue, AirTran, ATA, and Virgin Atlantic, had adopted Southwest-like strategies. In fact, JetBlue and America West had CASMs of 5.90 and 7.72 cents, respectively. In 1990, discount airlines flew on just 159 of the nation's top 1,000 routes. By 2004, that number had risen to 754. As a result, the majors, who had always believed they could earn a 30 percent price premium, were finding it hard to get a 10 percent premium, if that. Third, and most importantly, the major airlines had high cost structures that were difficult to change. They had more long-service employees who earned higher pay and received expensive pension and health benefits. Many had unions, which worked hard to protect employee pay and benefits. US Air had experienced Southwest's attacks before. In the late 1980s, Southwest entered the California market, where US Air had a 58 percent market share on its routes. By the mid-'90s, Southwest had forced US Air to abandon those routes. On the Oakland to Burbank route, average one-way fares fell from $104 to just $42 and traffic tripled. In the early '90s, Southwest entered Baltimore Washington International Airport, where US Air had a significant hub and a 55 percent market share. By 2004, US Air had only 4.9 percent of BWI traffic, with Southwest ranking number one at 47 percent. Knowing it was in for a fight in Philly, US Air reluctantly started to make changes. In preparation for Southwest's arrival, it began to reshape its image as a high-fare, uncooperative carrier. It spread out its scheduling to reduce congestion and the resulting delays and started using two seldomused runways to reduce bottlenecks. The company also lowered fares to match Southwest's and dropped its requirement for a Saturday-night stayover on discounted flights. US Air also began some new promotion tactics. It launched local TV spots on popular shows such as "Friends," "American Idol," and "Frasier" to promote free massages, movie tickets, pizza, and flowers. On the other side, Southwest knew that Philadelphia posed a big challenge. Philadelphia International was one of the biggest airports it had ever attempted to enter. And with US Air's strong presence, it was also one of the most heavily guarded. Finally, the airport was known for its delays, congestion, bureaucracy, and baggage snafus, making Southwest's strategy of 20-minute turnarounds very difficult. Therefore, Southwest unveiled a new promotion plan for Philly. Ditching its tried-and-true cookie-cutter approach,

the airline held focus groups with local travelers to get their ideas on how it should promote its service-a first for Southwest. As a result, the airline developed a more intense ad campaign and assigned 50 percent more employees to the airport than it typically had for other launches. Southwest also recruited volunteers to stand on local street corners handing out free inflatable airline hats, luggage tags, and antenna toppers. The airline used billboards, TV, and radio to trumpet the accessibility of its low fares as well as its generous frequent-flier program. Two short years after Southwest began service to Philadelphia, the market took on a dramatically different look. Southwest had boosted daily nonstop flights from 14 to 53. It had added service to 11new cities and quadrupled its number of gates from two to eight, with its eye on four more. The number of Southwest employees in Philly approached 200, a huge increase over its post-launch total of fewer than 30. But the external impact of Southwest's first two years in Philadelphia was a classic example of what has come to be known as "the Southwest effect9'-a phenomenon in which all carriers' fares drop and more people fly. In Philadelphia, the intense competition brought on by Southwest's arrival caused airfares on some routes to drop by as much as 70 percent. In 2005, airline passenger traffic for Philadelphia International was up 15 percent over 2004. The airport attributed much of that increase to Southwest. In all, by the end of 2005, Southwest had captured 10 percent of total passenger traffic. In turn, US Airways' share fell about five percentage points. Just as US Air was absorbing Southwest's blows in Philadelphia, the underdog airline struck again. In May of 2005, Southwest started service to Pittsburgh, another major US Air hub. Shortly thereafter, Southwest announced that it would also soon enter Charlotte, NC, US Air's last stronghold. Still, although it appears that Southwest is on cloud nine, many factors are forcing the nation's most profitable air carrier to change flight plans. First, the best-known discount airline has more competition than ever before. Upstarts such as Frontier, AirTran, and JetBlue are doing very well with Southwest's model. And they are trumping Southwest's low fares by adding amenities such as free TV and XM satellite radio at each seat. Even the legacy carriers are now in better positions to take on Southwest's lower fares. A11 of the major airlines have ruthlessly slashed costs, mostly in the areas of wages and pensions. Some, like US Air, have used bankruptcy to force steep union concessions. In fact, Southwest now has some of the highest paid employees in the industry. And although Southwest still enjoys a big advantage in total costs over the major carriers, these big airlines have narrowed their cost disadvantage from 42 percent to 31 percent. With the wind now at their backs, these competitors could soon decrease the cost gap to as little as 20 percent. (case continues)

Chapter 10 Pricing Products: Understanding and Capturing Customer Value

Being the low-cost leader has some disadvantages. Because Southwest already has such a lean cost structure, it has much less room for improvement. For example, travel agent commissions have been at zero for some time (Southwest doesn't work through agents). Sixty-five percent of Southwest customers already buy their tickets online, minimizing its expense for call centers. And Southwest is losing another of its traditional cost advantages. For years, though some smartly negotiated fuel-hedging contracts, Southwest has enjoyed fuel prices far below those paid by the rest of the industry. But the most lucrative of those contracts are expiring. At a time when fuel prices are surging for the entire industry, this means that Southwest's fuel expenses are rising faster than those of its competitors. In the first quarter of 2006, Southwest's paid 63 percent more for fuel that it did for the year-earlier period. As these factors have quickly turned the tables on Southwest, some analysts are questioning the company's current strategic direction. "Slowly, Southwest is becoming what its competitors used to be," says industry consultant Steven Casley. Serving congested hub airports, linking with rivals through code sharing, and hunting the big boys on their own turf are all things that Southwest would previously have never. considered. But Gary Kelly, Southwest's new CEO, defends the company's actions. "Hey, I can admit it, our competitors are getting better," says Kelly. "Sure, we have an enormous cost advantage. Sure, we're the most efficient. The problem is, I just don't see how that can be indefinitely sustained without some sacrifice." Kelly has hinted that such sacrifices could include modest fare increases and more conservative labor contracts. In direct contrast to its well-known "firstcome" boarding policy, Southwest is even experimenting with a n assigned-seating system. And when asked if he was worried about Southwest losing its competitive advantage, Mr. Kelly responded confidently: .

We know people shop first for fares, and we've got the fares. [But] ultimately, our industry is a customerservice business, and we have the best people to provide that special customer service . . . that's our core advantage. Since the U.S. Department of Transportation began collecting and publishing operating statistics, we've excelled at on-time performance,

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baggage handling, fewest complaints, and fewest canceled flights. Besides, we're still the low-cost producer and the low-fare leader in the US. We have no intention of conceding that position. By almost any measure, Southwest is still the healthiest airline in the business. However, that might be like saying it's the least sick patient in the hospital. As the industry as a whole has suffered in the post-September 11th world, Southwest's 2005 earnings of $313 million were half of what the company made in 2000. The airline's stock prices hover at around $15 a share, more than 30 percent below 2001 levels. And as the other patients get better, Southwest may have to find some new medicine.

Questions for Discussion 1. How do Southwest's marketing objectives and its mar-

keting mix strategy affect its pricing decisions? 2. Discuss factors that have affected the nature of costs i n

the airline industry since the year 2000. How have these factors affected pricing decisions? 3. How do the nature of the airline market and the demand for airline service affect Southwest's decisions? 4. What general pricing approaches have airlines pursued? 5. Do you think that Southwest will be able to continue to maintain a competitive advantage based on price? What will happen if others carriers match the low-price leader? Sources: Chris Walsh, " APhiladelphia Success Story; Southwest's Quick Growth in City Shows Its Potential in Denver," RockyMountain News, December 30, 2005, p. 1B; Susan Warren, "Keeping Ahead of the Pack," Wall Street Journal, December 19, 2005, p. B1; Barney Gimbel, "Southwest's New Flight Plan," Fortune, May 16, 2005, accessed at www.fortune.com; "Let the Battle Begin," Air Transporf World, May 2004, p. 9; Micheline Maynard, "Southwest Comes Calling, and a Race Begins," New York Times, May 10, 2004; Melanie Trottman, "Destination: Philadelphia," Wall Street Journal, May 4, 2004, p. B1; Andy Sewer and Kate Bonamici, "Southwest Airlines: The Hottest Thing in the Sky," Fortune, March 8, 2004, p. 86.

Designing a Customer-Driven Marketing Strategy and Integrated Marketing Mix

Select Your 3aurney

he major airlines are facing very difficult pricing strategy decisions in these tough air-travel times. Pricing strategies vary widely. Some airlines offer no-frills flights and charge rock-bottom prices (Southwest, JetBlue, Frontier). Others offer luxury and charge higher prices to match (Virgin, Singapore Airlines). But most airlines haven't yet figured it out, leaving air-travel passengers generally grumpy when it comes to the topic of airline ticket prices. For example, when Northwest Airlines recently charged full fares but still cut basic perks (such as free magazines, pillows, and pretzels) and tacked on irksome new charges for things competitors provide for free (such as in-flight snacks and aisle seats), it dropped to dead last in the industry's customer satisfaction ratings. But now, one airline appears to have found a radical new pricing solution, one that customers are sure to love: Make flying free! That's right, Michael O'Leary, chief executive of Ireland's Ryanair, Europe's most profitable airline, wants to make air travel free. Not free as in tree from regulation, but free as in zero cost. By the end of the decade, he promises, "more than half of our passengers will fly free." The remarkable thing is, few analysts think his prediction is far-fetched: Ryanair already offers free fares to a quarter of its customers. Even without free flights, Ryanair has become one of Europe's most popular carriers. Last year it flew 35 million passengers to more than 100 European destinations, while its customers paid an average fare of just $53. The airline enjoyed revenues of $1.7 billion, up 20 percent over the previous year, at a time when most competitors were stuck in a holding pattern. Even more impressive, Ryanair reaped an industry-leading 22 percent net profit margin. (By comparison, profitable Southwest Airlines' net margin was 7.2 percent.) "Ryanair has the strongest financials in the European airline industry," says an airlines analyst. The secret? Ryanair's austere cost structure makes even cost-conscious Southwest look like a reckless spender. in addition, the Irish airline puts a price on virtually everything except tickets, from baggage check-in to seat-back advertising space. As a result, last year Ryanair collected $265 million-15.6 percent of overall revenues-from sources other than ticket sales. "We weren't the first to figure this out," OILeary says. "But we do it better than everybody else." The similarities to the Southwest model are hardly coincidental. In 1991, when Ryanair was just another struggling European regional carrier, CEO O'Leaiy went to

Dallas to meet Southwest executives and look @ ~ e t u m OOne way for lessons he could take back to Ireland. The Select Your Journey visit prompted a wholesale reconsideration of how the airline did business. Following Depart Date , Southwest's lead, Ryanair embraced a single ! Aug 2006 v ] Return Date type of aircraft-the venerable Boeing 737. Likewise, it focused on smaller, secondary airports and began to offer open (unassigned) passenger seating. But Ryanair has since taken the lowcost pricing model even further. An accountant who spent several years at bigfour global accounting firm KPMG, O'Leary GET A FREE FLIGHT - CLICK HERE! Terms It Conditions is maniacal about keeping costs down. "We want to be known as the Wal-Mart of flying," he says. Like the retail giant, each time Ryanair comes up with a new way to ,$?dFLY FROM FLY FRON LONDON {STANSTED) ,.& EMTPIIDLANDS , cut costs by a few million dollars-for fares are exclusive of taxes fees & fans are ~xciusiueof taxes fees & example, by removing seat-back pockets to charges which do not exceed f 12.50 charges which do not exceed f15.80 from $ from reduce weight and cleaning expenseFree Free Dubtin Toulon St. Tropez O'Leary passes the savings along to customers in the form of lower fares. It also means charging passengers for practically every amenity they might consume. There are no free peanuts or beverages on Ryanair flights; 27 million passengers bought in-flight refreshments on the airline last year, generating sales of $61 million, or an average of $2.25 per person. Last March, Ryanair eliminated its free checked-bag allowance and began charging $3.50 per piece-a "revenue-neutral" fee that was offset by cutting ticket prices by an average of $3.50. Ryanair expects the move to save $36 million a year by reducing fuel and handling costs. The airline is just as aggressive in its efforts to develop new sources of revenue. Today, 98 percent of Ryanair's passengers book their flights online, and the company's Web site sees roughly 15 million unique visitors a month-making it Europe's most popular travel site. The airline uses that traffic as a marketing tool for related services; each time a passenger books a rental car or a hotel room, Ryanair earns a percentage of the sale. Linking customers to such services brought in more than $100 million last year. O'Leary is also starting to turn his planes into media and entertainment venues. He's offered advertisers the opportunity to repaint the exteriors of Ryanair's planes, effectively turning them into giant billboards. (Hertz, Jaguar, and Vodafone have purchased space on the fuselages of Ryanair's 737s.) For passengers seeking distraction,

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Ryanair intends to offer in-flight gambling in 2007, with the airline earning a tiny cut off of each wager. O'Leary thinks gambling could double Ryanair's profits over the next decade, but he's not stopping there. He also envisions a day when the airline can charge passengers for the ability to use their cell phones at 35,000 feet. And he's expressed interest in partnering with operators of airport parking lots and concession stands to capture a bigger slice of the cash that passengers spend on the ground getting to and from his planes. Add it all up-relentless cost cutting on the operations side, combined with innovative efforts to extract more revenue from each traveler-and O'Learyls plan to give away half of Ryanair's seats by 2010 starts to look quite sane. Sure, taking to the skies on Ryanair may feel more like riding in a subway car than an airplane, but you can't beat the prices. And financially-strapped U.S. carriers should take note: Flying people from here to there for free could truly be liberating. For Ryanair, not even the sky's the 1imit.l

As the Ryanair example illustrates, pricing decisions are subject to a complex and fascinating array of company, environmental, and competitive forces. To make things even more complex, a company sets not a single price but rather a pricing structure that covers different items in its line. This pricing structure changes over time as products move through their life cycles. The company adjusts product prices to reflect changes in costs and demand and to account for variations in buyers and situations. As the competitive environment changes, the company considers when to initiate price changes and when to respond to them. This chapter examines the major dynamic pricing strategies available to marketers. In turn, we look at new-product pricing strategies for products in the introductory stage of the product life cycle, product mix pricing strategies for related products in the product mix, price-adjustment strategies that account for customer differences and changing situations, and strategies for initiating and responding to price changesq2

Pricing strategies usually change as the product passes through its life cycle. The introductory stage is especially challenging. Companies bringing out a new product face the challenge of setting prices for the first time. They can choose between two broad strategies: market-skimming pricing and m arket-penetration pricing.

Market-Skimming Pricing Market-skimming pricing Setting a high price for a new product to skim maximum revenues layer by layer from the segments willing to pay the high price; the company makes fewer but more profitable sales.

Many companies that invent new products set high initial prices to "skim" revenues layer by layer from the market. Sony frequently uses this strategy, called market-skimming pricing. When Sony introduced the world's first high-definition television (HDTV) to the Japanese market in 1990, the high-tech sets cost $43,000. These televisions were purchased only by customers who could afford to pay a high price for the new technology. Sony rapidly reduced the price over the next several years to attract new buyers. By 1993 a 28inch HDTV cost a Japanese buyer just over $6,000. In 2001, a Japanese consumer could buy a 40-inch HDTV for about $2,000, a price that many more customers could afford. An entry level HDTV set now sells for less than $500 in the United States, and prices continue to fall. In this way, Sony skimmed the maximum amount of revenue from the various segments of the market3 Market skimming makes sense only under certain conditions. First, the product's quality and image must support its higher price, and enough buyers must want the product at that price. Second, the costs of producing a smaller volume cannot be so high that they cancel the advantage of charging more. Finally, competitors should not be able to enter the market easily and undercut the high price.

Chapter 11

Pricing Products: Pricing Strategies

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Market-Penetration Pricing

El Market-skimming pricing: Sony priced it's early HDTVs high, then reduced

Rather than setting a high initial price to skim off small but profitable market segments, some companies use market-penetration pricing. They set a low initial price in order to penetrate the market quickly and deeply-to attract a large number of buyers quickly and win a large market share. The high sales volume results in falling costs, allowing the company to cut its price even further. For example, Wal-Mart and other discount retailers use penetration pricing. And Dell used penetration pricing to enter the personal computer market, selling high-quality computer products through lower-cost direct channels. Its sales soared when IBM, Apple, and other competitors selling through retail stores could not match its prices. Several conditions must be met for this lowprice strategy to work. First, the market must be highly price sensitive so that a low price produces more market growth. Second, production and distribution costs must fall as sales volume increases. Finally, the low price must help keep out the competition, and the penetration pricer must maintain its low-price position-otherwise, the price advantage may be only temporary. For example, Dell faced difficult times when IBM and other competitors established their own direct distribution channels. However, through its dedication to low production and distribution costs, Dell has retained its price advantage and established itself as the industry's number-one PC maker.

prices gradually over the years to attract new buyers.

Market-penetration pricing Sett~nga low price for a new producti n Order to attract a largenumber Of buyers and a large market share.

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The strategy for setting a product's price is often changed when the product is part of a product mix. In this case, the firm looks for a set of prices that maximizes the profits on the total product mix. Pricing is difficult because the various products have related demand and costs and face different degrees of competition. We now take a closer look at the five product mix pricing situations summarized in Table 11.1: product line pricing, optional-product pricing, captive-prod uct pricing, by-product pricing, and product bundle pricing.

Companies usually develop product lines rather than single products. For example, Snapper makes many different lawn mowers, ranging from simple walk-behind versions starting at

Product Mix Pricing Strategies

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Setting price steps between product line items Pricing optional or accessory products sold with the main product Pricing products that must be used with the main product' Pricing low-value by-products to get rid of them Pricing bundles of products sold together

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Designing a Customer-Driven Marketing Strategy and Integrated Marketing Mix

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$349.00, to elaborate "Yard Cruisers" and lawn tractors priced at $2,200 or more. Each successive lawn mower in the line offers more features. And Gramophone makes a complete line of high-quality sound systems, ranging in price from $5,000 to $120,000. In product line pricing, management must decide on the price steps to set between the various products in a line. The price steps should take into account cost differences between the products in the line, customer evaluations of their different features, and competitors' prices. In many industries, sellers use well-established price points for the products in their line. Thus, men's clothing stores might carry men's suits at three price levels: $185, $325, and $495. The customer will probably associate low-, average-, and highquality suits with the three price points. Even if w ~ ~ - ~ the three prices are raised a little, men normally will buy suits at their own preferred price points. The seller's task is to establish perceived quality differences that support the price differences.

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Product line pricing Setting the price steps between various products in a product line based on cost differences between the products, customer evaluations of different features, and competitors' prices.

Optional-product pricing The pricing of optional or accessory products along with a main product.

Many companies use optional-product pricing-offering to sell optional or accessory products along with their main product. For example, a car buyer may choose to order alloy wheels and a CD changer. Refrigerators come with optional ice makers. And an iPod buyer can also choose from a bewildering array of accessories, everything from travel chargers and FM transmitters to external speakers and armband carrying cases. Pricing these options is a sticky problem. Automobile companies must decide which items to include in the base price and which to offer as options. Until recent years, General Motors' normal pricing strategy was to advertise a stripped-down model at a base price to pull people into showrooms and then to devote most of the showroom space to showing optionloaded cars at higher prices. The economy model was stripped of so many comforts and conveniences that most buyers rejected it. Then, GM and other U.S. car makers followed the examples of the Japanese and German automakers and included in the sticker price many useful items previously sold only as options. Most advertised prices today represent wellequipped cars.

Captive-Product Pricing

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- line of appliances. Perhaps the biggest benefit to GE Appliances, however, is E?3 Creating dealer satisfaction and profitability: Using GEs' CustomerNet system, dealers have instant online access to GE Appliances' distribution system, 24 hours a that the system ^builds strong bonds day, 7 days a week to check on product availability and prices, place orders, and between the company and its dealers ' and motivates dealers to put more push review order status. "Simply put, it's a n electronic one-stop shopping breakthrough that can help you sell." behind the company's products.1•‹ I

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its soup versus Campbell's, inviting consumers to "Enjoy a better soup . . . with a more adult taste."

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Designing a Customer-Driven Marketing Strategy and Integrated Marketing Mix and keep consumers thinking about the product. Expensive Coca-Cola television ads primarily build and maintain the Coca-Cola brand relationship rather than informing or persuading customers to buy in the short run. Advertising's goal is to move consumers through the buyer-readiness stages discussed in the previous chapter. Some advertising is designed to move people to immediate action. For example, a direct-response television ad by Sharper Image for its Bionic Breeze air purifier urges consumers to pick up the phone and order right away, and a Sears newspaper ad for a weekend sale encourages store visits. However, many of the other ads focus on building or strengthening long-term customer relationships. For example, a Nike television ad in which well-known athletes "just do it" never directly asks for a sale. Instead, the goal is to somehow change the way the customers think or feel about the brand.

Setting the Advertising Bu resources allocatedto a

After determining its advertising objectives, the company next sets its for each product. Four commonly used methods for setting promotion budgets are discussed in Chapter 14. Here we discuss some specific factors that should be considered when setting the advertising budget. A brand's advertising budget often depends on i example, new products typically need large advertisi gain consumer trial. In contrast, mature brands usually require lower budgets as a ratio to sales.,Markef share also impacts the amount of advertising needed: Because building the market or taking market share from competitors requires larger advertising spending than does simply maintaining current share, low-share brands usually need more advertising spending as a percentage of sales. Also, brands in a market with many competitors and high advertising clutter must be advertised more heavily to be noticed above the noise in the market. Undifferentiated brands-those that closely resemble other brands in their product class (soft drinks, laundry detergents)-may require heavy advertising to set them apart. When the product differs greatly from competitors, advertising can be used to point out the differences to consumers. No matter what method is used, setting the advertising budget is no easy task. How does a company know if it is spending the right amount? Some critics charge that large consumer packaged-goods firms tend to spend too much on advertising and business-tobusiness marketers generally underspend on advertising. They claim that, on the one hand, the large consumer companies use lots of image advertising without really knowing its effects. They overspend as a form of "insurance" against not spending enough. On the other hand, business advertisers tend to rely too heavily on their sales forces to bring in orders. They underestimate the power of company and product image in preselling to industrial customers. Thus, they do not spend enough on advertising to build customer awareness and knowledge. Companies such as Coca-Cola and Kraft have built sophisticated statistical models to determine the relationship between promotional spending and brand sales and to help determine the "optimal investment" across various media. Still, because so many factors, some controllable and others not, agect advertising effectiveness, measuring the results of advertising spending remains a? inexact science. In most cases, managers must rely on large doses of judgment along with more quantitative analysis when setting advertising budgets3

Developing dvertising Strategy Advertising strategy The strategy by which the z company accomplishes its w i v e s .F C

ts of two major elements: a. In the past, companies o on process. The creative department first created good advertisements, and then the media department selected and purchased the best media for carrying these advertisements to desired target audiences. This often caused friction between creatives and media planners. Today, however, media fragmentation, soaring media costs, and more-focused target marketing strategies have promoted the importance of the media-planning function. More and more, advertisers are orchestrating a closer harmony between their messages and the media that deliver them.

Chapter 15 Advertising and Public Relations A long-simmering Madison Avenue debate is boiling anew: Should the people who create clever commercials work more closely with the people who decide where those same commercials appear? It used to be that creative executives who crafted commercials were the top dogs of Madison Avenue. Media buyers and planners played a much less glamorous role, figuring out which TV network or magazine an advertiser should use and then buying the time or space needed. Many large agency holding companies have widened the creative-media gap by splitting off their media planning and buying functions info separate divisions. More recently, however, what was a humdrum media job has become vastly more important. The fragmentation of audiences among a growing array of new-media technologies is forcing marketers to put less emphasis on traditional outlets, such as television, and more on narrowly targeted media. As a result, the decision about which medium to use for an ad campaign-iPod, Web site, video on demand, broadcast or cable television, or e-mail-is now sometimes more critical than the creative elements of the campaign.

some of its marketing so narrowly that it aims at individual zip codes. The geographic area helps determine the types of ads used. People in a city dependent on cars are more likely to see a DirecTV billboard than are target customers in a mass-transit hotspot such as New York. In such cases, the creative content of the commercials is sometimes determined only after deciding on the types of media. DirecTV recently moved its advertising and media accounts, previously handled separately, to a single agency. "It's just easier and more coordinated and better executed" when creative and media planning are "all under one roof," says DirecTV's chief marketing officer. An executive of a large ad agency agrees: "The stupidest thing that ever happened in our industry is when media planners left the buildingM4 Some companies have long recognized ships. For example, for more than 25 year

@ Media-creative I partnerships: I n its now classic campaign, Absolut vodka developed a wonderful assortment of creative ads that were tightly targeted t o the audiences of the media i n which they appeared.

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Designing a Customer-Driven Marketing Strategy and Integrated Marketing Mix creative ads that were tightly targeted to the audiences of the media in which they appeared. In New York-area magazines, "Absolut Manhattan" ads featured a satellite photo of Manhattan, with Central Park assuming the distinctive outline of an Absolut bottle. In London, ads showed the famous entry to the Prime Minister's residence at No. 10 Downing Street with the door in the shape of an Absolut bottle. An "Absolut Bravo" ad in playbills had roses adorning a clear bottle, and an "Absolute Primary" ad run during the political season featured the well-known bottle spattered with mud. And in "Absolut Love," run in February to celebrate Valentine's Day, two Absolut bottles embrace, silhouetted by a shining heart in the background. This pioneering campaign helped make Absolut the nation's number-one imported vodka and the number-three liquor brand overalL5

gain atentiop No matter how big the budget, advertising can succeed only *tisements . Good advertising messages are especially important in today's costly and cluttered advertising environment. In 1950, the average U.S. household received just three network television channels and a handful of major national magazines. Today, there are seven networks and 263 subscription channels, and consumers have more than 22,000 magazines from which to c h ~ o s eAdd . ~ the countless radio stations and a continuous barrage of catalogs, direct mail, Internet e-mail and online ads, and out-of-home media, and consumers are being bombarded with ads at home, at work, and at all points in between. One expert estimates that the average person is exposed to some 3,000 ad messages a day. Another puts the number at an eye-popping 5,000 ads a day.7

tisers. They pay an average of $338,000 to make a single thirty-second commercial. Then, each time they show it, they regularly pay $300,000 or more for thirty seconds of advertising time during a popular prime-time program. They pay even more if it's an especially popular program such as American Idol (as much as $705,000), Desperate Housewives ($560,000), CSI ($478,000), or a megaevent such as the American Idol season finale ($1.3 million) or the Super Bowl ($2.5 million per 30 seconds!).* Then, their ads are sandwiched in with a clutter of other commercials, announcements, and network promotions, totaling more than 15 minutes of nonprogram material per primetime hour, more than 2 1 minutes per daytime hour. Such clutter in television and other ad media has created an increasingly hostile advertising environment. According to one recent study, 65 percent of Americans say they E l Advertising clutter: If advertising clutter bothers some consumers, it also causes big problems for advertisers. They might pay $1million or more for 30 seconds of advertising time a popular prime-time N program like the final episode of American Idol, then have their ads sandwiched in with a glut of other commercials, announcements, and network promotions.

view of advertising is "much more negative than just a fewveersm Until recently, television viewers were pretty much a captive audience for advertisers. But today's digital wizardry has given consumers a rich new set of information and entertainment choices. With the growth in cable and satellite TV, the Internet, video on demand (VOD),and DVD rentals, today's viewers have many more options. Digital technology has also armed consumers with an arsenal of weapons for choosing what they watch or don't watch. Increasingly, consumers are choosing not to watch ads. The cials by fast-forwarding through recorded programs. With the remote cont

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sound during a commercial or "zip" around the channels to see what else is on. A recent study found that 40 percent of all television viewers now switch channels when the commercial break starts.1•‹ Adding to the problem is the rapid growth of TiVo-stjle DVR (digital video recorder) systems. Almost 20 percent of American homes now have DVR technology, and it is expected that 39 percent of households will have it by 2010. And TiVo reports that when its customers watch recorded programs, they skip 70 percent of the commercials. One ad agency executive calls DVR systems "electronic weed whackers." "In time, the number of people using them to obliterate commercials will totally erode faith in the 30-second commercial," he declares. Similarly, the number of VOD viewers is expected to quadruple during the next five years. These viewers will be able to watch programming on their own time terms, with or without

commercial^.^^ Thus, advertisers can no longer force-feed the same old cookie-cutter ad messages to captive consumers through traditional media. Just to gain and hold attention, today's advertising messages must be more rewardine to consumers. I I ---- s one advertising executive. "You have to create content that is interesting, useful, or entertaining enough to invite [consumers]." According to another, advertisers must now "draw people in. Tell a story. Encourage them to engage in it, and reward them when they do. If you do it right, they'll want to see your ads again and again. "I2 In fact, many marketers are now subscribing to a new merging of advertising and entertainment , 've probably heard of Madison Avenue. It's the New York City ers of many of the nation's largest advertising agencies. You may also have heard of Hollywood &Vine,the intersection of Hollywood Avenue and Vine Street in Hollywood, California, long the symbolic heart of the U.S. entertainment industry. Now, Madison Avenue and Hollywood & Vine are coming together to form a new intersection-Madison 6.Vine-that represents the merging of advertising and entertainment in an effort to break through the clutter and create new avenues for reaching consumers with more enaa~ingmessages (see Real Marketing 15.1). -

Madison & Vine

-

A term that has come to represent the merging of advertising and entertainment in an effort to break through

consumers with more engaging - - - messages. -

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/

The first step in creating effective advertising messages is to plan a decide what general message will be communicated to consumers. The purpose of advertising is to get consumers to think about or r e a F m h e product or company in a certain way. ~ e o < l ewill react only if tfiEjTfi%'lieve that they wirl-bmfif gnip % an effective message strategy begins with identifying customer benefits that can be used as advertising appeals. Ideally, advertising message .strategy will follow directly from the company's broader positioning and customer value strategies.

ot -

e, simple message ideas become great ad cam-

way.

ievable benefits may not be the best ones to feature. Appeals should also b they should tell how the ~ r o d u c is t better than most meaningful benefit of owning a wristwatch is the competing brands. For e that it keeps accurate time, yet few watch ads feature this benefit. Instead, based on the distinctive benefits they offer, watch advertisers might select any of a number of advertising themes. For years, Timex has been the affordable watch that "Takes a lickin' and keeps on tickin'." In contrast, Fossil has featured style and fashion, whereas Rolex stresses luxury and status.

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Welcome to the ever-busier intersection of Madison & Vine, where the advertising industry meets the enterstry. In today's cluttered advertising environment, Madison Avenue knows that it must find new ways to engage adweary consumers with more compelling messages. The answer? Entertainment! And who knows more about entertainment than the folks at Hollywood & Vine? The term "Madison & Vine" has come to represent the merging of advertising and entertainment. It takes one of two primary forms: advertainment or branded entertainment The aim of adverfainmentis to make ads themselves so entertaining, or so useful, that people want to watch them. It's advertising by invitation rather than by intrusion. There's no chance that you'd watch ads on purpose, you say? Think again. For example, the Super Bowl has become an annual advertainment showcase. Tens of millions of people tune in to the Super Bowl each year, as much to watch the entertaining ads as to see the game. And rather than bemoaning TiVo and other DVR systems, many advertisers are now using them as a new medium for showing useful or entertaining ads that consumers actually volunteer to watch. For example, TiVo recently launched Product Watch, a service offering special on-demand ads to subscribers from companies such as Kraf? Foods, Ford, Lending Tree, and Pioneer Electronics. Longer than traditional 30-second spots, these ads allow consumers to research products before buying them or simply to learn something new. Kraft, for instance, offered 20 different cooking videos creating meals using its products. And Pioneer sponsored a four-minute video ad on the ins and outs of buying a plasma-screen high-definition television. Interestingly, a recent study found that DVR users aren't necessarily skipping all the ads. According to the study, 55 percent of DVR users take their finger off the fast-forward button to watch a commercia1 that is entertaining or relevant, sometimes even watching it more than once. "If advertising is really entertaining, you don't zap it," notes an industry observer. "You might even go out of your way to see it." Beyond making their regular ads more entertaining, advertisers are also creating new advertising forms that look less like ads and more like short films or shows. For example, as part of a $100 million campaign to introduce its Sunsilk line of hair care products in the Welcome to Madison & Vine. As this book cover suggests, in today's United States, Unilever is producing a series of two-minute short pro- cluttered advertising environment, Madison Avenue must find new ways grams that resemble sitcom episodes more than ads. to engage ad-weary consumers with more compelling messages. The answer? Entertainment! The series, titled "Sunsilk Presents Max and Katie," will run on the TBS cable network. The miniepisodes present a humorous look at the hectic life of a 20-something woman-not coincidentally, the Sunsilk target audience. In all, Unilever will produce 85 miniepisodes of "Max and Katie," with 65 intended for TBS and the rest to be available online, on cell phones, through e-mail, and at displays in stores. The woman at whom Sunsilk will be aimed "has grown up being marketed to her

-le _3he apuroach, style, tone,

whole life," says a Unilever marketing manager. "She's open to advertising, if it's entertaining to her." Similarly, Procter & Gamble produced a series of 90-second advertising sitcoms called "At the Poocherellas," shown on Nick at Night, featuring a family of dogs and promoting its Febreze brand. Each miniepisode includes the expected commercial break, which lasts

The advertiser n o w must turn the b i g idea i n t o an actual a d execution -target market's attention and interest. The creative team must f i n d the best approach, style, tone, words, and format for executing the message. Any message can be presented in different execution styles, such as the following:

Slice of life: This style shows one or more "typical" people using the product in a normal set-ample,

t w o mothers at a picnic discuss the nutritional benefits of Jif peanut butter.

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just long enough to say, "Febreze, it's fresh." "We don't really think of this as advertising," says a media executive. "We create an environment where a brand's character and equity live in a show." Branded entertainment (or brand integrations) involves making the brand an inseparable part of some other form of entertainment. The most common form of branded entertainment is product placementsimbedding brands as props within other programming. In all, advertisers paid an estimated $1.2 billion on product placements last year, up 30 percent from the previous year. The nature of the placement can vary widely. It might be a brief glimpse of a Starbucks coffee cup sitting on a table on HBO's Entourage or the judges on American Idoldrinking out of Coca-Cola cups. Or it might involve scripting products into the theme of the program. For example, the boss of The Ofice frequents Chili's restaurant and orders his "awesome blossom, extra awesome"in one episode, he even broke into the restaurant's catchy "baby back ribs" jingle while entertaining a client there. Costs of product placements range widely. "A car manufacturer might be willing to pay $100,000 to $150,000 to show the mirror turns upside down," says one expert. "Gomg in and completely crafting a whole segment from scratch where the brand is a key player could be a million bucks." For example, blue-chip companies such as Procter & Gamble, General Motors, Staples, Unilever, and Burger King paid $1 to $4 million per episode to integrate their brands into the reality show, The Apprentice. Perhaps no company has gotten more mileage out of such brand integrations than GM's Pontiac d~vision.It all started with an extraordinary giveaway on a popular talk show: When The Oprah Winfrey Show opened its 19th season with a "Wildest Dreams" theme, Oprah electrified the studio audience by giving every one of the 276 people in attendance a new, fully loaded Pontiac G6 sedan worth $28,400. The Oprah giveaway set a new benchmark in the field of branded entertainment. It cost Pontiac about $8 million but generated an estimated $20 million in unpaid media coverage and favorable PR. Pontiac followed quickly with another stunningly successful placement, this time on The Apprentice. Generally viewed as the most successful Apprentice brand integration ever, Pontiac used the show to announce a national early-order program for its then-new Solstice two-seat roadster. In a show that included photo shoots of the sleek new car and discussions of Solstice benefits, Apprentice teams pulled all-nighters to create Solstice promotion brochures. The result: Pontiac's Web site traffic skyrocketed 1,400 percent the night the episode aired, and some 41,000 people registered online for a chance to place an early order. Expecting to sell 1,000 cars within 10 days, Pontiac blew by that goal in just 4 1 minutes after the cars went on sale the next day. In all, Pontiac chalked u p

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7,116 orders during the promotion, more Solstices than it planned to build for the entire year. Originally created with TV in mind, branded entertainment has spread quickly into other sectors of the entertainment industry. It's widely used in movies-think about Ray Ban sunglasses in Men in Black, or the Land Rover LR3 in Mission: Impossible 111. And when Dreamworks built the terminal for its movie The Terminal, along with United Airlines, more than 35 companies chipped in millions-to build real storesBrookstone, Discovery Store, Borders Books, Paul Mitchell-as well as a working food court with a Starbucks, Baskin-Robbins, Burger King, and Baja Fresh. If you look carefully, you'll also see subtle and not-so-subtle product placements in online video games, magazines, Internet sites, and just about anything else---from comic books to Broadway musicals. For example, the scriptfor Sweet Chariiywas revised to fit Jose Cuervo's Gran Centenario tequila into a scene. So, Madison & Vine is the new meeting place for the advertising and entertainment industries. When done right, advertainment and branded entertainment can pay big dividends. However, experts caution that Madison & Vine can also be a dangerous crossing. They worry that making ads too entertaining might detract from the seller's brand message-consumers will remember the clever ad but forget the brand or advertiser. And they note that the intersection is getting pretty congested. With all these new ad formats and product placements, Madison & Vine threatens to create even more of the very . clutter that it's designed to break through. They also worry about potential customer resentment and backlash. Some TV shows outright bristle with product placements. A heavily branded show like American Idol contains, on average, more than 36 product placement shots per hour. During the fall season last year, the 10 prime-time TV shows with the most placements included 9,019 "brand shout-outs," up from 5,821 the year before. At what point will consumers decide that the intersection of Madison &Vine is just too congested and take yet a different route? Sources: Quotes and informationfrom Michael Applebaum, "Early Bird Apprentice Draws Solstice Buyers," Brandweek, March 13, 2006, pp. R4-R5; Gail Schiller, "Win, Draw for Burnett Branding," The Hollywaod Reporter, June 1,2005, accessed at www.hollywoodreporter.com; "Study Spots Ad-Skipping Trends," August 19, 2005, accessed at www. hollywoodreporter.com; Jim Edwards, "There's Less Than Meets the Eye in TV Placement Economy," Brandweek, December 19-26,2005, p. 15; Lynn Smith, "Television: When the Plot Pushes Product," Los Angeles Times, February 12, 2006, p. E5; Stuart Elliot, "Pay Attention to the Story, but Please Also Notice the Goods," New York fimes, March 13, 2006, p. C8;Stuart Elliot, "A Sponsor and Its Show, Intertwined," New York Times, April 17, 2006, p. C8;and Brian Steinberg, "TiVo Latest Viewing Option: Commercials," Wall Street Journal, May 8,2006, p. 83.

O r a S i l k s o y m i l k "Rise and Shine" a d shows a young professional starting the day with a healthier breakfast and h i g h hopes. L i f e s f y l e ~ T h i sstyle shows h o w a p r o d u c t fits in with a particular lifestyle. F o r example, an a d f o r L i q u i d l o g i c K a y a k s s h o w s kayakers c h a l l e n g i n g some serious w h i t e w a t e r a n d states, "2/3 o f t h e earth i s covered in playground-live wet."

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Designing a Customer-Driven Marketing Strategy and Integrated Marketing Mix This style creates a fantasy around the product or its use. For instance, many ads are built around dream themes. One commercial for the Adidasl shoes features a guy dreaming he can outrun everythmg wearing his Adidas. It closes with the statement "Impossible is nothing." u d or image: This style builds a mood or image around the product or service, such as beauty, love, or serenity. Few claims are made about the product except through suggestion. For example, ads for Singapore Airlines feature , soft lighting and refined flight attendants pampering relaxed and happy customers. This style shows people or cartoon characters singing about the product. For example, one of the most famous ads in history was a Coca-Cola ad built around the song "I'd Like to Teach the World to Sing." Similarly, Oscar Mayer has long run ads showing children singing its now-classic "I wish I were an Oscar Mayer wiener . . ." jingle. And is there anyone who doesn't know the Chili's advertising song, "I love my baby-back, baby-back, baby-back, . . . baby-back ribs"? ;This style creates a character

(Mr. Clean, Ton gecko) or real (the Marlboro man, 01' Lonely the Maytag repainnan, or the AFLAC duck). Technical experfise: This style shows the combany'mining the product. Thus, Maxwell House shows one of its buyers carefully selecting coffee beans, and Jim koch of thk @ Lifestyle execution style: This LiquidLogic Kayaks ad shows kayakers Boston Beer Company tells about his many years challenging some serious white water and states, "2/3 of the earth is of experience in brewing Samuel Adams beer. covered in playground-live wet." e Scientific evidence: This style presents survey or scientific evidence that the brand is better or enor more other brands. For years, Crest toothpaste has used scientific evidence to convince buyers that Crest is better than other brands at fighting cavities. Ae=w

B

m x z n d d o r s e m e n t : This style features a highly believable or likable source endorsing the product. It c o u l n e ordinary- people saying how much they like a - given product-& in the JetBlue ads discussed in the previois chapter. Or it might be a celebrity presenting the product. For example, ~ a t o r a d ran e an ad showing how ~ a t o r a d e helped triathlete Chris Legh win an Ironman triathlon victory following a near-fatal collapse a few years eklier due to dehydration.

The advertiser also must choose a B f o r the ad. Procter & Gamble always uses a positive tone: Its ads say something very positive about its products. P&Gusually avoids humor that might take attention away from the message. In contrast, many advertisers now use edgy humor to break through the commercial clutter. The advertiser must use memorable and attentio ords in the ad. For example, rather than claiming si bile," BMW uses more creative and higher-impact phrasing: "The ultimate driving machine." Instead of stating that "K9 Advantix is a topical serum that keeps ticks, fleas, and mosquitoes off your dog," Bayer states it more colorfully-with Kg. Advantix, "There ain't no bugs on me!" The World Wildlife Fund doesn't say, "We need your money to help save nature." , Instead, it says, "We share the sky. We share the future. Together, we can be a force of nature." ake a difference in an ad's impact as well as in its cost. A small draw attention.

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must effectively entice the right people to read the copy. Finally, th the main block of text in the ad-must be simple but strong and convincing. Moreover, these three elements must effectively work together to persuasively present customer value.

-

P

Selisctimg Advertising Media

-

.

,

a

-

-

.

To select media, the advertiser must decide

-

But advertisers want to do more than just reach a given number of consumers a specific number of times. The advertiser also must decide-on the desired media imoa&& . For example, the same mesle than i n another (say, the National Enquirer). For products that need to be demonstrated, messages on television may have more impact than messages on radio because television uses sight and sound. Products for which consumers provide input on design or features might be better promoted at a Web site than in a direct mailing. More generally, the advertiser wants to choose media that -w lli than simply reach them. For example, for television advertising, "how relevant a program is for its audience and where the ads are inserted are likely to be much more important than whether the program was a Nielsen winner" numbers-wise, says one expert. "This is about 'lean to' TV rather than 'lean back."' Although Nielsen is beginning to measure levels of television media engagement, such measures are hard to come by for most media. "All the measurements we have now are media metrics: ratings, readership, listenership, click-through rates," says an executive of the Advertising Research Foundation, but engagement "happens inside the consumer, not inside the medium. What we need is a way to determine how the targeted prospect connected with, got engaged with, the brand idea. With engagement, you're on your way to a relationship. . . ."I3 The media planner must know the reach, frequency, f l t y p e s . As summarized in Table 15.2, the major media types are Each med making their media choices. They want to choose media that will effectivelyBnd efficiently present the advertising message to target customers. Thus, they must consider each medium's impact, message effectiveness, and cost. . For a long time, television and magaThe mix of media must be zines dominated in the media mixes of national advertisers, with other media often neglected. However, as discussed in the previous chapter, the media mix appears to be shifting. As massmedia costs rise, audiences shrink, and exciting new digital media emerge, many advertisers are finding new ways to reach consumers. They are supplementing the traditional mass media with more specialized and highly targeted media that cost less, target more effectively, and engage consumers more fully. For example, cable television and satellite television systems are booming. Such systems allow narrow programming formats such as all sports, all news, nutrition, arts, home improvement and gardening, cooking, travel, history, finance, apd others that target select groups. Time Warner, Comcast, and other cable operators are even testing systems that will let them target specific types of ads to specific neighborhoods or to specific types of customers. For example, ads for a Spanish-language newspaper would run only in Hispanic neighborhoods, or only pet owners would see ads from pet food companies.14

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Profiles of Major Media Types

%

;

Medium

Advantages

Limitations

,

Television

Good mass-marketing coverage; low cost per exposure; combines sight, sound, and motion; appealing to the senses Flexibility; timeliness; good local market coverage; broad acceptability; high believability High audience selectivity; flexibility; no ad competition within the same medium; allows personalization High geographic and demographic selectivity; credibility and prestige; high-quality reproduction; long life and good pass-along readership Good local acceptance; high geographic and demographic selectivity; low cost

High absolute costs; high clutter; fleeting exposure; less audience selectivity Short life; poor reproduction quality; small pass-along audience

Newspapers Direct mail Magazines

Radio Outdoor Internet

Flexibility; high repeat exposure; low cost; low message competition; good positional selectivity High selectivity; low cost; immediacy; interactive capabilities

Relatively high cost per exposure, "junk mail" image Long ad purchase lead time; high cost; no guarantee of position Audio only, fleeting exposure; low attention ("the half-heard" medium); fragmented audiences Little audience selectivity; creative limitations Demographically skewed audience; relatively low impact; audience controls exposure - - - . - ---

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"

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satellite television media seem to make good sense. But, increasingly, ads are popping up in far less likely places. In their efforts to find less costly and more highly targeted ways to reach consumers, advertisers have discovered a dazzling collection of "alternative media" (see Real Marketing 15.2). Another important trend affecting media selection is the rapid growth in the number of "media multitaskers," people who absorb more than one medium at a time: It looks like people who aren't satisfied with "just watching TV" are in good company. According to a recent survey, three-fourths of U.S. TV viewers read the newspaper while they watch TV, and two-thirds of them go online during their TV time. According to the study, 70 percent of media users say they at one time or another tiy to absorb two or more forms of media at once. What's more, if today's kids are any indication, media multitasking is on the rise. Americans aged 8 to 18 are managing to cram an average 8.5 hours of media consumption into 6.5 hours. It's not uncommon to find a teenage boy chasing down photos of Keira Knightly on Google, IMing several friends at once, listening to a mix of music on iTunes, and talking on the cell phone to-a friend all the while, in the midst of the multimedia chaos, trying to complete an essay he's got open in a Word file a few layers down on his desktop.15 Media planners need to take such media interactions into account when selecting the types of media they will use. The media planner now must c h o o s e m a vehicles-specific media within each general media type. For example, television vehicles . include Scrubs and ABC World News Tonight. Magazine vehicles include Newsweek, People, and ESPN The Magazine. Media planners must compute the cost per thousand persons reached by a vehicle. For example, if a full-page, four-color advertisement in the U.S. national edition of Newsweek costs $220,500 and Newsweek's readership is 3.1 million people, the cost of reaching each group of 1,000 persons is about $71. The same advertisement in Business Week may cost only $99,500 but reach only 971,000 persons-at a cost per thousand of about $102. The media planner ranks each

"

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As consumers, we're used to ads on television, in magapapers, at Web sites, on the radio, and along the roadways. But these days, no matter where you go or what you do, you will probably run into some new form of advertising. Tiny bill boards attached to shopping carts, ads on shopping bags, and even advertising decals on supermarket floors urge you to buy Jell-0 Pudding Pops or Pampers. Signs atop parking meters hawk everything from Jeeps to Minolta cameras to Recipe dog food. A city bus rolls by, fully wrapped for Trix cereal, or a school bus displays ads for a local toy store or realtor. You escape to the ballpark, only to find billboardsize video screens running Budweiser ads while a blimp with an electronic message Marketers have discovered a dazzling array of "alternative media." board circles lazily overhead. How about a quiet trip to the country? Sorry-you find an enterprising farmer using his milk cows as four-legged billboards embossed bread, you pour a cup of coffee as the familiar mounted with ads for Ben & Jerry's ice cream. green-and-white Starbucks logo forms on the side. Sipping the You pay to see a movie at your local theater, only to learn that brew, you slide on your Nikes to go grab the newspaper. The the movie is full of not-so-subtle promotional plugs for Pepsi, pressure sensitive shoes leave a temporary trail of swooshes Domino's Pizza, Mastercard, Mercedes, Ray Ban sunglasses, or behind them wherever you step. Walking outside, you pick up any of a dozen other products. You head home for a little TV to the 7imes and gaze at your lawn, where the fertilizer you put find your favorite sitcom full of "virtual placements" of Coca-Cola, down last month time-releases ads for Scotts Turf Builder, Toro Sony, or Miller Lite products digitally inserted into the program. lawn mowers, Weber grills. . . . You pop in the latest video game and find your action character Even some of the current alternative media seem a bit far-fetched, and jumping into a Jeep on the way to the skateboarding park. they sometimes irritate consumers who resent it all as "ad nauseam." At the local rail station, it's the Commuter Channel; at the airport, But for many marketers, these media can save money and provide a you're treated to the CNN Airport Network. Shortly after your plane lifts way to hit selected consumers where they live, shop, work, and play. off the runway, you look out the window and spot a 500-foot-diameter "We like to call it the captive pause," says an executive of an alternativecrop circle carved into a farmer's field depicting Monster.comls mascot media firm, where consumers "really have nothing else to do but either and corporate logo. As you wait to pick up your luggage, ads for look at the person in front of them or look at some engaging content as Kenneth Cole luggage roll by on the baggage carousel conveyor belt. well as 15-second commercialsv-the average person waits in line These days, you're likely to find ads-well, anywhere. Boats about 30 minutes a day. Many spend even more time on mass transit. cruise along public beaches flashing advertising messages for So, companies such as Target, Snapple, Calvin Klein, and American Sundown Sunscreen as sunbathers spread their towels over ads for Express are testing new technologies to reach captive consumers. Snapple pressed into the sand. Taxi cabs sport electronic messaging Riders on Manhattan's subway system now see a series of light boxes signs tied to GPS location sensors that can pitch local stores and speed by that create a moving commercial in the subway car's windows. restaurants wherever they roam. Ad space is being sold on DVD Of course, this may leave you wondering if there are any commercialcases, parking-lot tickets, golf scorecards, delivery trucks, pizza free havens remaining for ad-weary consumers. Public elevators, perboxes, gas pumps, ATMs, municipal garbage cans, police cars, and haps, or stalls in a public restroom? Forget it! Each has already been church bulletins. One agency even leases space on the foreheads of invaded by innovative marketers. college students for temporary advertising tattoos. And the group meeting at the office water cooler has a new member-a "coolertising" ad sitting on top of the water cooler jug trying to start up a con- Sources: See Cara Beardi, "From Elevators to Gas Stations, Ads Multiplying," Advertising Age, November 13, 2000, pp. 40-42; Charles versation about the latest episode of American Idol. Pappas, "Ad Nauseam," Advertising Age, July 10, 2000, pp. 16-18; The following account takes a humorous look ahead at what might Sam Jaffe, "Easy Riders," American Demographics, March 2004, be in store for the future: pp. 20-23; David H. Freedman, "The Future of Advertising Is Here," Tomorrow your alarm clock will buzz at 6 a.m., as usual. Then Inc., August 2005, pp. 70-78; Emily Bazar, "Advertisers Catch the the digital readout will morph into an ad for Burger King's School Bus," USA Today, December 26, 2005, p. 3A; David Kiley, breakfast special. Hungry for an Enormous Omelet Sandwich, "Rated M for Mad Ave," Businessweek, ~ebruary26, 2006, you settle for a bagel that you plop into the toaster. The coils PP. 76-77; and "Global Trends Watch-Innovative Advertising," burn a Toastmaster brand onto. the sides. Biting into your Brand Strategy, April 10, 2006, p. 14.

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Designing a Customer-Driven Marketing Strategy and Integrated Marketing Mix magazine by cost per thousand and favors those magazines with the lower cost per thousand for reaching target consumers.16 The media planner must also consider Whereas newspaper ads may cost very littl costly. For example, the set of extravagant Burger King Whopperettes commercials discussed in the chapter-opening story of Chapter 14 cost millions of dollars to produce. And a few years ago, a two-minute Chanel No. 5 commercial featuring Nicole Kidman and filmed by the director of Moulin Rouge, Baz Luhrmann, cost an almost unimaginable $14 million to create.17 the media planner mu . First, the planner should evaluate the media vehicle's audience quality. For a Huggies disposable diapers advertisement, for example, Parenting magazine would have a high exposure value; Gentlemen's Quarterly would have a low exposure value. second,-the media planner should consider audience engagement ~ e a d e r sof Vogue, for example: typically- pay - - more attention to ads than do ~ewkeek-readers.Third, the planner should assess the vehicle's editorial quality-Time and the Wall Street Journ6l are more befievable and prestigious than the National Enquirer. C

The advertiser must also decide how to schedule the advertising over the course of a year. Suppose sales of a product peak in December and drop in March. The firm can vary its advertising to follow the seasonal pattern, to oppose the seasonal pattern, or to be the same all year. Most firms do some seasonal advertising. For example, The Picture People, the national chain of portraits studios, advertises more heavily before major holidays such as Christmas, Easter, and Valentines Day. Some marketers do only seasonal advertising: For instance, Hallmark advertises its greeting cards only before major holidays. Finally, the advertiser must choose t h e a t t e r n 3 the ads: means scheduling ads evenly within a given period. Pulsing means scheduling ads unevenly over a given time period. Thus, 52 ads could either be scheduled at one per week during the year or pulsed in several bursts. The idea behind pulsing is to advertiseheiivily for a oh-s build awareness that carries over to the next advertising period. Those who favor pulsing feel that it can be used to achieve the same impact as a steady *schedule but at a much lower cost. However, some media planners believe that although pulsing achieves maximal awareness, it sacrifices depth of advertising communications.

_

Media Timing: The Picture People, the national chain of family portrait studios, advertises more heavily before special holidays.

Return on advertising investment divided by the -ofthesnig - investment.

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Advertising accountability and return on advertising investmeqt have become hot issues %most companies. l n ~ a s i n g l ~ " do~we know o wthat we're spending the right amount on advertising?" and "What return are we getting on our advertising investment?" According to a recent survey by the Association of National Advertisers (ANA), measuring advertising's efficiency and effectiveness is the number-one issue in the minds of today's advertisers. In the survey, 61.5 percent of respondents said that it is important that they define, measure, and take action in the area of advertising accountability.18

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Individual ads can can show it to consumers, ask how they li<e it, and measure message recall or attitude changes resulting from it. After an ad is run, the advertiser can measure-how the ad affected Advertisers have gotten pretty good at measuring the communication effects of their ads and ad campaigns. Howev ffects of advertising are often much harder to measure. For example, wh e produced by an ad campaign that increases brand awareness by 20 percent and brand preference by 10 percent? Sales and profits are affected by many factors besides advertising-such as product features, price, and availability.

, ,

/

amount it spends on advertising in different market areas and measure the differences in the resulting sales and profit levels. More complex experiments could be designed to include other variables, such as differences in the ads or media used. However, because so many factors, some controllable and others not, affect advertising effectiveness, measuring the results of advertising spending remains an inexact science. For example, despite the growing importance of advertising accountability, only 19 percent of ANA study respondents were satisfied with their ability to measure return on advertising investments. When asked if they would be able to "forecast the impact on sales" of a 10 percent cut in advertising spending, 63 percent said no. "Marketers are tracking all kinds of data and they still can't answer basic questions" about advertising accountability, says a marketing analyst, "because they don't have real models and metrics by which to make sense of it."lg Thus, although the situation is improving as marketers seek more answers, managers often must rely on large doses of judgment along with quantitative analysis when assessing advertising performance.

In developing advertising strategies and programs, the company must address two additional questions. ~ i r s thow , will the com any organize its advertising function-yho will perform -flPzdl _which advert..R#cwil~6e programs to the complexities of international markets? /

Adver_tisingagency A marketing servicesfirraaWt

Different companies organize in different ways to handle advertising. In small companies, sales department. Large companies set up advertising might be handled dvert%ing budge< work with the ad agency, advertising departments whos and handle other advertising not done by the agency. Most large companies use outside advertising agencies because they offer several advantages. How does-na work? Advertising agencies were started in the mid-tolate 1800s by salespeople and brokers who worked for the media and received a commission for selling advertising space to companies. As time passed, the salespeople began to help customers prepare their ads. Eventually, they formed agencies and grew closer to the advertisers than to the media. who can often perform advertising tasks better than the bring an outside point of view to solving the company's f?om working with different clients and situations. So, today, even companies with strong advertising departments of their own use advertising agencies. Erickson Worldwide, has Some ad agencies are huge-the largest U.S. agency, McCworldwide annual gross revenue of more than $1.4 billion. In recent years, many agencies have grown by gobbling up other agencies, thus creating huge agency holding companies. The largest of these agency "megagroups," Omnicom Group, includes several large advertising, public relations, and promotion agencies with combined worldwide revenues of almost $10.5 billion.20Most large advertising agencies have the staff and resources to handle all phases of an advertising campaign for their clients, from creating a marketing plan to developing ad campaigns and preparing, placing, and evaluating ads.

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International advertisers face The most basic issue concern

not encountered by domestic advertisers.

that work as well in Bangkok as they do in Baltimore. For example, Jeep has created a worldwide brand image of ruggedness and reliability; Coca-Cola's Sprite brand uses standardized appeals to target the world's youth. Ads for Gillette's Venus razors are almost identical worlduces many benefits

programs_to make them more responsive to consumer needs and expectations within local markets. For example, Coca-Cola has a pool of different commercials that can be used in or adapted to several different international markets. Some can be used with only minor changes-such as language-in several different countries. Local and regional managers decide which commercials work best for which markets. Global advertisers face several special problems. For instance, advertising media costs and availability differ vastly from country to country. Countries also differ in the extent to which they regulate advertising practices. Many countries have extensive systems of laws restricting how much a company can spend on advertising, the media used, the nature of advertising claims, and other aspects of the advertising program. Such restrictions often require advertisers to adapt their campaigns from country to country. For example, alcoholic products cannot be advertised in India or in Muslim countries. In many countries, Sweden and Norway, for example, food ads are banned from kids' TV. To play-it safe, McDonald's advertises itself as a family restaurant in Sweden. Comparative ads, while acceptable and even common in the United states and Canada, are less commonly used in the United Kingdom, unacceptable in Japan, and illegal in India and Brazil. China bans sending e-mail for advertising purposes to people without their permission, and all advertising e-mail that is sent must be titled "advertisement." China also has restrictive censorship rules for TV and radio advertising; for example, the words the best are banned, as are ads that "violate social customs" or present women in "improper ways." McDonald's once avoided government sanctions there by publicly apologizing for an ad that crossed cultural norms by showing a customer begging for a discount. Similarly, Coca-Cola's Indian subsidiary was forced to end a promotion that offered prizes,

El Standardized worldwide advertising: Gillette's ads for its Gillette for Women Venus razors are almost identical worldwide, with only minor adjustments to suit the local culture.

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such as a trip to Hollywood, because it violated India's established trade practices by encouraging customers to buy in order to "gamble."z1 Thus, although advertisers may develop global strategies to guide their overall advertising efforts, specific advertising programs must usually be adapted to meet local cultures and customs, media characteristics, and advertising regulations.

Public relations (PR)

_ Building good relations with the company's various publics bv obtaining favorable publicity, building a good corpora e image, and

Another major mass-promotion tool is aublic relations (PA-building good relationships with the company's various publics by obtaining favorable publicity, building a good corporate image, and handling or heading off unfavorable rumors, stories, and events. Public relations departments may perform any or all of the following functions:22 3

unfavorable rumors, and events.

6L

Press relations or press agency: Creating and placing newsworthy information in the news m e d i a t o r s o n , product, or service Publicizing specific products Public affairs: Building and maintaining national or local community relations s lobbying: Building and maintaining relations with legislators and government officials to influenc3legislation and regulation Investor relations: Maintaining relationships with shareholders and others in the financial Development: Public relations with donors or members of nonprofit organizations to gain lunteer support

advertising campaign took root, bringing in millions more tourists. Johnson & Johnson's masterly use of public relations played a major role in saving Tylenol from extinction after its product-tampering scare. Nations have used public relations to attract more tourists, foreign investment, and international support.

Public relations can have a strong impact on public awareness at a much lower cost than

Public relations results can sometimes be spectacular. Here's how publisher Scholastic, Inc., used public relations to turn a simple new book introduction into a major international event, all on a very small budget: Secret codes. A fiercely guarded text. Huddled masses lined up in funny hats at the witching hour. Welcome to one of the biggest literary events in history. As the clock creeps past midnight, kids worldwide rush to buy the next installment of Harry Potter. It's the fastest-shrinking book pile in history. Hany Potter and the Half-Blood Prince, the sixth book in the series, sold an astonishing 8.9 million copies in just the first 24 hours in the United States and Britain alone-some 370,000 per hour. How do you whip up a consumer fkenzy with a miserly $1.8 million promotion budget and only a few well-placed ads? The spellbinding plots, written by Scottish welfare-mom-turnedmillionaire J. K. Rowling, captivate kids everywhere. But the hidden hand of public relations plays a large role, too. Publisher Scholastic works behind the scenes with retailers to prepare contests, theme parties, and giveaways leading up to each new release. It comniunicates through amateur fan sites such as The Leaky Cauldron and MuggleNet.com to keep fans informed about print runs and store events. It works with the mainstream media to create a sense of celebration and excitement. NBC's Today . Show ran an entire week of "Countdown to Harry" events leading up to the publication

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Despite its potential strengths,public relations is sometimes described as a marketing stepchild because of its often limited and scattered use. The public relations department is usually located at Public relations results can sometimes be spectacular. Scholastic sponsored Lowcorporate headquarters. Its staff is so busy dealing cost sleepovers, games, and costume contests to whip up consumer frenzy for the with various publics-stockholders, employlast installment of its Harry Potter series. ees, legislators, the press-that public relations ppgra& to product &arketing objectives may be ignored. Marketing managers and public relations practitioners do not always speak the same language. Many public relations practitioners see their job as simply cornrnunicating. In contrast, marketing managers tend to be much more interested in how advertising and public relations affect brand building, sales and profits, and customer relationships. This situation is changing, however. Although public relations still captures only a small portion of the overall marketing budgets of most firms, PR is playing an increasingly important brand-building role. Public relations can be a powerful brand-building tool. Two wellknown marketing consultants even go so far as to conclude that advertising doesn't build brands, PR does. In their book The Fall of Advertising 6.the Rise of PR, the consultants proclaim that the dominance of advertising is over and that public relations is quietly becoming the most powerful marketing communications tool. The birth of a brand is usually accomplished with [public relations], not advertising. Our general rule is [PR] first, advertising second. [Public relations] is the nail, advertising the hammer. [PR] creates the credentials that provide the credibility for advertising. . . . Anita Roddick built the Body Shop into a major brand with no advertising at all. Instead, she traveled the world on a relentless quest for publicity. . . . Until recently Starbucks Coffee didn't spend a hill of beans on advertising, either. In 10 years, the company spent less than $10 million on advertising, a trivial amount for a brand that delivers annual sales of [in the billions]. Wal-Mart Stores became the world's largest retailer . . . with very little advertising. . . . On the Internet, Amazon.com became a powerhouse brand with virtually no a d v e r t i ~ i n g . ~ ~ Although the book-created much controversy, and most advertisers wouldn't agree about the "fall of advertising" part of the btie, the point is a good one. Advertising and public relations should work hand in hand to build and maintain brands.

Public relations uses several tools. One of the major tools is P -R professionals find or create favorable news about the company and its products or people. Sometimes news stories occur naturally, and sometimes the PR person can suggest events or activities that would create news. Speeches can also create product and company publicity. Increasingly, company e x e c u t i v e a l d questions from the media or give talks at trade associations or sales meetings, and these events can either build or hurt the company's image. Another

repare written materials to reach and influen markets. These materials include annual reports, brochur2, articles, and company newsletters

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and magazines. Acdio@al materj&s, such as films, slide-and-sound programs, DVDs, and online videos are being used increasingly as communication too can also help create a corporate identity that the public imm tionery, brochures, signs, business forms, business cards, buildings, uniforms, and company cars and trucks-all become marketing tools when they are attractive, distinctive, and memorable. Finally, companies can i service activities. A s & s c u s s e d in Chapter 5, many marketers are now also designing h z z marketing campaigns to generate excitement and favorable word-of-mouth for their brands. BUZZ= keting takes advantage y getting consumers themselves to spread information abo their communities. For example, UPN used buzz marketing to reach often tuned-out and cynical teen girls: High schools are always abuzz with talk of one kind or another: sports, music, clothes, and whatever else teens consider indispensable at any given time. But last year, one piece of chatter weaving its way through select high schools across America was very specific. It was about the TV series America's Next Top Model, then entering its fourth season. While teens did the talking, UPN, the network that airs the series, was listening very closely. It had to. UPN was essentially sponsoring the whole conversation. The plan worked like this. With the help of Alloy.com, a shopping and lifestyle site aimed at teen girls, UPN created a list of 500 "insiders" who could generate buzz about Top Model, which needed a ratings boost. Alloy monitored chat within the site and compiled a list of 7,000 girls who, in the course of their banter, had expressed interest in the show. It cut that list to the 500 girls who seemed the best-connected-those who had frequently shown u p on instantmessaging buddy lists. Alloy then provided these gossipy, in-crowd teens with party kits and encouraged them to invite an average of four friends over to their homes for gatherings themed around-you guessed it-America's Next Top Model. The girls knew that UPN's cash was behind the kits, and "it wasn't a tough sell," says an Alloy marketing executive. Tough sell or not, it seems to have worked. "The ratings have been very good," says the executive, "especially among that age group." Whereas most reality shows don't stick around that long, America's Next Top Model is now i n its sixth season.25 Another recent public relations development is mobile tour marketin%-traveling promoAonal tours that bring the brand to cons+ershMobile t m e r g e d assway to bu& -li hpis with targeted consumers. These days, it seems that almost every company is putting its show on the road. For example, Home Depot recently brought do-ityourself home project workshops and demonstrations to 26 NASCAR racetracks. Microsoft teams with local partners to field Across America Mobile Solutions Centers, 27-foot techie dream vans that visit infomation technology workers in offices around the country to demonstrate Microsoft's latest software products. And Charmin's "Potty Palooza" serves as a rolling showcase for-you guessed it-toilet paper (see Real Marketing 1 5 . 3 ) . ~ ~ an be a good public relations vehicle. Consumers and members of other publics can visit the site for information and entertainment. Such sites can be extremely popular. For example, Butterball's site (www.butterball.com), which features cooking and carving tips, once received 550,000 visitors in one day during Thanksgiving week. The Web site supplements the Butterball Turkey Talk-Lirfe (1-800-BUTTERBALL)-called by some the "granddaddy of all help linesH-staffed by 50 home economists and nutritionists who respond to more than 100,000 questions each November and D e ~ e m b e r . ~ ~ - Web sites can also be ideal for handling crisis situations. For example, when several bottles of Odwalla apple juice soldon the West Coast were found to cbntain E. coli bacteria, Odwalla initiated a massive product recall. Within only three hours, it set up a Web site laden with information about the crisis and Odwalla's response. Company staffers also combed the Internet looking for newsgroups discussing Odwalla and posted links to the site. In all,in this age where "it's easier to disseminate information through e-mail marketing, blogs, and online chat," notes an amlyst, "public relations is becoming a valuable part of doing business in a digital world."28 As with the other promotion tools, in considerin

communications effort.

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The real highlight of the annual Covered Bridge Festival in Mansfield, Indiana, isn't a bridge at all. It's Potty Palooza. "People walk from half a mile away," says John Baker, a festival organizer. No wonder: Charmin's 27-room traveling bathroom facility, painted sky blue with white clouds and latched to the bed of an 18-wheeler, inspires awe wherever it goes. "lt's like a ride at the state fair," Baker marvels. "They wait in line 10 to 15 minutes sometimes!" Depending on your point of view, Potty Palooza represents either the epitome or the pits of experiential, mobile marketing-a marketing approach that touches consumers in places no advertising campaign would go. It's a showroom on wheels, a rolling free trial for . . . toilet paper. "The media is fracturing, costs are rising," says Charmin's brand manager at Procter & Gamble. "lt's difficult to reach consumers these days." Unless, that is, you've got a big semi and a trailer fitted with flushing porcelain toilets, hardwood floors, and air conditioning-plus aromatherapy, skylights, changing stations, a '!Little Squirts" stall for kids, and an LCD video screen in every room. Since its debut in 2002, the Potty Palooza truck has been on the road 11 months a year, visiting 25 to 30 events annually-from the Super Bowl to the Arizona Balloon Festival. All told, Charmin's 5 million annual guests go through some 10,000 cushioned rolls. (A supply truck joins in the Potty Palooza caravan.)

As guests wait, they take part in the full branding experience. The Charmin Bear teaches the Charmin dance while smiling brand reps guide visitors to and from stalls and spruce up rooms after every use. At the Covered Bridge Festival, that can mean cleaning up after 5,000 guests a day. Says the director of the Palooza road team: "We can't budge when that thing is full. We have to empty the black water 5 to 10 times a day." Yuck. Is it worth it? P&G claims the truck is part of one of the biggest consumer sampling programs anywhere. And, you must admit, it's one of the most unique. By creating a comfortable, if not heavenly, public restroom experience at events where the experience is usually the opposite, Charmin has turned a commodity into a trusted brand with a dedicated following. After Potty Palooza made its first appearance at the Covered Bridge Festival, 30,000 people signed a petition to keep it coming back. By engaging families at the point of use, the tour has help lift sales of Charmin by 14 percent. '

Source: Adapted from Lucas Conley, "On a Roll," Fast Company, February 2005, p. 28. Additional information from "How Does Charmin Engage Consumers at the Point of Use and Take Commodity Out of the Bath Tissue Equation?"Gigunda Group, Inc., accessed at I www.gigundagroup.com, May 15, 2006. I

n the Road w t t h P o t + ~Palooza

a,. LldOrnCd mu, all the ornond,e$ you r a u l Bod n l liornc-horn *JIID~PCI and ~ k y l q b I@ t~ hmJmoU I l o m on4 ~ s l c r r m n % .

Mobile marketing: Charmin's Potty Palooza serves as a rolling showcase for-you

guessed it-toilet

paper.

Chapter 15 Advertising and Public Relations

Reviewing the Companies must do more than make good products-they must inform consumers about product benefits and carefully position products in consumers' minds. To do this, they must master advertising and public relations.

Define the role of advertising in the promotion mix. Advertising--the use of paid media by a seller to inform, persuade, and remind buyers about its products or organization-is an important promotion tool for communicating the value that marketers create for their customers. American marketers spend more than $264 billion each year on advertising, and worldwide ad spending exceeds $600 billion. Advertising takes many forms and has many uses. Although advertising is used mostly by business firms, a wide range ofqot-forprofit organizations, professionals, and social agencies also use advertising to promote their causes to various target publics. Public relations-gaining favorable publicity and creating a favorable company image-is the least used of the major promotion tools, although it has great potential for building consumer awareness and preference.

Describe the major decisions involved in developing an advertising program. Advertising decision making involves decisions about the advertising objectives, the budget, the message, the media, and, finally, the evaluation of results. Advertisers should set clear target, task, and timing objectives, whether the aim is to inform, persuade, or remind buyers. Advertising's goal is to move consumers through the buyer-readiness stages discussed in the previous chapter. Some advertising is designed to move people to immediate action. However, many of the ads you see today focus on building or strengthening long-term customer relationships. The advertising budget can be based on sales, on competitors' spending, or on the objectives and tasks of the advertising program. The size and allocation of the budget depends on many factors. Advertising strategy consists of two major elements: creating advertising messages and selecting advertising media. The message decision calls for planning a message strategy and executing it effectively. Good advertising messages are especially important in today's costly and cluttered advertising environment. Just to gain and hold attention, today's advertising messages must be better planned, more imaginative, more entertaining, and more rewardingto consumers. In fact, many marketers are now subscribing to a new merging of adver-

Advertising 426 Advertising agency 439 Advertising budget 428

Advertising media 435 Advertising objective 426 Advertising strategy 428

What factors make management's task of setting advertising budgets difficult? Why is it important that the advertising media and creative departments work closely together? How do an advertisement's appeals differ from its execution style? Evaluate why Maybelline New York might decide to remove all its advertising from MTV and instead place more advertising in Seventeen magazine.

tising and entertainment, dubbed "Madison & Vine." The media decision involves defining reach, frequency, and impact goals; choosing major media types; selecting media vehicles; and deciding on media timing. Message and media decisions must be closely coordinated for maximum campaign effectiveness. Finally, evaluation calls for evaluating the communication and sales effects of advertising before, during, and after the advertising is placed. Advertising accountability has become a hot issue for most companies. Increasingly,top management is asking: "What return are we getting on our advertising investment?" and "How do we know that we're spending the right amount?" Other important advertising issues involve organizingfor advertising and dealing with the complexities of international advertising.

Define the role of public relations in the promotion mix. Public relations-gaining favorable publicity and creating a favorable company image-is the least used of the major promotion tools, although it has great potential for building consumer awareness and preference. Public relations is used to promote products, people, places, ideas, activities, organizations, and even nations. Companies use public relations to build good relationships with consumers, investors, the media, and their communities. Public relations can have a strong impact on public awareness at a much lower cost than advertising can, and public relations results can sometimes be spectacular. Although public relations still captures only a small portion of the overall marketing budgets of most firms, PR is playing an increasingly important brand-building role.

Explain how companies use public relations to communicate with their publics. Companies use public relations to communicate with their publics by setting PR objectives, choosing PR messages and vehicles, implementing the PR plan, and evaluating PR results. To accomplish these goals, public relations professionals use several tools such as news, speeches, and special events. They also prepare written, audiovisual, and corporate identity materials and contribute money and time to public service activities. Buzz marketing is a form of public relations that gets consumers themselves to spread word-of-mouth information about the company and its brands. The Internet has also become a major public relations tool.

Creative concept 431 Execution style 432 Madison & Vine 431

Public relations (PR) 441 Return on advertising investment 438

5. Discuss three potential problems facing a pharmaceutical manufacturer who decides to advertise in Europe. Are these problems different from those the manufacturer would encounter when advertising in Asia? 6. Why is public relations sometimes referred to as a marketing

stepchild? What can be.done to correct this problem?

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Applying the Gcmc

1. Form a small group and choose three advertising media for a campaign to introduce a new line of men's personal care products under a LeBron James label.

3. How might Campbell Soup Company go about evaluating the effectiveness of an advertising campaign for a new "heat-and-drinkJ' soup product?

2. Locate a magazine advertisement for a household cleaning product. Describe how the appeals in this ad display the three characteristics of a good advertisingappeal.

.

li?o@us on Technology

ALLERCA creates truly unique products-the world's first scientifically proven hypoallergenic cats (see them at www.allerca.com). Genetically engineered, the medium-sized ALLERCA GD cat weighs 10-15 pounds and is fully mature at age 3. According to ALLERCA, the cats have long life expectancies and possess sweet and affectionate dispositions. For a price of about $3,000, you receive a 12-week-oldkitten, complete with all shots and vaccinations, an embedded microchip identifier implant, and a one-year guarantee. Customers purchase kittens over the lnternet and must pay approximately $1,000 for processing and transportation. The high shipping cost occurs because commercial air shipping is stressful to the animal; therefore, the kitten travels in a specialized private jet courier. According to ALLERCA, the current waiting time for the ALLERCA GD kitten is approximately two years. Potential buyers may reduce their wait

times to just a few months by paying $2,000 for one of the few kittens in the Premium Placement Program.

Splenda (sucralose) was introduced to the consumer market in 1999. It is now a common sweetener found in more than 3,500 food products. Splenda's advertisingslogan is "made from sugar, so it tastes like sugar." Manufactured and marketed by packaged-goods giant Johnson & Johnson, Splenda now captures a substantial percentage of the artificial sweetener market and is beginning to cut into sugar's market share. But Splenda's campaign has attracted much attention from competitors, social advocacy groups, and nutritional experts. According to these groups, Splenda has clearly violated "truth in advertising" codes with its "made from sugar" slogan. Although currently produced from a sugar molecule, they claim, Splenda is an artificial sweetener that can be produced without sugar. In addition, the chemical name assigned to Splenda-sucralose-is misleading because it closely resembles the chemical name of sugar-sucrose. The strongest opponent to the Splenda "made from sugar" campaign is The Sugar Association, which has launched a large and'expensive campaign of its own to educate the public and to expose Splenda's uneth-

ical behavior. The association's Web site (http://www.truthaboutsplenda. corn) urges consumers to take action by contacting friends, sending letters to the FTC and the FDA, and sending letters of complaint directly to Johnson & Johnson. Another area of the Web site, labeled Fact vs. Fiction, highlights serious consumer misunderstandingsthat might result from Splenda's advertising. It describes in detail how Splenda is not natural sugar and notes that there exist no conclusive tests regarding the long-term safety of consuming Splenda.

DDB Worldwide, a global communications firm, has crafted imaginative commercials and staged successful marketing events for megamarketers such as Ameriquest, Volkswagen, Budweiser, Pepsi, and Nike. Recently, DDB staged a live round of Monopoly on the streets of London to promote Milton Bradley's updated version of the classic game. Online players "bought" properties throughout the city and selected one of eighteen London cabs to use as a playing piece. The cabs, tracked by GPS, tallied rent payments and receipts for each player as they moved about the streets. More than one million people played and the campaign garnered

$3 million in free publicity. As a result, Monopoly: Here and Nowwas one of the best-selling games of the year. With creativity and results like these, it's easy to understand why DDB is one of the world's most decorated agencies. DDB brought the same creativity to the challenge of reinventing another classic, JC Penney. Relying on extensive consumer research, DDB crafted an ad campaign that built the JC Penney brand, connected with the retailer's core consumers, and brought customers back in droves.

1. This product is sold over the lnternet. How can ALLERCA use lnternet advertisingtechnologies to reach its target market?(Visit the lnternet Advertising Bureau at www.iab.net to learn about recent technologies.) 2. What might be the main objectives of advertisingand pubic relations for ALLERCA, and what factors will affect ALLERCA's decision about its advertising and PR budgets? 3. In addition to lnternet marketing, what other advertising media and PR tools would you choose for promoting ALLERCA and its unique products?

1. What is the objective of Splenda's "made from sugar, so it tastes like sugar" message and campaign? Is this slogan an effective appeal?

2. What is the objective of The Sugar Association's communications campaign? Is that campaign effective? 3. Check the "truth in advertising" guidelines at the FTC Web site (www.ftc.gov/bcp/conline/pubs/buspubs/ad-faqs.htm.Has Splenda followed these rules?

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After viewing the video featuring DDB Worldwide, answer the following questions about advertising and public relations.

characteristics discussed in the text? How did identifying JC Penney's core consumers affect DDB's message execution style?

1. What were DDB's advertising objectives for the JC Penney campaign?

3. Could JC Penney employ the "Madison & Vine" concept discussed in the chapter? How?

2. How did DDB1sconsumer research affect the message strategy for the campaign? Does the major advertising appeal have the three

w Everyone's familiar with the cola wars-the epic battles between Pepsi Cola and Coca-Cola in the soft-drink market. The war has featured numerous taste tests and mostly friendly, but sometimes not-so-friendly, television ads featuring Pepsi and Coke delivery-truck drivers, each trying to out-do the other. But one of the major problems that Pepsi and Coke face is to not just out-do each other, but to maintain growth, especially when the soda market goes flat. For this reason, both PepsiCo and Coca-Cola each have hundreds if not thousands of brands in soft-drink and snackfood categories. Each is also constantly looking for new ideas to increase sales. One of those ideas is water. In the early 1990s, the bottled-water market was just a drop in the huge U.S. beverage market bucket. The Evian and Perrier brands dominated the tiny niche and helped establish bottled spring water's clean, healthy image. Pepsi took an early interest in the water market. It tried several different ways to attack this market, with both spring water and sparkling water, but each failed. Then it hit on the idea of taking advantage of a built-in resource-its existing bottlers. Pepsi's bottlers already had their own water treatment facilities to purify municipal tap water used in making soft drinks. Municipal tap water was already pure and had to pass constant monitoring and rigorous quarterly EPA-prescribed tests. Still, cola bottlers filtered it again before using it in the production process. Pepsi decided that it would really filter the tap water. It experimented with a reverse osmosis process, pushing already-filtered tap water at high pressure through fiberglass membranes to remove even the tiniest particles. Then, carbon filters removed chlorine and any other particles that might give the water any taste or smell. However, all this filtering removed even good particles that killed bacteria, so Pepsi had to add ozone to the water to keep bacteria from growing. The result? Aquafina-a water with no taste or odor-that Pepsi believed could compete with the spring waters already on the market. Further, Pepsi could license its bottlers to use the Aquafina name and sell them the filtration equipment. Because the process used tap water that was relatively inexpensive, Pepsi's Aquafina would also compete well on price with the spring waters.

The marketing strategy was relatively simple. Whereas Evian and the other early entrants targeted women and high-end consumers, Pepsi wanted consumers to see Aquafina as a "unisex, mainstream" water with an everyday price. When the company launched the product in 1994, it was content just to build distribution using its established system and spent very little money on promotion. Pepsi believed that soft-drink advertising should be for soft drinks, not water.

FIN By 1999, what had been a minor trickle in the beveiage market had turned into a geyser-bottled water had become the fastest-growing beverage category, and Pepsi had a big head start. Coca-Cola decided it was time to take the plunge. Like Pepsi, Coca-Cola realized its bottlers were already set up to handle a filtered-water process, Unlike Pepsi, however, rather than taking everything out of the tap water, it wanted to put something in. Coca-Cola's researchers analyzed tap waters and bottled waters and concocted a combination of minerals they believed would give filtered tap water a fresh, clean taste. The formula included magnesium sulfate, potassium chloride, and salt. Coca-Cola guarded the new water formula just as it had the original Coke recipe. Thus, it could sell the formula to its bottlers, as it does Coke concentrate, and let them make the water, Like Pepsi, Coca-Cola was content initially just to get its water, which it called Dasani, into distribution. By 2001, however, the bottled-water category had over 800 competitors and had grown to $3.53 billion in U.S. sales. Bottled water's market share of the beverage industry had grown from 7.4 percent in 1997 to 11percent in 2002. At that time, analysts were predicting that bottled water would become the second-largest beverage category by 2004 Ismpassing beer, coffee, and even milk!). There were also predictions that bottled water would account for 15 percent of a l l U.S. beverage sales by 2007. And while bottled-water sales were erup-ting,the market share of carbonated soft drinks had lost its fizz, remaining steady at around 28 percent.

(case continues1

Given the rapid market growth rate and all the competition, Pepsi and Coca-Cola decided they had better promote their products, just as they did their soft drinks. In 2001, Pepsi launched a $14 million campaign showing how water was a part of real people's lives. Coca-Cola countered with a $20 million campaign that targeted women and used the tagline: "Treat yourself well. Everyday." Not to be outdone, Pepsi responded by more than doubling its promotion budget to $40 million in 2002. Included in the advertising was a spot featuring Friends star Lisa Kudrow. Lisa described how refreshing and mouthwatering Aquafina was-emphasizing that it made no promises it couldn't keep. She described Aquafina as "Pure nothing." The ads featured the tagline: "We promise nothing." By 2003, the U.S. wholesale bottled-water market had surged to $8.3 billion, up 6.7 percent from 2002. During that same period, wholesale sales of carbonated beverages inched up only 1.5 percent to $45.7 billion. During 2003, Pepsi spent $24 million on Aquafina's advertising, while Coke spent $19 million on Dasani's. Although these two brands were number one and number two, respectively, with 17.7 and 13 percent market shares, all private-label brands combined took third place with a 10.4 percent market share. One Aquafina 2003 ad featured black-and-white images of an artist, skier, and guitar player drinking the water and carried the tagline "Aquafina. Purity Guaranteed." In mid2004, Pepsi altered its purity campaign with a new tagline, "Drink more water." One ad showed people partying at an English pub and a German beer garden. Instead of drinking beer, however, they were chugging Aquafina. Coke also had an ad showing young people sipping Dasani at a nightclub.

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In 2003, Pepsi and Coca-Cola both introduced vitarninenhanced waters with Aquafina Essentials and Dasani NutriWater. Both were quickly discontinued, but Pepsi was not about to give up. It knew that it had to stay ahead of the market. So in 2005, Pepsi created two brand extensions, Aquafina Sparkling and Aquafina FlavorSplash. Both brands stayed true to the healthy traits that were propelling water sales (no calories, carbs, or sugar). But Pepsi designed each to satisfy different needs within the market. Aquafina Sparkling was carbonated, unsweetened, and came in unflavored and lightly flavored varieties. By contrast, FlavorSplash was noncarbonated, sweetened with Splenda, and had heavier doses of flavor, with Raspberry, Citrus Blend, and Wild Berry varieties. With Coke hot on its tail with the carbonated Dasani Sensations as well as various flavored Dasanis, Pepsi continued to promote its brands heavily. It fielded a variety of promotional tactics. Aquafina hit the Internet, with ads showing up on the MySpace main page and on commercial and personal destination pages. Pepsi also invested in event sponsorship. Aquafina became a major sponsor of the Olympus Fashion Week in New York and the MercedesBenz Fashion Week in Los Angeles. It even ran a sweepstakes-style promotion offering all-expense-paid trip to these fashion events. Pepsi also had Aquafina doing double duty at indie film festivals, with significant sponsorship presence at both Sundance and South By Southwest. But Pepsi was not about to give up on television. Two years after the successful launch of its "Drink More Water" campaign, Pepsi continued the water-induced jollity of the original ads. In a remake of a scene from the cult classic Animal House, a spot entitled "The Toga" had a John Belushi look-alike convulsing to the song "Shout," performed by the real Otis Day and the Knights. But the big difference between the original movie and this frat-house orgy of excess was that the partiers slammed shots of Aquafina.

By 2006, the beverage market trends had intensified. Soda sales were fizzling and bottled-water sales were gushing. In 2005, U.S. carbonated-soda volume declined for the first time ever by .2 percent, and the drop was expected to triple in 2006. The carbonated-soda category still reigned as the ARE THE COLA WARS OV king of all beverages, boasting the top-selling brands and a For decades, Pepsi fought to sell more cola than Coke. It two-to-one margin over bottled water. But analysts pre- now appears that Pepsi may have willingly conceded the dicted that if trends continued, bottled water could overtake number one cola honor to Coke. Although it hasn't given up, .on keeping the Pepsi brand at a strong number two, it has sodas as early as 2013. -. . According to a beverage industry analyst, "The fastest- 'heen quietly taking another route to kicking Coke's can. In growing products are the ones people view as healthier or fact, in December of 2005, PepsiCo surpassed Coca-Cola in better for you." Indeed, in addition to bottled water, the cat- market capitalization for the first time in the 108-year egories of energy drinks, sports drinks, juices, and teas were rivalry. In the five previous years, PepsiCo's stock had risen also experiencing rapid growth. by more than a third while Coke's had dropped by the same With market conditions so favorable, and Aquafina now amount. What drove this changing of the guard? Without questhe ninth-best-selling beverage brand in the United States (Dasani was number-ten, but Coke still ruled at number one), tion, one of the most significant factors is Pepsi's lead in Pepsi knew that it could not rest on its laurels. But how does growth categories, such as bottled water. "They were the a company expand on water? Well, with more water of first to recognize that the consumer was moving to noncarcourse. Brands and varieties of bottled water were popping bonated products, and they innovated aggressively," up at a mind-boggling rate. Spring water, mineral water, puri- observed the analyst. That noncarbonated beverages are fied water, sparkling water, flavored water, vitamin-enhanced growing so rapidly bodes very well for Pepsi. Some 35 to 40 water, lightly carbonated water-the bottled-water market percent of its beverage sales are in noncarbonated catewas fragmenting fast. gories, as opposed to only 15 percent for Coca-Cola.

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But while Coca-Cola seems to be putting plenty of effort into bottled water, it also may be overly confident in the number one brand. When asked about the trend of sales for carbonated and noncarbonated beverages, a Coca-Cola spokesman insisted that the beverage giant is bucking the trend. "We believe we continue to grow carbonated soft drinks," he said, noting that Coke's soda volume was up 1 percent in the fourth quarter of 2005. But whereas a small increase in a huge, flat market might be one thing, a large increase in expanding markets is quite another. Losing the cola wars may be the best thing that ever happened to Pepsi.

Questions for Discussion 1. What markets should Pepsi target for Aquafina? 2. What recommendations would you make for advertis-

ing objectives, message strategy, and message execution for Aquafina? 3. What advertising media recommendations would you make for Aquafina, and how would you evaluate the effectiveness of those media and your advertising? 4. What sales promotion and public relations recommendations would you make for Aquafina?

5. What recommendations would you make for promoting

Aquafina Sparkling and FlavorSplash? 6. To what extent is Aquafina's sales growth attributable

to advertising and promotion versus the growing dynamics of the market? Sources: Kate MacArthur, "Bleak Future Predicted for Fizz Biz," Advertising Age, June 26,2006; Karen Herzog, " D m ! New Beverages Join the Coke-Pepsi Wars," Milwaukee Journal Sentine!, June 7, 2006, p. 1; Lewis Lazare, "Aqua-Boogie Spots Hit All the Right Notes," Chicago Sun Times, May 10, 2006, p. 71; Katrina Brooker, "How Pepsi Outgunned Coke," Fortune, February 1, 2006, accessed online at www.fortune.com; "Aquafina Brings Flavor and Fizz to the Water Aisle," PR Newswire, January 24, 2005; "Beverage Industry Fact Sheet," accessed at www.bevexpo.com/bevindfactsheet.asp;"No Slowdown in Sight for Bottled Water," Beverage Industry, September 2003, p. 22; Betsy McKay, "In a Water Fight, Coke and Pepsi Try Opposite Tacks," Wall Street Journal, April 18, 2002, p. Al; Betsy McKay, "Coke and Pepsi Escalate Their Water' Fight," Wall Street Journal, May 18, 2001, p. B8.

Chapter 1 5 Advertising and Public Relations

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I n the previous two chapters, you learned DW Corporation, a leading provider of multi brand technology products and about communicating customer value : services, is thriving. In only 22 years since founder Michael Krasny started through integrated marketing communithe business at his kitchen table, CDW has grown to become a high-tech cations (IMC) and about two elements of heavyweight in a highly volatile and competitive industry. Even as much of the tech the promotion mix-advertising and pubworld has slumped, in just the past three years CDW has increased its sales 35 perlic relations. I n this chapter, we'll look at cent, to $6.3 billion annually, while profits have grown 55 percent. Sales last year two more IMC elements-personal selling ' grew by about 10 percent, almost three times the industry average. and sales promotion. Personal selling is . How has CDW managed to grow so profitably?The company owes its success to the interpersonal arm of marketing comgood old fashioned high-touch personal selling that builds lasting one-to-one cusmunications, i n which t h e sales force tomer relationships.The strategy is fueled by a genuine passion for solving customer interacts with customers and prospects t o problems. Under CDW's "Circle of Service" philosophy, "everything revolves around build relationships and make sales. Sales the customer." promotion consists o f short-term incenCDW sells a complex assortment of more than 100,000 technology products and tives t o encourage the purchase or sale of services-computers, software, accessories, and networking products-including a product or service. As you read on, top name brands such as Adobe, APC, Apple, Cisco, HP, Lenovo, IBM, Microsoft, remember t h a t although this chapter Sony, Symantec, Toshiba, and ViewSonic. Many of CDW's competitors chase after a examines personal selling and sales pro- , relative handful of very large customers. However, although CDW serves customers motion as separate tools, they must be , of all sizes, one of the company's core customer segments is small and midsize busicarefully integrated with other elements nesses (SMBs). These smaller customers often need lots of advice and support. of the promotion mix. "Many of our clients don't have IT departments," says one CDW executive, "so they When someone says "salesperson," . look to us for expertise." what image comes t o mind? Perhaps you . That's where CDW's sales force comes in. The major responsibility for building think about a stereotypical glad-hander and managing customer relationships falls to CDW's sales force of over 2,100 who's out t o lighten your wallet by selling account managers. Each customer is assigned an account manager, who helps the you something you don't really need. Think again. Today, for most companies, . customer select the right products and technologies and keep them running smoothly. personal selling plays an important role Account managers do more than just sell technology products and services. They i n building profitable customer relationwork closely with customers to find solutions to their technology problems. "This is a ships. Consider CDW Corporation, whose big deal to us," says Jim Grass, CDW's senior director of sales. "We want to go customer-focused sales strategy has beyond fulfilling the order and become the trusted adviser for them. We [want to] helped it grow rapidly while competitors . . . about what a customer is trying to accomplish and really add value to the talk have faltered.

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sale, as opposed to just sending out a box." To become trusted advisors and effective customer-relationship builders, CDW account managers really have to know their stuff. And CDW boasts some of the most knowledgeable salespeople in the industry. Before they make a single sales call, new

> 10:45 pm. Account Manager Erin Bliss finishes Advanced Linux Volume IX, Meanwhile, husbandGary begins XP For Dummies.

account managers complete a six-week orientation and then a six-month training program. CDW University's College of Sales offers intensive schooling in the science behind the company's products and in the art of consultative selling. But that's just the beginning-the training never ends. Tenured account managers receive ongoing training to enhance their relationship-selling skills. Each year, CDW's sales force completes a whopping 339,000 hours of sales-specific training. John Edwardson, chairman and CEO of CDW and former head of United Airlines, likes to point out that CDW reps get more training than some pilots. To further support salespeople's customer problem-solving efforts, CDW has also created nine technology teams consisting of more than 120 factory-trained specialists and A+ certified technicians on staff. Account managers can draw on these teams to design customer-specific solutions in technology areas such as mobility/wireless, networking, security, and storage. Customers who want to access CDW's products and expertise without going through their account manager can do so easily at any of several CDW Web sites. Better yet, CDW will create a free personalized CDW@workextranet site that reflects a given customer's pricing, order status, account history, and special considerations. The extranet site serves as a 24-hour extension of the customer's account manager. This resulted in CDW Web sales of more than $1.7 billion last year. But even here, the ever-present account managers are likely to add personal guidance. Account managers receive immediate notification of their customers' online activities. So if a blurry-eyed SMB manager makes a mistake on an emergency order placed in the middle of the night, chances are good that the account manager will find and correct the error first thing in the morning. Beyond being knowledgeable and ever present, CDW's account managers are energetic and passionately customer focused. Much of the energy has passed down from CDW founder and former CEO Michael Krasny. Selling has always been a top priority for Krasny, not surprising given that he began the company by selling used personal computers out of his home through classified ads. During his 17year reign as head of CDW, Krasny created a hardworking and dedicated sales force. One favorite Krasny tale involves a windstorm that ripped off a chunk of the CDW building's roof. Within minutes, Krasny himself was up on the roof, nailing a

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tarp over the hole. When startled employees inside looked up, Krasny shouted down to them to get back to selling. However, Krasny's most important legacy is the "Circle of Service" culture that he created-a culture that focuses on taking care of customers, and on the CDW employees who serve them (he calls them "coworkers"). "Whenever he made a decision, he'd always ask two questions," says Edwardson: "'What will the reaction of the coworkers be? and 'What will the response of the customers be?"' When someone says "salesperson," you may still think of the stereotypical "traveling salesman"--the fast-talking, ever-smiling peddler who travels his territory foisting his wares on reluctant customers. Such stereotypes, however, are out of date. Today, like CDW's account managers, most professional salespeople are well-educated, well-trained men and women who work to build valued customer relationships. They succeed not by taking customers in, but by helping them out-by assessing customer needs and solving customer problems. CDW's sales force instills loyalty in what are traditionally very price-conscious SMB customers. The company wants to create customer satisfaction at every touch point. Says a former CDW marketing executive, "We're competitively priced, but what's most important is the service and the customers' relationships with their account managers. It's how we actually touch people that creates our most long-lasting ~successl."~

In this chapter, we examine two more promotion mix tools-Personal selling and sales promotion. Personal selling consists of interpersonal interactions with customers and prospects to make sales and maintain customer relationships. Sales promotion involves using shortterm incentives to encourage customer purchasing, reseller support, and sales force efforts.

Robert Louis Stevenson once noted that "everyone lives by selling something." Companies all around the world use sales forces to sell products and services to business customers and final consumers. But sales forces are also found in many other kinds of organizations. For example, colleges use recruiters to attract new students and churches use membership committees to attract new members. Museums and fine arts organizations use fund-raisers to contact donors and raise money. Even governments use sales forces. The U.S. Postal Service, for instance, uses a sales force to sell Express Mail and other services to corporate customers. In the first part of this chapter, we examine personal selling's role in the organization, sales force management decisions, and the personal selling process.

Personal selling Personal presentation by the firm's sales force for the purpose of making sales and building customer relationships.

Personal selling is one of the olde:t professions in the world. The people who do the selling go by many names: salespeople, sales representatives, district managers, account executives, sales consultants, sales engineers, agents, and account development reps to name just a few. People hold many stereotypes of salespeople-including some unfavorable ones. "Salesman" may bring to mind the image of Arthur Miller's pitiable Willy Loman in Death of a Salesman or Meredith Willson's cigar-smoking, backslapping, joke-telling Harold Hill in The Music Man. These examples depict salespeople as loners, traveling their territories, trying to foist their wares on unsuspecting or unwilling buyers. However, modern salespeople are a far cry from these unfortunate stereotypes. Today, most salespeople are well-educated, well-trained professionals who work to build and maintain long-term customer relationships. They listen to their customers, assess customer needs, and organize the company's efforts to solve customer problems. Consider Boeing, the aerospace giant competing in the rough-and-tumble worldwide commercial aircraft market. It takes more than fast talk and a warm smile to sell expensive airplanes:

Selling high-tech aircraft at $100 million or more per order is complex and challenging. A single big sale can easily run into billions of dollars. Boeing salespeople

Chapter 16 Personal Selling and Sales Promotion

El Professional selling: It takes more than fast talk and a warm smile to sell hightech aircraft at $100 million or more per order. Success depends on building solid, long-term relationships with customers.

Salesperson An individual representing a company to customers by performing one or more of the following activities: prospecting, communicating, selling, servicing, information

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head up an extensive team of company specialists-sales and service technicians, financial analysts, planners, engineers-all dedicated to finding .ways to satisfy airline customer needs. The selling process is nerve-rackingly slow-it can take two or three years from the first sales presentation to the day the sale is announced. After getting the order, salespeople then must stay in almost constant touch to keep track of the account's equipment needs and to make certain the customer stays satisfied. Success depends on building solid, long-term relationships with customers, based on performance and trust. "When you buy an airplane, it is like getting married," says the head of Boeing's commercial airplane division. "It is a long-term relati~nship."~

The term salesperson covers a wide range of positions. At one extreme, a salesperson might be largely an order taker, such as the department store salesperson standing behind the counter. At the other extreme are order getters, whose positions demand creative selling and relationship building for products and services ranging from appliances, industrial equipment, and airplanes to insurance and information technology services. Here, we focus on the more creative types of selling and on the process of building and managing an effective sales force.

Personal selling is the interpersonal arm of the promotion mix. Advertising consists largely of one-way, nonpersonal communication with target consumer groups. In contrast, personal selling involves two-way, personal communication between salespeople and individual customers-whether face to face, by telephone, through video or Web conferences, or by other means. Personal selling can be more effective than advertising in more complex selling situations. Salespeople can probe customers to learn more about their problems and then adjust the marketing offer and presentation to fit the special needs of each customer. The role of personal selling varies from company to company. Some firms have no salespeople at all-for example, companies that sell only online or through catalogs, or companies that sell through manufacturer's reps, sales agents, or brokers. In most firms, however, the sales force plays a major role. In companies that sell business products and services, such as IBM or DuPont, the company's salespeople work directly with customers. In consumer product companies such as Procter & Gamble and Nike, the sales force plays an important behindthe-scenes role. It works with wholesalers and retailers to gain their support and to help them be more effective in selling the company's products. The sales force serves as a critical link between a company and its customers. In many cases, salespeople serve both masters-the seller and the buyer. First, they represent the compuny to customers. They find and develop new customers and communicate information about the company's products and services. They sell products by approaching customers, presenting their products, answering objections, negotiating prices and terms, and closing sales. In addition, salespeople provide customer service and carry out market research and intelligence work. At the same time, salespeople represent customers to the company, acting inside the firm as "champions" of customers' interests and managing the buyer-seller relationship. Salespeople relay customer concerns about company products and actions back inside to those who can handle them. They learn about customer needs and work with other marketi% and nonmarketing people in the company to develop greater customer value. The old view was that salespeople should worry about sales and the company should worry about profit. However, the current view holds that salespeople should be concerned with more than just producing sales-they should work with others in the company to produce customer value and company profit.

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Sales force management The analysis, planning, implementation, and control of sales force activities. It includes designing sales force strategy and structure and recruiting, selecting, training, supervising, compensating, and evaluating the firm's salespeople.

We define sales force management as the analysis, planning, implementation, and control of sales force activities. It includes designing sales force strategy and structure and recruiting, selecting, training, compensating, supervising, and evaluating the firm's salespeople. These major sales force management decisions are shown in Figure 16.1 and are discussed in the following sections.

esigning Sdes Force Strategy an ~ a r k e t i nmanagers i face several sales force strategy and design questions. How should salespeople and their tasks be structured? How big should the sales force be? Should salespeople sell alone or work in teams with other people in the company? Should they sell in the field or by telephone or on the Web?

A company can divide sales responsibilities along any of several lines. The decision is simple if the company sells only one product line to one industry with customers in many locations. In that case the company would use a territorial sales force structure. However, if the com-

pany sells many products to many types of customers, it might need either a product sales force structure, a customer sales force structure, or a combination of the two.

Territorial sales force structure A sales force organization that

assigns each salesperson to an exclusive geographic territory in which that salesperson sells the company's full line.

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In the territorial sales force structure, each salesperson is assigned to an exclusive geographic area and sells the company's full line of products or services to all customers in that territory. This organization clearly defines each salesperson's job and fixes accountability. It also increases the salesperson's desire to build local customer relationships that, in turn,improve selling effectiveness. Finally, because each salesperson travels within a limited geographic area, travel expenses are relatively small. A territorial sales organization is often supported by many levels of sales management positions. For example, Campbell Soup uses a territorial structure in which each salesperson is responsible for selling all Campbell Soup products. Starting at the bottom of the organization, sales merchandisers report to sales representatives, who report to retail supervisors, who report to directors of retail sales operations, who report to 1 of 22 regional sales managers. Regional sales managers, in turn, report to 1of 4 general sales managers (West,Central, South, and East), who report to a vice president and general sales manager.

A sales force organization

Salespeople must know their products-especially when the products are numerous and complex. This need, together with the growth of product management, has led many companies to adopt a product sales force structure, in which the sales force sells along product lines. For example, Kodak uses different sales forces for its consumer products than for its industrial products. The consumer products sales force deals with simple products that are distributed intensively, whereas the industrial products sales force deals with complex products that require technical understanding. The product structure can lead,to problems, however, if a single large customer buys many different company products..For example, Cardinal Health, the large health care products and services company, has several product divisions, each with a separate sales force. Using a product sales force structure might mean that several Cardinal salespeople end up calling on the same hospital on the same day. This means that they travel over the same routes and wait to see the same customer's purchasing agents. These extra costs must be compared with the benefits of better product knowledge and attention to individual products.

under which salespeople specialize in selling only to certain customers or industries.

More and more companies are now using a customer sales force structure, in which they organize the sales force along customer or industry lines. Separate sales forces may be set up for different industries, for serving current customers ver-

Product sales force structure A sales force organization

under which salespeople specialize in selling only a portion of the company's products or lines.

Customer sales force structure

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sus finding new ones, and for major accounts versus regular accounts. Many companies even have special sales forces set up to handle the needs of individual large customers. For example, Black & Decker has a Home Depot sales organization and a Lowe's sales organization. Organizing the sales force around customers can help a company build closer relationships with important customers. Consider Lear Corporation, one of the largest and most successful automotive suppliers in the world. Each year, Lear Corporation produces more than $17 billion worth of automotive interiors-seat systems, instrument panels, door panels, floor and acoustic systems, overhead systems, and electrical distribution systems. Its customers include all of the world's leading automotive companies, from Ford, DaimlerChrysler, General Motors, Toyota, and Volvo to BMW, Ferrari, Rolls-Royce, and more than a dozen others. Perhaps more than any other part of the organization, it's Lear's outstanding 145-person sales force that brings to life the company's credo, "Consumer driven. Customer focused." Lear salespeople work hard at relationship building and doing what's best for the customer. "Our salespeople don't really close deals," notes a senior marketing executive. "They consult and work with customers to learn exactly what's needed and when."

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Automotive supplier Lear Corporation organizes i t s sales force around major customers. I n fact, it often Locates i t s sales ofices i n customers' facilities. "We need t o be involved with customers every step o f the way-from vehicle concept through Launch."

Lear organizes its sales force around major customers. More than that, the company itself is broken up into separate divisions dedicated to specific customers. For example, there's a Ford division, a General Motors, and a Fiat division. This organization lets Lear's sales teams to get very close to their customers. In fact, Lear often locates its sales offices in customers' facilities. For instance, the team that handles GM's light truck division works at GM's truck operation campus. "We can't just be there to give quotes and ask for orders," says the marketing executive. "We need to be involved with customers every step of the way-from vehicle concept through launch."3

When a company sells a wide variety of products to many types of customers over a broad geographic area, it often combines several types of sales force structures. Salespeople can be specialized by customer and territory, by product and territory, by product and customer, or by territory, product, and customer. No single structure is best for all companies and situations. Each company should select a sales force structure that best serves the needs of its customers and fits its overall marketing strategy. A good sales structure can mean the difference between success and failure. Companies should periodically review their sales force organizations to be certain that they serve the needs of the company and its customers. Over time, sales force structures can grow complex, inefficient, and unresponsive to customers' needs. This happened recently to technology giant Hewlett-Packard, To correct the problem, the company's new CEO took dramatic steps to restructure HP's corporate sales force (see Real Marketing 16.1). i

Once the company has set its structure, it is ready to consider soles force size. Sales forces may range in size from only a few salespeople to tens of thousands. Some sales forces are huge-for example, American Express employs 23,500 U.S. salespeople, PepsiCo 36,000, and The Hartford Financial Services Group IOO,OOO.~ Salespeople constitute one of the company's most productive-and most expensive-assets. Therefore, increasing their number will increase both sales and costs.

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Imagine this scenario: You need a new digital camera. You're not sure which one to buy or even what features you need. So you visit your nearest electronics superstore to talk with a salesperson. You walk through the camera section but can't find anyone to help you. When you finally find a salesperson, he yawns and tells you that he's responsible for selling all the products in the store, so he doesn't really know all that much about camerasmaybe you should talk to someone else. You finally find a camerasavvy salesperson. However, after answering a few questions, she disappears to handle some other task, handing you off to someone new. And the new salesperson seems to contradict what the first salesperson said, even quoting different prices on a couple of models you like. As incredible as it seems, at least until recently, this is the kind of situation that many large business buyers faced when they attempted to buy from technology giant Hewlett-Packard. Before Mark Hurd took over as HP's new CEO in the spring of 2005, the company's revenues and profits had flattened and its stock price had plummeted. To find out why, Hurd first talked directly with 400 corporate customers. Mostly what he heard was gripes about HP's corporate sales force. Customers complained that they had to deal with too many salespeople, and that HP's confusing management layers made it hard to figure out whom to call. They had trouble tracking down HP sales representatives. And once found, the reps often came across as apathetic, leaving the customer to take the initiative. HP reps were responsible for a broad range of complex products, so they sometimes lacked the needed depth of knowledge on any subset of them. Customers grumbled that they received varying price quotes from different sales reps, and that it often took weeks for reps to respond to seemingly simple requests. In all, HP's corporate customers were frustrated, not a happy circumstance for a company that gets more than 70 percent of its revenues from businesses. But customers weren't the only ones frustrated by HP's unwieldy and unresponsive sales force structure. HP was organized into three main product divisions: the Personal Systems Group (PSG), the Technology Solutions Group (TSG), and the Image and Printing Group (IPG). However, these divisions had little control over the sales process. Instead, HP's corporate sales force was housed in a fourth

HP overhauled i t s vast sales force, reducing salesperson frustration and helping salespeople to create better value for customers.

division, the Customer Sales Group (CSG). All salespeople reported directly to the CSG and were responsible for selling products from all three product divisions. To make matters worse, the CSG was bloated and underperforming. According to one reporter, "of the 17,000 people working in HP's corporate sales, only around 10,000 directly sold to customers. The rest were support staff or in management." HP division executives were frustrated by the CSG structure. They complained that they had little or no direct control over the salespeople who sold their products. And multiple layers of management slowed sales force decision making and customer responsiveness. Finally, salespeople themselves were frustrated by the structure. They weren't being given the time and support they needed to serve their customers well. Burdened with administrative tasks and bureaucratic red tape, they were spending less than a third of their

M a n y companies use some form o f workload approach to set sales force size. Using this approach, a company first groups accounts i n t o different classes according to size, account status, or other factors related to the amount o f effort required to maintain them. It then determines the number o f salespeople needed to call o n each class o f accounts the desired number o f times. The company might think as follows: Suppose w e have 1,000 Type-A accounts and 2,000 Type-B accounts. Type-A accounts require 36 calls a year and Type-B accounts require 12 calls a year. In this case, the sales force's workload-the number o f calls i t must make per year-is 60,000 calls [(1,000 X 36) + (2,000 X 12) = 36,000 24,000 = 60,0001. Suppose our average salesperson can make 1,000 calls a year. Thus, w e need 60 salespeople (60,000 + I.,ooo).~

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Chapter 16 Personal Selling and Sales Promotion

time with customers. And they had to work through multiple layers of bureaucracy to get price quotes and sample products for customers. "The customer focus was lacking," says an HP sales vice president. "Trying to navigate inside HP was difficult. It was unacceptable." As CEO Mark Hurd peeled back the layers, it became apparent that HP's organizational problems went deeper than the sales force. The entire company had become so centralized, with so many layers of management, that it was unresponsive and out of touch with customers. Thus began what one observer called "one of Hurd's biggest management challenges: overhauling HP's vast corporate sales force." For starters, Hurd eliminated the CSG division, instead assigning salespeople directly to the three product divisions. He also did away with three layers of management and cut hundreds of unproductive sales workers. This move gave divisional marketing and sales executives direct control over a leaner, more efficient sales process, resulting in speedier sales decisions and quicker market response. Hurd also took steps to reduce salesperson and customer frustrations. Eliminating the CSG meant that each salesperson was responsible for selling a smaller number of products and was able to develop expertise in a specific product area. Hurd urged sales managers to cut back on salesperson administrative requirements and to improve sales support so that salespeople could spend more quality time with customers. As a result, salespeople now spend more than 40 percent of their time with customers, up from just 3 0 percent last year. And HP salespeople are noticing big changes in the sales support they receive: Salesman Richard Ditucci began noticing some of the changes late last year. At the time, Ditucci was trying to sell computer servers to Staples. As part of the process, Staples had asked him to provide a sample server for the company to evaluate. In the past, such requests typically took two to three weeks to fulfill because of HP's bureaucracy. This time, Ditucci got the server he needed within three days. The quick turnaround helped him win the contract, valued at several million dollars. To ensure that important customers are carefully tended to, HP assigned each salesperson three or fewer accounts. The top 2,000 accounts were assigned just one salesperson each-"so they'll

Outside sales force (or field sales force) Outside salespeople who travel to call on customers in the field.

Inside sales force Inside salespeople who conduct business from their offices via telephone, the Internet, or visits from prospective buyers.

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always know whom to contact." Customers are noticing differences in the attention that they get from HP salespeople: James Farris, a senior technology executive at Staples, says HP has freed up his salesman to drop by Staples at least twice a month instead of about once a month as before. The extra face time enabled the HP salesman to create more valuable interactions, such as arranging a workshop recently for Staples to explain HP1stechnology to the retailer's executives. As a result, Farris says he is planning to send more business HP's way. Similarly, Keith Morrow, chief information officer of convenience-store chain 7-Eleven, says his HP sales representative is now "here all the time," and has been more knowledgeable in pitching products tailored to his business. As a result, last October, 7-Eleven began deploying in its US. stores 10,000 HP pen pads-a mobile device that helps -/-Eleven workers on the sales floor. So, HP's sales force restructuring appears to be paying off. Only one year after Mr. Hurd's arrival, HP is now a much leaner and more efficient sales organization. HP's earnings have improved over three consecutive quarters, stock prices are up by over 60 percent, and market share is improving against Dell and other competitors. More importantly, salespeople are happier and more productive, resulting in happier customers. CEO Hurd knows that there's still much more work to be done. But step by step, through restructuring, HP is fixing its sales force to create better value for its business customers. Now, if your local electronics superstore would only do the same for you. . . . Sources: Quotes and adapted examples from Pui-Wing Tam, "System Reboot: Hurd's Big Challenge at HP: Overhauling Corporate Sales," Wall StreetJournal, April 3, 2006, p. Al. Other information from Steven Burke and Craig Zarley, "Tables Have Turned; HP Gaining Ground on Dell," Computer Reseller News, May 22, 2006, p. 15; Jeffrey Burt, "HP Gets a New Tune," eWeek, February 27, 2006, p. 11; "HP Restructures, Putting More Assignments In Play," Adweek, March 27, 2006, accessed at www.adweek.com; Craig Zarley and Robert Faletra, "Team Building," Computer Reseller News, April 24, 2006, p. 10; and Christopher Hosford, "Rebooting Hewlett-Packard," Sales & Marketing Management, J~ly-Augu~t 2006, pp. 32-35.

T h e c o m p a n y m a y h a v e a n outside sales force (or field sales force), an inside sales force, or both. Outside salespeople travel t o c a l l o n customers in t h e field. Inside salespeople c o n d u c t business f r o m t h e i r offices v i a telephone, the Internet, or visits f r o m buyers. Some i n s i d e salespeople p r o v i d e s u p p o r t f o r t h e outside sales force, freeing t h e m t o spend m o r e t i m e selling t o m a j o r accounts and f i n d i n g n e w prospects. F o r example, technical sales s u p p o r t p e o p l e p r o v i d e t e c h n i c a l i n f o r m a t i o n a n d answers t o customers' questions. Sales assistants p r o v i d e administrative b a c k u p for outside salespeople. T h e y c a l l ahead and c o n f i r m appointments, f o l l o w up o n deliveries, a n d answer customers' questions w h e n outside salespeople cannot b e reached. Other i n s i d e salespeople d o m o r e than just p r o v i d e support. Telemarketers and Web sellers use the p h o n e and Internet t o find n e w leads and qualify prospects or t o sell a n d service accounts directly. Telemarketing and Web selling c a n be v e r y effective, less costly ways t o sell t o smaller, harder-to-reach customers. D e p e n d i n g o n t h e complexity o f t h e p r o d u c t and GUStomer, f o r example, a telemarketer c a n m a k e f r o m 20 t o 33 decision-maker contacts a day,

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compared to the average of four that an outside salesperson can make. And whereas an average business-to-business field sales call costs $329 or more, a routine industrial telemarketing call costs only about $5 and a complex call about $ 2 0 . ~ For some smaller companies, telephone and Web selling may be the primary sales approaches. However, larger companies also use these tactics, either to sell directly to small k d midsize customers or to help out with larger ones. For example, Avaya, a $5 billion global telecommunications firm, recently formed a telemarketing sales force to service its smaller, more routine, less complex accounts. Not only did the telesales force do a better job of selling to these smaller accounts, it freed Avaya's outside salespeople to focus their attentions on the company's highest-value customers and prospects. As a result, the company has experienced 40 percent higher sales in areas where the telesales model is being used.7 For many types of products and selling situations, phone or Web selling can be as effective as a personal sales call. Notes a DuPont telemarketer: "I'm more effective on the phone. [When you're in the field], if some guy's not in his office, you lose an hour. On the phone, you lose 15 seconds. . . . Through my phone calls, I'm in the field as much as the rep is." There are other advantages. "Customers can't throw things at you," quips the rep, "and you don't have to outrun dogs."8 What's more, although they may seem impersonal, the phone and Internet can be surprisingly personal when it comes to building customer relationships. Remember CDW from our chapter-opening story?

B5.i Inside sales force: Although they may seem impersonal, the phone and Internet can be surprisingly personal when it comes t o building customer relationships. "He's my business partner," says a CDW customer about her account manager, who manages account relationships almost entirely by phone.

.

Team selling Using teams of people from sales, marketing, engineering, finance, technical support, and even upper management to service large, complex accounts.

If you're one of CDW Account Manager Ron Kelly's regular customers, you probably know that he's 35 and has a wife named Michelle, a 9-year-old son named Andrew, and a German shepherd named Bones. You know that he majored in journalism and poly sci at SIU (that's Southern Illinois University) and was supposed to attend Northwestern's law school but instead came to work at CDW. You know that he bleeds red and black for the Chicago Blackhawks. You also know that he knows as much, if not more, about you. Kelly, an affable account manager, is a master at relationshipbased selling, CDW's specialty. Customers love it. "He's my sales rep, but he's also my friend," says Todd Greenwald, director of operations for Heartland Computers, which sells barcode scanners. "Most of the time we don't even talk about price. I trust Ron."

What's particularly impressive is that, for the most part, the interaction occurs over the phone and Internet. Despite the lack of face time, CDW account managers forge close ties. One customer invited his CDW contact to his wedding. Kelly and Greenwald share Blackhawks season tickets. It's not uncommon to find customers and reps whose partnership has outlasted job changes, budget cuts, and mmjages. Of course, the relationships aren't based solely on being likable. They're grounded in helping customers succeed. Account managers think like the customer and try to anticipate problems. For instance, before storms rocked Florida one summer, some account managers called or e-mailed clients there with battery and backupstorage solutions. "Instead of just sending a purchase order, we want to ask, 'Why are you buying [that product]?' says a CDW executive. 'That's how you identify customers' needs."' In this way, to their customers, CDW account managers are much more than just peddlers. When asked if she thinks of her CDW rep as a salesperson anymore, one customer replied, "Never. He's my business partner." And it all happens over the phone or the Web-both supposedly "arms-length" media.g As products become more complex, and as customers grow larger and more demanding, a single salesperson simply can't handle all of a large customer's needs. Instead, most companies now use team selling to service large, complex accounts. Sales teams can unearth problems, solutions, and sales opportunities that no individual salesperson could. Such teams might include experts from any area or level of the selling firm-sales, marketing, technical and support services, R&D, engineering, operations, finance, and others. In team selling situations, the salesperson shifts from "soloist" to "orchestrator."

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In many cases, the move to team selling mirrors similar changes in customers' buying organizations. "Today, we're calling on teams of buying people, and that requires more firepower on our side," says one sales vice president. "One salesperson just can't do it all-can't be an expert in everything we're bringing to the customer. We have strategic account teams, led by customer business managers, who basically are our quarterbacks."1•‹ Some companies, such as DM, Xerox, and Procter & Gamble, have used t e a s for a long time. P&Gsales reps are organized into "customer business development (CBD)teams." Each CBD team is assigned to a major P&G customer, such as Wal-Mart, Safeway, or CVS Pharmacy. Teams consist of a customer business development manager, several account executives (each responsible for a specific category of P&G products), and specialists in marketing strategy, operations, information systems, logistics, and finance. This organization places the focus on serving the complete needs of each important customer. It lets P&G "grow business by working as a 'strategic partner' with our accounts, not just as a supplier. Our goal: to grow their business, which also results in growing ours."ll Team selling does have some pitfalls. For example, selling teams can confuse or overwhelm customers who are used to working with only one salesperson. Salespeople who are used to having customers all to themselves may have trouble learning to work with and trust others on a team. Finally, difficulties in evaluating individual contributions to the team selling effort can create some sticky compensation issues.

Recruiting and Selecting Salespeople At the heart of any successful sales force operation is the recruitment and selection of good salespeople. The performance difference between an average salesperson and a top salesperson can be substantial. In a typical sales force, the top 30 percent of the salespeople might bring in 60 percent of the sales. Thus, careful salesperson selection can greatly increase overall sales force performance. Beyond the differences in sales performance, poor selection results in costly turnover. When a salesperson quits, the costs of finding and training a new salesperson-plus the costs of lost sales-can be very high. Also, a sales force with many new people is less productive, and turnover disrupts important customer relationships. What sets great salespeople apart from all the rest? In an effort to profile top sales performers, Gallup Management Consulting Group, a division of the well-known Gallup organization, has interviewed hundreds of thousands of salespeople. Its research suggests that the best salespeople possess four key talents: intrinsic motivation, disciplined work style, the ability to close a sale, and perhaps most important, the ability to build relationships with customers .lz Super salespeople are motivated from within. "Different things drive different peoplepride, happiness, money, you name it," says one expert. "But all great salespeople have one thing in common: an unrelenting drive to excel." Some salespeople are driven by money, a hunger for recognition, or the satisfaction of competing and winning. Others are driven by the desire to provide service and to build relationships. The best salespeople possess some of each of these motivations. Whatever their motivations, salespeople must also have a disciplined work style. If salespeople aren't organized and focused, and if they don't work hard, they can't meet the ever-increasing demands customers make these days. Great salespeople are tenacious about laying out detailed, organized plans, then following through in a timely, disciplined way. Says one sales trainer, Great salespeople: The best salespeople, such as Jennifer Hansen of 3M, "Some people say it's all technique or h k . But possess intrinsic motivation, disciplined work style, the ability to close a sale, luck happens to the best salespeople when they and perhaps most important, the ability to build relationships with customers.

Part 3 Designing a Customer-Driven Marketing Strategy and Integrated Marketing Mix get up early, work late, stay up till two in the morning working on a proposal, or keep making calls when everyone is leaving at the end of the day." Other skills mean little if a salesperson can't close the sale. So what makes for a great closer? For one thing, it takes unyielding persistence. "Great closers are like great athletes," says one sales trainer. "They're not afraid to fail, and they don't give up until they close." Great closers also have a high level of self-confidence and believe that they are doing the right thing. Perhaps most important in today's relationship-marketing environment, top salespeople are customer problem solvers and relationship builders. They instinctively understand their customers' needs. Talk to sales executives and they'll describe top performers in these terms: Empathetic. Patient. Caring. Responsive. Good listeners. Honest. Top performers can put themselves on the buyer's side of the desk and see the world through their customers' eyes. They don't want just to be liked, they want to add value for their customers. When recruiting, companies should analyze the sales job itself and the characteristics of its most successful salespeople to identify the traits needed by a successful salesperson in their industry. Then, it must recruit the right salespeople. The human resources department looks for applicants by getting names from current salespeople, using employment agencies, placing classified ads, searching the Web, and working through college placement services. Another source is to attract top salespeople from other companies. Proven salespeople need less training and can be immediately productive. Recruiting will attract many applicants from whom the company must select the best. The selection procedure can vary from a single informal interview to lengthy testing and interviewing. Many companies give formal tests to sales applicants. Tests typically measure sales aptitude, analytical and organizational skills, personality traits, and other characteristics. But test scores provide only one piece of information in a set that includes personal characteristics, references, past employment history, and interviewer reactions.

New salespeople may spend anywhere from a few weeks or months to a year or more in training. Then, most companies provide continuing sales training via seminars, sales meetings, and the Web throughout the salesperson's career. In all, U.S. companies spend more than $7 billion annually on training salespeople. Although training can be expensive, it can also yield dramatic returns. For example, one recent study showed that sales training conducted by a major telecommunications firm paid for itself in 16 days and resulted in a six-month return on investment of 812 percent. Similarly, Nabisco analyzed the return on its two-day Professional Selling Program, which teaches sales reps how to plan for and make professional presentations. Although it cost about $1,000 to put each sales rep through the program, the training resulted in additional sales of more than $122,000 per rep and yielded almost $21,000 of additional profit per rep.13 Training programs have several goals. First, salespeople need to know about customers and how to build relationships with them. So the training program must teach them about different types of customers and their needs, buying motives, and buying habits. And it must teach them how to sell effectively and train them in the basics of the selling process. Salespeople also need to know and identify with the company, its products, and its competitors. So an effective 'training progam teaches them about the company's objectives, organization, and chief products and markets and about the strategies of major competitors. Today, many companies are adding Web-based training to their sales training programs to cut training costs and make training more efficient. One recent study estimates that companies spend 40 cents of every sales training dollar on travel and lodging. Such costs can be greatly reduced through Web-based training. As a result, last year, companies did 33 percent of their corporate .training online, up from 24 percent two years earlier.14 Online training may range from simple text-based product information to Internet-based sales exercises that build sales skills to sophisticated simulations that re-create the dynamics of real-life sales calls. International Rectifier, a global manufacturer of power management semiconductors, has learned that using the Internet to train salespeople offers many advantages. To stay competitive in its complex, fast-changing industry, International Rectifier must continually retrain its sales and support people. For example, IR introduces an average of three or more major new products each month. For each new product, the company must coordinate and train hundreds of sales reps, internal sales staffers, field engineers, key executives, and independent inside sales reps across a variety of time zones in 17 locations around the world.

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El Training salespeople: International Rectifier created the online IR University to help keep its hundreds of global sales reps, internal sales staffers, and others trained on the constant stream of new products it introduces.

The answer: International Rectifier's online IR University, which provides timely training in advance of new product launches, along with ongoing training on other company and industry developments. The e-learning center provides enhanced presentations, complete with creative animation and streamlined text, to share knowledge accurately but in a way that excites and captures attention. The center also allows for "real-time" visual and audible communications with the presenter via live chat and conference calls. Beyond learning about new products, salespeople can refresh their memories and sharpen their knowledge on almost any topic before meeting with customers. And evaluation diagnostics help sales managers to identify the skill and knowledge levels of each individual salesperson for ongoing support and training. The sales force is thrilled about being able to "attend" training sessions at times convenient for them, without leaving their home offices. And online training results in significant cost savings. Approximately 500 IR sales and support people have completed more than 5,500 online courses during the past nine months. The cost? Just an estimated $12 per trainee per course. Compared to the costs associated with onsite baining, the online learning system has saved the company approximately $250,000 during the past year. In all, online training has reduced IR's training costs by 75 percent.15

Compensating Salespeople To attract good salespeople, a company must have an appealing compensation plan. Compensation is made up of several elements-a fixed amount, a variable amount, expenses, and fringe benefits. The fixed amount, usually a salary, gives the salesperson some stable income. The variable amount, which might be commissions or bonuses based on sales performance, rewards the salesperson for greater effort and success. Management must decide what mix of these compensation elements makes the most sense for each sales job. Different combinations of fixed and variable compensation give rise to four basic types of compensation plans-straight salary, straight commission, salary plus bonus, and salary plus commission. A study of sales force compensation plans showed that 70 percent of all companies surveyed use a combination of base salary and incentives. The average plan consisted of about 60 percent salary and 40 percent incentive pay.16 The sales force compensation plan can both motivate salespeople and direct their activities. Compensation should direct the sales force toward activities that are consistent with overall marketing objectives. Table 16.1 illustrates how a company's compensation plan should reflect its overall marketing strategy. For example, if the strategy is to grow rapidly and gain market share, the compensation plan might include a larger commission component, coupled with a new-account bonus to encourage high sales performance and new-account development. In contrast, if the goal is to maximize current account ~rofitability,the cornpensation plan might contain a larger base-salary component with additional incentives for current account sales or customer satisfaction.

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kE 16.1 The Relationship between Overall Marketing Strategy and Sales Force Compensation

1

Strategic Goal

i i

_

To Gain Market Share Rapidly -_

[ldeal;ai&erson

/

-_ An independent self-starter

To Solidify Market Leadership

_

0

-

A competitive problem solver e

I

sales focus

f Compensation role I i

Deal making . e Sustained high effort e To capture accounts e To reward high performance

0

To reward new and existing account sales

i -

- -..

1I

--.---4

i

A team player A relationship manager

i

Account penetration

Consultative selling

e

j

To Maximize Profitability

: To manage the product mix To encourage team selling e To reward account management 0 0

-- --

--------..------

---

Source: Adapted from Sam T. Johnson, "Sales Compensation: In Search of a Better Solution," Compensation & Benefits Review, November-December 1993, p. 52. Copyright O 1998 American Management Association, NY, www.amanet.org. All rights reserved, used with permission. In fact, more and more companies are moving away from high commission plans that may drive salespeople to make short-term grabs for business. They worry that a salesperson who is pushing too hard to close a deal may ruin the customer relationship. Instead, companies are designing compensation plans that reward salespeople for building customer relationships and growing the long-run value of each customer.

New salespeople need more than a territory, compensation, and training-they need supervision and motivation. The goal of supemision is to help salespeople "work smartJJby doing the right things in the right ways. The goal of motivation is to encourage salespeople to "work hard" and energetically toward sales force goals. If salespeople work smart and work hard, they will realize their full potential, to their own and the company's benefit. Companies vary in how closely they supervise their salespeople. Many help their salespeople to identify target customers and set call norms. Some may also specify how much time the sales force should spend prospecting for new accounts and set other time management priorities. One tool is the weekly, monthly, or annual call plan that shows which customers and prospects to call on and which activities to carry out. Another tool is time-and-duty analysis. In addition to time spent selling, the salesperson spends time traveling, waiting, taking breaks, and doing administrative chores. Figure 16.2 shows how salespeople spend their time. On average, active selling time accounts for only 10 percent of total working time! If selling time could be raised from 10 percent to 30 percent, this would triple the time spent selling.17 Companies always are looking for ways to save time-sirnpllfying record keep$g, finding better sales call and routing plans, supplying L ;

FS

16.2

How salespeople spend their time

Source: Proudfoot Consulting. Data used with permission.

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more and better customer information, and using phones, e-mail, or video conferencing instead of traveling. Consider the changes GE made to increase its sales force's face-to-face selling time.18 When Jeff Immelt became GE's new chairman, he was dismayed to find that members of the sales team were spending far more time on deskbound administrative chores than i n face-to-face meetings with customers and prospects. "He said we needed to turn that around," recalls Venki Rao, an IT leader in global sales and marketing at GE Power Systems, a division focused on energy systems and products. "[We need] to spend four days a week in front of the customer and one day for all the admin stuff." GE Power's salespeople spent much of their time at their desks because they had to go to many sources for the information needed to sell multimillion-dollar turbines, turbine parts, and services to energy companies worldwide. To fix the problem, GE created a new sales portal, a kind of "one-stop shop" for just about everything they need. The sales portal connects the vast array of existing GE databases, providing everything from sales tracking and customer data to parts pricing and information on planned outages. GE also added external data, such as news feeds. "Before, you were randomly searching for things," says Bill Snook, a GE sales manager. Now, he says, "I have the sales portal as my home page, and I use it as the gateway to all the applications that I have." The sales portal has freed Snook and 2,500 other users around the globe from once time-consuming administrative tasks, greatly increasing their face time with customers. Many firms have adopted sales force automation systems-computerized, digitized sales force operations that let salespeople work more effectively anytime, anywhere. Companies now routinely equip their salespeople with new-age technologies such as laptops, smart phones, wireless Web connections, Webcams for videoconferencing, and customer-contact and relationship management software. Armed with these technologies, salespeople can more effectively and efficiently profile customers and prospects, analyze and forecast sales, schedule sales calls, make presentations, prepare sales and Sales force automation: Many sales forces have gone high tech, equipping expense reports, and manage account relationsalespeople with everything from smart phones, wireless Web connections, and ships. The result is better time management, videoconferencing t o customer-contact and relationship management software that improved customer service, lower sales costs, helps them t o be more effective and efficient. and higher sales performance.lg Perhaps the fastest-growing technology tool is the Internet. The Internet offers explosive potential for conducting sales operations and for interacting with and serving'customers. More and more companies are now using the Internet to support their personal selling efforts-not just for selling, but for everything from training salespeople to conducting sales meetings and servicing accounts (see Real Marketing 16.2). Beyond directing salespeople, sales managers must also motivate them. Some salespeople will do their best without any special urging from management. To them, selling may be the most fascinating job in the world. But selling can also be frustrating. Salespeople often work alone and they must sometimes travel away born home. They may face aggressive competing salespeople and difficult customers. Therefore, salespeople often need special encouragement to do their best. Management can boost sales force morale and performance through its organizational climate, sales quotas, and positive incentives. Organizational climate describes the feeling that salespeople have about their opportunities, value, and rewards for a good performance. Some companies treat salespeople as if they are not very important, and performance suffers accordingly. Other companies treat their salespeople as valued contributors and allow virtually unlimited opportunity for income and promotion. ~ osurprisingly, t these companies enjoy higher sales force performance and less turnover.

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.,*?'.$ There are few rules at Fisher %;-?$ -,* - 35; Scientific International's sales

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training sessions. The chemical company's salespeople are allowed to show up for new workshops in their pajamas. And no one flinches if they stroll in at midnight for their first class, take a dozen breaks to call clients, or invite the family cat to sleep in their laps while they take an exam. Sound unorthodox? It would be if Fisher's salespeoplewere trained in a regular classroom. But for the past few years, the company has been using the Internet to teach the majority of its salespeople in the privacy of their homes, cars, hotel rooms, or wherever else they bring their laptops. To get updates on Fisher's pricing or refresh themselves on one of the company's highly technical products, all salespeople have to do is log on to the Web site and select Online selling support: Sales organizations around the world are now using a host of new Web from the lengthy index. Any time of the day or approaches to train reps, hold sales meetings, and even conduct live sales presentations. night, they can get information on a new product, take an exam, or post messages for After launching a new server line, NEC began looking for product experts-all without ever entering a corporate classroom. ways to cut down on difficult and costly sales force travel. Welcome to the world of the Web-based sales force. According to Dick Csaplar, marketing manager for the new Sales organizations around the world are now saving money and server line, NEC's old sales approach-traveling to customer time by using a host of Web approaches to train reps, hold sales meetsites to pitch NEC products-had become unworkable. ings, and even conduct live sales presentations. Fisher Scientific's reps can dial up the Web site at their leisure, and whereas newer reps might Instead, NEC adopted a new Web-based sales approach. Although the initial goal was to cut costs and keep people off spend hours online going through each session in order, more seaairplanes, Web selling has now grown into an intrinsic part of soned sellers might just log on for a quick refresher on a specific product before a sales call. "It allows them to manage their time better, NEC's sales efforts. Web selling certainly does reduce travel because they're only getting training when they need it, in the doses time and costs. Whereas the average daily cost of salesperson travel is $663, an hour-long Web conference costs just they need it in," says John Pavlik, director of the company's training department. If salespeople are spending less time on training, Pavlik $60. But more importantly, Web selling lets sales reps meet with more prospective customers than ever before, creating says, they're able to spend more time on what they do best: selling. Training is only one of the ways sales organizations are using the a more efficient and effective sales organization. Csaplar Internet. Many companies are using the Web to make sales presenestimates that he's doing 10 customer Web conferences a tations and service accounts. For example, computer and communiweek, during which he and his sales team show prospects cations equipment maker NEC Corporation has adopted Web-based product features and benefits. Customers love it because selling as an essential marketing tool. they get a clear understanding of NEC's technology without

Sales quota A standard that states the amount a salesperson should sell and how sales should be divided among the company's products.

M a n y companies motivate their salespeople b y setting sales quotas-standards stating the amount they should sell and h o w sales should be d i v i d e d among the company's products. Compensation i s often related to h o w w e l l salespeople meet their quotas. Companies also use various positive incentives t o increase sales force effort. Sales meetings provide social occasions, breaks f r o m routine, chances to meet and talk w i t h "company brass," and opportunities to air feelings and to identify w i t h a larger group. Companies also sponsor sales contests to spur the sales force to make a selling effort above what w o u l d normally be expected. Other incentives include honors, merchandise and cash awards, trips, and profit-sharing plans. In all, American companies spend some $100 b i l l i o n a year o n incentive programs t o motivate a n d r e w a r d sales-force p e r f o r m a n ~ e . ~ ~

We have thus far described h o w management communicates w h a t salespeople s h o u l d b e doing a n d h o w it motivates them t o d o it. T h i s process requires good feedback. A n d good feedback means getting regular information about salespeople to evaluate their performance.

Chapter 16 Personal Selling and Sales Promotion

having to host the NEC team on-site. And Csaplar was pleased to find that Web-based selling is an effective way to interact with customers and to build customer relationships. "By the time we're done with the Web-cast, the customer understands the technology, the pricing, and the competition, and we understand the customer's business and needs," he says. Without Web-casts, "we'd be lost on how to communicate with the customer without spending a lot of money," says Csaplar. "I don't see us ever going back to the heavy travel thing." The Web can be a good channel tool for selling to hard-to-reach customers. For example, the big US. pharmaceutical companies currently employ some 87,000 sales reps (often called "detailers") to reach roughly 600,000 practicing physicians. However, these reps are finding it harder than ever to get through to the busy doctors. "Doctors need immense amounts of medical information, but their patient loads limit their ability to see pharmaceutical reps or attend outside conferences," says an industry researcher. The answer: Increasingly, it's the Web. The pharmaceutical companies now regularly use product Web sites, e-mail marketing, and video conferencing to help reps deliver useful information to physicians on their home or office PCs. One study found that last year more than 200,000 physicians participated in "e-detailing1'-the process of receiving drug marketing information via the Web-a 400 percent jump in only three years. Using direct-todoctor Web conferences, companies can make live, interactive medical presentations to any physician with a PC and Web access, saving both the customer's and the rep's time. The Internet can also be a handy way to hold sales strategy meetings. Consider Cisco Systems, which provides networking solutions for the Internet. Sales meetings used to take an enormous bite out of Cisco's travel budget. Now the company saves about $1 million per month by conducting many of those sessions on the Web. Whenever Cisco introduces a new product, it holds a Web meeting to update salespeople, in groups of one hundred or more, on the product's marketing and sales strategy. Usually led by the product manager or a vice president of sales, the meetings typically begin with a 10-minute slide presentation that spells out the planned strategy. Then, salespeople spend the next 50 or so minutes asking questions via teleconference. The meeting's leader can direct attendees' browsers to competitors'

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Web sites or ask them to vote on certain issues by using the software's instant polling feature. "Our salespeople are actually meeting more online then they ever were face to face," says Mike Mitchell, Cisco's distance learning manager, adding that some salespeople who used to meet with other reps and managers only a few times a quarter are meeting online nearly every day. "That's very empowering for the sales force, because they're able to make suggestions at every step of the way about where we're going with our sales and marketing strategies." Thus, Web-based technologies can produce big organizational benefits for sales forces. They help conserve salespeople's valuable time, save travel dollars, and give salespeople a new vehicle for selling and servicing accounts. But the technologies also have some drawbacks. For starters, they're not cheap. And such systems can intimidate low-tech salespeople or clients. "As simple as it is, if your salespeople or clients aren't comfortable using the Web, you're wasting your money," says one marketing communications manager. Also, Web tools are susceptible to server crashes and other network difficulties, not a happy event when you're in the midst of an important sales meeting or presentation. For these reasons, some high-tech experts recommend that sales executives use Web technologies for training, sales meetings, and preliminary client sales presentations, but resort to old-fashioned, face-to-face meetings when the time draws near to close the deal. "When push comes to shove, if you've got an account worth closing, you're still going to get on that plane and see the client in person," says sales consultant Sloane. "Your client is going to want to look you in the eye before buying anything from you, and that's still one thing you just can't do online." Sources: Portions adapted from Tom Kontzer, "Web Conferencing Embraced," Information Week, May 26, 2003, pp. 68-70; Melinda Ligos, "Point, Click, and Sell," Sales & Marketing Management, May 1999, pp. 51-55; and Rich Thornaselli, "Pharma Replacing Reps," Adven'isingAge, January 2005, p. 50. Also see Daniel Tynan, "Next Best Thing to Being There," Sales & Marketing Management, April 2004, p. 22; Judith Lamont, "Collaboration: Web Conferencing Spans the Distance," KM World, June 2005, pp. 16-18; and Rebecca Azronauer, "Looking Good," Sales & Marketing Management, April 2006, pp. 41-44.

Management gets information about its salespeople in several ways. The most important source i s sales reports, i n c l u d i n g weekly or m o n t h l y w o r k plans a n d longer-term territory marketing plans. Salespeople also write up their completed activities o n c a l l reports and t u r n in expense reports for w h i c h they are partly or w h o l l y repaid. The company can also monitor the sales and profit performance o f the salesperson's territory. A d d i t i o n a l information comes from personal observation, customer surveys, and talks w i t h other salespeople. U s i n g various sales force reports a n d other information, sales management evaluates members o f the sales force. It evaluates salespeople o n their ability to "plan their w o r k and w o r k their plan." Formal evaluation forces management to develop and communicate clear standards for judging performance. It also provides salespeople w i t h constructive feedback and motivates t h e m to perform well. O n a broader level, management should evaluate the performance o f the sales force as a whole. I s the sales force accomplishing its customer relationship, sales, and profit objectives? I s i t w o r k i n g w e l l w i t h other areas of the marketing and company organization? A r e salesforce costs in l i n e w i t h outcomes? A s w i t h other marketing activities, the company wants t o measure its r e t u r n o n sales i ~ v e s t m e n t . ~ ~

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Selling process The steps that the salesperson follows when selling, which include prospectingand qualifying, preapproach, approach, presentation and demonstration, handling objections, closing, and follow-up.

Prospecting The step in the selling process in which the salesperson identifies qualified potential customers

We now turn from designing and managing a sales force to the actual personal selling process. The selling process consists of several steps that the salesperson must master. These steps focus on the goal of getting new customers and obtaining orders from them. However, most salespeople spend much of their time maintaining existing accounts and building long-term customer relationships. We discuss the relationship aspect of the personal selling process in a later section.

Steps in the elling Process As shown in Figure 16.3, the selling process consists of seven steps: prospecting and qualifying, preapproach, approach, presentation and demonstration, handling objections, closing, and follow-up.

The first step in the selling process is prospecting-identifying qualified potential customers. Approaching the right potential customers is crucial to selling success. As one expert puts it: "If the sales force starts chasing anyone who is breathing and seems to have a budget, you risk accumulating a roster of expensive-to-serve, hard-to-satisfy customers who never respond to whatever value proposition you have." He continues, "The solution to this isn't rocket science. [You must] train salespeople to actively scout the right prospects." Another expert concludes: "Increasing your prospecting effectiveness is the fastest single way to boost your sales."22 The salesperson must often approach many prospects to get just a few sales. Although the company supplies some leads, salespeople need skill in finding their own. The best source is referrals. Salespeople can ask current customers for referrals and cultivate other referral sources, such as suppliers, dealers, noncompeting salespeople, and bankers. They can also search for prospects in directories or on the Web and track down leads using the telephone and direct mail. Or they can drop in unannounced on various offices (a practice known as "cold calling"). Salespeople also need io know how to qualify leads-that is, how to identify the good ones and screen out the poor ones. Prospects can be qualified by looking at their financial ability, volume of business, special needs, location, and possibilities for growth.

Preapprosch Preapproach The step in the selling process in which the salesperson learns as much as possible about a prospective customer before making a sales call.

Approach The step in the selling process in which the salesperson meets the customer for the first time.

Major steps in effective selling

Before calling on a prospect, the salesperson should learn as much as possible about the organization (what it needs, who is involved in the buying) and its buyers (their characteristics and buying styles). This step is known as the preapproach. The salesperson can consult standard industry and online sources, acquaintances, and others to learn about the company. The salesperson should set call objectives, which may be to qualify the prospect, to gather information, or to make an immediate sale. Another task is to decide on the best approach, which might be a personal visit, a phone call, or a letter. The best timing should be considered carefully because many prospects are busiest at certain times. Finally, the salesperson should give thought to an overall sales &ratw for the account.

Jqqr~a& During the approach step, the salesperson should know how to meet and greet the buyer and get the relationship off to a good start. This step involves the salesperson's appearance,

and qualifying

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opening lines, and the follow-up remarks. The opening lines should be positive to build goodwill from the beginning of the relationship. This opening might be followed by some key questions to learn more about the customer's needs or by showing a display or sample to attract the buyer's attention and curiosity. As in all stages of the selling process, listening to the customer is crucial.

Presentation The step in the selling process in which the salesperson tells the "product story" to the buyer, highlighting customer benefits.

During the presentation step of the selling process, the salesperson tells the product "story" to the buyer, presenting customer benefits and showing how the product solves the customer's problems. The problem-solver salesperson fits better with today's marketing concept than does a hard-sell salesperson or the glad-handing extrovert. Buyers today want solutions, not smiles; results, not razzle-dazzle. They want salespeople who listen to their concerns, understand their needs, and respond with the right products and services. This need-satisfaction approach calls for good listening and problem-solving skills. A recent study revealed that 74 percent of 200 purchasers surveyed at companies nationwide said they would be much more likely to buy from a salesperson if the seller would simply listen to them. "To me, sales is listening to customers, finding out what they want, finding out what their concerns are, and then trying to fill them," notes one experienced salesperson. "It's no longer enough to have a good relationship with a client," says another. "You have to understand their problems. You have to feel their pain. "z3 The qualities that buyers dislike most in salespeople include being pushy, late, deceitful, and unprepared or disorganized. The qualities they value most include good listening, empathy, honesty, dependability, thoroughness, and follow-through. Great salespeople know how to sell, but more importantly they know how to listen and to build strong customer relationships. Says one professional, "Salespeople must have the right answers, certainly, but they also have to learn how to ask those questions and listen."24 Today, advanced presentation technologies allow for full multimedia presentations to only one or a few people. CDs and DVDs, online presentation technologies, and handheld and laptop computers with presentation software have replaced the flip chart. Here's an example:25

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Today's advanced presentation technologies allow for full multimedia presentations to only one or a few people. Online presentation technologies and hand-held and laptop computers with presentation software, such as Gateway's Convertible Notebook, have replaced the old flip chart.

Tina Cox, a technical trainer for Analytical Graphics, a company that produces integrated land, sea, and air analysis software, uses Interwrite software and it's integrated wireless tabletand-pen capabilities to teach new and potential customers how to use the company's products. Just like TV football commentator John Madden, she writes on her prepared screens during the presentation. She draws on freeze-frame images, just as Madden often does when he directs viewers to the significant elements of the previous football play with his trademark squiggly lines. Cox uses her tablet and pen'to show her clients the key elements of the slides. If customers ever lose a thread of her sales presentation, they can easily check the information she circled and almost immediately get back on track. Cox believes the technology greatly enhances her presentations, both Web-based and in person, and customers agree.

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Handling objections The step in the selling process in which the salesperson seeks out, clarifies, and overcomes customer objections to buying. Closing The step in the selling process in which the salesperson asks the customer for an order.

Customers almost always have objections during the presentation or when asked to place an order. The problem can be either logical or psychological, and objections are often unspoken. In handling objections, the salesperson should use a positive approach, seek out hidden objections, ask the buyer to clarify any objections, take objections as opportunities to provide more information, and turn the objections into reasons for buying. Every salesperson needs training in the skills of handling objections.

After handling the prospect's objections, the salesperson now tries to close the sale. Some salespeople do not get around to closing or do not handle it well. They may lack confidence, feel guilty about asking for the order, or fail to recognize the right moment to close the sale. Salespeople should know how to recognize closing signals fkom the buyer, including physical actions, comments, and questions. For example, the customer might sit forward and nod approvingly or ask about prices and credit terms. Salespeople can use one of several closing techniques. They can ask for the order, review points of agreement, offer to help write up the order, ask whether the buyer wants this model or that one, or note that the buyer will lose out if the order is not placed now. The salesperson may offer the buyer special reasons to close, such as a lower price or an extra quantity at no charge.

&'&@~J-,-QQ Follow-up The last step in the selling process in which the salesperson follows up after the sale to ensure customer satisfaction and repeat business.

The last step in the selling process-follow-up-is necessary if the salesperson wants to ensure customer satisfaction and repeat business. Right after closing, the salesperson should complete any details on delivery time, purchase terms, and other matters. The salesperson then should schedule a follow-up call when the initial order is received, to make sure there is proper installation, instruction, and servicing. This visit would reveal any problems, assure the buyer of the salesperson's interest, and reduce any buyer concerns that might have arisen since the sale.

The steps in the selling process as just described are transaction oriented-their aim is to help salespeople close a specific sale with a customer. But in most cases, the company is not simply seeking a sale: It has targeted a major customer that it would like to win and keep. The company would like to show that it has the capabilities to serve the customer over the long haul in a mutually profitable relationship. The sales force usually plays an important role in building and managing profitable customer relationships. Today's large customers favor suppliers who can sell and deliver a coordinated set of products and services to many locations, and who can work closely with customer teams to improve products and processes. For these customers, the first sale is only the beginning of the relationship. Unfortunately, some companies ignore these relationship realities; They sell their products through separate sales forces, each working independently to close sales. Their technical people may not be to lend time to educate a customer. Their engineering, design, and manufacturing people may have the attitude that "it's our job to make good products and the salesperson's job to sell them to customers." Their salespeople focus on pushing products toward customers rather than listening to customers and providing solutions. Other companies, however, recognize that winning and keeping accounts requires more than making good products and directing the sales force to close lots of sales. It requires listening to customers, understanding their needs, and carefully coordinating the whole company's efforts to create customer value and to build lasting relationships.

Sales promotion Short-term incentives to encourage the purchase or sale of a product or service.

Personal selling and advertising often work closely with another promotion tool, sales promotion. Sales promotion consists of short-term incentives to encourage purchase or sales of a product or service. Whereas advertising offers reasons to buy a product or service, sales promotion offers reasons to buy now. Examples of sales promotions are found everywhere. A freestanding insert in the Sunday newspaper contains a coupon offering $1off Folgers coffee. An e-mail fkom EddieBauer.com

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offers free shipping on your next purchase over $100. The end-of-the-aisle display in the local supermarket tempts impulse buyers with a wall of Coke cases. An executive buys a new Sony laptop and gets a free carrying case, or a family buys a new Explorer and receives a factory rebate of $1,000. A hardware store chain receives a 10 percent discount on selected Black & Decker ort table power tools if it agrees to advertise them in local newspapers. Sales promotion includes a wide variety of promotion tools designed to stimulate earlier or stronger market response.

Rapid Growth of Sales Promotion Sales promotion tools are used by most organizations, including manufacturers, distributors, retailers, and not-for-profit institutions. They are targeted toward final buyers (consumerpromotions), retailers and wholesalers (trade promotions), business customers (business promotions), and members of the sales force (sales force promotions). Today, i n the average consumer packaged-goods company, sales promotion accounts for 74 percent of all marketing

expenditure^.^^ Several factors have contributed to the rapid growth of sales promotion, particularly in consumer~markets.First, inside the company, product managers face greater pressures to increase their current sales, and promotion is viewed as an effective short-run sales tool. Second, externally, the company faces more competition and competing brands are less differentiated. Increasingly, competitors are using sales promotion to help differentiate their offers. Third, advertising efficiency has declined because of rising costs, media clutter, and legal restraints. Finally, consumers have become more deal oriented, and ever-larger retailers are demanding more deals from manufacturers. The growing use of sales promotion has resulted in promotion clutter, similar to advertising clutter. Consumers are increasingly tuning out promotions, weakening their ability to trigger immediate purchase. Manufacturers are now searching for ways to rise above the clutter, such as offering larger coupon values or creating more dramatic point-of-purchase displays. In developing a sales promotion program, a company must first set sales, promotion objectives and then select the best tools for accomplishing these objectives.

Sales promotion objectives vary widely. Sellers may use consumer promotions to urge shortterm customer buying or to enhance long-term customer relationships. Objectives for trade promotions include getting retailers to carry new items and more inventory, buy ahead, or advertise the company's products and give them more shelf space. For the sales force, objectives include getting more sales force support for current or new products or getting salespeople to sign up new accounts. Sales promotions are usually used together with advertising, personal selling, or other promotion mix tools. Consumer promotions must usually be advertised and can add excitement and pulling power to ads. Trade and sales force promotions support the firm's personal selling process. In general, rather than creating only short-term sales or temporary brand switching, sales promotions should help to reinforce the product's position and build long-term customer relationships. If properly designed, every sales promotion tool has the potential to build both shortterm excitement and long-term consumer relationships. Increasingly, marketers are avoiding "quick fix," price-only promotions in favor of promotions designed to build brand equity. Examples include all of the "frequency marketing programs" and loyalty clubs that have mushroomed in recent years. Most hotels, supermarkets, and airlines now offer frequentguest/buyer/flyer programs offering rewards to regular customers. For example, Cendant, which owns hotel chains such as Ramada, Days Inn, Travelodge, Howard Johnson, and Super 8, offers a loyalty program called TripRewards, a program that targets its core market of notso-frequent leisure travelers. In designing its TripRewards loyalty program, Cendant knew that Ramada, Days Inn, Travelodge, and the rest of its lodging family could not out-Marriott Marriott Rewards or duplicate the elite tiers of Starwood Preferred Guest. Cendant caters to more budget-minded leisure travelers who venture out on a half dozen trips or fewer annually. Unlike frequent business travelers, these folks don't travel enough to take advantage of most travel loyalty programs. So Cendant put together a network of TripRewards retailers that lets members earn points with everyday purchases. TripRewards members can earn points for purchases at retailers ranging from J.C. Penney and Best Buy to FTD Florists and CheapTickets.com.

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Cendant's "It's fun to get more" ad campaign plays up the fun of getting a bonus from everyday shopping transactions. TripRewards' low redemption threshold (as low as 65,000 points for a week-long resort stay versus Marriott Rewards' 140,000) means that Cendant can win the patronage of consumers who would otherwise be decades away from earning anything in a competing program. The TripRewards program drew 2.8 million members in its first eight months, 60 percent of them first-time Cendant hotel customers. It's attracting younger and more affluent consumers with higher average room rates and longer stays-and it keeps them coming back. "They're going to be repeat business," says the manager of one Cendant hotel. "The points add up pretty quick, [and] once we get i you don't have to pay f ~ r . - , . , - , ~ ~ ~ ~ ~ ~ [guests]through the . . . door, they're not going back to H i l t ~ n . " ~ ~

ajor Sales Fro Many tools can be used to accomplish sales promotion objectives. Descriptions of the main consumer, trade, and business promotion tools follow.

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Customer-relationship building promotions: Cendant's TripRewards program makes frequent customers out of not-so-frequent leisure travelers. "It's fun to get more."

Consumer promotion tools Sales promotion tools used to urge short-term customer buying or to enhance longterm customer relationships.

The main consumer promotion tools include samples, coupons, cash refunds, price packs, premiums, advertising specialties, patronage rewards, point-of-purchase displays and demonstrations, and contests, sweepstakes, and games. Samples are offers of a trial amount of a product. Sampling is the most effective-but most expensive-way to introduce a new product or to create new excitement for an existing one. Some samples are free; for others, the company charges a small amount to offset its cost. The sample might be delivered door-to-door, sent by mail, handed out in a store, attached to another product, or featured in an ad. Sometimes, samples are combined into sample packs, which can then be used to promote other products and services. Sampling can be a powerful promotional tool. Consider this example:

Fisherman's Friend throat lozenges used sampling as the centerpiece of a very successful brand-building program. It began by passing out 250,000 samples of its lozenges at more than 25 fairs, sporting events, and other happenings where it was a sponsor. Each sample contained an invitation to visit the Fisherman's Friend Web site, where customers could enter a contest to win a IvfIN'I Cooper by submitting a slogan to be used in the future "Tell a Friend" (about Fisherman's Friend) ad campaign. The sampling promotion was a complete success. U.S. sales of Fisheman's Friend lozenges grew 115 percent for the year, 25 percent better than expectations. Some 5,000people submitted a slogan for the company's new ad campaign. The winner and proud owner of a new MINI Cooper-Shirley Tucker of Pittsburgh-suggested the slogan, "Lose a Cough. Gain a Friend," which is now featured in ads and on the Web site. The successful sampling campaign continues via the company's Web site, which invites consumers to sign themselves and a friend up to receive free samples of Fisherman's Friend in the Coupons are certificates that give buyers a saving when they purchase specified products. Most consumers love coupons. U.S. companies distributed 323 billion coupons last year with an average face value of $1.16. Consumers redeemed more than 3 billion of them for a total savings of about $3.47 billion.29Coupons can promote early trial of a new brand or stimulate sales of a mature brand. However, as a result of coupon clutter, redemption rates have been declining in recent years. Thus, most major consumer goods companies are issuing fewer coupons and targeting them more carefully. Marketers are also cultivating new outlets for distributing coupons, such as supermarket shelf dispensers, electronic point-of-sale coupon printers, e-mail and online media, or even text-messaging systems. For example, text-message couponing is popular in Europe, India,

Chapter 16 Personal Selling and Sales Promotion

New forms of coupons: Text message couponing is gaining popularity. At the University of South Florida, local businesses can blast out text message coupons directly to interested students' cell phones via the university's MoBull Plus system.

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and Japan, and it's slowly gaining popularity in the United States. American Express recently launched Mobile Offers, which sends willing cardholders "coupons" from local merchants via text messages to cell phones. And at the University of South Florida, local businesses can: send out text message coupons directly to interested students' cell phones via the university's MoBull Messenger system. For instance, if a local pizza place is having a slow night, it can log in and blast out a two-for-one pizza coupon to students who have ~ p t e d - i n . ~ ~ Cash refunds (or rebates) are like coupons except that the price reduction occurs after the purchase rather than at the retail outlet. The consumer sends a "proof of purchase" to the manufacturer, who then refunds part of the purchase price by mail. For example, Toro ran a clever preseason promotion on some of its snowblower models, offering a rebate if the snowfall in the buyer's market area turned out to be below average. Competitors were not able to match this offer on such short notice, and the promotion was very successful. Price packs (also called cents-ofldeals) offer consumers savings off the regular price of a product. The producer marks the reduced prices directly on the label or package. Price packs can be single packages sold at a reduced price (such as two for the price of one) or two related products banded together (such as a toothbrush and toothpaste). Price packs are very effective-even more so than coupons-in stimulating short-term sales. Premiums are goods offered either free or at low cost as an incentive to buy a product, ranging from toys included with kids' products to phone cards and DVDs. A premium may come inside the package (in-pack), outside the package (on-pack), or through the mail. Kellogg often incorporates premiums with its cereals and related products. For instance, it recently offered a free Cars racer, based on characters &om the Disney/Pixar movie, inside specially marked boxes of Apple Jacks. And buyers of Kellogg Frosted Flakes Cereal & Milk Bars could buy an Ice Age II: The Meltdown pop-up tent by mailing in two UPC symbols along with a check for $9.99. Advertising specialties, also called promotional products, are useful articles imprinted with an advertiser's name, logo, or message that are given as gifts to consumers. ~ y p i c aitems l include T-shirts and other apparel, pens, coffee mugs, calendars, key rings, mouse pads, matches, tote bags, coolers, golf balls, and caps. US. marketers spent more than $18 billion on advertising specialties last year. Such items can be very effective. The "best of them stick

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Designing a Customer-Driven Marketing Strategy and Integrated Marketing Mix around for months, subtly burning a brand name into a user's brain," notes a promotional products expert. In a recent study, 71 percent of all consumers surveyed had received at least one promotional in the past 12 months. Seventy-six percent of those were able to recall the advertiser's name on the promotional product they received, compared to only 53.5 percent who could recall the name of advertiser in a print publication they had read in the past week.31 Patronage rewards are cash or other awards offered for the regular use of a certain company's products or services. For example, airlines offer frequent flier plans, awarding points for miles traveled that can be turned in for free airline trips. And supermarkets issue frequent shopper cards that dole out a wealth of discounts at the checkout. Office Depot offers fiequentpurchase awards-using its Worklife Rewards card, customers who spend at least $200 at Office Depot in three months earn gift cards worth up to $50 that can be used toward future purchases. Point-of-purchase (POP) promotions include displays and demonstrations that take place at the point of sale. Think of your last visit to the local Safeway, Costco, CVS, or Bed Bath & Beyond. Chances are good that you were tripping over aisle displays, promotional signs, "shelf talkers," or demonstrators offering free tastes of featured food products. Unfortunately, many retailers do not like to handle the hundreds of displays, signs, and posters they receive from manufacturers each year. Manufacturers have responded by offering better POP materials, offering to set them up, and tying them in with television, print, or online messages. Contests, sweepstakes, and games give consumers the chance to win something, such as cash, trips, or goods, by luck or through extra effort. A contest calls for consumers to submit an entry-a jingle, guess, suggestion-to be judged by a panel that will select the best entries. A sweepstakes calls for consumers to submit their names for a drawing. A game presents consumers with something-bingo numbers, missing letters-every time they buy, which may or may not help them win a prize. A sales contest urges dealers or the sales force to increase their efforts, with prizes going to the top performers.

Trade promotion tools Sales promotion tools used to persuade resellers to carry a brand, give it shelf space, promote it in advertising, and push it to consumers.

Business promotion tools Sales promotion tools used to generate business leads, stimulate purchases, reward customers, and motivate salespeople.

Manufacturers direct more sales promotion dollars toward retailers and wholesalers (78 percent) than to final consumers (22 percent).32Trade promotion tools can persuade resellers to carry a brand, give it shelf space, promote it in advertising, and push it to consumers. Shelf space is so scarce these days that manufacturers often have to offer price-offs, allowances, buy-back guarantees, or free goods to retailers and wholesalers to get products on the shelf and, once there, to keep them on it. Manufacturers use several trade promotion tools. Many of the tools used for consumer promotions-contests, premiums, displays-can also be used as trade promotions. Or the manufacturer may offer a straight discount off the list price on each case purchased during a stated period of time (also called a price-ofjc, off-invoice, or off-list). Manufacturers also may offer an allowance (usually so much off per case) in return for the retailer's agreement to feature the manufacturer's products in some way. An advertising allowance compensates retailers for advertising the product. A display allowance compensates them for using special displays. Manufacturers may offer free goods, which are extra cases of merchandise, to resellers who buy a certain quantity or who feature a certain flavor or size. They may offer push money-cash or gifts to dealers or their sales forces to "push" the manufacturer's goods. Manufacturers may give retailers free specialty advertising items that carry the company's name, such as pens, pencils, calendars, paperweights, matchbooks, memo pads, and yardsticks.

Companies spend billions of dollars each year on promotion to industrial customers. Business promotion tools are used to generate business leads, stimulate purchases, reward customers, and motivate salespeople. Business promotion includes many of the same tools used for consumer or trade promotions. Here, we focus on two additional major business promotion tools-conventions and trade shows, and sales contests. Many companies and trade associations organize conventions and trade shows to promote their products. Firms selling to the industry show their products at the trade show. . Vendors receive many benefits, such as opportunities to find new sales leads, contact customers, introduce new products, meet new customers, sell more to present customers, and educate customers with publications and audiovisual materials. Trade shows also help companies reach many prospects not reached through their sales forces. Some trade shows are huge. For example, at this year's International Consumer Electronics Show, 2,500 exhibitors attracted more than 150,000 professional visitors. Even more impressive, at the BAUMA mining and construction equipment trade show in Munich, Germany, some

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2,800 exhibitors from 47 countries presented their latest product innovations to more than 416,000 attendees from 1 7 1 countries.33 A sales contest is a contest for salespeople or dealers to motivate them to increase their sales performance over a given period. Sales contests motivate and recognize good company performers, who may receive trips, cash prizes, or other gifts. Some companies award points for performance, which the receiver can turn in for any of a variety of prizes. Sales contests work best when they are tied to measurable and achievable sales objectives (such as finding new accounts, reviving old accounts, or increasing account profitability).

B Some trade shows are huge. At this year's International Consumer Electronics Show, 2,500 exhibitors attracted more than 150,000 professional visitors.

Beyond selecting the types of promotions to use, marketers must make several other decisions in designing the full sales promotion program. First, they must decide on the size of the incentive. A certain minimum incentive is necessary if the promotion is to succeed; a larger incentive will produce more sales response. The marketer also must set conditions for participation. Incentives might be offered to everyone or only to select groups. Marketers must decide how to promote and distribute the promotion program itself. A $&off coupon could be given out in a package, at the store, via the Internet, or in an advertisement. Each distribution method involves a different level of reach and cost. Increasingly, marketers are blending several media formats into a total campaign concept. The length ofthe promotion is also important. If the sales promotion period is too short, many prospects (who may not be buying during that time) will miss it. If the promotion runs too long, the deal wilI lose some of its "act now" force. Evaluation is also very important. Many companies fail to evaluate their sales promotion programs, and others evaluate them only superficially. Yet marketers should work to measure the returns on their sales promotion investments, just as they should seek to assess the returns on other marketing activities. The most common evaluation method is to compare sales before, during, and after a promotion. Marketers should ask: Did the promotion attract new customers or more purchasing from current customers? Can we hold onto these new customers and purchases? Will the long-run customer relationship and sales gains from the promotion justify its costs? Clearly, sales promotion plays an important role in the total promotion mix. To use it well, the marketer must define the sales promotion objectives, select the best tools, design the sales promotion program, implement the program, and evaluate the results. Moreover, sales promotion must be coordinated carefully with other promotion mix elements within the overall integrated marketing communications program.

This chapter is the third of four chapters covering the final marketing mix element-promotion. The two previous chapters dealt with overall integrated marketing communications and with advertising and public relations. This one investigates personal selling and sales promotion. Personal selling is the interpersonal arm of the communications mix. Sales promotion consists of short-term incentives to encourage the purchase or sale of a product or service. 1. Discuss the role of a company's salespeople in creating value for cus. tomers and building customer relationships.

Most companies use salespeople, and many companies assign them an important role in the marketing mix. For companies selling busi-

ness products, the firm's salespeople work directly with customers. Often, the sales force is the customer's only direct contact with the company and therefore may be viewed by customers as representing the company itself. In contrast,for consumer product companies that sell through intermediaries,consumers usually do not meet salespeople or even know about them. The sales force works behind the scenes, dealing with wholesalers and retailers to obtain their support and helping them become effectivein selling the firm's products. As an element of the promotion mix, the sales force is very effective in achieving certain marketing objectives and carrying out such activities as prospecting, communicating, selling and servicing, and information gathering. But with companies becoming more market

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oriented, a customer-focused sales force also works to produce both customer satisfaction and company profit. The sales force plays a key role in developing and managing profitable customer relationships.

because they must make many decisions and face many frustrations. Periodically, the company must evaluate their performance to help them do a better job. In evaluatingsalespeople, the company relies on getting regular information gathered through sales reports, personal observations, customers' letters and complaints, customer surveys, and conversations with other salespeople.

2. Identify and explain the six major sales force management steps. High sales force costs necessitate an effective sales management process consisting of six steps: designing sales force strategy and structure, recruiting and selecting, training, compensating, supervising, and evaluating salespeople and sales force performance. In designing a sales force, sales management must address strategy issues such as what type of sales force structure will work best (territorial, product, customer, or complexcstructure); how large the sales force should be; who will be involved in the selling effort; and how its various sales and sales support people will work together (inside or outside sales forces and team selling). To hold down the high costs of hiring the wrong people, salespeople must be recruited and selected carefully. In recruiting salespeople, a company may look to job duties and the characteristics of its most successful salespeople to suggest the traits it wants in its salespeople. It must then look for applicants through recommendations of current salespeople, employment agencies, classified ads, and the Internet and by contacting college students. In the selection process, the procedure can vary from a single informal interview to lengthy testing and interviewing. After the selection process is complete, training programs familiarize new salespeople not only with the art of selling but also with the company's history, its products and policies, and the characteristics of its market and competitors. The sales force compensation system helps to reward, motivate, and direct salespeople. In compensating salespeople, companies try to have an appealing plan, usually close to the going rate for the type of sales job and needed skills. In addition to compensation, all salespeople need supervision, and many need continuous encouragement

4. Explain how sales promotion campaigns are developed and implemented. Sales promotion campaigns call for setting sales promotions objectives (in general, sales promotions should be consumer relationship building); selecting tools; and developing and implementing the sales promotion program by using consumer promotion tools (coupons, cash refund offers, price packs, premiums, advertising specialties, patronage rewards, point-of-purchase promotions, and contests, sweepstakes, and games), trade promotion tools (discounts, allowances, free goods, and push money), and business promotion tools (conventions, trade shows, and sales contests) as well as deciding on such things as the size of the incentive, the conditions for participation, how to promote and distribute the promotion package, and the length of the promotion. After this process is completed, the company evaluates it sales promotion results.

Approach 466 Business promotion tools 472 Closing 468 Consumer promotion tools 470 Customer sales force structure 454

Presentation 467 Product sales force structure 454 Prospecting 466 Sales force management 454 Sales promotion 468 Sales quota 464

Follow-up 468 Handling objections 468 Inside sales force 457 Outside sales force (or field sales force) 457 Personal selling 452 Preapproach 466

3. Discuss the personal selling process, distinguishingbetween transactionoriented marketing and relationship marketing. The art of selling involves a seven-step selling process: prospecting and qualieing, preapproach, approach, presentationand demonstration, handling objections, closing, and follow-up. These steps he1p marketers close a specific sale and as such are transaction oriented. However, a seller's dealings with customers should be guided by the larger concept of relationship marketing. The company's sales force should help to orchestrate a whole-company effort to develop profitable long-term relationships with key customers based on superior -customervalue and satisfaction.

Salesperson 453 Selling process 466 Team selling 458 Territorial sales force structure 454 Trade promotion tools 472

Discussing the Conceppats 1. According to the chapter, salespeople serve "two masters." What does this mean? Is it a good or bad thing?

2. The chapter states that the ability to build relationships with customers is the most important of a salesperson's key talents. Do you agree? Explain. 3. DuPont sells thousands of industrial and consumer products throughout the world. It serves industries as diverse as aerospace, agriculture, and health care. Describe how DuPont can best structure its sales force. 4. A start-up manufacturer of low-carbohydrate muffins wants to sell its product in supermarkets all along the East Coast. It has identified

400 large supermarket chains and 100 smaller chains. The large supermarket chains will require 30 calls per year and the smaller stores 10 calls per year. An average salesperson can make 1,000 calls per year. Using the workload approach for setting sales force size, how many salespeople will this manufacturer need? 5. What are the main differences between sales promotion and advertising? 6. Explain why there has been rapid growth in the use of sales promotions.

Chapter 16

1. Who in your class would make a good salesperson?Why? 2. Work in pairs to describe the stages in the selling process for a small Minneapolis company that sells cleaning services to owners of small businesses, such as hair salons, dentists' offices, and clothing stores. Role-play the actual selling process, from approach to close, with one team member acting as the salesperson. The other mem-

High-level salespeople need sophisticated tools to perform more effectively, especially when on the road. They need to gather customer contact information, check updated product inventories, and keep track of order information. Strong customer relationship management systems, such as those offered by SAP (www.sap.com), provide many features that empower the sales force. Visit SAP online to find information on the mySAP business suite and mySAP CRM. The Web site outlines the features of mySAP CRM, which benefit salespeople as follows: Sales planning and forecasting Territory management Account and contact management Lead and opportunity management Quotation and order management

Personal Selling and Sales Promotion

ber of the team should act as a customer and raise at least three objections.

3. Suppose you are the marketing coordinator responsible for recommending the sales promotion plan for the market launch of a new brand of Red Bull energy drink sold in supermarkets. What promotional tools would you consider for this task? Explain.

* Contract management Incentive and commission management Time and travel management Sales analytics 1. Explain which SAP functions apply to sales force management and which tie in more to the salesperson's daily role with the customers. 2. Explain how these SAP functions fit into the personal selling process for an office furniture sales representative selling a new line of office chairs to an existing large customer.

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3. Why would a company choose not to use SAP products?

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You are the senior sales manager for Johnson Manufacturing. Your company has developed a machine that makes electronic components faster and with a lower defect rate than your major competitor's machines. You call on Haywood Electronics, an important customer, to discuss its purchase of the neh machine. Haywood's buyers have been very enthusiastic, but when you arrive, they want to discuss the results of some recent tests they've conducted. They show you output that shows that your competitor's new machine produces components at 1.2 times the rate of your machine with a .O1 lower defect rate. Based on this research, they ask for

a reduction on the price of your machine from $800,000 to $500,000. When you return to your company and talk to the vice president of manufacturing, she states that the test results are impossible and that the tests must have been faulty or the results intentionallyfalsified.

All across the globe, consumers are seeking all-natural, wholesome foods. Even Wal-Mart, a low-price leader, carries organic and all-natural foods. Nudie, a quirky little company in Australia, makes its own contribution to the fast-growing natural foods market-all-natural fruit juices, fruit crushes, and smoothies that provide a day's fruit in every bottle. Amidst a sea of all-natural products, how did Nudie reach customers and encourage them to try its new products? Through a carefully designed program of personal selling and sales promotion. Nudie uses well-crafted point-of-purchase displays and a devoted, motivated sales force to work with resellers to reach consumers. As a result, Nudie is the fastest-growing juice maker in Australia, attracting an ever-increasing number of highly devoted customers who love Nudie's

products. Says one Nudie customer, "Don't be a prudie . . . get thee a Nudie." Says another, "Love and happiness are overrated. But Nudies make living worthwhile!" After viewing the video featuring Nudie, answer the following Cluestions about personal selling and sales promotion.

What actions would you take? Why is it important that you be careful with your reaction to this situation? Could such a situation really happen? Discuss.

1. HOWdoes Nudie's process for selecting sales representatives compare to the process described in the text? 2. What sales promotion tools does Nudie employ to reach consumers and encourage sales?

3- Select a sales promotion tool not listed in your previous response. HOWcould Nudie use that tool to further promote its products?

When someone says "salesperson," what image comes to mind? Perhaps it's the stereotypical "traveling salesman1'Lear's customer orientation is evident-inall aspects of operathe fast-talking, ever-smiling peddler who travels his territory tions, from design through manufacturing. But perhaps more foisting his wares on reluctant customers. Such stereotypes, than any other part of the organization, it's Lear's outstandhowever, are sadly out of date. Today, most professional ing sales force that makes the company's credo, "Consumer salespeople are well-educated, well-trained men and women driven. Customer focused," ring true. Lear's sales force was who work to build long-term, value-producing relationships recently rated by Sales b Marketing Management magazine with their customers. They succeed not by taking customers as one of "America's Best Sales Forces." What makes this an in, but by helping them out-by assessing customer needs outstanding sales force? Lear knows that good selling these and solving customer problems. days takes much more than just a sales rep covering a terriOne company that has been able to employ such a tory and convincing customers to buy the product. It takes customer-centric sales philosophy is the Lear Corporation. teamwork, relationship building, and doing what's best for From its humble beginnings in 1917 as a manufacturer of the customer. Lear's sales force excels at these tasks. tubular assemblies for the automotive and aircraft indusLear's sales depend completely on the success of its custries, Lear has grown into one of the largest and most suc- tomers. If the automakers don't sell cars, Lear doesn't sell cessful automotive suppliers in the world. In 2005, Lear interiors. So the Lear sales force strives to create not just achieved revenues of $17.1 billion, 127th among the sales, but customer success. In fact, Lear salespeople aren't Fortune 500. "sales reps," they're "account managersJ' who function For decades, Lear dominated the automotive parts more as consultants than as order getters. "Our salespeople industry as a maker of seat systems. But through 18 major don't really close deals," notes a senior marketing execuacquisitions since it went public in 1994, Lear has broad- tive. "They consult and work with customers to learn ened its product line to include all five major vehicle inte- exactly what's needed and when." rior systems-instrument panels and cockpits, door and Lear's growth and expansion of its product line have trim, overhead and flooring, and acoustic systems. Lear is been driven by the quest to better meet customers' needs. also one of the leading global suppliers of automotive elec- As Lear has diversified its product line from seats to all tronics and electrical distribution systems. parts of a vehicle's interior, it has become a kind of "oneLear's customers include most of the world's leading stop shopping" source. As the provision of complete inteautomotive companies, from high-volume producers such rior solutions benefits customers, it also benefits Lear. "It as Ford, DaimlerChrysler, General Motors, Fiat, and Toyota, used to be that we'd build a partnership and then get only a to boutique brands such as Ferrari and Rolls-Royce. limited amount of revenue from it," the executive says. Currently, Lear products are found in new products pro- "Now we can get as much as possible out of our customer duced by more than 300 nameplates around the world. With relationships. " 115,000 employees, Lear designs, engineers, and manufacLear's heavy customer focus has lead to a structure that is tures products in more than 280 facilities in 34 countries. broken up into separate divisions dedicated to specific cusAlong with all this growth, Lear has experienced periods tomers. For example, there's a Ford division and a General of superb financial performance. The company achieved Motors division, and each operates as its own profit center. record-breaking sales and earnings growth throughout the Within each division, high-level "platform teamsu-made 1990s. During that decade, its "average content per car" in up of salespeople, engineers, and program managers-work North America increased more than fourfold. Not surpris- closely with their customer counterparts. These platform ingly, Lear's revenues more than doubled in the latter half of teams are closely supported by divisional manufacturing, the '90s. Currently, the company owns roughly 30 percent finance, quality, and advanced technology groups. of the North American interior components market. The platform team structure has allowed Lear to be very Lear has achieved this tremendous growth by focusing re.sponsive to customer needs. In 1999, leaders at GM on the customer. In a description of its business philosophy, wanted to expand their commercial van business. One idea Lear states: was to create a new model by fitting an existing van shell with deluxe leather seating; flip-down, flat-panel screens, "The success of Lear is a result of our dedication to and other high-tech gadgets. "It would have taken two, provide the best possible service to the world's maybe three years to make a van like this in the GM sysautomakers-which includes understanding their tem," says Larry Szydlowski, GM's program manager for the customers, the automotive consumer-by delivering Express LT. In that time, the demand for such a van might increased value through the latest vehicle interior have come and gone. Or, a competitor might have been first technologies and the continuous improvement of our to market with a product fitting that concept. processes and product quality. All of this is reflected But based on efficiencies derived from its platform in Lear's exclusive People-Vehicle-Interface teams, Lear confidently predicted that it could go from conMethodology. By utilizing the PVI Method, Lear tract to product in just one year. The claim was so outraemploys an innovation development discipline that geous that GM hesitated. So, Lear took a risk and invested in turns market opportunities into the products that cona physical prototype on its own. GM was so impressed, that sumers want and customers need in their vehicles."

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it awarded the lucrative contract to Lear. One year later, as promised, the Express LT was in production. Lear has achieved another sales team efficiency by limiting its customer base to fewer major customers rather than many small-contract customers. This has allowed sales teams to get very close to their customers. "Our teams don't call on purchasers; they're linked to customer operations at all levels," the marketer notes. "We try to put a system in place that creates continuous contact with customers." In fact, Lear often locates its sales offices in customers' plants. For example, the team that handles GM's light truck division works at GM's truck operation campus. "We can't just be there to give quotes and ask for orders," says the marketing executive. "We need to be involved with customers every step of the way-from vehicle concept through launch."

Whereas the 1990s were golden years for Lear, numerous factors combined to create a dismal situation as the new millennium unfolded. Despite the fact that Lear captured 2005 revenues of more than $17 billion, it posted a net loss of $1.3 billion. Almost half of that loss came in the fourth quarter alone. Ironically, many of the factors responsible for Lear's earlier success may now be responsible for its current downturn. For starters, gas prices went up. Although this was nothing that Lear could have stopped, as gas prices have risen, industry-wide vehicle sales have slowed. The biggest casualties have been SUVs and light trucks, models that litter the product lines for the Big Three automakers. Additionally, the downturn in SUV and truck sales has come at an inopportune time. The large American car companies were already losing market share to foreign competitors in other categories as well. Whereas Lear's strategy of limiting its customer base has allowed it to achieve close customer relations, tough times for these large customers are wreaking havoc on Lear's sales. Lear's product diversification strategy, which has been a key to building customer relationships, is also contributing to current losses. In 2005, the company spent a record $586 million on capital investments, in part to become a total supplier for its largest customers. At the same time, however, these large customers have abandoned their strategy of sourcing all vehicle interior components to one supplier. As of 2006, things are looking better for Lear, at least in its seating and electronics segments. However, despite overall first-quarter profits of $17.9 million, Lear's interior systems business continues to hemorrhage money, showing a $59.5 million loss. Given that this division has been

its poorest performer for some time, Lear is considering the option of selling the business and restructuring it on its own. Lear also has been struggling to absorb double-digit increases in plastic resin prices and increases in other raw materials. Feeling the pinch from its plastic suppliers, Lear has attempted to work with customers in order to pass on some of those costs. As a result, DaimlerChrysler AG's Chrysler Group sued the company, claiming that Lear threatened to stop shipping parts if Chrysler didn't comply. Maintaining profitable relationships with large customers takes much more than a nice smile and a firm handshake. And certainly there's no place for the "smoke and mirrors" or "flimflam" sometimes mistakenly associated with personal selling. Success in such a selling environment requires careful teamwork among well-trained, dedicated sales professionals who are bent on profitably taking care of their customers. But even as Lear has focused on these principles, it has found that maintaining solid customer relationships can at times be very difficult.

1. Classify Lear's sales force structure. What role has this

structure played in the company's successes and failures? 2. What role does team selling play in Lear's sales force

strategy? Should Lear make any changes to this strategy? 3. What implications would selling its interior systems

division have on Lear's sales force and its ability to serve its customers? What do you recommend that Lear do? 4. Make other recommendations for how Lear can reverse the difficulties that it now faces. How would you implement each recommendation? Sources: Jesse Eisinger, "Lear Case Shows Sometimes Investors Can Detect Crises Before Management," Wall Street Journal, March 15, 2006, p. C1; Terry Kosdrosky, "Lear Posts $596 Million Loss But Expects Improved 2006," Wall Street Journal, January 26, 2006, p. A7; Terry Kosdrosky, "Lear's Profit Climbs 15%," Wall Street Journal, April 26, 2006, accessed online at www.wsj.com; Judy Bocldage and Paul Welitzkin, "Lear Profit Soared in First Period, But Borg-Warner Swung to Loss," Wall Street Journal, April 23, 2002, p. D5; Andy Cohen, "Top of the Charts: Lear Corporation," Sales b Marketing Management, July 1998, p. 40; Fara Warner, "Lear Won't Take a Back Seat," Fast Company, June 2001, pp. 178-185; "America's 25 Best Sales Forces," Sales b Marketing Management, accessed online at www.salesandmarketing.com, July 2002; "Lear Corporation," Sales b Marketing Management, July 1999, p. 62; and "About Lear," accessed online at wwtv.lear.com, June 2006.

Chapter 16 Personal Selling and Sales Promotion

hen 19-year-old Michael Dell began selling personal computers out of his college dorm room in 1984, competitors and industry insiders scoffed at the concept of direct computer marketing. Yet young Michael proved the skeptics wrong-way wrong. In little more than two decades, he has turned his dorm-room mail-order business into the burgeoning, $56 billion Dell computer empire. Dell is now the world's largest direct marketer of computer systems and the number-one PC maker worldwide. In the United States, Dell is number-one in desktop PC sales, number-one in laptops, number-one in servers, and number-two (and gaining) in printers. In fact, Dell flat out dominates the U.S. PC market, with a 33.5 percent market share, compared with number-two HP's 19.4 percent and number-three Gateway's 6.1 percent. Dell has produced a ten-year average annual return to investors of 39 percent, best among all Fortune 100 companies. Investors have enjoyed explosive share gains of more than 28,000 percent since Dell went public fewer than 20 years ago. What's the secret to Dell's stunning success?Anyone at Dell can tell you without hesitation: It's the company's radically different business model-the direct model. "We have a tremendously clear business model," says Michael Dell, the company's 41-year-old founder and chairman. "There's no confusion about what the value proposition is, what the company offers, and why it's great for customers." An industry analyst agrees: "There's no better way to make, sell, and deliver PCs than the way Dell does it, and nobody executes [the direct1 model better than Dell." Dell's direct-marketing approach delivers greater customer value through an inbeatable combination of product customization, low prices, fast delivery, and award-winning customer service. A customer can talk by phone with a Dell representative at 1-800-Buy-Dell or log onto www.dell.com on Monday morning; order a fully customized, state-of-the-art PC to suit his or her special needs; and have the machine delivered to his or her doorstep or desktop by Wednesday-all at a price that's well below competitors' prices for a comparably performing PC. Dell backs its products with high-quality service and support. As a result, Dell consistently ranks among the industry leaders in product reliability and service, and its customers are routinely among the industry's most satisfied. Dell customers get exactly the machines they need. Michael Dell's initial idea was to serve individual buyers by letting them customize machines with the special features they wanted at low prices. However, this one-to-one approach also appeals strongly to corporate buyers, because Dell can so easily preconfigure each computer

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to precise requirements. Dell routinely preloads machines with a company's own software and even undertakes tedious tasks such as pasting inventory tags onto each machine so that computers can be delivered directly to a given employee's desk. As a result, more than 85 percent of Dell's sales come from business, government, and educational buyers. The direct model results in more efficient selling and lower costs, which translate into lower prices for customers. "Nobody, but nobody, makes [and markets] computer hardware more efficiently than Dell," says another analyst. "No unnecessary costs: This is an all-but-sacred mandate of the famous Dell direct business model." Because Dell builds machines to order, it carries barely any inventoryless than three days' worth by some accounts. Dealing one-to-one with customers helps the company react immediately to shifts in demand, so Dell doesn't get stuck with PCs no one wants. Finally, by selling directly, Dell has no dealers to pay. As a result, on average, Dell's costs are 12 percent lower than those of its leading PC competitor. Dell knows that time is money, and the company is obsessed with "speed." According to one account, Dell squeezes "time out of every step in the processfrom the moment an order is taken to collecting the cash. [By selling direct, manufacturing to order, and] tapping credit cards and electronic payment, Dell converts the average sale to cash in less than 24 hours." By contrast, competitors selling through dealers might take 35 days or longer.

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Such blazing speed results in more satisfied customers and still lower costs. For example, customers are often delighted to find their new computers arriving within as few as 36 hours of placing an order. And because Dell doesn't order parts until an order is booked, it can take advantage of ever-falling component costs. On average, its parts are 60 days newer than those in competing machines, and, hence, 60 days farther down the price curve. This gives Dell a 6 percent profit advantage from parts costs alone. As you might imagine, competitors are no longer scoffing at Michael Dell's vision of the future. In fact, competing and noncompeting companies alike are studying the Dell direct model closely. "Somehow Dell has been able to take flexibility and speed and build it into their DNA. It's almost like drinking water," says the CEO of another Fortune 500 company, who visited recently to absorb some of the Dell magic to apply to his own company. "I'm trying to drink as much water here as I can." Still, as Dell grows larger and as the once-torrid growth in the sales of PCs slows, the Dell direct model is facing challenges. After years of rocketing revenue and profit numbers, Dell's recent growth has slowed. Although Dell still dominates in selling PCs, servers, and peripherals to business markets, it appears to be stum bling in its attempts to sell an expanding assortment of high-tech consumer electronics products to final buyers. Some analysts suggest that Dell's vaunted direct model may not work as well for selling LCD TVs, handhelds, MP3 players, digital cameras, and other personal digital devices-products that consumers want to see and experience first-hand before buying. In fact, Dell plans to add retail stores to help bolster the consumer side of its business. Slowing growth has led some analysts to ask, "Is the much-feared Dell Way running out of gas?" No way, says Dell. There's no question, the company admits, that Dell isn't the high-flying growth company it once was-you can't expect a $56-billion-a-year giant to grow like a full-throttle start-up. But Dell continues to dominate its PC markets, and other companies would kill for Dell's "disappointing" growth numbers-sales last year grew 13.6 percent, and profits were up 17.4 percent. "we still have an outrageous track record," says Dell CEO Kevin Rollins. "Our [direct] model still works very well," Michael Dell agrees. "We wouldn't trade ours for anyone else's!" he says. "In the past ten years our sales are up about 15 times, earnings and the stock price are up about 20 times. Not too shabby!" It's hard to argue with success, and Michael Dell has been very successful. By following his hunches, at the tender age of 41 he has built one of the world's hottest companies. In the process, he's become one of the world's richest men, amassing a personal fortune of more than $17 bi1lion.l

Direct marketing Direct con-

carefully targeted individual -consumers to both obtain a n immediate response and reF

Many of the marketing and promotion tools that we've examined in previous chapters were developed in the context of mass marketing: targeting broad markets with standardized messages and offers distributed through intermediaries. Today, however, with the trend toward m o w n a o w l y targeted marketing, many companies are adopting direct marketink either as a primary marketing approach or as a s u ~ u l e m e n to t other approaches. In this section, we explore the exploding world of direct marketing. Direct marketing consists of-di;rect connections with carefully targeted individual consumers to both obtain an immediate response and cultivate lasting customer relationships. Direct marketers communicate directly with customers, often on a one-to-one, interactive basis. Using detailed databases, they tailor their marketing offers and comrnunications to the needs of narrowly defined segments or even individual buyers. Beyond brand and relationship building, direct marketers usually seek a direct, immediate, and measurable consumer response. For example, as we learned in the chapter-opening story, Dell interacts directly with customers, by telephone or through its Web site, to design built-to-order systems that meet customers' individual needs. Buyers order directly from Dell, and Dell cpickly and efficiently delivers the new computers to their homes or offices.

Early direct marketers-catalog companies, direct mailers, and telemarketers-gathered customer names and sold goods mainly by mail and telephone. Today, however, fired by rapid advances in database technologies and new marketing media-especially the Internet-direct

Chapter 17

Direct and Online Marketing: Building Direct Customer Relationships

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marketing has undergone a dramatic transformation. According to the head of the Direct Marketing Association, "In recent years, the dramatic growth of the Internet and the increasing sophistication of database technologies have [created] an extraordinary expansion of direct marketing and a seismic shift in what it is, how it's used, and who uses it."2 In previous chapters, we've discussed direct marketinn a&ect distribution-as marketing channels that contain no intermediaries. We also include direct marketing as one element s an approach for communicating directly with consumers. In actualMost companies still use direct marketing as a supplementary channel or medium for marketing their goods and messages. Thus, Lexus markets mostly through mass-media advertising and its high-quality dealer network but also supplements these channels with direct marketing. Its direct marketing includes promotional CDs and other materials mailed directly to prospective buyers and a Web page (www.lexus.com) that provides consumers with information about various models, competitive comparisons, financing, and dealer locations. Similarly, most department stores sell the majority of their merchandise off their store shelves but also sell through direct mail and online catalogs. However, for many companies today, direct marketing is more than just a supplementary channel or medium. For these companies, direct marketing-especially in its most recent transformation, online marketing-constitutes a complete model for doing business. More than just another marketing channel or advertising medium, this new direct model is rapidly changing the way companies think about building relationships with customers. Rather than using direct marketing and the Internet only as supplemental approaches, firms employing the direct model use it as the only approach. Companies such as Dell, Amazon.com, eBay, and GEICO have built their entire approach to the marketplace around direct marketing.

Direct marketing has become the fastest-growing form of marketing. According to the Direct Marketing Association, U.S. companies spent $161 billion on direct marketing last year, accounting for whopping 48 percent of total U.S. advertising expenditures. These expenditures generated an estimated $1.85 trillion in direct marketing sales, or about 7 percent of total sales in the U.S. economy. And direct-marketing-driven sales are growing rapidly. The DMA estimates that direct marketing sales will grow 6.4 percent annually through 2009, compared with a projected 4.8 percent annual growth for total U.S. sales.3 HG:Y n;ucl? .-ocic! yari cave on car. insur-aZce?

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Direct and Online Marketing: Building Direct Customer Relationships

It's late at night and you can't get to sleep. So you grab the TV remote, surf channels, and chance upon nnouncer, breathlessly pitching some new must-have kitchen gadget. A grinning blonde coannouncer fawns over the gadget's every feature, and the studio audience roars its approval. After putting the gadget through its paces, the announcer asks, "How much would you expect to pay? Three hundred dollars? Two hundred? Well, think again! This amazing gadget can be yours for just four easy payments of $19.95, plus shipping and handling!" "Oooooh!" the audience screams. "But wait! There's more," declares the announcer. "If you act now, you will also receive an additional gadget, absolutely free. That's two for the price of one." With operators standing by, you don't have a minute to lose. Sound familiar? We've all seen countless infomercials like this, hawking everything from kitchen gadgets, cleaning compounds, and fitness solutions to psychic advice and get-rich-quick schemes. Traditionally, such pitches have had a kind of fly-by-night feel about them. And in the cold light of day, such a purchase may not seem like such a good deal after all. Such is the reputation of directresponse TV advertising. Yet, behind the hype is a powerful approach to marketing that is becoming more mainstream every day. Ron Popeil pioneered direct-response product sales. Whether you realize it or not, you've probably been exposed to dozens of Popeil's inventions over the years, and his direct-marketing model has become the standard for the infomercial industry. His company, Ronco, has brought us such classics as the Veg-o-Matic, the Electric Food Dehydrator, the Showtime Rotisserie Oven, the GLH Formula Hair System, the Automatic 5-Minute Pasta and Sausage Maker, the Popeil Pocket Fisherman, the Inside the Egg Shell Electric Egg Scrambler, and the Dial-0-Matic Food Slicer. . The use of infomercials has grown explosively in recent years. Why? Because they can produce spectacular results. Although only one in 60 infomercials turns a profit, "successful pitches can generate annual sales of as much as $50 million," notes one analyst. "And breakout hits become gold mines: Ron Popeil has sold $1 billion worth of Ronco rotisserie ovens, and the Tae-Bo Workout infomercial. . . netted $300 million in its first year. Other benefits include viewer recall that can be three times higher than for traditional 30-second spots and phenomenal brand awareness: Ninetytwo percent of consumers have heard of the Nautilus Bowflex home fitness system-about the same number of folks that recognize the Nike brand." Says the head of an infomercial advertising agency, "It's the power of the half-hour." Moreover, the retail store revenue from a successful infomercial can be many times the actual infomercial sales. For example, more than 85 percent of George Foreman's Mean Lean Grilling Machine sales came from retail locations. Mass retailers have embraced such direct-response staples as Foreman's grill, OxiClean, and Orange Glo. Some, such as drug-chain heavyweight Walgreens, devote entire front-of-store sections to such goods. Whereas it used to take years to get retail distribution for "As seen on TV" products, many now make it to store shelves within a month of going on television. Such infomercial success hasn't gone unnoticed among the big hitters in corporate America. Direct-response television marketing is rapidly becoming a mainstay weapon in the marketing arsenals of even the most reputable companies. Marketing heavyweights such as Dell; Procter & Gamble, Disney, lime-Life, General Motors, Apple,

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Ronco and Ron Popeil, with his Veg-o-Matics, food dehydrators, and electric egg scramblers, paved the way for a host of mainstream marketers who now use direct-response ads.

Motorola, and Sears now use direct-response TV to peddle specific products and promotions and to draw new customers into their other direct-to-consumer channels. For example, Procter & Gamble used a series of infomercials to help propel the Swiffer WetJet past rival Clorox's ReadyMop when other marketing efforts alone failed to do the trick. And P&G launched its Swiffer Dusters product with a campaign that included direct-response ads and a tie-in to the DVD release of the Jennifer Lopez film Maid in Manhattan. Consumers contacting the 1-800 number got coupons for both the new Swiffer Duster and the DVD. Today's infomercials have evolved with the times-most now include highly professional pitches and Web sites to go along with the ever-present toll-free phone number. They also employ a new breed of spokesperson. Once a refuge for Hollywood has-beens such as Suzanne Somers, who squeezed away on her thigh master to blearyeyed insomniacs, infomercials now are now enlisting A-list celebrities. One of the nation's largest infomercial companies, GunthyRenker, pays top dollar for a stable of stars to pitch its Proactiv acne treatment. It paid Sean (P. Diddy) Combs $3 million for a four-hour shoot. In four months, the Combs Proactiv infomercial ran an average of more than 10 times on each of 1,400 local TV stations. Other Proactiv ads have featured Jessica Simpson (paid $2.5 million), Vanessa Williams ($2.5 million), Alicia Keys ($3 million), and Britney Spears ($1million). In all, the ads produced some $650 million in Proactiv sales last year. Interest in direct-response has now expanded beyond the usual fitness, personal-care, and home-care fare. For instance, submarine-

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sandwich giant Quiznos has turned to late-night infomercials to sell franchises. Trailing only Subway and Starbucks in the number of franchises opened annually, Quiznoscreated a successful 30-minute spot in which current franchise owners discussed the benefits of owning a Quiznos restaurant and encouraged interested people to attend informational meetings at local hotels. Ice cream chain Carvel also uses infomercials to reach potential franchisees. The results are measurable: "We can push a button to see what commercial ran, how many responses it got, how much revenue it generated if it was selling something, and what the net [return on investment] was," says an executive of the direct-response firm that created the campaign. The results are also impressive: "We got easily four times the normal response than with standard media," says a Carvel marketer. So, direct-response N ads are no longer just the province of Ron Popeil and his Veg-o-Matics, food dehydrators, and electric egg scramblers. Although Popeil and his imitators paved the way, their success now has mainstream marketers tuning in to direct-response

revenues in return. What does the future hold N industry? Wait, there's more! Sources: Thomas Mucha, "Stronger Sales in J u 2.0, June 2005, pp. 56-60; Jack Neff, "Direct Response Ge

Respect," Advert~singAge, January 20, 2003, p. 4; Kristi Arellano "Quiznos'Success Not without Problems," Knight Ridde Business News, June 19, 2005, p. I; Peter Latterrnan, "So Suzanne Sorners," Forbes, July 4, 2005, p. 60; Victor Grillo All Brands," Mediaweek, July 11, 2005, p. 14; Gregg Cebrz "Cawel Joins 'Slicers and Dicers' with Direct-Response Ads Restaurant News, February 13,2006,p. 14; Jack Neff, "What Procter & Gamble Learned from Veg-0-Matic,"Advertising Age, April 10, 2006, pp. 1, 65; and Direct Marketing Association, "The DMA 2006 Statistical Fact Book," June 2006, pp. 249-250.

Despite their lowbrow images, home shopping channels have evolved into highly sophisticated, very successful marketing operations. Consider QVC: Wired magazine once described QVC as a place appealing to "trailer-park housewives frantically phoning for another ceramic clown." But look past QVC's reputation and you'll find it is one of the world's most successful and innovative retailers. Last year, the company rang up $5.7 billion in sales and $760 million in operating profit, making it nearly as big and roughly twice as profitable as Amazon.com. Although QVC sells no advertising, it's the third-largest U.S. broadcaster in terms of revenue (behind NBC and ABC),'and its sales and profits are larger than those of all other TV-based retailers combined. Remarkably, thanks to shrewd coordination with TV programming that drives buyers online, the company's Web site, QVC.com, is now the nation's sixth-largest general merchandise Internet retailer. Moreover, QVC isn't just a place where littleknown marketers hawk trinkets and trash at bare-bones prices. Prominent manufacturers such as Estee Lauder, Nextel, and Tourneau now sell through QVC. The network's $80 million single-day sales record happened on Dec. 2,2001, when Dell sold $65 million worth of PCs in 24 hours. (One month later, Michael Dell went on QVC, doing $48,000 in sales every minute he chatted on air.) Even high-fashion designers such as John Bartlett and Marc Bauer now sell lines on QVC. QVC has honed the art and science of TV retailing. Its producers react in real time, adjusting offers, camera angles, lighting, and dialogue to maximize sales and profits. QVC has become the gold standard of "retailtainment'l-the blending of retailing and entertainment. QVC folks call it @ QVC is more than just a place where little-known sellers hawk trinkets and trash the "backyard fence" sell-the feeling at bare-bones prices. Behind the cameras, it's a sophisticated marketer with sales that the merchants are neighbors visitand profits Larger than all other TV-based retailers combined. ing from next door. But according to

Chapter 17 Direct and Online Marketing: Building Direct Customer Relationships

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QVC's president for U.S. commerce, "we aren't really in the business of selling." Instead, QVC uses products to build relationships with customers.21

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Other forms of online promotions include content sponsorships, alliances and affiliate programs, and viral advertising. -=-~ s i n content g sponsorships, companies gain name exposure on the Internet by sponsoring special content on various Web sites, such as news or financial information or special-interest topics. For example, Scotts, the lawn-and-garden products company, sponsors the Local Forecast section on WeatherChannel.com; and David Sunflower Seeds sponsors the ESPN Fantasy Baseball site at ESPN.com. Sponsorships are best placed in carefdly targeted sites where they can offer relevant information or service to the audience. Internet companies can also d e v e l o p ~ ~ ~and c e aifiliate s programs, in which they work with other companies, online and offline, to "promote each other." Arnazofi.com has more than

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900,000 a•’EjJiates who post Amazon.com banners on their Web sites. And Yahoo!, whose ad revenue makes up 84 percent of its total worldwide revenue, has become a fertile ground for alliances with movie studios and TV production companies:

In one episode of The Apprentice, teams created and marketed a new flavor of Ciao Bella Ice Cream. Although Ciao Bella had previously sold its ice creams in only 18 stores in the New York and San Francisco, Yahoo! convinced the manufacturer to place the new product in 760 stores around the country. An endof-episode promotion urged viewers to visit yahoo!'^ local online search engine to look for the store nearest them. The product sold out by 5 P.M. the next day. And thanks to yahoo!'^ registration database, it was able to provide Ciao Bella with the demogra hic characteristics of respondent^.^^

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Finally, online marketers use viral markxng, the Internet version of word-of-mouth marketing. Viral marketing i n v o l v e s ~ ~ a t i nagWeb site, e-mail .message, or other marketing eyent that is so infectious that customers will want to pass it along to thei&iends. ~ e c a u z e customers pass the message or promotion along to others, viral marketing can b6 very inexpensive. And when the information comes from a friend, the recipient is much more likely to open and read it. Consider Burger King's now-classic Subservient Chicken viral campaign: The Web site, www.subservientchicken.com, features a dingy living room, where the subservient chicken-someone in a giant chicken suit and a garter belt-hangs out in front of his Web cam and awaits your bidding. Type in commands, and the chicken does exactly what you ask. It will flap its wings, roll over, or jump up and down. It will also moon the viewer, dance the Electric Slide, or die. (Suggestionsfor lewd acts are met with a "naughty naughty" shake of the wing.) In other words, you can have your way with the chicken. Get it? Have it your way! The site promotes Burger King's Tendercrisp chicken and ties it into Burger King's successful "Have It Your Way" marketing campaign. "As viral marketing goes, subservientchicken.com is a colossal success," says an advertising expert. "There is great overlap between Web regulars and Burger King's core audience." If nothing more, the site gets consumers to interact with the brand. And it gets them buzzing about Burger King's edgy new positioning. Burger King has never advertised the site. When it was first created, the developer at Crispin Porter + Bogusky (CP+B), the ad agency that created the site, e-mailed the URL to several other CP+B people, asking them to send the link out to friends to test. From that single e-mail, without a peep of promotion, the Subservient Chicken site ended the day with 1 million total hits. It received 46 million hits in only the first week following its launch, 385 million in the first nine months. Says one Burger King ad director, the award-winning site helped "sell a lot, a lot, a lot of chicken sa~dwiches."~~ Although online advertising still accounts for only a minor portion of the total advertising and marketing expenditures of most companies, it is growing rapidly. Online advertising serves a useful purpose, especially as a supplement to other marketing efforts. As a result, it is playing an increasingly import&t role in themarketing mixes of many advertisers. For example, although Procter & Gamble spends only a small portion of its ad media budget online, it views the Web as an important medium. According to a P&G marketer, online marketing is "a permission-based way to offer consumers more information about a product than can be shared in a typical 30-second spot. It opens a two-way exchange where we can better educate consumers about our products."53

Viral marketing: Burger King's coiossally successful Subservient Chicken site gets consumers interacting with the brand and buzzing about its edgy new positioning.

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The popularity of blogs and other Web forums has resulted in a rash of commercially sponsored Web sites called Webcommunities,which take advantage of the C2C properties of the Internet. Such s i t e s - a l l a e r s to congregate online and exchange views on issues of common interest. They are the cyberspace equivalent to a Starbucks coffeehouse, a place where everybody knows your e-mail address. For example, iVillage.com is a Web community in which women can exchange views and obtain information, support, and solutions on families, food, fitness, relationships, relaxation, home and garden, news and issues, or just about any other topic.

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The site draws more than 25 million unique visitors each quarter, putting it in a league with magazines such as Cosmopolitan, Glamour, and Vogue. Another example is MyFamily.com, which aspires to be the largest and most active online community in the world for families. It provides free, private family Web sites upon which family members can connect online to hold family discussions, share family news, create online family photo albums, maintain a calendar of family events, jointly build family trees, and buy gifts for family members quickly and easily.54 Visitors to these Internet neighborhoods develop a strong sense of community. Such communities are attractive to advertisers because they draw frequent, lengthy visits from consumers with common interests and well-defined demographics. For example, iVillage.com provides an ideal environment for the Web ads of companies such as Procter & Gamble, Kimberly-Clark, Nabisco, Avon, Clairol, Hallmark, and others who target women consumers. And MyFamily.com hosts The Shops@MyFamily, in which such companies as Disney, Kodak, Hallmark, HewlettPackard, and Microsoft advertise and sell their familyoriented products.

-u sing E-&X& E-mail has exploded onto the scene as an important online marketing tool. A recent study of ad, brand, and marketing managers found that nearly half of all the B2B and B2C companies surveyed use e-mail marketing to reach customers. Companies currently spend about $1.1 billion a year on e-mail marketing, up from just $164 million in 1999. And this spending will grow by E3l Web communities: iVillage.com, a Web community for women, provides an estimated 20 percent annually through 2009. Total an ideal environment for Web ads of companies such as Procter & Gamble, annual e-mail volume in the United States is expected Kimberly Clark, Avon, Hallmark, and others. to rise to almost 2.7 trillion messages in 2 0 0 7 . ~ ~ To compete effectively in this ever-more-cluttered e-mail environment, marketers are designing "enriched" e-mail messages-animated, interactive, and personalized messages full of streaming audio and video. Then, they are targeting these attention-grabbers more carefully to those who want them and will act upon them. Consider Nintendo, a natural for e-mail-based marketing: Young computer-savvy gaming fans actually look forward to Nintendo's monthly email newsletter for gaming tips and for announcements of exciting new games. When the company launched its Star Fox Adventure game, it created an intensive e-mail campaign in the weeks before and after the product launch. The campaign included a variety of messages targeting potential customers. "Each message has a different look and feel, and . . . that builds excitement for Nintendo," notes an executive working on the account. The response? More than a third of all recipients opened the e-mails. And they did more than just glance at the messages: Click-through rates averaged more than 10 percent. Nearly two-thirds of those opening the message watched its 30-second streaming video i n its entirety. Nintendo also gathered insightful customer data from the 20 percent of people who completed an embedded survey. Although the company feared that the barrage of messages might create "list fatigue" and irritate customers, the campaign received very few negative responses. The unsubscribe rate was under 1 percent.56

Span Unsolicited, unwanted mnmercial e-mail messages.

As with other types of online marketing, companies must be careful that they don't e-mail." --The cause resentment among Internet users who are already overloaded with "junk .e ~ p l o ' s 1 ' 6 ~ ~ ~ r n - - u n s o l i c i unwanted ted, commercial e-mail messages that cloT7p our e-mail boxes-h%produced consumer frustration and anger. According to one research company, spam accounts for as much as 84 percent of total inbound e-mai1.57E-mail marketers

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E-mail is one hot marketing medium. In mindboggling numbers, e-mail ads are popping onto our computer screens and filling up our e-mail boxes. And they're no longer just the quiet, plain-text messages of old. The new breed of in-your-face e-mail ad is designed to command your attentionloaded with glitzy features such as animation, interactive links, color photos, streaming video, and personalized audio messages. But there's a dark side to the exploding use of e-mail marketing. The biggest problem? Spam-the deluge of unsolicited, unwanted commercial messages that now clutter up our e-mail boxes and our lives. Various studies show that spam now accounts for an inboxclogging 60 to 83 percent of e-mails sent daily throughout the world, up from only 7 percent in 2002. One recent study found that the average consumer received 3,253 spam messages last year. Despite these dismal statistics, when used properly, e-mail can be the ultimate direct marketing medium. Blue-chip marketers such as Amazon.com, Dell, L.L.Bean, Office Depot, and others use it regularly, and with great success. E-mail lets these marketers send highly targeted, tightly personalized, relationship-building messages to consumers who actually want to receive them, at a cost of only a few cents per contact. E-mail ads really can command attention and get customers to act.'According to one estimate, well-designed e-mail campaigns sent to internal customer lists typically achieve 10 to 20 percent click-through rates. That's pretty good when compared with the 1to 2 percent average response rates for traditional direct mail and the less than 1 percent response to traditional banner ads. However, although carefully designed e-mails may be effective; and may even be welcomed by selected consumers, critics argue that most commercial e-mail messages amount to little more than annoying "junk mail" to the rest of us. Too many bulk e-mailers blast out lowest-common-denominator mailings to anyone with an e-mail address. There is no customization-no relationship building. Everyone gets the same hyperventilated messages. Moreover, too often, the spam comes from shady sources and pitches objectionable products-everything from Viagra and body-enhancement products to pornography and questionable investments. And the messages are often sent from less-than-reputable marketers. At least in part, it's e-mail economics that are to blame for our overflowing inboxes. Sending e-mail is so easy and so inexpensive

that almost anyone can afford to do it, even at paltry response rates. "In the field of direct marketing, it doesn't get much cheaper than spam," says one analyst. "One needs only a credit card (to buy lists of e-mail addresses), a computer, and an Internet connection. Otherwise, it costs nothing to send bulk e-mail, even masses of it." For example, Touch Media Group once pumped out eight million emails a day. That makes the company sound like a big-city direct marketing behemoth. But in reality, it began as a home-based business run by a 44-year-old mother, Laura Betterly, in Dunedin, Florida, dubbed the Spam Queen by the Wall Street Journal. Betterly regularly dispatched messages to half a million or more strangers with a single click on the "send" icon. She found that she could make a profit on even very low responses. For example, if only 65 of the half million recipients responded, Betterly's company made $40. In all, Betterly cleared more than $200,000 a year in income from her small business. The problem, of course, is that it was far easier for Betterly to hit the "send" button on an e-mail to a million and a half strangers than it was for the beleaguered recipients to hit the delete key on all those messages. One analyst calculated that the recipient cost of Betterly's e-mails far exceeded the $40 in revenue that it produced for her. Assume that the average time getting rid of the junk was two seconds, and that the average recipient values his or her time at the mean wage paid in the United States, which is around $14 per hour, or $0.0039 per second. This implies a total cost, incurred by uninterested recipients, of 500,000 times two seconds times $0.0039 per second, which gives $3,900. And such dollar calculations don't begin to account for the shear frustration of having to deal with all those many junk messages. The impact of spam on consumers and businesses is alarming. One recent study places the average time spent at work each day deleting spam at 2.8 minutes. This loss in productivity equals $21.6 billion per year based on average U.S. wages. In response to such costs and frustrations, lnternet service providers and Web-browser producers have created sophisticated spam filters. For example, AOL now blocks some 1.5 billion spam messages a day, more than half a trillion a year, from reaching the e-mail boxes of AOL subscribers. It's blocking eight out of every ten attempted e-mails as spam. The government is also stepping in. In

w a l k a f i n e l i n e b e t w e e n a d d i n g value for consumers a n d b e i n g i n t r u s i v e (see Real Marketing 17.2). To a v o i d i r r i t a t i n g consumers b y sending u n w a n t e d m a r k e t i n g e-mail, companies s h o u l d ask customers for* permission. to e-mail marketing pitches. They s h o u l d also t e l l recipients h o w t o "opt in" or "opt out" o f e-mail promotions at any time. T h i s approach, k n o w n as permission-based mai-keting, has become a standard m o d e l for e-mail marketing.

O n l i n e marketing continues t o offer b o t h great promise a n d m a n y challenges for the future. I t s most ardent apostles s t i l l envision a t i m e w h e n the Internet a n d online marketing w i l l replace magazines, newspapers, a n d even stores as sources for i n f o r m a t i o n a n d buying. M o s t marketers, however, h o l d a m o r e realistic view. To b e sure, o n l i n e marketing w i l l become a successful business m o d e l for some companies, I n t e r n e t f i r m s s u c h as Amazon.com, eBay, a n d Google, a n d direct-marketing companies s u c h as Dell. M i c h a e l Dell's goal i s one day "to have a l l customers conduct a l l transactions o n the Internet, glob-

Chapter 17 Direct and Online Marketing: Building Direct Customer Relationships

2003, Congress passed the CAN-SPAM Act (the Controlling the Assault of Non-Solicited Pornography and Marketing Act), which attempts to clean u p the e-mail industry by

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AOL's Advanced Spam Filter

received last year dropped by 17 percent over the previous year. However, most of us still get a barrage of e-mail come-ons each day. Most legitimate e-mail marketers welcome such controls. Left unchecked, they reason, spam will make legitimate e-mail marketing less effective, or even impossible. But the industry worries that solutions such as spam filters and the CAN-SPAM Act often filter out the good emails with the bad, dampening the rich potential of e-mail for companies that want to use it as a valid marketing tool. In fact, according to one study, as much as 20 percent of legitimate bulk In response to the spam epidemic, Internet service providers such as AOL have created commercial e-mail-which includes online statesophisticated spam filters. ments and receipts as well as mail that users sign up to receive---gets caught in spam filters. So, what's a marketer to do? Permission-based e-mail is the best keting and spam. Companies that cross the line will quickly learn that solution. Companies can send e-mails only to customers who "opt "opting out" is only a click away for disgruntled consumers. inn-those who grant permission in advance. They can let consumers specify what types of messages they'd like to receive. Sources: Quotesand other information from Jennifer Drumluk and Joe Financial services firms such as Charles Schwab use configurable Tyler, "Crackingthe E-Mail Marketing Code,"Association Management, e-mail systems that let customers choose what they want to get. March 2005, pp. 52-56; Matt Haig and Mylene Mangalindan, "Spam Others, such as Yahoo! or Amazon.com, include long lists of opt-in Queen:For Bulk E-Mailer, Pestering Millions Offers Path to Profit," Wall boxes for different categories of marketing material. Amazon.com tar- Street Journal, November 13, 2002, p. A l ; Jennifer Wolcott, "You Call It gets opt-in customers with a limited number of helpful "we thought Spam, They Call It a Living," Christian Science Monitor, March 22, 2004, you'd like to know" messages based on their expressed preferences p. 12; "AOL Top-10 List Reveals Sparnmers Are Getting More and previous purchases. Few customers object and many actuatly Sophisticated," Wireless News, December 29, 2005, p. 1; Enid Burns, welcome such promotional messages. "The Deadly Duo: Spam and Viruses," March 2006, accessed at Permission-based marketing ensures that e-mails are sent only to www.clickz.com;and Jessica E. Vascellaro, "Spam Filters Wild; Spate of customers who want them. Still, marketers must be careful not to Incidents at Verizon, AOL Point to Growing Problem of Blocking abuse the privilege. There's a fine line between legitimate e-mail mar- Legitimate E-Mail," Wall StreetJournal, May 3, 2006, p. D l .

ally." However, for most companies, online marketing will remain just one important approach to the marketplace that works alongside other approaches in a fully integrated marketing mix. Despite the many challenges, companies large and small are quickly integrating online marketing into their marketing strategies and mixes. As it continues to grow, online marketing will prove to be a powerful direct marketing tool for building customer relationships, improving sales, communicating company and product information, and delivering products and services more efficiently and effectively.

Too often, a company's different direct-marketing efforts are not well integrated with one another or with other elements of its marketing and promotion mixes. For example, a firm's media advertising may be handled by the advertising department working with a traditional

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advertising agency. Meanwhile, its direct-mail and catalog business may be handled by directmarketing specialists, whereas its Web site is developed and operated by an outside Internet firm. Even within a given direct-marketing campaign, too many companies use only a "one-shot" effortto reach and sell a prospect or a single vehicle in multiple stages to trigger purchases. A more powerful approach is @tegr,ated-dirgct marketing, which involves using carefully coordinated multiple-media, multiple-stage campaigns. Such campaigns can greatly improve response. Whereas a direct-mail piece alone might generate a 2 percent response, adding a Web site and toll-free phone number might raise the response rate by 50 percent. Then, a welldesigned outbound e-mail campaign might lift response by an additional 500 percent. Suddenly, a 2 percent response has grown to 15 percent or more by adding interactive marketing channels to a regular mailing. Integrating direct marketing channels with each other and with other media has become a top priority for marketers. For example, consider the integrated direct marketing efforts of professional services firm Ernst & Young: Ernst & Young is taking a decidedly integrated approach with its online, e-mail, and other direct marketing. It integrates its e-mail efforts with other media, including direct mail, and tightly weaves both into interactive elements on the company's site. For example, a promotion for an annual conference it hosted in October for energy executives began much earlier in the year with a "save the date" e-mail to clients and prospects. That was followed up by a rich media e-mail. "We created these flash movies that we e-mailed them, and the call to action was embedded there," says an Ernst & Young marketing executive. "There was a link built in that brought them to the Web site to find out details about the conference." Next, to reinforce the online messages, the company sent out direct-mail invitations, which included a registration form as well as the Web address for those who chose to register online. To ensure that Ernst & Young's direct marketing messages are well integrated, representatives from each marketing discipline meet on a regular basis. "We all sit around the table and talk about what we've done, what's in process, and what we're planning," says the marketing executive. "The results rely on 'the whole thing.' Otherwise, it's like making a cake without putting in the f10u.r."~~

Direct marketers and their customers usually enjoy mutually rewarding relationships. Occasionally, however, a darker side emerges. The aggressive and sometimes shady tactics of a few direct marketers can bother or harm consumers, giving the entire industry a black eye. Abuses range from simple excesses that irritate consumers to instances of unfair practices or even outright deception and fraud. The direct marketing industry has also faced growing invasion-of-privacy concerns, and online marketers must deal with Internet security issues.

Irritation, Unfairness, eeeption, and Fraud i

Direct-marketing excesses sometimes annoy or offend consumers. Most of us dislike directresponse TV conunercials that are too loud, too long, and top-bsisten:. Our mailboxes fill up with unwanted junk mail! our e-mail boxes fill up with unwanted spam, and our computer screens fill up with ~ ~ ~ a n t or epop-under d ~ ~ads:o ~ ~ ~ ~ Beyond irritating consumers, someadirect marketers have been accused of taking unfair advantage of impulsive or less-sophisticated buyers. TV shopping channels and program-long "infomercials" targeting television-addicted shoppers seem to be the worst culprits. They feature smooth-talking hosts, elaborately staged demonstrations, claims of drastic price reductions, "while they last" time limitations, and unequaled ease of purchase to inflame buyers who have low sales resistance. Worse yet, so-called heat merchants design mailers and write copy intended to mislead buyers. Even well-known direct mailers have been accused of deceiving consumers. A few years back, sweepstakes promoter Publishers Clearing House paid $52 million to settle accusations that its high-pressure mailings confused or misled consumers, especially the elderly, into believing that they had won prizes or would win if they bought the company's magazines.59 Fraudulent schemes, such as investment scams or phony collections for charity, have also has become multiplied in recent years. Internetfiaud, including identity fhe$ and nancial scams, -----

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a serious problem. Internet-related complaints accounted for 46 percent of the 431,000 fraud cornplaints received by the FTC last year, resulting in monetary losses of more than $335 million. ~ n d last year alone, the Federal Internet Crime Complaint Center (IC3) received almost 232,000 complaints related to Internet fraud, a whopping 368 percent increase from 2 0 0 2 . ~ ~ One common form of Internet fraud issphjsh&g, a type of identity theft that-uses decxp: tive e-mails and fraudulent Web sites to fool user_s into divu1gin.g their2gersonal-d?ta, According to one survey, half of all Internet users have received d'a phishing e-mail. Although many consumers are now aware of such schemes, phishing can be extremely costly to those caught i n the Net. It also damages the brand identities of legitimate online marketers who have worked to build user confidence in Web and e-mail transaction^.^^ Many consumers also worry about online sequzz. They fear that unscrupulous snoopers will eavesdrop on their online transactions or intercept.&eirXcr_editcard n-m.keg_-.i-ma$te unauthorized purchases. In a recent survey, six out of ten online shoppers were concerned enough about online s'ecurity that they considered reducing the amount of their online holiday shopping." Such concerns are costly for direct-marketing companies. A recent study indicated that almost 30 percent of North American consumers who have been online but haven't made a purchase cited concerns about credit card fraud and other factors as holding them back. Another study predicts that annual online sales could be as much as 25 percent higher if consumers' security concerns were adequately addressed.63 Another Internet marketing concern is that oLaccgss by vulnerable or unauthorized .groups, For example, marketers of adult-oriented materials have found it difficult to restricf access by minors. In a more specific example, a while back, sellers using eBay found themselves the victims of a 14-year-old boy who'd bid on and purchased more than $3 million worth of high-priced antiques and rare artworks on the site. eBay has a strict policy against bidding by anyone under age 18 but works largely on the honor system. Unfortunately, this honor system did little to prevent the teenager from taking a cyberspace joyride.64

Invasion of privacy is perhaps the toughest public policy issue now confronting the directmarketing industry. Consumers often benefit from database marketing-they receive more offers that are closely matched to their interests. However, many critics worry that marketers may know too much about consumers' lives +andthat they may use this knowledge to take unfairadvantage of consumers. At some point, they claim, the extensive use of databases intrudes on consumer privacy. These days, it seems that almost every time consumers enter a sweepstakes, apply for a credit card, visit a Web site, or order products by mail, telephone, or the Internet, their names enter some company's already bulging database. Using sophisticated computer technologies, direct marketers can use these databases to "microtarget" their selling efforts. Online privacy causes special concerns. Most online marketers have become skilled at collecting and analyzing detailed consumer information. Some consumers and policy makers worry that the ready availability of information may leave consumers open to abuse if companies make unauthorized use of the information in marketing their products or exchanging databases with other companies. For example, they ask, should AT&Tbe allowed to sell marketers the names of customers who frequently call the 800 numbers of catalog companies? Should a company such as American Express be allowed to make data on its millions of cardholders worldwide available to merchants who accept AmEx cards? Is it right for credit bureaus to compile and sell lists of people who have recently applied for credit cards-people who are considered prime direct-marketing targets because of their spending behavior? Or is it right for states to sell the names and addresses of driver's license holders, along with height, weight, and gender information, allowing apparel retailers to target tall or overweight people with special clothing offers? In their drives to build databases, companies sometimes get carried away. For example, Microsoft caused substantial privacy concerns when one version of its Windows ~ ~ f t ~ a r e used a "Registration Wizard" that snooped into users' computers. When users went online to register, without their knowledge, Microsoft "read" the configurations of their PCS to k a r n about the major software products they were running. Users ~rotestedloudly and ~ i c r o s o f t abandoned the practice. These days, it's not only the large companies that can access such private information. The explosion of information technology has put these capabilities into the hands almost any business. For example, one bar owner discovered the power of information t e c h n o l ~ gafter ~ he acquired a simple, inexpensive device to check IDS.

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About 10,000 people a week go to The Rack, a bar in Boston. . . . One by one, they hand over their driver's licenses to a doorman, who swipes them through a sleek black machine. If a license is valid and its holder is over 21, a red light blinks and the patron is waved through. But most of the customers are not aware that it also pulls up the name, address, birth date, and other personal details from a data strip on the back of the license. Even height, eye color, and sometimes Social Security number are registered. "You swipe the license, and all of a sudden someone's whole life as we know it pops up in front of you," said Paul Barclay, the bar's owner. "It's almost voveuristic." El Privacy: The explosion of information technology has put sometimes frightening Mr. Barclay soon found that he could capabilities into the hands of almost any business. One bar owner discovered the power build a database of personal informaof information technology after he acquired a simple, inexpensive device to check IDS. tion, providing an intimate perspective on his clientele that can be useful i n marketing. Now, for any given night or hour, he can break down his clientele by sex, age, zip code, or other characteristics. If he wanted to, he could find out how many blond women named Karen over 5 feet 2 inches came in over a weekend, or how many of his customers have the middle initial M. More practically, he can build mailing lists based on all that data-and keep track of who comes back.65

All of this calls for strong actions by marketersto_cu+_prFacy abuses before legislators step in to do it for them. For example, in response to online privacy ahd security concerns, the federal government has considered numerous legislative actions to regulate how Web operators obtain and use consumer information. State governments are also stepping in. In 2003, California enacted the California Online Privacy Protection Act (OPPA), under which any online business that collects personally identifiable information from California residents must take steps such as posting its privacy policy and notifying consumers about what data will be gathered and how it will be used.66 Of special concern are ,the privacy fights p_f-&ildr= In 1998, the Federal Trade Commission surveyed 212 Web sites directed toward children. It found that 89 percent of the sites collected personal information from children. However, 46 percent of them did not include any disclosure of their collection and use of such information. As a result, Congress passed the Children's Online Privacy Protection Act (COPPA),which requires Web site operators targeting children to post privacy policies on their sites. They must also notify parents about the information they're gathexing and obtain parental consent before collecting personal information from children under the age of 13. Under this act, Interstate Bakeries was recently required to rework its Planet Twinkie Web site after the Children's Advertising Review Unit found that the site allowed children under 13 to submit their full name and phone number without parental consent.67 Many companies have responded to consumer privacy and security concerns with actions of their own. Still others are taking an industrywide approach. For example, TRUSTe, a nonprofit self-regulatory organization, works with many large corporate sponsors, including Microsoft, AT&T,and Intuit, to audit companies' privacy and security measures and help consumers navigate the Web safely. According to the company's Web site, "TRUSTe believes that an environment of mutual trust and openness will help make and keep the Internet a free, comfortable, and richly diverse community for everyone." To reassure consumers, the company lends it "trustmark" stamp of approval to Web sites that meet its privacy and security standards.68 The direct-marketing industry as a whole is also addressing public policy issues. For example, in an effort to build consumer confidence in shopping direct, the Direct Marketing Association (DMA)-the largest association for businesses practicing direct, database, and interactive marketing, with more than 4,800 member companies-launched a "Privacy

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P r o m i s e t o A m e r i c a n Consumers." T h e P r i v a c y P r o m i s e r e q u i r e s t h a t a l l DMA m e m b e r s adhere t o a carefully d e v e l o p e d set o f consumer p r i v a c y rules. M e m b e r s m u s t agree t o n o t i f y customers w h e n any p e r s o n a l i n f o r m a t i o n i s rented, sold, o r exchanged with others. T h e y m u s t also h o n o r c o n s u m e r requests t o " o p t o u t " o f r e c e i v i n g f u r t h e r solicitations o r h a v i n g t h e i r c o n t a c t i n f o r m a t i o n t r a n s f e r r e d t o o t h e r marketers. F i n a l l y , t h e y m u s t a b i d e by t h e D M A ' s Preference Service by r e m o v i n g t h e names o f consumers w h o w i s h n o t t o receive m a i l , telephone, o r e - m a i l offers.6g D i r e c t marketers k n o w that, l e f t untended, s u c h problems will l e a d t o increasingly negative consumer attitudes, l o w e r response rates, and calls for m o r e restrictive state and federal legislation. "Privacy and customer p e r m i s s i o n have become t h e cornerstones o f customer trust, [and] t r u s t has become t h e cornerstone t o a c o n t i n u i n g relationship," says o n e expert. Companies m u s t "become t h e custodians o f customer t r u s t and protect t h e p r i v a c y o f t h e i r customer^."^^ M o s t d i r e c t m a r k e t e r s w a n t t h e same t h i n g s t h a t c o n s u m e r s w a n t : h o n e s ~ .% & w e l l --designed m a r k e t i n g offers targeted o n l y t o w a r d consumers w h o will appreciate a n d r e s p o n d t o them. D i r e c t m a r k e t i n g i s j u s t t o o expensive t o waste o n consumers w h o d o n ' t want it.

Let's revisit this chapter's key concepts. This chapter is the last of four chapters covering.the final marketing mix element-promotion. The previous chapters dealt with advertising, publicity, sales promotion, and personal selling. This one investigates direct and online marketing. 1. Define direct marketing and discuss its benefits to customers and companies. Direct marketing consists of direct connections with carefully targeted individual consumers to both obtain an immediate response and cultivate lasting customer relationships. Using detailed databases, direct marketers tailor their offers and communications to the needs of narrowly defined segments or even individual buyers. For buyers, direct marketing is convenient, easy to use, and private. It gives buyers ready access to a wealth of products and information, at home and around the globe. Direct marketing is also immediate and interactive, allowing buyers to create exactly the configuration of information, products, or services they desire, then order them on the spot. For sellers, direct marketing is a powerful tool for building customer relationships. Using database marketing, today's marketers can target small groups or individual consumers, tailor offers to individual needs, and promote these offers through personalized communications. It also offers them a low-cost, efficient alternative for reaching their markets. As a result of these advantages to both buyers and sellers, direct marketing has become the fastestgrowing form of marketing. 2. identify and discuss the major forms of direct marketing. The main forms of direct marketing include personal selling, directmail marketing, catalog marketing, telephone marketing, directresponse television marketing, kiosk marketing, and online marketing. We discussed personal selling in the previous chapter. Direct-mail marketing, the largest form of direct marketing, consists of the company sending an offer, announcement, reminder, or other item to a person at a specific address. Recently, new forms of "mail delivery" have become popular, such as e-mail marketing. Some marketers rely on catalog marketing-selling through catalogs mailed to a select list of customers, made available in stores, or accessed on the Web. Telephone marketing consists of using the telephone to sell directly to consumers. Direct-response television marketing has two forms: direct-respqnse advertising (or infomercials) and home shopping channels. Kiosks are information and ordering machines that direct marketers place in stores, airports, and other locations. In recent years, a number.of new digital direct marketing

technologies have emerged, including mobile phone marketing, podcasts and vodcasts, and interactive TV. Online marketing involves online channels that digitally link sellers with consumers.

3. Explain how companies have responded to the lnternet and other powerful new technologies with online marketing. Online marketing is the fastest-growing form of direct marketing. The lnternet enables consumers and companies to access and share huge amounts of information with just a few mouse clicks. turn, the lnternet has given marketers a whole new way to create value for customers and build customer relationships. It's hard to find a company today that doesn't have a substantial Web marketing presence. Online consumer buying continues to grow at a healthy rate. Some 65 percent of American online users now use the lnternet to shop. Perhaps more importantly, by 2010, the lnternet will influence a staggering 50 percent of total retail sales. Thus, smart marketers are employing integrated multichannel strategies that use the Web to drive sales to other marketing channels. 4' Discuss how companies go about conducting online marketing to profitably deliver more value to customers. Companies of all types are now engaged in online marketing. The lnternet gave birth to the click-only dot-corns, which operate only online. In addition, many traditional brick-and-mortarcompanies have now added online marketing operations, transformingthemselves into click-andmortar competitors. Many click-and-mortar companies are now having more online success than their click-only competitors. Companies can conduct online marketing in any of the four ways: creating a Web site, placing ads and promotions online, setting up or participating in Web communities, or using online e-mail. The first step typically is to set up a Web site. Beyond simply setting up a site, however, companies must make their sites engaging, easy to use, and useful in order to attract visitors, hold them, and bring them back again. Online marketers can use various forms of online advertising to build their lnternet brands or to attract visitors to their Web sites. Beyond online advertising, other forms of online promotion include online display advertising, search-related advertising, content sponsorships, alliances and affiliate programs, and viral marketing, the lnternet version of wordof-mouth marketing. Online marketers can also participate in Web Cornmunities, which take advantage of the C2C properties of the Web. Finally, e-mail marketing has become a fast-growing tool for both B2C and B2B marketers. Whatever direct marketing tools they use, marketers must work hard to integrate them into a cohesive marketingeffo*.

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5. Overview the public policy and ethical issues presented by direct marketing. Direct marketers and their customers usually enjoy mutually rewarding relationships. Occasionally, however, direct marketing presents a darker side. The aggressive and sometimes shady tactics of a few direct marketers can bother or harm consumers, giving the entire industry a black eye. Abuses range from simple excesses that irritate consumers to instances of unfair practices or even outright deception

Business-to-business (B2B) online marketing 495 Business-to-consumer (B2C) online marketing 494 Catalog marketing 485 Click-and-mortar companies 497

Click-only companies 497 Consumer-to-business (C2B) online marketing 496 Consumer-to-consumer (C2C) online marketing 495 Corporate Web site 499 Customer database 483

1. The Internet benefits both buyers and sellers in a number of ways. Using eBay as an example, describe the potential benefits gained by both the buyer and seller. 2. A local oriental rug cleaning company has contacted you for advice on setting up its customer database. It needs this database for customer relationship management and for direct marketing of new products and services. Describe the qualities and features it must consider for an effective database.

and fraud. The direct-marketing industry has also faced growing concerns about invasion-of-privacy and internet security issues. Such concerns call for strong action by marketers and public policy makers to curb direct-marketing abuses. In the end, most direct marketers want the same things that consumers want: honest and well-designed marketing offers targeted only toward consumers who will appreciate and respond to them.

Direct-mail marketing 484 Direct marketing 480 Direct-response television marketing 488 Integrated direct marketing 506 Internet 493

Marketing Web site 499 Online advertising 500 Online marketing 493 Spam 503 Telephone marketing 487 Viral marketing 502 Web communities 502

4. What is the National Do-Not-Call Registry? Is it effective? Is there a similar legislation banning unwanted e-mails?

5. Companies design Web sites for many purposes. What are the two basic types of Web sites and what are their purposes?Give an example of each. 6. What are the basic lnternet security fears of consumers? Are these fears usually justified? Identify five actions a consumer can take to reduce the risk of Internet security problems.

3. Is it good marketing practice for a catalog mailer to continue sending catalogs after establishinga strong Web retail presence?

A small company that has developed an effective at-home haircoloring system is considering using direct television. Would you recommend this medium?Why or why not? Visit your favorite retail Web site and evaluate the site according to the seven Cs of effective Web site design.

very personal and sensitive financial information with each customer over the lnternet on a daily basis. You have been asked by your boss to come up with a security idea that will be communicated in an ad. What primary message would you like to communicate to your customers in this ad?

Assume that you are a member of a marketing department for a click-only provider of financial services. Your company exchanges

When marketers and engineers design new products, they rely heavily on input from consumers. At Massachusetts Institute of Technology, researchers are working on a multidisciplinary project known as the Virtual Customer Initiative. The purpose of the initiative is to improve the accuracy and usability of customer input by creating easy-to-use and effective Web-based tools. To see demonstrations of this technology, visit http:llconjoint.mit.edulnewdemol and click on the "Go" button in the box with a car, labeled "Web-Based Conjoint Analysis." Go through the entire demonstration for the crossover vehicle. The demonstrations show an application of a statistical technique called conjoint analysis. In simple terms, the objective of conjoint analysis is to determine how a consumer

makes trade-offs between different product features-to determine whether a consumer would trade, for instance, less passenger space for more cargo space. 1. What are the advantages and disadvantages of running this type of analysis as a Web-based system as opposed to having subjects come to a research lab and run through the study with a researcher? 2. In addition to cars and cameras, what are some other products that would benefit from this type of Web-based analysis?

3. Why isn't this technology, and conjoint analysis in general, not more widely used?

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Technoethics, a recent field of study that examines ethical issues in technology, has recently been applied to many areas in lnternet marketing. Blogs are an example of a growing lnternet marketing technology that presents many ethical issues. For instance, is it ethical for a company to ask consumers to blog favorably about a product? Is it ethical for companies to pay these consumers to blog?Should a company fire an employee who blogs negative comments about the company? Other technologies, created by leading lnternet marketers to improve customer satisfaction on the lnternet are also raising issues. Amazon.com, one of the most reputable lnternet marketers, has been criticized for its Wish List, which lets customers list books and other products they would like to receive from friends and family. It seems harmless, even helpful. But what many consumers don't know is that the Wish List can be viewed by anyone, and that such wish list information can be used to create databases of everyone from apparent liberals to gun owners to teenage girls. Take all this one step further and consider Google's online mapping capabilities. By applying this technology to the wish list information, one could find the houses of wish listers interested in books on, say, Osama bin Laden. Companies on the cutting edge of technology, such as Amazon.com, are constantly cited for having their updated technology fail on them. The

immensely popular online social network, MySpace, is currently suffering with a problem by which some users' sites have been rerouted to adultcontent sites. LucasArts updated its Star Wars Galaxies programs and accidentally made it unplayable to players with disabilities, because it could no longer be played with one hand.

Formed in 1997, NineMSN is a joint venture between Microsoft and Australia's leading media company, Publishing and Broadcasting Limited (PBL). The NineMSN site offers news and content from nine of Australia's largest media channels funneled through MSN's signature portal. Each month, more than 7.5 million people visit the NineMSN site for news, information, and communication services, including MSN Hotmail and MSN Messenger. That's 74 percent of all online Australians, and the number keeps growing. NineMSN keeps users coming back by continually updating its content while maintaining a consistent, easy-to-use Web site that users can customize. Then, the portal capitalizes on its steady stream of consumers

by capturing demographic data and working with advertisers to build online marketing campaigns targeting the site's users. After watching the video featuring NineMSN, answer the following questions about direct and online marketing.

As the Rolling Stones geared up for their "A Bigger Bang" tour, Roger felt like reliving some old memories. Just because he was in his 50s didn't mean he was too old to rock. A f t e r all, he was an original Stones fan dating back to the '60s. It had been years since he had gone to a concert for any band. So on the day the Stones tickets went on sale, he grabbed a lawn chair and headed to his local Ticketmaster outlet to "camp out" in line. Roger knew that the terminal, located inside a large chain music store, wouldn't open until 10 a.m. when tickets went on sale. He got to the store at 6 a.m. to find only three people ahead of him. "Fantastic," Roger thought. With so few people in front of

him, getting good seats would be a snap. Maybe he would even score something close to the stage. By the time the three people in front of him had their tickets, it was 10:13 a.m. As the clerk typed away on the Ticketmaster computer terminal, Roger couldn't believe what he heard. No tickets were available. The show at the Forum in Los Angeles was sold out. Dejected, Roger turned to leave. As he made his way out the door, another customer said, "You can always try StubHub." As the fellow Stones fan explained what StubHub was, it occurred to Roger that the world had become a very different place with respect to buying concert tickets.

1. Is it ethical for an advertiser to pay a consumer to blog favorably about a product? To fire an employee presenting negative issues on his or her blog? 2. What can companies do to reduce the negative public relations effects of such technoethical issues? 3. What other examples have you heard or read about recently involving ethical issues with Web-based companies?

See: "The Technoethics Trap: As the Line between Right and Wrong Gets Blurrier, Even the Best Intentions Have a Way of Backfiring," Inc., March 2006, pp. 69-70.

1. How does NineMSN build and use its customer database? 2. Visit the NineMSN Web site, www.ninemsn.com.au, and evaluate the site based on the seven Cs of effective design discussed in the text.

3. What forms of online advertising and promotion do marketers use to reach NineMSN members through the Web site?

Indeed, in this Internet age, buying tickets for live events has changed dramatically since Roger's concert-going days. Originators such as Ticketmaster now sell tickets online for everything from Broadway shows to sporting events. Increasingly, however, event tickets are resold through Web sites such as eBay, Craigslist, and newcomer StubHub, the fastest-growing company in the business. According to one survey conducted at a U2 concert, 29 percent of the fans said that they had purchased their tickets from an Internet resale Web site, a statistic that reflects ticket buying industry-wide. Prices are all over the map, and tickets for sold-out shows of hot events routinely sell for double or triple their face value. In some cases, the markup is astronomical. Prices for a seat at Super Bowl XL in Detroit started at $2,000. Tickets to see Coldplay in San Jose in the spring of 2006 were going for as much as $3,000 each. And a pair of Stones tickets at New York's Madison Square Garden, close enough to see a geriatric Mick Jagger perspire, went for more than $14,000. Extreme cases? Yes, but not uncommon. When most people think of buying a ticket from a reseller, they probably envision a seedy scalper standing in the shadows near an event venue. But scalping is moving mainstream. Because the Internet and other technologies have allowed professional ticket agents to purchase event tickets in larger numbers, anyone with a computer and broadband connection can instantly become a scalper. And regular folks, even fans, are routinely doing so. "Because we allowed people to buy four [tickets],if they only need two, they put the other two up for sale," said Dave Holmes, manager for Coldplay. This dynamic, occurring for events across the board, has dramatically increased the number of ticket resellers.

STU With the ticket resale market booming, StubHub started operations in 2000 under the name Liquid Seats. It all started with an idea by two first-year students at the Stanford Graduate School of Business. Eric Baker and Jeff Fluhr had been observing the hysteria on the ticket resale market. In their opinion, the market was highly fragmented and rampant with fraud and distorted pricing. Two buyers sitting side-by-side at the same event might find they'd paid wildly different prices for essentially the same product. Even with heavy hitter eBay as the biggest ticket reseller at the time, Baker and Fluhr saw an opportunity to create a system that would bring buyers and sellers together in a more efficient manner. They entered their proposal in a new-business plan competition. Fluhr was utterly convinced the concept would work, so much so that he withdrew the proposal from the competition and dropped out of school in order to launch the business. At a time when dot-coms were dropping like flies, this might have seemed like a very poor decision. But Fluhr is now CEO of StubHub, the leader and fastest-growing company in a $10-billion-a-year industry. Home to 200 employees, StubHub utilizes 20,000 square feet of prime office space in San Francisco's pricey financial district, seven satellite offices, and two call centers. Even more telling is the company's financial performance. From 512

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2004 to 2005, StubHub tripled its volume to $200 million worth of tickets sold, generating about $50 million in commissions. Most of that was profit. According to cornscore Networks, a firm that tracks Web traffic, StubHub.com is the leading site among more than a dozen competitors in the ticket-resale category. Sharing his own experience, a New York Times writer provides the following description of how StubHub works: To test the system I started with the New York Yankees. A series with the Seattle Mariners was coming up, just before the Yankees left town for a long road trip. Good tickets would be scarce. I went to StubHub. Lots of tickets there, many priced stratospherically. I settled on two Main Box seats in Section 313, Row G. They were in the right-field corner, just one section above field level. The price was $35 each, or face price for a season ticket holder. This was a tremendous value for a sold-out game. I registered with StubHub, creating a user name and password, ordered the tickets, then sealed the deal by providing my credit card number. An e-mail message arrived soon after, confirming the order and informing me that StubHub was contacting the seller to arrange for shipment. My card would not be charged until the seller had confirmed to StubHub the time and method of delivery. A second e-mail message arrived a day later giving the delivery details. The tickets arrived on the Thursday before the game, and the seller was paid by StubHub on confirmation of delivery. On Saturday, under a clear, sunny sky, the Yankees were sending a steady stream of screaming line drives into the right-field corner. From the beginning, Baker and Fluhr set out to provide better options for both buyers and sellers by making StubHub different. Like eBay, StubHub has no ticket inventory of its own, reducing its risk. It simply provides the venue that gives buyers and sellers the opportunity to come together. But it's the differences, perhaps, that have allowed StubHub to achieve such success in such a short period of time. One of the first differences noticed by buyers and sellers k.StubHubJsticket-listing procedure. Sellers can list tickets by auction or at a fixed price, a price that declines as the event gets closer. Whereas eBay charges fees just to list tickets, StubHub lists them for free. Thus, initially, the seller has no risk whatsoever. eBay gets its revenue not only from listing fees, but from additional sliding-scale fees based on sale price. StubHub's system is simpler, and it splits the fee burden between buyer and seller. StubHub charges sellers a 15-percent commission and buyers a 10-percent fee. StubHub's Web site structure also creates a marketplace that comes closer to pure competition than any other reseller's Web site. It achieves this by minimizing the degree of differentiation between sellers on its site. On eBay, sellers customize their postings through a variety of details. Not only do text, graphics, and conditions of sale differ fiom seller to seller, so

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do the sellers' "trustworthiness" ratings. But with StubHub, all sellers are equal. Each posts tickets using the same template. When buyers browse, every posting looks the same. In fact, the seller's identity isn't even included. StubHub even holds the shipping method constant, via FedEx. This makes the purchase process much more transparent for buyers. They can browse tickets by event, venue, and section. Comparison shopping is very easy, as shoppers can simultaneously view different pairs of tickets in the same section, even in the same row. Although prices still vary, this system makes tickets more of a commodity and allows market forces to narrow the gap considerably from one seller to another. In fact, although tickets often sell for high prices, this also has the effect of pushing ticket prices down below face value. Perhaps the biggest and most important difference between StubHub and competitors is the company's 100 percent guarantee. Initially, it might seem more risky buying from a seller whose identity is unknown. But StubHub puts the burden of responsibility on the seller, remaining involved after the purchase where competing sites bow out. Buyers aren't charged until they confitm receipt of the tickets. "If you open the package and it contains two squares of toilet paper instead of the tickets," Baker explains, "then we debit the seller's credit card for the amount of the purchase." StubHub will also revoke site privileges for fraudulent or unreliable sellers. In contrast, the eBay system is largely self-policing and does not monitor the shipment or verification of the purchased items.

The company now has signed agreements with numerous NFL, NBA, MLB, and NHL teams to be their official secondary marketplace for season ticket holders. It has also struck deals with USC and the University of Alabama, with more collegiate teams in the pipeline. The deal with USC led directly to a new company record for a single event, the 2006 Rose Bowl between Texas and USC. Although StubHub would not disclose how many tickets it sold, the company acknowledged that it was triple the amount sold for all other 2006 college bowl games combined. Revenues from sporting events account for more than half of all StubHub sales. So it's not surprising that the company continues to pursue new partnerships with sports teams and even media organizations, such as Sporting News and CBS Sportsline. However, it has arranged similar contractual agreements with big-name performers such as Coldplay, Britney Spears, Jewel, Christina Aguilera, Alanis Morissette, and country music's newest star, Bobby Pinson. Arrangements allow StubHub to offer exclusive event packages with a portion of the proceeds supporting charities designated by the performer. The reselling of event tickets is here to stay. Although there is more than one channel to buy or sell, StubHub's future looks bright. The company's model of entering into partnerships with event-producing organizations is establishing them as "the official" ticket reseller. Thus, it is more than likely that StubHub's lead over the competition will only increase.

1. Conduct a brief analysis of the marketing environment

When StubHub was formed, it targeted primary professional ticket brokers and ordinary consumers. In examining individuals as sellers, Baker and Fluhr capitalized on the underexploited assets of sport team season ticket holders. "If you have season tickets to the Yankees, that's 81 games," Mr. Baker said. "Unless you're unemployed or especially passionate, there's no way you're going to attend every game." StubHub entered the equation, not only giving ticket holders a way to recoup some of their investment, but allowing them to have complete control over the process rather than selling to a ticket agent. It quickly became apparent to StubHub's founders that the benefits of season ticket holders selling off unused tickets extended to the sports franchises as well. Being able to sell unwanted tickets encourages season ticket holders to buy again. It also puts customers in seats that would otherwise go empty-customers who buy hot dogs, souvenirs, and programs. Thus, StubHub began entering into signed agreements with professional sports teams. The teams give official reselling rights to StubHub in exchange for a fee. Originally, this was a percentage of resale profits. But because of the multiple benefits for teams, StubHub now keeps all commissions and instead pays a straight fee to each team for promoting its Web site and providing contact information on season tickets. This change in contract details has only increased the number of partnerships between StubHub and sports teams. Chapter 17

and the forces shaping the development of StubHub. 2. Discuss StubHub's business model. What general bene-

fits does it afford to buyers and sellers? Which benefits are most important in terms of creating value for buyers and sellers? 3. Discuss StubHub as a new intermediary. What effects has this new type of intermediary had on the ticket industry? 4. Apply the text's e-marketing domains hamework to StubHub's business model. How has each domain played a role in the company's success? 5. What recornrnendations can you make for improving StubHub's future growth and success? 6. What are the legal or ethical issues, if any, for ticketreselling Web sites? Sources: William Grimes, "That Invisible Hand Guides the Game of Ticket Hunting," New York Times, June 18, 2004, p. El; Henry Fountain, "The Price of Admission in a Material World," New York Times, April 16, 2006, p. D5; Steve StecMow, "Can't Get No . . . Tickets?" Wall Street Journal, January 7, 2006, p. PI; Steve Stecklow, "StubHub's Ticket to Ride," Wall Street Journal, January 17, 2006, p. BI; Bob Tedeschi, "New Era of Ticket Resales: Online and Aboveboard," New York Times, August 29, 2005, p. C4; and information from "About Us," accessed online at www.stubhub.com, June, 2006.

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hen you walk into a Washington Mutual branch for the first time, you'll probably do a double take. This just isn't your usual bank. There are no teller windows or desks, no velvet ropes, and no marble counters. Instead, you'll find a warm and inviting retail environment, complete with a concierge area where WaMulians (that's what employees call themselves) meet and greet customers. According to Washington Mutual, the idea is to create a place where bank customers want to go rather than have to go. "We make our financial centers inviting, not institutional," says the bank. In many respects, a Washington Mutual branch is more like a retail store than a bank. This is the bank of the future, Washington Mutual style (WaMu, to the faithful). Sales associates are dressed in Gap-like gear: blue shirts, khaki pants, and navy sweaters. But there's not a rack of cargo pants in sight, and denim shirts are in short supply. If you want a mutual fund, however, a young woman is eager to help. If it's a checking account you need, step right up to the concierge station, and a friendly young man will direct you to the right nook. If your kids get fussy while you're chatting about overdraft protection, send them over to the kids corner, called WaMu Kids, where they can amuse themselves with games, books, and other activities. The bank's look and feel are intended to put the 'retail' back in retail banking. Known internally as Occasio (Latin for "favorable opportunity"), the format grew out of 18 months of intense market research that investigated every customer touch point in a branch. One of the primary innovations of the bank's ,design is teller towers, pedestals where sales associates stand in front of screens fieldhk transactions. They handle no money. Customers who need cash (or "wamoola") are given a slip, which they take over to a cash-dispensing machine. This is central to the bank's true goal: cross-selling products by helping customers to find additional products and services they might value. Because they aren't tethered to a cash drawer, tellers who discover that a customer's kid just got into college can march that person over to an educationloan officer. Or they can steer newlyweds to the mortgage desk. This format might seem unusual for a bank, but it's working for Washington Mutual. The company's 2,600 facilities around the country pull in more than $21 billion in yearly revenues. Last year, revenues grew almost 34 percent; profits were up 19 percent. In little more than ten years, WaMu has grown from an obscure

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Northwest thrift into the nation's seventh-largest financial institution, its largest thrift bank, and its number-three mortgage lender. Washington Mutual's success has resulted from its relentless dedication to a simple competitive marketing strategy: operational excellence. Some companies, such as Ritz-Carlton hotels, create value through customer intimacy-by coddling customers and reaping high prices and margins. Others, such as Microsoft or Intel, create value though product leadership-by offering a continuous stream of leadingedge products. in contrast, Washington Mutual creates value through a Wal-Mart-like strategy of offering convenience and competitive prices. WaMu's high-tech, innovative retail stores provide customer convenience but cost much less to staff and operate than a typical bank branch. "Their inexpensive branch design allows WaMu to make use of existing retail space and keep personnel low," notes a banking analyst. Leveraging this low cost, WaMu can offer more affordable banking services, which in turn lets it profitably serve the mass market of moderate-income consumers that other banks now overlook. In fact, WaMu wants to be the Wal-Mart of the banking industry: WaMuls strategy is simple: Deliver great value and convenient service for the everyday Joe. "The blue-collar, lower white-collar end of the market is either underserved or overcharged," says one analyst who has followed WaMu for nearly two decades. The Home Depots, Targets, and Wal-Marts have built empires by focusing on those customers. Now WaMu's CEO, Kerry Killinger, aims to join their ranks. Killinger wants nothing less than to reinvent how people think about banking. "In every retailing industry there are category killers who figure out how to have a very low cost structure and pass those advantages on

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to customers, day in and day out, with better pricing," he says. "I think we have a shot at doing that in this segment." His goal is to have his company mentioned in the same breath as WalMart and Southwest Airlines. "[We want to1 be put into a different category, as a high-growth retailer of consumer financial services," he says, without a trace of doubt. "We'll even start losing the banking label."

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WaMu's strategy focuses on building full customer relationships. It begins with offering what the company considers to be its core relationship products: home mortgages and free checking with no minimum balance requirement to avoid a monthly fee. Pretty soon, customers are happily hooked on WaMu's entire range of banking services. According to one account: "Checking accounts and mortgages are two of the most important products for Main Street America. WaMu can offer a package of products at a better value than you could get by offering those products independently. When you team the convenience and the price value, it's a very powerful combination for th; consumer." WaMu's cross-selling, relationship-building formula is a powerful one. Five years after starting with free checking as their initial relationship, Washington Mutual's households on average maintain more than $23,000 in deposit, investment, and home and consumer loan balances. WaMu's focus on customer relationships is a primary reason for the bank's success. But the company knows that to build strong customer relationships, it must also take good care of the employees who maintain those relationships. So WaMu has also created an exuberant corporate culture that motivates and supports the WaMulians. "I've never seen an organization that lives its culture the way this organization does," says Steve Rotella, WaMu's president and chief operating officer. ~ $ ~ l o ~ e e surveys show that "they view it as a special place and a place they want to work." All of those warm feelings translate into customer service, satisfaction, and value. Will Washington Mutual's competitive marketing strategy of bringing value and convenience to middle-Americans make it the Wal-Mart of the banking industry? WaMu is certainly well on its way. "You can have a lucky streak for a few quarters, but you can't accomplish what they've done with just a lucky streak," says an analyst. "They have good people; they have scale; they are very focused on their customers. For WaMu, the best is still to come."l

Competitive advantage ~n advantage over

competitors gained by offering consumers greater value than competitors offer.

Competitor analysis The process of identifying key competitors; assessing their objectives, strategies, strengths and weaknesses, and react~onpatterns; and selecting-which competitors to attack or avoid.

Today's companies face their toughest competition ever. In previous chapters, we argued that to succeed in today's fiercely competitive marketplace, companies will have to move from a product-and-selling philosophy to a customer-and-marketing philosophy. John Chambers, CEO of Cisco Systems put it well: "Make your customer the center of your culture." This chapter spells out in more detail how companies can go about outperforming competitors in order to win, keep, and grow customers. To win in today's marketplace, companies must become adept not just in mandg&gproducts, but in managing customer relationships in the face of determined competition. Understanding customers is crucial, but it's not enough. Building profitable customer relationships and gaining competitive advantage requires delivering more value and satisfaction to target consumers than competitors do. In this chapter, we examine competitive marketing strategies-how companies analyze their competitors and develop successful, value-based strategies for building and maintaining profitable customer relationships. The first step is competitor analysis, the process of identifying, assessing, and selecting key competitors. The second step is developing competitive marketing strategies that strongly position the company against competitors and give it the greatest possible competitive advantage.

Competitive marketing strategies Strategies that strongly position the company against competitors and that give the company the strongestpossible_sJrategic --advantage.

To plan effective marketing strategies, the company needs to find out all it can about its competitors. It must constantly compare its marketing strategies, products, prices, channels, and promotion with those of close competitors. In this way the company can find areas of poten-

Chapter 18 Creating Competitive Advantage

Steps in analyzing competitors

tial competitive advantage and disadvantage. As shown in Figure 18.1, competitor analysis involves first identifying and assessing competitors and then selecting which competitors to attack or avoid.

Normally, identifying competitors would seem a simple task. At the narrowest level, a company can define its competitors as other companies offering similar products and services to the same customers at similar prices. Thus, Pepsi might view Coca-Cola as a major competitor, but not Budweiser or Ocean Spray. Bookseller Barnes & Noble might see Borders as a major competitor, but not Wal-Mart or Costco. Ritz-Carlton might see Four Seasons hotels as a major competitor, but not Holiday Inn Hotels, the Hampton Inn, or any of the thousands of bed-and-breakfasts that dot the nation. But companies actually face a much wider range of competitors. The company might define competitors as all firms making the same product or class of products. Thus, RitzCarlton would see itself as competing against all other hotels. Even more broadly, competitors might include all companies making products that supply the same service. Here Ritz-Carlton would see itself competing not only against other hotels but also against anyone who supplies rooms for weary travelers. Finally, and still more broadly, competitors might include all companies that compete for the same consumer dollars. Here Ritz-Carlton would see itself competing with travel and leisure services, from cruises and summer homes to vacations abroad. Companies must avoid "competitor myopia." A company is more likely to be "buried" by its latent competitors than its current ones. For example, it wasn't direct competitors that put an end to Western Union's telegram businesses after 161 years; it was cell phones and the Internet. And for decades, Kodak held a comfortable lead in the photographic film business. It saw only Fuji as its major competitor in this market. However, in recent years, Kodak's major new competition has not come from Fuji and other film producers, but from Sony, Canon, and other digital camera makers, and from a host of digital image developers and online imagesharing services. Because of its myopic focus on film, Kodak was late to enter the digital imaging market. It paid a heavy price. With digital cameras now outselling film cameras, and with film sales plummeting 20 percent every year, Kodak has faced major sales and profit setbacks, massive layoffs, and a 74 percent drop in its stock over the past five years. Kodak is now changing its focus to digital imaging, but the transformation will be difficult. The company has to "figure out not just how to convince consumers to buy its [digital] cameras and home printers but also how to become known as the most convenient and affordable way to process those images," says an industry analyst. "That means home and store printing as well as sending images over the Internet and cell phone^."^ Companies can identify their competitors from the i L a o i n t of view. They might see themselves as being in the oil industry, the pharmaceutical~ustry,or the beverage industry. A company must understand the competitive patterns in its industry if it tive "player" in that industry. Companies can also identify competitors view. Here they define competitors as companies that are trying to need or build relationships with the same customer group. From an industry point of view, Pepsi might see its competition as Coca-Cola, Dr Pepper, 7UP. and other soft drink makers. From a market uoint of view, however, the customer really wants "thirst quenching." This need can be satisfied by bottled water, fruit juice, iced tea, or many other fluids. Similarly, Hallmark's Binney & Smith, maker of Crayola crayons, might define its competitors as other makers of crayons and children's drawing supplies. But from a market point of view, it would include all firms making recreational products for children. In general, the market concept of competition opens the company's eyes to a broader set of actual and potential competitors. One approach is to profile the company's direct and indirect competitors by mapping the steps buyers take in obtaining and using the product. F i v e 18.2

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Competitor map

Source: Based on Jeffrey F. Rayport and Bernard J. Jaworski, e-Commerce (New York: McGraw-Hill, 20011, p. 53

illustrates a competitor m a p of Eastrnan Kodak in the digital imaging b u ~ i n e s sIn . ~the center is a list of consumer activities: buying a camera, taking photos, creating digital photo albums, printing photos, and others. The first outer ring lists Kodak's main competitors with respect to each consumer activity: Canon and Sony for buying a camera, HP's Snapfish for sharing and printing photos, and so on. The second outer ring lists indirect competitors-Apple, Motorola, Microsoft, and others-who may become direct competitors. This type of analysis highlights both the competitive opportunities and the challenges a company faces.

Having identified the main competitors, marketing management now asks: What are competitors' objectives-what does each seek in the marketplace? What is each competitor's strategy? What are various competitor's strengths and weaknesses, and how will each react to actions the company might take?

Each competitor has a mix of objectives. The company wants to know the relative importance that a competitor places on current profitability, market share growth, cash flow, technological leadership, service leadership, and other goals. Knowing a competitor's mix of objectives reveals whether the competitor is satisfied with its current situation and how it might react to different competitive actions. For example, a company that pursues low-cost leadership will react much more strongly to a competitor's cost-reducing manufacturing breakthrough than to the same competitor's advertising increase. A company also must monitor its competitors' objectives for various segments. If the company finds that a competitor has discovered a new segment, this might be an opportunity. If it finds that competitors plan new moves into segments now served by the company, it will be forewarned and, hopefully, forearmed.

Strategic group A group of firms in an industry followingthe same or a similar strategy.

I d e ~-J ~ - g&;z1p&tors9 f g f?&:aLegies The more that one firm's strategy resembles another firm's strategy, the more the two firms compete. In most industries, the competitors can be sorted into groups that pursue different strategies. A strategic group is a group of firms in an industry following the same or a similar

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strategy in a given target market. For example, in the major appliance industry, GE and Whirlpool belong to the same strategic group. Each produces a full line of medium-price appliances supported by good service. In contrast, Sub-Zero and Viking belong to a different strategic group. They produce a narrower line of higher-quality appliances, offer a higher level of service, ,and charge a premium price. Some important insights emerge from identifying strategic groups. For example, if a company enters one of the groups, the members of that group become its key competitors. Thus, if the company enters the first group, against GE and Whirlpool it can succeed only if it develops strategic advantages over these competitors. Although competition is most intense within a strategic group, there is also rivalry among groups. First, some of the strategic groups may appeal to overlapping customer segments. For example, no matter what their strategy, all major appliance manufacturers will go after the apartment and homebuilders segment. Second, the customers may not see much difference in the offers of different groupsthey may see little difference in quality between Whirlpool and KitchenAid. Finally, members of one strategic group might expand into new strategy segments. Thus, GE Monogram line of appliances competes in the premium quality, premium-price line with , I M A G I N E YOUR LIFE IN A V I I < I N G K I T C H E N . .', Viking and Sub-Zero. The company needs to look at all of the - - "-.--dimensions that identify strategic groups k3 Strategic groups: Viking belongs to the appliance industry strategic group within the industry. It must understand hotw offering a narrow Line of higher-quality appliances supported by good service. each competitor delivers value to its customers. It needs to know each competitor's product quality, features, and mix; customer services; pricing policy; distribution coverage; sales f a k e &ategy; and advertising and sales promotion programs. And it must study the details of each competitor's R&D, manufacturing, purchasing, financial, and other strategies. ? ,

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Benchmarking The process of comparing the company's products and processes to those of competitors or leading firms in other industries to find ways to improve quality and performance.

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Marketers need to assess each competitor's strengths and weaknesses carefully in order to answer the critical question: What can our competitors do? As a first step, companies can gather data on each competitor's goals, strategies, and performance over the past few years. Admittedly, some of this information will be hard to obtain. For example, business-to-business marketers find it hard to estimate competitors' market shares because they do not have the same syndicated data services that are available to consumer packaged-goods companies. Companies normally learn about their competitors' strengths and weaknesses through secondary data, personal experience, and word of mouth. They can also conduct primary marketing research with customers, suppliers, and dealers. Or they can benchmark themselves against other firms, comparing the company's products and processes to those of competitors or leading firms in other industries to find ways to improve quality and performance. Benchmarking has become a powerful tool for increasing a company's competitiveness.

Next, the company wants to know: What will our competitors do? A competitor's objectives, strategies, and strengths and weaknesses go a long way toward explaining its likely actions. They also suggest its likely reactions to company moves such as price cuts, promotion

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increases, or new-product introductions. In addition, each competitor has a certain philosophy of doing business, a certain internal culture and guiding beliefs. Marketing managers need a deep understanding of a given competitor's mentality if they want to anticipate how the competitor will act or react. Each competitor reacts differently. Some do not react quickly or strongly to a competitor's move. They may feel their customers are loyal; they may be slow in noticing the move; they may lack the funds to react. Some competitors react only to certain types of moves and not to others. Other competitors react swiftly and strongly to any action. Thus, Procter & Gamble does not let a new detergent come easily into the market. Many firms avoid direct competition with P&G and look for easier prey, knowing that P&G will react fiercely if challenged. In some industries, competitors live in relative harmony; in others, t h e y m o n s t a n t l y . Knowing how major competitors react gives the co-ues on how best to attack competitors or how best to defend the company's current positions.

A company has already largely selected its major competitors through prior decisions on customer targets, distribution channels, and marketing-mix strategy. Management now must decide which competitors to compete against most vigorously.

The company can focus on one of several classes of competitors. Most companies prefer to compete against weak competitors. This requires fewer resources and less time. But in the process, the firm may gain little. You could argue that the firm also should compete with strong competitors in order to sharpen its abilities. Moreover, even strong competitors have some weaknesses, and succeeding against them often provides greater returns. Customer value analysis A useful tool for assessing competitor strengths and weaknesses is customer value analysis. (Analysisconducted to The aim of customer value analysis is to determine the benefits that target customers value ' determine what benefits aqd how customers rate the relative value of various competitors' offers. In conducting a cus.target customers value and tomer value analysis, the company first identifies the major attributes that customers value , how they rate the relative and the importance customers place on these attributes. Next, it assesses the company's and value of various competitors' competitors' performance on the valued attributes. offers. The key to gaining competitive advantage is to take each customer segment and examine how the company's offer compares to that of its major competitor. If the company's offer delivers greater value by exceeding the competitor's offer on all important attributes, the company can charge a higher price and earn higher profits, or it can charge the same price and gain ACUVUE' YTE? 883 .................. more market share. But if the company is seen as performing at a lower level than its major competitor on some important attributes, it must invest in strengthening those attributes or finding other important attributes where it can build a lead on the competitor.

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After driving smaller competitors from the market, Bausch & Lomb faces Larger, more resourceful ones, such as Johnson & Johnson's Vistakon division. With Vistakon's Acuvue Lenses Lending the way, J&Jis now the top US. contact lens maker.

Most companies will compete with close competitors-those that resemble them mostrather than distant competitors. Thus, Nike competes more against Adidas than against Timberland. And Target competes with WalMart rather than against Neiman Marcus or Nordstrom. At the same time, the company may want to avoid trying to "destroy" a close competitor. For example, in the late 1970s, Bausch & Lomb moved aggressively against other soft lens manufacturers with great success. However, this forced weak competitors'to sell out to larger firms such as Johnson & Johnson. As a result, Bausch & Lomb now faces much larger competitors-and it

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has suffered the consequences. Johnson & Johnson acquired Vistakon, a small nicher with only $20 million in annual sales. Backed by Johnson & Johnson's deep pockets, however, the small but nimble Vistakon developed and introduced its innovative Acuvue disposable lenses. With Vistakon leading the way, Johnson & Johnson is now the top U.S. contact lens maker with a 33 percent market share, and Bausch & Lomb lags in fourth place with a 13 percent share.4 In this case, success in hurting a close rival brought in tougher competitors.

A company really needs and benefits from competitors. The existence of competitors results in several strategic benefits. Competitors may help increase total demand. They may share the costs of market and product development and help to legitimize new technologies. They may serve less-attractive segments or lead to more product differentiation. Finally, they lower the antitrust risk and improve bargaining power versus labor or regulators. For example, by aggressively pricing its computer chips, $38 billion Intel could make things difficult for smaller rivals such as $6 billion AMD. However, even though AMD may be chipping away at its microprocessor market share, Intel may want to be careful about trying to knock AMD completely out. "If for no other reason than to keep the feds at bay," notes one analyst, "Intel needs AMD . . . and other rivals to stick around." Says another: "If AMD collapsed, the FTC would surely react."= However, a company may not view all of its competitors as beneficial. A n industry often contains "good" competitors and "badJ' ~ompetifors.~ Good competitors play by the rules of the industry. Bad competitors, in contrast, break the rules. They try to buy share rather than earn it, take large risks, and play by their own rules. For example, Yahoo! Music Unlimited sees Napster, Rhapsody, AOL Music, Sony Connect, and most other digital music download services as good competitors. They share a common platform, so that music bought from any of these competitors can be played on almost any playback device. However, it sees Apple's iTunes Music Store as a bad competitor, one that plays by its own rules at the expense of the industry as a whole. With the iPod, Apple created a closed system with mass appeal. iPods now account for an estimated 73 percent of the 30 million MP3 players currently in use in the United States. In 2003, when the iPod was the only game in town, Apple cut a deal with the Big Five record companies that locked up its device. The music companies wanted to sell songs on iTunes, but they were afraid of Internet piracy. So Apple promised to wrap their songs in its FairPlay software-the only copyprotection software that is iPod-compatible. Other digital music services such as Yahoo! Music Unlimited and Napster have since reached similar deals with the big record labels. But Apple refcised to license FairPlay to them. So those companies turned to Microsoft for copy protection. That satisfied fearful music companies, but it means none of the songs sold by those services can be played on the wildly popular iPod. And music downloaded from iTunes will play only on an iPod, making' it difficult for other MP3 players that support the Microsoft format to get a toehold. The situation has been a disaster for Apple's competitors. iTunes holds a commanding lead over its rivals, selling more than 7 5 percent of all digital music. It recently sold its billionth song7

E B Good and bad competitors: Digital music download services such as Yahoo! Music Unlimited, Napster, and Rhapsody see Apple as a bad competitor. Music

downloaded from their sites can't be played on the Apple's wildly popular iPod, and music from Apples' iTunes Music Store will play only on an iPod.

The implication is that "good" companies would like to shape an industry that consists of only well-behaved competitors. A company might be smart to support good competitors, aiming its attacks at bad competitors. Thus, Yahoo! Music Unlimited, Napster, and other digital music competitors will no doubt support one another in trying to break Apple's stranglehold on the market.

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esigning a Competitive HratdPigence System We have described the main types of information that companies need about their competitors. This information must be collected, interpreted, distributed, and used. The cost in money and time of gathering competitive intelligence is high, and the company must design its competitive intell?gence system in a cost-effective way. The competitive intelligence system first identifiesthe vital types of competitive information and the best sources of this information. Then, the system continuously collects information from the field (sales force, channels, suppliers, market research firms, trade associations, Web sites) and from published data (government publications, speeches, articles). Next the system checks the information for validity and reliability, interprets it, and organizes it in an a p p r o p ~ w a y Finally, . it sends key information to relevant decision makers and responds to inquiries from managers about c o m p ~ t o r s . With this system, company managers will receive timely information about competitors in the form of phone calls, e-mails, bulletins, newsletters, and reports. In addition, managers can connect with the system when they need an interpretation of a competitor's sudden move, or when they want to know a competitor's weaknesses and strengths, or when they need to know how a competitor will respond to a planned company move. Smaller companies that cannot afford to set up formal competitive intelligence offices can assign specific executives to watch specific competitors. Thus, a manager who used to work for a competitor might follow that competitor closely; he or she would be the "in-house expert" on that competitor. Any manager needing to know the thinking of a given competitor could contact the assigned in-house expert.

Having identified and evaluated its major competitors, the company now must design broad competitive marketing strategies by which it can gain competitive advantage through superior customer value. But what broad marketing strategies might the company use? Which ones are best for a particular company, or for the company's different divisions and products?

No one strategy is best for all companies. Each company must determine what makes the most sense given its position in the industry and its objectives, opportunities, and resources. Even within a company, different strategies may be required for different businesses or products. Johnson &Johnsonuses one marketing strategy for its leading brands in stable consumer markets-such as BAND-AIDS,Tylenol, or Johnson's baby products-and a different marketing strategy for its high-tech health care businesses and products-such as Monocryl surgical sutures or NeuFlex finger joint implants. Companies also differ in how they approach the strategy-planning process. Many large firms develop formal competitive marketing strategies and implement them religiously. However, other companies develop strategies in a less formal and orderly fashion. Some companies, such as Harley-Davidson,\Virgin Atlantic Airways, and Bh43V's MINI unit succeed by breaking many of the "rulesJ' of marketing strategy. Such companies don't operate large marketing departments, conduct expensive marketing research, spell out elaborate competitive strategies, and spend huge sums on advertising. Instead, they sketch out strategies on the fly, stretch their limited resources, live close to their customers, and create more satisfying solutions to customer needs. They form buyer's clubs, use buzz marketing, and focus on winning customer loyalty. It seems that not all marketing must follow in the footsteps of marketing giants such as IBM and Procter & Gamble. In fact, approaches to marketing strategy and practice often pass through three stages: entrepreneurial marketing, formulated marketing, and intrepreneurial marketing.8 ra

Entrepreneurial marketing: Most companies are started by individuals who live by their wits. They visualize an opportunity, construct flexible strategies on the backs of envelopes, and knock on every door to gain attention. Gary Hirshberg, who started the Stonyfield Farms yogurt company, will tell you that it's not about dumping millions of dollars into marketing and advertising. For Stonyfield, it's about company blogs, snappy packaging, and handing out yogurt from Segway transporters in Boston. And it's about telling the company story to the media. Hirshberg, known for wearing khakis and a vest, started mak-

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ing yogurt in Wilton, New Hampshire, with seven cows and a dream. His marketing strategy: building a strong connection with customers using guerilla marketing. His idea is that "companies can do better with less advertising, less marketing research, more guerilla marketing, and more acting from the gut." Using this strategy, Hirshberg has built Stonyfield Farm into a $250 million ~ o m p a n y . ~ Formulated marketing: As small companies achieve success, they inevitably move toward more-formulated marketing. They develop formal marketing strategies and adhere to them closely. With 85 percent of the company owned by Groupe Danone (which also owns Dannon yogurt), Stonyfield Farm has developed over the years a formal marketing department that carries out market research and plans strategy. Although Stonyfield may remain less formal in its strategy than the Procter & Gambles of the marketing world, it employs many of the tools used in these more-developed marketing companies. Intrepreneurial marketing: Many large and mature companies get stuck in formulated marketing. They pore over the latest Nielsen numbers, scan market research reports, and - ----------try to fine-tune their competitive strategies Entrepreneurial marketing: Stonyfield Farm's idea of marketing strategyand programs. These companies sometimes "companies can do better with less advertising, Less marketing research, more lose the marketing creativity and passion that guerilla marketing, and more acting from the gut." they had at the start. They now need to reestablish within their companies the entrepreneurial spirit and actions that made them successful in the first place. They need to encourage more initiative and "intrepreneurship" at the local level. They need to refresh their marketing strategies and try new approaches. Their brand and product managers need to get out of the office, start living with their customers, and visualize new and creative ways to add value to their customers' lives. The bottom line is that there are many approaches to developing effective competitive marketing strategy. There will be a constant tension between the formulated side of marketing and the creative side. It is easier to learn the formulated side of marketing, which has occupied most of our attention in this book. But we have also seen how marketing creativity and passion in the strategies of many of the company's we've studied-whether small or large, new or mature-have helped to build and maintain success in the marketplace. With this in mind, we now look at broad competitive marketing strategies companies can use.

Almost three decades ago, Michael Porter suggested four basic competitive positioning strategies that companies can follow-three winning strategies and one losing one.1•‹The three winning strategies include:

Overall cost leadership: Here the company works hard to achieve the lowest production and distribution costs. Low costs let it price lower than its competitors and win a large market share. Texas Instruments, Dell, and Wal-Mart are leading practitioners of this strategy. Diflerentiation: Here the company concentrates on creating a highly differentiated product line and marketing program so that it comes across as the class leader in the industry. Most customers would prefer to own this brand if its price is not too high. IBM and Caterpillar follow this strategy in information technology and services and heavy construction equipment, respectively.

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Part 4 Extending Marketing FOCUS:Here the company focuses its effort on serving a few market segments well rather than going after the whole market. For example, RitzCarlton focuses on the top 5 percent of corporate and leisure travelers. Glassmaker AFG Industries focuses on users of tempered and colored glass. It makes 70 percent of the glass for microwave oven doors and 75 percent of the glass for shower doors and patio tabletops. Similarly, Hohner owns a stunning 85 percent of the harmonica market.ll Companies that pursue a clear strategy-one of the above-will likely perform well. The firm that carries out that strategy best will make the most profits. But firms that do not pursue a clear strategymiddle-of-the-roaders-do the worst. Sears and Holiday Inn encountered difficult times because they did not stand out as the lowest in cost, highest in perceived value, or best in serving some market segment. Middle-of-the-roaders try to be good on all strategic counts, but end up being not very good at anything. More recently, two marketing consultants, Michael Treacy and Fred Wiersema, offered new classifications of competitive marketing strategies.lz They suggested that companies gain leadership positions by delivering superior value to their customers. Companies can pursue any of three strategies-called value disciplines-for delivering superior customer value. These are: - --------

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a p e r a t i o n a l excelfen e: The company provides &iPerior valu&4eading its industry in price and_ convenience. It works to reduce costs andTF&ate a lean aGd efficient value-delivery It Focus: Small but profitable Hohner owns a stunning 85 percent of the - system. harmonica market. serves customers who want reliable, good-quality products or services, but who want them cheaply and easily. Examples include Wal-Mart, Washington Mutual, Southwest Airlines, and Dell.---__ ,euiomer intimm : The company provides superior value by precisely segmenting its ' k i a z k e t s a - -~ 17 05r i nits ~ products or services to match exactly the needs of targeted customers. It specializes i n satisfying unique customer needs through a close relationship with and intimate knowledge of the customer. It builds detailed customer databases for segmenting and targeting, and it empowers its marketing people to respond quickly to customer needs. Customer-intimate companies serve customers who are willing to pay a premium to get precisely+whatthey v~a,pt.They will do almost anything to build long-term customer loyalty and to capture customer lifetime value. Examples include Nordstrom, American Express, and British Airways (see Real Marketing 18.1). The company provides superior value by offering a continuousucts or services. It aims to make its own and c o m p & ~ t obsos 1eteProduct leaders are open to new ideas, relentlessly pursue new solutions, and work to get new products to market quickly. They serve customers who want state-of-the-art products and services, regardless of the costs in terms of price or inconvenience. Examples include Nokia and Microsoft.

-7

Some companies successfully pursue more than one value discipline at the same time. For example, FedEx excels at both operational excellence and customer intimacy. However, such companies are rare-few firms can be the best at more than one of these disciplines. By trying to be good at all of the value disciplines, a company usually ends u p being best a t none. Treacy and Wiersema found that leading companies focus on and excel at a single value discipline, while meeting industry standards on the other two. Such companies design their entire value delivery network to single-mindedly support the chosen discipline. For example,

Chapter 18

Some companies go to extremes to coddle big spenders. From department stores like Nordstrom, to Lexus and BMW, to hotels like Ritz-Carlton and Four Seasons, such companies give their well-heeled customers exactly what they need-and even more. For example, concierge services are no longer the sole province of five-star hotels and fancy credit cards. They are starting to show up at airlines, retailers, and even electronic-goods makers. Sony Electronics, for instance, offers a service for its wealthiest customers, called Cierge, that provides a free personal shopper and early access to new gadgets, as well as "white-glove" help with the installation. (Translation: They will send someone over to set up the new gear.) And then there's British Airways' "At Your Service" programavailable to a hand-picked few of the airline's gold-level elite customers. There's almost nothing that the service won't do for members-tracking down hard-to-get Wimbledon tickets, for example, or running errands around town, sitting in a member's home to wait for the plumber or cable guy, or even planning your wedding, right down to the cake. But when it comes to stalking the well-to-do, perhaps nowhere is the competition greater than in the credit-card industry. To rise above the credit-card clutter and to attract high-end card holders, the major credit-card companies have created a new top tier of superpremium cards-Visa's Signature card, Mastercard's World card, American Express's super-elite Centurion card. Affluent customers are extremely profitable. While premium cards represent only 1.5 percent of the consumer credit cards issued by Visa, MasterCard, and American Express, they account for 2 0 percent of the spending. And well-to-do cardholders tend to default a lot less, too. The World MasterCard program targets what it calls the "mass affluent" and reaches 15 million wealthy households. Visa's Signature card zeros in on "new affluent" households, those with incomes exceeding $125,000. Its seven million cardholders account for 3 percent of Visa's consumer credit cards but 18 percent of Visa sales. Both cards feature a pack of special privileges. For its Signature card, Visa advertises, "The good life isn't only in your reach-it's in your wallet." In addition to the basics, such as no preset spending limit and 24-hour concierge services, Visa promises "upgrades, perks, and discounts" at major airlines, restaurants, and hotels, and special treatment at partners like the Ritz-Carlton, men's fashion designer Ermenegildo Zegna, watchmaker Audemars Piguet. But when it comes to premium cards, the American Express Centurion card is the "elite of the elite" for luxury card carriers. This mysterious, much-coveted black credit card is issued by invitation only, to customers who spend more than $150,000 a year on other AmEx cards and meet other not-so-clear requirements. Then, the select few who do receive the card pay a $2,500 annual fee just for the privilege of carrying it. But the Centurion card comes dripping with perks and prestige. The elusive plastic, with its elegant matte finish, is coveted by big spenders. "A black card is plastic bling-bling," says an industry observer, "a way for celebrities, athletes, and major business people to express their status." A real T-shirt-and-jeans kind of guy, Peter H. Shankman certainly doesn't look like a high roller, but American Express knows better. After he was snubbed by salesmen at a Giorgio

Creating Competitive Advantage

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Targeting affiuent customers: Visa's Signature card zeros i n on the "new affluent." It offers no preset spending limit, 24-hour concierge services, and Loads of "upgrades, perks, and discounts . . . it's not just everywhere you want to be. It's everything you ever wanted."

Armani boutique on Fifth Avenue in New York recently, the 31-year-old publicist saw "an unbelievable attitude reversal" at the cash register when he whipped out his black AmEx Centurion Card. In June, a Radioshack cashier refused the card, thinking it was a fake. " 'Trust me,' I said. 'Run the card,' " recalls the chief executive of Geek Factory, a public-relations and marketing firm. "I could buy a Learjet with this thing." An exaggeration, perhaps. But AmEx's little black card is decidedly the "It" card for big spenders. Some would-be customers go to absurd lengths to get what they see as a musthave status symbol. Hopefuls have written poems to plead their cases. Others say they'll pay the fee but swear not to use the card-they want it just for show. "Every week I get phone calls or letters, often from prominent people, asking me for the card," says AmEx's head of consumer cards, Alfred F. Kelly Jr. Who, he won't say. In fact, AmEx deliberately builds an air of mystery around the sleek card, keeping hush-hush such details as the number of cards in circulation. Analysts say AmEx earns back many times what it spends on perks for black-card customers in both marketing buzz and fees. (continues)

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Basic services on the Centurion card include a personal travel counselor and concierge, available 2417. Beyond that, almost anything goes. Feel like shopping at Bergdorf Goodman or Saks Fifth Avenue at midnight? No problem. Traveling abroad in first class?Take a pal-the extra ticket is free. The royal treatment often requires elaborate planning. One AmEx concierge arranged a bachelor party for 25, which invobed a four-day trip that included 11 penthouse suites, travel by private jet, and a meet-and-greet with an owner of the Sacramento Kings basketball team. The tab was more than $300,000. How did Shankman earn his card? All the travel and entertainment charges he racks up hosting his clients prompted AmEx to send it to him. It arrived in December, along with a 43-page manual. Recently, Shankman sought reservations for Spice Market, an often-overbooked restaurant in Manhattan, to impress a friend. He called his concierge. "Half an hour later it was done," says Shankman. Membership does have its privileges. When American Express seeks new Centurion cardholders, it does so discreetly. Last year, when it wanted to expand the elite list in Europe without attracting the ineligible, it mailed invitations to the top 1 percent of its platinum card holders. The mailing contained a card embedded in a glass paperweight with an invitation to meet personally with American Express's European president.

So, how many people actually have a Centurion card? "Abou same number of people who can afford a Mercedes Maybach," Desiree Fish, a spokeswoman for American Express, referring luxury car that can list for more than $300,000. The best guess is that only about 5,000 people worldwide have a Centurion card in their back pocket. Sources: American Express example adapted from Mara Der Hovanesian, "This Black Card Gives You Carte Blanche," Busine Week, August 9, 2004, p. 54. Quotesand other information from David Carr, "No Name, but Plenty of Bling-Bling for Show," New Times, September 13, 2004, p. C11; Eleena de Lisser, "How to Get

an Airline to Wait for Your Plumber-In Battle for Biggest Spenders, British Airways, Sony Rolls Out Hotel-Style 'Concierge' Service," Wall Street Journal, July 2, 2002, p. D l ; James Tenser, "Cards Play Their Luxury Hand Right," Advertising Age, September 13, 2004, pp. S13-S14; Frederick H. Lowe, "Cards for the Rich: They're Different, Indeed," Credit Card Management, February 2005, , pp. 18-22; Eric Dash, "New Spots for the Credit Card Companies Show Fierce Competition for the High-End Consumer," New York Times, May 11,2005, p. C8; "The 10 Best DM Campaigns," Campaign, December 16, 2005, p. 38; and www.visa.com and www.mastercard.com, December 2006.

Wal-Mart knows that customer intimacy and product leadership are important. Compared with other discounters, it offers very good customer service and an excellent product assortment. Still, it purposely offers less customer service and less product' depth than do Nordstrom or Williams-Sonoma, which pursue customer intimacy. Instead, Wal-Mart focuses obsessively on operational excellence-on reducing costs and streamlining its order-to-delivery process in order to make it convenient for customers to buy just the right products at the lowest prices. By the same token, Ritz-Carlton Hotels wants to be efficient and to employ the latest technologies. But what really sets the luxury hotel chain apart is its customer intimacy. RitzCarlton creates custom-designed experiences to coddle its customers: Check into any Ritz-Carlton hotel around the world, and you'll be amazed at how well the hotel's employees anticipate your slightest need. Without ever asking, they seem to know that you want a nonsmoliing room with a king-size bed, a nonallergenic pillow, and breakfast with decaffeinated coffee in your room. How does Ritz-Carlton work this magic? At the heart of the system is a huge customer database, which contains information gathered through the observations of hotel employees. Each day, hotel staffers-from those at the front desk to those in maintenance and housekeepingdiscreetly record the unique habits, likes, and dislikes of each guest on small "guest preference pads." These observations are then transferred to a corporatewide "guest preference database." Every morning, a "guest historian" at each hotel reviews the files of all new arrivals who have previously stayed at a Ritz-Carlton and prepares a list of suggested extra touches that might delight each guest. Guests have responded strongly to such personalized service. Since inaugurating the guest-history system, Ritz-Carlton has boosted guest retention by 23 percent. An amazing 95 percent of departing guests report that their stay has been a truly memorable experience. Classifying competitive strategies as value disciplines is appealing. It defines marketing strategy in terms of the single-minded pursuit of delivering superior value to customers. Each value discipline defines a specific way to build lasting customer relationships.

Chapter 18 Creating Competitive Advantage

F Hypothetical market structure

Market leader

The firm in an industry with the largest market share. Market challenger A runner-up firm that is

fighting hard to increase its market share in an industry. Market follower A runner-up firm that wants

to hold its share in an industry without rocking the boat.

Market leader

Market challengers

Market followers

Market nichers

Firms competing in a given target market, at any point in time, differ in their objectives and resources. Some firms are large, others small. Some have many resources, others are strapped for funds. Some are mature and established, others new and fresh. Some strive for rapid market share growth, others for long-term profits. And the firms occupy different competitive positions in the target market. We now examine competitive strategiesbased on the roles firms play in the target marketleader, challenger, follower, or nicher. Suppose that an industry contains the firms shown in Figure 18.3. Forty percent of the market is in the hands of the market leader, the firm with the largest market share. Another 30 percent is in the hands of market challengers, runner-up firms that are fighting hard to increase their market share. Another 20 percent is in the hands of market followers, other runner-up firms that want to hold their share without rocking the boat. The remaining 10 percent is in the hands of market nichers, firms that serve small segments not being pursued by other firms. Table 18.1 shows specific marketing strategies-thatare available to market leaders, challengers, followers, and nichers.13Remember, however, that these classifications often do not apply to a whole company, but only to its position in a specific industry. Large companies such as GE, Microsoft, Procter & Gamble, or Disney might be leaders in some markets and nichers in others. For example, Procter & Gamble leads in many segments, such as laundry detergents and shampoo. But it challenges Unilever in the hand soaps and Kimberly-Clark in facial tissues. Such companies often use different strategies for different business units or products, depending on the competitive situations of each.

Market nicher A firm that serves small

segments that the other firms in an industry overlook or ignore.

Most industries contain an acknowledged market leader. The leader has the largest market share and usuallyJeads the other firms in price changes, new-product introductions, distribution coverage, and promotion spending. The leader may or may not be admired or respected, but other firms concede its dominance. Competitors focus on the leader as a company to challenge, imitate, or avoid. Some of the best-known market leaders are Wal-Mart (retailing), Microsoft (computer software), IBM (information technology services and equipment), Caterpillar (earth-moving equipment), Anheuser-Busch (beer),McDonald's (fast food), Nike (athletic footwear), and Google (Internet search services). A leader's life is not easy. It must maintain a constant watch. Other firms keep challenging its strengths or trying to take advantage of its weaknesses. The market leader can easily miss a turn in the market and plunge into second or third place. A product innovation may come along and hurt the leader (as when Apple developed the iPod and took the market lead &om Sony's Walkrnan portable audio devices). The leader might grow arrogant or complacent and misjudge the competition (as when Sears lost its lead to Wal-Mart). Or the leader might look old-fashioned against new and peppier rivals (as when Levi's lost serious ground to more current or stylish brands such as Gap, Tommy Hilfiger, DKNY, or Guess). To remain number one, leading firms can take any of three actions. First, they can find ways to expand total demand. Second, they can protect their current market share through

Strategies for Market Leaders, Challengers, Followers, and Nichers

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good defensive and offensive actions. Third, they can try to expand their market share further, even if market size remains constant. y r \ e L / . / L.cSer3 Expanding the Total Demaad -+ ~l=p The leading firm normally gains the most when total mar et expands. If Americans purchase more hybrid automobiles, Toyota stands to gain the most because it sells the nation's largest share of hybrids. If Toyota can convince more Americans that hybrid cars are both more economical and more environmentally friendly, it will benefit more than its competitors. Market leaders can expand the market by developing new users, new uses, and more many places. For example, Revlon usage of its products. They usually can fin-in might find new perfume users in its current markets by convincing women who do not use perfume to try it. It might find users in new demographic segments, such as by producing fragrances for men. Or it might expand into new geographic segments, perhaps by selling its fragrances in other countries. Marketers can expand markets by discovering and promoting new uses for the product. For example, Arm & Hammer baking soda, whose sales had flattened after 125 years, discovered that consumers were using baking soda as a refrigerator deodorizer. It launched a heavy advertising and publicity campaign focusing on this use and persuaded consumers in half of America's homes to place an open box of baking soda in their refrigerators and to replace it every few months. Today, its Web site (www.armandharnmer.com) features new uses"Solutions for my home, my family, my bodyH-ranging fcom removing residue left behind by hair-styling products and sweetening garbage disposals, laundry hampers, refrigerators, and trash cans to creating a home spa in your bathroom.

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Chapter 18 Creating Competitive Advantage

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Finally, market leaders can encourage more usage by convincing people to use the product more often or to use more per occasion. For example, Campbell urges people to eat soup and other Campbell products more often by running ads containing new recipes. It also offers a toll-free hot line (1-888-MM-MM-GOOD),staffed by live "recipe representatives" who offer recipes to last-minute cooks at a loss for meal ideas. And the,Campbell's Kitchen section of the company's Web site (www.cambellsoup.com) lets visitors search for or exchange recipes, set up their own personal recipe box, sign up for a daily or weekly Meal Mail program, and even watch online video clips of guest chefs cooking any of 27 recipes on Campbell's Kitchen TV.

While trying to expand total market size, the leading firm also must protect its current business against competitors' attacks. Dell must also constantly guard against Hewlett-Packard; Caterpillar against Komatsu; Wal-Mart against Target; and McDonald's against Burger King. What can the market leader do to protect its position? First, it must prevent or fix weaknesses that provide opportunities for competitors. It must always fulfill its value promise. Its prices must remain consistent with the value that customers see in the brand. It must work tirelessly to keep strong relationships with valued customers. The leader should "plug holes" so that competitors do not jump in. But the best defense is a good offense, and the best response &ontinuous innovation. The leader refuses to be content with the way things are and leads the industry in new products, customer services, distribution effectiveness, and cost cutting. It keeps increasing its competitive effectiveness and value to customers. And when attacked by challengers, the market leader reacts decisively. For example, consider Frito-Lay's reaction to a challenge by a large competitor: In the early 1990s, Anheuser-Busch attacked Frito-Lay's leadership in salty snacks. The big brewer had noticed that Frito-Lay, a division of PepsiCo, had been distracted by its expansion into cookies and crackers. So Anheuser-Busch began to slip its new Eagle brand salty snacks onto the shelves of its traditional beer outlets-supermarkets and liquor stores-where Frito-Lay was comparatively weak. Frito-Lay reacted ruthlessly. First, to get itself into fighting shape, the salty-snacks leader cut the number of offerings in its product line by half-no more cookies, no more crackers- and invested in product quality, which had slipped below Eagle's. Then, Frito-Lay concentrated its energy, not to mention its 10,000 route drivers, on America's salty-snack aisles. FritoLay's strong brands and huge size gave it a clear economic advantage over AnheuserBusch in the salty-snack business. Armed with a superior offering-better chips, better service, and lower prices-Frito-Lay began to put pressure on one of Eagle's strongholds: potato chips in supermarkets. It sent its salespeople streaming into supermarkets; some even stayed at the largest supermarkets full time, continually restocking the Frito-Lay products. When the dust had settled in 1996, Anheuser-Busch had shuttered its Eagle snack business. In the end, Frito-Lay even bought four of Eagle's plants-at very attractive prices.14

Market leaders also can grow by increasing their market shares further. In many markets, small market share increases mean very large sales increases. For example, in the U.S. digital camera market, a 1percent increase in market share is worth $68 million; in carbonated soft drinks, $660 million! l5 Studies have shown that, on average, profitability rises with increasing market share. Because of these findings, many companies have sought expanded market shares to improve profitability. GE, for example, declared that it wants to be at least number one or two in each of its markets or else get out. GE shed its computer, air-conditioning, small appliances, and television businesses because it could not achieve top-dog position in these industries. However, some studies have found that many industries contain one or a few highly profitable large firms, several profitable and more focused firms, and a large number of mediumsized firms with poorer profit performance. It appears that profitability increases as a business gains share relative to competitors in its served market. For example, Lexus holds only a small share of the total car market, but it earns high profits because it is th$ leading brand in the luxury-performance car segment. And it has achieved this high share in its served market because it does other things right, such as producing high-cpality products, creating good service experiences, and building close customer relationships. Companies must not think, however, that gaining increased market share will automatically improve profitability. Much depends on their strategy for gaining increased share. There

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Part 4 Extending Marketing are many high-share companies with low profitability and many low-share companies with high profitability. The cost of buying higher market share may far exceed the returns. Higher shares tend to produce higher profits only when unit costs fall with increased market share, or when the company offers a superior-quality product and charges a premium price that more than covers the cost of offering higher quality.

Firms that are second, third, or lower in an industry are sometimes quite large, such as Colgate, Ford, Lowes, Avis, and Hewlett-Packard.These runner-up firms can adopt one of two competitivb strategies: They can challenge the leader and other competitors in an aggressive bid for more market share (market challengers). Or they can play along with competitors and not rock the boat (market followers). A market challenger must first define which competitors to challenge and its strategic objective. The challenger can attack the market leader, a high-risk but potentially high-gain strategy. Its goal might be to take over market leadership. Or the challenger's objective may simply be to wrest more market share. Although it might seem that the market leader has the most going for it, challengers often have what some strategists call a "second-mover advantage." The challenger observes what has made the leader successful and improves upon it. Consider Lowe's, the number-two home-improvement retailer:16 Home Depot invented the home-improvement superstore, and it's still putting up good numbers. However, after observing Home Depot's success, No. 2 Lowe's, with its brighter stores, wider aisles, and arguably more helpful salespeople, has positioned itself as the friendly alternative to Big Bad Orange. For Lowe's the advantage has been substantialand profitable. Although Lowe's still earns barely half of Home Depot's revenues, its sales grew at a 62 percent greater rate last year. And over the past ten years, Lowe's has earned average annual returns of 23.5 percent, versus Home Depot's 14.9percent. Lowe's isn't the only No. 2 outperforming the industry leaders. Target has been thumping WalMart, PepsiCo is outfizzing Coca-Cola, and Advanced Micro Devices is chipping away at Intel. In fact, Fortune magazine analyzed the stock returns of major U.S. companies in ten industries and found that the industry leaders by revenue returned a mere 2 percent over the past year, versus 21 percent for their second bananas. The gap in earnings growth-8 percent versus 24 percent-was almost as great. Alternatively, the challenger can avoid the leader and instead challenge firms its own size, or smaller local and regional firms. These smaller firms may be underfinanced and not serving their customers well. Several of the major beer companies grew to their present size not by challenging large competitors, but by gobbling up small local or regional competitors. If the company goes after a small local company, its objective may be to put that company out

Second mover advantage: After observing Home Depot's success, No. 2 Lowe's, with its brighter stores, wider aisles, and arguably more helpful salespeople, has positioned itself as the friendly alternative t o Big Bad Orange.

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of business. The important point remains: The challenger must choose its opponents carefully and have a clearly defined and attainable objective. How can the market challenger best attack the chosen competitor and achieve its strategic objectives? It may launch a full frontal attack, matching the competitor's product, advertising, price, and distribution efforts. It attacks the competitor's strengths rather than its weaknesses. The outcome depends on who has the greater strength and endurance. If the market challenger has fewer resources than the competitor, a frontal attack makes little sense. For example, the runner-up razor manufacturer in Brazil attacked Gillette, the market leader. The attacker was asked if it offered the consumer a better razor, "No," was the reply. "A lower price?" "No." "A clever advertising campaign?" "No." "Better allowances to the trade?" "No." "Then how do you expect to take share away from Gillette?" "Sheer determination" was the reply. Needless to say, the offensive failed. Even great size and strength may not be enough to challenge a firmly entrenched, resourceful competitor successfully. Rather than challenging head-on, the challenger can make an indirect attack on the competitor's weaknesses or on gaps in the competitor's market coverage. For example, Netflix found a foothold against giant Blockbuster in the DVD rental market by renting to the consumers through the mail and offering no late fees. Southwest Airlines challenged American and other large carriers by serving the overlooked short-haul, no-frills commuter segment at smaller, out-of-the-way airports. Such indirect challenges make good sense when the company has fewer resources than the competitor.

Not all runner-up companies want to challenge the market leader. Challenges are never taken lightly by the leader. If the challenger's lure is lower prices, improved service, or additional product features, the leader can quickly match these to defuse the attack. The leader probably has more staying power in an all-out battle for customers. For example, a few years ago, when Kmart launched its renewed low-price "blue-light special" campaign, directly challenging Wal-Mart's everyday low prices, it started a price war that it couldn't win. Wal-Mart had little trouble fending off Kmart's challenge, leaving Kmart worse off for the attempt. Thus, many firms prefer to follow rather than challenge the leader. Similarly, after years of challenging Procter & Gamble unsuccessfully in the US. laundry detergent market, Unilever recently decided to throw in the towel and become a follower instead. P&G captures 55 and 75 percent shares of the liquid and powder detergent markets, respectively, versus Unilever's 1 7 and 7 percent shares. P&G has outmuscled competitors on every front. For example, it batters competitors with a relentless stream of new and improved products. Recently, P&G spent more than $50 million introducing one new product alone, Tide with Downy. In response to the onslaught, Unilever has cut prices and promotion on its detergents to focus on profit rather than market share.17 A follower can gain many advantages. The market leader often bears the huge expenses of developing new products and markets, expanding distribution, and educating the market. By contrast, as with challengers, the market follower can learn from the leader's experience. It can copy or improve on the leader's products and programs, usually with much less investment. Although the follower will probably not overtake the leader, it often can be as profitable. Following is not the same as being passive or a carbon copy of the leader. A market follower must know how to hold current customers and win a fair share of new ones. It must find the right balance between following closely enough to win customers from the market leader but following at enough of a distance to %voidretaiiati3. Each follower tries to bring distinctive advantages to its target market-location, services, financing. The follower is often a major target of attack by challengers. Therefore, the market follower must keep its manufacturing costs and prices low or its product quality and services high. It must also enter new markets as they open up.

Almost every industry includes firms that specialize in serving market niches. Instead of pursuing the whole market, or even large segments, these firms target subsegments. Nichers are often smaller firms with limited resources. But smaller divisions of larger firms also may PWsue niching strategies. Firms with low shares of the total market can be highly successful and profitable through smart niching. For example, Veterinary Pet Insurance is tiny compared with the insurance industry giants, but it captures a profitable 82 percent share of all health insurance policies for our furry-or feathery-friends (see Real Marketing 18.2).

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Health insurance for pets? MetLife, Prudential, Northwestern Mutual, and most othei large insurs haven't paid much attention to it. But that leaves plenty of room for more-focused nichers, for whom pet health insurance has become a lucrative business. The largest of the small competitors is Veterinary Pet Insurance (VPI). VPl's mission is to "make the miracles of veterinary medicine affordable to all pet owners." VPI was founded in 1980 by vetefinarian Jack Stephens. He never intended to leave his practice, but his life took a dramatic turn when he visited a local grocery store and was identified by a client's daughter as "the man who killed Buffy." Stephens had euthanized the family dog two weeks earlier. He immediately began researching the possibility of creating medical pet insurance. "There is nothing more frustrating for a veterinarian than knowing that you can heal a sick patient, but the owner lacks the financial resources and instructs you to put the pet down," says Stephens. "I wanted to change that." Pet insurance is a still-small but fast-growing segment of the insurance business. Insiders think the industry offers huge potential. Currently, there are some 74 million dogs and 9 1 million cats in the United States-more than 60 percent of all US. households own one or the other or both. Another 4.6 million US. households own one or more of about 300 species of birds; two million more own pet rabbits. A recent survey showed that 94 percent of pet owners attribute human personality traits to their pets. According to a VPI spokesperson, more than two-thirds have included their pets in holiday celebrations and one-third characterize their pet as a child. Americans now spend a whopping $28.5 billion a year on their pets, including $9.4 billion on pet health care. Unlike in Britain and Sweden, where almost half of all pet owners carry pet health insurance, relatively few pet owners in the United States now carry such coverage. However, a recent study of pet owners found that nearly 75 percent are willing to go into debt to pay for veterinary care for their furry-or feathery-companions. And for many pet medical procedures, they'd have to! If not diagnosed quickly, even a mundane ear infection in a dog can result in $1,000 worth of medical treatment. Ten days of dialysis treatment can reach $12,000 and cancer treatment as much as $40,000. All of this adds up to a lot of potential growth for pet health insurers. VPlls plans cover more than 6,400 pet medical problems and conditions. The insurance helps pay for office calls, prescriptions, treatments, lab fees, x-rays, surgery, and hospitalization. Like its handful of competitors, VPI issues health insurance policies for dogs and cats. Unlike its competitors, VPI recently expanded its coverage to a menagerie of exotic pets as well. Among other critters, the Avian and Exotic Pet Plan covers birds, rabbits, ferrets, rats, guinea pigs, snakes (except extra large ones) and other reptiles, iguanas, turtles, hedgehogs, and potbellied pigs. "There's such a vast array of pets", says a VPI executive, "and people love them. We have to respect that." How's VPI doing in its niche? It's growing like a newborn puppy. VPI is by far the largest of the handful of companies that offer pet insurance, providing more than 60 percent of all US. pet insurance policies. Since its inception, VPI has issued more than 1 million policjes, and it now serves more than 369,000 policyholders. Sales have grown rapidly, exceeding $110 million in policy premiums last year. That might not amount to much for the likes of MetLife, Prudential, or

Nichers: Market nicher V P I is growing faster than a new-born puppy. Its mission is to "make the miracles of veterinary medicine affordable to a l l pet owners." Northwestern Mutual, which rack up tens of billions of dollars it yearly revenues. But it's profitable business for nichers like VPI. And there's room to grow. Less than 5 percent of pet owners currently buy pet insurance. "Pet health insurance is no longer deemed so outlandish in a world where acupuncture for cats, hospice of dogs, and Prozac for ferrets are part of a veterinarian's routine," says one analyst. Such insurance is a real godsend for VPl's policyholders. Just ask Joe and Paula Sena, whose cocker spaniel, Elvis, is receiving radiation treatments for cancer. "He is not like our kids-he is our kid," says Ms. Sena. "He is a kid in a dog's body." VPI is making Elvis's treatments possible by picking up a lion's share of the costs. "Cost often becomes the deciding factor in the level of care owners can provide," says VPI founder Stephens. VPI will always "strive to make the miracles of modern med~cineaffordable." Sources: Kevin Graman, "Some Pay Premium for Healthy Pets," Knight Ridder Business News, April 17, 2006, p. 1; Yilu Zhao, "Break a Leg, Fluffy, If You Have Insurance," New York Times, June 30, 2002, p. 9.11; Liz Pulliam Weston, "Should You Buy Pet Insurance?"hlSN R/lanej accessed at www.rnoneycentral.msn.com, May 1,2004; Darnon Darlin, "Vet Bills and the Priceless Pet: What's a Practical Owner to Do?" New York Times, May 13, 2006, p. C1; and information accessed at www.petinsurance.com, December 2006.

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Chapter 18 Creating Competitive Advantage

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Why is niching profitable? The main reason is that the market nicher ends up knowing the target customer group so well that it meets their needs better than other firms that casually sell to that niche. As a result, the nicher can charge a substantial markup over costs because of the added value. Whereas the mass marketer achieves high volume, the nicher achieves high margins. Nichers try to find one or more market niches that are safe and profitable. An ideal market niche is big enough to be profitable and has growth potential. It is one that the firm can serve effectively. Perhaps most importantly, the niche is of little interest to major competitors. And the firm can build the skills and customer goodwill to defend itself against a major competitor as the niche grows and becomes more attractive. Here's an example of a profitable nicher:

When doer technology become arl7 I: happens wnen form r5 optimircd and tvnction ir pertecled. Introducing Ihc world3 morr advanced moule-lhe MX" R ~ a l u t l o n Its . hlicroGeatv'PreCi$lon Sciall Wheel helps yav 1iy through even the longell doCumentr wilh e m , while the precisian ot nert.genenlion laser technology giver you unprecedented conlrol. Learn about our family at wirclerr mice a t Logi:ech.com

Logitech has become a $1.5 billion global success story by focusing on human interface devices-computer mice, game controllers, keyboards, PC video cameras, and others. It makes every variation of computer mouse imaginable. Over the years, Logitech has flooded the world with more than 500 million computer mice of all varieties, mice for leftand right-handed people, wireless mice, travel mice, mini mice, mice shaped like real mice for children, and 3-D mice that let the user appear to move behind screen objects. Breeding mice has been so successful that Logitech dominates the world mouse market, with giant Microsoft as its runner-up. Niching has been very good for Logitech. Its sales and profits have more than doubled in just the past six years.18

Logitzci-1 Dcrayned l o move you

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Profitable niching: Breeding mice has been so successful for Logitech that it dominates the world mouse market, with giant Microsoft as its runner-up.

The key idea in niching is specialization. A market nicher can specialize along any of several markets, customer, product, or marketing mix lines. For example, it can specialize in serving one type of end user, as when a law firm specializes in the criminal, civil, or business law markets. The nicher can specialize in serving a given customer-size group. Many nichers specialize in serving small and mid-size customers who are neglected by the majors. /--\ Some nichers focus on one or a few specific cus- . tom& /selling their entire output to a single cor&an& &s Wal-Mart or Gene_raL&fotors.Still other nichers specialize by geographi tain locality, region, or nichers operate at the low or high end of thk'.mqke~p~ example, Hewlett-Packard specializes in the high-quality, high-price end of the hand-calculator market.

lending and realty services, connecting home buyers and sellers with national networks of mortgage lenders and realtors who compete for the customers' business. "When lenders compete," it proclaims, "you win." Niching carries some major risks. For example, the market niche may dry up, or it might to the point that it attracts larger competitors. That is why many companies practice . . ;.. '.;-- ~.multiple niching. By developing two or more niches, a company&xreases its chances for survival. Even some large firms prefer a multiple niche strategy to serving the total market. For example, Alberto Culver is a $3.5 billion company that has used a multiple niching strategy to grow profitably without incurring the wrath of a market leader. The company, known mainly for its Albedo VO5 hair products, has focused its marketing muscle on acquiring a stable of smaller niche brands. It niches in hair, skin, and personal care products (Albedo V05, St. Ives, Motions, Just for Me, Pro-Line, TRESemme, and Consort men's hair ~roducts),beauty supplies r e t a g (Sally Beauty Supply stores), seasonings and sweeteners (Molly McButter, Mrs. Dash* SugarTwin, Baker's Joy), and home products (static-clingfighter Static Guard). Most of its brands are number one in their niches. Alberto Culver's CEO explains the company's ~ M l o s o this ~h~

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way: "We know who we are and, perhaps more importantly, we know who we are not. We know that if we try to out-Procter Procter, we will fall flat on our face."lg

Competitor-centered company A company whose moves are mainly based on competitors' actions and reactions.

Customer-centered company A company that focuses on customer developments in designing its marketing strategies and on delivering superior value to its target customers.

Market-centered A company that pays to both customers and competitors in designing its marketing strategies.

Whether a company is a market leader, challenger, follower, or nicher, it must watch its competitors closely and find the competitive marketing strategy that positions it most effectively. And it must continually adapt its strategies to the fast-changing competitive environment. This question now arises: Can the company spend too much time and energy tracking competitors, damaging its customer orientation? The answer is yes! A company can become so competitor centered that it loses its even more important focus on maintaining profitable customer relationships. A competitor-centered company is one that spends most of its time tracking competitors' moves and market shares and trying to find strategies to counter them. This approach has some pluses and minuses. On the positive side, the company develops a fighter orientation, watches for weaknesses in its own position, and searches out competitors' weaknesses. On the negative side, the company becomes too reactive. Rather than carrying out its own customer relationship strategy, it bases its own moves on competitors' moves. As a result, it may end up simply matching or extending industry practices rather than seeking innovative new ways to create more value for customers. A customer-centered company, by contrast, focuses more on customer developments in designing its strategies. Clearly, the customer-centered company is in a better position to identify new opportunities and set long-run strategies that make sense. By watching customer needs evolve, it can decide what customer groups and what emerging needs are the most important to serve. Then it can concentrate its resources on delivering superior value to target customers. In practice, today's companies must be market-centered companies, watching both their customers and their competitors. But they must not let competitor watching blind them to customer focusing. Figure 18.4 shows that companies have moved through four orientations over the years. In the first stage, they were product oriented, paying little attention to either customers or competitors. In the second stage, they became customer oriented and started to pay attention to customers. In the third stage, when they started to pay attention to competitors, they became competitor oriented. Today, companies need to be market oriented, paying balanced attention to both customers and competitors. Rather than simply watching competitors and trying to beat them on current ways of doing business, they need to watch customers and find innovative ways to build profitable customer relationships by delivering more value than competitors do. As noted previously, marketing begins with a good understanding of consumers and the marketplace.

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Evolving company orientations

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Chapter 18 Creating Competitive Advantage

Reviewing the Concepts Today's companies face their toughest competition ever. Understanding customers is an important first step in developing strong customer relationships, but it's not enough. To gain competitive advantage, companies must use this understanding to design market offers that deliver more value than the offers of competitors seeking to win over the same customers. This chapter examines how firms analyze their competitors and design effective competitive marketing strategies. Discuss the need to understand competitors as well as customers through competitor analysis. In order to prepare an effective marketing strategy, a company must consider its competitors as well as its customers. Building profitable customer relationships requires satisfying target consumer needs better than competitors do. A company must continuously analyze cornpetitors and develop competitive marketing strategies that position it effectively against competitors and give it the strongest possible competitive advantage. Competitor analysis first involves identifying the company's major competitors, using both an industry-based and a market-based analysis. The company then gathers information on competitors' objectives, strategies, strengths and weaknesses, and reaction patterns. With this information in hand, it can select competitors to attack or avoid. Competitive intelligence must be collected, interpreted, and distributed continuously. Company marketing managers should be able to obtain full and reliable information about any competitor affecting their decisions.

Benchmarking 519 Competitive advantage 516 Competitive marketing strategy 516 Competitor analysis 516

Competitor-centered company 534 Customer-centered company 534 Customer value analysis 520

Explain the fundamentals of competitive marketing strategies based on creating value for customers. Which competitive marketingstrategy makes the most sense depends on the company's industry and on whether it is a market leader, challenger, follower, or nicher. A market leader must mount strategies to expand the total market, protect market share, and expand market share. A market challenger is a firm that tries aggressively to expand its market share by attacking the leader, other runner-up companies, or smaller firms in the industry. The challenger can select from a variety of direct or indirect attack strategies. A market follower is a runner-up firm that chooses not to rock the boat, usually from fear that it stands to lose more than it might gain. But the follower is not without a strategy and seeks to use its particular skills to gain market growth. Some followers enjoy a higher rate of return than the leaders in their industry. A market nicher is a smaller firm that is unlikely to attract the attention of larger firms. Market nichers often become specialists in some end use, customer size, specific customer, geographic area, or sewice. Illustrate the need for balancing customer and competitor orientations in becoming a truly market-centered organization. A competitive orientation is important in today's markets, but companies should not overdo their focus on competitors. Companies are more likely to be hurt by emerging consumer needs and new competitors than by existing competitors. Market-centered companies that balance consumer and competitor considerationsare practicinga true market orientation.

Market-centered company 534 Market challenger 527 Market follower 527

Market leader 527 Market nicher 527 Strategic group 518

Discount retailer Target is attempting to identify its competitors but wants to avoid competitor myopia. Name some of its potential competitors from both an industry and market point of view.

4. Apply Treacy and Wiersema's value disciplines to online search engines. Identify a company that competes according to each discipline.

Why is it important to understand competitor's objectives?

5. What are the advantages and disadvantages of a market-nicher competitive strategy?

What is the difference between entrepreneurial, formulated, and intrepreneurial marketing? What are the advantages and disadvantages of each?

6. Why is it important for a company to maintain a balance between customer and competitor orientations?

Appwing the Concepts 1. Form a small group and conduct a customer-value analysis for five local restaurants. Who are the strong and weak competitors?For the strong competitors, what are their vulnerabilities? 2. Dell is the leader in the notebook market, with HP threateningits market share. What are some potential rnarket-leader strategies for Dell?

In 1923, Arthur Charles Nielsen introduced consumer marketers to many innovative research methods and techniques. Today, ACNielsen provides market intelligence for most of the world's leading manufacturers and

3. Tiffany & Co. is a high-profile firm in the luxury retail jewelry market. Visit www.tiffany.com/about/l'imeline.aspx and review the Tiffany historical timeline for important events. What is Tiffany & Co.'s dominant marketing strategy?Explain.

retailers. Its sister company, Nielsen Media Research, is the global leader in television audience measurement and provides the well-known television "Nielsen Ratings." Visit ACNielsen at www.acnielsen.com to find its

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retail measurement services. The retail measurement service provides consolidated register scanner data from most retail channels, including supermarkets, drugstores, mass merchandisers, and warehouse clubs. In addition to the register data, Nielsen also uses in-store observation to gather data on in-store promotions. Clients can download reports on a daily basis that track sales volume, selling price, observed promotion, and other data points. The information is provided on a company's own

brands as well as competitive brands and is easily examined by brand, category, store, or market.

Competitive intelligence offers strong advantages in the area of product development. Knowingthe competitor's progress on products, processes, and technology is highly beneficial in competitive markets. A trade secret, informationthat creates value for a company because it remains a secret, often creates strong competitor curiosity. Companies sometimes go to great lengths to uncover such secrets. They develop creative techniques to access information, sometimes pushing legal and ethical boundaries. One widely used technique is observation. Observational methods include aerial photography of manufacturing plants, dumpster diving to analyze discarded products and materials, and plant tours. One documented case involves a visit in the 1970s by Steve Jobs and other Apple executives to a Xerox research center. During the tour, Apple executives asked many probing questions about a new technology they observed. After leaving with some proprietary information, Apple subsequently hired some of the Xerox employees to further develop the technology at Apple. Apple's behavior would not be considered illegal.

According to The Uniform Trade Secrets Act (UTSA) of 1985, which attempts to offer some protection for trade secrets, legal protection does not hold if a company did not take reasonable attempts to protect its secrets.

Nike's mission statement is "to bring inspiration and innovation to every athlete in the world." That's a substantial goal-one goal made even more sizable when you consider that Nike believes that "if you have a body, you're an athlete." Despite the lofty nature of the mission, Nike has made considerable strides in its effort to fulfill it. The Nike swoosh is so ubiquitous in today's market that it may be difficult to believe the symbol appeared just 35 years ago. Since that time, Nike has become the largest sports and fitness company in the world, and 97 percent of Americans recognize the swoosh. The Nike brand succeeds by staying true to its core values and delivering consistently high-quality, cutting-edge products that appeal to the athlete in all of us, building strong relationships with customers based on real value. By making innovation the centerpiece of its product development and marketing strategy, the Nike brand has become the market

leader, reaching millions of consumers around the globe and raking in annual revenues totaling $15 billion. After viewing the video featuring Nike, answer the following questions about creating competitive advantage.

d: teams to strengthen its relationships with consumers?

In April of 2006, Forrester Research announced the results of its semiannual survey ranking consumer electronics and personal computer companies on consumer trust. Based on a poll of more than 4,700 customers as to their opinions of 22 of the best-known consumer technology brands, the company drew this conclusion: "Americans' trust in consumer technology companies is eroding."

Why is consumer trust important? Forrester vice president Ted Schadler answered that question this way: "Trust is a powerful way to measure a brand's value and its ability to command a premium price or drive consumers into a higher-profit direct channel. A decline in trust causes brand erosion and price-driven purchase decisions, which in turn correlates with low market growth."

1. How can a marketer use this to analyze its competitors? 2. How might a market leader such as Procter & Gamble react to increased sales of a store's private brand?

3. What might be a disadvantage of using Nielsen data?

1. Give some examples of the information that might be gleaned from aerial photography of a competitor's plant. 2. Google the Uniform Trade Secrets Act and scan its contents. What else do you observe about this legislation?

3. The Apple incident may not have been illegal, but was it unethical? See: William Fitzpatrick, "Uncovering Trade Secrets: The Legal and Ethical Conundrum of Creative Competitive Intelligence," S.A.M. Advanced Management Journal, Summer 2003, p. 4; and Jim Dalrymple, "Apple Loses Rumor-Site Appeal," MacWorld, August 2006, Vol. 23, Issue 8, p. 18.

1. In the broadest sense, who are Nike's generic competitors?Who are Nike's direct competitors? What competitive strategy does Nike em ploy? 2. What market leader strategies does Nike rely on to maintain its market position? Identify a competitor pursuing a niche in Nike's market. How do the actions of that competitor benefit Nike? How do they challenge Nike's market share and positioning?

3. How does Nike use partnerships with professional athletes and

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But despite the decline in trust for most technology companies, Forrester made another surprising finding. Consumer trust in the Bose Corporation was riding high. In fact, Bose far outscored all other companies in Forrester's survey. Not bad, considering that it was the first time the company had been included in the survey. Forrester pointed out that these results were no fluke, noting that Bose has 10 million regular users but more than 1 7 million consumers who aspire to use the brand (compared to 7 million for next-highest Apple). These high levels of consumer trust result from philosophies that have guided Bose for more than 40 years. Most companies today focus heavily on building revenue, profits, and stock price. They try to outdo the competition by differentiating product lines with features and attributes that other companies do not have. Although Bose pays attention to such factors, its true differentiation derives from the company's unique corporate philosophy.

Y You can't understand Bose the company without taking a look at Bose the man. Amar Bose, the company's founder and still its CEO, has been in charge from the start. In the 1950s, Bose was working on his third degree at the Massachusetts Institute of Technology. He had a keen interest in research and studied various areas of electrical engineering. He also had a strong interest in music. When he purchased his first hi-fi system-a model that he believed had the best specifications-he was very disappointed in the system's ability to reproduce realistic sound. So he set out to find his own solution. Thus began a stream of research that would ultimately lead to the founding of the Bose Corporation in 1964. From those early days, Amar Bose worked around certain core principles that have guided the philosophy of the company. In conducting his first research on speakers and sound, he did something that has since been repeated time and time again at Bose. He ignored existing technologies and started entirely from scratch. Bose president Bob Maresca provides insights on the company today that date back to Amar Bose's original philosophy: "We are not in it strictly to make money," he says. "Dr. Bose is extremely eclectic in his research interests. The business is almost a secondary consideration." For this reason, Amar Bose plows all of the privately held company's profits back into research. This practice reflects his avid love of research and his belief that it will produce the highest-quality products. But he also does this because he can Bose has been quoted many times saying, "if I worked for another company, I would have been fired a long time ago," pointing to the fact that publicly held companies have long lists of constraints that don't apply to his privately held company. For this reason, Bose has always vowed that he will never take the company public. "Going public for me would have been the equivalent of losing the company. My real interest is research-that's the excitement-and I wouldn't have been able to do long-term projects with Wall Street breathing down my neck."

This commitment to research and development has led to the high level of trust that Bose customers have for the company. It also explains their almost cultlike loyalty. Customers know that the company cares more about their best interests-about making the best product-than about maximizing profits. But for a company not driven by the bottom line, Bose does just fine. Although performance figures are tightly held, analysts estimate that between 2004 and 2006, the company's revenues increased more than 38 percent, from $1.3 billion to over $1.8 billion. According to market information firm NPD Group, Bose leads the market in home speakers with a 12.6 percent share. Not only were home speakers the company's original product line, but they remain one of its largest and most profitable endeavors.

The company that started so humbly now has a breadth of product lines beyond its core home audio line. Additional lines target a variety of applications that have captured Amar Bose's creative attention over the years, including military, automotive, homebuilding/remodeling, aviation, test equipment, and professional and commercial sound systems. The following are just a few the products that illustrate the innovative breakthroughs produced by the company. Speakers Bose's first product, introduced 1965, was a speaker. Expecting to sell $1 million worth of speakers that first year, Bose made 60 but sold only 40. The original Bose speaker evolved into the 901 DirectIReflecting speaker system launched in 1968. The speaker was so technologically advanced that the company still sells it today. The system was designed around the concept that live sound reaches the human ear via direct as well as reflected channels (off walls, ceilings, and other objects). The configuration of the speakers was completely unorthodox. They were shaped like an eighth of a sphere and mounted facing into a room's corner. The speakers had no woofers or tweeters and were very small compared to the high-end speakers of the day. The design came much closer to the essence and emotional impact of live music than anything else on the market and won immediate industry acclaim. However, Bose had a hard time convincing customers of the merits of these innovative speakers. At a time when woofers, tweeters, and size were everything, the 901 series initially flopped. In 1968, a retail salesman explained to Amar Bose why the speakers weren't selling:

"Look, I love your speaker but I cannot sell it because it makes me lose all my credibility as a salesman. I can't explain to anyone why the 901 doesn't have any woofers or tweeters. A man came in and saw the small size, and he started looking in the drawers for the speaker cabinets. I walked over to him, and he said, 'Where are you hiding the woofer?' I said to him, 'There is no woofer.' So he said, 'You're a liar,' and he walked out." (case continues)

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Bose eventually worked through the challenges of communicating the virtues of the 901 series to customers through innovative display and demonstration tactics. The product became so successful that Amar Bose now credits the 901 series for building the company. The list of major speaker innovations at Bose is a long one. In 1975, the company introduced concertlike sound in the bookshelf-size 301 DirectIReflecting speaker system. Fourteen years of research lead to the 1984 development of acoustic waveguide speaker technology, a technology found today in the award-winning Wave radio, Wave music system, and Acoustic Wave music system. In 1986, the company again changed conventional thinking about the relationship between speaker size and sound. The Acoustimass system enabled palm-size speakers to produce audio quality equivalent to that of high-end systems many times their size. The technological basis of the Acoustimass system is still in use in Bose products today. Headphones Bob Maresca recalls that, "Bose invested tens of millions of dollars over 19 years developing headset technology before making a profit. Now, headsets are a major part of the business." Initially, Bose focused on noise reduction technologies to make headphones for pilots that would block out the high level of noise interference from planes. Bose headphones combined both passive and active noise reduction methods. Passive methods involve physically blocking out noise with sound-deadening insulation. Active methods are much more complex, involving circuitry that samples ambient noise and then cancels it out by creating sound waves opposite to the "noise" waves. Bose quickly discovered that airline passengers could benefit as much as pilots from its headphone technology. Today, Bose sells its QuietComfort and Triport headphone lines for use in a variety of consumer applications. Automotive Suspensions Another major innovation at Bose has yet to be introduced. The company has been conducting research since 1980 on a product outside of its known areas of expertise: automotive suspensions. Amar Bose's interest in suspensions dates back to the 1950s when he bought both a Citroen DS-19 C and a Pontiac Bonneville, each riding on unconventional air suspension systems. Since that time, he's been obsessed with the engineering challenge of achieving good cornering capabilities without sacrificing a smooth ride. The Bose Corporation is now on the verge of introducing a suspension that it believes will accomplish this feat better than any system to date. The basics of the system include an electromagnetic motor installed at each wheel. Based on inputs from roadsensing monitors, the motor can retract and extend almost instantaneously. If there is a bump in the road, the suspension reacts by "jumping" over it. If there is a pothole, the suspension allows the wheel to extend downward, but then retracts it quickly enough that the pothole is not felt. In . addition to these comfort-producing capabilities, the wheel

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motors are strong enough to prevent the car from rolling and pitching during an aggressive maneuver. The suspension system has been designed so that it can be bolted right onto the chassis of current production cars, thus minimizing both time and expense for manufacturers. Initially, the cost of the system will put it in the class of luxury automobiles. Currently, Bose is demonstrating the system only to a handful of companies, with the intention of partnering with one manufacturer before rolling it out to others. Eventually, Bose anticipates that wider adoption and higher volume will bring the price down to the point where the suspension could be found in all but the least expensive cars. At an age when most people have long ago retired, 76year-old Amar Bose works every day, either at the company's headquarters in Framingham, Massachusetts, or at his home in nearby Wayland. "He's got more energy than an 18-yearold," says Maresca. "Every one of the naysayers only strengthens his resolve." This work ethic illustrates the Ijassion of the man who has shaped one of today's most innovative and yet most trusted companies. His philosophies have produced Bose's long list of groundbreaking innovations. Even now, as the company prepares to enter the world of automotive suspensions, it continues to achieve success by following another one of Dr. Bose's basic philosophies: "The potential size of the market? We really have no idea. We just know that we have a technology that's so different and so much better that many people will want it."

Questionsfor Discussion Based on the business philosophies of Amar Bose, how do you think the Bose Corporation goes about analyzing its competition? Which of the text's three approaches to marketing strategy best describes Bose's approach? Using the Michael Porter and Treacy and Wiersema frameworks presented in the text, which basic competitive marketing strategies does Bose pursue? What is Bose's competitive position in its industry? Do its marketing strategies match this position? In your opinion, is Bose a customer-centric company? What do you think will happen when Amar Bose leaves the company? Sources: Brian Dumaine, "Amar Bose," Fortune Small Business, September 1, 2004, accessed online at www.money.cnn.com/ magazines/fsb/; Olga Kharif, "Selling Sound: Bose Knows," Business Week Online, May 15, 2006, accessed online at www.businessweek.com; Mark Jewell, "Bose Tries to Shake Up Auto Industry," Associated Press, November 27, 2005; "Bose Introduces New QuietComfort 3 Acoustic Noise-Cancelling Headphones," Business Wire,June 8 , 2006; "Forrester Research Reveals the Most Trusted Consumer Technology Brands," press release accessed online at www.forrester.com; also see, "About Bose," accessed online at www.bose.com, June, 2006.

place. Today, almost every firm, large or small, faces international marketing issues. I n this chapter, we w i l l examine six maior decisions marketers make i n

hat could be more American than basketball?The sport was invented in the United States, and each year tens of millions of excited fans crowd their local gyms or huddle around their television sets to cheer on their favorite rec league, high school, college, or pro teams. But basketball is rapidly becoming a worldwide craze. Although soccer remains the number-one sport in most of the world, basketball-that's right, basketball-is a solid number two. Lots of companies are going global these days, but few organizations are doing it better than the National Basketball Association (NBA). During the past two decades, under the leadership of Commissioner David Stern, the NBA has become a truly global marketing enterprise. Nowhere was this more apparent than in last year's NBA finals, which were televised to more than 205 countries in 39 languages, from Armenian, Belorussian, Lithuanian, and Norwegian to Arabic, Cantonese, and Macedonian. In fact, as much as 20 percent of the NBA's $900 million in annual N revenues now comes from international markers. More than half the hits on NBA.com, which now features nine country sites in seven languages, originate outside the United States. And 25 percent of all NBA-licensed basketballs, jerseys, backboards, and other merchandise is sold internationally. The NBA has become a powerful worldwide brand. A Fortune article summarizes: Deployed by global sponsors such as Coca-Cola, Reebok, and McDonald's, well-paid [NBA superstars] hawk soda, sneakers, burgers, and basketball to legions of mostly young fans [worldwidel. hat they are recognized from Santiago to Seoul says a lot about the soaring worldwide appeal of hoopsand about th~;.marketingjuggernaut known as the NBA. After watching their favorite stars <woop in and slam-dunk on their local TV stations, fans of the league now cheer the mate in Latin America, the trofsla in Iceland, and the smash in France. Like many other businesses, the NBA's primary motive for going global is growth. The league now sells out most of its games, and domestic licensing revenues have flattened in recent years. iiGlobalization is a huge opportunity for us," says Commissioner Stern, who recently called basketball a "universal language about to bloom on a global basis." Stern sees huge worldwide potential for the NBA. "If you watch over the years what percentage of profit Coca-Cola makes from overseas, or how Wal-Mart and others are expanding in Europe and China, you'll understand," he says.

Most experts expect slam dunk after slam dunk for the NBA as it extends its international reach. Adding to the league's global appeal is the growing presence of foreign-born players. Some 82 players (more than 20 percent of all NBA pros) hail from outside the United States, and almost every NBA team boasts at least one nonU.S. star. To name just a few, the list includes Yao Ming from China, Dirk Nowitzki from Germany, Tony Kukoc from Croatia, Pau Gasol from Spain, Manu Ginobili from Argentina, and Peja Stojakovic from Serbia. Such players attract large followings in their home countries. German tennis star Boris Becker credits Dirk Nowitzki for the increase in NBA ratings in his homeland. "Thanks to Dirk, basketball has become very, very popular" in Germany. And many American basketball superstars have developed their own hoards of fanatical fans abroad. For example, according to one report, "Two years ago in Beijing, police were forced to cancel Michael Jordan's first public appearance in the city on his Asian tour after fans trampled flower beds, blocked sidewalks, damaged a car, and ripped down several billboards while angling so they could get a good view of the retired NBA legend. When police pulled the plug on the event at Dongdan Sports Center before Jordan even arrived, the fans became angry, many shouting Jordan's name in unison. Some had [waited] outside the stadium for hours, waving Jordan posters."

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Extending Marketing Stern is not content to just sit back and let international things happen. He's investing heavily to build the NBA's popularity and business abroad. The NBA now has nine offices in major world cities, including Paris, Tokyo, and Hong Kong. Its international staff numbers more than 100 people, nearly double the number who ran the entire league just two decades ago. The NBA even has an Hispanic marketing office in Miam'i, where eight people focus on Latin America and the Hispanic media in other parts of the world. For Heidi Ueberroth, head of the NBA's international business operations, the U.S. summer offseason is the start of the international marketing season. During the 2006 summer off-season, the league sponsored 132 international events, with 198 players representing all 30 NBA teams appearing in 87'cities on five continents. It also started what might be its most ambitious global expansion effort eve--called NBA Europe Live. This program took off-season training for four teams-the Suns, Clippers, Sixers, and Spurs-to European cities. Each team was chosen because it has major foreignborn players with international appeal. NBA Europe Live does much more than simply showcase team training. Each team competes in exhibition games against host teams from Euroleague basketball. According to Stern, "At the culmination of the exhibition games, there will be a four-team tournament featuring the champion of the Euroleague and the runner-up of Euroleague basketball going against two NBA teams." Given that the bulk of the NBA's international fan base is in Europe, NBA Europe Live makes good business sense. Some even see NBA Europe Live as a significant step toward landing an NBA team overseas. "I think somewhere down the road, a European Division or European Conference is certainly a possibility," says an analyst. If things look good for the NBA in Europe, the league is positively drooling over its prospects in China, with its more than 1.3 billion people and 300 million basketball fans. According to Ueberroth, basketball in China "is the number one sport for youth 30 and under." It helps that in recent years China's three biggest stars, Yao Ming, Wang ZhiZhi, and Mengke Bateer, left the Chinese Basketball Association to take a shot at NBA careers. The NBA is reaping the benefits. NBA.comfs Mandarin language Web site accounts for 20 percent of all the league's Internet traffic, and 20,000 Chinese retail outlets now sell NBA merchandise. "We have seven games a week on 24 different [Chinese] stations," Ueberroth states, underscoring the NBA's current heavy focus on China. The league even deploys its Jam Van, complete with hoops and interactive NBA video games, to tour China's provinces. Despite the dazzling prospects, many challenges remain. "Winning the loyalty of [more than a] billion Chinese won't be a kou q u C a slam dunk," suggests one international sports analyst, "but Stern is, well, bullish. . . . Can Ping-Pong survive an NBA invasion? Stay tuned [and see how the ball bo~ncesl."~

In the past, US. companies paid Liftle attention to international trade. If they could pick up some extra sales through exporting, that was fine. But the big market was at home, and it teemed with opportunities. The home market was also much safer. Managers did not need to learn other languages, deal with strange and changing currencies, face political and legal uncertainties, or adapt their products to different customer needs and expectations. Today, however, the situation is much different. Organizations of all kinds, from Coca-Cola, IBM, and Yahoo! to MTV and even the NBA, are going global.

The world is shrinking rapidly with the advent of faster communication, transportation, and financial flows. Products developed in one country-Gucci purses, Sony electronics, McDonald's hamburgers, Japanese sushi, German BMWs-are finding enthusiastic acceptance in other countries. We would not be surprised to hear about a German businessman wearing an Italian suit meeting an English friend at a Japanese restaurant who later returns home to drink Russian vodka and watch American Idol on TV.

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International trade is booming, Since 1969, the number of multinational corporations in the world has grown from 7,000 to more than 70,000. Some of these multinationals are true giants. In fact, of the largest 100 "economies" in the world, only 53 are countries. The remaining 47 are multinational corporations. Exxon Mobil, the world's largest company, has annual revenues greater than the gross domestic product of all but the world's 21 largest-GDP c o ~ n t r i e s . ~ Since 2003, total world trade has been growing at 6 to 10 percent annually, while global gross domestic product has grown at only 2.5 to 4 percent annually. World trade of products and services was valued at over 12.4 trillion dollars in 2005, which accounted for about 28 percent of gross domestic product worldwide. This trade growth is most visible in developing countries, such as China, which saw their share in world exports rise sharply to 24 percent in 2005.~ Many U.S. companies have long been successful at international marketing: Coca-Cola, GE, IBM, Colgate, Caterpillar, Ford, Boeing, McDonald's, and dozens of other American firms have made the world their market. And in the United States, names such as Sony, Toyota, BP, IKEA, Nestle, Nokia, and Prudential have become household words. Other products and services that appear to be American are in fact produced or owned by foreign companies: Bantam books, Baskin-Robbins ice cream, GE and RCA televisions, Carnation milk, Pillsbury food products, Universal Studios, and Motel 6, to name just a few. Michelin, the oh-so-French tire manufacturer, now does 36 percent of its business in North America; Johnson & Johnson, the maker of quintessentially all-American products such as Band-Aids and Johnson's Baby Shampoo, does 44 percent of its business abr~ad.~ But while global trade is growing, global competition is intensifying. Foreign firms are expanding aggressively into 'new McDonald's and many other American companies have international markets, and home markets are no longer as rich in made the world their market. opportunity. Few industries are now safe from foreign competition. If companies delay taking steps toward internationalizing, they risk being shut out of growing markets in Western and Eastern Europe, China and the Pacific Rim, Russia, and elsewhere. Firms that stay at home to play it safe not only might lose their chances to enter other markets but also risk losing their home markets. Domestic companies that never thought about foreign competitors suddenly find these competitors in their own backyards. Ironically, although the need for companies to go abroad is greater today than in the past, so are the risks. Companies that go global may face highly unstable governments and currencies, restrictive government policies and regulations, and high trade barriers. Corruption is also an increasing problem-officials in several countries often award business not to the best bidder but to the highest briber. A global firm is one that, by operating in more than one country, gains marketing, proGlobal firm duction, R&D, and financial advantages that are not available to purely domestic competitors. A firm that, by operating in more than one country, gains The global company sees the world as one market. It minimizes the importance of national boundaries and develops "transnational" brands. It raises capital, obtains materials and comR&D, production, marketing, ponents, and manufactures and markets its goods wherever it can do the best job. For examand financial advantages in ple, Otis Elevator gets its elevators' door systems from France, small geared parts from Spain, its costs and reputation that electronics from Germany, and special motor drives from Japan. It uses the United States only are not available to purely for systems integration. "Borders are so 20th century," says one global marketing expert. domestic competitors. "Transnationals take 'stateless' to the next leveLU5 This does not mean that small and medium-size firms must operate in a dozen countries to succeed. These firms can practice global niching. But the world is becoming smaller, and every company operating in a global industry-whether large or small-must assess and establish its place in world markets. The rapid move toward globalization means that all companies will have to answer some basic questions: What market position should we try to establish in our country, in our emnomic region, and globally? Who will our global competitors be, and what are their strategies

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E 1 9.1 Major international marketing decisions and resources? Where should we produce or source our products? What strategic alliances should we form with other firms around the world? Asshown in Figure 19.1, a company faces six major decisions in international marketing. We will discuss each decision in detail in this chapter.

Before deciding whether to operate internationally, a company must understand the international marketing environment. That environment has changed a great deal in the past two decades, creating both new opportunities and new problems.

U.S. companies looking abroad must start by understanding the international trade system. When selling to another country, a firm may face restrictions on trade between nations. Foreign governments may charge tariffs, taxes on certain imported products designed to raise revenue or to protect domestic firms. Or they may set quotas, limits on the amount of foreign imports that they will accept in certain product categories. The purpose of a quota is to conserve on foreign exchange and to protect local industry and employment. American firms may also face exchange controls, which limit the amount of foreign exchange and the exchange rate against other currencies. The company also may face nontariff trade barriers, such as biases against U.S. company bids or restrictive product standards that go against American product features: For years, Japan has successfully devised nontariff trade barriers to shut foreign products out of its domestic markets. One of the cleverest ways the Japanese have found to keep foreign manufacturers out is to plead "uniqueness." Japanese skin is different, the government argues, so foreign cosmetics companies must test their products in Japan before selling there. The Japanese say their stomachs are small and have room for only the mikan, the local tangerine, so imports of U.S. oranges are limited. Now the Japanese have come up with what may be-the flakiest argument yet: Their snow is different, so ski equipment should be too.6 At the same time, certain forces help trade between nations. Examples include the General Agreement on Tariffs an'&~rade(GATT) and various regional free trade agreements.

The General Agreement on Tariffs and Trade (GATT) is a 59-year-old treaty designed to promote world trade by reducing tariffs and other international trade barriers. Since the treaty's inception in 1947, member nations (currently numbering 149) have met in eight rounds of GATT negotiations to reassess trade barriers and set new rules for international trade. The first seven rounds of negotiations reduced the average worldwide tariffs on manufactured goods from 45 percent to just 5 p e r ~ e n t . ~ The most recently completed GATT negotiations, dubbed the Uruguay Round, dragged on for seven long years before concluding in 1993. The benefits of the Uruguay Round will be felt for many years as the accord promotes long-term global trade growth. It reduced the world's remaining merchandise tariffs by 30 percent. The agreement also extended GATT to cover trade in agriculture and a wide range of services, and it toughened international protection of copyrights, patents, trademarks, and other intellectual property. Although the financial impact of such an agreement is difficult to measure, research suggests that

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cutting agriculture, manufacturing, and services trade barriers by one-third would boost the world economy by $613 billion, the equivalent of adding another Australia to the world ec~nomy.~ Beyond reducing trade barriers and setting global standards for trade, the Uruguay Round set up the World Trade Organization (WTO) to enforce GATT rules. In general, the WTO acts as an umbrella organization, overseeing GATT, mediating global disputes, and imposing trade sanctions. The previous GATT organization never possessed such authorities. A new round of GATT negotiations, the Doha Round, began in Doha, Qatar, in late 2001 and was set to conclude in 2005, but the discussions c ~ n t i n u e . ~

Certain countries have formed free trade zones or economic communities. These are groups of nations organized to work toward common goals in the regulation of international trade. One such community is the European Union (EU). Formed in 1957, the European Union set out to create a single European market by reducing barriers to the free flow of products, services, finances, and labor among member countries and developing policies on trade with nonmember nations. Today, the ~ u r o p e a nUnion represents one of the world's single largest markets. By 2007 it will have 27 member countries containing close to half a billion consumers and accounting for more than 20 percent of the El The WTO and GATT: The General Agreement on Tariffs and Trade (GATT) promotes world's exports.1•‹ world trade by reducing tariffs i n other international trade barriers. The WTO European unification offers tremendous oversees GATT, imposes trade sanctions, and mediates global disputes. trade opportunities for U.S. and other nonEuropean firms. However, it also poses threats. As a result of increased unification, European Economic community companies have grown bigger and more competitive. Perhaps an even greater concern, howA group of nations organized ever, is that lower barriers inside Europe will create only thicker outside walls. Some to work toward common goals observers envision a "Fortress Europe" that heaps favors on firms from EU countries but hinin the regulation of ders outsiders by imposing obstacles. international trade. Progress toward European unification has been slow-many doubt that complete unification will ever be achieved. In recent years, 12 member nations have taken a significant step toward unification by adopting the euro as a common currency. Many other countries are expected to follow within the next few years. Widespread adoption of the euro will decrease much of the currency risk associated with doing business in Europe, making member countries with previously weak currencies more attractive markets.ll However, even with the adoption of the euro, it is unlikely that the EU will ever go against 2,000 years of tradition and become the "United States of Europe." A community with two dozen different languages and cultures will always have difficulty coming together and acting as a single entity. For example, efforts to forge a single European constitution appear to have failed following French and Dutch "no" votes in mid-2005. And economic disputes between member nations have stalled long-term budget negotiations. Still, although only partly successful so far, unification has made Europe a global force with which to reckon, with a combined annual GDP of more than $12.1 trillion.12 In 1994, the North American Free Trade Agreement (NAFTA) established a free trade zone among the United States, Mexico, and Canada. The agreement created a single market of 435 million people who produce and consume over $14.4 trillion worth of goods and services annually. As it is implemented over a 15-year period, NAFTA will eliminate all trade barriers and investment restrictions among the three countries. Thus far, the agfeement has alhwed

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trade between the countries to flourish. In the dozen years following its establishment, trade among the NAFTA nations has risen 173 percent. U.S. merchandise exports to NAFTA partners grew 133 percent, compared with exports to the rest of the world at 77 percent. Canada and Mexico are now the nation's first and second largest trading partners.13 Following the apparent success of NAFTA, in 2005 the Central American Free Trade Agreement (CAFTA) established a free trade zone between the United States and Costa Rica, the Dominican Republic, El Salvador, Guatemala, Honduras, and Nicaragua. And talks have been underway since 1994 to investigate establishing a Free Trade Area of the Americas (FTAA). This mammoth free trade zone would include 34 countries stretching from the Bering Strait to Cape Horn, with a population of 800 million and a combined gross domestic product of about $1 7 trillion.14 Other free trade areas have formed in Latin America and South America. For example, MERCOSUR links ten Latin America and South America countries, and the Andean Community (CAN, for its Spanish initials) links five more. In late 2004, MERCOSUR and CAN agreed to unite, creating the South American Community of Nations (CSN), which will be @ Economic communities: The European Union represents one of the world's single modeled after the European Union. Complete largest markets. 1t's-currentmember countries contain more than half a billion integration between the two trade blocs is consumers and account for 20 percent of the world's exports. expected by 2007 and all tariffs between the nations are to be eliminated by 2019. With a population of more than 370 million, a combined economy of more than $2.8 trillion a year, and exports worth $181 billion, the CSN will make up the largest trading bloc after NAFTA and the European Union.15 Although the recent trend toward free trade zones has caused great excitement and new market opportunities, some see it as a mixed blessing. For example, in the United States, unions fear that NAFTA will lead to an exodus of manufacturing jobs to Mexico, where wage rates are much lower. Environmentalists worry that companies that are unwilling to play by the strict rules of the U.S. Environmental Protection Agency will relocate in Mexico, where pollution regulation has been lax.16 Each nation has unique features that must be understood. nation's readiness for different products and services and its attractiveness as a market to foreign firms depend on its economic, political-legal, and cultural~environments. .$ ,.?.:.

The international marketer must study each country's economy. Two economic factors reflect the country's attractiveness as a market: the country's industrial structure and its income distribution. The country's industrial structure shapes its product and service needs, income levels, and employment levels. The four types of industrial structures are as follows:

Subsistence economies: In a subsistence economy, the vast majority of people engage in simple agriculture. They consume most of their output and barter the rest for simple goods and services. They offer few market opportunities. Raw material exporting economies: These economies are rich in one or more natural resources but poor in other ways. Much of their revenue comes from exporting these resources. Examples are Chile (tin and copper), Democratic Republic of Congo (copper, cobalt, and coffee), and Saudi Arabia (oil). These countries are good markets for large

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equipment, tools and supplies, and trucks. If there are many foreign residents and a wealthy upper class, they are also a market for luxury goods. Industrializing economies: In an industrializing economy, manufacturing accounts for 10 to 20 percent of the country's economy. Examples include Egypt, India, and Brazil. As manufacturing increases, the country needs more imports of raw textile materials, steel, and heavy machinery, and fewer imports of finished textiles, paper products, and automobiles. Industrialization typically creates a new rich class and a small but growing middle class, both demanding new types of imported goods. Industrial economies: Industrial economies are major exporters of manufactured goods, services, and investment funds. They trade goods among themselves and also export them to other types of economies for raw materials and semifinished goods. The varied manufacturing activities of these industrial nations and their large middle class make them rich markets for all sorts of goods. The second economic factor is the country's income distribution. Industrialized nations may have low-, medium-, and high-income households. In contrast, countries with subsistence economies may consist mostly of households with very low family incomes. Still other countries may have households with only either very low or very high incomes. However, even poor or developing economies may be attractive markets for all kinds of goods, including luxuries. For example, many luxury brand marketers are rushing to take advantage of China's rapidly developing consumer markets:17 More than half of China's 1.3 billion consumers can barely afford rice, let alone luxuries. According to The World Bank, more than 400 million Chinese live on less than $2 a day. Yet posh brands-from Gucci and Cartier to BMW and Bentley-are descending on China in force. How can purveyors of $2,000 handbags, $20,000 watches, and $1 million limousines thrive in a developing economy? Easy, says a Cartier executive. "Remember, even medium-sized cities in China . . . have populations larger than Switzerland's. So it doesn't matter if the percentage of people i n those cities who can afford our products is very small." Thus, even though China has only 0.2 millionaires per 1,000 residents (compared with 8.4 per 1,000 in the United States), it trails only the U.S., Germany, and the United Kingdom in the total number of millionaires. Dazzled by the pace at which China's booming economy is minting millionaires and swelling the ranks of the middle class, luxury brands are rushing to stake out shop space, tout their wares, and lay the foundations of a market they hope will eventually include as many as 100 million conspicuous consumers. "The Chinese are a natural audience for luxury goods," notes one analyst. After decades of socialism and poverty, China's elite are suddenly "keen to show off their newfound wealth. Europe's fashion houses are happy to assist. Giorgio Armani recently hosted a star-studded fashion show to celebrate the opening of his 12,000-square-foot flagship store on Shanghai's waterfront; Armani promises 30 stores in China before the 2008 Beijing Olympics. Gucci recently opened Economic environment: Many Luxury brand marketers are rushing t o take stores in Hangzhou and Chengdu, bringing advantage of China's rapidly developing consumer markets. its China total to six. And it's not just clothes. Cartier, with nine stores in China and seven on the drawing board, has seen its China sales double for the past several years. Carmakers, too, are racing in. BMW recently cut the ribbon on a new Chinese factory that has the capacity to produce 50,000 BMWs a year. Audi's sleek A6 has emerged as the car of choice for the Communist Party's senior ranks, despite its $230,000 price tag. Bentley, which sold "

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Political-Legal Environment

Countertrade International trade involving the direct or indirect exchange of goods for other goods instead of cash.

Nations differ greatly in their political-legal environments. In considering whether to do business in a given country, a company should consider factors such as the country's attitudes toward international buying, government bureaucracy, political stability, and monetary reguiations. Some nations are very receptive to foreign firms; others are less accommodating. For example, India has tended to bother foreign businesses with import quotas, currency restrictions, and other limitations that make operating there a challenge. In contrast, neighboring Asian countries such as Singapore and Thailand court foreign investors and shower them with incentives and favorable operating conditions. Political stability is another issue. For example, India's government is notoriously unstable-the country has elected 10 new governments in the past 20 years-increasing the risk of doing business there. Although most international marketers still find India's huge market attractive, the unstable political situation will affect how they handle business and financial matters.18 Companies must also consider a country's monetary regulations. Sellers want to take their profits in a currency of value to them. Ideally, the buyer can pay in the seller's currency or in other world currencies. Short of this, sellers might accept a blocked currencyone whose removal from the country is restricted by the buyer's government-if they can buy other goods in that country that they need themselves or can sell elsewhere for a needed currency. Besides currency limits, a changing exchange rate also creates high risks for the seller. Most international trade involves cash transactions. Yet many nations have too little hard currency to pay for their purchases from other countries. They may want to pay with other items instead of cash, which has led to a growing practice called countertrade. Countertrade takes several forms: Barter involves the direct exchange of goods or services, as when Azerbaijan imported wheat from Romania in exchange for crude oil, and Vietnam exchanged rice for Philippine fertilizer and coconuts. Another form is compensation (or buyback), whereby the seller sells a plant, equipment, or technology to another country and agrees to take payment in the resulting products. Thus, Japan's Fukusuke Corporation sold knitting machines and raw textile materials to Shanghai clothing manufacturer Chinatex in exchange for finished textiles produced on the machines. The most common form of countertrade is counterpurchase, in which the seller receives full payment in cash but agrees to spend some of the money in the other country. For example, Boeing sells aircraft to India and agrees to buy Indian coffee, rice, castor oil, and other goods and sell them elsewhere.lg Countertrade deals can be very complex. For example, a few-years back, DaimlerChrysler agreed to sell 30 trucks to Romania in exchange for 150 Romanian jeeps, which it then sold to Ecuador for bananas, which were in turn sold to a German supermarket chain for German currency. Through this roundabout process, DaimlerChrysler finally obtained payment in ,. ? German money.

Each country has its own folkways, norms, and taboos. When designing global marketing strategies, companies must understand how culture affects consumer reactions in each of its world markets. In turn, they must also understand how their strategies affect local cultures.

The seller must examine the ways consumers in different countries think about and use certain products before planning a marketing program. There are often surprises. For example, the average French man uses almost twice as many cosmetics and grooming aids as his wife. The Germans and the French eat more packaged, branded spaghetti than do Italians. Italian children like to eat chocolate bars between slices of bread as a snack. Women in Tanzania will not give their children eggs for fear of making them bald or impotent.

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Companies that ignore cultural norms and differences can make some very expensive and embarrassing mistakes. Here are examples:

2' 3 Overlooking cultural differences can result in embarrassing mistakes. China imposed a nationwide ban on this "blasphemous" kung-fu-themed ad campaign

featuring LeBron James crushing a number of culturally revere Chinese figures.

Nike inadvertently offended Chinese officials when it ran an advertisement featuring LeBron James crushing a number of culturally revered Chinese figures in a kung-fu-themed ad campaign. The Chinese government found that the ad violated regulations to uphold national dignity and respect of the culture and yanked the multimillion-dollar campaign. With egg on its face, Nike released a formal apology. Nike faced a similar situation in Arab countries when Muslims objected to a stylized "Air" logo on its shoes, which resembled "Allah" in Arabic script. Nike apologized for that mistake as well and pulled the shoes from d i s t r i b ~ t i o n . ~ ~

Business norms and behavior also vary from country to country. For example, American executives like to get right down to business and engage in fast and tough face-to-face bargaining. However, Japanese and other Asian businesspeople often find this behavior offensive. They prefer to start with polite conversation, and they rarely say no in face-to-face conversations. As another example, South Americans like to sit or stand very close to each other when they talk business-in fact, almost nose-tonose. The American business executive tends to keep backing away as the South'American moves closer. Both may end up being offended. American business executives need to be briefed on these kinds of factors before conducting business in another country.21 By the same token, companies that understand cultural nuances can use them to their advantage when positioning products internationally. Consider the following example: A television ad running these days in India shows a mother lapsing into a daydream: Her young daughter is in a beauty contest dressed as Snow White, dancing on a stage. Her flowing gown is an immaculate white. The garments of other contestants, who dance in the background, are a tad gray. Snow White, no surprise, wins the blue ribbon. The mother awakes to the laughter of her adoring family-and glances proudly at her Whirlpool White Magic washing machine. The TV spot is the product of 14 months of research by Whirlpool into the psyche of the Indian consumer. Among other things, [Whirlpool] learned that Indian homemakers prize hygiene and purity, which they associate with white. The trouble is, white garments often get discolored after frequent machine washing in local water. Besides appealing to this love of purity in its ads, Whirlpool custom-designed machines that are especially good with white fabrics. Whirlpool now is the leading brand in India's fast-growing market for fully automatic washing machines.22 Thus, understanding cultural traditions, preferences, and behaviors can help companies not only to avoid embarrassing mistakes but also to take advantage of cross-cultural opportunities.

Whereas marketers worry about the impact of culture on their global marketing strategies, others may worry about the impact of marketing strategies on global cultures. For example, social critics contend that large American multinationals such as McDonald's, Coca-Cola, Starbucks, Nike, Microsoft, Disney, and MTV aren't just "globalizing" their brands, they are "Americanizing" the world's cultures. Down in the mall, between the fast-food joint and the bagel shop, a group of young people huddles in a flurry of baggy combat pants, skateboards, and slang. They

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size u p a woman teetering past wearing DKNY, carrying Time magazine i n one hand and a latte in the other. She brushes past a guy in a Yankees baseball cap who is talking on his Motorola cell phone about the Martin Scorsese film he saw last night. It's a standard American scene-only this isn't America, it's Britain. U.S. culture is so pervasive, the scene could be played out in any one of dozens of cities. Budapest or Berlin, if not Bogota or Bordeaux. Even Manila or Moscow. As the mivaled global superpower, America exports its culture on an unprecedented scale. . . . Sometimes, U.S. ideals get transmitted-such as individual rights, freedom of speech, and respect for women-and local cultures are enriched. At other times, matesialism or worse becomes the message and local traditions get crushed.23 "Today, globalization often wears Mickey Mouse ears, eats Big Macs, drinks Coke or Pepsi, and does its computing with [Microsoft] Windows [software]," says Thomas Friedman, in his book The Lexus and the Olive Tree.24Critics worry that, under such "McDomination," countries around the globe are losing their individual cultural identities. Teens in India watch MTV and ask their parents for more westernized clothes and other symbols of American pop culture and values. Grandmothers in small European villas no longer spend each morning visiting local meat, bread, and produce markets to gather the ingredients for dinner. Instead, they now shop at Wal-Mart Supercenters. Women i n Saudi Arabia see American films and question their societal roles. In China, most people never drank coffee before Starbucks entered the market. Now Chinese consumers rush to Starbucks stores "because it's a symbol of a new kind of lifestyle." Similarly, in China, where McDonald's operates 8 0 restaurants in Beijing alone, nearly half of all children identify the chain as a domestic brand. Such concerns have sometimes led to a backlash against American globalization. Wellknown U.S. brands have become the targets of boycotts and protests in some international markets. As symbols of American capitalism, companies such as Coca-Cola, McDonald's, Nike, and KFC have been singled out by antiglobalization protestors in hot spots all around the world, especially when antiAmerican sentiment peaks. Despite such problems, defenders of globalization argue that concerns of "Americanization" and the potential damage to American brands are overblown. U.S. brands are doing very well internationally. In the most recent BusinessWeeklInterbrand survey of global brands, 1 2 of the top 1 5 brands were American owned. And based on a recent study of 3,300 consumers5n 41 countries, researchers concluded that consumers did not appear to translate anti-American sentiment into antibrand sentiment:25

El Americanization: Social critics contend t h a t large American multinationak aren't just "globalizing" their brands, they are "Americanizing" the world's cultures. I n China, most people never drank coffee before Starbucks entered the market.

We found that it simply didn't matter to consumers whether the global brands they bought were American. To be sure, many people said they cared. A French panelist called American brands "imperialistic threats that undermine French culture." A German told us that Americans "want to impose their way on everybody." But the [talk] belied the reality. When we measured the extent to which consumers' purchase decisions were influenced by products' American roots, we discovered that the impact was negligible.

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More fundamentally, most studies reveal that the cultural exchange goes both waysAmerica gets as well as gives cultural influence:26 Hollywood dominates the global movie market-capturing 90 percent of audiences in some European markets. However, British TV is giving as much as it gets in serving up competition to U.S. shows, spawning such hits as "Who Wants to Be a Millionaire" and "American Idol." And while West Indian sports fans are now watching more basketball than cricket, and some Chinese young people are daubing the names of NBA superstars on their jerseys, the increasing popularity of American soccer has deep international roots. Even American childhood has increasingly been influenced by Asian and European cultural imports, Most kids know all about the Power Rangers, Tamagotchi and Pokemon, Sega and Nintendo. And J. K. Rowling's so-very-British Harry Potter books are shaping the thinking of a generation of American youngsters, not to mention the millions of American oldsters who've fallen under their spell as well. For the moment, English remains cyberspace's dominant language, and having Web access often means that Third World youth have greater exposure to American popular culture. Yet these same technologies enable Balkan students studying in the United States to hear Webcast news and music from Serbia or Bosnia. Thanks to broadband communication, foreign media producers will distribute films and television programs directly to American consumers without having to pass by U.S. gatekeepers. American companies have also learned that to succeed abroad they must adapt to local cultural values and traditions rather than trying to force their own. Disneyland Paris flopped at first because it failed to take local cultural values and behaviors into account. According to a Euro Disney executive, "When we first launched, there was the belief that it was enough to be Disney. Now we realize that our guests need to be welcomed on the basis of their own culture and travel habitsHz7That realization has made Disneyland Paris the number one tourist attraction in Europe-even more popular than the Eiffel Tower. The newest attraction there is The Walt Disney Studios Park, a movie-themed park that blends Disney entertainment and attractions with the history and culture of European film. A show celebrating the history of animation features Disney characters speaking six different languages. Rides are narrated by foreign-born stars speaking in their native tongues. Thus, globalization is a two-way street. If globalization has Mickey Mouse ears, it is also wearing a French beret, talking on a Nokia cell phone, buying furniture at IKEA, driving a Toyota Camry, and watching a Sony big-screen plasma TV.

Not all companies need to venture into international markets to survive. For example, most local businesses need to market well only in the local marketplace. Operating domestically is easier and safer. Managers don't need to learn another country's language and laws. They don't need to deal with unstable currencies, face political and legal uncertainties, or redesign their products to suit different customer expectations. However, companies that operate in global industries, where their strategic positions in specific markets are affected strongly by their overall global positions, must compete on a regional or worldwide basis to succeed. Any of several factors might draw a company into the international arena. Global competitors might attack the company's home market by offering better products or lower prices. The company might want to counterattack these competitors in their home markets to tie up their resources. Or the company's home market might be stagnant or shrinking, and foreign markets may present higher sales and profit opportunities. Or the company's customers might be expanding abroad and require international servicing. Before going abroad, the company must weigh several risks and answer many questions about its ability to operate globally. Can the company learn to understand the preferences and buyer behavior of consumers in other countries? Can it offer competitively attractive products? Will it be able to adapt to other countries' business cultures and deal effectively with foreign nationals? Do the company's managers have the necessary international experience? Has management considered the impact of regulations and the political environments of other co~tries?

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Because of the difficulties of entering international markets, most companies do not act until some situation or event thrusts them into the global arena. Someone-a domestic exporter, a foreign importer, a foreign government-may ask the company to sell abroad. Or the company may be saddled with overcapacity and need to find additional markets for its goods.

Before going abroad, the company should try to define its international marketing objectives and policies. It should decide what volume of foreign sales it wants. Most companies start small when they go abroad. Some plan to stay small, seeing international sales as a small part of their business. Other companies have bigger plans, seeing international business as equal to or even more important than their domestic business. The company also needs to choose in how many countries it wants to market. Companies must be careful not to spread themselves too thin or to expand beyond their capabilities by operating in too many countries too soon. Next, the company needs to decide on the types of countries to enter. A country's attractiveness depends on the product, geographical factors, income and population, political climate, and other factors. The seller may prefer certain country groups or parts of the world. In recent years, many major new markets have emerged, offering both substantial opportunities and daunting challenges. After listing possible international markets, the company must carefully evaluate each one. It must consider many factors. For example, Colgate's decision to enter the Chinese market seems fairly straightforward: China's huge population makes it the world's largest toothpaste market. And given that only 20 percent of China's rural dwellers now brush daily, this already huge market can grow even larger. Yet Colgate must still question whether market size alone is reason enough for investing heavily in China. Colgate should ask some important questions: Will it be able to overcome cultural barriers and convince Chinese consumers to brush their teeth regularly? Does China provide for the needed production and distribution technologies? C&I Colgate compete effectively with dozens of local competitors, a state-owned brand managed by Unilever, and P&G's Crest? Will the Chinese government remain stable and supportive? Colgate's current success in China suggests that it could answer yes to all of these questions. By expanding its product line and aggressively pursuing promotional and educational programs-from massive ad campaigns to visits to local schools to sponsoring oral care researchColgate has expanded its market share from 7 percent in 1995 to more than 35 percent today.28 Possible glob.al markets should be ranked on several factors, including market size, market growth, cost of doing business, competitive advantage, and risk level. The goal is to determine the potential of each market, using indicators such as those shown in Table 19.1. Then the Colgate's decision to enter the huge Chinese market seems fairly marketer must decide which markets offer the straightforward. Using aggressive promotional and education programs, Colgate has greatest long-run return on investment. expanded its market share from 7 percent in 1995 t o more than 35 percent today.

Once a company has decided to sell in a foreign country, it must determine the best mode of entry. Its choices are exporting, joint venturing, and direct investment. Figure 19.2 shows three market entry strategies, along with the options each one offers. As the figure shows, each succeeding strategy involves more commitment and risk, but also more control and potential profits.

Exporting Enteringa foreign market by selling goods produced in the company's home country, often with little modification.

Exporting The simplest way to enter a foreign market is through exporting. The company may passively export its surpluses fromtime to time, or it may make an active commitment to expand

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indicators of Market Potential

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exports to a particular market. In either case, the company produces all its goods in its home country. It may or may not modify them for the export market. Exporting involves the least change in the company's product lines, organization, investments, or mission. , Companies typically start with indirect exporting, working through independent intercational marketing intermediaries. Indirect exporting involves less investment because the firm does not require an overseas marketing organization or network. It also involves less risk. International marketing intermediaries bring know-how and services to the relationship, so the seller normally makes fewer mistakes. Sellers may eventually move into direct exporting, whereby they handle their own exports. The investment and risk are somewhat greater in this strategy, but so is the potential return. A company can conduct direct exporting in several ways: It can set up a domestic export department that carries out export activities. It can set up an overseas sales branch that handles sales, distribution, and perhaps promotion. The sales branch gives the seller more presence and program control in the foreign market and often serves as a display center and customer service center. The company can also send home-based salespeople abroad at certain times in order to find business. Finally, the company can do its exporting either through foreign-based distributors who buy and own the goods or through foreign-based agents who sell the goods on behalf of the company. Joint venturing Entering foreign markets by joining with foreign companies to produce or market a product or service.

Joint A second method of entering a foreign market is joint venturing-joining with foreign companies to produce or market products or services. Joint venturing differs from exporting in that the company joins with a host country partner to sell or market abroad. It differs from direct

FII Market entry strategies

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Amount of commitment, risk, ko&?l, --atid Frofit potential

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investment in that an association is formed with someone in the foreign country. There are four types of joint ventures: licensing, contract manufacturing, management contracting, and joint ownership.zg

Licensing: Tokyo Disneyland Resort is owned and operated by the Oriental Land Co. Ltd. (a Japanese development company), under license from The Walt Disney Company.

Licensing is a simple way for a manufacturer to enter international marketing. The company enters into an agreement with a licensee in the foreign market. For a fee or royalty, the licensee buys the right to use the company's manufacturing process, trademark, patent, trade secret, or other item of value. The company thus gains entry into the market at little risk; the licensee gains production expertise or a well-known product or name without having to start from scratch. Coca-Cola markets internationally by licensing bottlers around the world and supplying them with the syrup needed to produce the product. In Japan, Budweiser beer flows from Kirin breweries and Marlboro cigarettes roll off production lines at Japan Tobacco, Inc. Tokyo Disneyland Resort is owned and operated by Oriental Land Company under license from The Walt Disney Company. Saks recently announced that it will enter the Chinese market through licensing. By licensing its name, Saks will become the first foreign luxury department store in this fastgrowing market, but without having to operate the store itself. "Clearly, this minimizes the risk for the company," says Saks' CEO. Licensing also allows Saks to take advantage of global opportunities without diverting its focus from U.S. operations. "Our focus is 99 percent on the U.S. market," says the Licensing has potential disadvantages, however. The firm has less control over the licensee than it would over its own operations. Furthermore, if the licensee is very successful, the firm has given up these profits, and if and when the contract ends, it may find it has created a competitor.

Licensing A method of entering a

foreign market in which the company enters into an agreement with a licensee in the foreign market. Contract manufacturing A joint venture in which a

company contracts with manufacturers in a foreign market to produce the product or provide its service. Management contracting A joint venture in which the

domestic firm supplies the management know-how to a foreign company that supplies the capital.

Another option is contract manufacturing-the company contracts with manufacturers in the foreign market to produce its product or provide its service. Sears used this method in opening up department stores in Mexico and Spain, where it found qualified local manufacturers to produce many of the products it sells. The drawbacks of contract manufacturing are decreased control over the manufacturing process and loss of potential profits on manufacturing. The benefits are the chance to start faster, with less risk, and the later opportunity either to form a partnership with or,!o buy out the local manufacturer.

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Under management contracting, the domestic firm supplies management know-how to a foreign company that supplies the capital. The domestic firm exports management services rather than products. Hilton uses this arrangement in managing hotels around the world. Management contracting is a low-risk method of getting into a foreign market, and it yields income from the beginning. The arrangement is even more attractive if the contracting firm has an option to buy some share in the managed company later on. The arrangement is not sensible, however, if the company can put its scarce management talent to better uses or if it can make greater profits by undertaking the whole venture. Management contracting also prevents the company from setting up its own operations for a period of time.

Joint ownership ventures consist of one company joining forces with foreign investors to create a local business i n which they share joint ownership and control. A company may buy an interest in a local firm, or the two parties may form a new business venture. Joint

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Joint ownership A joint venture in which a company joins investors in a foreign market to create a local business in which the company shares joint ownership and control.

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ownership may be needed for economic or political reasons. The firm may lack the financial, physical, or managerial resources to undertake the venture alone. Or a foreign government may require joint ownership as a condition for entry. KFC entered Japan through a joint ownership venture with Japanese conglomerate Mitsubishi. KFC sought a good way to enter the large but difficult Japanese fast-food market. In turn, Mitsubishi, one of Japan's largest poultry producers, understood the Japanese culture and had money to invest. Together, they helped KFC succeed in the semiclosed Japanese market. Surprisingly, with Mitsubishi's guidance, KFC developed decidedly un-Japanese positioning for its Japanese restaurants:

When KFC first entered Japan, the Japanese were uncomfortable with the idea of fast food and franchising. They saw fast food as artificial and unhealthy. To build trust, KFC Japan created ads depicting the most authentic version of Colonel Sanders' beginnings possible. The ads featured the quintessential southern mother and highlighted the KFC philosophy-the southern hospitality, old American tradition, and authentic home cooking. With "My Old Kentucky Home" by Stephen Foster playing i n the background, the commercial showed Colonel Sanders' mother making and feeding her grandchildren KFC chicken made with 11 secret spices. It conjured up scenes of good home cookin' from the American South, positioning KFC as wholesome, aristocratic food. The campaign was hugely successful-in the end, the Japanese people could not get enough of this special American chicken. Most Japanese grew to know "My Old Kentucky Home" by heart. ~ h & eare now mire than 1,100 KFC El Joint ownership: KFC entered Japan through a joint ownership venture with locations in the country.31 Japanese conglomerate Mitsubishi. Joint ownership has certain drawbacks. The partners may disagree over investment, marketing, or other policies. Whereas many U.S. firms like to reinvest earnings for growth, local firms often prefer to take out these earnings; and whereas U.S. firms emphasize the role of marketing, local investors may rely on selling.

Direct investment Entering a foreign market by developing foreign-based assembly or manufacturing facilities.

Standardized marketing mix An international marketing strategy for using basically the same product, advertising, distribution channels, and other marketing mix elements in all the company's international markets.

The biggest involvement in a foreign market comes through direct investment-the development of foreign-based assembly or manufacturing facilities. If a company has gained experience in exporting and if the foreign market is large enough, foreign production facilities offer many advantages. The firm may have lower costs in the form of cheaper labor or raw materials, foreign government investment incentives, and freight savings. The firm may improve its image in the host country because it creates jobs. Generally, a firm develops a deeper relationship with government, customers, local suppliers, and distributors, allowing it to adapt its products to the local market better. Finally, the firm keeps full control over the investment and therefore can develop manufacturing and marketing policies that serve its long-term international objectives. The main disadvantage of direct investment is that the firm faces many risks, such as restricted or devalued currencies, falling markets, or government changes. In some cases, a firm has no choice but to accept these risks if it wants to operate in the host country.

Companies that operate in one or more foreign markets must decide how much, if at all, to adapt their marketing strategies and programs to local conditions. At one extreme are global companies that use a standardized marketing mix, selling largely the same products and

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using the same marketing approaches worldwide. At the other extreme is an adapted marketing mix. In this case, the producer adjusts the marketing mix elements to each target market, bearing more costs but hoping for a larger market share and return. The question of whether to adapt or standardize the marketing strategy and program has been much debated in recent years. On the one hand, some global marketers believe that technology is making the world a smaller place and that consumer needs around the world are becoming more similar. This paves the way for "global brands" and standardized global marketing. Global branding and standardization, in turn, result in greater brand power and reduced costs from economies of scale. On the other hand, the marketing concept holds that marketing programs will be more effective if tailored to the unique needs of each targeted customer group. If this concept applies within a country, it should apply even more in international markets. Despite global convergence, consumers in different countries still have widely varied cultural backgrounds. They still differ significantly in their needs and wants, spending power, product preferences, and shopping patterns. Because these differences are hard to change, most marketers adapt their products, prices, channels, and promotions to fit consumer desires in each country. However, global standardization is not an all-or-nothing proposition but rather a matter of degree. Most international marketers suggest that companies should "think globally but act locallym-that they should seek a balance between standardization and adaptation. The corporate level gives global strategic direction; regional or local units focus on individual consumer differences across global markets. "It's often a mistake to set out to create a worldwide strategy," says one expert. "Better results come from strong regional [or local] strategies brought together into a global whole." Simon Clift, head of marketing for global consumer-goods giant Unilever, puts i t this way: "We're trying to strike a balance between being mindlessly global and hopelessly local."32 McDonald's operates this way. It uses the same basic fast-food operating model i n its restaurants around the world but adapts its menu to local tastes. In Korea it sells the Bulgogi Burger, a grilled pork patty on a bun with a garlicky soy sauce. In India, where cows are considered sacred, McDonald's serves McChicken, Filet-0-Fish, McVeggie (a vegetable burger), Pizza McPuffs, McAloo Tikki (a spiced-potato burger), and the Maharaja Mactwo all-chicken patties, special sauce, lettuce, cheese, pickles, onions on a sesame-seed bun. Similarly, South Korean electronics and appliance powerhouse LG Electronics makes and markets its brands globally but carefully localH Marketing mix adaptation: I n India, McDonald's serves chicken, fish, and izes its products to the needs of specific counvegetable burgers, and the Maharaja Mac-two all-chicken patties, special sauce, try markets. By acting locally, it succeeds globally (see Real Marketing 19.1). lettuce, cheese, pickles, onions, on a sesame seed bun. Adapted marketing mix An international marketing strategy for adjusting the marketing mix elements to each international target market, bearing more costs but hoping for a larger market share and return.

Five strategies allow for adapting product and marketing communication strategies to a global market (see Figure 1 9 . 3 ) . ~We ~ first discuss the three product strategies and then turn to the two communication strategies. Product

Five global product and communications strategies

Don't change product

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Adapt product

Develop new product

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If you've got kimchi in your fridge, it's hard to t. Made from fermented cabbage seasoned with garlic and chili, kimchi is served with most meals in Korea. But when it's stored inside a normal refrigerator, its pungent odor taints nearby foods. That's why, two decades ago, South Korean appliance manufacturer LG Electronics introduced the kimchi refrigerator, a product specifically designed to address the odor problem. Featuring a dedicated compartment that isolates smelly kimchi from other foods, the fridge gradually became a must-have in Korean homes, inspiring rivals such as Samsung to offer similar models. Kimchi refrigerators have become a fixture in 65 percent of Korean homes, and after facing down the competition, LG is the country's topBy thinking locally, LG Electronics is succeeding globally. It makes a kimchi fridge for the Korean selling manufacturer. The kimchi fridge has become a market, a shish kebab microwave for the Iranians, karaoke phones for the Russians, and gold-plated model for the approach that LG uses to 71-inch flat-screen televisions for Middle Easterners with a taste for gilded opulence. expand into new global markets-a passionate focus on in-depth localization. LG insists on understanding Indian microwaves have dark-colored interiors to hide 'masala stains. and catering to the idiosyncrasies of local markets through in-country In 1999, LG introduced a television for cricket fans that came with a research, manufacturing, and marketing. Localization has been a key built-in cricket video game. After research showed that many Indians element of LG's successful global expansion. "Gone are the days use their TVs to listen to music as well, the company offered its where you could just roll out one product for the global market," Ballad television with extraloud sound. Over time, these efforts have explains LG's Middle East marketing director. Y e speak to con- paid off. LG dominates in India, with sales that are projected to reach sumers individually." $1.8 billion this year. In some categories, such as washing machines, LG certainly has been successful globally. The $47 billion elec- LG's market share is more than twice that of its nearest competitor. tronics, telecommunications, and appliance powerhouse now operLocalization helps LG gain traction in emerging markets, where ates in more than 39 countries, and 86 percent of its sales come consumers have few preexisting brand loyalties. In Iran, LG offers a from markets outside its home country. It's the world's top producer microwave oven with a preset button for reheating shish kebabs-a of air conditioners and one of the top three global players in washing favorite dish. LG now claims to command roughly 40 percent of the machines, microwaves, and refrigerators. And LG is surging into Iranian microwave market. Meanwhile, LG's Primian refrigerator high-tech digital markets-it's now the world's fourth-largest pro- includes a special compartment for storing dates, a Middle Eastern ducer of mobile handsets and the second-largest mobile phone staple fruit that spoils easily. maker in the United States. Its mission is to "make customers happy" Although not always huge sellers, LG1slocalized products clearly worldwide by creating products that change their lives, no matter generate buzz. The company recently made headlines throughout where they live. the Middle East by unveiling a gold-plated 71-inch flat-screen televiNowhere is the success of LG's localization approach more evident sion that sells for $80,000--a tribute to the region's famous affinity than in India, where the company is now the clear leader in virtually for gilded opulence. In Russia, LG's research revealed that many every appliance and electronics category-from microwaves to televi- people entertain at home during the country's long winters, promptsions-despite having entered the market in 1997, two years after ing the company to develop a karaoke phone that can be proSamsung. With a population of more than 1 billion that spans several grammed with the top 100 Russian songs, whose lyrics scroll across religions and languages, lndia functions like dozens of smaller regional the screen when they're played. Introduced in late 2004, the phone markets. LG initially differentiated itself by introducing a line of health- has been a hit, selling more than 220,000 handsets. oriented products, such as televisions that reduced eyestrain. By All this experience will be put to the test as LG moves to make its 1999, however, it had set up local research and design facilities, man- presence felt in China, the world's biggest consumer market, where ufacturing plants, and a network of service centers. major international brands must compete against domestic rivals To meet the needs of Indian consumers, LG rolled out refrigera- such as Haier. Just as it did in India, LG is establishing extensive intors with larger vegetable- and water-storage compartments, surge- country facilities in China-from research to manufacturing to prodresistant power supplies, and brightly colored finishes that reflect uct marketing. LG opened research and development operations in local preferences (red in the south, green in Kashmir). Some of LG's Beijing in 2002 and has since ramped up its staff to more than

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1,500. The company also reached out to local consumers by cieating an "LG village," a high-profile initiative that transformed a decrepit agricultural community into a showcase for LG technologies. The efforts seem to be paying off: With help from such simple touches as making the exteriors of products red-a lucky color in China-LG raked in sales of $8 billion on the mainland last year. Thus, from Korean kimchi to Indian criccket mania to Russian karaoke, LG's unrelenting commitment to localization is winning the

Straight product extension Marketing a product in a foreign market without any change.

Product adaptation Adapting a product to meet local conditions or wants in foreign markets.

company waves of new customers around the globe. By thinking locally, LG is succeeding globally. Source: Adapted from Elizabeth Esfahani, "Thinking Locally, Succeeding Globally," Business 2.0, December 2005, pp. 96-98. Also see Evan Ramstas, "LG Electronics' Net Surges 91 Percent As Cell Phone Margins Improve," WaNStreetJournal,January 25, 2006, p. 82; and information from www.lge.com, December 2006.

Straight product extension means marketing a product in a foreign market without any change. Top management tells its marketing people, "Take the product as is and find customers for it." The first step, however, should be to find out whether foreign consumers use that product and what form they prefer. Straight extension has been successful in some cases and disastrous in others. Kellogg cereals, Gillette razors, Heineken beer, and Black & Decker tools are all sold successfully in about the same form around the world. But General Foods introduced its standard powdered Jell-0 in the British market only to find that British consumers prefer a solid wafer or cake form. Likewise, Philips began to make a profit in Japan only after it reduced the size of its coffeemakers to fit into smaller Japanese kitchens and its shavers to fit smaller Japanese hands. Straight extension is tempting because it involves no additional product development costs, manufacturing changes, or new promotion. But it can be costly in the long run if products fail to satisfy foreign consumers. Product adaptation involves changing the product to meet local conditions or wants. For example, Finnish cell phone maker Nokia customizes its cell phones for every major market. Developers build in rudimentary voice recognition for Asia where keyboards are a problem and raise the ring volume so phones can be heard on crowded Asian streets. And Procter & Gamble adapts its CoverGirl cosmetics brand for the Chinese market.34

CoverGirl in China bears little resemblance to its American cousin. CoverGirl products, altered to reflect Chinese skin tone and fashion trends, are sold at a handful of snazzy retail counters in major Beijing department stores. The counters are stafFed by beauty consultants. The products are sold in small, snappy containers that resemble pieces of colorful candy, and the packaging is more silvery, giving it a premium edge. Why has P&G spruced up but downsized the Chinese CoverGirl brand? In China, CoverGirl targets urban women aged 20 to 35 who earn $250 per month. Chinese women are relatively new users of cosmetics and most do not buy them before entering the workforce. Thus, the on-site beauty consultants are very important. Also, according to Daisy Ching, an executive with CoverGirl's Chinese ad agency, these buyers want upscale products, and they f'like cute packaging, like to try out new things and change the colors with the seasons." But they can't afford prestige brands in full-size packages. CoverGirlJssmaller sizes lets them sample a variety of premium products at a price many can afford. "You can't just import cosmetics here," concludes Ching. "Companies have to understand what beauty means to Chinese women and what they look for, and product offerings and communication have to be adjusted accordingly."

Product invention Creating new products or services for foreign markets.

Product invention consists of creating something new for a specific country market. This strategy can take two forms. It might mean maintaining or reintroducing earlier product forms that happen to be well adapted to the needs of a given country. Or a company might create a new product to meet a need in a given country. For example, Sony added the "U" model to its VAIO personal computer line to meet the unique needs of Japanese consumers. It found that Japanese commuters had difficulty using standard laptops on crowded rush-hour trains-standing commuters have no laps. So it created the U as a "standing computer." The U is lightweight and small: only seven inches wide with a five-inch diagonal screen. And it includes an on-screen touch keyboard that can be used while standing or on the move. Although the model is popular in Japan, response to similar Sony ultra-portable models in the United States has been lukewarm. Far more Americans touch-type than do Japanese (a few Japanese characters convey a lot), and touch typists are likely to resist on-screen keyboards.35

Chapter 19 The Global Marketplace

Communication adaptation A global communication

strategy of fully adapting advertising messages to local markets.

Some companies standardize their advertising around the world, adapting only to meet cultural differences.Guy Laroche uses similar ads in Europe (Left) and Arab countries (right), but tones down the sensuality in the Arab version-the man is clothed and the woman barely touches him.

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Companies can either adopt the same communication strategy they used i n the home market or change it for each local market. Consider advertising messages. Some global companies use a standardized advertising theme around the world. Of course, even in highly standardized communications campaigns, some small changes might be required to adjust for language and minor cultural differences. For example, Guy Laroche uses virtually the same ads for its Drakkar Noir fragrances i n Europe as i n Arab countries. However, it subtly tones down the Arab versions to meet cultural differences i n attitudes toward sensuality. Colors also are changed sometimes to avoid taboos in other countries. Purple is associated with death in most of Latin America, white is a mourning color i n Japan, and green is associated with jungle sickness i n M a l a y ~ i a Even . ~ ~ names must be changed. Kellogg had to rename Bran Buds cereal i n Sweden, where the name roughly translates as "burned farmer." And in the Americas, Mitsubishi changed the Japanese name of its Pajero SUV to Montero-it seems that pajero in Spanish is a slang term for sexual self-gratification. (See Real Marketing 19.2 for more on language blunders in international marketing.)37 Other companies follow a strategy of communication adaptation, fully adapting their advertising messages to local markets. Kellogg ads in the United States promote the taste and nutrition of Kellogg's cereals versus competitors' brands. In France, where consumers drink little milk and eat little for breakfast, Kellogg's ads must convince consumers that cereals are a tasty and healthful breakfast. In India, where many consumers eat heavy, fried breakfasts, Kellogg's advertising convinces buyers to switch to a lighter, more nutritious breakfast diet. Similarly, Coca-Cola sells its low-calorie beverage as Diet Coke in North America, the United Kingdom, and the Middle and Far East but as Light elsewhere. According to Diet Coke's global brand manager, in Spanish-speaking countries Coke Light ads "position the soft drink as an object of desire, rather than as a way to feel good about yourself, as Diet Coke is positioned in the United States." This "desire positioning" plays off research showing that "Coca-Cola Light is seen in other parts of world as a vibrant brand that exudes a sexy ~ o n f i d e n c e . " ~ ~ Media also need to be adapted internationally because media availability varies from country to country. TV advertising time is very limited in Europe, for instance, ranging from four hours a day in France to none in Scandinavian countries. Advertisers must buy time months in advapce, and they have little control over airtimes. Magazines also vary in effectiveness. For example, magazines are a major medium in Italy but a minor one in Austria. Newspapers are national in the United Kingdom but are only local in Spain.39

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,-- Many global companies have had difficulty crossing the language barrier, with results ranging from IKEA near yoti IKEA help center clistonler s e ~ c e flonle slmppir~g prodacts A-2 searcl~ mild embarrassment to outright failure. i > horn* > ~hmr:n'i IKEA z Chkjrmn's iutniore > F A S T F U L L W ~bench ~ @ my profile join our ernat1 1 s t ' Seemingly innocuous brand names and I advertising phrases can take on unintended f 1 / Work bench or hidden meanrngs when translated ihto f ' 1 7 FARTFULL other languages. Careless translations can $103.001 pieces make a marketer look downright foolish to @:ice r+li?itsisiccted c$isn$) website prices may vary from $tore prices. foreign consumers. The class~clanguage blunders involve Si-9! standardized brand names that do not transP :!UJE~ wlti fcr cgi!-handed and !or left-h.?ni?ed late well. When Coca-Cola first marketed Coke in Ch~nain the 1920s, it developed a group of Chinese characters that, when pronounced, sounded like the product name. Unfortunately, the characters actually translated as "bite the wax tadpole." Now, the Global language barriers: Some standardized brand names do not translate well globally. characters on Chinese Coke bottles translate as "happiness in the mouth." Several modern-day marketers have had similar problems when vacuum cleaners-"Nothing sucks like an Electrolux"-would captheir brand names crashed into the language barrier. Chevy's Nova ture few customers in the United States. So, what can a company do to avoid such mistakes?One answer is translated into Spanish as no v+"it doesn't go." GM changed the name to Caribe (Spanish for Caribbean) and sales increased. Rolls- to call in the experts. Brand consultancy Lexicon Branding has been Royce avoided the name Silver Mist in German markets, where mist dreaming up brand names for more than 20 years, including names means "manure." Sunbeam, however, entered the German market like Dasani, Swiffer, and Blackberry. David Placek, Lexicon's founder with its Mist Stick hair curling iron. As should have been expected, and president acknowledges that "coming up with catchy product the Germans had little use for a "manure wand." IKEA marketed a names is a lot harder than [you1 might imagine, especially in this children's workbench named FARTFULL (the word means "speedy" Global Age, when a word that might inspire admiration in one country can just as easily inspire red faces or unintended guffaws in another." in Swedish)-it soon discontinued the product. Lexicon maintains a global network of high-quality linguists from lnterbrand of London, the firm that created household names such as Prozac and Acura, recently developed a brand-name "hall of around the world that it calls GlobalTalk-"so we can call on them to shame" list, which contained these and other foreign brand names evaluate words for language and cultural cues and miscues."~yond you're never likely to see inside the local Safeway: Krapp toilet paper screening out the bad names, the GlobalTalk network can also help (Denmark), Crapsy Fruit cereal (France), Poo curry powder find good ones. "We created the brand name Zima for Coors with (Argentina), and Pschitt lemonade (France). help from the GIobalTalk network," says Placek. "I put out a message Travelers often encounter well-intentioned advice from service saying that we were looking for a name for a light alcoholic drink that firms that takes on meanings very different from those intended. The would be cold, crisp, and refreshing. I got a fax in quickly from our menu in one Swiss restaurant proudly stated, "Our wines leave you Russian linguist saying that zima meant "winter" in Russian. I circled nothing to hope for." Signs in a Japanese hotel pronounced, "You are the word because I thought it was beautiful and unusual, and the invited to take advantage of the chambermaid." At a laundry in $jient loved it. We sent it around the world to make sure that it didn't Rome, it was, "Ladies, leave your clothes here and spend the after- have a negative connotation anywhere, and it didn't. noon having a good time." Advertising themes often lose--or gain-%omething in the transla- Sources: Lexicon example and quotes from "Naming Products Is No tion. The Coors beer slogan "get loose with Coors" in Spanish came Game," BusinessWeek Online, April 9,2004, accessed at www. out as "get the runs with Coors." Coca-Cola's "Coke adds life" theme businessweekonline.com. For the above and other examples, see in Japanese translated into "Coke brings your ancestors back from David A. Ricks, "Perspectives: Translation Blunders in lnternational the dead." The milk industry learned too late that its American adver- Business," Journal of Language for International Business, 7:2, 1996, tising question "Got Milk?" translated in Mexico as a more provoca- pp. 50-55; Sam Solley, "Developing a Name to Work Worldwide," tive "Are you lactating?" In Chinese, the KFC slogan "finger-lickin' Marketing, December 21,2000, p. 27; Thomas T. Sermon, "Cutting good" came out as "eat your fingers off." And Frank Perdue's classic Corners in Language Risky Business," Marketing News, April 23, 2001, line, "It takes a tough man to make a tender chicken," took on added p. 9; Martin Croft, "Mind Your Language," Marketing, June 19, 2003, meaning in Spanish: "It takes an aroused man to make a chicken pp. 35-39; Mark Lasswell, "Lost in Translation," Business 2.0, August affectionate." Even when the language is the same, word usage may 2004, pp. 68-70; "Lost in Translation," Hispanic, May 2005, p. 12; and differ from country to country. Thus, the British ad line for Electrolux "Striking a Chord in Tamil," Businessline, January 19, 2006, p. 1.

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Companies also face many problems in setting their international prices. For example, how might Black & Decker price its power tools globally? It could set a uniform price all around the world, but this amount would be too high a price in poor countries and not high enough in rich ones. It could charge what consumers in each country would bear, but this strategy ignores differences in the actual costs from country to country. Finally, the company could use a standard markup of its costs everywhere, but this approach might price Black & Decker out of the market in some countries where costs are high. Regardless of how companies go about pricing their products, their foreign prices probably will be higher than their domestic prices for comparable products. A Gucci handbag may sell for $60 in Italy and $240 in the United States. Why? Gucci faces a price escalation problem. It must add the cost of transportation, tariffs, importer margin, wholesaler margin, and retailer margin to its factory price. Depending on these added costs, the product may need to sell for two to five times as much in another country to make the same profit. For example, a pair of Levi's jeans that sells for $30 in the United States typically fetches $63 in Tokyo and $88 in Paris. A computer that sells for $1,000 in New York may cost •’1,000in the United Kingdom. A Ford automobile priced at $20,000 in the United States might sell for more than $80,000 in South Korea. Another problem involves setting a price for goods that a company ships to its foreign subsidiaries. If the company charges a foreign subsidiary too much, it may end up paying higher tariff duties even while paying lower income taxes in that country. If the company charges its subsidiary too little, it can be charged with dumping. Dumping occurs when a company either charges less than its costs or less than it charges in its home market. For example, the U.S. Southern Shrimp Alliance, which represents thousands of small shrimp operations in the southeast United States, recently complained that six countries (China,Thailand, Vietnam, Ecuador, India, and Brazil)have been dumping excess supplies of farmed shrimp on the U.S. market. The U.S. International Trade Commission agreed and the Commerce Department imposed duties as high as 112.81 percent on shrimp imports from the offending countries.40Various governments are always watching for dumping abuses, and they often force companies to set the price charged by other competitors for the same or similar products. Recent economic and technological forces have had an impact on global pricing. For example, in the European Union, the transition to the euro is reducing the amount of price differentiation. As consumers recognize price differentiation by country, companies are being forced to harmonize prices throughout the countries that have adopted the single currency. Companies and marketers that offer the most unique or necessary products or services will be least affected by such "price transparency." For Marie-Claude Lang, a 72-year-old retired Belgian postal worker, the euro is the best thing since bottled water-or French country sausage. Always on the prowl for bargains, Ms. Lang is now stalking the wide aisles of an Auchan hypermarket in Roncq, France, a 15-minute drive from her Wervick home. . . . Ms. Lang has been coming to France every other week for years to stock up on bottled water, milk, and yogurt. But the launch of the euro. . . has opened her eyes to many more products that she now sees cost less across the border. Today she sees that "saucisse de campagne," is cheaper "by about five euro cents," a savings she didn't notice when she had to calculate the difference between Belgian and French francs. At Europe's borders, the euro is turning into the coupon clipper's delight. Sure, price-conscious Europeans have long crossed into foreign territory to find everything from cheaper television sets to bargain bottles of Coca-Cola. But the new transparency is making comparisons a whole lot easier.*l E International pricing: Twelve European Union countries have adopted the euro as a common currency creating "pricing transparency" and forcing companies t o harmonize their prices throughout Europe.

The Internet will also make global price differences more obvious. When firms sell their wares

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E 1 9.4 Whole-channel concept for international marketing over the Internet, customers can to see how much products sell for in different countries. They might even be able to order a given product directly from the company location or dealer offering the lowest price. This will force companies toward more standardized international pricing.

The international company must take a whole-channel view of the problem of distributing products to final consumers. Figure 19.4 shows the three major links between the seller and the final buyer. The first link, the seller's headquarters organization, supervises the channels and is part of the channel itself. The second link, channels between nations, moves the products to the borders of the foreign nations. The third link, channels within nations, moves the products from their foreign entry point to the final consumers. Some U.S. manufacturers may think their job is done once the product leaves their hands, but they would do well to pay more attention to its handling within foreign countries. Channels of distribution within countries vary greatly from nation to nation. First, there are the large differences in the numbers and types ofintermediaries serving each foreign market. For example, a U.S. company marketing in China must operate through a frustrating maze of state-controlled wholesalers and retailers. Chinese distributors often carry competitors' products and frequently refuse to share even basic sales and marketing information with their suppliers. Hustling for sales is an alien concept to Chinese distributors, who are used to selling all they can obtain. Working with or getting around this system sometimes requires much time and investment. When Coke first entered China, for example, customers bicycled up to bottling plants to get their soft drinks. Many shopkeepers still don't have enough electricity to run soft drink coolers. Now, Coca-Cola has set up direct-distribution channels, investing heavily in refrigerators and trucks, and upgrading wiring so that more retailers can install coolers. The company has also built an army of more than 10,000 sales representatives that makes regular visits on resellers, often on foot or bicycle, to check on stocks and record sales. "Coke and its bottlers have been trying to map every supermarket, restaurant, barbershop, or market stall where a can of soda might be consumed," notes an industry observer. "Those data help Coke get closer to its customers, whether they are in large hypermarkets, Spartan noodle shops, or schools." Still, to reach the most isolated spots in the country, Coca-Cola relies on some pretty unlikely business partners-teams of delivery donkeys. "Massive advertising budgets can drum up demand," says another observer, "but if the distribution network doesn't exist properly or doesn't work, the potential of China's vast market cannot be realized. "42 Another difference lies in the size and character of retail units abroad. Whereas large-scale retail chains dominate the U.S. scene, much retailing in other countries is done by many small, independent retailers. In India, millions of retailers operate tiny shops or sell in open markets. Their markups are high, but the actual price is lowered through haggling. Supermarkets could offer lower prices, but supermarkets are difficult to build and open because of many economic and cultural barriers. Incomes are low, and people prefer to shop daily for small amounts rather than weekly for large amounts. They also lack storage and refrigeration to keep food for several days. Packaging is not well developed because it would add too much to the cost. These factors have kept large-scale El Distribution channels vary greatly from nation to nation, as suggested by this retailing from spreading rapidly in developing picture of a "delivery donkey" delivering Coca-Cola in Morocco. countries. Whole-channel view Designing international channels that take into account all the necessary links in distributing the seller's products to final buyers, including the seller's headquarters organization, channels among nations, and channels within nations.

Chapter 19 The Global Marketplace

Companies manage their international marketing activities in at least three different ways: Most companies first organize an export department, then create an international division, and finally become a global organization. A firm normally gets into international marketing by simply shipping out its goods. If its international sales expand, the company organizes export department with a sales manager and a few assistants. As sales increase, the expor? department can expand to include various marketing services so that it can actively go after business. If the firm moves into joint ventures or direct investment, the export department will no longer be adequate. Many companies get involved in several international markets and ventures. A company may export to one country, license to another, have a joint ownership venture in a third, and own a subsidiary in a fourth. Sooner or later it will create international divisions or subsidiaries to handle all its international activity. International divisions are organized in a-variety of ways. An international division's corporate staff consists of marketing, manufacturing, research, finance, planning, and personnel specialists. It plans for and provides services to various operating units, which can be organized in one of three ways. They can be geographical organizations, with country managers who are responsible for salespeople, sales branches, distributors, and licensees in their respective countries. Or the operating units can be world product groups, each responsible for worldwide sales of different product groups. Finally, operating units can be international subsidiaries, each responsible for its own sales and profits. Many firms have passed beyond the international division stage and become truly global organizations. They stop thinking of themselves as national marketers who sell abroad and start thinking of themselves as global marketers. The top corporate management and staff plan worldwide manufacturing facilities, marketing policies, financial flows, and logistical systems. The global operating units report directly to the chief executive or executive committee of the organization, not to the head of an international division. Executives are trained in worldwide operations, not just domestic or international. The company recruits management from many countries, buys components and supplies where they cost the least, and invests where the expected returns are greatest. Today, major companies must become more global if they hope to compete. As foreign companies successfully invade their domestic markets, companies must move more aggressively into foreign markets. They will have to change from companies that treat their international operations as secondary, to companies that view the entire world as a single borderless market. '

In the past, U.S. companies paid little attention to international trade. If they could pick up some extra sales through exporting, that was fine. But the big market was at home, and it teemed with opportunities. Companies today can no longer afford to pay attention only to their domestic market, regardless of its size. Many industries are global industries, and firms that operate globally achieve lower costs and higher brand awareness. At the same time, global marketing is risky because of variable exchange rates, unstable governments, protectionist tariffs and trade barriers, and several other factors. Given the potential gains and risks of international marketing, companies need a systematic way to make their global marketing decisions. 1. Discuss how the international trade system and the economic, political-legal, and cultural environments affect a company's international marketing decisions. A company must understand the global marketingenvironmenf, espe-

cially the international trade system. It must assess each foreign market's economic, political-legal, and cultural characteristics. The company must then decide whether it wants to go abroad and consider the potential risks and benefits. It must decide on the volume of international sales it wants, how many countries it wants to market in, and which specific markets it wants to enter. This decision calls for weighing the probable rate of return on investment against the level of risk.

2. Describe three key approaches to entering international markets.

The company must decide how to enter each chosen marketwhether through exporting, joint venturing, or directinvestment. Many companies start as exporters, move to joint ventures, and finally make a direct investment in foreign markets. In exporting, the company enters a foreign market by sending and selling products through international marketing intermediaries (indirect exporting) or the company's own department, branch, or sales representative or agents (direct exporting). When establishing a joint venture, a company enters foreign markets by joining with foreign companies to produce or market a product or service. In licensing, the company enters a foreign market by contracting with a licensee in the foreign market, offering the right to use a manufacturing process, trademark, patent, trade secret, or other item of value for a fee or royalty. 3. Explain how companies adapt their marketing mixes for international markets.

Companies must also decide how much their products, promotion, price, and channels should be adapted for each foreign market. At one extreme, global companies use a standardized marketing mix worldwide. Others use an adapted marketingmix, in which they adjust the marketing mix to each target market, bearing more costs but hoping for a larger market share and return.

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4. identify the three major forms of international marketing organization. The compahy must develop an effective organization for international marketing. Most firms start with an exportdepartmentandgraduate to an

internationaldivision. A few become global organizations, with worldwide marketing planned and managed by the top officers of the company. Global organizationsview the entire world as a single, borderless market.

Reviewing the Adapted marketing mix 556 Communication adaptation 559 Contract manufacturing 554 Countertrade 548

Direct investment 555 Economic community 545 Exporking 552 Global firm 543 Joint ownership 555

Joint venturing 553 Licensing 554 Management contracting 554 Product adaptation 558 Product invention 558

Standardized marketing mix 555 Straight product extension 558 Whole-channel view 562

iscussing tihe 1. What factors are contributing to the intensity of today's global competition?

foreign markets in which it would have no interest in investing. Discuss.

2. Netflix, the world's largest online DVD movie rental service, currently operates only in the United States. What must Netflix consider when it decides whether to expand globally?

5. Assume your boss has asked you how your company should enter the Japanese, South Korean, and Vietnamese markets with a new line of women's athletic shoes. Would you recommend that the company standardize or adapt its marketing mix? Explain.

3. Red Bull markets its energy drink in about 75 countries. What must Red Bull consider when selecting which countries to enter?

6. Figure 19.4 shows a "whole-channel view" of international distribu-

4. Discuss the advantages and disadvantages of direct investment in a foreign market. Name two foreign markets in which a household appliance manufacturer would be interested in investing, and two

tion. Would a company require the full range of international channel intermediaries discussed in the chapter?

1. Visit the Web site of the Brazilian Embassy in Washington, D.C. at www.brasilemb.org. Discuss doing business in Brazil.

3. Form teams of four students and discuss how the following products might adapt their marketing mixes when entering the Chinese market. OreO Herbal Essences Conditioner Ben and Jerry's ice cream Hummer H3 SUVs

2. The United States restricts trade with Cuba. Visit the U.S. Department of the Treasury Web site at www.ustreas.gov/officesl enforcement/ofac to learn more about economic and trade sanclions. Click on the "Cuba Sanctions" link to learn more about the trade restrictions on Cuba. Is this restriction a tariff, quota, or embargo?To what extent does this trade restriction allow U.S. businesses to export their products to Cuba?

GMI (Global Market Insight) is a leader in global market research. It offers an online global panel of more than five million members in 200 countries. Panelists speak more than 37 different languages and are available in the Americas, Europe, the Pacific Rim, and the Middle East. In addition to consumer markets, GMI provides access to hard-to-reach business consumers, including B2B specialty medical markets of physicians, nurses, and patients with a variety of chronic illnesses. GMI differentiates itself from competitors with claims that it has the highest standards of panel integrity. In addition to survey panelists, GMI assists with international mystery shoppers. Mystery shoppers, common in the retail and financial services industries, are individuals who are paid to visit retailers and pose as regular shoppers. After they visit, the mystery shoppers file reports on a variety of topics, which might include the

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politeness of the service representative, the appearance of the location, or customer waiting time.

1. What questions might a U.S. manufacturer of blood diagnostic equipment ask the members of the GMl medical panel when considering entry into a new country? 2' How might McDonald's use GMl's global mystery shoppers? Why would it prefer to use local shoppers rather than sending mystery shoppers from McDonald's U.S. home office?

3. Sign up to be a survey respondent at www.globaltestmarket.com. After going through the registration process, do you think that GMI has a rigid standard for its survey respondents?

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Annual global revenue from online gambling is about $15 million, with the United States accounting for almost 25 percent.of-these dollars. This is an interestingstatistic when you realize that mosfonline gambling is illegal in the United States and that online gambling companies are located outside the United States in more than 2,000 offshore locations, including Costa Rica, Antigua, and Bermuda. A variety of old federal and state laws ban online gambling, but because there is little law enforcement, hundreds of these sites flourish. Some advocacy groups assert that it is the responsibility of banks and credit card companies to stop processing payments to these sites. Other groups argue that online gambling should just be legalized so that the US. government can stop losing tax dollars on revenue from U.S. citizens in the United States. In July 2006, a bill was

presented to Congress that would outlaw online gambling and make it illegal for banks and credit card companies to make payments to online gambling sites. The bill did not pass due in large part to strong opposition from casinos and financial institutions.

In 1911, Nivea introduced a revolutionary product, Nivea Creme, in a simple blue tin. Still in its signature blue tin, today the Creme is the centerpiece of a wide range of personal care products Nivea markets, including everything from soap, shampob, and shaving products to baby care products, deodorant, and sunscreen. And despite its small beginnings, today the company's products are sold in more than 150 countries worldwide. Most Nivea consumers believe that the products they buy are produced and marketed locally. Why? Although Nivea looks for commonalities between consumers around the globe, the company's marketers also recognize the differences between consumers in different markets. So Nivea adapts its marketing mix to reach local consumers while keeping its message consistent everywhere products are sold. This globally consis-

tent, locally customized marketing strategy has sold more than 11 billion tins of the traditional Nivea Creme. After viewing the video featuring Nivea, answer the following questions about the company and the global marketplace.

Wal-Mart is the world's largest retailer. It has more than 6,500 stores worldwide, employs 1.8 million people, and has annual sales of $316 billion. The next-largest global retailer, Carrefour (a French discount retailer), has sales of $94.5 billion, and Wal-Mart's nearest U.S. competitor in the general merchandise category, Target, has only $52.6 billion in sales. More than 70 percent of Wal-Mart's merchandise comes from China. If Wal-Mart were a country, it would be China's eighthlargest trading partner, ahead of Russia and Great Britain. Although the bulk of Wal-Mart's sales come from the United States, its international division is currently growing at over 11 percent annually. Roughly one-third of its stores are located in 14 markets outside the United States and account for about 20 percent of sales, In order to appeal to consumers of differing levels of affluence and sophistication in various countries, one might expect that Wal-Mart would have to change its strategy. But that is not the case. The giant retailer's strategy is the same everywhere in the world-Everyday Low Prices (EDLP) and Everyday Low Costs (EDLC). It carries this strategy out to near perfection through its own version of global sourcing and distribution that has other retailers clamoring to mimic.

1. Should U.S. citizens be allowed to gamble on sites hosted by companies in .other countries where gambling is legal?Why or why not?

2. If gambling is illegal, should banks and credit card companies be held responsible for stopping these transactions? 3. Has anyone you know used online gambling?Were they aware that it was illegal?

Which of the five strategies for adapting products and promotion for the global market does Nivea employ? Visit Nivea's Web site, www.nivea.com, and tour the sites for several different countries. How does Nivea market its products differently in different countries? How does the company maintain the consistency of its brand?

T'S I Wal-Mart operates in North and South America, Europe, and Asia and has used multiple entry strategies in various countries. North and South America Canada Wal-Mart's first international venture was

Canada-a market similar to the United States. WalMart bought 122 Canadian Woolco stores, and by 2000 it had more than 200 Canadian stores. Mexico In Mexico, Wal-Mart used an acquisition strategy (buying Suburbia stores that sell clothing to young women, W S restaurants, Superama supermarkets, and 62 percent of Cifia, Mexico's largest retailer). It also established its own Wal-Mart stores and Sam's Clubs. Mexico has been a big success for Wal-Mart, largely because of Cifia's thorough understanding of the Mexican consumer. Wal-Mart is now the largest retailer in Mexico with more than 600 outlets and sales of more than $12.5 billion with a 4.5 percent net (case continues)

margin-better than the 3.5 percent overall Wal-Mart margin. Puerto Rico Puerto Rico is another big success for WalMart. It established its own stores and bought the Supermercados Amigo-Puerto-Rico's second-largest grocery retailer. Brazil and Argentina Wal-Mart entered Brazil and Argentina in the mid-1990s with disappointing results. The economic situation in both coutitries was miserable-inflation spiraling out of control, devaluation of currencies, and defaults on loans, plus a political maelstrom in which Argentina's presidency seemed to be a revolving door. To this day, Wal-Mart has opened only 11stores in Argentina. But despite the economic situation and considerable competitive woes, Wal-Mart has fared much better in Brazil. Carrefour entered Brazil in 1975 and was well entrenched as the number one retailer. Upon WalMart's entry, Carrefour started a price war and located hypermarkets next to Wal-Mart stores. In retaliation, Wal-Mart opened smaller-format stores called "Todo Dia," which sell mostly groceries and a little general merchandise. These smaller stores give Wal-Mart a presence in crowded Brazilian neighborhoods and enable it to sell to lower-income consumers who buy daily. In early 2004, Wal-Mart bolstered its market share from sixth to third by buying the 118-unit Bompreco supermarket chain. In late 2005, it bought an additional 140 hypermarkets, supermarkets, and wholesale outlets from Portuguese conglomerate Sonae. Increased market share will generate lower costs and lower prices, making Wal-Mart more competitive with Carrefour and with Companhania Brasiliera de Distribuicao (CBD),the largest grocery retailer in Brazil. Wal-Mart's acquisitions have raised its presence in Brazil to more than 290 stores, including 17 supercenters, 12 Sam's Clubs, and 2 Neighborhood Markets. Europe

Germany In 1998, Wal-Mart bought the 21-unit Wertkauf chain in Germany, and a year later it purchased the 74-unit Interspar hypermarkets. As the third-largest retail market in the world (behind the United States agd Japan), Germany initially looked very attractive. But from the start, it has been a nightmare. First, there were real estate issues: strict zoning laws, scarcity of land, and high real estate prices. Then there were well-entrenched unions, which were unlikely to allow their members to gather in the morning to respond to Wal-Mart's "Give me a W . . . Give me an A . . . " rallying cheer. In addition, competition in Germany was much greater-five of the world's top-25 global retailers are - German, with two of them in the top ten. Finally, German consumers are among the most demanding in the world. They are extremely quality conscious and are less price conscious. On top of all that, Wal-Mart 566

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had purchased two chains with declining sales, poor locations, and dirty stores. Wal-Mart executives admit in hindsight that they moved too fast in Germany and failed to take advantage of the managerial expertise in their acquisitions. Although Wal-Mart has not given up on Germany, it has had to close stores there because of poor performance. United Kingdom Although Wal-Mart struggled in Germany, it scored a homerun when it purchased the UK's ASDA chain. These UK outlets are the biggest contributor to the profits of Wal-Mart's International Division. Why? ASDA had for years modeled itself on the Wal-Mart format-right down to the rah-rah philosophy and low prices. It was not a struggling chain; instead it is a top-notch retailer that "knows food retailing" and shares that knowledge throughout WalMart's other global operations. With Wal-Mart's backing, ASDA cut prices (undercutting rivals), added general merchandise, and took advantage of Wal-Mart's inventory prowess. ASDA has been so successful that its sales per square foot go as high as $2,000, four times higher than a Sam's Club. For the Christmas season in 2003, nine of the ten top-selling Wal-Mart stores worldwide were in the UK. This does not mean a lack of competition; two other UK retailers, Tesco and Sainsbury's, are also in the top-25 global retailers. Wal-Mart's store count in the UK is now at over 280 and growing. Asia

Hong Kong, Thailand, and Indonesia Wal-Mart's first stop in Southeast Asia was Hong Kong, where it entered a joint venture with Ek Chor Distribution System Co. Ltd. to establish Value Clubs. Because Ek Chor is actually owned by C. P. Pokphand of Bangkog, Wal-Mart was able to locate in Thailand and then Indonesia. Peoples Republic of China Wal-Mart began operations in China in 1995. Since then, growth has been slow. Today, there are still only 51 stores in China. But WalMart is not taking its eye off this market. And why would it? As the largest market in the world, with more than 1.3 billion people and 170 cities with popuSttions above 1million, the potential in China is huge. Currently, Wal-Mart is building 20 new stores. Given its size, China would appear to be one of the only other countries in the world that could sustain a scale similar to that of the U.S. Wal-Mart operation. Chinese consumers couldn't be happier, having embraced the large retailer. But Chinese operations will take awhile to develop. Like Germany, there is a shortage of land and stores tend to be smaller. One of the first Wal-Marts was in a subway station, located to cater to busy commuters. Competition is also a factor. Carrefour and a handful of Chinese supermarket chains are expanding much more rapidly. But these problems are magnified by a bigger problem: the government. In an effort to limit competition, the government designated territories within which

each retailer must locate, and Wal-Mart was confined mostly to southern China. For some time, this meant no stores in Shanghai, the fastest-growing, mostwestern, highest-income market in China. However, the government is starting to relax these restrictions, and Wal-Mart will open its first supercenters in Shanghai and Beijing by 2007. To prepare for this growth, Wal-Mart China, Ltd. and CITIC Ltd. (China International Trust and Investment Company) founded the Wal-Mart South China Department Store Co., Ltd. in October 2003. And Gazeley, a Wal-Mart-owned industrial developer, is currently investing $95 million in speculative ventures with Chinese partners. Japan Wal-Mart entered Japan in 2002 by buying a 38 percent stake in Seiyu Ltd., Japan's fifth-largest supermarket chain. Although Seiyu had 400 stores with good locations, the stores were shabby and the company had declining sales. Anxious not to repeat the German mistake in a land of demanding consumers, Wal-Mart is moving slowly to remodel Seiyu's stores. Unfortunately, this gives Japanese retailers such as Aeon time to get a jump on Wal-Mart. There are many of the same problems in Japan as in China and Germany, such as pricey real estate and few locations. Until recently, laws restricted store size and opening hours in an effort to protect smaller Japanese retailers, who make up 58 percent of the Japanese retailing system. In addition, there are complicated and sometimes convoluted distribution systems in which retailers go through layers of middlemen with long-standing relationships instead of buying directly from suppliers. As a result, goods may pass'through three or more hands before reaching a retailer. And then there are the Japanese consumers, not only considered to be among the world's quirkiest but also among the most demanding. They want fresher foods, the most orderly and clean stores, short checkout lines, and an abundance of clerks. And they don't understand the EDLP strategy. Trained by Japanese retailers in the past to hunt though newspapers for discounts, consumers still expect discounts and they want to find these in newspaper ads, which must be in color. Shoppers also don't understand jargon such as "rollback," so Wal-Mart must translate terms that it considers standard in the rest of the world. Worse, Japanese consumers think very low prices indicate poor quality. Thus, a strategy of ever-lower prices could hurt sales. Despite Wal-Mart's elaborate planning, results in Japan have been disappointing. Seiyu has lost money and blames the sluggish economy and unusual weather-not to mention the competition. Wal-Mart has yet to articulate a clear strategy with the struggling chain.

For some time, Wal-Mart's next big move appeared to be Russia. Based on various factors such as market saturation,

political risk, economic growth, and consumer demographics, Russia is currently considered the second most attractive global-retail destination. Wal-Mart's developer arm, Gazeley, has been involved in speculative ventures in and around Moscow. But in recent times, Wal-Mart has not shown any concrete signs of opening stores in this large country. But although Russia may be the second most attractive global retail destination, India is number one, and Wal-Mart is taking serious notice. India has nearly 1.1billion people and is growing fast. In one year, India's population will grow by over 400,000 people, far outpacing China's growth. India's $350 billion retail market is expected to grow by 13 percent annually. Moreover, India boasts a fast-expanding middle class, one of the fastest-growing economies in the world, and a retail sector that is dominated by small, familyrun stores. Wal-Mart already has 80 employees in India to oversee purchasing of the $600 million worth of goods that it buys each year. But Wal-Mart has also opened an office in India for market research. John Menzer, CEO of Wal-Mart International, has called India a "huge organic growth opportunity." Although no decisions have been made just yet as to how Wal-Mart will enter India or Russia, these two markets alone provide incredible potential for growth. It is also certain that Wal-Mart has plenty of moves up its sleeve for the global market in the future. Stay tuned!

1. In what countries has Wal-Mart done well? Can you

2.

3. 4. 5.

identify any common consumer, market, retailer, or entry strategy traits across these countries that might account for Wal-Mart's success? In what countries has Wal-Mart done poorly? Can you identify any common consumer, market, retailer, or entry strategy traits across these countries that might account for Wal-Mart's lack of success? In your opinion, will Wal-Mart be successful in Japan? In Germany? Why or why not? In your opinion, should Wal-Mart enter India? If so, how should it go about this? Beyond India, what countries do you think Wal-Mart should consider entering? What factors are important in making this decision? Be prepared to defend the countries that you chose.

Sources: "India Remains the Most Attractive Destination for Global Retailers," AFX.COM, April 30, 2006; Alan Clendenning, "WalMart Buys Brazil Stores for Expansion," Associated Press, December 14, 2005; Jon Neale, "Gazeley Targets Russia and China," Estates Gazette, December 10, 2005, p. 31; Clay Chandler, "The Great Wal-Mart of China," Fortune, July 25, 2005, accessed online at www.fortune.com; Wal-Mart 2005 Annud Report; Laura Heller, "Latin Market Never Looked So Bueno," DSNRetding Today, June 10, 2002, p. 125; Laura Heller, "Southern Hemisphere Woes Persist," DSNRetailing Today, June 10, 2002, p. 126; "Germmy: Wd-Mart Closings," New York Times, July 11,2002; and www.walmartstores.com, November 2006. Chapter 19 The Global Marketplace

567

m i m b e r l a n d CEO Jeffrey Swartz recently strode purposefully into a New York office packed with McDonald's executives. Dressed in a blazer, jeans, and Timberland boots, he was there to convince the fast-food giant that it should choose his $1.5 billion shoe-and-clothing company to provide its new uniforms. The executives waited expectantly for him to unzip a bag and reveal the sleek new prototype. "We didn't bring any designs," Swartz said flatly. Eyebrows arched. Instead, he launched into an impassioned speech that had virtually nothing to do with clothes or shoes. What Timberland really had to offer McDonald's, Swartz said, was the benefit to the company-and the world at large-of helping it build a unified, motivated, purposeful workforce. "Other people can do uniforms," Swartz said, his Yankee accent asserting itself. "This is about partnership. We can create a partnership together that will be about value and values." As unorthodox as it sounds, Swartz wasn't pitching Timberland's creativity or craftsmanship. Rather, he was pitching its culture, and the ways that culture could rub off on McDonald's. Growing more and more animated, Swartz talked about how Timberland's employees get 40 hours paid leave every year to pursue volunteer projects. He discussed Serv-a-palooza, Timberland's daylong burst of do-goodism that this year would host 170 service projects in 27 countries, covering 45,000 volunteer hours of work. And he talked about City Year, the nonprofit that Timberland has supported for more than a decade, which brings young people into public service for a year. As for McDonald's, it was part of practically every community in the country, Swartz explained, but was it helping every community? The room was silent. Swartz couldn't tell whether they thought he was a touchyfeely freak or whether what he said had struck a deep chord (McDonald's wouldn't make a final decision for many months). Yet Swartz was elated all the same. "I told my team to find me ten more places where I can have this conversation," he said. "No one believes in this more than we do, and that is our competitive advantage." The "this" that gets Swartz, a third-generation CEO whose grandfather founded the company in 1952, so fired up is expressed in Timberland's slogan: "Boots, Brand, Belief." What Swartz is really trying to do-no kidding-is to use the resources, energy, and profits of a publicly traded footwear-and-apparel company to combat social ills, help the environment, and improve conditions for laborers around the globe. And rather than using his company as a charity, he's using the hard financial metrics of profit, return on investment, and, oh yes, shareholder return, to try to prove that companies actually can do well by doing good.

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Part 4

Extending Marketing played a big role in their decision to come to the company. "I love my job," says Michael Moody, a staff attorney. "The core values are humanity, humility, integrity, and excellence, and I see those values used as a touchstone in all conversations." Betsy Blaisdell, manager for environmental stewardship, laughs when she thinks how horrified she originally was at the thought of working for a big, bad corporation. With Swartz's support, however, she has helped push through such initiatives as a $3,000 cash incentive for employees to purchase hybrid cars (six have taken advantage so far) and the company's $3.5 million solar array at its Ontario, California, distribution center. Although it will provide 60 percent of the center's energy, it may take as many as 20 years to show a return, and that's just fine with Swartz. For Timberland, service is not something you do once a year. Although volunteer projects are always under way, many of them have been organized under the rubric of Serv-a-palooza, held in late September. Last year's projects included a massive effort to clean up and reclaim public spaces around Lawrence, Massachusetts, and a plan to improve a center for handicapped kids in Ho Chi Minh City, Vietnam. Timberland supports these efforts for their own sake, but the potential corporate benefits do not go unnoticed. As his pitch to McDonald's shows, Swartz also sees service as a powerful differentiator for Timberland with its current and potential customers. Although Timberland's message seems to be getting through to its business customers, it's not at all clear that consumers have any clue what the brand stands for beyond cool stuff. Nor is it clear that they care. "The vast majority of footwear is purchased by teenagers," says an industry analyst, "and some don't believe in advertising at all, so it's tough to reach them." But Swartz insists that it's simply a matter of time until consumers refuse to patronize companies that don't tell them what they're doing for the community. "I believe that there's a storm coming against the complacent who say good enough is good enough," he says. Probably Swartz's biggest challenge is getting Wall Street to buy into the doing-good side of the story. Sure, the brand's a success, says the analyst. "But investors would rather see Timberland doing things like increasing dividends or share buybacks. Nobody's investing in Timberland just because Jeff's a nice guy. They expect results." Although compelling, the lofty notion of serving a doubled bottom line of values and profits will present significant challenges for Timberland. Can one man and his band of devotees really change the role of the corporation? To Swartz, it's only a matter of time. After all, he's trying to save the world. The funny thing is that he's trying to do it by running a large, profitable, publicly traded shoe company. Some call him the messiah for a new age of social awareness. Others think he could be headed for a fall. But all agree he's challenging the system.l

Responsible marketers discover what consumers want and respond with market offerings that create value for buyers in order to capture value in return. The marketing concept is a philosophy of customer value and mutuqgain. Its practice leads the economy by an invisible hand to satisfy the many and changing needs of millions of consumers. Not all marketers follow the marketing concept, however. In fact, some companies use questionable marketing practices, and some marketing actions that seem innocent in themselves strongly affect the larger society. Consider the sale of cigarettes. On the face of it, companies should be free to sell cigarettes and smokers should be free to buy them. But this private transaction involves larger questions of public policy. For example, the smokers are harming their health and may be shortening their own lives. Smoking places a financial burden on the smoker's family and on society at large. Other people around smokers may suffer discomfort and harm from secondhand smoke. Finally, marketing cigarettes to adults might also influence young people to begin smoking. Thus, the marketing of tobacco products has sparked substantial debate and negotiation in recent years. This chapter examines the social effects of private marketing practices. We examine several questions: What are the most frequent social criticisms of marketing? What steps have private citizens taken to curb marketing ills? What steps have legislators and government agencies taken to curb marketing ills? What steps have enlightened companies taken to carry out socially responsible and ethical marketing that creates value for both individual customers and society as a whole?

Chapter 20

Marketing Ethics and Social Responsibility

57'8

Marketing receives much criticism. Some of this criticism is justified; much is not. Social critics claim that certain marketing practices hurt individual consumers, society as a whole, and other business firms.

Consumers have many concerns about how well the American marketing system serves their interests. Surveys usually show that consumers hold mixed or even slightly unfavorable attitudes toward marketing practices. Consumer advocates, government agencies, and other critics have accused marketing of harming consumers through high prices, deceptive practices, high-pressure selling, shoddy or unsafe products, planned obsolescence, and poor service to disadvantaged consumers.

Many critics charge 'that the American marketing system causes prices to be higher than they would be under more "sensible" systems. They point to three factors-high costs of distribution, high advertising and promotion costs, and excessive markups. A long-standing charge is that greedy intermediaries mark up prices beyond the value of their services. Critics charge that there are too many intermediaries, that intermediaries are inefficient, or that they provide unnecessary or duplicate services. As a result, distribution costs too much, and consumers pay for these excessive costs in the form of higher prices. How do resellers answer these charges? They argue that intermediaries do work that would otherwise have to be done by manufacturers or consumers. Markups reflect services that consumers themselves want-more convenience, larger stores and assortments, more service, longer store hours, return privileges, and others. In fact, they argue, retail competition is so intense that margins are actually quite low. For example, after taxes, supermarket chains are typically left with barely 1 percent profit on their sales. If some resellers try to charge too much relative to the value they add, other resellers will step in with lower prices. Low-price stores such as Wal-Mart, Costco, and other discounters pressure their competitors to operate efficiently and keep their prices down. Modern marketing is also accused of pushing up prices to finance heavy advertising and sales promotion. For example, a few dozen tablets of a heavily promoted brand of pain reliever sell for the same price as 100 tablets of less-promoted brands. Differentiated products-~osmetics, detergents, toiletries-include promotion and packaging costs that can amount to 40 percent or more of the manufacturer's price to the retailer. Critics charge that much of the packaging and promotion adds only psychological value to the product rather than functional value. Marketers respond that advertising does add to product costs. But it also adds value by informing potential buyers of the availability and merits of a brand. Brand name products may cost more, but branding gives buyers assurances of consistent quality. Moreover, consumers can usually buy functional versions of products at lower prices. However, they want and are willing to pay more for products that also provide psychological benefits-that make them feel wealthy, attractive, or special. Also, heavy advertising and promotion may be necessary for a firmto match competitors' efforts-the business would lose "share of mind" !Z3 A heavily promoted brand of aspirin sells for much more than a virtually if it did not match competitive spending. At the identical non-branded or store-branded product. Critics charge that promotion adds same time, companies are cost conscious about only psychological value to the product rather than functional value. promotion and iry to spend their money wisely.

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References

Line Up to Buy High-End Versions of Youthful Indulgences," Washington Post, April 27, 2003, p. F1; Ian P. Murphy, "Aided by Research, Harley Goes Whole Hog," Marketing News, December 2,1996, pp. 16,17;Ted Bolton, "Tattooed Call Letters: The Ultimate Test of Brand Loyalty," accessed online at www.boltonresearch.com, April 2003; Jay Palmer, "Vroom at the Top," Barren's, March 29, 2004, pp. 17-18; Chris Woodyard, "Motorcycle Sales Rev Up to Top 1Million," USA Today, January 20, 2005; Marc Gerstein, "The Road Ahead for Harley," Reuters, April 13, 2006; and the Harley-Davidson Web site at www.HarleyDavidson.com, December 2006. 2. GDP figures from The World Fact Book, July 11,2006, accessed at www.cia.gov/cia/publications/factbooWgeos/ us.htrnl. Population figures from the World POPClock, U.S. Census Bureau, www.census.gov, September 2006. This Web site provides continuously updated projections of the U.S. and world populations. 3. Jim Edwards, "Why Buy?" Brandweek, October 5, 2005, pp. 21-24. 4. Statistics from Deborah L. Vence, "Avoid Shortcuts: Hispanic Audience Requires Distinct, Inventive Marketing," Marketing News, February 15, 2006, pp. 23-24; "Hispanics in Business," Fortune, April 3, 2006, pp. 132-133; Stanley Perman, "How to Tap the Hispanic Market," BusinessWeek Online, July 1 2 , 2006, accessed at www.businessweek.com; and U.S. Census Bureau reports accessed online at www.census.gov, September 2006. 5. Joel Russell, "Big Spenders: Top 50 Advertisers in Hispanic TV and Print Media 2005," Hispanic Business, December 2005, accessed at www.hispanicbusiness.com. 6. Example adapted from Sean Gregory, "Diapers for Fatima,"

Time, January 18, 2005, accessed at www.time.com; with we-are/ information from http://pg.com/company/who~ diversity/multi/hispanic.jhtml, August 2006. 7. Louise Witt, "Color Code Red," American Demographics, February 2004, pp. 23-25; Vence, "Companies Target Lifestyle Segments," p. 13; Sonia Alleyne, "Diversity Leader," Black Enterprise, March 2005, p. 54; "Increasingly Affluent African American Market Set to Reach $981 Billion by 2010," PR Newswire, February 22, 2006; and U.S. Census Bureau reports accessed online at www. census.gov, August 2006. 8. "Facts about Mahogany," accessed at http://pressroom. hallmark.corn/mahoganyYcards~facts.html, July 2006. 9. See Mike Beirne, "Has This GROUP Been Left BEHIND?" Brandweek, Mardh 14, 2005, pp. 33-36. 10. Information accessed at www.communityconnect.com/ advertise.htm1, August 2006; and a list of the most popular African American Web sites at www.blackwebportal. com/web/web~bwptop30.cfm, August 2006: 11. See Vence, "Companies Target Lifestyle Segments," p. 13; U.S. Census Bureau reports accessed at www.census.gov, July 2006; and Randi Schmelzer, "The Asian Answer," PR Week, March 13, 2006. 12. jeffrey M. Humphreys, "The Multicultural Economy 2004," Georgia Business and Economic Conditions, The Selig Center for Economic Growth, third quarter 2004; Christopher Reynolds, "Far East Moves West," American

Demographics, October 2004, p. 56; Mike Troy, "Wal-Mart Unveils Asian Ad Campaign," DSN Retailing Today, April 11, 2005, pp. 5-6; Randi Schmelzer, "The Asian Answer," PR Week, March 13, 2006; and US. Internet Industry Association, Proposed Legislation and Its Impact on Consumer's Use of Broadband and IP Semkes, accessed www.usiia.org, April 11, 2006. 13. Rong-Gong Lin II, "Wal-Mart Pursues Asian Americans," Los Angeles Times, April 2, 2005, p. C1; and Randi Schmelzer, "The Asian Answer," PR Week, March 13, 2006, p. 1. 14. Information accessed at www.census.gov, September 2006. 15. See Edward Keller and Jonathan Berry, The Influentids (New York, NY: The Free Press, 2003); John Battelle, "The Net of Influence," Business 2.0, March 2004, p. 70; Alicia Clegg, "Following the Leaders," Marketing Week, September 30, 2004, pp. 47-49; Ronald E. Goldsmith, "The Influential~,"Journal of Product & Brand Management, 2005, pp. 371-372; Matthew Creamer, "Study: Go Traditional to Influence Influencers," Advertising Age, March 7, 2005, p. 8; and Dave Balter and Ed Keller, "In Search of True Marketplace Influencers," Advertising Age, December 5, 2005, p. 22. 16. Anya Kamenetz, "The Network Unbound," Fast Company, June 2006, pp. 69-73. 17. Saul Hansell, "For MySpace, Making Friends Was Easy. Big Profit Is Tougher," New York Times, April 23, 2006, p. 3.1. 18. Quote and information from "Colored Vision Adidas Unleashes Seven-Film Mobile Media," Boards, May 2006, p. 15. 19. Quote from Anya Kamenetz, "The Network Unbound," Fast Company, pp. 73. Also see Julie Bosman, "Chevy Tries a Write-Your-Own-Ad Approach," New York Times, April 4, 2006, p. C1. 20. See Sharon Goldman Edry, "No Longer Just Fun and Games," American Demographics, May 2001, pp. 36-38; Pallavi Gogoi, "I Am Woman, Hear Me Shop," Business Week Online, February 14, 2005, accessed at www. bwonline.com; Amy Gillentine, "Marketing Groups Ignore Women at Their Own Peril," Colorado Springs Business Journal, January 20,2006; and "Finance and Economics: A . -Guide to Womenomics," Economist, April 15, 2006, p. 80. 21:'~da~ted from Pallavi Gogoi, "Meet Jane Geek," BusinessWeek, November 28,2005, pp. 94-95. 22. Kevin Downey, "What Children Teach Their Parents," Broadcasting & Cable, March 13, 2006, p. 26. 23. Alice Dragoon, "How to Do Customer Segmentation Right," CIO, October 1, 2005, p. 1. 24. Quotes and examples from www.carhartt.com, September 2006. 25. See Rebecca Piirto, "Measuring Minds in the 1990s," American Demographics, December 1990, pp. 35-39; and Rebecca Piirto, "VALS the Second Time," American Demographics, July 1991, p. 6. VALS information and examand ples accessed at www.sric-bi.com?VALS/types.shtml www.sric-bi.com/VALS/projects.shtml, December 2006.

References

Jennifer Aaker, "Dimensions of Measuring Brand Personality," Journal of Marketing Research, August 1997, pp. 347-356. Also see Aaker, "The Malleable Self: The Role of Self Expression in Persuasion," Journal of Marketing Research, May 1999, pp. 45-57; and Audrey Azoulay and Jean-Noel Kapferer, "Do Brand Personality Scales Really Measure Brand Personality?" Journal of Brand Management, November 2003, p. 143. Seth Stevenson, "Ad Report Card: Mac Attack," June 19, 2006, accessed at www.slate.com/id/2143810. Annetta Miller and Dody Tsiantar, "Psyching Out Consumers," Newsweek, February 27, 1989, pp. 4 6 4 7 . Also see Leon G. Schiffman and Leslie L. Kanuk, Consumer Behavior, 9th ed. (Upper Saddle River, NJ: 2007), chapter 4. See Abraham. H. Maslow, "A Theory of Human Motivation," Psychological Review, 50 (1943), pp. 370-396. Also see Maslow, Motivation and Personality, 3rd ed. (New York: HarperCollins Publishers, 1987); and Barbara Marx Hubbard, "Seeking Our Future Potentials," The Futurist, May 1998, pp. 29-32. Charles Pappas, "Ad Nauseam," Advertising Age, July 10, 2000, pp. 16-18. See also Mark Ritson, "Marketers Need to Find a Way to Control the Contagion of Clutter," Marketing, March 6,2003, p. 16; and David H. Freedman, "The Future of Advertising Is Here," Inc., August 2005, pp. 70-78. Bob Garfield, "'Subliminal' Seduction and Other Urban Myths," Advertising Age, September 18, 2000, pp. 4, 105. Also see "We Have Ways of Making You Think," Marketing Week, September 25, 2003, p. 14; Si Cantwell, "Common Sense; Scrutiny Helps Catch Catchy Ads," Wilmingfon Star-News, April 1,2004, p. 1B; and Allison Motluk, "Subliminal Advertising May Work After All," April 28, 2006, accessed at www.newscientist.com. Rebecca Flass, "'Got Milk?' Takes a Serious Look Inside the Body," Adweek, January 27, 2003, p. 5; Katie Koppenhoefer, "MilkPEP Ads Make Big Impact with Hispanics," press release, International Dairy Foods Association, March 3, 2003, accessed at www.idfa.org/news/gotrnilk/ 2003/miklpepads.cfm; Jeff Manning and Kevin Lane Keller, "Got Advertising That Works?" Marketing Management, January-February 2004, pp. 16-20; and information from www.whymilk.com, November 2006. For a deeper discussion of the buyer decision process, see Philip Kotler and Kevin Lane Keller, Marketing Management, 12th ed. (Upper Saddle River, NJ: 2006), pp. 191-203. Duglas Pruden and Terry G. Vavra, "Controlling the Grapevine," Marketing Management, July-August 2004, pp. 25-30. See also John Goodman, "Treat Your Customers as Prime Media Reps," Brandweek, September 12, 2005, pp. 16-17. See Leon Festinger, A Theory of Cognitive Dissonance (Stanford, CA: Stanford University Press, 1957); Schiffman and Kanuk, Consumer Behavior, pp. 219-220; Patti Williams and Jennifer L. Aaker, "Can Mixed Emotions Peacefully Coexist?" PUBLICATION?, March 2002, pp. 636-649; Adam Ferrier, "Young Are Not Marketing Sawy; They're Suckers," B b T Weekly, October 22, 2004,

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p. 13; and "Cognitive Dissonance and the Stability of Service Quality Perceptions," The Journal of Services Marketing, 2004, p. 433+. 36. The following discussion draws from the work of Everett M. Rogers. See his Diffusion of Innovations, 5th ed. (New York: Free Press, 2003). Also see Eric Waarts, Yvonne M. van Everdingen, and Jos van Hillegersberg, "The Dynamics of Factors Affecting the Adoption of Innovations," The Journal of Product Innovation Management, November 2002, pp. 412-423; Chaun-Fong Shih and Alladi Venkatesh, "Beyond Adoption: Development and Application of a Use-Diffusion Model," Journal of Marketing, January 2004, pp. 59-72; and Richard R. Nelson, Alexander Peterhansl, and Bhaven Sarnpat, "Why and How Innovations Get Adopted: A Tale of Four Models," Industrial and Corporate Change, October 2004, pp. 679-699. ; * 4

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1. Quotes and other information from Dale Buss, "Up with Brown," Brandweek, Jan 27, 2003 p. 16; "Business as Usual for Ads on Sunday News Shows," BtoB, April 14, 2003, p. 30; "UPS Service Helps Companies Go Global," Transportation 6. Distribution, May 2003, p. 19; "The New Mission of Synchronizing Global Supply Chains," Inventory Management Report, May 2003, p. 9; Robert McGarvey, "UPS Builds Millions in Sales," Selling Power, June 2004, pp. 56-61; Larry Greenemeier, "On the Line at UPS," Information Week, January 23, 2006; and information gathered at www.UPS.com, September 2006. 2. See Kate Macarthur, "Teflon Togs Get $40 Million Ad

Push," AdvertisingAge, April 8,2002, p. 3; "Neat Pants for Sloppy People," Consumer Reports: Publisher's Edition Including Supplemental Guides, May 2003, p. 10; "Sales Makes the Wearables World Go 'Round," Wearables Business, April 24, 2004, p. 22; and Rosamaria Mancini, HFN, May 16, 2005, p. 17; and www.teflon.invista.com, accessed September 2006. For more discussion of business markets and business buyer behavior, see Das Narayandas, "Building Loyalty in Business Markets," Harvard Business Review September 2005, pp. 131-139; and James C. Anderson, James A. Narus, and Wouter van Rossum, "Customer Value Propositions in Business Markets," Harvard Business Review, March 2006, pp. 91-99. Patrick J. Robinson, Charles W. Faris, and Yoram Wind, Industrial Buying Behavior and Creative Marketing (Boston: Allyn & Bacon, 1967). Also see James C. Anderson and James A. Narus, Business Market Management, 2nd ed. (Upper Saddle River, NJ: 2004), chapter 3; and Philip Kotler and Kevin Lane Keller, Marketing Management, 12th ed. (Upper Saddle River, NJ: Prentice Hall, 2006), chapter 7. See "BJ's Knows . . . Our System Is Their Solution," Insights, March 2002, p. I; "Soap, Detergent Maker to Open Its First Franchise in Port of Stockton, California," Knight Ridder Tribune Business News, September 9, 2003, p. 1; and information accessed online at umw.chemstation. com, August 2006. See Philip Kotler, Marketing Management. 12th ed. (Upper Saddle River, NJ: Prentice Hall, 2006)~pp. 213-214.

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References

See Frederick E. Webster Jr. and Yoram Wind, Organizational Buying Behavior (Upper Saddle River, NJ: Prentice Hall, 1972), pp. 78-80. Also see James C. Anderson and James A. Narus, Business Market Management: Understanding, Creating and Delivering Value (Upper Saddle River, NJ: Prentice Hall, 2004), chapter 3. For more discussion, see Stefan Wuyts and Inge Geyskens, "The Formation of Buyer-Seller Relationships: Detailed Contract Drafting and Close Partner Selection," Harvard Business Review, October 2005, pp. 103-117; and Robert McGarvey, "The Buyer's Emotional Side," Selling Power, April 2006, pp. 35-36. See Frederick E. Webster, Jr., and Yoram Wind, Organizational Buying Behavior, pp. 33-37. Robinson, Faris, and Wind, Industrial Buying Behavior, p. 14. For this and other examples, see Kate Maddox, "#I HewlettPackard Co.: www.hp.com," BtoB, August 11, 2003, p. 1; "Great Web Sites: www.hp.com," BtoB Online, September 13, 2004; and "10 Great Web Sites," BtoB Online, September 12, 2005; all accessed at www.btobonline.com. Karen Prema, "National Aquarium Reels in Savings with Online Buying," accessed at www.purchasing.com, March 2, 2006; Karen Prema, "SRM + E-Auctions: Tools in the Toolbox," .Purchasing, April 6, 2006, pp. 46-47; and Susan Avery, "At HP, Indirect Procurement Takes More of a Leadership Role," accessed at www.purchasing.com, May 25, 2006. Demir Barlas, "E-Procurement: Steady Value," Line56. com, January 4, 2005, accessed at www.line56.com. Michael A. Verespej, "E-Procurement Explosion," Industry Week, March 2002, pp. 25-28. Information from www.shrinershq.org/Hospitals/Hospitals-for-Children/; and www.tenethealth.com, September 2006. H.J. Heinz Company Annual Report 2006, p. 20; accessed at http://heinz.com/2006annualreport/2006 HeinzARpdf. "President Bush's Proposed FY2006 Budget Represents Growth i n IT Spending for Federal Government," FedSources press release, February 8, 2005, accessed at http://fedsources.com/about/fsinews/020805~ fy06 budget.asp; and "Federal IT Spending to Hit $77B by FY '10, Group Says," Aerospace Daily and Defense Report, November 28, 2005, p. 1. Ari Vidali, president of Envisage Technologies, personal communication, July 6, 2006.

Wall Street Journal, April 8, 2006, p. A l ; with quotes and other information from Julie Bosman, "This Joe's for You," New York Times, June 8, 2006, p. Cl. 2. For these and other examples, see Dare11 K. Rigby and Vi-

jay Vishwanath, "Localization: The Revolution in Consumer Markets," Harvard Business Review, April 2006, pp. 82-92. 3. Based on information found in Steven Gray, "How Applebee's Is Making It Big in Small Towns," Wall Street Journal, August 2,2004, B1; Applebee's 2005 Annual Report, p. 14, accessed at www.applebees.com; and "Applebee's International, Inc.," Hoover's Company Records, Austin, June 1, 2006, p. 13585. 4. See "Customer Experience and 'Small-Marts,' " January 28, 2005, accessed at http://learned.typepad.com/ learned-on-women1 2005/0l/customer~experi.h;Marianne Rohrlich, "Manhattanites Will Soon Find Depots Close to Home," New York Times, April 15, 2004, p. F10; Doug Desjardins, "Smaller Format Rolls Dice with Multiple Openings in Vegas," DSN Retailing Today, February 28, 2005, p. 46; and Kris Hudson, "Wal-Mart Shelves Dallas Competitors," Wall Street Journal, February 15, 2006, p. B3D. 5. Reena Jana, "Nintendo's New Brand Game," June 22,2006, accessed at www.businessweek.com/innovate/content/ jun2006/id20060622~12493l.htm?chan=search.

6. See Fara Warner, "Nike Changes Strategy on Women's Apparel," New York Times, May 16, 2005, accessed at www. nytimes.com; and Thomas J. Ryan, "Just Do It for Women," SGB, March 2006, pp. 25-26. 7. Information accessed at www.we.tv, August 2006. 8. Robert Berner, "Out-Discounting the Discounter," Businessweek, May 10, 2004, pp. 78-79; "The Almighty Dollar Store," Wall Street Journal: The Classroom Edition, March 2005, accessed at www.wsjclassroornedition.com/ archivelo 5marIecon-dollarstore.htm; Debbie Howell, "Dollar," DSN Retailing Today, November 21, 2005, pp. 11-12; and Bernadette Casey, "Retailers Better Learn the Real Value of a Dollar," DSN Retailing Today, March 13, 2006, p. 6. 9. Portions adapted from Linda Tischler, "How Pottery Barn Wins with Style," Fast Company, June 2003, pp. 106-1 13; . .with information from www.potterybarn.com; www. potterybarnkids.com, and www.pbteen.com, September 2006.

i

10. See Maureen Wallenfang, "Appleton, Wis.-Area Dealers See Increase in Moped Sales," Knight Ridder Tribune Business News, August 15, 2004, p. 1; Louise Lee, "Love Those Boomers," Businessweek, October 24, 2005, pp. 94-100; and Honda's Web site at www.powersports.honda.com/ scooters/,. Se~tember2006.

See Messmer, "The Feds Get into Online Buying," Network World, March 5, 2001, p. 67; Patrick E. Clarke, "DLA Shifting from Managing Supplies to Managing Suppliers," May 30, 2002, accessed at www.dla.mi1; and information accessed at http://progate.daps.dla. mil/home/; "GSA Organization Overview," accessed as www.gsa.gov, September 2006; and VA Office of Acquisition & Material Management, accessed at wwwl.va.gov/oanlm/, September 2006.

12. See Jennifer Ordonez, "Fast-Food Lovers, Unite!" Newsweek, May 24, 2004, p. 56.

1. Adapted from portions of Janet Adamy, "Battle Brewing:

13. Portions adapted from Alan T. Saracevic, "Author Plumbs Bottomless Depth of Mac Worship," December 12, 2004, accessed at &ww.sfgate.com. Definition from www.

Dunkin' Donuts Tries to Go Upscale, But Not Too Far,"

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11. Kate MacArthur, "BK Rebels Fall in Love with King," Advertising Age, May 1,2006, pp. 1, 86.

References

urbandictionary.com/define.php?term=Macolyte&r=d, September 2006. 14. Based on PRIZM NE cluster information accessed at ~ww.claritas.com,September 2006. 15. John Fetto, "American Neighborhoods' First Page," American Demographics, July-August 2003, p. 34. See also the "Prizm NE Lifestyle Segmentation System" brochure, accessed at www.claritas.com, September 2006. 16. Information from http://home.americanexpress.com/ home/mt~personal.shtml,August 2006. 17. See Arundhati Parmar, "Global Youth United," Market-ing News, October 28, 2002, pp. 1, 49; " 'hpossible Is Nothing' Adidas Launches New Global Brand Advertising Campaign," accessed at www.adidas.com, February 5, 2004; "Teen Spirit," Global Cosmetic Industry, March 2004, p. 23; Johnnie L. Roberts, "World Tour," Newsweek, June 6, 2005, pp. 34-36; and the MTV Worldwide Web site, www.mtv.com/mtvinternational. 18. See Michael Porter, Competitive Advantage (New York: Free Press, 19853, pp. 4-8, 234-236. For more recent discussions, see Stanley Slater and Eric Olson, "A Fresh Look at Industry and Market Analysis," Business Horizons, January-February 2002, p. 15-22; Kenneth Sawka and Bill Fiora, "The Four Analytical Techniques Every Analyst Must Know: 2. Porter's Five Forces Analysis," Competitive Intelligence Magazine, May-June 2003, p. 57; and Philip Kotler and Kevin Lane Keller, Marketing Management, 12th ed. (Upper Saddle River, NJ: Prentice Hall, 2006), pp. 342-343. 19. Nina Munk, "Why Women Find Lauder Mesmerizing," Fortune, May 25,1998, pp. 97-106; Christine Bittar, "New Faces, Same Name," Brandweek, March 11, 2002, pp. 28-34; Robin Givhan, "Estee Lauder, Sending a Message in a Bottle," Washington Post, April 26, 2004, p. C.01; and information accessed at www.elcompanies.com, www. stila.com, and www.macmakeup.com, September 2006. 20. Arik Hesseldakl, "Apple Set to Take Bigger Bite of the Market," Businessweek Online,June 16,2006;and Mark Veverka, "Beyond the Sod: Mac Attack," Baron's, July 17, 2006, pp. 20-23. 21. See Gerry Kherrnouch, "Call It the Pepsi Blue Generation," Businessweek, February 3, 2003, p. 96; Kathleen Sampey, "Sweet on Sierra Mist," Adweek, February 2, 2004, p. 20; Nat Ives, "Mountain Dew Double-Dose for Times Square Passers-By," New York Times, April 8, 2004, p. C9; and Phyllis Furman, "Mist-Takes Made Again: New Ads for Sierra Mist," Knight Ridder Tribune Business News, April 10, 2006, p. 1. 22. Gwendolyn Bounds, "How an Artist Fell into a Profitable Online Card Business," Wall Street Journal, December 21, 2004, p. B1; and David Smith, "UK's Cottage Industry Beats US Internet Giants," The Observer, February 12, 2006, accessed at http://oberserver.guardian.co.uk. 23. Adapted from examples in Dare11 K. Rigby and Vijay Vishwanath, "Localization: The Revolution in Consumer Markets," Harvard Business Review, April 2006, pp. 82-92. Also see Jon Springer, "Kroger Looks to New Formats, Positioning," Supermarket News, June 26, 2006, p. l.

-33.

For a good discussion of mass customization and relationship building, see Don Peppers and Martha Rogers, Managing Customer Relationships: A Strategic Framework (Hoboken, NJ: John Wiley & Sons, 2004), chapter 10. Example adapted from Michael Prospero, "Lego's New Building Blocks," Fast Company, October 2005, p. 35; with information from http://factory.lego.com/, September 2006. Adapted from information found i n Mark Tatge, "Red Bodies, Black Ink," Forbes, September 18, 2000, p. 114; "Oshkosh Truck Corporation," Hoover's Company Records, July 15, 2006, p. 14345; and information accessed at www.oshkoshtruckcorporation.com, September 2006. See Susan Linn, Consuming Kids: The Hostile Takeover of Childhood (New York: The New Press, 2004); Suzy Bashford, "Time to Take More Responsibility?" Marketing, May 11, 2005, pp. 32-36; Sonia Reyes, "Kraft Foods Cited for Misleading Kids," August 4, 2005, accessed at www. brandweek.com; and William MacLeod, "Does Advertising Make Us Fat? No!" Brandweek, February 20, 2006, p. 19. Andrew Adam Newman, "Youngsters Enjoy Beer Ads, Arousing Industry's Critics," New York Times, February 13, 2006, p. C15. See "FBI Internet Crime Complaint Center Releases Stats," States News Service, April 6, 2006. Jack Trout, "Branding Can't Exist without Positioning," Advertising Age, March 14, 2005, p. 28. Adapted from a positioning map prepared by students Brian May, Josh Payne, Meredith Schakel, and Bryana Sterns, University of North Carolina, April 2003. S W sales data furnished by WardsAuto.com, June 2006. Price data from www.edmunds.com, June.2006. See Bobby J. Calder and Steven J. Reagan, "Brand Design," in Dawn Iacobucci, ed. Kellogg on Marketing (New York: John Wiley & Sons, 2001) p. 61. The Mountain Dew exarnple is from Alice M. Tybout and Brian Sternthal, "Brand Positioning," in Iacobucci, ed., Kellogg on Marketing, p. 54.

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1. Extracts adapted from Betsy McKay and Cynthia Cho, "Water Works: How FIJI Brand Got Hip to Sip," Wall Street Journal, August 16, 2004, p. B1; and information found at www.fijiwater.com, July 2006. Also see Kate Macarthur, "Drink Your Fruits, Veggies: Water's the New Fitness Fad," Advertising Age, January 3, 2005, p. 4; and "Designer Michael Kors Partners with FIJI Water in New Fragrance Venture," press release, March 6, 2006, accessed at www.fijiwater.com/michael~kors.h~l. 2. Adapted from and example in B. Joeseph Pine 11and James

H. Gilmore, "Trade in Ads for Experiences," Advertising Age, September 27, 2004, p. 36; with information from www.americangirlplace.com, July 2006. See also Mya Frazier, "$20 Doll Salon? American Girl Takes on Hollywood," Advertising Age, March 13, 2006, p. S5; and Josefina Loza, "Moms, Daughters, and Dolls," Omaha World-Herald, May 30, 2006, p. la.

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References

3. See "The Celebrity 100," Forbes, accessed at www. forbes.com, July 2006; and Reed Tucker, "Tiger Woods," Fortune, October 17, 2005, p. 142. See Daniel Roth, "The Trophy Life," Fortune, April 19, 2004, pp. 70-84; Ryan Underwood, "Bring on the Clown," Fast Company, January 2005, p. 28; "New Trump Products on the Market," Knight Ridder Tribune Business News, February 26, 2005, p. 1; and "He's Hired: Trump Gets into Jewelry Business," National-Jeweler.com, June 1, 2006. For more on marketing places, see Philip Kotler, Donald Waider, and Irving J. Rein, Marketing Places (New York: Free Press, 2002). Examples information found in Steve Dougherty, "In a Cold Country, the Nights Are Hot," New York Times, December 19, 2004, sect. 5, p. 1; and at www.TravelTex.com, www.iloveny.state.ny.us, and www. visiticeland.com, October 2006. Accessed online at www.socia1-marketing.org/aboutus. htrnl, October 2006. See Alan R. Andreasen, Rob Gould, and Karen Gutierrez, "Social Marketing Has a New Champion," Marketing News, February 7,2000, p. 38. Also see Philip Kotler, Ned Roberto, and Nancy Lee, Social Marketing: Improving the Quality of Life, 2nd ed. (Thousand Oaks, CA: Sage Publications, 2002); and www.socia1-marketing.org, October 2006. Quotes and definitions •’rom Philip Kotler, Kotler on Marketing (New York: Free Press, 1999), p. 17; and www. asq.org, October 2006. See Roland T. Rust, Christine Moorman, and Peter R. Dickson, "Getting Return on Quality: Revenue Expansion, Cost Reduction, or Both?" Journal of Marketing, October 2002, pp. 7-24; and Roland T. Rust, Katherine N. Lemon, and Valarie A. Zeithaml, "Return on Marketing: Using Customer Equity to Focus Marketing Strategy," Journal of Marketing, January 2004, p. 109. Adapted from information in Sarah Lacy, "How P&G Conquered Carpet," BusinessWeek Online, September 23, 2005, accessed at www.businessweek.com/ ~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~5 71639, For these and other examples, see Lee Gomes, "To.Design Away Tears, SAP Aims to Make Simpler Software," Wall Street Journal, June 21, 2006, p. B1; Lisa Chamberlain, "Going Off the Beaten Path for New Design Ideas," New York Times, March 12, 2006; and IDEO's Web site at ideo.com/portfolio/, October 2006. Based on Adam ~ b r o w i t zet al., "101 Dumbest Moments in Business," Business 2.0, January-February 2005, p. 104; and Jason Norman, "Kryptonite's PR Maven Donna Tocci Can Not Be Broken," Bicycle Retailer and Industry News, June 1,2005, p. 39. Kate Fitzgerald, "Packaging Is the Capper," Advertising Age, May 5, 2003, p. 22. Also see Rebecca Bedrossian, "Packaging," Communication Arts, MayJJune 2006, pp. 92-101. For these and other examples, see Susanna Hamner, "Packaging that Pays," Business 2.0, July 2006, pp. 68-69. Based on Thomas J. Ryan, "Labels Grow Up," Apparel, February 2005, pp. 26-29. '

Bro Uttal, "Companies That Serve You Best," Fortune, December 7 , 1987, p. 116; Jamie LaReau, "Cadillac Wants to Boost Sales, Customer Service," Automotive News, February 20, 2006, p. 46; and American Customer Satisfaction Index ratings accessed at www.theacsi.org/secondquarter.htm#alv, August 2006. Example adapted •’ram Michelle Higgins, "Pop-up Sales Clerks: Web Sites Try the Hard Sell," Wall Street Journal, April 15,2004,p. D.1. Also see Dawn Chmielewski, "Software That Makes Tech Support Smarter," Knight Ridder Tribune Business News, December 25, 2005, p. 1. Information accessed online at www.marriott.com, October 2006. Information about Colgate's product lines accessed at www.colgate.comlapp/Colgate/US/Corp/Products.cvsp, August 2006. See "McAtlas Shrugged," Foreign Policy,May-June 2001, pp. 26-37; and Philip Kotler and Kevin Lane Keller, Marketing Management, 1 2 ed. ~ (Upper Saddle River, NJ: Prentice Hall, 2006), pp. 290-291. A1 Ehrbar, "Breakaway Brands," Fortune, October 31, 2005, pp. 153-170. Also see "DeWalt Named Breakaway Brand," Snips, January 2006, p. 66. David C. Bello and Morris. B. Holbrook, "Does an Absence of Brand Equity Generalize across Product Classes?" Journal of Business Research, October 1995, p. 125; and Scott Davis, Brand Asset Management: Driving Profitable Growth through Your Brands (San Francisco: Jossey-Bass, 2000). Also see Kevin Lane Keller, Building, Measuring, and Managing Brand Equity, 2nd ed. (Upper Saddle River, NJ: Prentice Hall, 2003), chapter 2; and Kusum Ailawadi, Donald R. Lehrnan, and Scott A. Neslin, "Revenue Premium as an Outcome Measure of Brand Equity," Journal of Marketing, October 2003, pp. 1-17. "The 100 Top Brands," BusinessWeek, August 7, 2006, pp. 60-66. For another ranking, see Normandy Madden, "Hold the Phone," Advertising Age, April 10, 2006, pp. 4, 64. Larry Selden and Yoko S. Selden, "Profitable Customer: Key to Great Brands," Point, July-August 2006, pp. 7-9. Also see Roland Rust, Katherine Lemon, and Valarie Zeithaml, "Return on Marketing: Using Customer Equity to Focus Marketing Strategy," Journal of Marketing, January ' 2004, p. 109; and Connie S. Olasz, "Marketing's Role in a Relationship Age," Baylor Business Review, Spring 2006, pp. 2-7. 25. See Scott Davis, Brand Asset Management, 2nd ed. (San Francisco: Jossey-Bass, 2002). For more on brand positioning, see Philip Kotler and Kevin Lane Keller, Marketing Management, 12th ed. (Upper Saddle River, NJ: Prentice Hall, 2006), chapter 10. i

26. See Jacquelyn A. Ottman, Edwin R. Strattford, and Cathy L. Hartman, "Avoiding Green Marketing Myopia," Environment, June 2006, pp. 22-37. 27. Example adapted from Matthew Boyle, "Brand Killers," Fortune, August 11,2003,pp. 84-100. See also "Battle of the Brands," Consumer Reports, August 2005, pp. 12-15; and Sonia Reyes, "Saving Private Labels," Brandweek, May 8, 2006, pp. 30-34.

,

References

Value (New York: Free Press, 1997); Heskett, Sasser, and Schlesinger, The Value Profit Chain: Treat Employees Like Customers and Customers Like Employees (New York: Free Press, 2003); and "Recovering from Service Failure," Strategic Direction, June 2006, pp. 37-40.

See Sue Stock, "Grocer's Expand Private-Label Marketing Share," Knight Ridder Tribune Business News, May 26, 2005, p. 1; and Michael Fielding, "No Longer Plain, Simple," Marketing News, May 15, 2006, pp. 11-13. See Margaret Webb Pressler, "Shelf Game; When Stores Force Makers to Pay Them Fees, You Lose," The Washington Post, January 18, 2004, p. F.05; and "Legislator Pushing for Disclosure on Slotting Fees," Gourmet News, April 2005, p. 3.

William C. Johnson and Larry G. Chiagouris, "So Happy Together," Marketing Management, March-April 2006, pp. 47-50. Based on Matthew Boyle, "The Wegrnans Way," Fortune, January 24, 2005, pp. 62-68; with information from Mark Hamstra, "Wegmans, H-E-B Lead in Customer Satisfaction Study," Supermarket News, April 17, 2006, p. 22.

Jay Sherman, "Nick Puts Muscle Behind EverGirl," Television Week, January 5, 2004, p. 3; and "Nickelodeon Unveils Three New Toy Lines Based on Hit Properties," PR Newswire, February 10, 2006.

See "UPS Fact Sheet," accessed at http://pressroom. ups.com/mediakits/factsheet/0,2305,866,00.html, August 2006; and "Prescription Drug Trends," Kaiser Family Foundation, June 2006, accessed at www.kff.org/rxdrugs/ upload/3057-05.pdf.

Wendy Zellner, "Your New Banker?" BusinessWeek, February 7, 2005, pp. 28-31; and Kathleen Day, "Piggy Banker?" Washington Post, February 12, 2006, p. F1. Gabrielle Solomon, 'To-branding Alliances: Arranged Marriages Made by Marketers," Fortune, October 12,1998, p. 188; and "Martha Stewart Upgrading from Kmart to Macys," Financialwire, April 26, 2006, p. 1.

Brian Hindo, "Satisfacton Not Guaranteed," BusinessWeek, June 19,2006, pp. 32-36. ;I J

Based on information from Kate McArthur, "Cannibalization a Risk as Diet Coke Brand Tally Grows to Seven," Advertising Age, March 28, 2005, pp. 3, 123; "Coca-Cola Zero Pops into Stores Today," Atlanta Business Chronicle, June 13, 2005, accessed at http://atlanta. bizjournals.com/ atlanta/stories/2005/O6/13/daily7.htrnl; and www2. coca-cola.com, July 2006. For more on the use of line and brand extensions and consumer attitudes toward them, see Franziska Volckner and Henrik Sattler, "Drivers of Brand Extension Success," Journal of Marketing, April 2006, pp. 18-34; and Chris Pullig, Carolyn J. Simmons, and Richard G. Netemeyer, "Brand Dilution: When Do New Brands Hurt Existing Brands?" Journal of Marketing, April 2006, pp. 52-66. Constantine von Hoffman, "P&G1sHouse Cleaning May Sweep Away Classics," Brandweek, May 15, 2006, p. 5. "100 Leading National Advertisers," supplement to Advertising Age, June 26, 2006, pp. 29 and 96. Stephen Cole, "Value of the Brand," CA Magazine, May 2005, pp. 3 9 4 0 . See Kevin Lane Keller, "The Brand Report Card," Harvard Business Reviev~ January 2000, pp. 147-157; Keller, Strategic Brand Management, pp. 766-767; and David A. Aaker, "Even Brands Need Spring Cleaning," Brandweek, March 8, 2004, pp. 3 6 4 0 . See CIA, The World Factbook, accessed at www. cia.gov/cia/publications/factbooMgeos/us.html#Econ, August 2006; International Trade Statistics 2005, World Trade Organization, p. 23, accessed at www.wto.org; and information from the Bureau of Labor Statistics, www. bls.gov, accessed August 2006. Adapted from information in Leonard Berry and Neeli Bendapudi, "Clueing i n Customers," Harvard Business Review, February 2003, pp. 100-106; with information accessed at www.mayoclinic.org, October 2006. See James L. Heskett, W. Earl Sasser Jr., and Leonard A. Schlesinger, The Service Profit Chain: How Leading Companies Link Profit and Growth to Loyal@ Satisfaction, and

-13

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1. Quotes and other information in this Apple story from Terry

Semel, "Steve Jobs: Perpetual Innovation Machine," Time, April 18, 2005, p. 78; Steve Maich, "Nowhere to Go But Down," Maclean's, May 9, 2005, p. 32; Brent Schlender, "How Big Can Apple Get," Fortune, February 21, 2005, pp. 67-76; Jim Dalrpple, "Apple's Uphill Climb," Macworld, June 2005, p. 16; Paul Sloan and Paul Kaihla, "What's Next for Apple," Business 2.0, April 2005; Peter Burrows and Andrew Park, "Apple's Bold Swim Downstream," BusinessWeek, January 24, 2005, p. 32; Bruce Nussbaum, "Get Creative!" BusinessWeek, August 1, 2005, pp. 61-70; "The World's Most Innovative Companies," BusinessWeek, April 24, 2006, p. 62; "Apple Posts Record Earnings," Apple Maffers,July 20, 2006; and Apple annual reports and other information accessed at www.apple.com, October 2006. 2. Robert S. Shulman, "Material Whirl," Marketing Management, March-April 2006, pp. 25-27. 3. Rick Romell, "Moving in the Right Direction: Segways Catch on in Niche Markets," Milwaukee Journal Sentinel, June 10,2006, p. ID. 4. For these and other facts and examples, see Jena McGregor, "How Failure Breeds Success," Businessweek, July 10, 2006, p. 42; and John T. Gourville, "Eager Sellers & Stony Buyers," Harvard Business Review, June 2006, pp. 98-106. Information and examples from Gary Slack, "Innovations and Idiocities," Beverage World, November 15, 1998, p. 122; Robert M. McMath and Thorn Forbes, What Were They Thinking? Money-Saving, Time-Saving, Face-saving Marketing Lessons You Can Learn from Products That Flopped (New York: Times Business, 1999), various pages; Beatriz Cholo, "Living with Your 'Ex': A Brand New World," Brandweek, December 5, 2005, p. 4; and www.newproductworks.com/npw~difference/product~ collection.htm1, September 2006. Joel Berg, "Product Development: Look for Children's Insight," Central Penn Business, October 15, 2004, p. 3.

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References

7. Based on material from Peter Lewis, "A Perpetual Crisis Machine," Fortune, September 19, 2005, pp. 58-67. 8. Richard Breeden, "By the Numbers-New or Improved," Wall Street Journal, July 11,2006, p. B9. 9. William C. Taylor, "Here's an Idea: Let Everyone %Have Ideas," New York Times, March 26, 2006, p. 3.3. 10. Based on quotes and information from Robert D. Hof, "The Power of Us," BusinessWeek, June 20,2005, pp. 74-82. See also Robert Weisman, "Firms Turn R&Don Its Head, Looking Outside for Ideas," Boston Globe, May 14, 2006, p. El. 11. Information accessed online at www.avon.com, October 2006. 12. "Business: The Rise of the Creative Consumer; the Future of Innovation," Economist, March 12, 2005, p. 75. 13. Ibid., p. 75. 14. Robert Gray, "Not Invented Here, " Marketing, May 6,2004, pp. 34-37. 15. Example from www.Frogdesign.com, accessed July 2006. 16. See "DaimlerChrysler Presents California with Three F-Cell Fuel Cell Vehicles," Fuel Cell Today, June 1, 2005, accessed at www.fuelcelltoday.com; Steven Ashley, "On the Road to Fuel-Cell Cars," Scientific American, March 1, 2005, p. 62; and Kathy Jackson, "Calif. Leads the Way in Fleet Fuel Cell Tests," Automotive News, June 5, 2006, p. 35. 17. Becky Ebenkamp, "It's Like Cheers and Jeers, Only for Brands," Brandweek, March 19, 2001; Ebenkamp, "The Focus Group Has Spoken," Brandweek, April 23, 2001, p. 24; and information furnished by Mark Sneider, General Manager, AcuPoll, October 2004. 18. Examples adapted from those found in Carol Matlack, "The Vuitton Machine," BusinessWeek, March 22, 2004, pp. 98-102; and Brendan Koerner, "For Every Sport, A Super Sock," New York Times, March 27, 2005, p. 3.2. 19. Joshua Freed, "Redbox Aims to Up Presence of DVD Kiosks," Associated Press Online, April 25, 2006. . 20. Jack Neff, "Is Testing the Answer?" Advertising Age, July 9,2001, p. 13; and Dale Buss, "P&GYs Rise," Potentials, January 2003, pp. 26-30. For more on te-st marketing, see Philip Kotler and Kevin Lane Keller, Marketing Management, 12th ed. (Upper Saddle River, NJ: Prentice Hall, 2006), pp. 653-655. 21. Information on Behaviorscan accessed at wwwinfores. com/public/us/.analytics/productportfolio/bscannew prodtest.htrn, November 2006. 22. See Jack Neff, "Six-Blade Blitz," Advertising Age, September 9, 2005, pp. 3, 53; and William C. Symonds, "Gillette's New Edge," BusinessWeek, February 6, 2006, p. 44. 23. See William C. Symonds, "Gillette's New Edge," Businessweek, February 6, 2006, p. 44; and "Sales Are Razor Sharp," Drug Store News, April 10, 2006, p. 25. 24. See Jack Neff, "New SpinBrush Line Backed by . $30 Million," Advertising Age, September 9 , 2002, p. 36; and Jenn Abelson, "Firms Likely to Shed Some Products," Knight Ridder Tribune Business News, June 22, 2005, p.1. 25. Robert G. Cooper, "Formula for Success," Marketing Management, March-April 2006, pp. 19-23.

26. Examples adapted from information in Jennifer Reingold, "The Interpreter," Fast Company, June 2005, pp. 59-61; and Jonah Bloom, "Beth Has an Idea," Point, September 2005, pp. 9-14. Also see Paul Bennett, "Listening Lessons: Make Consumers Part of the Design Process by Tuning In," Point, March 2006, pp. 9-10; and Larry Selden and Ian C. MacMillan, "Manage Customer-Centric InnovationSystematically," Hamard Business Review, April 2006, pp. 108-116. 27. Lawrence A. Crosby and Sheree L. Johnson, "CustomerCentric Innovation," Marketing Management, MarchApril 2006, pp. 12-13. 28. See Philip Kotler, Kotler on Marketing (New York, NY: The Free Press, 1999),pp. 4 3 4 4 ; Judy Lamont, "Idea Management: Everyone's an Innovator," KM World, November1 December-2004,pp. 14-16; and J. Roland Ortt, "Innovation Management: Different Approaches to Cope with the Same Trends," Management, 2006, pp. 296-318. 29. See Tim Studt, "3M-Where Innovation Rules," R&D, April 2003, pp. 20-24; Tim Stevens, "3M Reinvents Its Innovation Process," Research Technology Management, MarchIApril 2004, p. 3; Daniel Del Re, "Pushing Past Post-Its," Business 2.0, November 2005, pp. 54-56; and "Innovation at 3M," 'accessed at www.3m.com/about3m/innovatiodindex.jhtrnl, October 2006. Also see Blair Sheppard and Michael Canning, "Innovation Culture," Leadership Excellence, January 2006, p. 18. 30. Laurie Freeman, "Study: Leading Brands Aren't Always Enduring," AdvertisingAge, February 28,2000, p. 26. Also see, Veronica MacDonald, "Soaps and Detergents: Going the World Over to Clean," Chemical Week, January 6, 2005, pp. 21-24. 31. This definition is based on one found in Bryan Lilly and Tammy R. Nelson, "Fads: Segmenting the Fad-Buyer Market," Journal of Consumer Marketing, vol. 20, no. 3, 2003, pp. 252-265. 32. See "Scooter Fad Fades, as Warehouses Fill and Profits Fall," Wall Street Journal, June 14, 2001, p. B4; Katya Kazakina, "Toy Story: Yo-yos Make a Big Splash," Wall Street Journal, April 11, 2003, p. W-10; Robert Johnson, "A Fad's Father Seeks a Sequel," New York Times, May 30, 2004, p. 3.2; and Tom McGhee, "Spotting Trends, Eschewing Fads," Denver Post, May 29, 2006. 53:'Youngrne Moon, "Break Free from the Product Life Cycle," Harvard Business Review, May 2005, pp. 87-94. 34. These and other uses found in "Always Another Use," www.wd40.comlBrandslwd40.cfm,October 2006. 35. For a more comprehensive discussion of marketing strategies over the course of the product life cycle, see Philip Kotler and Kevin Lane Keller, Marketing Mcznagement, 12th ed. (Upper Saddle River, NJ: Prentice Hall, 2006), pp. 321-335. 36. See "Ford Motor Co.: Jury Orders Auto Maker to Pay $369 in Explorer Case," Wall Street Journal, June 4, 2004, p. 1; Lanny R. Berke, "Design for Safety," Machine Design, February 17, 2005, pp. 4 8 4 9 ; "Year-by-Year Analysis Reveals an Overall Compensatory Award of $1,500,000 for Products Liability Cases," Personal Injury Verdict Reviews, July 3, 2006; and Emily Urnbright, "Report Finds Product Lia-

References bility Cases on the Decline," St. Louis Daily Record, July 10, 2006. 37. For these and other examples, see Dare11 K. Rigby and Vijay Vishwanath, "Localization: The Revolution in Consumer Markets," Haward Business Review, April 2006, pp. 82-92. 38. Information accessed online at www,deutsche-bank.com, October 2006. 39. Information accessed online at www.interpublic.com and www.mccann.com, October 2006. 40. See "Wal-Mart International Operations," accessed at www.walmartstores.com, July 2006; "2005 Global Powers of Retailing," Stores, January 2005, accessed at www. stores.org; and information accessed at www.carrefour. com/english/groupecarrefour/profil.jsp, October 2006. i7 8.i 2;py';.: .,.:a 2P-l:

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1. Thomas T. Nagle and John E. Hogan, The Strategy and Tactics of Pricing, 4th ed. (Upper Saddle River, NJ: Prentice Hall, 2006), p. 1. 2. Extracts and quotes from Nanette Byrnes, "Toys 'R' Us: Beaten at Its Own Game," BusinessWeek, March 29, 2004, pp. 89-90; and Jeffrey Gold, "Toys 'R' Us Is Due for a Makeover," Raleigh News b Observer, July 5, 2006, p. 8C. Also see Joan Verdon, "Toys 'R' Us Closes Deal to Go Private," Knight Ridder Tribune Business News, July 22, 2005, p. 1; and Doug DesJardins, "Babies 'R' Us Ready for Growth Spurt," DSNRetailing Today, May 8, 2006, p. 6. 3. George Mannes, "The Urge to Unbundle," Fast Company, February 27, 2005, pp. 23-24. 4. Linda Tischler, "The Price is Right," Fast Company, November 2003, pp.83-91. See also Wendy Melillo, "The Gold Standard," Brandweek, June 5, 2006, pp. 18-20. 5. Paul S. Hunt, "Seizing the Fourth P," Marketing Management, May-June 2005, pp. 40-44. 6. John Tayman, "The Six-Figure Steal," Business 2.0, June 2005, pp. 148-150. 7. See Claudia H. Deutsch, "Name Brands Embrace Some Less-Well-off Kinfolk," New York Times, June 24, 2005, p. C7; and information from www.charmin.com/en-us/ pages/prod-basic.shtm1, August 2006. 8. See Tracy Turner, "Lowering the Bar," The Columbus Dispatch, October 26, 2005, p. 1C; and Ruth N. Bolton, Detra Y. Montoya, and Venkatesh Shankar, "Beyond EDLP and HiLo: A New Customized Approach to Retail Pricing," European Retail Digest, Spring 2006, pp. 7-10. 9. William F. Kendy, "The Price Is Too High," Selling Power, April 2006, pp. 30-33. 10. Erin Stout, "Keep Them Coming Back for More," Sales 6. Marketing Management, February 2002, pp. 51-52, Also see Gerald E. Smith and Thomas T. Nagle, "A Question of Value," Marketing Management, July-August 2005, pp. 39-44; and William F. Kendy, "Value as a Sales Tool," Selling Power, July-August 2006, pp. 39-41. 11. Here accumulated production is drawn on a semilog scale so that equal distances represent the same percentage increase in output.

8-15

12. The arithmetic of markups and margins is discussed in Appendix 2, "Marketing by the Numbers." 13. See Robert Berner, "Why P&G's Smile Is So Bright," BusinessWeek, August 1 2 , 2002, pp. 58-60; Jack Neff, "Power Brushes a Hit at Every Level," Advertising Age, May 26, 2003, p. 10; Matt Phillips, "Sales of Toothbrushes Decline as Consumers Look to Electric Models," Knight Ridder Tribune Business News, November 12, 2004, p. 1; Robert Brenner and William C. Syrnonds, "Welcome to Procter & Gadget," Business Week, February 7, 2005, p. 76; and information accessed at www.spinbrush.com, August 2005. 14. Joshua Rosenbaum, "Guitar Maker Looks for a New Key," Wall Street Journal, February 11, 1998, p. B1; and information accessed online at www.gibson.com, October 2006. 15. See Nagle and Hogan, The Strategy and Tactics of Pricing, chapter 7. 16. Information and quotes accessed at www.greenmountain. corn, December 2004. 17. See Robert J. Dolan, "Pricing: A Value-Based Approach," Haward Business School Publishing, 9-500-071, November 3, 2003.

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1. Adapted from Matthew Maier, "A Radical Fix for Airlines: Make Flying Free," Business 2.0, April 2006, pp. 32-34. Also see Greg Lindsey, "Airworld Wars," Advertising Age, October 24, 2005, pp. 12,16; "Singapore Airlines Still Flying High," transcript from Weekend Edition Saturday, NPR, May 27, 2006; Scott McCartney, "Competition Heats Up over Luxury Flights," Wall Street Journal, April 4, 2006, p. Dl; and Brian Hindo, "Satisfacton Not Guaranteed," BusinessWeek, June 19, 2006, pp. 32-36. 2. For comprehensive discussions of pricing strategies, see Thomas T. Nagle and John E. Hogan, The Strategy and Tactics of Pricing, 4th ed. (Upper Saddle River, NJ: Prentice Hall, 2006). 3. See Philip Kotler and Kevin Lane Keller, Marketing Management, 12th ed. (Upper Saddle River, NJ: Prentice Hall, 2006), p. 438; and Robert Evatt, "Video Fans Tuning in to HDTV Experience: Prices of High-Definition Television Sets Continue to Fall," Tulsa World, July 16, 2006, p. 1. 4. "Shortage of New Xboxes Puts Drag on U.S. Game Industry," Toronto Star, January 15, 2006, p. A21. 5. Michael Buettner, "Charleston, S.C.-Based Asphalt Innovations Turns Waste into Helpful Product," Knight Ridder Tribune Business News, October 18, 2004, p. 1; and www.meadwestvaco.com, accessed October 2006. 6. Susan Krafft, "Love, Love Me Doo," American Demographics, June 1994, pp. 15-16; "That Zoo Doo that You Do So Well," accessed at www.csis.org/states/expzoodoo. html, March 2004; "Time Again for Zoo's Annual Spring Fecal Fest!" Woodland park Zoo Press Release, February 27, 2004, accessed at www.zoo.org; and "Woodland Park Zoo Doo," accessed at http://zoo.org/zoo~info~s~~~~~~~ zoodoo.htm, November 2006. 7. See Nagle and Holden, The Strategy and Tactics of Pricing.

pp. 244-247; Stefan Stremersch and Gerard

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References

"Strategic Bundling of Products and Prices: A New Synthesis for Marketing," Journal of Marketing Research, January 2002, pp. 55-72; Chris Janiszewski and Marcus Cunha, Jr., "The Influence of Price Discount Framing on the Evaluation of a Product Bundle," Journal of Marketing Research, March 2004, pp. 534-546; and "Save a Bundle, Comcast Says," Tacoma News Tribune, July 25, 2006. 8. Example adapted from Charles Fishman, "Which Price Is Right?" Fast Company, March 2003, pp. 92-96. Additional data from "Continental Airlines Reports July 2006 Operational Performance," Continental Financial and Traffic Releases, accessed at www.continental.com/companyl investor/news.asp. 9. For more discussion, see Manoj Thomas and Vicki Morvitz, "Penny Wise and Pound Foolish: The DoubleDigit Effect i n Price Cognition," Journal of Consumer Research, June 2005, pp. 54-64; and Heyong Min Kim and Luke Kachersky, "Dimensions of Price Salience: A Conceptual Framework for Perceptions of MultiDimensional Prices," Journal of Product and Brand Management, 2006, vol. 15, no. 2, pp. 139-147. 10. Tim Ambler, "Kicking Price Promotion Habit Is Like Getting Off Heroin-Hard," Marketing, May 27,1999, p. 24. Also see Robert Gray, "Driving Sales at Any Price?" Marketing, April 11, 2002, p. 24; and Lauren Kellere Johnson, "Dueling Pricing Strategies," MTT Sloan Management Review, Spring 2003, pp. 10-11; and Peter R. Darke and Cindy M. Y. Chung, "Effects of Pricing and Promotion on Consumer Perceptions: It Depends of How You Frame It," Journal of Retailing, 2005, pp. 3547. 11. See "Dell, the Conqueror," BusinessWeek, September 24,2001, pp. 92-102; Andy Serwer, "Dell Does Domination," Fortune, January 21, 2002, pp. 70-75; and PuiWing Tam, "H-P Gains Applause as It Cedes PC Market Share to Dell," Wall Street Journal, January 18,2005,p. C1; Andrea Orr, "Doors Closing on Creaky Gateway," Daily Deal, February 10, 2006; Richard Waters, "HI?Sees Unexpected Jump in Profits for PCs Computer Technology," Financial Times, February 16, 2006, p. 25; and "The Merits of A Diverse Portfolio," Business Today, July 2, 2006, p. 10. 12. Robert D. Hof, "Going, Going, Gone," BusinessWeek, April 12,1999,pp. 30-32. Also see Philip Kotler and Kevin Lane Keller, Marketing Management, 12th ed. (Upper Saddle River, NJ: Prentice Hall, 2006), pp. 432433. 13. Thomas L. Friedman, The World Is Flat: A Brief History of the Twenty-First, Century (New York: Farrar, Straus and Giroux, 2005), pp. 417418. 14. See Melissa Campanelli, "Getting Personal," Entrepreneur, October 2005, pp 44-46. 15. Philip R. Cateora, International Marketing, 7th ed. (Homewood, IL: Irwin, 1990),p. 540. Also see Barbara Stottinger, "Strategic Export Pricing: A Long and Winding Road," Journal of International Marketing, 2001, pp. 40-63; and Warren J. Keegan and Mark C. Green, Global Marketing, 4th ed. (Upper Saddle River, NJ: Prentice Hall, 2005), chapter 11. 16. For discussions of these issues, see Dhruv Grewel and Larry D. Compeau, "Pricing and Public Policy: A Research Agenda and Overview of Special Issue," Journal of Public Policy and Marketing, Spring 1999, pp. 3-10; and Michael

V. Marn, Eric V. Roegner, and Craig C. Zawada, The Price Advantage (Hoboken, NJ: John Wiley & Sons, 2004), Appendix 2. 17. "Three Chipmakers Settle Antitrust Lawsuit," FinancialWire, May 11, 2006, p. 1; and Kevin Allison, "Chipmakers Face Suit over Price-Fixing," Financial Times, July 14, 2006, p. 23. 18. "Predatory-Pricing Law Passed by New York Governor," National Petroleum News, December 2003, p. 7; and Brenden Timpe, "House Rejects Bill to Protect Gas Stations from Wal-Mart-Style Competition," Knight Ridder Tribune Business News, March 26, 2005, p. 1. 19. "FTC Guides Against Deceptive Pricing," accessed at www.ftc.govlbcplguides/decptprc.htm, December 2006.

ps%c=?'rF ,.j ,- 3 , !. ,YE L , 2 ;

1. Quotes and other information from Donald V. Fites, "Make

Your Dealers Your Partners," Harvard Business Review, March-April 1996, pp. 84-95; Sandra Ward, "The Cat Comes Back," Barren's, February 25, 2002, pp. 21-24; Michael Arndt, "Cat Claws Its Way into Services," Businessweek, December 5, 2005, pp. 56-59; "Global Construction & Farm Machinery: Industry Profile," Datamonitor, June 2006, accessed at www.datamonitor.com; Iian Brat, "Caterpillar Posts 38% Profit Rise, Raises Outlook on Strong Demand," Wall Street Journal, July 22, 2006, p. A2; "Caterpillar, Inc.," BusinessWeek, April 3, 2006, p. 100; and information accessed at www.caterpillar.com, October 2006. 2. Based on information from Stephanie Thompson and Kack Neff, "Retailer Revolt Causes $40M Loss at Revlon," Advertising Age, July 17, 2006, pp. 3, 28. 3. Matthew Boyle, "Brand Killers," Fortune, August 11, 2003, pp. 89-100; and information accessed at www. giantfood.com and www.luxottica.com/english/profiloaziendalelindex- keyfacts.htm1, October 2006. 4. Miguel Helft, "Fashion Fast Forward," Business 2.0, May 2002, p. 60; John Tagliabue, "A Rival to Gap That Operates Like Dell," New York Times, May 30, 2003, p. W-1; Kasra Ferdows, Michael A. Lewis, and Jose A. D. Machuca, "Rapid-Fire Fulfillment," Harvard Business Review, November 2004, pp. 104410;BrianDunn, "Inside the Zara Business Model," DNR,March 20,2006, p. 11;Rachael Tiplady, "ZARA: Taking the Lead in Fast-Fashion," BusinessWeek Online, April 4, 2006, accessed at wwtv.businessweek.

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com/globalbiz/content/apr2006/gb20060404~167078,

htm; and annual reports and other information from www.inditex.com; October 2006. 5. See Ilan Alon, "The Use of Franchising by U.S.-Based Retailers ," Journal of Small Business Management, April 2001, pp. 111-122; John Reynolds, "Economics 101: How Franchising Makes Music for the U.S. Economy," Franchising World, May 2004, pp. 3 7 4 0 ; Stacy Perman, "Extending the Front Lines of Franchising," BusinessWeek Online, April 12, 2005, accessed at www.bwonline.com; and "Answers to the 2 1 Most Commonly Asked Questions About Franchising," accessed online at the International Franchise Association Web Site, www.franchise.org/ content.asp?contentid=379, October 2006.

References

Andrew Yeh, "McDonald's Seeks Heavy TrafFic Fast-Food Expansion," Financial Times, June 21, 2006, p. 12. Information accessed at www.mind-advertising.com/ chlnestea-ch.htm and www.nestle.com/Our_Brands/

Breakfast~Cereals/Overview/Breakfast+Cereals.htm, September 2006. Also see Andrew McMains, "Anomaly to Introduce Gold Peak Tea," July 25, 2006, accessed at www.adweek.com. Quotes and information from Normandy Madden, "Two Chinas," Advertising Age, August 16,2004,pp. 1,22;Dana James, "Dark Clouds Should Part for International Marketers," Marketing News, January 7, 2002, pp. 9, 13; Russell Flannery, "Red Tape," Forbes, March 3, 2003, pp. 97-100; and Russell Flannery, "China: The Slow Boat," Forbes, April 12, 2004, p. 76. Nanette Byrnes, "Avon Calls. China Opens the Door," BusinessWeek Online, February 28, 2006, p. 19. Mitch Betts, "GE Appliance Park Still an IT Innovator," Computerworld, January 29, 2001, pp. 20-21; and "What Is GE CustomerNet?" accessed online at. www. geappliances.com/ buildwithgelindex-cnet.htm,October 2006. For a full discussion of laws affecting marketing channels, see Anne Coughlin, Erin Anderson, Louis W. Stern, and Adel El-Ansary,Markefing Channels, 7th ed. (Upper Saddle River, NJ: Prentice Hall, 2006), chapter 10. Martin Piszczalksi, "Logistics: A Difference Between Winning and Losing," Automotive Manufacturing & Production, May 2001, pp. 16-18; Neil Shister, "Redesigned Supply Chain Positions Ford for Global Competition," World Trade, May 2005, pp. 20-26; and "Logistics Costs on the Rise," Modern Materials Handling, July 2006, p. 11. Shlomo Maital, "The Last Frontier of Cost Reduction," Across the Board, February 1994, pp. 51-52; "Wal-Mart to Expand Supercenters to California," Business Journal, May 15, 2002, accessed online at http:llsanjose.bizjournals.com; and information accessed online at www.walmartstores. com, October 2006. Gail Braccidiferro, "One Town's Rejection Is Another's 'Let's Do Business,' " New York Times, June 15, 2003, p. 2; Christopher Dinsmore, "Wal-Mart to Add 1Million Square Feet to Virginia Import Distribution Center," Knight Ridder Tribune Business News, May 29,2004, p. 1; Hoover's Company Capsules, August 2006, p. 11600; Dan Scheraga, "Wal-Mart's Muscle," Chain Store Age, June 2005, pp. 64-65; and Dan Scheraga, "Wal-Smart," Chain Store Age, January 2006 supplement, pp. 16A-21A. "Adding a Day to Dell," Traffic World, February 21, 2005, p l ; William Hofhan, "Dell Ramps Up RFID," Traffic World, April 18, 2005, p. 1; and William H o h a n , "Dell Beats the Clock," Traffic World, October 24, 2005, p. 1. See Ann Bednarz, "IBM Has Some Tall RFID Plans," Network World, May 2, 2005, pp. 17-18; "WID: From Potential to Reality," Frozen FoodAge, April 2005, p. 40; Jack Neff, "P&G Products to Wear Wire," Advertising Age, December 15, 2004, pp. 1, 32; Tom Van Riper, "Retailers Eye RFID Technology to Make Shopping Easier," Knight Ridder Tribune Business News, May 23,2005, p. 1;John S. McClenahen, "Wal-Mart's Big Gamble," Industry Week, April

-17

2005, pp. 4 2 4 6 ; and Mark Roberti, "Using WID at Item Level," Chain Store Age, July 2006, pp. 56-57. Transportation percentages and other figures in this section are from Bureau of Transportation Statistics, "Freight in America," January 2006, accessed at www.bts.gov/ publications; and Bureau of Transportation Statistics, "Pocket Guide to Transportation 2006," January 2006, accessed at www.bts.gov/publications/pocket_guide~to~ transportation/2006/. Ann Bednarz, "Internet EDI: Blending Old and New," Network World, February 23, 2004, pp. 29-31; Laurie Sullivan, "Hey, Wal-Mart, A New Case of Pampers Is on the Way," Informationweek, January 23,2006, p. 28; and Connie Robbins Gentry, "No More Holes at Krispy Kreme," Chain Store Age, July 2006, pp. 64-65. See "Supply Chain Management Systems," Logistics Today, 2006, pp.3442; and Sarah Murray and Andrew K. Reese, "The 2006 Supply & Demand Chain Executive 100," Supply 6.Demand Chain Executive, July 2006; acid=8812. cessed at www.sddexec.comlarticle.asp?article~ Michael Barbaro, "Upscale Tastes Invade Wal-Mart's Hometown," Washington Post, June 27, 2005, p. Al; and Michelle Bradford, "Vendor Families Propel Region's Shift to Affluence," Arkansas Democrat-Gazette, February 5, 2006. John Paul Quinn, "3PLs Hit Their Stride," Logistics Management/Supply Chain Management Review, July 2006, pp. 3T-8T.

Based on quotes and information from Diane Brady, "Eating Too Fast at Whole Foods," BusinessWeek, October 24, 2005, pp. 82-84; Samantha Thompson Smith, "Grocer's Success Seems Entirely Natural," The News & Observer, May 21, 2004, p. Dl; Marianne Wilson, "Retail as Theater, Naturally," Chain Store Age, May 25, 2005, p. 182; Julie Schlosser, "After a Dip, Whole Foods Looks Tasty," Fortune, April 3, 2006, p. 115; and www.wholefoods.com, October 2006. "Supermarkets' Shrinking Share in Food Retailing Marketing Sparks Opportunities for Alternative Food Retail Channels," M2PressWIRE, March 31, 2006. See Robert Manor, "Online Grocers Seek Method that Clicks," Chicago Tribune, August 22, 2006, accessed at www.chicagotribune.com; Christopher Conkey, "Green Thumb: Internet Grocers Can Help You Avoid Supermarket, but Is It Worth the Price?" Wall Street Journal, July 22, 2006, p. B1; and Justin Hibbard, "Put Your Money Where Your Mouth Is," BusinessWeek, September 18, 2006, pp. 51-62. "Convenience Store Industry Sales Hit New Highs in 2005," April 5, 2006, accessed online at www.nacsonline. corn/. Adapted from Elizabeth Esfahani, "7-Eleven Gets Sophisticated," Business 2.0, January-February 2005, pp. 93-100. Also see Tatiana Serafin, "Smokes and Sandwiches," Forbes, February 13, 2006, p. 120. Patricia Callahan and Ann Zirnmerman, "Price War in Aisle 3-Wal-Mart Tops Grocery List with Supercenter

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Adapted from "At Home in the Apple Store: A Welcoming Temple to a Devout Member of the Cult," Saint Paul Pioneer Press, June 19, 2006. See Lorrie Grant, "Maytag Stores Let Shoppers Try Before They Buy," USA Today, June 7, 2004, p. 7B; and Alison Neumer Lara, "Chance to Do Laundry Puts Brand Loyalty to the Test," Knight Ridder Tribune Business News, November 16, 2005, p. 1. Information drawn from "The History of Mall of America," accessed online at www.mallofarnerica.com, October 2006. Andrea Bermudez, "Bijan Dresses the Wealthy for Success," Apparel News.Net, December 1-7, 2000, accessed online at www,apparelnews.net/Archieve/l201OO/News/newsfeat. him; Mimi Avins, "FASHION; More is More; Over-the-Top Isn't High Enough for Bijan, Whose Boutique Embraces Excess," Los Angeles Times, January 5, 2003, p. E.l; and inforu ~ q u e2006. , mation accessed at w w w . ~ ~ ~ a n ~ c o m ~ oA~~~~~ For a good discussion of retail pricing and promotion strategies, see Kathleen Seiders and Glenn B. Voss, "From -Price to Purchase," Marketing Management, NovemberDecember 2005, pp. 38-43. 18. Paul Lukas, "Our Malls, Ourselves," Fortune, October 18, 2004, pp. 243-256; Ryan Chitturn, "Mall-Building Industry Takes Stock," Wall Street Journal, May 17, 2006,

p. B7; and information accessed on the International Council of Shopping Centers Web site, www.icsc.org, October 2006. 19. Dean Starkman, "The Mall, Without the Haul-'Lifestyle Centers' Slip Quietly into Upscale Areas, Mixing Cachet and 'Curb Appeal,' " W d l Street Journal,July 25,2001, p. B1; "To Mall or Not to Mall?" Buildings, June 2004, p. 99; Arlyn Tobian Gajilan, "Wolves in Shops' Clothing," Fortune Small Business, February 2005, pp. 17-18; Jenny Kincaid, "An Inside Look at Outdoor Malls," Roanoke Times, April 9,2006; and information accessed on the International Council of Shopping Centers Web site, www.icsc.org, October 2006. 20. See Amy Barrett, "A Retailing Pacesetter Pulls Up Lame," BusinessWeek, July 12, 1993, pp. 122-123; and John Helyar, "The Only Company Wal-Mart Fears," Fortune, November 24,2003, pp. 158-166; Heather Todd, "Club Stores Pack 'Em In," Beverage World, April 15, 2005, pp. 4 4 4 5 . 21. See Malcolm P. McNair and Eleanor G. May, "The Next Revolution of the Retailing Wheel," Harvard Business Review, September-October 1978, pp. 81-91; Stephen Brown, "The Wheel of Retailing: Past and Future," Journal of Retailing, Summer 1990, pp. 143-147; Stephen Brown, "Variations on a Marketing Enigma: The Wheel of Retailing Theory," Journal of Markefing Management, 7, no. 2, 1991, pp. 131-155; Jennifer Negley, "Retrenching, Reinventing and Remaining Relevant," Discount Store News, April 5, 1999, p. 11; and Don E. Schultz, "Another Turn of the Wheel," Marketing Management, March-April 2002, pp. 8-9; and Carol Krol, "Staples Preps Easier E-Commerce Site," BtoB, March 14, 2005, pp. 3 4 . 22. See "Best of the Web-The Top 50 Retailing Sites," Internet Retailer, December 2004, accessed at wwwinternetretailer. com; Sungwook Min and Mary Wolfinbarger, "Market Share, Profit Margin, and Marketing Efficiency of Early Movers, Bricks and Clicks, and Specialists in E-Commerce," Journal of Business Research, August 2005, pp. 1030+; and "Peapod and Scholastic Deliver Highest Consistency Rate," Internet Retailer, May 10, 2006, accessed at www.internetretailer. com. 23. "Online Sales to Surpass $200 Billion This Year," May 23, 2006, accessed at www.shop.orglpressl06/052306.asp. 24. Joseph Pereira, "Staples Posts Strong Earnings on HighMargin Internet Sales," Wall Street Journal, March 5,2004, p. A13; "The BusinessWeek 50: Staples, Inc.," Businessweek, April 3, 2006, p. 97; and information accessed online at www.staples.com, October 2006. 25. Alice Z. Cuneo, "What's in Store?" Advertising Age, February 25,2002, pp. 1,30-31. Also see Robert Berner, "Dark Days in White Goods for Sears," Business Week, March 10, 2003. DO. 78-79. 26. See "The Fortune 500," Fortune, April 17, 2006, p. F1. ' L A

27. Adapted form information found in Christina Rexrode, "Concept Store in Bloom," Herald-Sun, June 6, 2004, pp. F1, F3; "Food Lion Opens First Bloom Concept Store," press release, May 25, 2004, accessed at www.foodlion. com/news.asp?parm=323; Richard Shulman, "Applied Science," Progressive Grocer, April 1, 2005, pp. 22-24; "Food Lion 'Blooms' Outside of North Carolina," Gourmet Retailer, June 2006, pp. 12-13; and www.shopbloom.com, December 2006.

References 28. "Wal-Mart International Operations," September 2006, accessed online at www.walmartstores.com. 29. See "2006 Global Powers of Retailing," Stores, January 2006, accessed at www.nxtbook.com/nxtbooks/nrfe/ stores0106-globalretail/index.php. 30. See Dexter Roberts, Wendy Zellner, and Carol Matlack, "Let the Retail Wars Begin," BusinessWeek, January 17, 2005, pp. 4 4 4 5 ; "Carrefour: At the Intersection of Global," DSNRetailing Today, September 18, 2000, p. 16; "Top 250 Global Retailers," Stores, January 2006, accessed at www.nxtbook.com/nxtbooks/nrfe/stores0106globalretail/index.php.; and information from www. walmartstores.com and www.carrefour.com, accessed October 2006. 31. Adapted from information in "Nike Will Outfit US. Men's National Soccer Team in Germany This Summer," Business Wire, May 2, 2006; and Stanley Holmes, "Nike: It's Not a Shoe It's a Community," BusinessWeek, July 24, 2006, p. 50. 32. See the Grainger 2006 Fact Book and other information accessed at www.grainger.com, October 2006. 33. See Dale Buss, "The New Deal," Sales b Marketing Management, June 2002, pp. 25-30; and Colleen Gourley, "Redefining Distribution," Warehousing Management, October 2000, pp. 28-30; Steve Konicki and Eileen Colkin, "Attitude Adjustment," Information Week, March 25, 2002, pp. 20-22; and Stewart Scharf, "Grainger: Tooled Up for Growth," BusinessWeek Online, April 25, 2006, p. 8. 34. "McKesson: Raising Expectations," Modern Materials Handling, February 2004, p. 53; and information from "About Us" and "Supply Management Online," accessed online at www.mckesson.com, October 2006. 35. Facts accessed at www.supervalu.com, October 2006. J _ ?

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1. Portions adapted from Warren Berger, "Dare-Devils," Business 2.0, April 2004, p. 110; with quotes and other information from David Kiley, "The Craziest Ad Guys in America," BusinessWeek, May 22, 2006, pp. 73-80; Matthew Creamer, "Agency of the Year," Advertising Age, January 10, 2005, pp. S1-S2; Mae Anderson, "Crispin, Burger King Win Grand Clio," May 24, 2005, accessed at www.adweek.com; "Blood, Sweat, and the Agency of the Year," Creativity, December 2005; and Kate MacArthur, "BK Rebels Fall in Love with King," Advertising Age, May 1, 2006, pp. 1-2. 2. The first four of these definitions are adapted from Peter D. Bennett, The AMA Dictionary of Marketing Terms, znd ed. (New York: McGraw-Hill, 1995). Other definitions can be found at www.marketingpower.com/live/mg-dictionary. php?, August 2006. 3. Bob Garfield, "The Chaos Scenario," Advertising Age, April 4,2005, pp, 1,57+; and "Readers Respond to 'Chaos Scenario'," Advertising Age, April 18, 2005, pp. l + . 4. Chase Squires and Dave Gussow, "The Ways in which We Watch TV Are Changing Right Before Our Eyes," St. Petersburg Times, April 27, 2006. 5. Abbey Klaassen, "Study: Only One in Four Teens Can Name Broadcast Networks," Advertising Age, May 15, 2006.

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Abbey Klaassen, "Marketers Lose Confidence in TV Advertising," Advertising Age, March 22,2006, accessed at adage. com/mediaworks/article?article~id=107965. Brian Steinberg and Suzanne Vranica, "As 30-Second Spot Fades, What Will Advertisers Do Next?" Wall Street Journal, January 3, 2006, p. A15. Mike Shaw, "Direct Your Advertising Dollars Away from TV at Your Own Risk," Adverfising Age, February 27, 2006, p. 29. Also see John Consoli, "2005 Spending Rose 4.2 Percent, Says Nielsen Monitor-Plus," Mediaweek, March 15, 2006, accessed at www.mediaweek.com; and Claire Atkinson, "Measured Network TV Ad Spending Fell Last Year," Advertising Age, March 6, 2006, accessed at www.adage. corn. 9. Jack Neff, "P&G Chief: We Need New Model Now," Advertising Age, November 15, 2004, pp. 1 , 53. 10. Don E. Schultz, "New Media, Old Problem: Keep Marcom Integrated," MarketingNews, March 29,1999, p. 11. Also see Don E. Schultz, Stanley I. Tannenbaurn, and Robert F. Lauterborn, Integrated Marketing Communications (Chicago,IL:NTC, 1992); Claire Atkinson, "Integration Still a Pipe Dream for Many," Advertising Age, March 10, 2003, pp. 1,47;and Randall Rothenberg, "Despite All the Talk, Ad and Media Shops Still Aren't Truly Integrated," Advertising Age, March 27, 2006, p. 24. 11. See Don E. Schultz and Philip J. Kitchen, Communication Globally: A n Integrated Marketing Approach (New York: McGraw-Hill, 2000); and Don E. Schultz and Heidi Schultz, IMC: The Next Generation (New York: McGrawHill, 2004). 12. Carolyn Setlow, "Humorous, Feel-Good Advertising Hits Home with Consumers," Dsn Retailing Today, April 22, 2002, p. 14. Also see Fred K. Beard, "One Hundred Years of Humor in American Advertising," Journal of Macromarketing, June 1, 2005, pp. 54 +. 13. See "Magic Fridge of Bud Lite Ices a Win," USA Today, February 6, 2006, p. 5B. 14. Quotes and other information found in Hillary Chura, "A Creative Low Point," Advertising Age, February 9, 2004, p. 49; Stuart Elliott, "Can Beer Ads Extol Great Taste in Good Taste?" New York Times, April 2004, p. C2; and Heather Landi, "Madison Avenue's Greatest Hits," Beverage World, December 15, 2005, pp. 28-29. 15. For these and other examples, see Pamela Paul, "Color by Numbers," American Demographics, February 2002, pp. 31-35; and Arundhati Parmar, "Marketers Ask: Hues on First?" Marketing News, February 15, 2004, pp. 8-10. 16. Jonah Bloom, "The Truth Is: Consumers Trust Fellow Buyers Before Marketers," Advertising Age, February 13, 2006, p. 25. 17. Example adapted from Linda Tischler, "What's the Buzz?" Fast Company, May 2004, p. 76; with information &om Matthew Creamer, "BzzAgent Seeks to Turn Word of Mouth into a Saleable Medium," Advertising Age, February 2006, p. 12. Eugenia Levenson, "When Celebrity Endorsements Attack," Fortune, October 17, 2005, p. 42; and Charlie Gillis, "Thee Shill of Victory," Maclean's, February 27 , 2006, p. 40.

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References

19. For more on advertising spending by company and industry, see the Advertising Age, "Ad to Sales Ratios 2005 Edition," March 1, 2006, accessed at http://adage.com/ datacenter/article.php?article-id=106936.

20. For more on setting promotion budgets, see W. Ronald Lane, Karen Whitehill King, and J. Thomas Russell, Kleppner's Advertising Procedure, 16&ed. (Upper Saddle River, NJ: Prentice Hall, 2005), Chap. 6. 21. See David Barron, "TV Ratings Beat Last Year's," Knight Ridder Tkibune Business News, February 7, 2006, p. 1; Nick Madigan and Rob Hiaasen, "Oscar Host Is One Tough Gig," Knight Ridder Tribune Business News, March 7, 2006, p. 1; and Lisa de Moraes, " 'American Idol' Belts Out a Huge Opening Number: 33.6 Million," Washington Post, January 20,2006, p. C1. 22. Roy Chitwood, "Making the Most Out of Each Outside Sales Call," February 4, 2005, accessed at http://seattle. bizjournals.com/seattle/stories/~005/02/07/smallb3. html; and "The Cost of the Average Sales Call Today is More Than $400," Business Wire, February 28, 2006. 23. Based on Matthew P. Gonring, "Putting Integrated Marketing Communications to Work Today," Public Relations Quarterly, Fall 1994, pp. 45-48. Also see Philip Kotler, Marketing Management, lzth ed. (Upper Saddle River, NJ: Prentice Hall, 2006), pp. 558-561. 24. Information accessed at www.tropicalforestfoundation. org/about.html and www.avoncompany.com/women/ avoncrusade/, August 2006. 25. For more on the legal aspects of promotion, see Lane, King, and Russell, Kleppner's Advertising Procedure, chapter 25; and William L. Cron and Thomas E. DeCarlo, Dalrymple's Sales Management, gth ed. (New York: Wiley, 2006), chapter 10.

I. Quotes and other information from "A Legend in Its Time," Best's Review, January 2006, p. 53; Jim Lovel, "Loving the Lizard," Adweek, October 24,2005, pp. 32-33; and Mya Frazier, "Ad Spending Booms in War of Car Insurers," AdvertisingAge, March 13,2006, p. 4. 2. For information on U.S. and international advertising spending, see Lisa Sanders, "Global Ad Spend to Rise to 6 Percent in 2006," Advertising Age, December 5,2005, p. 1; and "100 Leading National Advertisers," special issue of Advertising Age, June 26, 2006. 3. For more on advertising budgets, see W. Ronald Lane, Karen Whitehill King, and J. Thomas Russell, Kleppner's Advertising Procedure, 16th ed. (Upper Saddle River, NJ: Prentice Hall, 2005), chapter 6. 4. Adapted from Brian Steinberg and Suzapne Vranica, "Agencies Rethink Wall Between Creative, Media; Fragmentation of Audience Undercuts the Rationale for Separate Buying Units," Wall Street Journal, March l , 2006, p. B3. 5. See the Q&A section at www.absolut.com, August 2006; and "Record Year for Absolut Vodka," press release, January 31, 2006, accessed at www.absolut.com. 6. "Commercial Conundrum," Marketing Management, April 2006, p. 6; and "Number of Magazines by Category,"

accessed at www.magazine.org/editorial/editorialaltrendsand-magazine-handbooW1145.cfm,August 2006. 7. Charles Pappas, "Ad Nauseam," Advertising Age, July 10, 2000, pp. 16-18; Mark Ritson, "Marketers Need to Find a Way to Control the Contagion of Clutter," Marketing, March 6,2003, p. 16; and David H. Freedman, "The Future of Advertising Is here," Inc., August 2005, pp. 70-78. 8. See Steve McClellan, "American Idol No. 1with a $705k Bullet," Mediaweek, September 12, 2005, pp.4-5; Abbey Klaassen and Claire Atkinson, "Super Bowl Spots Lose Their Luster," Advertising Age, February 13, 2006, p. 1; Roberta Bernstein, "Actors' Digital Destiny," Adweek, April 10, 2006, pp. 22-23; and Claire Atkinson, "'Idol' Finale Hits $1.3M High Note," Advertising Age, April 17, 2006, pp. 1, 14. 9. Paul Holrnes, "Programs that Demonstrate the Value of Public Relations," Advertising Age, January 24, 2005, pp. C12-Cl6; Gary Levin, "Ad Glut Turns Off Viewers," USA Today, October 11, 2005, accessed at www.usatoday. com; and John Consoli, "Broadcast, Cable Ad Clutter Continues to Rise," MediaWeek, May 4, 2006, accessed at www.mediaweek.com. 10. John Consoli, "Broadcast, Cable Ad Clutter Continues to Rise," MediaWeek, May 4, 2006, accessed at www. mediaweek.com. 11. Ronald Grover, "The Sound of Many Hands Zapping," BusinessWeek, May 22, 2006, p. 38; David Kigley, "Learning to Love the Dreader TiVo," BusinessWeek, April 17, 2006, p. 88; and Randall Stross, "Someone Has to Pay. But Who? And How?" New York Times, May 7, 2006, p. 3.3. 12. See Theresa Howard, "'Viral' Advertising Spreads through Marketing Plans," USA Today, June 6, 2005, accessed at

www.usatoday.com/money/advertising/ 2005-06-22-viral-usat-x.htm; and Steve McKee, Advertising: Less Is Much More," BusinessWeek Online, May 10, 2006, accessed at www.businessweek.com. 13. Stuart Elliot, "New Rules of Engagement," New York Times, March 21, 2006, p. C7; and Abbey Klaassen, "New Wins Early Battle in Viewer-Engagement War," AdvertisingAge, March 20, 2006, p. 10. 14. See David Kiley, "Cable's Big Bet on Hyper-Targeting," BusinessWeek, July 4, 2005, pp. 58-59; and David H. ,-Freedman,"The Future of Advertising Is Here," Inc., AugUS^ 2005, pp. 70-78. 15. Adapted from information found in "Multi-Taskers," Journal of Marketing Management, May-June 2004, p. 6; "Kids Today: Media Multitaskers," March 9, 2005, accessed at www.~bsnews.~om/stories/2005/03/09/tech/ main678999,shtml; and Claudia Wallis, "The Multitasking Generation," Time, March 27, 2006, accessed at www. time.com. 16. Newsweek and BusinessWeek cost and circulation data accessed online at http://mediakit.businessweek.com and www.newsweekmediakit.com,August 2006. 17. See Marty Bernstein, "Why TV Commercials Are So Costly," Automotive News, May 10, 2004, p. 30H; and Simon Yeaman, "Up Late," The Advertiser, November 10, 2004, p. D5. b.

?'

Stuart Elliot, "How Effective Is This Ad, in Real Numbers? Beats Me," New York Times, July 20, 2005, p. C8. Elliot, "How Effective Is This Ad, in Real Numbers? Beats Me," p. C8. Also see, Dan Lippe, "Media Scorecard: How ROI Adds Up," Advertising Age, June 20, 2005, p. S6; and Pat LaPointe, "For Better ROI, Think Sailing, Not Driving," Brandweek, January 30,2006, pp. 17-18. Information on advertising agency revenues from "Advertising Age's Special Agency Report," Advertising Age, May 1,2006. See Alexandra Jardine and Laurel Wentz, "It's a Fat World After All," Advertising Age, March 7, 2005, p. 3; George E. Belch and Michael A. Belch, Advertising and Promotion, (New York: McGraw-Hill/Irwin, 2004), pp. 666-668; Jonathan Cheng, "China Demands Concrete Proof of Ads," Wall Street Journal, July 8, 2005, p. B1; Cris Prystay, "India's Brewers Cleverly Dodge Alcohol-Ad Ban," Wall Street Journal, June 15, 2005, p. B1; and Dean Visser, "China Puts New Restrictions on Cell Phone, E-Mail Advertising," Marketing News, March 15, 2006, p. 23. Adapted from Scott Cutlip, Allen Center, and Glen Broom, Efiective Public Relations, 9th ed. (Upper Saddle River, NJ: Prentice Hall, 2006), chapter 1. Adapted from information found in Diane Brady, "Wizard of Marketing," BusinessWeek, July 24, 2000, pp. 84-87; Mira Serrill-Robins, "Harry Potter and the Cyberpirates," BusinessWeek, August 1, 2005, p. 9; Keith O'Brien, "Publisher Puts Fans First for New Harry Potter Release," PRWeek, July 18, 2005, p. 3; and "Harry Potter Tops U.S. Best-seller List for 2005," China Daily, January 11, 2006, p 14. A1 Ries and Laura Ries, "First Do Some Publicity," Advertising Age, February 8,1999, p. 42. Also see A1 Ries and Laura Ries, The Fall of Advertising and the Rise of PR (New York: HarperBusiness, 2002). For points and counterpoints and discussions of the role of public relations, see 0 . Burtch Drake, "'Fall' of Advertising? I Differ," Advertising Age, January 13, 2003, p. 23; Robert E. Brown, "Book Review: The Fall of Advertising & the Rise of PR," Public Relations Review, March 2003, pp. 91-93; Mark Cheshire, "Roundtable Discussion-Making & Moving the Message," The Daily Record, January 30, 2004, p. 1; and David Robinson. "Public Relations Comes of Age," Business Horizons, May-June 2006, pp. 247+. Adapted from Todd Wasserman, "Word Games," Brandweek, April 24, 2006, pp. 24-28. See Corey Washington, "Software Stops for Corona Demonstration," Business Press, February 27, 2006, p. 5; Lucas Conley, "On a Roll," Fast Company, February 2005, p. 28; and information from www.microsoft.com/mscorp/ acrossamerica/, August 2006. See "Butterball Turkey Talk-Line Fact Sheet," accessed at

www.butterball.com/en/files/PDF/Fact~Sheet~2005.PDF, September 2006. Paul Holmes, "Senior Marketers Are Sharply Divided About the Role of PR in the Overall Mix," Advertising Age, Tanuatv 24.2005. DD. C1-C2.

Quotes and other information from Jeff O'Heir, "Michael Krasny-IT Sales Innovator, " Computer Reseller News, November 18, 2002; Ed Lawler, "Integrated Campaign Winner: CDW Computer Centers," BtoB, December 9, 2002, p. 20; "CDW Chooses Richardson to Strengthen Customer Focus," Business Wire, July 23, 2003, p. 5397; Scott Campbell, "CDW Snags Companywide Cisco Premier Status," CRN, April 12, 2004, p. 12; Chuck Salter, "The Soft Sell," Fast Company, January 2005, pp. 72-73; "CDW Corporation," Hoover's Company Records, May 15, 2006, p. 16199; Mike Hughlett, "Results Boost CDW's Shares," Knight Ridder Tribune Business News, April 26,2006, p. 1; and www.cdw.com, September 2006. Quote from Laurence Zuckerman, "Selling Airplanes with a Smile," New York Times, February 17, 2002, p. 3.2. Also see Joann Muller, "7 Digital 7," Forbes, June 21, 2004, p. 117; and Perry Flint, "What Will They Do for an Encore?" Air Transport World, March 2006, pp. 22-25. See "Lear Corp. Honored by GM as Supplier of the Year," St. Charles County Business Record, May 10, 2006, p. 1; Andy Cohen, "Top of the Charts: Lear Corporation," Sales 6.MarketingManagement, July 1998, p. 40; and "Lear Corporation," Hoover's Company Records, May 15, 2006, p. 17213. "Selling Power 500," accessed at www.sellingpower.com/ sp500/index.asp, October 2006. For more on this and other methods for determining sales force size, see William L. Cron and Thomas E. DeCarlo, Sales Management, 9th ed. (New York: John Wiley & Sons, 2006), pp. 84-85. Roy Chitwood, "Making the Most Out of Each Outside Sales Call," February 4, 2005, accessed at http://seattle. bizjournals.com/seattle/stories/2005/02/07/smaIlb3. htrnl; and "The Cost of the Average Sales Call Today is More Than $400," Business Wire, February 28, 2006. Carol Krol, "Telemarketing Team Rings Up Sales for Avaya," BtoB, October 10, 2005, p. 34. See Martin Everett, "It's Jerry Hale on the Line," Sales b Marketing Management, December 1993, pp. 75-79. Also see Terry Arnold, "Telemarketing Strategy," Target Marketing, January 2002, pp. 4 7 4 8 . Adapted from Chuck Salter, "The Soft Sell," Fast Company, January 2005, pp. 72-73. See also "Minding Our Business," Multichannel Merchant, March 2006, p. 1. William F. Kendy, "No More Lone Rangers," Selling Power, April 2004, pp. 70-74. Also see Michelle Nichols, "Pull Together - Or Fall Apart," BusinessWeek Online, December 2, 2005, accessed at www.businessweek.com. "Customer Business Development," accessed at www.pg. com/jobs/jobs~us/work~we~offer/advisor~overview. jhtml?sl=jobs~advisor~business~development, September 2006. Quotes and other information in this section on super salespeople are from Geofkey Brewer, "Mind Reading: What Drives Top Salespeople to Greatness?" Sales b

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References

Marketing Management, May 1994, pp. 82-88; Andy Cohen, "The Traits of Great Sales Forces," Sales &Marketing Management, October 2000, pp. 67-72; Julia Chang, "Born to Sell?" Sales b Marketing Management, July 2003, pp. 34-38; Henry Canaday, "Recruiting the Right Stuff," Selling Power, April 2004, pp. 94-96. Also see Tom Andel, "How to Cultivate Sales Talent," Ofjicial Board Markets, April 23, 2005, pp. 14-16; and Kevin McDonald, "Therapist,- Social Worker or Consultant?" CRN, December 2005-January 2006, p. 24. Robert Klein, "Nabisco Sales Soar afterCSalesTraining," Marketing News, January 6, 1997, p. 23; and Geofhey James, "The Return of Sales Training," Selling Power, May 2004, pp. 86-91. See also, Anita Sirianni, "How to Build a Sales Training Program That Actually Improves Performance," Proofs, January 2005, pp. 66-68. David Chelan, "Rewing Up E-Learning to Drive Sales," EContent, March 2006, pp. 28-32; and E-Learning Evolves Into Mature Training Tool," T+D, April 2006, p. 20. From David Chelan, "Revving Up E-Learning to Drive Sales," EContent, March 2006, pp. 28-32; and "Internatinoal Rectifier Drives, Sales with Global E-Leaning Initiative," GeoLearning case study, accessed at www. geolearning.com/main/customers/ir.cfm, June 2006. See Dartnell's 30th Sales Force Compensation Survey, Dartnell Corporation, August 1999; and Galea "2006 Compensation Survey," Sales b Marketing Management, May 2006, pp. 30-35. See Henry Canady, "How to Increase the Times Reps Spend Selling," SellingPower, March 2005, p. 112; George Reinfeld, "8 Tips to Help Control the Hand of Time," Printing News, January 9, 2006, p. 10; and David J. Cichelli, "Plugging Sales 'Time Leaks,"' Sales b Marketing Management, April 2006, p. 23. See Gary H Anthes, "Portal Powers GE Sales," Computerworld, June 2, 2003, pp. 31-32. Also see Betsy Curnmings, "Increasing Face Time," Sales & Marketing Management, January 2004, p. 12; and David J. Cichelli, "Plugging Sales 'Time Leaks,"' Sales b Marketing Management, April 2006, p. 23. For extensive discussions of sales force automation, see the May 2005 issue of Industrial Marketing Management, which is devoted to the subject. Irwin Speizer, "Incentives Catch on Overseas, But Value of Awards Can Too Easily Get Lost in Translation," Workjbrce Management, November 21, 2005. For more on return on sales investment, see Tim Lukes and Jennifer Stanley, "Bringing Science to Sales," Marketing Management, September-October 2004, pp. 3 6 4 1 . Quotes from Bob Donath, "Delivering Value Starts with g November 10,1997, Proper Prospecting," ~ i r k e t i n News, p. 5; and Bill Brooks, "Power-Packed Prospecting Pointers," Agency Sales, March 2004, p. 37. See also the audio slide presentation by Mike Trigg and others, "Best Practices for Sales Prospecting," Salesforce.com User & Development Conference 2005, accessed at www.spoke.com/ bestpractices, April 2006. Quotes and other information from Dana Ray, "Are You Listening?" Selling Power, October 2004, pp. 24-27; Erin

Stout, "Throwing the Right Pitch," Sales b Marketing Management, April 2001, pp. 61-63; Betsy Cummings, "Listening for Deals," Sales 6. Marketing Management, August 2005, p. 8; and William Kendy, "Learning to Listen," Selling Power, July-August 2006, p. 25. Also see Geoffrey James, "Solution Selling,'' Selling Power, May 2006, pp. 4 5 4 8 . 24. Betsy Cummings, "Listening for Deals," Sales &Marketing Management, August 2005, p. 8. 25. Adapted from Rebecca Aronauer, "Looking Good," Sales and Marketing Management, April 2006, pp. 4 1 4 5 . 26. 2005 Trade Promotion Spending b Merchandising Industry Study (Cannondale Associates, Wilton, CT, May 2006), p. 13. 27. Adapted from Mike Beirne, "Scoring Points, Having Fun," Brandweek, October 18, 2004, pp. 18-19. Also see Jessica Mintz, "Travel Watch," Wall Street Journal, March 15, 2005, p. D5. 28. "Casting the Net Wider," Candy Industry, February 2005, p. 24; Damian J. Troise, "Fisherman's Friend Coughs Up MINI Cooper for Slogan Contest Winner," Knight Ridder Tribune Business News, February 25, 2005, p. 1; and www.fishermansfriendusa.com,accessed August 2006. 29. See Betsy Spethmann, "Clipping Slows," Promo Magazine, April 1,2006; and Direct Marketing Association, "The DMA 2006 Statistical Fact Book," June 2006, p. 90. 30. See Leo Jakobson, "Coupons on the Go," Incentive, February 2005, p. 16; and Aman Batheja, "Show Your Text Message, Get a Discount," Knight Ridder Tribune Business News, April 22, 2006, p. 1. 31. See "Promotional Products-Impact, Exposure, and Influence" at Promotional Products Association International Web site, www.ppai.org, accessed May 2006; and Stacey Burling, "Your Logo Sells Here," Philadelphia Enquirer, May 31, 2006, accessed at www.philly.comlmldlphilly/ business/14702529.htm. 32. 2005 Trade Promotion Spending b Merchandising Industry Study (Cannondale Associates, Wilton, CT, May 2006), p. 13. 33. See "Nearly Half a Million Attend Bauma Trade Show," Pit & Quarry, May 2004, p. 16; and "Record Breaking 2006 .International CES Reflects Strength of Computer Technol'ogy Industry," press release at Consumer Electronics Association Web site, www.cesweb.org, January 8, 2006.

1. Quotes and other information &om Louise Lee, "It's Dell vs. The Dell Way," BusinessWeek, March 6, 2006, pp. 61-62; Andy Sewer, "Dell's Midlife Crisis," Fortune, November 28, 2005, pp. 147-152; Kathryn Jones, "The Dell Way," Business 2.0, February 2003, pp. 60-66; Serwer, "Dell Does Domination," Fortune, January 21, 2002, pp. 71-75; Serwer, "The Education of Michael Dell," Fortune, March 7, 2005, pp. 73-78; "Dell Inc.," Hoover's Company Records, Austin, May 1,2006,p. 132692; "Top PC Venders by Market Share," Lnteractive Marketing b Media, supplement to Advertising Age, April 17,2006, p. 50; Luisa Kroll and Allison Fass, "The World's Billionaires," Forbes, March 9, 2006, accessed at www.forbes.com/billionaires; and www.dell.com/us/en/

References

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gen/corporate/access~companyYdirect~modeI.h, December 2006.

15. Andrea Coombes, "Marketwatch: Hello . . . It's the Do-NotCall List," Wall StreetJournal, January 1, 2006, p. 4.

2. "Growth Trends Continue for Direct Marketing," press release, Direct Marketing Association, September 29, 2005, accessed at www.the-dma.org.

16. Ira Teinowitz, " 'Do Not Call' Does Not Hurt Direct Marketing," Advertising Age, April 11, 2005, pp. 3, 95.

3. For these and other direct marketing statistics in this section, see Direct Marketing Association, "The DMA 2006 Statistical Fact Book," June 2006, pp. 249-250; Direct Marketing Association, "U.S. Direct Marketing Today: Economic Impact 2005," October, 2005, various pages; and a wealth of other information accessed at -.the-dma.org, September 2006. 4. Portions adapted from Christopher Elliott, "Your Very Own Personal Air Fare," New York Times, August 9, 2005, p. C5. Also see "Southwest Airlines Makes DING! Available to MAC Users," Telecomworldwire, March 21, 2006, p. 1; and "What Is DING!?" accessed at www.southwest. com/ding/, September 2006. 5. Alicia Orr Suman, "Ideas You Can Take to the Bank! 10 Big Things All Direct Marketers Should Be Doing Now," Target Marketing, February 2003, pp. 31-33; and Mary Ann Kleinfelter, "Know Your Customer," Target Marketing, January 2005, pp. 28-31. 6. Daniel Lyons, "Too Much Information," Forbes, December 13, 2004, p. 110; and Mike Freeman, "Data Company Helps Wal-Mart, Casinos, Airlines Analyze Data," Knight ~ i d d eBusiness i Tribune News, February 24, 2006, p. 1. 7. Quotes from Scott Horstein, "Use Care with the Database," Sales &Marketing Management, May 2006, p. 22. Also see Geoffrey Brewer, "The Customer Stops Here," Sales & Marketing Management, March 1998, pp. 31-36; "The Art of Service," Fast Company, October 2005, pp. 47-59; Hoover's CompanyRecords, May 1,2006, p. 40508; and information from www.usaa.com, September 2006. 8. Direct Marketing Association, "The DMA 2006 Statistical Fact Book," June 2006, p. 250. 9. David Ranii, "Compact Discs, DVDs Get More Use as Promotional Tool," Knight Ridder Tribune Business News, May 5, 2004, p. 1. 10. Jim Emerson, "Print and the Internet Go Hand-in-Hand," Printing News, June 20, 2005, p. 2; and "Abacus Report: Web Sales Soon to Overtake Catalog Sales," August 3, 2005, accessed at http://multichanneImerchant.com/ news/Abacus-trend-report-0803051. 11. Direct Marketing Association, "The DMA 2006 Statistical

Fact Book," June 2006, p. 250. 12. "Catalog Study Now Available," Business Forms, Labels, and Systems, June 20, 2001, p. 24; Richard S. Hodgson, "It's Still the Catalog Age," Catalog Age, June 2001, p. 156; and Sherry Chiger, "It's Raining Catalogs," Catalog Age, June 2004, p. 12. 13. See "About Lillian Vernon," accessed at www. lillianvernon.com, August 2006; and "Lillian Vernon Corporation," Hoover's Company Records, Austin, May 11, 2006, p. 12111. 14. Janie Curtis, "Catalogs as Portals: Why You Should Keep on Mailing," Multichannel Merchant, November 30,2005, accessed at http://multichannelmerchant.com/news/

catalogs-portal-ll30/index.html.

17. Teinowitz, "'Do Not Call' Does Not Hurt Direct Marketing," p. 3. 18. Ron Donoho, "One-Man Show," Sales & Marketing Management, June 2001, pp. 3 6 4 2 ; and information accessed at www.ronco.com, March 2004; and Brian Steinberg, "Read This Now!; But Wait! There's More! The Infomercial King Explains," Wall Street Journal, March 9, 2005, p. 1. 19. Jack Neff, "What Procter & Gamble Learned from Veg-OMatic," Advertising Age, April 10, 2006, pp. 1, 65. 20. Steve McLellan, "For a Whole New DRTV Experience, Call Now," Adweek, September 5, 2005, p. 10; and Jack Neff, "What Procter & Gamble Learned from Veg-O-Matic," p. 1. 21. Adapted from portions of Elizabeth Esfahani, "A Sales Channel They Can't Resist," Business 2.0, September 2005, pp. 91-96. 22. Diane Anderson, "HP Developing Retail Kiosks to Reach 'iMoms,' " Brandweek, March 6, 2006, p. 12; Chris Jones, "Kiosks Put Shopper in Touch," Knight Ridder Tribune Business News, April 11, 2006, p. 1; and David Eisen, "Hilton Debuts Air Checkin Kiosk," Business Travel News, May 1, 2006, p. 8. 23. "Interactive: Ad Age Names Finalists," Advertising Age, February 27, 1995, pp. 12-14. 24. Alice Z. Cuneo, "Scramble for Content Drives Mobile," Advertising Age, October 24, 2005, p. S6. 25. "Mobile Marketing," Marketing News, April 1, 2006, p. 4. 26. For these and other examples, see Alice Z. Cuneo, "Marketers Get Serious about the Third Screen," Advertising Age, July 11, 2005, p. 6; and Theresa Howard, "Burger King to Send Extended Ad to Customers of Sprint Phone Video," USA Today.com, January 20, 2006, accessed at

www.usatoday.com/moneyadvertising/2006-01-20burger-king-usat-x.htm. 27. Adapted from information found in Normandy Madden, "Cellphones Spawn New 'Fast' Promotions in Japan," Advertising Age, November 7 , 2005, p. 14. 28. See Abbey Klaassen and Leslie Taylor, "Few Compete to Settle Podcasting's Wild West," Advertising Age, April 24, 2006, p. 13; and "E-Marketer Sees Big Future for Podcast Ads,"-BtoB, March 13, 2006, p. 6; Jim Pollock, "Suddenly, It's the Podcast Era," Des Moines Business Record, April 17, 2006, p. 1. 29. For these and other examples, see Karyn Strauss and Derek Gale, Hotels, March 2006, p. 22; and "Disneyland Offers Behind-the-Scenes Podcast," Wireless News, Febraury 19, 2006, p. 1. 30. Susie Haywood, "Honda Scores First with Civic 'Vodccast,' " Revolution, February 2006, p. 11. 31. Adapted from David Liley, "Learning to Love the Dreaded TiVo," Businessweek, April 17, 2006, p. 88. Also see Daisy Whitney, "Marketers Quick to Say 'Yes' to Opt-In TV Fare," Advertising Age, October 24, .2005, p. S4; and "Nickelodeon Runs SeaWord iTV Ads," New Media Age, April 27, 2006, p. 3.

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References

32. For these and other statistics on Internet usage, see "United States: Average Web Usage," Nielsen/NetRatings, April 2006, accessed at www.nielsen-netratings.com; Antony Bruno, "Web Adoption Slows, Broadband Grows," Billboard, April 15, 2006, p. 16; and Enid Burns, "Global Internet Adoption Slows While Involvement Deepens," Click2 Stats, April 3,2006, accessed at www.clickz.com. 33,"JupiterResearch Forecasts Online Retail Spending Will Reach $144 Billion in 2010, a CAGR of 12% from 2005," February 6, 2006, accessed at www.jupitermedia.com/ corporate/releases/06.02.06-newjupreseaTch.htm1. For other estimates, see "Online Retail Sales Grew in 20b5," January 5, 2006, accessed at www.clickz.com; and "Consumer Internet Usage," Interactive Marketing & Media, a supplement to Advertising Age, April 17, 2006, p. 28. 34. "JupiterResearch Forecasts Online Retail Spending Will Reach $144 Billion in 2010, a CAGR of 12% from 2005," February 6, 2006, accessed at www.jupiterrnedia.com/ corporate/releases/06.02.06-newjupresearch.htm1. 35. Information for this example accessed at http://quicken loans.quicken.com, September 2006. 36. Information for this example accessed at www.del1. com/html/us/segments/pub/premier/tutorial/user~~ guide.htm1, September 2006. 37. See Kim Wright Wiley, "Meg Whitman: The $40 Billion eBay Sales Story," Selling Power, November-December, 2005, pp. 63-70; "eBay Inc.," Hoover's Company Records, May 1, 2006, p. 56307; and facts from eBay annual reports and other information accessed at www.ebay.com, September 2006. 38. Stephen Baker and Heather Green, "Blogs Will Change Your Business," BusinessWeek, May 2, 2005, pp. 5767; and Alan Scott, "Guard Your Rep: Ignore Blogs at the Peril of Brand Image," Marketing News, February 15,2006, pp. 21-22. 39. Michael Barbaro, "Wal-Mart Enlists Bloggers in Its Public Relations Campaign," New York Times, March 7, 2006, p. C1. 40. Gavin O'Malley, "Coca-Cola Sends Bloggers to Olympics," MediaPost Publications, February 10, 2006, accessed at http://publications.mediapost.com. 41. Pete Blackshaw, "Irrational Exuberance? I Hope We're Not Guilty," Barcode Blog, August 26, 2005, accessed at www. barcodefactory.com/wordpress/?p=72. 42. Michelle Slatalla, . "Toll-Free Apology Soothes Savage Beast," New York Times, February 12, 2004, p. G4; and information from www.planetfeedback.com/consumer, August 2006. 43. "Mass MerchantsIDepartrnent Stores: Winning by Leveraging More of What the Web Can Do," Internet Retailer, December 2004, accessed at www.internetretai1er.com; and information -from www.officedepot.com, September 2006. 44. See "Best of the Web-The Top 50 Retailing Sites," Internet Retailer, December 2004, accessed at www. internetretai1er.com; and "Peapod and Scholastic Deliver Highest Consistency Rate," Internet Retailer, May 10, 2006, accessed at www.internetretailer.com.

45. Adapted from Jena McGregor, "High-Tech Achiever: MINI USA," Fast Company, October 2004, p. 86, with information from www.miniusa.com, September 2006. 46. Jeffrey F. Rayport and Bernard J. Jaworski, e-Commerce (New York: McGraw-Hill, 2001), p. 116. Also see Goutam Chakraborty, "What Do Customers Consider Important in B2B Web sites?" Journal of Advertising, March 2003, p. 50; and "Looks Are Everythmg," Marketing Management, March/April2006, p. 7. 47. See Wendy Davis, "Jupiter Research: Internet Ad Spend to Reach $18.9 Billion by 2010," August 9, 2005, accessed at publications.mediapost.com; and "Internet Advertising Revenues Grow 30% to a Record $12.5 Billion in '05," Internet Advertising Bureau, April 20, 2006, accessed at www.iab.net. 48. Elliis Booker, "Vivid 'Experiences' as the New Frontier," BtoB, March 14, 2005, p. 14; and Karen J Bannan, "Rich Media Rule Book," BtoB, March 13, 2006, pp. 27-30. 49. See Mike Shields, "Google Faces New Rivals," August 22, 2005, accessed at www.mediaweek.com; and "Internet Advertising Revenues Grow 30% to a Record $12.5 Billion in '05," Internet Advertising Bureau, April 20, 2006, accessed at www.iab.net. 50. Adapted from Jon Fine, "Rise of the Lowly Search Ad," BusinessWeek, April 24, 2006, p. 24. 51. Kris Oser, "Video in Demand," Advertising Age, April 4, 2005, pp. S1-S5. 52. Adapted from information found in Bob Garfield, "War & Peace and Subservient Chicken," April 26,2004, accessed at www.adage.com; Gregg Cebrzynski, "Burger King Says It's OK to Have Your Way with the Chicken," Nation's Restaurant News, May 10, 2004, p. 16; and Ryan Underwood, "Ruling the Roost," Fast Company, April 2005, pp. 70-78. 53. Jack Neff, "Taking Package Goods to the Net," Advertising Age, July 11,2005, pp. S1-S3. 54. Information from the iVillage Top-Line Metrics section of www.ivillage.com, October 2006; and www.MyFamily. com, September 2006. 55. Direct Marketing Association, "The DMA 2006 Statistical Fact Book," June 2006, p. 250; and "Jupiter: Email Marketing to Grow, Spam to Drop," February 6, 2006, accessed at w~.jupitercommunications.com. 56. Heidi Anderson, "Nintendo Case Study: Rules Are Made to Be Broken," E-Mail Marketing' Case Studies, March 6, 2003, accessed online at www.clickz.com. 57. Enid Burns, "The Deadly Duo: Spam and Viruses, March 2006," ClickZ Stats, April 28, 2006, accessed at www. clickz.com. 58. Adapted from information found in Carol Krol, "E-Mail Marketing Gains Ground with Integration," BtoB, April 3, 2006, p. 1. 59. "Sweepstakes Group Settles with States," New York Times, June 27, 2001, p. A14; and "PCHReaches $34 Million Sweepstakes Settlement with 26 States," Direct Marketing, September 2001, p. 6. 60. See National White Collar Crime Center "IC3 2005 Internet Crime Report," 2005, accessed at www.ic3.gov/

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media/annualreport/2005_IC3Report.pdf, June 2006; and Federal Trade Commission, "Consumer Fraud & Identity Theft Complaint Data," January 2006, accessed at www.ftc.gov. See Don Oldenburg, "Hook, Line and Sinker: Personalized Phishing Scams Use Customers' Names to Attract Attention," Washington Post, April 2, 2006, p. F05; and "How Not to Get Caught by a Phishing Scam," accessed at www.ftc.gov/bcp/online/pubs/alerts/phishingaIrt. htm, June 2006. Rob McCann, "Concerns over Online Threats This Holiday Season," ClickZ Stats, November 24, 2004, accessed at '~.vww.clickz.com.Also see Ann E. Schlosser, Tiffany Barnett White, and Susan M. Lloyd, "Converting Web Site Visitors into Buyers: How Web Site Investment Increases Consumer Trusting Beliefs and Online Purchase Intentions," Journal of Marketing, April 2006, pp. 133-148. See "Seventy Percent of US Consumers Worry About Online Privacy, But Few Take Protective Action, Reports Jupiter Media Metrix," Jupiter Media Metrix press release, June 3, 2002, accessed online at www.jup.com; Rob McCann, "Concerns Over Online Threats This Holiday Season," ClickZ Stats, November 24, 2004, accessed at www.clickz.com; and Desiree J. Hanford, "Fraud Fears Slow Online shopping," Wall Street Journal, April 13, 2005, p. 1. "14-Year-Old Bids over $3M for Items in eBay Auctions," USA Today, April 30,1999, p. 10B. Jennifer Lee, "Welcome to the Database Lounge," New York Times, March 21,2002, p. GI. 66. See Jaikumar Vijayan, "First Online Data Privacy Law Looms in California," Computerworld, June 28, 2004, p. 12; and "Does Your Privacy Policy Comply the California Online Privacy Protection Act?" Banking and Financial Services Policy Report, January 2005, p. 7. 67. See Jennifer DiSabatino, "FTC OKs Self-Regulation to Protect Children's Privacy," Computerworld, February 12, 2001, p. 32; Ann Mack, "Marketers Challenged On Youth Safeguards," Adweek, June 14, 2004, p. 12; and Hiawatha Bray, "Google Faces Order to Give Up Records," Knight Ridder Tribune Business News, March 15, 2006, p. 1. 68. Information on TRUSTe accessed at www.truste.com, September 2006. 69. Information on the DMA Privacy Promise obtained at www.dmaconsumers.org/privacy.htrnl,September 2006. 70. Debbie A. Connon, "The Ethics of Database Marketing," Information Management Journal, May-June 2002, pp. 4 2 4 4 .

1. Extracts adapted from Linda Tischler, "Bank of (Middle) America," Fast Company, March 2003, pp. 104-110. Quotes and other information from Mellissa Allison, "Customers Like WaMu, They Really Do," Knight Ridder Tribune Business News, March 1, 2006, p. 1; Michael Sisk, "WaMu Goes after the Middle Man," USBanker, November 2003, p. 60; Jacob Ward, "Should a Bank Be a Store?" USBanker, April 2004, pp. 36-40; "Washington Mutual, Inc." Hoover's Company Records, May 15,2006, p. 15119; Mary McGarity, "WaMu's Back," Mortgage Banking, October

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2005, pp. 104-113; and "The WaMu Difference," accessed at www.wamu.com/about, September 2006. 2. Leon Lazaroff, "Kodak Big Picture Focusing on Image Change," Knight Ridder Tribune Business News, January 26, 2006. Also see Brad Stone, "What's Kodak's Strategy?" Newsweek, January 16, 2006, p. 25. 3. Adapted from JeEey F. Rayport and Bernard J. Jaworski, e-Commerce (New York: McGraw-Hill, 2001), p. 53. 4. Johanna Bennett, "Turn Around, Bright Eyes," Barron 's, May 16, 2005, p. 48. 5. Edward F. Moltzen, "Intel, AMD Go At It Again," CRN, March 29, 2004, p. 80; Jon Birger, "Second-Mover Advantage," Fortune, March 20,2006, pp. 20-21; and "Advanced Micro Devices," Hoover's Company Records, May 15, 2006, p. 10037. 6. See Michael Porter, Competitive Advantage: Creating and Sustaining Superior Peqformance (New York: Free Press, 1998), chap. 6. 7. Adapted from Devin Leonard, "The Player," Fortune, March 20, 2006, p. 54. 8. See Philip Kotler and Kevin Lane Keller, Marketing Man-

agement, 12th ed. (Upper Saddle River, NJ: Prentice Hall, 2006), pp. 13-14; Sam Hill and Glenn Rifkin, Radical Marketing (New York: HarperBusiness, 1999);Gerry Khermouch, "Keeping the Froth on Sam Adams," Businessweek, September 1, 2003, p. 54; and information accessed at www.bostonbeer.com, September 2006. 9. The Stonyfield Story is adapted from Margaret Menge, "Guerilla Marketing Works for NH's Stonyfield Farms," New Hampshire Union Leader, November 7,2005; with information from www.stonyfield.com,September 2006. 10. Michael E. Porter, Competitive Strategy: Techniques f o ~ Analyzing Industries and Competitors (New York: Free Press, 1980), chap. 2; and Porter, "What Is Strategy?" Harvard Business Review, November-December 1996, pp. 61-78. Also see Richard Allen and others, "A Comparison of Competitive Strategies in Japan and the United States," S.A.M. Advanced Management Journal, Winter 2006, pp. 24-36. 11. Philip Kotler and Kevin Lane Keller, Marketing Management, 12th ed. (Upper Saddle River, NJ: Prentice Hall, 2006), p. 243. 12. See Michael Treacy and Fred Wiersema, "Customer Intimacy and Other Value Disciplines," Harvard Business Review, January-February 1993, pp. 84-93; Michael Treacy and Mike Wiersema, The Discipline of Market Leaders: Choose Your Customers, Narrow Your Focus, Dominate Your Market (Perseus Press, 1997); Fred Wiersema, Customer Intimacy: Pick Your Partners, Shape Your Culture, Win Together (Knowledge Exchange, 1998); and Wiersema, Double-Digit Growth: How Great Companies Achieve It-No Matter What (Portfolio, 2003). 13. For more discussion, see Philip Kotler and Kevin Lane Keller, Marketing Management, 12th ed., chap. 11. 14. Adapted from an example found in George Stalk, Jr., and Rob Lachenaur, "Hardball: Five Killer Strategies for Trouncing the Competition," Harvard Business Review,

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References

April 2004, pp. 62-71. For a discussion of additional defensive marketing strategies, see John H. Roberts, "Defensive Marketing: How a Strong Incumbent Can Protect Its Position," Harvard Business Review, November 2005, pp. 150-157. 15. See "U.S. Digital Camera Market to Reach 6.8 Billion in 2006," www.blogs.zdnet.com, March 6, 2006; and Steve Matthews and Mary Jane Credeur, "Soft-Drink Sales Lag for First Time in Decades," Chicago Sun Times, December 13, 2005, p. 57. c

16. Adapted from Jon Birger, "Second-Mover Advantage," Fortune, March 20,2006, pp. 20-21; with information from "Fortune 500: Largest U.S. Corporations," Fortune, April 17, 2006, p. F1. 17. Jack Neff, "Unilever Cedes Laundry War," Advertising Age, May 27,2002, pp. 1,47;Veronica Mac Donald, "Soaps and Detergents: Going the World Over to Clean," Chemical Week, January 26, 2005, pp. 21-23; Jack Neff, "Unilever 3.0: CEO Not Afraid to Copy from P&G," Advertising Age, October 23, 2005, p. 8; and Kerri Walsh, "Brand Extensions Clean Up," Chemical Week, February 1 , 2006, pp. 24+. 18. "Logitech Aims at Convergence for New Growth," Wall Street Journal, June 16, 2004, p. 1; Logitech Annual Report, www.logitech.com, April 1, 2006; and "Logitech International S.A.," Hoover's Company Records, June 1, 2006, p. 42459. 19. Jim Kirk, "Company Finds Itself, Finds Success: Alberto-Culver Adopts Strategy of Knowing Its Strengths and Promoting Small Brands, Rather Than Tackling Giants," Chicago Tribune, January 22,1998, Business Section, p. 1; "Alberta-Culver Company," Hoover's Company Records, June 1, 2006, p. 10048; and www.alberto.com, September 2006.

Quotes and other information from John Dorschner, "World Catches NBA Fever," Miami Herald, June 15,2006, accessed online at www.miarniherald.com; Jerry Crowe, "Outside Influence; NBA Finals Being Broadcast in 39 Languages Translates into Big-Time International Drawing Power," Los Angeles Times, June 15, 2004; Marc Gunther, "They All Want to Be Like Mike," Fortune, July 21, 1997, pp. 51-53; Jon Robinson, "EA Sports Sponsors the NBA's Euroleague Invasion," accessed online at www.sports.ign. com, June 14, 2005.; Janny Hu, "Europe Beckons, League Follows," San Francisco Chronicle, December 25, 2005, p. C5; and Carol Matlack, "Le Basket Struggles to Score," BusinessWeek, May 22, 2006, p. 45. Data from "Fortune 500," Fortune, April 17, 2006, p. F-1; United Nations Conference on Trade and Development, World Investment Report 2005, New York and Geneva: United Nations, 2005; the World Bank, "Total GDP 2004," World Development Indicators Database, www. worldbank.org, accessed April 2, 2006; and "List of Countries by GDP," Wikipedia, accessed at http://en. wikipedia.org/wiki/List~of~countries~by~GDP~ %28nominal%29, September 2006.

Global Economic Prospects, 2006, World Bank, June 3, 2005, accessed at www.worldbank.org; CIA, The World

Factbook, accessed at www.cia.gov, June 2006; and WTO, "World Trade Picks Up in Mid-2005; But 2006 Picture Is Uncertain," WTO press release, April 11,2006, accessed at www.wto.org/english/news-e/presO6_e/pr437-e.htm. 4. Information from www.michelin.com/corporate and www.jnj.com, July 2006. 5. Steve Harnm, "Borders Are So 20th Century," Business Week, September 22,2003, pp. 68-73. 6. "The Unique Japanese," Fortune, November 24,1986, p. 8. Also see James D. Southwick, "Addressing Market Access Barriers in Japan Through the WTO," Law and Policy in International Business, Spring 2000, pp. 923-976; US. Commercial Service, Country Commercial Guide Japan, FY 2005, chap. 5, accessed at www.buyusa.gov, June 18,2005; and "Japan-U.S. Beef Row Tip of Iceberg: U.S. Lawmaker," Jiji Press English News Service, February 16, 2006, p.1. 7. "What Is the WTO?" accessed at www.wto.org/english/ thewto-elwhatis-elwhatis-e.htm, September 2006. 8. See WTO Annual Report 2005, accessed at www.wto.org, September 2006; and World Trade Organization, "10 Benefits of the WTO Trading System," accessed at www.wto. org/englishlthewto~e/whatis~e/whatis~e.htm, September 2006. 9. "Finance and Economics: In the Rough; World Trade Talks," Economist, November 5, 2005, p. 102; and Peter Coy, "Why Free-Trade Talks Are in Free Fall," BusinessWeek, May 22, 2006, p. 44. 10. "The European Union at a Glance," accessed online at http://europa.eu.int, September 2006. 11. "Overviews of European Union Activities: Economic and Monetary Affairs," accessed at http://europa.eu.int/pol/ emu/overview-en.htm, September 2006. 12. See "European Union's Heated Budget Negotiations Collapse," New York Times, June 18, 2005, p. A3; "Europe: Desperately Seeking a Policy; France and the European Union," Economist, January 21, 2006; CIA, The World Factbook, accessed at www.cia.gov, June 2006; and Vito Breda, "A European Constitution in a Multinatioal Europe or a Multinational Constitution for Europe?" European Law Journal, May 2006, pp. 330+. 13. Statistics and other information from "List of Countries by GDP," Wikipedia, accessed at http://en.wikipedia.org/ &&/~ist-of-co~ntries-b~-~~~ 28nominal% -% 29, July 2006; "Area and Population of Countries," infoplease, accessed at www.infoplease.comlipa/A0004379.html,July 2006; and "Trade Facts: NAFTA-A Strong Record of Success," Office of the United States Trade Representative, March 2006, accessed at www.ustr.gov/assets/Document~ Library/Fact~Sheets/2006/asset~upload_fle242~9156. pdf. 14. See Angela Greiling Keane, "Counting on CAFTA," Traffiic World, August 8, 2005, p. 1;Gilberto Meza, "1s the FTAA Floundering," Business Mexico, February 2005, pp. 4 6 4 8 ; Peter Robson, "Integrating the Americas: FTAA and Beyond," Journal of Common Market Studies," June 2005, p. 430; Diana Kinch, "Latin America: Mercosul Boosted," Metal Bulletin Monthly, February 2006, p. 1; "Foreign Trade Statistics," accessed at www.census.gov, June 2006; and Kevin Z. Jiang, "Americas: Trading Up?" Harvard International Review, Spring 2006, pp. 10-12.

References Richard Lapper, "South American Unity Still a Distant Dream," Financial Times, December 9, 2004, accessed at www.news.ft.com; Alan Clendenning, "Venezuela's Entry May Shake Up Mercosur," AP Financial Wire, November 30,2005, p. 1; and Mary Turck, "South American Community of Nations," Resource Center of the Americas.org, accessed at www.americas.org, September 2006. See Shanti Gamper-Rabindran, "NAFTA and the Environment: What Can the Data Tell Us?" Economic Development and Cultural Change, April 2006, pp. 605-634. Adapted from information found in Clay Chandler, "China Deluxe," Fortune, July 26, 2004, pp. 148-156. Also see "Selling to China's Rich and Not So Rich," Strategic Directions, June 2005, pp. 5-8; Lisa Movius, "Luxury's China Puzzle," WWD, June 15, 2005, p. 1;and Normandy Madden, "After Slow Start, Porsche Cranks Its Chinese Marketing Plan into Top Gear," Advertising Age, May 8, 2006, p. 28. See Om Malik, "The New Land of Opportunity," Business 2.0, July 2004, pp. 72-79; and "India Economy: South

Asia's Worst Business Environment," EIU ViewsWire, January 2006. Kicky Griffin and Michael Pustay, International Business, 4th ed. (Upper Saddle River, NJ: Prentice Hall, 2005), pp. 522-523. Rebecca Piirto Heath, "Think Globally," Marketing Tools, October 1996, pp. 49-54; "The Power of Writing," National Geographic, August 1999, p. 128-129; and Jamie Bryan, "The Mintz Dynasty," Fast Company, April 2006, pp. 56-61. For other examples and discussion, see www. executiveplanet.com, December 2006; Dun & Bradstreet's Guide to Doing Business Around the World (Upper Saddle River, NJ: Prentice Hall, 2000); Ellen Neuborne, "Bridging the Culture Gap," Sales & Marketing Management, July 2003, p. 22; Richard Pooley, "When Cultures Collide," Management Services, Spring 2005, pp. 28-31; and Helen Deresky, International Management, 5th ed. (Upper Saddle River, NJ: Prentice Hall, 2006). Pete Engardio, Manjeet Kripalani, and Alysha Webb, "Smart Globalization," BusinessWeek, August 27, 2001, pp. 132-136. Adapted from Mark Rice-Oxley, "In 2,000 Years, Will the World Remember Disney or Plato?" Christian Science Monitor, January 15, 2004, p. 16. Thomas L. Friedman, The Lexus and the Olive Tree: Understanding Globalization (New York: Anchor Books, 2000). Robert Berner and David Kiley, "Global Brands," Businessweek, August 1, 2005, pp. 86-94. Portions adapted from information found in Mark RiceOxley, "In 2,000 Years, Will the World Remember Disney or Plato?" Christian Science Monitor, January 15, 2004, p. 16. Paulo Prada and Bruce Orwall, "A Certain 7e Ne Sais Quoi' at Disney's New Park-Movie-Themed Site Near Paris Is Multilingual, Serves Wine-and Better Sausage Variety," Wall Street Journal, March 1 2 , 2002, p. B1. Also see "Euro Disney S. C. A.," Hoover's Company Records, June 15, 2006, p. 90721.

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See Jack Neff, "Submerged," Advertising Age, March 4, 2002, p. 14; Ann Chen and Vijay Vishwanath, "Expanding in China," Harvard Business Review, March 2005, pp. 19-21; and information accessed at www.colgate.com, September 2006. For a good discussion of joint venturing, see James Bamford, David Ernst, and David G. Fubini, "Launching a World-Class Joint Venture," Harvard Business Review, February 2004, pp. 91-100. Vanessa O'Connell and Mei Fong, "Saks to Follow Luxury Brands into China," Wall Street Journal, April 18, 2006, p. B1. See Cynthia Kemper, "KFC Tradition Sold Japan on Chicken," Denver Post, June 7,1998, p. J4; Milford Prewitt, "Chains Look for Links Overseas," Nation's Restaurant News, February 18, 2002, pp. 1, 6; and Yum Brands, Inc. restaurant count, accessed at www.yum.com, September 2006. Quotes from Pankaj Ghemawat, "Regional Strategies for Global Leadership," Harvard Business Review, December 2005, pp. 97-108; Douglas B. Holt, John A. Quelch, and Earl L. Taylor, "How Global Brands Compete," Harvard Business Review, September 2004, pp. 68-75; and Simon Sherwood, "Building an Advertising Factory," accessed at

www.inter-national-ist.com/commentary/commentary% 2020+21%202-18.1.pdf, June 16, 2006. Warren J. Keegan, Global Marketing Management, 7th ed. (Upper Saddle River, NJ: Prentice Hall, 20021, pp. 346-351. Also see Phillip Kotler and Kevin Lane Keller, Marketing Management, 12th ed. (Upper Saddle River, NJ: 2006), pp. 677-684. Adapted from Normandy Madden, "P&G Launches Cover Girl in China," AdverfisingAge, October 31, 2005, p. 22. See Douglas McGray, "Translating Sony into English," Fast Company, January 2003, p. 38; and James Coates, "Chicago Tribune Binary Beat Column," Chicago Tribune, January 9, 2005, p. 1. For further information on color and culture see Mubeen M. Aslam, "Are You Selling the Right Colour? A CrossCultural Review of Colour as a Marketing Cue," Journal of Marketing Communications, March 2006, pp. 15-20. 37. See "Naming Products Is No Game," BusinessWeek Online, April 9, 2004, accessed at www.businessweek.com; and Ross Thomson, "Lost in Translation," Medical Marketing and Media, March 2005, p. 82. 38. Kate MacArthur, "Coca-Cola Light Employs Local Edge," Advertising Age, August 21, 2000, pp. 18-19; and "Case Studies: Coke Light Hottest Guy," Advantage Marketing, msn India, accessed at http://advantage. msn.co.in, March 15, 2004. 39. See Alicia Clegg, "One Ad One World?" Marketing Week, June 20,2002, pp. 51-52; and George E. Belch and Michael A. Belch, Adverfising and Promotion: A n Integrated Marketing Communications Perspective, 7'h ed. (New York, NY McGraw Hill, 2007), Chapter 20. 40. Michael Schroeder, "The Economy: Shrimp Imports to U.S. May Face Antidumping Levy," Wall Street journal, February 18, 2004, p. A.2; Woranuj Maneerungsee, "Shrimpers Suspect Rivals of Foul Play," Knight Ridder

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Tribune Business News, April 28, 2005, p. 1; and David Bierderman, "Tough Journey," Journal of Commerce, March 13, 2006, p. 1. 41. Sarah Ellison, "Revealing Price Disparities, the Euro Aids Bargain-Hunters," Wall Street Journal, January 30, 2002, p. A15. 42. See Patrick Powers, "Distribution in China: The End of the Beginning," China Business Review, July-August, 2001, pp. 8-12; Drake Weisert, "Coca-Cola in China: Quenching the Thirst of a Billion," China Business Review, July-August 2001, pp. 52-55; Gabriel Kahn, "Coke Works Harder at Being the Real Thing in Hinterland," W d Street Journal, November 26,2002, p. BI; Leslie Chang, Chad Terhune, and Betsy McKay, "A Global Journal Report; Rural ThingCoke's Big Garrible in Asia," Wall Street Journal, August 11, 2004, p. Al; and Ann Chen and Vijay Vishwanath, "Expanding in China," Harvard Business Review, March 1, 2005.

1. Adapted from Jennifer Reingold, "Walking the Walk," Fast Company, November 2005, pp. 81-85. Also see Thomas J. Ryan, "Timberland Introduces 'Nutrition Labels,' " SGB, March 2006, p. 14; and Anita Pati, "Timberland Chief Call on Business to Do More," Third Sector, May 3, 2006, p. 17. Adapted from Kevin DeMarrais, "You Can't Believe Airlines' Ticket Ads," Knight Ridder Tribune Business News, April 2, 2006, p. 1. Theodore Levitt, "The Morality (?) of Advertising," Harvard Business Review, July-August 1970,pp. 84-92. For counterpoints, see Heckman, "Don't Shoot the Messenger," pp. 1,9. Lane Jennings, "Hype, Spin, Puffery, and Lies: Should We Be Scared?" The Futurist, January-February 2004, p. 16. For recent examples of deceptive advertising, see "Mobile Providers Sued by New York City," Telecomworldwire, July 22, 2005, p. 1; Chad Bray, "Federated to Pay Civil Penalty," Wall Street Journal, March 15, 2006, p. B3; and "Pfizer Sues P&G Over Crest Ads," Wall Street Journal, March 6, 2006, p. 1. Roger Parloff, "Is Fat the Next Tobacco?" Fortune, February 3, 2003, pp. 51-54; " 'Big Food' Get the Obesity Message," New York Times, July 10,2003, p. A22; Carl Hulse, "Vote in House Offers Shield in Obesity Suits," New York Times, March 11, 2004, p. Al; Amy Garber, "Tivice-Tossed McD Obesity Suit Back on Docket," Nation's Restaurant News, February 7 , 2005, pp. 11; Marguerite Higgins, "ObesityLawsuit Bill Passes in House," Washington Times, October 20, 2005, p. C8; and Lisa Bertagnoli, "Capitol Concerns," Restaurants and Institutions, January 1,2006, pp. 4 7 4 8 . "McDonald's to Cut 'Super Size' Option," Advertising Age, March 8,2004, p. 13;Dave Carpenter, "Hold the Fries, Take a Walk," News b Observer, April 16, 2004, p. Dl; Michael V. Copeland, "Ronald Gets Back in Shape,'' Business 2.0, JanuaryIFebruary 2005, pp. 4 6 4 7 ; David P. Callet and .Cheryl A. Falvey, "Is ~ e s & a n t Food the New Tobacco?" Restaurant Hospitality, May 2005, pp. 94-96; and Kate McArthur, "BK Offers Fat to the Land," Advertising Age, April 4, 2005, pp. 1,60.

7. Gary Bagin, "Products Liability Verdict-Study Releases," press release, Jury Verdict Research, January 15, 2004, accessed at www.juryverdictresearch.com; and Kara Sissell, "Senate Bill Would Allow Criminal Charges in Product Liability Suits," Chemical Week, March 22, 2006, p. 43. 8. Adapted from information found in Mark Fagan, "Commodity Driven Market," Lawrence Journal-World, May 4, 2005, p. 1. Also see Clint Swett, "High Prices on Printer Cartridges Feeds Marketing for Alternative Industry," Knight Ridder Tribune Business News, February 15, 2006, p. 1. 9. Cliff Edwards, "Where Have All the Edsels Gone?" Greensboro News Record, May 24,1999, p. B6. Also see Joel Dryfuss, "Planned Obsolescence Is Alive and Well," Fortune, February 15, 1999, p. 192; Tim Cooper, "Inadequate Life? Evidence of Consumer Attitudes to Product Obsolescence," Journal of Consumer Policy, December 2004, pp. 421448; David Hunter, "Planned Obsolescence Well Entrenched in Society," Knoxville News-Sentinel, August 15, 2005, p. B5; and Atsuo Utaka, "Planned Obsolescence and Social Welfare," The Journal of Business, January 2006, pp. 137-147. 10. For more discussion, see Denver D'Rozario and Jerome D. Williams, "Retail Redlining: Definition, Theory, Typology, and Measurement," Journal of Macromarketing, December 2005, pp. 175+. 11. See Brian Grow and Pallavi Gogoi, "A New Way to Squeeze the Weak?" Businessweek, January 28, 2002, p. 92; Marc Lifsher, "Allstate Settles Over Use of Credit Scores," Los Angeles Times, March 2, 2004, p. C.l; Judith Burns, "Study Finds Links i n Credit Scores, Insurance Claims," Wall Street Journal, February 28,2005, p. D3; and Erik Eckholm, "Black and Hispanic Home Buyers Pay Higher Interest on Mortgages, Study Finds," New York Times, June 1, 2006, p. A22. 12. "Increasing Incomes and Reducing the Rapid Refund RipOff," A report from the ACORN Financial Justice Center, September 2004, pp. 3-4; Tracy Turner, "H&RBlock Makes Changes in Rapid-Refund Program," Knight Ridder Tribune Business News, January 29,2005, p. 1;Candice Heckman, "Poor Often Fall Victim to Fee on Tax Refund Loans," Seattle Post-Intelligencer, February 21, 2005, p. B1; and "California Sues H&R Block," Knight-Ridder Tribune Business News, February 16, 2006. 13$Information &om "Shop 'ti1 They Drop?" Christian Science Monitor, December 1, 2003, p. 8; Gregg Easterbrook, "The Real Truth About MONEY," Time, January 17,2005, pp. 32-35; Bradley Johnson, "Day in the Life: How Consumers Divvy Up All the Time They Have," Advertising Age, May 2,2005; Rich Miller, "Too Much Money," Businessweek, July 11, 2005, pp. 59-66; and "Bankers Encourage 'Consumer Generation' to Save," Texas Banking, March 2006, pp. 25-26. 14. Portions adapted from Constance L. Hays, "Preaching to Save Shoppers from 'Evil' of Consumerism," New York Times, January 1, 2003, p. C1. Also see Jo Littler, "Beyond the Boycott," Cultural Studies, March 2005, pp. 227-252; and www.revbilly.com, accessed September 2006. 15. See Michael Cabanatuan, "Toll Lanes Could Help Drivers Buy Time," San Francisco Chronicle,December 28,2004, accessed at www.sfgate.com; and "London Mayor Increases

References

Traffic Toll, Angers Drivers, Retailers," July 3, 2005, accessed at www.bloomberg.com; and Dan Sturges, Gregg Moscoe, and Cliff Henke, "Innovations at Work: Transit and the Changing Urban Landscapes," Mass Transit, July/August 2006, pp. 34-38. 16. "Marketing Under Fire," Marketing Management, July/ August 2004, p. 5. Also see "Media: The Public Wants a Permanent Break from Ad Bombardment," Marketing Week, December 1,2005, p. 27. 17. For more discussion, see Jeremiah Mcwilliams, "Big-Box Retailer Takes Issue with Small Documentary," Knight Ridder Tribune Business News, November 15, 2005, p. 1; Nicole Kauffrnan, "Movie Paints a Dark Picture of WalMart's Impact on Communities," Knight Ridder Tribune Business News, January 19, 2006, p. 1; and John Reid Blackwell, "Documentarian Defends Wal-Mart," Knight . Ridder Tribune Business News, May 12, 2006, p. 1. 18. See "Sustainability Key to UPS Environmental Initiatives," UPS press release, accessed at www.pressroom. ups.com, July 2006. 19. Information from "Xerox Equipment Remanufacture and Parts Reuse," accessed at www.xerox.com, ~ e ~ t e m b e r 2006. 20. Adapted from information found in Joeseph Tarnowski, "Green Monster," Progressive Grocer, April 1, 2006, pp. 20-26. 21. Adapted from "The Top 3 in 2005," Global 100, accessed at www.globa1100.org,July 2005. See also, "Alcoa Named One of the Most Sustainable Corporations in the World for Second Straight Year," January 27,2006, accessed at www. alcoa.com. For further information on Alcoa's sustainability program see Alcoa's Sustainability Report found at www.alcoa.com. See "EMAS: What's New?" accessed at http://europa.eu. int/comm/environrnent/emas, August 2005; "Special Report: Free Trade on Trial-Ten Years of NAFTA," The Economist, January 3,2004, p. 13; Daniel J. Tschopp, "Corporate Social Responsibility: A Comparison between the United States and Europe," Corporate Social-Responsibility and Environmental Management, March 2005, pp. 55-59; and www.epa.gov, accessed September 2006. Information and quotes from Andy Milligan, "Samsung Points the Way for Asian Firms in Global Brand Race," Media, August 8, 2003, p. 8; Gerry Khermouch, "The Best Global Brands," BusinessWeek, August 5, 2002, p. 92; Leslie P. Norton, "Value Brand," Barron's, September 22, 2003, p. 19; "Cult Brands," BusinessWeek Online, August 2, 2004, accessed at www.businessweek.com; Bill Breen, "The Seoul of Design," Fast Company, December 2005, pp. 91-98; and Samsung Annual Reports and other information accessed at www.samsung.com, September 2006. 24. Information from Mike Hoffman, "Ben Cohen: Ben & Jerry's Homemade, Established in 1978," Inc., April 30, 2001, p. 68; and the Ben & Jerry's Web site at www. benjerrys.com, September 2006. 25. Quotes and other information from Thea Singer, "Can Business Still Save the World?" Inc., April 30, 2001, pp. 58-71; and www.honesttea.com, September, 2006. Also see Elizabeth Fuhrman, "Honest Tea Inc.: Social and

W-29

Environmental Sinceri-Tea," Beverage Industry, April 2005, p. 44. 26. Adapted from Chip Giller and David Roberts, "Resources: The Revolution Begins," Fast Company, March 2006, pp. 73-78. Also see Joseph Ogando, "Green Engineering," Design News, January 9, 2006, p. 65; and information accessed online at www.haworth.com, August 2006. 27. Joseph Webber, "3M's Big Cleanup," Business Week, June 5, 2000, pp. 96-98. Also see Kara Sissell, "3M Defends Timing of Scotchgard Phaseout," Chemical Week, April 11, 2001, p. 33; Peck Hwee Sim, "Ausimont Targets Former Scotchgard Markets," Chemical Week, August 7, 2002, p. 32; Jennifer Lee, "E.P.A. Orders Companies to Examine Effect of Chemicals," New York Times, April 15, 2003, p. F2; and Kara Sissell, "Swedish Officials Propose Global Ban on PFOS," Chemical Week, June 22, 2005, p. 35. 28. See "Transparency International Bribe Payers Index" and "Transparency International Corruption Perception Index," accessed at www.transparency.org, August 2006; "Minxin Pei, "The Dark Side of China's Rise," Foreign Policy, March/April 2006, pp. 3 2 4 0 ; and "Everybody's Doing It," Middle East, April 2006, pp. 20-21. 29. John F. McGee and P. Tanganath Nayak, "Leaders' Perspectives on Business Ethics," Prizm, Arthur D. Little, Inc., Cambridge, MA, first quarter 1994, pp. 71-72. Also see Adrian Henriques, "Good Decision-Bad Business?" International Journal of Management & Decision Making, 2005, p. 273; and Marylyn Carrigan, Svetla Marinova, and Isabelle Szmigin, "Ethics and International Marketing: Research Background and Challenges," International Marketing Review, 2005, pp. 481494. 30. See Samuel A. DiPiazza, "Ethics in Action," Executive Excellence, January 2002, pp. 15-16; Samuel A. DiPiazza, Jr., "It's All Down to Personal Values," accessed online at www. pwcglobal.com, August 2003; and "Code of Conduct: The Way We Do Business," accessed at www.pwcglobal.com/ gx/eng/ins-sollspec-intlethics/index.htm,September 2006. PricewaterhouseCoopers (www.pwc.com) provides industry-focused assurance, tax, and advisory services to build public trust and enhance value for its clients and their stakeholders. More than 130,000people in 148 countries across its network share their thinking, experience, and solutions to develop fresh perspectives and practical advice. 'PricewaterhouseCoopers' refers to the network of member firms of ~ricwaterhouse~oo~ers International limited, each of which is a separate and independent legal entity. 31. DiPiazza, "Ethics in Action," p. 15.

1. This is derived by rearranging the following equation and solving for price: Percentage markup = (price - cost) s

price. 2. The equation is derived from the basic profit = total rev-

enue - total cost equation. Profit is set to equal the return on investment times the investment (ROI x I), total revenue equals price times quantity (P X Q), and total costs equals quantity times unit cost (Q X UC): ROI X I = (P X Q) - (Q X UC). Solving for P gives P = ((ROI x I) s Q) + uc.

R-30

References

The breakeven volume equation can also be derived from the basic profit = total revenue - total cost equation. At the breakeven point, profit is equal to zero, and it is best to - TFC separate fixed and variable costs: 0 = (P X Ql (Q X WC). Solving for Q gives Q = TFC + (P - UVC).. As in the previous note, this equation is derived from the basic profit = total revenue - total cost equation. However, unlike the break-even calculation, in which profit was set to equal zero, we set the profit equal to the dollar profit goal: Dollar profit goal = (P x Q) - TFC - (Q x UVC). Solving for Q gives Q = (TFC + dollar profit goal) + (P - UVC). Again, using the basic profit equation, we set profit equal to ROI X I: ROI x I = (P X - TFC - (Q X UVC). Sohing for Q gives Q = (TFC + (ROI X I)) + (P - UVC).

a

Again, using the basic profit equation, we set profit equal to 25% of sales, which is 0.25 X P X Q: 0.25 X P X Q = (P X Q) - TFC - (Q x W C ) . Solving for Q gives Q = TFC + (P - UVC - (0.25 X P)) or TFC i ((0.75 X P) - UVC). "Nielson Finds More TVs; Hispanics Top 11 Million," Advertising Age, August 29, 2005, p. 1. Consumer Electronics Association available at www.ce. org, accessed July 25, 2006. Daisy Whitney, "'06 HDTV Sales to Outpace Analog," Television Week, October 31, 2005, pp. 19-24.

See Roger J. Best, Market-Based Management, 4th ed. (Upper Saddle River, NJ: Prentice Hall, 2005). Total contribution can also be determined from the unit contribution and unit volume: Total contribution = unit contribution x unit sales. Total units sold in 2006 were 297,619 units, which can be determined by dividing total sales by price per unit ($100 million + $336). Total contribution = $70 contribution per unit X 297,619 units = $20,833,330 (difference due to rounding. Recall that the contribution margin of 21% was based on variable costs representing 79% of sales. Therefore, if we do not know price, we can set it equal to $1.00. If price equals $1.00, 79 cents represents variable costs and 21 cents represents unit contribution. If price is decreased by lo%, the new price is $0.90. However, variable costs do not change just because price decreased, so the unit contribution and contribution margin decrease as follows:

Price - Unit variable cost = Unit contribution Contribution margin

Old

New (reduced 10%)

$1.00 $0.79 $0.21 $0.21/$1.00 = 0.21 or 21%

$0.90 $0.79 $0.11 $0.11/$0.90 = 0.12 or 12%

Adapted marketing mix An international marketing strategy for adjusting the marketing mix elements to each international target market, bearing more costs but hoping for a larger market share and return. Administered VMS A vertical marketing system that coordinates successive stages of production and distribution, not through common ownership or contractual ties, but through the size and power of one of the parties. Adoption process The mental process through which an individual passes from first hearing about an innovation to final adoption. Advertising Any paid form of nonpersonal presentation and promotion of ideas, goods, or services by an identified sponsor. Advertising agency A marketing services firm that assists companies in planning, preparing, implementing, and evaluating all or portions of their advertising programs. Advertising budget The dollars and other resources allocated to a product or company advertising program. Advertising media The vehicles through which advertising messages are delivered to their intended audiences. Advertising objective A specific communication task to be accomplished with a specific target audience during a specific period of time. Advertising strategy The strategy by which the company accomplishes its advertising objectives. It consists of two major elements: creating advertising messages and selecting advertising media. Affordable method Setting the promotion budget at the level management thinks the company can afford. Age and life-cycle segmentation Dividing a market into different age and life-cycle groups.

Agent A wholesaler who represents buyers or sellers on a relatively permanent basis, performs only a few functions, and does not take title to goods. Allowance Promotional money paid by manufacturers to retailers in return for an agreement to feature the manufacturer's products in some way. Alternative evaluation The stage of the buyer decision process in which the consumer uses information to evaluate alternative brands in the choice set. Approach The step in the selling process in which the salesperson meets the customer for the first time. Attitude A person's relatively consistent evaluations, feelings, and tendencies toward an object or idea. Baby boomers The 78 million people born during the baby boom following World War I1 and lasting until the early 1960s. Basing-point pricing A geographical pricing strategy in which the seller designates some city as a basing point and charges all customers the freight cost from that city to the customer. Behavioral segmentation Dividing a market into groups based on consumer knowledge, attitude, use, or response to a product. Belief A descriptive thought that a person has about something. Benchmarking The process of comparing the company's products and processes to those of competitors or leading firms in other industries to-find ways to improve quality and performance. Benefit segmentation Dividing a market into groups according to the different benefits that consumers seek from the product. Brand A name, term, sign, symbol, or design, or a combination of these that identifies the products or services of one seller or group of sellers and differentiates them from those of competitors.

Brand equity The positive differential effect that knowing the brand name has on customer response to the product or service. Brand extension Extending an existing brand name to new product categories. Brand personality The specific mix of human traits that may be attributed to a particular brand. Break-even pricing (target profit pricing) Setting prices to break even on the costs of making and marketing a product; or setting prices to make a target profit. Broker A wholesaler who does not take title to goods and whose function is to bring buyers and sellers together and assist in negotiation. Business analysis A review of the sales, costs, and profit projections for a new product to find out whether these factors satisfy the company's objectives. Business buyer behavior The buying behavior of the organizations that buy goods and services for use in the production of other products and services or for the purpose of reselling or renting them to others at a profit. Business buying process The decision process by which business buyers determine which products and services their organizations need to purchase, and then find, evaluate, and choose among alternative suppliers and brands. Business portfolio The collection of businesses and products that make up the company. Business promotion tools Sales promotion tools used to generate business leads, stimulate purchases, reward customers, and motivate salespeople. Business-to-business (B2B) online marketing Using B2B Web sites, email, online product catalogs, online trading networks, and other online resources to reach new business customers, serve current customers

6-2

Glossary

more effectively, and obtain buying efficiencies and better prices. Business-to-consumer (B2C) online marketing Selling goods and services online to final consumers.

without any brick-and-mortar market presence. Closing The step in the selling process in which the salesperson asks the customer for an order.

Buyer-readiness stages The stages consumers normally pass through on their way to purchase, including awareness, knowledge, liking, preference, conviction, and purchase. Buyers The people in the organization's buying center who make an actual purchase. Buying center All the individuals and units that play a role in the purchase decision-making process. Buzz marketing Cultivating opinion leaders and getting them to spread information about a product or service to others in their communities. By-product pricing Setting a price for by-products in order to make the main product's price more competitive. Captive-productpricing Setting a price for products that must be used along with a main product, such as blades for a razor and film for a camera. Catalog marketing Direct marketing through print, video, or electronic catalogs that are mailed to select customers, made available in stores, or presented online. Category killer Giant specialty store that carries a very deep assortment of a particular line and is staffed by knowledgeable employees. Causal research Marketing research to test hypotheses about cause-and-effect relationships. Chain stores Two or more outlets that are commonly owned and controlled. Channel conflict Disagreement among marketing channel members on goals and roles-who should do what and for what rewards. Channel level A layer of intermediaries that performs some work in bringing the product and its ownership closer to the final buyer. Click-and-mortar companies Traditional brick-and-mortar companies that have added online marketing to their operations. Click-only companies The so-called dot-coms, which operate only online

Co-branding The practice of using the established brand names of two different companies on the same product. Cognitive dissonance Buyer discomfort caused by postpurchase conflict. Commercialization Introducing a new product into the market. Communication adaptation A global communication strategy of fully adapting advertising messages to local markets. Competitive advantage An advantage over competitors gained by offering consumers greater value, either through lower prices or by providing more benefits that justify higher prices. Competitive marketing strategies Strategies that strongly position the company against competitors and that give the company the strongest possible strategic advantage. Competitive-paritymethod Setting the promotion budget to match competitors' outlays. Competitor analysis The process of identifying key competitors; assessing their objectives, strategies, strengths and weaknesses, and reaction patterns; and selecting which competitors to attack or avoid. Competitor-centeredcompany A company whose moves are mainly based on competitors' actions and ,.,. reactions. Complex buying beha& Consumer buying behavior in situations characterized by high consumer involvement in a purchase and significant perceived differences among brands. Concentrated (niche) marketing A market-coverage strategy in which a firm goes after a large share of one or a few segments or niches. Concept testing Testing new-product concepts with a group of target consumers to find out if the concepts have strong consumer appeal.

Consumer buyer behavior The buying behavior of final consumersindividuals and households who buy goods and services for personal consumption. Consumer market All the individuals and households who buy or acquire goods and services for personal consumption. Consumer-oriented marketing The philosophy of enlightened marketing that holds that the company should view and organize its marketing activities from the consumer's point of view. Consumer product Product bought by final consumer for personal consumption. Consumer promotion tools Sales promotion tools used to urge short-term customer buying or to enhance longterm customer relationships. Consumerism An organized movement of citizens and government agencies to improve the rights and power of buyers in relation to sellers. Consumer-to-business(C2B) online marketing Online exchanges in which consumers search out sellers, learn about their offers, and initiate purchases, sometimes even driving transaction terms. Consumer-to-consumer (C2C) online marketing Online exchanges of goods and information between final consumers. Contract manufacturing A joint venture in which a company contracts with manufacturers in a foreign market to produce the product or provide its service. Contractual VMS A vertical marketing system in which independent firms at different levels of production and distribution join together through contracts to obtain more economies or sales impact than they could achieve alone. Convenience product Consumer product that the customer usually buys frequently, immediately, and with a minimum of comparison and buying effort. Convenience store A small store, located near a residential area, that is open long hours seven days a week and carries a limited line of high-turnover convenience goods.

Glossary

Conventional distribution channel A channel consisting of one or more independent producers, wholesalers, and retailers, each a separate business seeking to maximize its own profits even at the expense of profits for the system as a whole. Corporate VMS A vertical marketing system that combines successive stages of production and distribution under single ownership-channel leadership is established through common ownership. Corporate Web site A Web site designed to build customer goodwill and to supplement other sales channels, rather than to sell the company's products directly. Cost-based pricing Setting prices based on the costs for producing, distributing, and selling the product plus a fair rate of return for effort and risk. Cost-plus pricing Adding a standard markup to the cost of the product. Countertrade International bade involving the direct or indirect exchange of goods for other goods instead of cash. Creative concept The compelling "big idea" that will bring the advertising message strategy to life in a distinctive and memorable way. Cultural environment Institutions and other forces that affect society's basic values, perceptions, preferences, and behaviors. Culture The set of basic values, perceptions, wants, and behaviors learned by a member of society from family and other important institutions. Customer-centered company A company that focuses on customer developments in designing its marketing strategies and on delivering superior value to its target customers.

Customer-centerednew-product development New-product development that focuses on finding new ways to solve customer problems and create more customer-satisfying experiences. Customer database An organized collection of comprehensive data about individual customers or prospects, including geographic, demographic, psychographic, and behavioral data. Customer equity The total combined customer lifetime values of all of the company's customers.

Customer lifetime value The value of the entire stream of purchases that a customer would make over a lifetime of patronage. Customer perceived value The customer's evaluation of the difference between all the benefits and all the costs of a market offering relative to those of competing offers. Customer relationship management The overall process of building and maintaining profitable customer relationships by delivering superior customer value and satisfaction.

Customer relationship management (CRM) Managing detailed information about individual customers and carefully managing customer "touch points" in order to maximize customer loyalty.

Customer sales force structure A sales force organization under which salespeople specialize in selling only to certain customers or industries.

Customer satisfaction The extent to

&-3

education, religion, race, generation, and nationality. Demography The study of human populations in terms of size, density, location, age, gender, race, occupation, and other statistics.

Department store A retail organization that carries a wide variety of product lines-each line is operated as a separate department managed by specialist buyers or merchandisers. Derived demand Business demand that ultimately comes from (derives from) the demand for consumer goods.

Descriptive research Marketing research to better describe marketing problems, situations, or markets, such as the market potential for a product or the demographics and attitudes of consumers. Desirable products Products that give both high immediate satisfaction and high long-run benefits. Differentiated (segmented)marketing

which a product's perceived performance matches a buyer's expectations.

A market-coveragestrategy in which a firm decides to target several market segments and designs separate offers for each.

Customer value analysis Analysis

Differentiation Actually differentiating

conducted to determine what benefits target customers value and how they rate the relative value of various competitors' offers.

the firm's market offering to create superior customer value.

Customer-value marketing A principle of enlightened marketing that holds that a company should put most of its resources into customer valuebuilding marketing investments.

Deciders People in the organization's buying center who have formal or informal power to select or approve the final suppliers. Decline stage The product life-cycle stage in which a product's sales decline.

Deficient products Products that have neither immediate appeal nor long-run benefits. Demand curve A curve that shows the number of units the market will buy in a given time period, at different prices that might be charged.

Direct investment Entering a foreign market by developing foreign-based assembly or manufacturing facilities.

--

Direct marketing Direct connections with carefully targeted individual consumers to both obtain an immediate response and cultivate lasting customer relationships.

Direct marketing channel A marketing channel that has no intermediary levels.

Direct-mail marketing Direct marketing by sending an offer, announcement, reminder, or other item to a person at a particular address.

Direct-responsetelevision marketing Direct marketing via television, including direct-response television advertising (or infomercials) and home shopping channels.

Discount A straight reduction in price

by buying power.

on purchases during a stated period of time.

Demographic segmentation Dividing a

Discount store A retail operation that

market into groups based on variables such as age, gender, family size, family life cycle, income, occupation,

sells standard merchandise at lower prices by accepting lower margins and selling at higher volume.

Demands Human wants that are backed

G-4

Glossary

Disintermediation The cutting out of

Ethnographic research A form of

Follow-up The last step in the selling

marketing channel intermediaries by product or service producers, or the displacement of traditional resellers by radical new types of intermediaries.

observational research that involves sending trained observers to watch and interact with consumers in their "natural habitat."

process in which the salesperson follows up after the sale to ensure customer satisfaction and repeat business.

Dissonance-reducing buying behavior

Exchange The act of obtaining a

Consumer buying behavior in situations characterizedby high involvement but few perceived differences among brands.

desired object from someone by offering something in return. limited number of dealers the exclusive right to distribute the company's products in their territories.

Franchise A contractual association between a manufacturer, wholesaler, or service organization (a franchiser) and independent businesspeople (franchisees) who buy the right to own and operate one or more units in the franchise system.

Execution style The approach, style,

Franchise organization A contractual

Distribution center A large, highly automated warehouse designed to receive goods from various plants and suppliers, take orders, fill them efficiently, and deliver goods to customers as quickly as possible.

Exclusive distribution Giving a

tone, words, and format used for executing an advertising message.

Diversification A strategy for company growth through starting up or acquiring businesses outside the company's current products and markets.

Experience curve (learning curve)

Downsizing Reducing the business

Experimental research Gathering of primary data by selecting matched groups of subjects, giving them different treatments, controlling related factors, and checking for differences in group responses.

portfolio by eliminating products of business units that are not profitable or that no longer fit the company's overall strategy.

Dynamic pricing Adjusting prices continually to meet the characteristics and needs of individual customers and situations.

Economic community A group of nations organized to work toward common goals in the regulation of international trade. Economic environment Factors that affect consumer buying power and spending patterns.

Engel's laws Differences noted over a century ago by Ernst Engel in how people shift their spending across food, housing, transportation, health care, and other goods and services categories as family income rises.

Enlightened marketing A marketing philosophy holding that a company's marketing should support the best longrun performance of the marketing system; its five principles include consumer-oriented marketing, customervalue marketing, innovative marketing, sense-of-mission marketing, and societal marketing.

Environmental sustainability A management approach that involves developing strategies that both sustain the environment and produce profits for the company. Environmentalism An organized movement of concerned citizens and government agencies to protect and improve people's living environment.

The drop in the average per-unit production cost that comes with accumulated production experience.

Exploratory research Marketing research to gather preliminary information that will help define problems and suggest hypotheses. Exporting Entering a foreign market by selling goods produced in the company's home country, often with little modification.

Factory outlet Off-price retailing operation that is owned and operated by a manufacturer and that normally carries the manufacturer's surplus, discontinued, or irregular goods.

Fad A temporary period of unusually high sales driven by consumer enthusiasm and immediate product or brand popularity.

Fashion A currently acce6t~dor popular style in a given field.

Fixed costs (overhead) Costs that do not vary with production or sales level.

FOB-origin pricing A geographical pricing strategy in which goods are placed free on board a carrier; the customer pays the freight from the factory to the destination. Focus group interviewing Personal interviewing that involves inviting six to ten people to gather for a few hours with a trained interviewer to talk about a product, service, or organization. The interviewer "focuses" the group discussion on important issues.

vertical marketing system in which a channel member, called a franchiser, links several stages in the productiondistribution process.

Freight-absorptionpricing A geographical pricing strategy in which the seller absorbs all or part of the freight charges in order to get the desired business.

Gatekeepers People in the organization's buying center who control the flow of information to others. Gender segmentation Dividing a market into different groups based on gender. General need description The stage in the business buying process in which the company describes the general characteristics and quantity of a needed item. Generation X The 45 million people born between 1965 and 1976 in the "birth dearth" following the baby boom. Generation Y The 72 million children of the baby boomers, born between 1977 and 1994. Geographic segmentation Dividing a market into different geographical units such as nations, states, regions, counties, cities, or neighborhoods. Geographical pricing Setting prices for customers located in different parts of the country or world. Global firm A firm that, by operating in more than one country, gains R&D, production, marketing, and financial advantages in its costs and reputation that are not available to purely domestic competitors. Good-value pricing Offering just the right combination of quality and good service at a fair price. Government market Governmental units-federal,

state, and local-that

Glossary

purchase or rent goods and services for carrying out the main functions of government.

Group Two or more people who interact to accomplish individual or mutual goals. Growth-share matrix A portfolioplanning method that evaluates a company's strategic business units in terms of their market growth rate and relative market share. SBUs are classified as stars, cash cows, question marks, or dogs. Growth stage The product life-cycle stage in which a product's sales start climbing quickly. Habitual buying behavior Consumer buying behavior in situations characterized by low consumer involvement and few significant perceived brand differences. Handling objections The step in the selling process in which the salesperson seeks out, clarifies, and overcomes customer objections to buying. Horizontal marketing system A channel arrangement in which two or more companies at one level join together to follow a new marketing opportunity. Idea generation The systematic search for new-product ideas. Idea screening Screening new-product ideas in order to spot good ideas and drop poor ones as soon as possible. Income segmentation Dividing a market into different income groups. Independent off-price retailer Offprice retailer that is either owned and run by entrepreneurs or is a division of a larger retail corporation. Indirect marketing channel Channel containing one or more intermediary levels. Individual marketing Tailoring products and marketing programs to the needs and preferences of individual customers-also labeled "markets-ofone marketing," "customized marketing," and "one-to-one marketing." Industrial product Product bought by individuals and organizations for further processing or for use in conducting a business. Influencers People in an organization's . buying center who affect the buying decision; they often help define

specifications and also provide information for evaluating alternatives.

Information search The stage of the buyer decision process in which the consumer is aroused to search for more information; the consumer may simply have heightened attention or may go into active information search. Innovative marketing A principle of enlightened marketing that requires that a company seek real product and marketing improvements. Inside sales force Inside salespeople who conduct business from their offices via telephone, the Internet, or visits from prospective buyers. Institutional market Schools, hospitals, nursing homes, prisons, and other institutions that provide goods and services to people in their care. Integrated direct marketing Directmarketing campaigns that use multiple vehicles and multiple stages to improve response rates and profits. Integrated logistics management The logistics concept that emphasizes teamwork, both inside the company and among all the marketing channel organizations, to maximize the performance of the entire distribution system. Integrated marketing communications (IMC) Carefully integrating and coordinating the company's many communications channels to deliver a clear, consistent, and compelling message about the organization and its products. Intensive distribution Stocking the product in as many outlets as possible. Interactive marketing Training service employees in the fine art of interacting with customers to satisfy their needs. Intermarket segmentation Forming segments of consumers who have similar needs and buying behavior even though they are located in different countries. Intermodal transportation Combining two or more modes of transportation. Internal databases Electronic collections of consumer and market information obtained from data sources within the company network. Internal marketing Orienting and motivating customer-contact employees and the supporting service people to work as a team to provide customer satisfaction.

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Internet A vast public web of computer networks that connects users of all types all around the world to each other and to an amazingly large "information repository." Introduction stage The product lifecycle stage in which the new product is first distributed and made available for purchase. Joint ownership A joint venture in which a company joins investors in a foreign market to create a local business in which the company shares joint ownership and control. Joint venturing Entering foreign markets by joining with foreign companies to produce or market a product or service. Learning Changes in an individual's behavior arising from experience. Licensing A method of entering a foreign market in which the company enters into an agreement with a licensee in the foreign market, offering the right to use a manufacturing process, trademark, patent, trade secret, or other item of value for a fee or royalty. Lifestyle A person's pattern of living as expressed in his or her activities, interests, and opinions. Line extension Extending an existing brand name to new forms, colors, sizes, ingredients, or flavors of an existing product category. Local marketing Tailoring brands and promotions to the needs and wants of local customer groups-cities, neighborhoods, and even specific stores. Macroenvironment The larger societal forces that affect the microenvironmentdemographic, economic, natural, technological,political, and cultural forces. Madison & Vine A term that has come to represent the merging of advertising and entertainment in an effort to break through the clutter and create new avenues for reaching consumers with more engaging messages. Management contracting A joint venture in which the domestic firm supplies the management know-how to a foreign company that supplies the capital; the domestic firm exports management services rather than products. Manufacturers' sales branches and offices Wholesaling by sellers or buyers themselves rather than through independent wholesalers.

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Glossary

Market The set of all actual and potential buyers of a product or service. Market-centered company A company that pays balanced attention to both customers and competitors in designing its marketing strategies. Market challenger A runner-up firm that is fighting hard to increase its market share in an industry. Market development A strategy for company growth by identifying and developing new market segments for current company products. Market follower A runner-up firm that wants to hold its share in an industry without rocking the boat. Market leader The firm in an industry with the largest market share. Market nicher A firm that serves small segments that the other firms in an industry overlook or ignore. Market offering Some combination of products, services, information, or experiences offered to a market to satisfy a need or want. Market penetration A strategy for company growth by increasing sales of current products to current market segments without changing the product. Market-penetration pricing Setting a low price for a new product in order to attract a large number of buyers and a large market share. Market segment A group of consumers who respond in a similar way to a given set of marketing efforts. Market segmentation Dividing a market into distinct groups of buyers who have distinct needs, characteristics, or behavior and who might require separate products or marketing programs. Market-skimmingpricing Setting a high price for a new product to skim maximum revenues layer by layer from the segments willing to pay the high price; the company makes fewer but more profitable sales. Market targeting The process of evaluating each market segment's attractiveness and selecting one or more segments to enter. Marketing The process by which companies create value for customers and build strong customer relationships in order to capture value from customers in return.

c

Marketing audit A comprehensive, systematic, independent, and periodic examination of a company's environment, objectives, strategies, and activities to determine problem areas and opportunities and to recommend a plan of action to improve the company's' marketing performance. Marketing channel (distribution channel) A set of interdependent organizations that help make a product or service avdable for use or consumption by the consumer or business user. Marketing concept The marketing management philosophy that achieving organizational goals depends on knowing the needs and wants of target markets and delivering the desired satisfactions better than competitors do. Marketing control The process of measuring and evaluating the results of marketing strategies and plans and taking corrective action to ensure that objectives are achieved. Marketing environment The actors and forces outside marketing that affect marketing management's ability to build and maintain successful relationships with target customers. Marketing implementation The process that turns marketing strategies and plans into marketing actions in order to accomplish strategic marketing objectives. Marketing information system (MIS) People, equipment, and procedures to gather, sort, analyze, evaluate, and distribute needed, timely, and accurate information to marketing decision makers. Marketing intelligence The systematic collection and analysis of publicly available information abqu? competitors and developments in theLmarketing environment. Marketing intermediaries Firms that help the company to promote, sell, and distribute its goods to final buyers; they include resellers, physical distribution firms, marketing service agencies, and financial intermediaries. Marketing logistics (physical distribution) The tasks involved in planning, implementing, and controlling the physical flow of materials, final goods, and related information from points of origin to points of consumption to meet customer requirements at a profit.

Marketing management The art and science of choosing target markets and building profitable relationships with them. Marketing mix The set of controllable tactical marketing tools-product, price, place, and promotion-that the firm blends to produce the response it wants in the target market. Marketing myopia The mistake of paying more attention to the specific products a company offers than to the benefits and experiences produced by these products. Marketing research The systematic design, collection, analysis, and reporting of data relevant to a specific marketing situation facing an organization. Marketing strategy development Designing an initial marketing strategy for a new product based on the product concept. Marketing strategy The marketing logic by which the business unit hopes 'to achieve its marketing objectives. Marketing Web site A Web site that engages consumers in interactions that will move them closer to a direct purchase or other marketing outcome. Maturity stage The product life-cycle stage in which sales growth slows or levels off. Merchant wholesaler Independently owned business that takes title to the merchandise it handles. Microenvironment The actors close to the company that affect its ability to serve its customers-the company, suppliers, marketing intermediaries, customer markets, competitors, and publics. Micromarketing The practice of tailoring products and marketing programs to the needs and wants of specific individuals and local customer groups-includes local marketing and individual marketing. Mission statement A statement of the organization's purpose-what it wants to accomplish in the larger environment. Modified rebuy A business buying situation in which the buyer wants to modify product specifications, prices, terms, or suppliers. Motive (or drive) A need that is .sufficiently pressing to direct the person to seek satisfaction of the need.

Glossary

Multichannel distribution system A

kom online commercial sources or via the Internet.

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personality The unique ~sych~logical

New task A business buying situation in which the buyer purchases a product or service for the first time.

Order-routine specification The stage of the business buying process in which the buyer writes the final order with the chosen supplier(s), listing the technical specifications, quantity needed, expected time of delivery, return policies, and warranties.

Nonpersonal communication channels Media that carry messages

Outside sales force (or field sales force) Outside salespeople who travel

characteristics that lead to relatively consistent and lasting responses to one's own environment. Pleasing products Products that give high immediate satisfaction but may hurt consumers in the long run. Political environment Laws, government agencies, and pressure groups that influence and limit various organizations and individuals in a given society. Portfolio analysis The process by which management evaluates the products and businesses making up the company. Positioning Arranging for a product to occupy a clear, distinctive, and desirable place relative to competing products in the minds of target consumers. Positioning statement A statement that summarizes company or brand positioning-it takes this form: To [target segment and need) our (brand) is [concept) that [point of difference).

to call on customers in the field.

Postpurchase behavior The stage of

Packaging The activities of designing

the buyer decision process in which the consumers takes further action after purchase, based on their satisfaction or dissatisfaction. Preapproach The step in the selling process in which the salesperson learns as much as possible about a prospective customer before making a sales call. Presentation The step in the selling process in which the salesperson tells the "product story" to the buyer, highlighting customer benefits.

distribution system in which a single firm sets up two or more marketing channels to reach one or more customer segments. Natural environment Natural resources that are needed as inputs by marketers or that are affected by marketing activities.

Need recognition The first stage of the buyer decision process, in which the consumer recognizes a problem or need. Needs States of felt deprivation. New product A good, service, or idea that is perceived by some potential customers as new.

New-product development The development of original products, product improvements, product modifications, and new brands through the firm's own R&D efforts.

without personal contact or feedback, including major media, atmospheres, and events.

Objective-and-taskmethod Developing the promotion budget by (1)defining specific objectives; (2) determining the tasks that must be performed to achieve these objectives; and (3) estimating the costs of performing these tasks. The sum of these costs is the proposed promotion budget. Observational research The gathering of primary data by observing relevant people, actions, and situations. Occasion segmentation Dividing a market into groups according to occasions when buyers get the idea to buy, actually make their purchase, or use the purchased item. Off-price retailer Retailer that buys at less-than-regular wholesale prices and sells at less than retail. Examples are factory outlets, independents, and warehouse clubs.

Online advertising Advertising that appears while consumers are surfing the Web, including display ads (banners, interstitials, pop-ups), search-related ads, online classifieds, and other forms. Online databases Computerized collections of information available

Online marketing Company efforts to market products and services and build customer relationships over the Internet. Online marketing research Collecting primary data through Internet surveys and online focus groups.

Opinion leader Person within a reference group who, because of special skills, knowledge, personality, or other characteristics, exerts social influence on others. Optional-productpricing The pricing of optional or accessory products along with a main product.

and producing the container or wrapper for a product.

Partner relationship management Working closely with partners in other company departments and outside the company to jointly bring greater value to customers. Percentage-of-salesmethod Setting the promotion budget at a certain percentage of current or forecasted sales or as a percentage of the unit sales price. Perception The process by which people select, organize, and interpret information to form a meaningful picture of the world.

Performance review The stage of'the business buying process in which the buyer assesses the performance of the supplier and decides to continue, modify, or drop the arrangement. Personal communication channels Channels through which two or more people communicate directly with each other, including face to face, on the phone, through mail or e-rnail, or even through an Internet "chat."

Personal selling Personal presentation by the firm's sales force for the purpose of making sales and building customer relationships.

Price The amount of money charged for a product or service, or the sum of the values that consumers exchange for the benefits of having or using the product or service. Price elasticity A measure of the sensitivity of demand to changes in price. Primary data Information collected for the specific purpose at hand.

Private brand (or store brand) A brand created and owned by a reseller of a product or service. Problem recognition The first stage of the business buying process in which someone in the company recognizes a problem or need that can be met by acquiring a good or a service.

Product Anything that can be offered to a market for attention, acquisition, use,

6-8

Glossary

or consumption that might satisfy a want or need. Product adaptation Adapting a product to meet local conditions or wants in.foreign markets. Product bundle pricing Combining several products and offering the bundle at a reduced price.

Product concept A detailed version of the new-product idea stated in meaningful consumer terms. Product concept The idea that consumers will favor products that offer the most quality, performance, and features and that the organization should therefore devote its energy to making continuous product improvements.

Product development A strategy for company growth by offering modified or new products to current market segments; Developing the product concept into a physical product in order to ensure that the product idea can be turned into a workable product. Product invention Creating new products or services for foreign markets. Product life cycle (PLC) The course of a product's sales and profits over its lifetime. It involves five distinct stages: product development, introduction, growth, maturity, and decline. Product line A group of products that are closely related because they function in a similar manner, are sold to the same customer groups, are marketed through the same types of outlets, or fall within given price ranges. Product line pricing Setting the price steps between various products in a product line based on cost differences between the products, customer evaluations of different features, and competitors' prices. Productlmarket expansion grid A portfolio-planning tool for identifying company growth opportunities through market penetration, market development, product development, or diversification. Product mix (or product portfolio) The set of all product lines and items that a particular seller offers for sale. Product position The way the product is defined by consumers on important attributes-the place the product occupies in consumers' minds relative to competing products.

Product quality The characteristics of

Pull strategy A promotion strategy that

a product or service that bear on its ability to satisfy stated or implied customer needs.

calls for spending a lot on advertising and consumer promotion to induce final consumers to buy the product. If the pull strategy is effective, consumers will then demand the product from channel members, who will in turn demand it from producers. Purchase decision The buyer's decision about which brand to purchase. Push strategy A promotion strategy that calls for using the sales force and trade promotion to push the product through channels. The producer promotes the product to channel members to induce them to carry the product and to promote it to final consumers. Reference prices Prices that buyers carry in their minds and refer to when they look at a given product. Retailer A business whose sales come primarily from retailing. Retailing All activities involved in selling goods or services directly to final consumers for their personal, nonbusiness use.

Product sales force structure A sales force organization under which salespeople specialize in selling only a portion of the company's products or lines.

Product specification The stage of the business buying process in which the buying organization decides on and specifies the best technical product characteristics for a needed item. Production concept The idea that consumers will favor products that are available and highly affordable and that the organization should therefore focus on improving production and distribution efficiency.

Promotion mix (marketing communications mix) The specific blend of advertising, sales promotion, public relations, personal selling, and direct-marketing tools that the company uses to persuasively communicate customer value and build customer relationships.

Promotional pricing Temporarily pricing products below the list price, and sometimes even below cost, to increase short-run sales. Proposal solicitation The stage of the business buying process in which the buyer invites qualified suppliers to submit proposals. Prospecting The step in the selling process in which the salesperson identifies qualified potential customers.

Psychographic segmentation Dividing a market into different groups based on social class, lifestyle, or personality i ._.. ~ : characteristics. Psychological pricing A pricing approach that considers the psychology of prices and not simply the economics; the price is used to say something about the product.

Public Any group that has an actual or potential interest in or impact on an organization's ability to achieve its objectives.

Public relations Building good relations with the company's various publics by obtaining favorable publicity, building a good corporate image, and handling or heading off unfavorable rumors, stories, and events.

Return on advertising investment The net return on advertising investment divided by the costs of the advertising investment. Return on marketing investment (or marketing ROI) The net return from a marketing investment divided by the costs of the marketing investment. Sales force management The analysis, planning, implementation, and control of sales force activities. It includes designing sales force strategy and structure and recruiting, selecting, training, supervising, compensating, and evaluating the firm's salespeople.

Salesperson An individual representing a company to customers by performing one or more of the following activities: prospecting, communicating, selling, servicing, information gathering, and relationship building. Sales promotion Short-term incentives to encourage the purchase or sale of a product.or service. Sales quota A standard that states the amount a salesperson should sell and how sales should be divided among the company's products. Salutary products Products that have low appeal but may benefit consumers in the long run.

Glossary Sample A segment of the population selected for marketing research to represent the population as a whole. Secondary data Information that already exists somewhere, having been collected for another purpose.

Segmented pricing Selling a product or service at two or more prices, where the difference in prices is not based on differences in costs.

Selective distribution The use of more than one, but fewer than all, of the intermediaries who are willing to carry the company's products. Selling concept The idea that consumers will not buy enough of the firm's products unless it undertakes a large-scale selling and promotion effort. Selling process The steps that the salesperson follows when selling, which include prospecting and qualifying, preapproach, approach, presentation and demonstration, handling objections, closing, and follow-up. Sense-of-missionmarketing A principle of enlightened marketing that holds that a company should define its mission in broad social terms rather than narrow product terms. Service Any activity or benefit that one party can offer to another that is essentially intangible and does not result in the ownership of anything. Service inseparability A major characteristic of services-they are produced and consumed at the same time and cannot be separated from their providers. Service intangibility A major characteristic of services-they cannot be seen, tasted, felt, heard, or smelled before they are bought.

Service perishability A major characteristic of services-they cannot be stored for later sale or use. Service-profit chain The chain that links service firm profits with employee and customer satisfaction. Service variability A major characteristic of services-their quality may vary greatly, depending on who provides them and when, where, and how.

Share of customer The portion of the customer's purchasing that a company gets in its product categories.

Shopping center A group of retail businesses planned, developed, owned, and managed as a unit. Shopping product Consumer good that the customer, in the process of selection . and purchase, characteristically compares on such bases as suitability, quality, price, and style. Social class Relatively permanent and ordered divisions in a society whose members share similar values, interests, and behaviors.

Social marketing The use of commercial marketing concepts and tools in programs designed to influence individuals' behavior to improve their well-being and that of society. Societal marketing A principle of enlightened marketing that holds that a company should make marketing decisions by considering consumers' wants, the company's requirements, consumers' long-run interests, and society's long-run interests.

Societal marketing concept A principle of enlightened marketing that holds that a company should make good marketing decisions by considering consumers' wants, the company's requirements, consumers' long-run interests, and society's long-run interests. Spam Unsolicited, unwanted commercial e-mail messages. Specialty product Consumer product with unique characteristics or brand identification for which a significant group of buyers is willing to make a special purchase effort. Specialty store A retail store that carries a narrow product line with a deep assortment within that line.

Standardized marketing mix An international marketing strategy for . using basically the same product, advertising, distribution channels, and other elements of the marketing mix in all the company's international markets.

Straight product extension Marketing a product in a foreign market without any change. Straight rebuy A business buying situation in which the buyer routinely reorders something without any modifications.

Strategic group A group of firms in an industry following the same or a similar strategy.

G-9

Strategic planning The process of developing and maintaining a strategic fit between the organization's goals and capabilities and its changing marketing opportunities. Style A basic and distinctive mode of expression.

Subculture A group of people with shared value systems based on common life experiences and situations. Supermarket Large, low-cost, lowmargin, high-volume, self-service store that carries a wide variety of grocery and household products. Superstore A store much larger than a regular supermarket that offers a large assortment of routinely purchased food products, nonfood items, and services. Supplier development Systematic development of networks of supplierpartners to ensure an appropriate and dependable supply of products and materials for use in making products or reselling them to others.

Supplier search The stage of the business buying process in which the buyer tries to find the best vendors. Supplier selection The stage of the business buying process in which the buyer reviews proposals and selects a supplier or suppliers. Supply chain management Managing ' upstream and downstream value-added flows of materials, final goods, and related information among suppliers, the company, resellers, and final consumers. Survey research Gathering of primary data by asking people questions about their knowledge, attitudes, preferences, and buying behavior. SWOT analysis An overall evaluation of the company's strengths (S), weaknesses (W), opportunities (O), and threats (T). Systems selling Buying a packaged solution to a problem from a single seller, thus avoiding all the separate decisions involved in a complex buying situation. Target costing Pricing that starts with an ideal selling price, then targets costs that will ensure that the price is met. Target market A set of buyers sharing common needs or characteristics that the company decides to serve.

G-10

Glossary

Team-based new-product development An approach to developing new products in which various company departments work closely together, overlapping the steps in the product development process to save time and increase effectiveness. Team selling Using teams of people from sales, marketing, engineering, finance, technical support, and even upper management to service large, complex accounts. Technological environment Forces that create new technologies, creating new product and market opportunities. Telephone marketing Using the telephone to sell directly to customers. Territorial sales force structure A sales force organization that assigns each salesperson to an exclusive geographic territory in which that salesperson sells the company's full line. Test marketing The stage of newproduct development in which the product and marketing program are tested in more realistic market settings. Third-partylogistics (3PL) provider An independent logistics provider that performs any or all of the functions required to get their client's product to market. Total costs The sum of the fixed and variable costs for any given level of production. Trade promotion tools Sales promotion tools used to persuade resellers to carry a brand, give it shelf space, promote it in advertising, and push it to consumers. Undifferentiated (mass) marketing A market-coverage strategy in which a firm decides to ignore market segment differences and go after the whole market with one offer.. Uniform-delivered pricing A geographical pricing strategy in which the company charges the same price plus freight to all customers, regardless of their location.

Unsought product Consumer product that the consumer either does not know about or knows about but does not normally think of buying. Users Members of the buying organization who will actually use the purchased product or service. Value-added pricing Attaching valueadded features and services to differentiate a company's offers and to ;upport charging higher prices. Value analysis An approach to cost reduction in which components are studied carefully to determine if they can be redesigned, standardized, or made by less costly methods of production. Value-based pricing Setting prices based on buyers' perceptions of value rather than on the seller's cost. Value chain The series of departments that carry out value-creating activities to design, produce, market, deliver, and support a firm's products. Value delivery network The network made up of the company, suppliers, distributors, and ultimately customers who "partner" with each other to improve the performance of the entire system. Value proposition The full positioning of a brand-the full mix of benefits upon which it is positioned. Variable costs Costs that vary directly with the level of production. Variety-seekingbuying behavior Consumer buying behavior in situations characterized by low consumer involvement but significant perceived brand differences. Vertical marketing system (VMS) A distribution channel structure in which producers, wholesalers, and'retailers act as a unified system. One channel member owns the others, has contracts with them, or has so much power that they all cooperate. Viral marketing The Internet version of word-of-mouth marketing-Web sites,

e-mail messages, or other marketing events that are so infectious that customers will want to pass them along to friends. Wants The form human needs take as shaped by culture and individual personality. Warehouse club Off-price retailer that sells a limited selection of brand name grocery items, appliances, clothing, and a hodgepodge of other goods at deep discounts to members who pay annual membership fees. Web communities Web sites upon which members can congregate online and exchange views on issues of common interest. Wheel-of-retailing concept A concept of retailing that states that new types of retailers usually begin as low-margin, low-price, low-status operations but later evolve into higher-priced, higherservice operations, eventually becoming like the conventional retailers they replaced.

Whole-channel view Designing international channels that take into account all the necessary links in distributing the seller's products to final buyers, including the seller's headquarters organization, channels among nations, and channels within nations. Wholesaler A firm engaged primarily in wholesaling activities. Wholesaling All activities involved in selling goods and services €0 those buying for resale or business use. Word-of-mouth influence Personal communication about a product between target buyers and neighbors, friends, family members, and associates. Zone pricing A geographical pricing strategy in which the company sets up two or more zones. All customers within a zone pay the same total price; the more distant the zone, the higher the price.

CHAPTER 1 3 CorbisIBettmann. 7 Courtesy of LaSalle Bank. 9 O 2004 Red Bull North America. All rights reserved. Used with permission. 11Corbis-NY. 1 2 Courtesy of Johnson &Johnson. 13 Courtesy of Saatchi & Saatchi. 14 Bike Friday. 16 Courtesy of Neiman Marcus. 17 Courtesy of INC Media Relations. 19 Getty Images. 20 Stew Leonard. 2 1 General MotorsCorp. Used with permission, GM Media Archives. 24 AP Wide World Photos. 24 AP Wide World Photos. 26 Courtesy of Coca-Cola Corporation. 27 Corbis/Bettmann.

CHAPTER 7 183 CorbisIBettmann. 187 Courtesy of NIKE, h c . 188 Courtesy of American Express. 189 PEEPSB and the PEEPSB chick shape are registered trademarks of Just Bon, hc., Bethlehem, www.marshmallowpeeps.com/. 190 Doug Hardman. 191 Courtesy of Claritas. 192 193 CorbisIBettrnann. 194 196 Amanda Kamen Photography. 196 Amanda Kamen Photography. 200 Courtesy of Lego. 202 Courtesy of Nacara. 205 Courtesy of Staples the Office Superstore, LLC. 207 Weber Shandwick. 207 Weber Shandwick. 209 AP Wide World Photos.

CHAPTER 2 35 AP Wide World Photos. 37 These materials have been reproduced with the permission of eBay Inc. O 2006 EBAY INC. ALL RIGHTS RESERVED. 39 Courtesy of Monsanto. 41 CorbisIBettmann. 43 Corbis/.Bettmann. 45 AP Wide World Photos. 46 Courtesy of Toyota. 49 Jones Soda Company. 50 Courtesy of Visa, Inc. 53 Getty Images. 57 Courtesy of Campbell's.

CHAPTER 8 217 The Image Works. 217 Getty Images Inc.Image Bank. 217 Getty Images. 219 AP Wide World Photos. 220 Courtesy of BlackBerry. 223 Ad Council. 225 Jen Kaczor. 225 Jen Kaczor. 225 The Procter &GambleCompany. 226 Courtesy of Heinz. 228 Courtesy of Toyota. 229 Courtesy of Marriott. 231 Redux Pictures. 232 Godiva Chocolatier. 233 Costco Wholesale. 234 John Kuczala. 236. Nickelodeon. 236 Nickelodeon. 238 Brink's Home Security, Inc. 241 Redux Pictures. 242 Stock Boston. 244 Courtesy of British Airways. 245 Fabrizio Costantini.

CHAPTER 3 63 McDonald's Corporation. 63 McDonald's Corporation. 63 McDonald's Corporation. 63 McDonald's Corporation. 63 McDonald's Corporation. 66 James Kirkikis. 67 Courtesy of Wal Mart. 68 Redux Pictures. 70 Courtesy of Ameriprise Financial. 72 Courtesy of Toyota. 74 Courtesy of Dream Dinners. 75 AP Wide World Photos. 76 Courtesy of Allstate. 77 Avis World Headquarters. 79 Courtesy of General Electric. 81 Gibson Musical Instruments. 82 Getty Images Inc.-Image Bank. 85 Getty Images. 88 O 2006 EARTHBOUND FARM. CHAPTER 4 95 96 Getty Images. 98 Getty Images-Stockbyte. 99 Getty Images. 99 Getty Images, 99 Getty Images. 103 Courtesy of Simmons Market Research Bureau. 104 Fisher-Price Company. 104 Fisher-Price Company. 107 Courtesy of ActiveGroup. 108 NPN. 111 Douglas A. Fidaleo. 112 Copyright O 2006. SAS Institute Inc. All rights reserved. Reproduced with permission of SAS Institute Inc., Cary, NC, USA. 114 Digistock. 116 Courtesy of Bibbentuckers. 116 Bibbentuckers. 117 Courtesy of ACNielsen. 119 Courtesy of American Express. 120 Courtesy of Greg KahnIKahn Research. CHAPTER 5 129 CorbisIBettmann. 132 CorbidBettmann. 133 Courtesy of Wal-Mart Stores, Inc. 135 O 2006 Adidas AG. All rights reserved. Used with permission. 137 Courtesy of Tremor & Vocalpoint. 138 General MotorslAllied Vaughn. 139 Carhartt Inc. 142 Getty Images. 144 Getty Images. 145 National Fluid Milk Processor Promotion Board. 148 O 2006 the LEG0 Group. 150 Launch Agency. CHAPTER 6 159 Courtesy of UPS. 162 Ad courtesy of Intel Corporation and photography of Zach Gold. 164 Bilderberg Archiv der Fotografen. 166 Courtesy of ChemStation International. 167 Cardinal Health, Medical Products & Services. 168 Courtesy of Volvo. 170 Getty Images 1nc.-Image Bank. 173 Copyright 2006 Hewlett-Packard Development Company, L.P. Reproduced by Permission. 174 Harry Giglio Productions.

CHAPTER 9 251 AP Wide World Photos. 253 New Products Showcase and Learning Center. NewProductWorks. 255 Rick Rappaport Photography. 257 DaimlerChrysler AG. 258 CLOROX is a registered trademark of The Clorox Company. Used with permission. 260 CorbisISygma. 261 Courtesy of redbox. 262 Munshi Ahrned Photography. 262 Getty Images 1nc.Stone Allstock. 263 P & G beauty item. 263 Getty Images. 265 Electrolux Home Products. 265 Procter & Gamble. 267 Courtesy of 3M. All rights reserved. 268 The TABASCOB marks, bottle and label designs are registered trademarks and servicemarks exclusively of McIlhenny Company, Avery Island, LA 70513. www.TABASCO.com. 269 Getty Images/Time Life Pictures. 271 Courtesy of WD-40 Company. All rights reserved. 272 Courtesy of Pepsico International. CHAPTER 10 283 The Image Works. 284 AP Wide World Photos. 286 O 2004 Rolls-Royce & Bentley Motor, Inc. All rights reserved. 287 Courtesy of THE PROCTER & GAMBLE COMPANY, 289 Reprinted Courtesy of CaterpillarInc. 294 PORSCHE and the PORSCHE CREST are registered trademarks and CAYMAN is a trademark and the distinctive shapes of PORSCHE automobiles are trade dress of Dr. Ing. H.c.F.Porsche AG. Used with permission of Porsche Cars North America, Inc. and Dr. Ing. H.c.F. Porsche AG. Copyrighted by Porsche Cars North America, Inc. 295 Courtesy of Steinway. 296 Courtesy of Bick's Pickles. 297 Used with permission of Gibson Guitar. All rights reserved. 298 Courtesy of Green Mountain Energy. CHAPTER 11 307 Courtesy of Ryanair. 309 Courtesy of Sony Corporation. 310 Courtesy of Gramophone. 310 Courtesy of Six Flags. 311 Courtesy of Woodland Park Zoo. 313 Jim Whitmer Photography. 314 PhotoEdit Inc. 315 PhotoEdit Inc.

C-2

Credits

317 AP Wide World Photos. 317 AP Wide World Photos. 317 AP Wide World Photos. 317 AP Wide World Photos. 319 Courtesy of Yahoo! Inc. 320 Prentice Hall School Division. 321 Courtesy of Joy Perfume. 323 Courtesy of Kimberly Clark. 325 Getty Images. 326 Photo Researchers, Inc. CHAPTER 12 333 Caterpillar, Inc. 335 Palm, Inc. 336 Courtesy of Calyx & Corolla. 340 Joe Heiner. 342 INDITEK. 343 Getty Images. 345 Redux Pictures. 347 O Black & Decker8 Corp. 348 Mike Berray. 350 CorbisIBettmann. 351 02004 General Electric Company. All rights reserved. c353 Fine Image Photography. 354 Redux Pictures. 355 Courtesy of Roadway Express. 357 Courtesy of United Parcel Services. CHAPTER 13 365 AP Wide World Photos. 368 AP Wide World Photos. 368 OrangeTwice. 369 CorbisIBettmann. 370 Getty Images. 372 Baerbel Schmidt Photography. 374 Getty ImagesITime Life Pictures. 374 AP Wide World Photos. 375 Brad Hines Photography Inc. 375 Dwight Eschliman. 376 Getty Images. 378 Cabela's Incorporated. 379 CORl3IS-NY. 380 The Stock Connection. 380 Getty Images. 382 Courtesy of Staples. 383 Food Lion. 385 Courtesy of Google. 386 W. W. Grainger, Inc. CHAPTER 14 397 The BURGER KING@trademark and King character are used with permission from Burger King Brands, Inc. 401 O 2005 BMW of North America, LLC. All rights reserved. 405 Courtesy of Edy's. 406 O Houghton Mifflin Company and Mullen. All rights reserved. 407 Courtesy of Milkbone. 408 Corbis Royalty Free. 409 CorbisIBettmann. 409 Corbis/Bettmann. 409 Getty Images. 411 Courtesy of JetBlue. 413 Courtesy of Mary Kay, Inc. All rights reserved. 413 Courtesy of Procter & Gamble Company. All rights reserved. 414 CorbisIPhotography veer Inc. 416 Getty Images. CHAPTER 15 425 O Geico. 427 O General Mills. All rights reserved. 429 Permission by V&S Vin & Sprit AB; ABSOLUT COUNTRY OF SWEDEN VODKA & LOGO, ABSOLUT, ABSOLUT BOTTLE DESIGN AND ABSOLUT CALLIGRAPHY ARE TRADEMARKS OWNED BY V&S VIN AND SPRIT AB. 2004 V&S VIN & SPRIT AB. 430 Getty Images. 432 Cover image of Madison & Vine, by Scott Donaton. @ 2004 The McGraw-Hill Companies. Used with permission. 434 Courtesy of LiquidLogic. 437 Courtesy of Mr. Clean. 438 @ 2004 The Picture People Inc. All rights reserved. 440 Used with permission of Gillette. All rights reserved. 442 Getty Images. 444 Courtesy of The Procter & Gamble Company. All rights reserved. CHAPTER 16 451 O 2004 CDW Corporation. All rights reserved. 453 Boeing Commercial Airplane Group. 455 Courtesy of Lear Corporation. 456 Redux Pictures. 458 Courtesy of CDW

Corporation. 459 Linda Ford Photography. 461 Courtesy of International Rectifier. 463 Getty Images, he.-Photodisc. 464 CorbisIBettmann. 467 O 2006 Gateway, Inc., used with permission. 470 Courtesy of Wyndham Worldwide. 471 Courtesy of Mobull Plus. 471 Go2mobile Solutions, Ltd. 473 Consumer Electronics Association (CEA). CHAPTER 17 479 @ 2001 Dell Inc. All rights reserved. 481 O 2005 GEICO. All rights reserved. 483 Courtesy of Southwest

Airlines. 486 Courtesy of L.L.Bean Inc. 487 Used with permission of the Carolina Cookie Company. All rights reserved. 489 Chris Corsmeier Photography. 490 Courtesy of QVC. 492 Getty Images. 494 Courtesy of Quicken Loans. 496 Courtesy of Peter Blackshaw. All rights reserved. 498 Courtesy of Office Depot. 499 Courtesy of mini.com, 500 Reprinted with permission of Callard & Bowser-Suchard, Inc. 501 Courtesy of Honda. 502 TM & O 2005 Burger King Brands, Inc. (USA only). TM & O 2005 Burger King Corporation (outside USA). All rights reserved. 503 Procter & Gamble. 505 Copyright 2006 AOL LLC. Used with permission. 508 Getty Images. CHAPTER 18 515 AP Wide World Photos. 515 AP Wide World Photos. 515 AP Wide World Photos. 519 Courtesy of Viking Range Corp. 520 Johnson & Johnson. 521 Napster logo and marks reprinted with the permission of Napster, LLC. 523 Courtesy of Stonyfield Farm. 524 Courtesy of Hohner, Inc. 525 Courtesy of Visa U.S.A. Inc. 528 Courtesy of Campbell's Kitchen. 530 Getty Images. 530 Lowes. 532 Courtesy of VPI Pet Insurance. 533 Courtesy of Logitech. CHAPTER 19 541 AP Wide World Photos. 543 Still Media. 545 Corbis Royalty Free. 546 Alamy Images. 547 Document China. 549 Getty Images, 1nc.-Agence France Presse. 550 Getty Images. 552 Getty Images. 554 Getty Images. 555 Corbisl Bettmann. 556 Getty Images Inc. Liaison. 557 LG Electronics, Inc. 557 LG Electronics, Inc. 557 LG Electronics, Inc. 559 (Both) O Prestige & Collections. 560 O Inter IKEA Systems B. V. 1999-2005. All rights reserved. 561 Audiovisual Library of the European Commission. 562 Emily Flowers. CHAPTER 20 569 Reprinted with the permission of The Timberland Company @ 2006 The Timberland Company, 571 Pearson EducationIPH College. 572 Jim Whitmer Photography, 574 LJ-World Photos. 575 AuroraIGetty Images. 577 Corbisl Bettmann. 578 CORBIS- NY. 579 The Image Works. 581 Office of Mayor Jun Choi. 582 Jones Soda Company. 584 Wal-Mart Corpora!~Communications. 586 Corbis Royalty Free. 588 New York Times Agency. 590 Courtesy of Honest Tea. 591 Haworth, Inc. 593 Reprinted with permission of PricewaterhouseCoopersLLP.

Brand, Company Note: Italicized page numbers indicate illustrations. !7

A&P, 188, 353 AARP,488 Abbott Laboratories, 385 ABC, 400 ABC World News Tonight, 436 Abercrombie & Fitch, 157, 361 Absolut Vodka, 429,492 Academy Awards, 414 Accenture, 222,247,410 Ace Hardware, 373 Achilles Track Club, 77 ACNielsen Corporation, 102, 117 ACNielsen's Scantrack, 261 Acoustimass system, 538 ActiveGroup, 207 AcuPOLL, 258 Acura, 229, 560 Acuvue, 521 Acxiom, 118,191 The Ad Council, 223 Adamy; Janet, 576 Adaptec, 173 Adbowl, 202 Adidas, 36, 135-37, 194,434, 520 Adobe, 450 Advanced Micro Devices, 530 Advertising Age, 398 Advertising Research Foundation, 435 The Advocate, 76, 77 Aetna, 133 AFG Industries, 524 AFLAC, 434 Afta, 230 Aguilera, Christina, 513 Ahmed, Dawn, 73 Air Jordan, 206, 326 AirCanada, 99 AirTran, 303 Alamo, 500 Alba, Jessica, 145 Alberto Culver, 533-34 Alberta V05, 533 Albertson's, 81, 88, 367, 368, 390, 394 Albrecht, Katherine, 121 A h a , 585 Aldi, 384 Alexander, Lamar, 295 Alexander of Russia, 295 Aliph, 235 Alison Brod, 156 All Grown Up, 575 All-Bran cereal, 133 Allegrezza, Ray, 33 Allen, Leslie J., 215 Alloy.com, 443 Allstate Brickyard 400, 2 Allstate Insurance, 75-76, 244 Altoids, 189

Always, 213 Amazon.com, 18, 21, 38,120, 206, 232, 270, 299, 318, 319, 336, 344, 347, 382, 408,442,481,482,490,493, 495,497,501-02,504,505 AMD, 209,521 America Online (AOL),38, 345,497,504-05 America West, 303 American Airlines, 303, 385, 531, 581 American Association of Advertising Agencies, 577 American Botanical Council, 365 American Customer Satisfaction Index, 227 American Demographics, 102 American Eagle Outfitters, 121 American Egg Board, 189 American Express, 91, 119-20,188, 192, 222,268,437,455'470-71,507,524

American Express Centurion card, 525-26 American Girl Inc., 202, 219 American Greetings, 197 American Heritage Dictionary, 405 American Idol, 414, 430, 432,433, 437, 542,551 American Legacy Foundation, 421-22 American Marketing Association, 122, 593,594-95 American Society for Quality, 224 America's Next Top Model, 443 Ameriprise Financial, 69, 76 Ameriquest, 446 Amway, 338 Analytical Graphics, 467 Andersen Consulting, 247 Anderson, Brad, 24-25 Anderson, Eric, 316 Anderson, Pamela, 196 Angels Secret Embrace, 156 Anheuser World Select, 409 Anheuser-Busch, 76, 253,405,406, 488, 527,529 Animal House, 448 Anne Klein, 342 Antitrust Division (Attorney General's office), 84 Anything Left-Handed, 194 AOL Music, 521 APC, 450 Apple Computer, 5, 80, 141, 190-91, 197, 222,233,235,250-52,266,279,

309, 324, 345, 346, 371, 376, 450, 489,492,518,521,527 Apple Jacks, 471 Applebaum, Michael, 433 Applebee's, 185-86, 203 Applied Microdontics, 258 The Apprentice, 222,433, 502 Aquafina, 447-48 Arbitron, 102 Archer Daniels Midland, 19 Arellano, Kristi, 490 Ariel, 213 Arizona BaIloon Festival, 444 Arizona Jeans, 233 Arm & Hammer, 528 Armani, 235,287, 525, 547

Armourcote, 488 Armstrong, Lance, 217 Arndt, Michael, 289 Arquette, Courtney Cox, 156 ASDA, 566 Ashkenazy, Vladirnir, 295 Asphalt Innovations, 311 Associated Grocers, 373 Associates Sales Satisfaction Index Study, 214 Association of Black Cardiologists, 132 Association of National Advertisers (ANA), 438,439 AT&T, 57,507, 508,580 ATA, 303 The Athelete's Foot, 367 Auchan hypermaket, 561 Audemars Piguet, 525 Audi, 93, 547 Aussie shampoo, 198 Automatic 5-Minute Pasta and Sausage Maker, 489 Avaya, 458 Aveda, 196 Aventis, 234 Avis, 77, 126, 343, 427, 530 Avon, 256,350,418,503 Azronauer, Rebecca, 465 Babies 'R' Us, 283 Babwin, Don, 589 Bagot, Brian, 249 Baiter, David, 408 Baja Fresh, 62,433 Baker, Eric, 512-13 Baker, John, 444 Baker's Joy, 533 Baldwin Piano, 81 Baltimore Aquarium, 173 Banana Republic, 121,196,228 BAND-AIDS,232,522,543 Bandler, James, 180 Bank of America, 75, 119 Bantam books, 543 Barbaro, Michael, 371 Barbie dolls, 283 Barclay, Paul, 508 Barcroft, Taylor, 191 Barnes & Noble, 49, 299, 343, 382, 384, 517,520-21 Barnes, Rosemary, 296 Barneys, 249 Barry, Mike, 278 Barrymore, Drew, 217 Bartlett, John, 490 BASF, 222 Baskin-Robbins, 433,543 Bath &Body Works, 156,373-74 Bauer, Marc, 36, 248, 490 BAUMA, 472-73 Bausch & Lomb, 290, 321 BAX Global, 358 Bayer, 434 Bazar, Emily, 437 BBDO, 422

1-2

Name, Organization, Brand, and Company Index

Beanie Babies, 33 Beardi, Cara, 437 BeautyRest, 232 Becker, Boris, 541 Beckman, Mark, 289 Bed Bath & Beyond, 472 Behaviorscan, 261 Belda, Alain, 585 Bell, Alexander Graham, 82 Ben & Jerry's, 27,155,437,499,587-88 Benetton, 342 Ben-Gay, 254 Benson, Dan, 379 Bentley, 348-49, 547-48 Bentley Continental GT, 286 Bergdorf Goodman, 526 Berger, Warren, 423 Bergstrom, John, 214, 215 Berkowitz, David, 393 Berner, Robert, 137,273,371 Berra, Yogi, 22 Bershka and Stradivarius, 362 Best Buy, 24-25, 65, 81, 209, 265, 315, 316, 339, 344, 345, 355, 364, 367, 380,382,469,498, 501,587 Betamax, 278 BET.com, 133 Better Business Bureau, 572, 576 Betterly, Laura, 504 Betty Crocker, 160 Beverage Partners Worldwide, 343 Bhatnagar, Parija, 33, 362 Bibbentuckers, 115-16 Bic pens, 225 Bick's pickles, 296 Big G cereals, 160 Big Gulp, 369 Big Mac, 6, 49, 320,491, 550 Bijan's, 377 Bike Friday, 14-15 Bill and Melinda Gates Foundation, 598 Binney & Smith, 517 Bionic Breeze, 428 Birds Eye, 234 Bizrate.com, 120, 319,497 BJ's Wholesale Club, 367, 372 Black & Decker, 53,55,161,230, 34647, 356,455,469, 558, 561 Black Flag, 121 BlackBerry, 210,219,220,560 Blackboard software, 234 BlackPlanet.com, 133 BlackVoices.com, 133 Blair, Jason, 32 BlaisdeU, Betsy, 570 Bligh, Phil, 115 Blockbuster, 364, 498, 531 Bloom, 383 Bloomingdales, 249, 339, 376,486 Blue Ribbon Sports, 34 BlueEyes technology, 110 Blue's Clues, 235 Blum, Brad, 421 Blu-ray technology, 278-80 BMW, 14,21,50,73,93,124,142,203,208, 228,434,455,493,525,542,547 BMW MINI Cooper, 397,400,422,499, 522 Bocklage, Judy, 477 The Body Shop, 81,155,231,232,442 Boeing, 149,160,320,452-53,543, 548 Boggs, Luke, 371 Bogusky, Alex, 396-98,421 Bolain, Brian, 73 Bompreco, 566 Bonamici, Kate, 304

1

Boone, Aurore, 284 Borders, 382,433, 517 Bose, Arnar, 537-38 Bose Corporation, 204,488,537-38 Bosman, Julie, 73 Boston Beer Company, 434 Boston Consulting Group (BCG),38-39, 252 Botti, Chris, 16 Bounce, 198 Bounty, 198,213,233 Bowerman, Bill, 34 Bowflex, 488 Boyda, Debora, 589 Boyle, Matthew, 25 BP, 543 Bran Buds, 559 Branches Hockey, 200 Brat, Ian, 289 Bratz dolls, 283 Bravia TVs, 493 Bravo! Foods, 236 Breeze clothes steamer, 265 Brink's Home Security, 23 7 Bristol-Myers, 176 British Airways, 244,524,525 Brokeback Mountain, 76 Brooker, Katrina, 449 Brookstone, 376,433 Brown, John, 379 Brown, Stephen, 593 Brubaker, Harold, 331 Bruss, Jill, 599 Bryant, Kobe, 410 BtoB magazine, 172-73 Bud Light, 202,405 Budweiser, 100, 202, 268, 406,437, 446, 517,554 Buffet, Warren, 424 Buick, 222,410 Build-A-Bear, 6, 32-33 Bulbs.com, 482 . Bulgari, 342 Bulik, Beth Snyder, 280 Bulmash, Robert, 121 Burberry, 410 Bureau of Economic Analysis, 116 Burger King, 11,46,182, 190,343,397, 421-23,433,437,438,502,529,574

Burke, Steven, 457 Burns, Enid, 505 Busch, August IV, 406 Bush, George W., 329 Bush, Sophia, 156 Business Traveler News, 242 BusinessWeek, 32, 164, 165,2282-83, 284, 436,550 BusinessWeekAnterbrand, 550 Butler, Susan, 423 Butterball Turkey, 80,443 Buy.com, 345,382 BuyMusic, 345 Byerley, Robert, 114-16 BzzAgent, 408-09

C Cabbage Patch Kids, 33 Cabela's, 377, 378-79 Cadbury, 275 Cadillac, 14, 21, 203, 227 Cadillac Escalade, 203 Caesar's Entertainment, 114 Caesar's Palace, 50 CaffB Mocha, 218 California Online Privacy Protection Act (OPPA), 508

Callaway, 372 Calvin Klein, 235,437 Calyx & Corolla, 336, 494 Camay, 55,198 Camay beauty soap, 323 Campbell Soup Company, 56,57,101,103, 141,320,385,427,454,528-29 Canada Dry, 239 Canon, 179,518 Cantwell, Maria, 329 Capell, Kerry, 165 Capital CitiesIABC, 42 Capote, 76 Cardinal Health, 167,454 Carhartt, 139-40 Caribou Coffee, 43 Carnation milk, 543 Carpenter, George, 599 Carr, David, 526 Carrefour, 276, 367, 384, 565, 566 Cars, 471 Carters, 371 Cartier, 547 Cartoon Network, 138,400 Carty, Sharon Silke, 215 Carvel, 490 Cascade, 198, 233 Case, Jordan, 150,151 Casley, Steven, 304 Caspian, 121 Cassidy, Hilary, 249 Catalog Age, 485-86 Caterpillar, 160, 162, 288, 332-34,418, 523,527,529,543 Cause Marketing Forum, 85 CB Drug, 61 CBS, 19,400 CBS Sportsline, 513 CDW Corporation, 175,450-52,458 Cebrzynski, Gregg, 490 Cendant, 469-70 Centurion, 188 Chambers, John, 516 Champion, 189-90 Chandler, Clay, 567 Chanel, 94, 410 Chanel No. 5,438 Chang, Julia, 151 Chantico, 44 Chapman, Chappy, 334 Charles Schwab, 38,228, 24243,505 Charmin, 198, 213,443,444 Charmin Basic, 287, 323 CheapTickets.com, 469 Cheer, 198,199,268 Cheerios, 160, 226 Chef Williams 5 Minute Marinade, 258 ChemStation, 164-65 Chevrolet, 138, 214, 215, 224 Chevy Nova, 560 Chevy Tahoe, 92,137 Chevy Uplander, 138 Chex, 226 Chex Mix, 160 Chiang, Lynette, 14-15 Chicago Board of llade, 501 Children's Advertising Review Unit, 202, 508,576 Children's Online Privacy Protection Act (COPPA), 508 The Children's Place, 121 Chili's, 433, 434 Chinatex, 548 Chinese Basketball Association, 542 Ching, Daisy, 558 Chips Ahoy, 226,575

Name, Organization, Brand, and Company Index

Cho, Fujio, 93 Chon, Gina, 93 Chrysler, 121 Chrysler 300,404 Chuck Taylor All-stars, 248,249 Church of Stop Shopping, 578 Ciao Bella Ice Cream, 502 Cierge, 525 Cifra, 565 Cipolla, Lorin, 346 Circle K, 367 Circuit City, 209, 344, 501, 587 Cisco Systems, 173-74,450,465,495, 516 Citibank, 198 CITIC Ltd., 567 Citicorp, 54 CitiGroup, 119 Citroen DS-19, 538 City Year, 568 Clairol, 503 Clairol Herbal Essences, 137 Clancy, Kevin, 298 Claritas, 191-92 Clark, Maxine, 6,32-33 Clarkson, Kelly, 145 Clendenning, Alan, 567 Cliburn, Van, 295 Clickz StatstCyberAtlas, 202 Clift, Simon, 556 Clinique, 196 Clorox, 261 Clorox Wipes, 258 Clorox's ReadyMop, 489 CNN, 102,141 CNN Airport Network, 437 Coach, 94-96,372 Cobain, Kurt, 248 Coca-Cola, 4, 26,48,49, 66, 136,144, 193, 194, 206, 230, 231, 237, 238, 253, 268, 276, 315, 316, 342, 343, 348, 397,409,414,426,428,433,434, 437,439,440,44749,469,492, 496, 517, 530, 540, 543, 549, 550, 554,559,560,561,562,597,598-99 Coca-Cola Classic, 417 Cocoa Puffs, 576 Cohen, Andy, 477 Cohen, Ben, 588 Coldplay, 319, 512, 513 Cole Haan, 36 Colgate, 202, 229-30, 530, 543, 552 Colgate Actibrush, 263 Colgate-Palmolive, 239 Combs, Sean (P. Diddy), 489 Comcast, 435 Comedy Central, 191-92,400 Commerce Bank, 206 Commercial Alert, 137 Commuter Channel, 437 Companhania Brasiliera de Distribuicao, 566 Compeau, Larry D., 324 Compton, Jim, 313 CompUSA, 380 cornscore Networks, 102,512 Conley, Lucas, 33,444 Consort, 533 Consumer Product Safety C o d s s i o n , 82,84,275 Consumer Reports, 93,243,491,574 Consumers Union, 574 Contac, 325 Continental Airlines, 76, 303, 313 Converse, 36 Converse All-stars, 2 4 8 4 9 Conway, Wayne A., 171

Cook, Steve, 409 Coors, 560 Copeland, Douglas, 70 Copeland, Michael V., A9 Corbin, Brett, 73 Cosi, 62 CosmoGIRL, 138 Cosmopolitan, 503 Costco, 65, 209, 233, 367, 370, 372, 376, 377, 380, 381, 382, 384, 472, 517, 571,587 Council for Marketing and Opinion Research, 119 Council of American Survey Research Organizations (CASRO),122 Courtyard by Marriott, 229 Covered Bridge Festival, 444 CoverGirl, 198,413, 488, 558 CoverGirl Advanced Radiance, 339 Cox, Tina, 467 Cracker Jack, 254 Craftsman, 232 Craigslist, 512 Crain, Rance, 599 Crapsy Fruit, 560 Crayola, 517 Creativity, 398 Crest, 132, 207, 213, 223, 272,434, 552 Crest SpinBrush, 187,263,272,293 Crisco, 273 Crest Whitestrips, 272 Crispin Porter + Bogusky, 396-98, 400, 421,502 Crockett, Roger, 33 Croft, Martin, 560 Cross, Robert, 313 Crystal Clean, 230 Csaplar, Dick, 464 CSI, 430 Cub Foods, 390 Culligan, 236 Curry Pringles, 185 Curves, 69, 232 CVSfpharmacy, 339,373,459,472 The CW Television Network, 19 ,;!>=.;.

D'Agostino, 368 Dahl, Gary, 268-69 DaimlerChrysler, 228, 257, 258-59, 262-63, 385,404,455,476,477, 548,584 Dannon, 523 Darlin, Damon, 532 Dasani, 448, 560 Dash, Eric, 526 Datastar, 100 Datsun, 213 David Sunflower Seeds, 501 Dawn, 198 Dawn Direct Foam, 137 Day, Margaret, 14, 15 Days Inn, 469 Daytona 500, 2 DDB Worldwide, 446 de Guzman, Doris, 199 de Lisser, Eleena, 526 De Mesa, Alycia, 157 Death of a Salesman, 452 Defense Logistics Agency, 176 DeGeneres, Ellen, 188 Del Monte, 234 Del.isio.us, 135 Dell, 4-5, 18, 19, 24, 32, 54, 76, 97,138, 161,172,175-76,200,206,209, 251,309,317,318-19,321,324,

1-3

336,342,344,345,354,478-80, 481,482,488,489,490,495, 504, 523,524 Dell, Michael, 478-80, 504-05 Delta Air Lines, 173, 302, 323 DeNiro, Robert, 188 Department of Government Affairs, 176 Der Hovanesian, Mara, 526 Design, 224 Desperate Housewives, 430 Deutsche Bank, 275 DeWalt power tools, 230 Dial Media, 488 Dialog, 100, 103 Did-0-Matic Food Slicer, 489 Diamond, 387 Diet Coke, 417, 559 DiFabio, Angela, 499 Digg, 135 DiGiorno, 210 DiPiazza, Samuel, 593 Direct Marketing Association (DMA),481, 485,508-09 DirecTV, 429,493 Discovery Store, 433 Dish Network, 501 Disney. see The Walt Disney Company Disneyland Paris, 551 Ditucci, Richard, 457 DKNY, 527,550 Dodgeball, 217 Doherty, Jacqueline, 42 Do-It Best hardware, 373 Dolce & Gabbana, 372 Dole Classic Iceberg Salad, 226 Dollar General, 78, 188, 209 Dollar Tree, 188 Domino's Pizza, 437 Dongdan Sports Center, 541 Dora the Explorer, 235,236 Dora's Talking Dollhouse, 235 Doures, Joseph J., 171 Dove, 587,588-89 Dove Campaign for Real Beauty, 588-89 Dove Self-Esteem Fund, 589 Dow Jones News Retrieval, 100 Dow Plastics, 491 Downy, 198,213 Dr. J, 248, 249 Dr Pepper, 517 Dr. Seuss, 235 Drakkar Noir, 559 Dream Dinners, Inc., 74 Dreamworks, 433 Dreft, 198,199 Drucker, Peter, 5 Drumluk, Jennifer, 505 Dryel, 488 Dumaine, Brian, 538 Dun & Bradstreet, 100,102 Dunaway, Cammie, 106 Dunkin' Donuts, 31,182-84 DuPont, 160,288,297,409,453,458 DuPont Teflon, 161-62 Dyson, 208 '

1

!C =

Eagle Snacks, 529 Earthbound Farms, 88 Earthlink, 497 Eastman, George, 178 Eastman Kodak, 518 Eaton, 178 eBay, 25, 37, 38, 76, 319, 382,481,493, 495,497,504, 507, 512 Echostar, 493

1-4

Name, Organization, Brand, and Company Index

Eddiebauer.com, 85, 468-69 Edison, Thomas, 82 Edwards, Jim, 433 Edwardson, John, 451 Edy's, 4, 409, 410 Edy's Slow-Churned, 404 eGO Bikes, 278 Eisen, Mark, 371 Eisinger, Jesse, 477 Eisner, Michael, 41, 238 Ek Chor Distribution System Co. Ltd., 566 Electric Food Dehydrator, 489 Electrolux, 265-66, 560 Electronic Arts (EA), 256 Elgin, Ben, 180 The Ellen Degeneres Show, 76 Elliott, Stuart, 371, 411,433 Elmer's 3D Paint Pens, 258 Emerson, Ralph Waldo, 60 Encyclopaedia Britannica Online, 497 Engel, Ernst, 78 English Times, 68 Enron, 87, 329 Enterpise Service Quality Index (ESQi), 126 Enterprise Rent-A-Car, 124-26 Entourage, 43 3 Environmental Protection Agency (EPA), 79,84, 546,584,592 Envisage Technologies, 175 Epinions.com, 319 Epson, 179 Equate, 233 Era, 198,199 Ernst & Young, 506 Erving, Julius, 249 Esfahan, Elizabeth, 558 ESPN The Magazine, 436 ESPN XGames, 71 ESPN.com, 497,501 Est6 Lauder, 196, 218, 408, 490 Ethan Allen, 494 Etonic, 406 eToys.com, 497 Eureka, 265 European Commission, 82 European Economic Commission, 175 European Union (EU), 545, 585 Evans, Patti Freeman, 394 Everyday Living brand, 233 Evian, 218,313,447 Evian Brumisateur Mineral Water Spray, 313 Excedrin Tension Headache Cooling Pads, 258 Exeter Brands Group, 249 Expedia, 382,493,497 Experian, 191 Express, 156, 373 Exxon, 232 ExxonMobil, 193,276,329-31,543 ExxonMobil Speed-Pass, 81 Eyler, John, 283

F Facebook.com, 135 Factiva, 102 Fahey, Jonathan, 341 Fairfield Inn by Marriott, 229 Faletra, Robert, 457 The Fall of Advertising & the Rise of PR, 442 Family Dollar, 8, 78,188, 209 Farah, Samar, 137 Farley, Jim, 73 Farris, James, 45 7

C

Fast Company, 32 Febreze, 432-33 Federal Aviation Administration, 84 . Federal Bureau of Investigation (FBI), 202 Federal Business Opportunities, 176 Federal Communications Commission, 84 Federal Energy Regulatory Commission, 84 FedEx, 232,253,336,524 Federal Internet Crime Complaint Center (IC3), 507 Federal Trade Commission (FTC), 84, 102, 202, 234, 326, 330, 419, 487, 507, 508,572,577 Federated Department Stores, 339 FedEx Kinko's, 74-75 FedEx Logistics, 358 Feingold, Lily, 157 Fels Naptha, 268 Fendi, 94 Ferragarno, 342 Ferrari, 48,455,476 Fiat, 455, 476 Fiberglass, 232 Fidelity Investments, 70, 344, 498 Field & Stream, 192 Fiesta Fruity Pebbles, 185 50 First Dates, 217 FIJI Natural Artesian Water, 216-18 Finaly, Steve, 151 First Nation Peppermint tea, 590 Fish, Desiree, 526 Fisher Scientific International, 464 Fisherman's Friend, 470 Fisher-Price, 104 Fit produce rinse, 260 Fites, Donald, 332, 334 Flair fragrance, 339 Fleischmann's Yeast, 572 Flickr, 135 Fluhr, Jeff, 512-1 3 F.M.V. brand, 233 Fogdog, 234 Folgers, 213, 468 Food and Drug Administration (FDA), 82, 84, 227 Food Lion, 383 Foot Locker, 249 Ford Escape, 50 Ford Escape Hybrid, 401-02 Ford Expedition, 92 Ford Explorer, 275 Ford Motor Company, 8, 10,47, 50, 51, 88, 93, 275, 335, 336, 339, 342, 353, 401-02,410,432,455,476,530,

543, 561 .L .3-".1. Formica, 232 Fornell, Claes, 394 Forrester Research, 280, 536 Forth & Towne, 196,228 Fortune, 192,530,540,580 Fossil, 431 Fountain, Henry, 513 Four Seasons, 517,525 Fox network, 400 Frank About Women, 486 Frankel, Alex, 235 Frappuccino, 44 Freed, Joshua, 25 Freedman, David H., 437 Freeport-McMoRan, 333 Freshdirect.com, 394 Freud, Sigmund, 142 Freudenheirn, Milt, 326 Friedman, Thomas, 318-19,550 Friends, 448 Friends 2B Made, 33 ,.r

Frigidaire, 265 Frito-Lay, 275, 529 Frog Design, 256 Frontier Airlines, 303, 306 Froogle.com, 319,497 Frosted Flakes Cereal & Milk Bars, 471 Fmcco, Giuseppe, 265 Fruit of the Loom, 254 Fry, Arthur, 267 FTC, 521 FTD Florists, 469 Fuchs, Marek, 273 Fuji, 179, 491, 517 Fukusuke Corporation, 548 Funky Soy Sauce Pringles, 185 Furniture.com, 497 Fusion razors, 262 -7:

$7

. 2 .

Gain, 198,199 GAIN, 598 Gallup Management Consulting Group, 459 Gap, Inc., 120, 121,196, 228, 233, 342, 361,367,370,382,494,527 Garden.com, 497 Garfield, Bob, 423 Garrison, Brittany, 157 Gasol, Pau, 541 Gates, Bill, 100, 280 Gateway, 317, 376,467 Gator, 270 Gatorade, 9,434 Gay.com, 76 Gazeley, 567 GE, 24, 45-46, 55, 79, 80, 172, 175, 229, 231, 236, 264, 266, 329, 343, 349, 463,495,498, 519, 527, 529, 543, 573 GE Appliances, 351 GE CustomerNet, 351 GE Power Systems, 463 Geek Factory, 525 GEICO DIRECT, 18, 206,338, 34748, 424-25,434,481 Gelles, Jeff, 137 General Foods, 558, 580 General Mills, 75, 160, 226, 343, 416, 575-76,580 General Motors (GM),48, 76, 93, 196, 213-15,276,291,310,331,385, 417,433,455,476-77,488,489,

533,560 General Services Administration, 175 Gentile, Gary, 280 Gentlemen's Quarterly, 43 8 George clothing, 371 George Foreman's Mean Lean Grilling Machine, 489 Gerber, 149, 254 German, Jenny, 4 Gerstner, Eiten, 316 Gianatasio, David, 249 Giant Eagle, 287 Giant Food Dehydrator, 488 Giant Food Stores, 342, 393 Gibson Guitar, 81,297 Gies, Jason, 378 The Gillette Company, 260, 268, 310, 440, 531,558 Gillette Complete Skincare, 198 Gillette Fusion razors, 263 Gimbel, Barney, 304 Ginevan, Sean, A9 Ginobill, Manu, 541 Ginsu knives, 488

Name, Organization, Brand, and Company Index Giorgio Armani, 372, 525, 547 Girl Scouts of America, 27, 38 Girl Scouts Uniquely Me, 589 Glad Stand & Zip Bags, 258 Glamour, 503 GlaxoSmithKline (GSK), 325-26,5 72 GLH Formula Hair System, 489 Global 100, 585 Global Advisory Council, 64 Global Insight Inc., 215 GlobalTalk, 560 GM Express LT, 476-77 GMC Sierra, 192 Godiva, 232 Gogoi, Pallavi, 371,589 Gold medal flour, 160 Golden Corral, 186 Golden Grahams, 160, 226 Goldman, Kevin, 249 G o b n a n , Seth, 589 Gold's Gym, 69 Goodison, Donna, 249 Goodman, Drew and Myra, 88 Goodman, Fae, 157 Goodman, Shira, 205, 206 Goodyear, 1 6 0 , 1 6 1 , 1 7 5 , 3 3 9 , 3 4 0 4 Google, 93, 100, 206, 234, 235, 266, 382, 384,436,497, 501, 504,527 Gordon, Jeff, 4, 145, 409, 410 Gore-Tex, 377 Got Milk? campaign, 145, 560 Government Printing Office, 175 Grainger, 385, 389-90 Graman, Kevin, 532 Gramophone, 310 Grand Marnier, 294 Grand Theft Auto, 187 Graphic Communications Group, 180 Grass, Jim, 450 Gray, Steven, 576 Green Gear Cycling, 14 Green Mountain Energy (GME), 298-99 Greenberg, Karl, 73 Greenfield Online, 108 Greenwald, Todd, 458 Gretzky, Wayne, 410 Grewel, Dhruv, 324 Grillo, Victor Jr., 490 Grimes, William, 513 Groupe Danone, 523 GrowthPlus, 598 GSA, 176 Gschwandtner, Lisa, 296 Gucci, 94, 235, 320, 342, 372, 542, 547, 561 Guess, 527 Guest, Greta, 165 Gunthy-Renker, 489 Guy Laroche, 559 Guyer, Lillie, 73 .*..: ,, H&M, 342, 361,362,410 H&RBlock, 577 Haagen-Dazs, 160 Habitat Coffee, 85 Habitat for Humanity, 85 Haig, Matt, 505 "Hair in a Can," 488 Halliday, Jean, 417 Hallmark, 132, 197, 503, 517 Hamilton, Laird, 188 Hamm, Mia, 135 Hampton Inn, 517 Hardee's, 11, 574, 575 Harley Owners Group (H.O.G.), 16 -3

c.

Harley-Davidson, 6, 16, 32, 60, 128-30, 230,254, 522 Harousseau, Phillippe, 588, 589 Harrah's Entertainment, 112, 114-15, 484 Harrington, Lavonda, 137 Harris Bank of Chicago, 244 Harry Potter, 235, 551 Harry Potter and the Half-Blood Prince, 441-42 Hart, Stuart L., 583 Harte, Susan, 171 Hartford Financial Services Group, 455 Hamard Business Review, 315 Hasbro, 360 Hawkins, Del I., 105 Haworth, 590-91 HBO, 433 Head & Shoulders, 198 Hear Music, 44, 345 Heartland Computers, 458 Hebron, Anthony, 156 Hechingers, 61 Heffher, Nancy and Harvey, 242 Heineken beer, 558 Heinz, 226, 231,407 Heller, Laura, 25, 567 Helliker, Kevin, 379 Hendrix, Jimi, 248 Hennes & Mauritz, see H&M Herbal Essences, 198 Hermes Birkin Bag, 286 Hershey, 573 Hershey's Kisses, 237 Hertz, 126, 308, 343, 427 Herzog, Karen, 449 Hesseldahl, Arik, A9 Heublein, 314 Hewlett-Packard, 7,18,22,80, 161, 172-73,179,228,251,279,317,

336, 344, 403, 413, 450, 455, 456-57,491,503,518,529, 530,533 Highlander (Toyota), 69 Hill, Harold, 452 Hill, Patricia, 331 Hilton hotels, 491, 554 Hirsch, Sam, 573-74 Hirshberg, Gary, 522 Hitachi, 279 Hoffman, Thomas, 115 Hohner, 524 Hokey Pokey Elmo, 282-83 Holden, Reed K., 286 Holiday Inn, 339,343,373, 517, 524 Holmes, Dave, 512 Holson, Laura M., 42 Home Depot, 4, 38, 53, 55, 65, 85-86, 161, 186-87,209-10,343,347,356,

357, 376, 377, 380, 382, 443, 455, 515,530 Home Shopping Network (HSN),488 Honda, 72, 88, 92, 189, 213, 229, 492, 501 Honda Civic, 72, 93,492 Honda Element, 501 Honda Fit, 203 Honda Insight, 93 Honda Ridgeline, 501 Honest Tea, 27,588-90 Honey We're Killing the Kids, 406 Hoover's, Inc., 100, 102 Horizon Organic milk, 226 Hormel, 234 Horovitz, Bruce, 137 House, Martha, 60-61 House of Blues, 491

I- 5

Howard Johnson, 469 Howard, Theresa, 371, 589 Huang, Claire, 70 Huggies, 104, 237,438 Hughlett, Mike, 346 Hummer, 81, 92, 203 Hurd, Mark, 456,457 Hurley International, 36 Hyperion Solutions, 93 Hyundai, 93 "I Can't Believe It's Not Butter," 232 Iarns, 213, 488 Ibanez, 297 DM, 77,80,110,119,160,193, 206,231, 309, 317, 321, 355, 450, 453, 459, 488, 522,523, 527, 543 Ice Age II: The Meltdown, 471 Iceland Tourist Board, 223 Icelandair, 223 Icon, 164 IDEO, 224-25,256 Iger, Robert, 42 iGo, 113 IKEA, 162,164-65,194,357,384,422, 543,551,560 iMac, 250 IMS Health, 102 Inclusive Technologies, 77 Independent Grocers Alliance (IGA),373 Inditex, 362 Infinity, 229 Information Resources, Inc., 202, 103, 261 Infusium 23,198 ING DIRECT, 17 Ingersoll-Rand, 225 Inside the Egg Shell Electric Egg Scrambler, 489 Intel, 161, 209, 231, 250, 255, 279, 521, 530,576,580 Interactive Advertising Bureau, 102 ' Interbrand, 560, 587 International Advertising Festival, 398 International Chamber of Commerce, 119 International Code of Marketing and Social Research Practice, 119 International Consumer Electronics Show, 472 International Rectifier (IR), 460-61 Internet Crime Complaint Center, 202 Interplak, 293 Interpublic Group of Companies, 276 Interspar, 566 Interstate Bakeries, 508 Intimissimi, 156 Intuit, 508 INVISTA, 161-62 Invoke Solutions, 107 IPEX, 156 iPod, 135, 218, 251, 252, 346, 371, 376, 492,521,527 Irish Spring, 230 Iron City Beer, 141 Isla, Pablo, 361 Island Michael Kors FIJI Fragrance, 218 I'tchik Herbal Tea, 590 iTunes, 251,344, 345,436,492 ivillage, 187, 502, 503 Ivory Bar Soap, 198 Ivory Snow, 198,199, 203 IiI

J. Crew, 315 J. Mendal, 16

1-6

Name, Organization, Brand, and Company Index

Jack Nicklaus golf clubs, 372 Jackson Hewitt, 577 Jacobs, Jim, 483 Jaffe, Sam, 437 Jaguar, 308 James, LeBron, 35, 409,410, 549 Japan Tobacco, Inc., 554 Jarrett, Dale, 4 Jawbone, 235 Jaworski, Bernard, 518 JC Penney, 78,233,368,370,376,446, 469,486 J.D. Power and Associates, 102, 214 J.D. Powers Initial Quality Study, 151 Jean-Georges, 216 Jeep, 437,440 Jeffers, Michelle, 249 Jell-0, 232, 558 Jell-0 Pudding Pops, 437 JetBlue, 232, 235, 302, 303, 306, 323,409, 410-12,434 Jewel Food Stores, 393 Jewel (singer), 513 Jewell, Mark, 538 Jewel-Osco, 390 Jif peanut butter, 273,432 Jiffy Lube, 373 Jobs, Steve, 250-52 Joel, Billy, 295 Joga.com, 384 Johansson, Lennart, 265 John Deere, 200-201, 270 John Hancock Mutual Life Insurance Company, 593 Johnson &Johnson,11-12, 76, 276, 520, 521,522,543 Johnson, Sam T., 462 Johnson's Baby Shampoo, 543 Jones Soda, 48,49 Jordan, Michael, 248, 541 Jose Cuervo, 433 Journeys, 249 Joy Dishwashing Detergent, 198, 323 Joy, 32 1 J.P. Morgan Chase, 132-33 Jupiter Research, 102 Just for Me, 533 Juszkiewicz, Henry, 81 JVC, 238 JWT,410,411

K Kg Advantix, 434 KaBoom!, 85-86 Kachersky, Luke, 316 Kahn, Greg, 121 Kahn Research Group, 120-21 Kang & Lee Advertising, 75 Kang, Stephanie, 249 Kao Corporation, 256 Kasler, Dale, 346 Keegan, Paul, 346 Keegan, Robert, 341 Kelleher, Herb, 10, 241, 302-04 Kelleher, Kevin, 341 Kellogg, 133, 153, 233, 253,416, 471, 558, 559,575,580 Kelly, Alfred F. Jr., 525 Kelly Blue Book, 491 Kelly, Gary, 304 Kelly, Jim, 19, 160 Kelly, Ron, 458 Kendy, William F., 289 Kennedy, Bud, 379

Kennedy, John F., 81, 581 Kenneth Cole, 437 Kenseth, Matt, 230 Kenwood, 279 Kermit the Frog, 402 Keys, Alicia, 489 KFC, 49,550,555,560 Kharif, Olga, 538 Kia, 50,138 Kia Spectra, 191 Kiddy's Class, 362 Kidman, Nicole, 438 Kiley, David, 93,437 Killinger, Kerry, 515-16 Kim, Heyong Min, 316 Kimberly-Clark, 104, 234, 237, 323, 348, 503,527 King, Chris, 49 Kingsford Charcoal Briquets, 315 Kirin breweries, 554 Kirkland Signature, 233 Kirkman, Kevin, 124,126 Kirkman, 268 KitchenAid, 85,349,519 Kix, 226 Kleenex, 232 h a r t , 61,236-37,287,370,381,531,587 Knight, Phil, 34, 36, 248 Knightly, Keira, 436 Knopfler, Mark, 345 Koch, Jim, 434 Kodak, 169,175,178-80,232,299,454, 491,503,517 Kohl's, 78, 367, 370, 414 Komatsu, 332, 529 Kontzer, Tom, 465 Koranteng, Juliana, 42 Kosdrosky, Terry, 477 Kotler, Philip, 274 Kotula, Angela, 3 KPMG, 307 Kraft, 44, 136,185, 226, 233, 343, 348, 415,416,428,432,492,575,580 Krantz, Marshall, 243 Krapp, 560 Krasny, Michael, 450,451-52 Krispy Kreme, 356 Kroc, Ray, 62,64 Kroger, 88, 188, 233, 337, 342, 364, 366, 367,393,416 Kroger Brand, 233 Kryptonite locks, 225 Kudrow, Lisa, 448 Kuhlman, Arkadi, 17 Kukoc, Tony, 541 L .. Kulha, Shari, 165 Kumar, v., 22 Kurczewski, Nick, 73 Kushner, David, 93 L.A. Gear, 248 Laabs, Jennifer, 249 LadiesJHomeJournal, 138 Lafley, A. G., 6, 401 Lajdziak, Jill, 214 Larnont, Judith, 465 Land Rover, 433,488 Landor Associates, 235 Landy, Heather, 379 Lane Bryant, 376 Lang, Marie-Claude, 561 Larsen, Ralph, 12 Las Vegas Convention and Visitors Authority, 76-77

LaSalle Bank, 6 Laser Logic, 574, 576 LaserJet, 403 Lasswell, Mark, 560 Latterman, Peter, 490 Lavagna, Gina, 136,137 Lawson, Jacquie, 197 Lazare, Lewis, 449 LazerWriters, 250 Lazo, Shirley A., 25 Le Bernardin, 85 Lear Corporation, 455,476-77 Lee Jeans, 408 Legh, Chris, 434 LEG0 Company, 200,255-56,377 Lemon, Katherine, 57 LendingTkee, 432,533 Lennox, Matt, 392 Lenovo, 9,317,450 LensCrafters, 342 Leonard, Stew, 20 Lever 2000,207,337 Levi Strauss, 75, 78, 141,355, 371 Levine, Rob, 346 Levi's, 32, 232, 320, 561 Levitt, Theodore, 573 Lewis, Katherine Reynolds, 331 Lewis, Regina, 183 Lexicon Branding, 560 LexisNexis, 100,102,103 Lexus, 14,19, 20, 72,150-51, 208,229, 232,350,407, 524, 525,529 The Lexus and the Olive Tree (Friedman), 550 LG Electronics, 279, 556, 557-58 Libby, Tom, 215 Lidor, Danit, 180 Lifestyles Spa, 377 Lifetime Television, 138, 187 Ligos, Melinda, 465 Lillian Vernon, 486 The Limited, 121,156, 233, 370, 373 Limited Brands division, 156,373 Lincoln, Abraham, 81 Lion's Gate, 44 Lippert, Barbara, 411 Liquid Seats, 512 Liquidlogic Kayaks, 433 Listerine, 407 Liz Claiborne, 371 Liz Lange, 233 L.L. Bean, 20, 318,483,486,494, 504 Logitech, 533 Logo network, 76 Lohan, Lindsay, 145, 156 Loman, Willy, 452 Longo, Don, 371 Lopez, Jennifer, 489 L'Oreal, 187 Louis Vuitton, 259-60, 342 Love, Richard, 22 Loveman, Gary, 115 Lowe, Frederick H., 526 Lowe's, 53,113, 161, 210, 347, 382,455, 530 Lucky, 156 Lucky Charms, 576 Lufthansa, 244 Luhrmann, Baz, 438 Lukken, Walter, 330 Lurie, Nicholas, 316 Luvs, 198, 323 Luxottica, 342 Lycos, 234 Lyons, Daniel, 115 Lyric Opera Company, 27

Name, Organization, Brand, and Company Index !$g fi Ji

M&M Mini's, 258 M&Ms, 236,407 M.A.C. Cosmetics, 196 Mac, 141,190-91,250,376 Mac OS X, 250-51 MacArthur, Kate, 49,423,449 MacLean, Hadley and Doug, 189 Macy's, 236-37,339,367 Mad Science Group, 373 Madden, John, 467 Magic English, 68 Mahogany cards, 132 Maid in Manhattan, 489 Majeski, Brian T., 296 Malcolm Baldrige National Quality Award, 150,243 Malik, Om, A9 Mall of America, 377, 378, 380 Mangalindan, Mylene, 505 Mango, 361 Manson, Marilyn, 196 MapInfo, 191 The March of Dimes, 408 Maresca, Bob, 537, 538 Margolis, Elana, 394 Marketing Research Association, 122 Marketwatch.com, 500 Marks and Spencer (M&S),278 Marlboro, 434,554 Marquis, 248 Marr, Merissa, 42 Marriott, 5, 104-05, 229, 240, 244,469,470 Marriott ExecuStay, 229 Marshall's, 371 Martha Stewart Everyday, 236-37 The Martin Agency, 424 Martin, Neal A., 115 Mary Kay Cosmetics, 338, 347,413 Maslow, Abraham, 143 Massimo Duti, 362 MasterCard, 50, 87, 205, 276,437 MasterCard World card, 188, 525 MasterFoods, 236 Matrix, 427 Matsushita, 238 Matz, Timothy, 157 Max Factor, 198 Maxwell House, 372,434 Maynard, Micheline, 304 Mayo Clinic, 240 Maytag, 377,434 Maytag Neptune Washer, 590 Mazda, 491 McCall, Melissa, 410 McCann Erickson Worldwide, 205,439 McCann Worldgroup, 276 McCartney, Paul, 70 McDonald, Duff, 243 McDonald, Richard and Maurice, 62 McDonald's, 11,43,46,49, 62-64,66, 105, 121,182, 202, 206,230,231, 244, 245, 253, 260, 261, 287,320, 336, 343, 349, 373, 384, 398,410, 421,440,491, 527, 529, 540, 542, 543,549,550,556,568-70,573,

575,598 McDowell, Edwin, 243 McGrady, Tracy, 145 McInerny, Vivian, 157 McKay, Betsy, 449, 599 McKesson Corporation, 16,206, 390 McMath, Robert, 254 McWilliams, Bruce, 316 McWilliams, Gary, 25

Mead Inteli-Gear learning system, 258 MeadWestvaco, 311 Meijer, 367, 369 Meineke Mufflers, 373 Men in Black, 433 Menzer, John, 567 Mercedes Maybach, 526 Mercedes-Benz, 14,193-94, 203, 208, 228,231,437 Mercedes-Benz Fashion Week, 448 Merrill Lynch, 244 Merry Maids, 373 Method home products, 234 MetLife, 532 Metro, 384 Metro 7,371 Metropolitan Washington Council of Governments, 9 Mexx, 361 MGM, 244 Miami Heat, 249 Michaels, 380 Michelin tires, 543 Mickey Mouse, 41,550,551 Microsoft, 19, 24, 35,38, 55,100,112,119, 231, 250, 252, 345,443,450,495, 503, 507,508, 511, 515,'518,521, 524,527,533,549,550,576,580 Microsystems Engineering Company, 289 Mikasa, 367 Miller, Arthur, 452 Miller Beer, 254 Miller, Lara, 379 Miller Lite, 397, 437 Millman, Joel, 326 Milton Bradley, 446 The Mind of Mencia, 191 Ming, Yao, 541, 542 Minolta, 437 Mission Impossible 111,433 Mist Stick, 560 Mistubishi Pajero SUV, 559 Mitchell, Alan, 417 Mitchell, Mike, 465 Mitsubishi, 555, 559 Mitsubishi Montero, 559 Mizrahi, Isaac, 26 MLB, 33,513 Molly McButter, 533 Molson, 397 Monocryl, 522 Monsanto, 38-39 Monster Thickburger, 11, 574, 575 Monster.com, 437 Mont Blanc, 208,418 Moody, Michael, 570 Morissette, Alanis, 513 Morrison, David, 157 Morrison, Terri, 171 Morrow, Keith, 457 Morse, Samuel, 82 Morton Salt, 237 Morvitz, Thomas and Vicki, 316 Mos Def, 249 Moss, Kate, 410 Motel 6, 232, 543 Motions, 533 Motorola, 421,489, 518, 550 Moulin Rouge, 438 Mountain Dew, 71, 210 Mountain Dew Code Red, 197 Mountain Dew Livewire, 197 Mower, Sarah, 362 Mr. Clean, 6, 272-73,434,488 Mr. Clean AutoDry Carwash, 272-73

1-7

Mr. Clean Magic Eraser, 272 Mr. Clean MagicReach, 264,272 Mr. Handyman, 373 Mr. Microphone, 488 Mrs. Dash, 533 MSN, 497 MTV, 26, 70, 141, 194, 400, 549, 550 Mucha, Thomas, 490 Munro, Laura, 120 The Muppets, 235 The Music Man, 452 Musicland, 345, 346 Musicmatch, 344,345 MusicNow, 345 Mutschler, Gary Steffora, 280 MyFamily.com, 503 Myser, Michael, 206 mySimon.com, 319 MySpace.com, 135 t5

5

:I

Nabisco, 460, 503 Nacara Cosmetiques, 202 Nader, Ralph, 580,581 Nagle, Thomas T., 286 Napster, 345, 521 NASCAR, 2-4,6,33,409,410,443 Nash, Elizabeth, 362 Nath, Mahendra, 423 National Arts Education Initiative, 418 National Association for Stock Car Auto Racing. see NASCAR National Association of Real Estate Brokers, 132-33 National Basketball Association (NBA), 54042 National Do-Not-Call Registry, 487 National Enquirer, 435, 438 National Fluid Milk Processors Education Program (MilkPEP), 145 National Gay Newspaper Guild, 76 National Hardware Show, 60 National Public Radio, 492 National Record Mart, 345 National Semiconductor, 173 Naturally Preferred brand, 233 Nature Valley, 160 Nature's Gift, 275 Naurnan, Matt, 93 Nautica, 162 Nautilus Bowflex, 489 NBA, 33,248,513,551 NBA Europe Live, 542 NBC, 329,400,441 NCAA, 4 Neale, Jon, 567 NEC Corporation, 279,464-65 Needleman, Rafe, A9 Neeleman, David, 410 Neff, Jack, 137, 273,490 Neiman Marcus, 16,78,188,367,368, 486,520 Neiman Marcus Last Call Clearance Centers, 371 Nelly, 145 Nescaf6, 343 Nestea, 343 Nestl6, 26, 343,492, 543, 599 Nestle Purina, 492 Netflix, 531 NeuFlex, 522 New Product Showcase and Learning Center, 253, 254 New York rimes, 497,512 New York Yankees, 22, 550

-8

Name, Organization, Brand, and Company Index

.ewman, Randy, 295 kwsweek, 435,436,438 leXT computers, 250 lexTag.com, 319,501 lextel, 421,490 lextel Cup, 4 FL, 2,4, 33,513, 597 [HL, 33,513 rick at Night, 432 lickelodeon, 138, 235-36 Eckerson, Stephen, 280 Iicklaus, Jack, 372 Iicorette, 325 Iielsen Media Research, 109 like, 34-36, 37, 187, 194, 206, 222, 228, 230,232,24849, 326,384,409, 410,428,437,446,453, 489, 520, 527,536,549,550, 583 Jikon, 144, 145, 299 Jiles, Robert, 42 JineMSN, 511 Jintendo, 187, 503, 551 Jissan, 93, 229 Jivea, 565 Jokia, 179, 231, 524,543, 551, 558 Joon, Chris, 180 Jordstrom, 8, 54, 78, 190, 368, 376, 520, 524,525,526 Jordstrom Rack, 371 Jorthwest Airlines, 245, 306 dorthwest Mutual Insurance, 532 dovartis, 234 dowitzki, Dirk, 541 doxzema, 137, 198 P D Group, 537 Qubrush Anti-Bacterial Toothbrush Spray, 258 qudie fruit juice, 475 qutella, 410 qutridelight, 598 VutriStar, 598, 599 3 at Home, 138 3, The Oprah Magazine, 222 3cean Spray, 517 Ictagon, 268 Idell, Patricia, 589 3dwalla, 443 3ff 5th, 371 3FF! bug spray, 232 The Ofice, 433 Office Depot, 4,172,205, 206, 276,472, 497-98,504,574 OfficeMax, 206,380 Ogilvy & Mather, 421, 589 Olay, 198,213, 260 Olay Provital, 187 Old Navy, 196,228 Old Spice, 198, 273,488 O'Leary, Michael, 306-08 Olive Garden, 203 Olle, 165 Ollinger, Cole, 326 Olympic Games, 496 Olympus Fashion Week, 448 Omnicom Group, 439 . 100 Black Men, 133 The Onion, 573 Online Privacy Protection Act (OPPA),508 OPEC, 331 Opel, 215 OPEN: Small Business Network, 192-93 The Oprah Winfiey Shaw,433 Oprah's Angel Network, 222 Oprah's Book Club, 222

Oprah's Boutiqes, 222 Oracle, 19, 112, 232 Oral-B, 320 Orange Glo, 489 Orbitz, 76 Oreo cookies, 575. Oriental Land Company, 554 O'Rourke, Michael, 33 Ortega, Amancio, 361 Ortiz, Jon, 346 Oscar Mayer, 434 Oscar Mayer,Lunchables, 575 Oshkosh Truck, 197,201 Otis Elevator, 5.43 Out, 76, 77 Out&about.com, 76 Overstock.com, 326, 371,495 OxiClean, 489 0~~10,427 Oxygen network, 138,187 Oysho, 362

p Packard, David, 18 Palm pilots, 335 Pampers, 132, 190,198,213, 272, 316,437 Panasonic, 238, 279 Panera Bread, 49, 62,284 Pantene, 132,198,213,272 Paoletla, Michael, 423 Papa John's, 191 Pappas, Charles, 437 Parenting, 438 Parilla, Julieta, 132 Park, Andrew, 115 Park Place Lexus, 150,151 Parkay, 407 Parkinson, Andrew and Thomas, 392-93 Parmley, Suzette, 115 Parsons, Andy, 279 Patagonia, 27 Paternie, Patrick, 73 Paterson, Thane, 93 Pathmark, 394 Patton, Tammy, 243 Paul Mitchell, 433 Pavlik, John, 464 Payless Shoesource, 121 PB teens, 189 Peach 00-la-long tea, 589-90 Peanuts, 235 Peapod LLC, 392-94 Peeps, 189 Penske Logistics, 358 People, 436 .. Pepsico, 4,48, 107,133, 197, 209,410, 437,446,44749,455,517,529, 530,550 Pepsi Twist, 197 Perdue, 204, 226 Perdue, Frank, 560 Pereira, Joseph, 121 Perez, Antonio, 179-80 Perrier, 447 Perry, Caroline, 266 Pert Plus, 198 Petco, 375 Peters, Jeremy W., 151 Pets.com, 497 Petsmart, 315, 367 Philips, 279, 558 Philips Lighting's Earth Light, 590 Physique shampoo, 198 The Picture People, 438 Pierce Manufacturing, 201 Pillsbury, 160, 543 (

Pink, 156-57 Pinson, Bobby, 513 Pioneer Electronics, 279, 432 Pioneer Hi-Bred International (PHI), 288-89 Pipher, Mary, 589 Pixar Animation Studios, 250, 471 Pizza Hut, 98, 373 Placek, David, 560 PlanetFeedback.com, 496 Planetout Inc., 76 Playstation 3, 18, 280 Pocket Fisherman, 488 Pokemon, 551 Pokphand, C. P., 566 Polaroid, 207, 350 Polo by Ralph Lauren, 372 Pontiac Bonneville, 538 Poo, 560 Pop Secret, 160 Popeil Pocket Fisherman, 489 Popeil, Ron, 488,489,490 Popov, 314 Porsche, 203, 294 Porsche Boxster, 294 Porter, Chuck, 421 Porter, Michael, 523 Post, 185 Post-It Notes, 267 Pottery Barn, 48, 188 Pottery Barn Kids, 188-89 Potty Palooza, 444 Powerade, 409,410 Power Information Network, 215 Power Rangers, 551 Powerpuff Girls, 235 Prada, 94 Pratts, Candy, 248 Premier Dell.com, 495 Prescott, LeeAnn, 199 Press, Jim, 92 Pret a Manger, 62 Pretty Shield Foundation, 590 Price Club, 381 Price, Sol, 381 PriceGrabber.com, 319 Pricehe.com, 319, 496 PriceScan.com, 319 PricewaterhouseCoopers (PwC), 593 Prince Felipe, 361 Pringles, 213 Private Selection, 233 PRIZM NE systems, 191 Procter & Gamble (P&G),4, 5, 6,.15, 18, 54, 55, 75, 81, 89, 99,132, 135, 136-37,185,187,190,196,198-99, 213,224-25,233,238,260,261, 262,263-64,266,272-73,287,293,

323,339,343,351,355,356,357, 383, 392,401,416,426,427,432, 433,434,444,453,459,488,489, 498, 502, 503, 520, 522, 523, 527, 531,552,558,573,597,598, 599 Product Watch, 432 Progresso, 427 Pro-Line, 533 Pronto, 265 Propel Fitness Water, 9 ProQuest, 100,103 Provigo, 390 Prozac, 560 Prudential, 206 Prudential Insurance Company, 254, 532, 543 Pschitt, 560 Publishers Clearing House, 506

'

Name, Organization, Brand, and Company Index Publishing and Broadcasting Limited (PBLJ,511 Publix, 367 Puffs, 198 Pull & Bear, 362 Pyrca, 367 e4 Qantas, 243 Quaker Oats, 230 Quality Value Channel (QVC),488,490-91 Quasar, 238 Queer Eye for the Straight Guy, 76 Quicken Loans, 494-95 Quietcomfort, 538 Quiznos, 490 QVC, 488,490-91 :I-,

:q Li The Rack, 508 Radioshack, 525 Rainforest Alliance, 81 Ralph Lauren, 315,372 Ramada Inn, 343,469 Ramada Limited, 209 Ramona, Joey, 248 Ramstas, Evan, 558 Rao, Venki, 463 Ray-Ban, 4, 342,410,433, 437 Raymond, Lee, 329 Rayport, Jeffrey F., 518 RAZR phone, 421 RBC Royal Bank, 139 RCA, 278,543 Read, Jeani, 589 Rechtin, Mark, 73 Recipe dog food, 437 Red Bull, 9 Red Cross, 221 Reebok, 36,248, 540 Reed, Stanley, 266 Reeves, Rosser, 207 REI, 377,491 Reinhardt, Andy, 180 Relnartz, Werner, 22 Relska, 314 Renaissance Hotels, 105, 229 Residence Inn by Marriott, 229 Reverend Billy, 578 Revlon, 38, 219, 339,488 Revlon Vital Radiance, 339 Revson, Charles, 219 Rhapsody, 521 Ricks, David A,, 171, 560 Ries, Laura, 235 Right Guard, 273 Ringwald, Molly, 248 The Ritz-Carlton Hotels, 38, 206, 208, 232, \l

240,242-43,515,517,524,525,526

R.J. Reynolds, 202, 253, 580 Roadway Logistics Services, 358 Rocasolano, Letizia Ortiz, 361 Rochdale Securities, 32 Roche Bros., 394 Rock Bottom Restaurants, 408 Roddick, Anita, 442 Rolex, 140, 224,431 Rolling Stone, 248 Rolling Stones, 511, 512 Rollins, Kevin, 480 Rolls-Royce, 224,455,476, 548, 560 Ronco, 488,489 Ronnegard, Evamaria, 165 Room & Board, 287 Roosevelt, Franklin Delano, 81 Roots, 410

Roper ASW, 405 Rose Bowl, 513 Rosenberg, William, 182 Rotella, Steve, 516 Rowling, J. K., 441, 551 Royal Ahold, 384,393 Rubik's Cube, 269 Rugrats, 235 Rust, Roland T., 57 Ryanair, 306-08 Ryder System, 358 Ryssdal, Kai, 115 i i i

.:. saab, 9 Safeguard, 198 Safeway, 15, 55, 61, 88, 367, 368, 373, 393,394,416,459,472, 560 Sains, Ariene, 266 Sainsbury's, 566 Saks Fifth Avenue, 233,249,276,368, 376,486,526,554 Sales & Marketing Management, 476 Salgueiro, Alex, 423 Sally Beauty Supply, 533 Salvation Army, 6, 27,406 Sam's Choice, 233 Sam's Club, 209, 340, 367, 372, 394, 565, 566 Sarnsung, 26,100, 255, 279,320,324, 339, 587 Samuel Adams, 434 Samuelson, Robert J., 331 San Francisco Zoo, 27 Sanders, Peter, 243 Sand-Freedman, Lisette, 156 Sanyo, 279 Saporito, Bill, 371 Sara Lee Corporation, 94, 234 Sarbib, Jean-Louis, 597 SAS software, 112 Saturday Night Live, 222 Saturn, 213-15,287 Saturn Vue Greenline, 93 Save-A-Lot, 390 Schadler, Ted, 280, 536 Schaich, Ronald, 284 Schendler. Brent, 251-52 Schiller, Gail, 433 Schmeltzer, John, 576 Schmelzer, Randy, 157 Schoen, John W., 331 Scholastic Inc., 441 Scholz, Hanna, 15 Schultz, Howard, 43 Scion (Toyota), 71, 72-73 Scooby DOO,235 Scorsese, Martin, 550 Scotch Tape, 232 Scotchguard, 592 Scott, 501 Scott, Kim, 265 Scott, Lee, 283 Scott Towels, 323 Scotts Turf Builder, 437 Scrubs, 436 Sears, 75, 76, 324, 341, 367, 368, 373, 382, 482,488,489,494,524,527,554 Sears/Kmart, 370 Sebenius, Jame K., 171 Secret, 187, 198, 213 Securities and Exchange Commission, 102 Sega, 551 Segrest, Jen, 165 Segway, 253,522 Seiko, 179, 372

1-9

Seiyu Ltd., 567 Selden, Larry, 24 Sena, Joe and Paula, 532 Sensodyne, 325 Serlen, Bruce, 243 Sermon, Thomas T., 560 Serres, Chris, 346 Serv-a-palooza, 568, 570 ServiceMaster, 488 Serwer, Andy, 296, 304 Sesame Street, 235 7-Eleven, 367, 369,373,457 7UP, 517 Seventh Generation, 88 Seward, John, 379 Sexy Sport, 156 Shamrock Farms, 137 Shankman, Peter H., 525 Sharp, 279 Sharper Image, 428,486 Sheben, Jeffrey, 157 Shell, 369 Shirouzu, Norihiko, 93 ShopNBC, 488 Shop.org, 408 ShopperBak, 120,121 Shopping.com, 382 Shoprite, 394 Shopzilla, 382 Showtime Rotisserie & BBQ, 488,489 Shox, 326 Shiners Hospitals for Children, 174 Siegel, David, 302-04 Siemens, 24, 26 Sierra Mist, 197 Silk Soyrnilk, 48, 232, 234,433 Silk, Stacy, 265 Silver, Spencer, 267 Simester, Duncan, 316 Simmon, Richard, 254 Simmons Market Research Bureau, 76,102 Simple Shoes, 235 Simpson, Jessica, 489 Sinclair, Upton, 580, 581 Singapore Airlines, 37-38, 206, 306,434 Sinopec, 343 Sitch, Kelly, 121 Six Flags, 311 Skin Bracer, 230 Skin-So-Soft, 256 Slammers diary brands, 236 Slurpee, 369 SLVR phone, 421 Small Business Administration, 102 Smartwater, 234 Smirnoff, 314 Smith, Evan, 331 Smith, Lynn, 433 Smucker's, 254 Snapfish, 518 Snapper, 309 Snapple, 437 Snickers, 236 Snook, Bill, 463 Social Marketing Institute (SMI), 223 Soflens, 290 Softsoap, 230 Solley, Sam, 560 Somers, Suzanne, 489 Song Airlines, 302, 323 Sonicare, 293 Sony, 16,18, 26, 76,136,193, 194,278-80, 299,308,310,321-22,345,371,410,

413,437,450,469,493,499, 518, 525,542,543,551,558,583,587 Sony Connect, 521

1-10

Name, Organization, Brand, and Company Index

Sony VAIO, 558 Sony Walkman, 527 Soup at Hand, 101 Southwest Airlines, 6, 10, 109, 197, 209, 241,302-04,306,323,344,483,

516,524,531 Spade, Kate, 302 SpaghettiOs, 101 Spears, Britney, 489, 513 Speed Stick, 230 Spice Market, 526 Spider-Man Triple Action Web Blaster, 235 Spiegel, 318, 486 Spin, 192 SpongeBob Squarepants, 235,236,575 Sportmart, 209 SpringHill Suites by Marriott, 229 Sprint Nextel, 4 Sprite, 197, 375, 459, 410, 440 SRI Consulting, 140-41 Srivastave, Joydeep, 316 St. Ives, 533 St. Joseph Aspirin, 132 Stacey, E. Craig, 417 Standard Oil, 232,580 Staples, 4, 204, 205-06,367, 382,433,457 Star Fox Adventure, 503 Starbucks, 43-44,49,81,113,141, 182-84,208,218,232, 345, 369, 372,433,437,442,490,549, 550 Starburst, 236 Starter clothing, 249 Starter Official sneakers, 36 Starwood Preferred Guest, 469 Static Guard, 533 Stat-USA, 102 Stecklow, Steve, 513 Steelcase, 193 Stein, Jason, 410 Steinberg, Brian, 423 Steiner, Christopher, 49 Steiner Optical, 197 Steinway & Sons, 294, 295-96 Stern, David, 540, 542 Stevens, Stacey, 184 Stew Leonard's, 20 Stewart, John, 230 Stewart, Tony, 4 Stila cosmetics, 196 Stojakovic, Peja, 541 Stoll, John D., 93 Stonyfield Farm, 522 Stop & Shop, 393 Stop-N-GO,367 Storch, Gerald, 283-84 Stout, Erin, 289 Straberg, Hans, 265 StUbHub, 511-13 Style, 224 Suave, 427 Subaru, 9, 76,93 Suburbia stores, 565 Subway, 66,120-21,203,373,490,575 Sub-zero, 519 SugarTwin, 533 Sullivan, Mike, 151 Sun Maid raisins, 387 Sun Microsystems, 495 Sunbeam, 560 Sundown Sunscreen, 437 Sunglass Hut, 342,421 sunkst, 226, 227, 387 Sunsilk hair care, 432 SunTrust Bank, 228,236 Super 8,469

Super Bowl, 2,202,263,402,405,406,414, 422,430,432,444,501,512,588 Super Kmart Center, 367, 370 Superama, 565 Superman Mighty Muscles Suit, 235 Supermercados Amigo, 566 SuperTarget, 367 SuperValu,'390 Sure, 198 Suri, Sanjay, 599 Swartz, Jeffrey, 568-70 Sweat, Ed, 3 4 Sweet Charity, 433 Swiffer, 560 Swiffer CarpetFlick, 224-25, 272 Swiffer WetJet, 89, 489 Swing-N-Slide, 85 Swiss Army, 237,491 Symantec, 450 Szydlowski, Larry, 476

1' Tabasco, 268 Taco Bell, 20,287 Tae-Bo, 489 TAG Heuer, 222,372 Tagamet, 325 Tagliabue, John, 362 Talen, Bill, 578 Tam, Pui-Wing, A9,457 Tarnagotchi, 551 Target, 4,5,49, 50,55,65, 78, 113, 188, 200, 205, 233, 240, 249, 283, 284, 315, 339, 347, 367, 369, 370, 371, 375, 384,416,437,491, 515, 520, 529,530,565 Tashiro, Hiroko, 180 Taylor, Catherine, 423 Taylor, Chuck, 248 Taylor, Jack, 126 Tea Tree Oil Facial Wash, 232 Technics, 238 Ted Airlines, 323 Tedeschi, Bob, 513 Teflon Fabric Protector, 162 Tenet Healthcare, 174 Tenser, James, 526 The Terminal, 433 Tesco, 384, 566 Texas Instruments (TI), 253, 289-90, 523 Thickburger, 575 Thomaselli, Rich, 465 Thompson, Ross, 171 Thompson, Stephanie, 576 Thomson Dialog, 102 3M, 11,229,252,254-55,266-67,591-92 Ticketmaster, 511, 512 L3 Ticketmaster.com, 319 Tide, 15,132, 190, 198, 199, 203, 213, 230,231,232, 268,272,316 Tide with Bleach, 261, 427 Tide with Downy, 531 Timberland, 520, 568-70 Eme magazine, 252,438,550 Time Warner, 19, 68,435 Time-Life, 489 Timex, 350,431 Tiplady, Rachel, 362 TiVo, 430, 432,493 TJ Maxx, 367,371,377 TJX Companies, 371 TLC, 406 Toastmaster, 43 7 Tobias, Jim, 77 Today Show, 441-42

Todo Dia, 566 Tokyo Disneyland Resort, 554 Tommy Hilfiger, 162, 235, 527 Tony the Tiger, 434 Toon Disney, 138 Top Shop, 361 Toro, 437 Toshiba, 279, 280, 371,450 Total, 160,226 Touch Generation, 187 Touch Media Group, 504 Tourneau, 490 Tower Records, 345 TownePlace Suites by Mmiott, 229 Toyota, 5,13, 26,4647,69, 71, 72-73, 88,92,121,136,151, 190, 208,213, 228-29,231,238,293,329,350,

455,476,543 Toyota Camry, 218,551 Toyota Prius, 13,92-93, 203, 590 Toyota Scion, 228, 238 Toyota Yaris, 203, 293 TOYS'R' US, 282-84,364 TrackPass, 3 Trader Joe's, 233 Trans World Entertainment, 345 Transportation Security Agency, 175 Trap-Ease America, 60-61 ?f.avelocity,382 Travelodge, 469 Treacy, Michael, 524 Tremor, 135,136-37 TRESernrne, 533 Triport headphones, 538 ?kix, 226,437,575,576 Tropical Forest Foundation, 418 Trottman, Melanie, 304 Trout, Jack, 417 Tru-Green, 488 Trump, Donald, 222 TRUSTe, 508 Tsiantar, Dody, 33 Tucker, Shirley, 470 Tu11, Donald S., 105 Tums, 325 Tupperware, 256 W k , Doug, 115 Twner, Melanie, 233 Tweeter, 316 TwentySomething, 157 Twinkies, 369 Tyco, 87 Tylenol, 12,48,405, 522 Tyler, Joe, 329, 505 m a n , Daniel, 465 I!

i

:1

it

kXC

Ueberroth, Heidi, 542 Underwater Adventures, 377 Underwood, Ryan, 49,81 Unilever, 96,99,100, 196, 207, 233, 276, 337,432,433, 527,531, 552, 556, 587,588-89 United Airlines, 303, 323,433 United Auto Workers (UAW), 213 United Parcel Service (UPS), 4, 19, 158-60,206,583-84 United Way, 597 Universal Studios, 543 UPN, 19,443 UPS. see United Parcel Service (UPS) UPS Supply Chain Solutions, 358 Urban League, 133 Urban Outfitters, 78, 344 US. Air Force, 164

Name, Organization, Brand, and Company Index US Airways, 302-04,303 U.S. Army, 4 U.S. Census, 102 U.S. Census Bureau, 116,194 U.S. Commerce Department, 175 U.S. Commodity Futures Trading Commission, 330 U.S. Defense Department, 371 U.S. Department of Justice, 325 U.S. Global Investors, 331 U.S. International Trade Commission, 561 US. Navy, 488 U.S. Patent and Trademark Office, 100,102 U.S. Postal Service, 28, 297, 385,452 U.S. Security and Exchange Commission, 100 U.S. Small Business Administration, 116,175 U.S. Southern Shrimp Alliance, 561 U.S. Time Company, 350 USA Today, 405 USAA, 484 Useem, Jerry, 371 Utz potato chips, 315

"j

I.,

Valdes-Dapena, Peter, 93 Value Clubs, 566 Value Innovation Program (VIP) Center, 255 Van Ameringen, Marc, 598 Van Camps Pork & Beans, 315 van der Pool, Lisa, 249 van Stolk, Peter, 49 Vans, 136 Vans Triple Crown, 71 Varvatos, John, 249 Vascellaro, Jessica E., 505 Vasilash, Gary S., 93 Veg-0-Matic, 488, 489 Venus, 440 Verizon, 222, 238, 500 Vermont Teddy Bear Company, 32 Versace, 372 Vespa, 189 Veteran Affairs Medical Centers, 174 Veterinary Pet Insurance (VPI), 531, 532 Viacom, 76 Victoria's Secret, 121, 156-57, 232, 373 Victorinox, 237 VideoMining, 121 ViewSonic, 450 Viking, 208,224,294,519 Vildozo, Guido, 215 W S , 565 Virgin Atlantic Airlines, 306, 396,422 Virgin Records, 345 Virign Atlantic Airways, 303, 522 Visa, 50, 188, 500, 525 VisaUSA, 496 Vistakon, 521 Vitango, 598-99 VNU NV, 117 Vocalpoint, 135,136-37 Vodafone, 308 Vogue, 156,248, 342,361,438,503,580 Volkswagen, 19, 135,397,446 Volvo, 167,203, 204, 208, 232,455,492 Von Bergen, Jane M., 157 von Hoffman, Constantine, 273 Vongerichten, Georges, 216 Vranica, Suzanne, 423 VW Beetle, 248

y$i " 3

Wade, Dwyane, 249 Waffle Trainer, 34 Waldbaun's, 394 Wales, Dan, 392 Walgreens, 179, 337 Walker, Elaine, 423 Wall Street Journal, 24,438, 504 Wallace, Rusty, 4 Wid-Mart,4,8, 15,24,38,43,45,53,55, 65, 75, 78,81, 96, 97, 113,133,161, 162,185,187,188,198-99,205,

207, 209, 229, 233, 236,249,276, 282-83,284,287,293,309,324,

329, 337, 339, 340, 341, 342, 343, 345, 347, 349, 351, 354, 355,356, 357,361, 364,366, 367,368,369, 370-71,375,377,380,381,382,

383, 384,416,442,459,475,484, 495, 515, 516, 517, 520, 523, 524, 526,527,529,530,531,533, . 565-67,571,573,578,581,584, 587 Wal-Mart Supercenter, 353, 367, 550 Walsh, Chris, 304 The Walt Disney Company, 4,6,38,4142, 68, 206, 219, 230, 231, 235,238,471, 488,489,503,527,549,554 The Walt Disney Studios Park, 551 The Walt Disney World Resort, 492 Walton, Sam, 4,381 Wanamaker, John, 412 Wandersleben, Richard, 184 Ward, Ted, 424-25 Wardell, Jane, 326 Warner Bros., 279 Warner, Fara, 477 Warner Home Video, 280 Warren, Susan, 304 Washington Mutual, 70-71, 514-16, 524 Wariserman, Todd, 137,273 Water by Culligan Profile Performance, 236 Wave'radio, 538 The WB, 19 WD-40 Company, 270-71 WE tv, 187-88 WeatherChannel.com, 501 Weathers, Natalie, 157 Weber grill, 437 Webster, John S., 115 Webvan, 253,394 Wegman's, 241 Weight Watchers, 185 Welch, David, 93 Welch, Jack, 4 5 4 6 Welitzkin, Paul, 477 Wellbeing, 392 Wells, Melanie, 137 Wells-Fargo, 268 Wendy's, 46, 66,421, 575 Wertkauf, 566 Western Auto, 373 Western Union, 517 Westin Hotels, 207 WestJet, 99 Weston, Liz Pulliam, 532 Wetherell, Donna, 136, 137 Werner, Les, 156 Wheaties, 160,222,226 Whelan, Tensie, 81 Whirlpool, 204, 265,349, 519 Whirlpool White Magic, 549 Whitaker, Rick and Rose, 230 White Barn Candle Company, 374

1-31 1

White Cloud, 233 White Wave, 48 Who Wants to Be a Millionaire?, 551 Whole Foods Market, 364-66 WholeHealthMD reference library, 365 Whopper, 398 Wie, Michelle, 409,410 Wiersema, Fred, 524 Wikipedia, 135 Wild Planet, 155 Wilkinson, Stephan, 296 Williams, Serena and Venus, 145 Williams, Vanessa, 489 Williams-Sonoma, 367, 373, 526 Willson, Meredith, 452 Wilson, Dave, 151 Wilson, Woodrow, 81 Wine.com, 497 Winfrey, Oprah, 138,222,278 Winnie the Pooh, 235 Winslet, Kate, 188 Wise, Michael Z., 296 Wolcott, Jennifer, 505 Wolfschmidt, 314 Wonder, Stevie, 248 Wood, Mary Beth, 156 Woods, Tiger, 206, 222, 410 Woodyard, Chris, 73 The World Bank, 547, 597 World of Warcraft, 187 World Trade Organization (WTO), 544-45 World Wildlife Fund, 434 WorldCom, 87 Wuebben, Ted, 4 d

-

Xerox, 179, 459 Xerox Corporation Equipment Remanufacture and Parts Reuse Program, 584 XM Satellite Radio, 44 1C

Yahoo!, 106, 234, 345, 382,484,497, 501, 502,505 Yahoo! Music Unlimited, 521 Yahoo! Shopping, 319,497 Yamaha, 16,297 Yankelovich Monitor, 86-87, 103 Yaohan, 384 Yee, Amy, 180 Yellowstone National Park, 41 YMCA, 27 Yoplait Yogurt, 160,237 Young & Rubicam (Y&R),421 YouTube, 135,136,206 7

zahn,Paula, 295 Zara, 342,361-62 Zarley, Craig, 457 Zegna, Ermenegildo, 525 Zeidler, Sue, 280 Zeithamal, Valerie A., 57 Zest, 198 Zhao, Yilu, 532 ZhiZhi, Mengke, 542 Zima, 560 Zimerman, Krystian, 296 Ziploc, 232 Zisa, Anna, 190 Zody, 590-91 Zoo Doo Compost Company, 313

1-1 2

Subject Index

Note: Italicized page numbers indicate illustrations. #I U'L

Access by vulnerable or unauthorized groups, 507 Accessible market segments, 194 Account development executives, A-34 Account executives, A-34 Account planners, A-34 Accumulators, 139 Acquisition, 253, 580 Action programs, A-8-A-9 Actionable market segmentation, 194 Actual products, 219 Adapted marketing mix, 556 Adaptive criteria, 349 Administered VMS, 343 Adoption process, 150-51 Advertainment, 432 Advertising costs of, 571 defined, 426 developing strategy, 428-38 evaluating, 438-39 international decisions, 4 4 0 4 1 jobs in, A-33-A-34 online, 500-502 organizing for, 439 as promotion tool, 398, 414 setting budgets, 428 setting objectives, 426-28 Advertising agency, 439 Advertising appeals, 431 Advertising budget, 428 Advertising media, 435-38 Advertising objectives, 426-28 Advertising promotion, 418 Advertising specialties, 471-72 Advertising strategy, 428-38 Affiliate programs, 501-02 Affordable method, 412 African American consumers, 132-33 Age and life-cycle segmentation, 187 Age compression, 157 Age, life cycles and, 139 Agents, 387, 388 AIDA model, 405-07 A10 dimensions, 140 Air carriers, 355-56 Airtruck, 356 Alliances, 501-02 Allowance pricing, 312 Alternative evaluation, 148 Alternative media, 436,437 Americanization, 549-5 1 Analysis, 52 Angel customers, 24 Appeals, types of, 405 Approach, 466-67 Art directors, A-33 Asian American consumers, 133 Assessments, of marketing information needs, 97-98 Atrnosphere(s) as media type, 409 in store, 376 Attitudes, 14445, 149 Attributes, 223-25 '

Audience engagement, 438 Audience quality, 438 Audiovisual materials, 443 Augmented products, 220 Automobile Information Disclosure Act, 327 Q ' L;Y

Baby boomers, 69-70 'Banners, 500 "Barnacles,"~22 Barter, 548 Basing-point pricing, 318 Behavioral segmentation, 386, 189-91 Beliefs, 14445, 232 Benchmarking, 519 Benefit segmentation, 189-90 Blanket contract, 172 BIo~s,495-96 Boston Consulting Group Approach, 3 9 4 0 Brand contract, 401 Brand conviction, 146 Brand equity managers, 239 Brand experiences, 6 Brand familiarity, 146 Brand management, jobs in, A-34-A-35 Brand personality, 141 Brand switching, 147 Branded entertainment, 432 Branded variants, 316 Brand(ing) brand equity, 230-3 1 development, 237-38 extensions, 237-3 8 managing, 238-39 name selection, 232-33 new, 238 in PLC concept, 268 positioning, 231-32 productlservice decisions and, 225-26 sponsorship, 233-37 Break-even analysis, A-13 Break-even pricing, 291-92, A-12 Break-even volume, 292 Brick-and-mortar companies, 24,493, 496 Broadcast media, 409 Brokers, 387, 388 Budgets, 53, A-9 Builders, 139 Business analysis, 259 Business buyer behavior business buying process,~'i69-72 defined, 160 e-procurement, 172-74 influences on, 167-69 institutions and government markets, 174-76 participants in process, 166-67 types of buying situations, 163-66 Business buying process, 160 Business, legislation regulating, 82-84 Business markets, 66,160-62,192-93 Business portfolios, 3 9 4 4 Business promotion tools, 472-73 Business services, 222 Business to business (B2B) online marketing, 495 Business-to-business (B2B) companies, 416 Business-to-business (B-to-B)marketers, 160 Business-to-business e-commerce, 24 Business-to-consumer (B2C) companies, 416

Business to consumer (B2C) online marketing, 494-95 "Butterflies," 22 Buyback, 548 Buyer decision process evaluation of alternatives, 148 information search, 1 4 7 4 8 need recognition, 147 for new products, 150-52 postpurchase behavior, 149 purchase decision, 1 4 8 4 9 Buyer-readiness stages, 404 Buyers, 166, 482 Buyer's rights, 582 Buying behavior complex, 1 4 5 4 6 dissonance-reducing, 146 habitual, 1 4 6 4 7 variety-seeking, 147 Buying center, 166 Buying unit, 162 Buzz marketing, 135, 136,408 By-product pricing, 311 q-,

-= Call plans, 462-64 Call reports, 465 Cannibalization, A-25 CAN-SPAM Act, 505 Capital items, 222 Captive-product pricing, 310-1 1 Careers, in marketing, A-27-A-36 Caring capitalism, 27 Cash discounts, 312 Cash rebates, 316 Cash refunds, 471 Cash-and-carry wholesalers, 387 Catalog marketing, 485-87 Category killers, 367, 369 Causal research, 101 Central America Free Trade Agreement (CAFTA),546 Central business districts, 379 Cents-off deals, 471 Chain ration method, A-17 Chain stores, 372 Channel conflicts, 339 Channel differentiation, 206 Channel levels, 324-27, 338 Channels of communication, 407-09 Channels within nations, 562 Character licensing, 235 Checkout scanners, 109 Chief marketing officer (CMO),55 Chief privacy officer (CPO),119 Children, as influence on buyer behavior, 138 Chinese Americans, 74 Chinese demographic, 68-69 Citizen-action publics, 67 Clayton Act (1914), 323, 352 Click-and-mortar companies, 24,493, 496,497-98 Click-only companies, 493,496,497 Closed-end questions, 109 Closing, 468 Club marketing programs, 16 Co-brandling, 233, 236-37 Code of ethics, AMA, 593, 594-95

Cognitive dissonance, 149 Commercial noise, 580

Subject Index Commercial sources, 148 Commercialization, 262-63 Commission merchants, 388 Communicability, 152 Communication adaptation, 559 Communication effects, of an ad, 439 Communications channels of, 407-09 choosing media, 407-09 collecting feedback, 411-12 designing a message, 405-07 determining objectives, 404-05 identifying target audience and, 404 process, 402-04 selecting message source, 409-10 Community shopping centers, 380 Company, other groups in, 65 Company resources, 201 Company sales force, 348 Comparative advertising, 427 Comparison pricing, 326 Compatibility, 152 Compensation international trade and, 548 of salespeople, 461-62 Competitive advantage, 204, 207, 516 Competitive intelligence, 99 Competitive intelligence system, 522 Competitive marketing strategies, 516, 522-34 Competitive review, A-4 Competitive-party method, 412-13 Competitor map, 518 Competitor-centered company, 534 Competitors analysis of, 516-22 assessing, 518 in company's microenvironment, 66-67 identifying, 517-18 marketing strategies of, 201 myopia of, 517 new-product ideas from, 256 reactions to price changes, 322 selecting which to attack or avoid, 520-22 strategies and pricing by, 299 Complex buying behavior, 1 4 5 4 6 Complexity, 152 Component materials, 222 Concentrated marketing, 197 Concept development and testing, 257-58 Concept testing, 257-58 Conformance quality, 224 Connectors, 136 Consistency, of product mix, 230 Consumer behavior buyer decision process, 147-52 characteristics affecting, 1 3 1 4 5 international, 153 model of, 130-31 types of, 1 3 0 4 7 Consumer buyer behavior, 130 Consumer products, 220-21 Consumer Product Safety Act (1972), 275 Consumer to business (C2B) online marketing, 496 Consumer to consumer (C2C) online marketing, 495-96 Consumerism, 581-82 Consumer-oriented marketing, 586-87 Consumers changing spending patterns of, 78 expectations of, 149 marketing's impact on, 571-77 markets, 66, 130 promotions, 469,470-72

reactions to price changes, 321-22 rights of, 582 Contact methods, 105-08 Content sponsorships, 501 Contests, 472 Contextual advertising, 501 Continuity, 438 Continuous innovation, 529 Continuous inventory replenishment systems, 356 Contract logistics. See Third-party logistics (3PL) provider Contract manufacturing, 554 Contractual VMS, 3 4 2 4 3 Contribution margin, A-14 Control, 55-56 Control issues, 349 Controls, A-9 Convenience products, 220-21 Convenience stores, 367, 368-69 Conventional distribution channel, 340 Conventions, 472 Conversion rates, 120 Copy, in an ad, 435 Copywriters, A-33 Core beliefs, 86-89 Core benefits, 219 Corporate chains, 372, 373 Corporate identity materials, 443 Corporate image advertising, 222 Corporate marketing ethics policies, 591 Corporate Web site, 499 Coshopping, 157 Cost-based pricing, 285, 288, 290-91 Cost-plus pricing, 290-91, A-12 Costs at different production levels, 289-90 as function of production, 290 types of, 288-89 Counterpurchase, 548 Countertrade, 548 Coupons, 470-71 Creative concept, 431 Cross-functional, cross-company teams, 357 Cues, 144 Cultural environment of company, 86-89 global marketing and, 548-51 Cultural factors, affecting consumer behavior, 131-34 Cultural pollution, 579-80 Culture, 131 Current marketing situation, A-2-A-5 Customer business development (CBD) teams, 459 Customer databases defined, 483 direct marketing and, 483-84 Customer equity, 21-22, 231 Customer evangelists, 14 Customer intimacy, 524, 525-26 Customer lifetime value, 20 Customer management, 9 Customer management organization, 55 Customer perceived value, 13 Customer relationship management (CRM), 16-18,45,112-13,468 Customer relationships changing nature of, 16-18 management of, 13-16 partner relationship management, 18-1 9 Customer sales force structure, 454-55 Customer satisfaction, 13-1 5 Customer value, 7, 13

Customer value analysis, 520 Customer-centered company, 534 Customer-centered new-product development, 263-64 Customer-driven companies, 10-11 Customer-driven marketing strategy designing, 8-12 differentiation and positioning, 203-10 introduction, 184-85 market segmentation, 185-94 as marketing strategy, 48, 50 target marketing, 195-203 Customers angel vs. demon, 24 capturing value from, 19-22 loyalty and retention of, 20 market types, 66 needs, wants, and demands of, 6 new-product ideas from, 255 retaining and growing, 17-18 Customer-segment pricing, 313 Customer-value marketing, 587 2$ !L

4

Data mining, 1 1 2 Data smog, 96 Data warehouses, 112 Database marketing, 507-08 Database services, 103 Deceptive practices, 572-73 Deceptive pricing, 326 Deciders, 166 Decision process, 162 Decline stage, 271-73, 274 Decoding, 403 Deficient products, 590 Delighting the customer, 150-5 1 Demand chain, 335 Demand curve, 297 Demand management, 9 Demand, pricing and, 294, 296-99 Demands, 6 Demarketing, 9 Demographic environment, 68-77 Demographic markets, 43 Demographic segmentation, 186, 187-88 Demography, 68-77 Demon customers, 24 Demonstration, 467 Department stores, 367, 368 Depth, of product mix, 230 Derived demand, 161 Descriptive research, 101 Design, 224-25 Design for environment (DFE) practices, 584 Differences, promoting, 207 Differentiable market segmentation, 194 Differentiated marketing, 196-97 Differentiation as competitive strategy, 523 defined, 50,185 positioning and, 203-10 service, 24344 Digital age, 23-24 Digital coupons, 492 Digital direct marketing technologies, 491-93 Direct exporting, 553 Direct investment, 555 Direct marketing customer databases and, 483-84 customer relationships and, 17 defined, 415,480 forms of, 484-93 growth and benefits of, 481-83

,

Subject Index Direct marketing-continued integrated, 505-06 new model, 480-81 online, 493-505 as promotion tool, 399 public policy issues in, 506-09 Direct marketing channels, 338 Direct-mail marketing, 484-85 Direct-response television marketing (DRTV),488-91 Direct-retailing channels, 381 Disabled customers, 77 Disadvantaged consumers, 577 Discount stores, 367, 370 Discounts, 312 Disintermediation, 344-47 Display media, 409 Dissonance-reducing buying behavior, 146 Distinctive competencies, 38 Distribution centers, 354 Distribution channels. See also Marketing channels global marketing and, 562 Distribution, costs of, 571 Distribution review, A-4-A-5 Distributor brand, 233 Distributors new-product ideas from, 256 as wholesalers, 387 Diversification, 44 Divisibility, 152 Doha Round, 545 Do-not-call legislation, 487-88 Dot-coms, 24,493,497 Downsizing, 44 Drive, 142-43, 144 Drop shippers, 387 Dumping charges, 561 Dynamic pricing, 318-19 Early adopters, 152 Early majority, 152 Echo boomers, 71 Economic communities, 545 Economic conditions, 299 Economic environment of company, 77-78 global marketing and, 5 4 6 4 8 Economic factors, 193 Economic situation, as influence on buyer behavior, 140 Editorial quality, 438 Elastic demand, 298 Electronic data interchange (EDI), 356 E-mail, direct marketing and, 485, 503-04 Emotional appeals, 405-06 Encoding, 403 End user, 533 Engel's laws, 78 Enlightened marketing, 586-91 Entrepreneurial marketing, 522-5 3 Environmental concerns, 79 Environmental factors, for business buyers, 168 Environmental sustainability, 583 Environmentalism, 582-85 Environmentally sustainable strategies, 79-80 E-procurement, 172-74 E-tailers, 497 E-tailing, 381-82 Ethics AMA code of, 591-93,594-95 customer relatinoships and, 26-27

marketing intelligence and, 100 in marketing research, 118-22 political environment and, 84-86 Ethnographic research, 104-05 Evaluation, 473 Evaluation of alternatives, 148 Events, 409 ' Everyday low costs (EDLC), 565 Everyday low pricing (EDLP), 287,377, 565 E-waste, 80 Exchange controls, 544 Exchanges, 7 Exclusive dealing, 352 Exclusive distribution, 348, 352 Exclusive territorial agreements, 352 Execution styles, 432-34 Executive summary, A-2 Expense reports, 465 Experience curve, 290 Experiencers, 141 Experiences, 6-7, 219 Experiential retailing, 377 Experiential sources, 148 Experimental research, 105 Experiments, 106-08 Exploratory research, 101 Exporting, 552-53, 563 External idea sources, 255-56 External information sources, 102 External stimuli, 147 Extranet links, 172 Extranets, 113 -

p Factory outlets, 367, 371-72 Fads, 268-69 Fair competition, 419 Fair Packaging and Labeling Act (1966), 227 Families, 72-74, 138 Fantasy style, 434 Fashion, 268 Fast fashion, 361-62 Fax mail, 485 Federal Food, Drug, and Cosmetic Act, 275 Federal Trade Commission Act (1914), 227 Feedback, 403,411-12 Field sales force, 457 Financial intermediaries, 66 Financial publics, 67 Fishyback, 356 Fixed costs, 288,291-92, A-11 Fixed fee, 311 i Fixed prices, 318 Fluctuating demand, 162 FOB-origin pricing, 317-18 Focus, 524 Focus group interviewing, 106, 107 Follow-up, 468 Format, of an ad, 434 Formulated marketing, 523 Four C's of marketing, 51 Four P's of marketing, 12,47, 50-51, 130,163 Fragmentation, 400 Franchises, 342, 372,373 Free goods, 472 Free Trade Area of the Americas (FTAA), 546 Free trade zones, 545 Freight-absorption pricing, 318 Frequency marketing programs, 16 Frequency, of message, 435-38 Ti

i

Frontal attack, 531 Full-line forcing, 352 Full-service retailers, 368 Full-service wholesalers, 386, 387 Functional discounts, 312 Functional organization, 55 ."

2ITi

.,.. -.2

Games, 472 Gatekeepers, 166 Gateway marketing, 157 Gay consumers, 76-77 Gay, lesbian, bisexual, and transgender (GLBT) market, 76 Gender segmentation, 187-88 General Agreement on Tariffs and Trade (GATT), 5 4 4 4 5 General line wholesalers, 387 General merchandise wholesalers, 387 General need description, 169 General public, 67 Generation X, 70-71 Generation Y, 71 Generational marketing, 71-72 Geodemographic segmentation, 191 Geographic market, 533 Geographic organization, 55 Geographic segmentation, 185-87,193 Geographical markets, 43 Geographical organizations, 563 Geographical pricing, 317-18 Getting Started customers, 139 GLBT market, 76 Global firm, 543 Global marketing cultural environment, 548-51 current state of, 5 4 2 4 4 direct investment, 555 economic environment, 54648 exporting, 552-53 international trade system, 54446 joint venturing, 553-55 original choices, 563 political-legal environment, 548 program choices, 555-62 reasons for, 551-52 Global organizations, 563 Globalization, 25-26 Goals, setting, 38-39 Good-value pricing, 287 Government intervention, 79 Government markets, 66,174-76 Government publics, 67 Green marketing programs, 583 Green movement, 79-80 Gross margin percentage, A-20 Group interviewing, 106 Groups, 134-37 Growth, 43 Growth stage, 270,274 Growth-share matrix, 39

M Habitual buying behavior, 1 4 6 4 7 Handling objectives, 468 Harmful products, 573-74 Harvesting the product, 273 Headline, in an ad, 434-35 Hierarchy of needs, 143 High prices, 571-72 High-low pricing, 287, 377 High-pressure selling, 573 Hispanic consumers, 131-32 Home shopping channels, 488 Horizontal conflict, 339 Horizontal marketing systems, 343

Subject Index Humor, in advertising, 405-06 Hybrid marketing channels, 343 Hypermarkets, 369 &'

Idea generation, 254-56 Idea screening, 256 Ideas marketing, 223 Illustration, in an ad, 434-35 Image differentiation, 206 Image style, 434 Immersion groups, 106 Impact, of message, 435-38 Implementation, 53-54 Inbound distribution, 352 Inbound telephone marketing, 487 Incentives, 473 Income, changes in, 78 Income distribution, 78,547 Income segmentation, 188 Income statement, A-18, A-19 Independent off-price retailers, 367, 371 Indirect attack, 531 Indirect exporting, 553 Indirect marketing channels, 338 Individual factors, for business buyers, 169 Individual interviewing, 106 Individual marketing, 200-201 Industrial distributors, 348, 387 Industrial economies, 78, 547 Industrial products, 221-22 Industrializing economies, 547 Inelastic demand, 162, 298 Influencers, 166 The influentials, 135 Infomercials, 488,489-90, 506-09 Information search, 1 4 7 4 8 Informative advertising, 427 Ingredient labeling, 582 Innovation, 253,255,266 Innovation management system, 264 Innovative marketing, 587 Innovativeness, differences in, 151-52 Innovators, 141 Inside sales force, 457 Inside-out perspectives, 10 Institutional markets, 174 Integrated direct marketing, 505-06 Integrated logistics management, 356-58 Integrated marketing communications (IMC),399402,418-19 Integrated marketing mix, 50-51 Integrated marketing program, 12 Intensive distribution, 348 Interactive marketing, 242 Interactive TV (ITV), 492-93 Intermarket segmentation, 193-94 Intermediaries, 348-49, 562 Intermodal transportation, 356 Internal databases, 98-99 Internal idea sources, 254-55 Internal marketing, 24142 Internal publics, 67 Internal stimuli, 147 International advertising, 440-41 International consumer behavior, 153% International distribution channels, 349-50 International divisions, 563 International marketing. See Global marketing International marketing research, 117-18 International markets, 66, 193-94 International pricing, 320

International product and services marketing, 275-76 International subsidiaries, 563 International trade system, 54446 Internet catalog marketing and, 486 defined, 23-24 direct marketing and, 480-81 e-procurement, 172-74 fraud on, 506-07 logistics transportation and, 356 nonstore retailing and, 381-82 surveys, 106-08 Internet marketing, 84 Internet service providers (ISPs),497 Interpersonal factors, for business buyers, 168-69 Interstitials, 500 Intranet, 113 Intrapreneurial programs, 254-55 Intrepreneurial marketing, 523 Introduction stage, 269-70, 274 Invasion of privacy, direct marketing and, 507-08 Inventory management, 354-55 Inventory turnover rate, A-20 Issues, A-6-A-7 Jobbers, 387 Joint ownership, 554-55 Joint venturing, 553-55 Junk e-mail, 503-04 Just-in-time logistics systems, 354-55 Kiosk marketing, 492 Labeling, 227 Laggards, 152 Late majority, 152 Leading adopters, 135 Learning, 144 Learning curve, 290 Length, of product mix, 229-30 Lesbian consumers, 76-77 Less-for-much-lesspositioning, 209 Licensed brand, 233 Licensing, 235-36, 554 Life-cycle stages, 139 Lifestyle as advertising execution style, 433 as influence on buyer behavior, 140 Lifestyle centers, 380 Lifestyles of health and sustainability (LOHAS) market, 88 Limited-line store, 367 Limited-service retailers, 368 Limited-service wholesalers, 386, 387 Line extensions, 237 Line filling, 229 Line stretching, 228-29 Local marketing, 198-200 Local publics, 67 Location of new product launch, 263 retailers and, 378-79 wholesalers and, 389 Location pricing, 313 LOHAS market, 88 Long-run average cost (LRAC) curve, 290 Long-run welfare, 11 Loss leaders, 316 Loss-leader pricing, 315-16

1-1 5

Low-interest financing, 317 Loyalty status, 190-91

& Macroenvironment cultural environment, 86-89 defined, 64 demographic environment, 68-77 economic environment, 77-78 forces in, 68 natural environment, 79-80 political environment, 82-86 technical environment, 80-82 Madison & Vine, 431,432-33 Magnuson-MossWarranty Act (1975), 275 Mail questionnaires, 106 Mail-order wholesalers, 387 Maintenance, repair, and operating (MRO) products, 385,389-90 Major media types, 435-36 "Make and sell" philosophy, 10 Management contracting, 554 Management, of marketing process, 52-56 Manufactured materials, 222 Manufacturer's agency, 348 Manufacturer's agents, 387 Manufacturer's brand, 233-34 Manufacturer's sales branches and offices, 388 Manufacturer-sponsored retailer/wholesaler franchise system, 342 Market challenger strategies, 527, 530-31 Market challenges, 527 Market description, A-3 Market development, 43 Market differentiation, 48, 50 Market environment, 38 Market followers, 527 Market follower strategies, 527, 531 Market growth rate, 3 9 4 0 Market leaders, 527 Market leader strategies, 527-30 Market management organization, 55 Market modification, 270 Market nichers, 527 Market nicher strategies, 527, 531-34 Market niches, 48 Market offerings, 6-7, 2 18-1 9 Market penetration, 43 Market pioneer, 270 Market potential, A-16 Market rollout, 263 Market segment, 48 Market segmentation behavioral, 186, 189-91 business markets, 192-93 defined, 8, 48, 184 demographic, 186,187-88 effective, 194 geographic, 185-87 international markets, 193-94 psychographic, 186,188-89 using multiple bases, 191-92 Market share, 428, 529-30, A-19 Market targeting, 48,185 Market variability, 201 Market-centered company, 534 Marketing. See also specific types analysis, 52 budget, 53 careers in, A-27-A-36 defining, 4-5 department organization, 54-55 impact on other businesses, 580-81 impact on society as a whole, 577-80

1-16

Subject Index

Marketing. See also specific typescontinued of international products and services, 275-76 legislation affecting, 83 new landscape of, 23-28 pIEtK&lg, 52-53 regulating, 581-86 sample financial analysis, A-11-A-26 social criticisms of, 571-81 Marketing audit, 55 Marketing channels behavior and organization of, 338-47 defined, 335 design decisions, 347-50 management decisions, 350-5 1 nature and importance of, 335-38 number of levels, 338 public policy and distribution decisions, 351-52 Marketing communications mix, 398-99 Marketing concept, 10-11 Marketing control, 55-56 Marketing dashboards, 57 Marketing environment defined, 64 macroenvironment, 67-89 microenvironment, 64-67 responding to, 89 Marketing implementation, 53-54 Marketing information analyzing, 111-1 3 assessing needs, 97-98 developing, 98-100 distributing and using, 113 introduction, 96-97 marketing research, 100-111 other considerations, 113-22 Marketing information system (MIS), 97 Marketing intelligence, 99-100 Marketing intermediaries, 65-66 Marketing logistics defined, 352 functions, 354-56 jobs in, A-36 management of, 356-58 nature and importance of, 352-53 system goals of, 353 Marketing management, 8,9-12 Marketing mix, 5,12, 50, 389 Marketing mix modification, 271 Marketing myopia, 6 Marketing organization, A-8 Marketing plan contents of, 54 purpose and content of, A-1 relationships and, A-2 research and, A-1 sample, A-2-A-9 Marketing process, 5, 29 Marketing research collecting primary data, 103-10 defined, 100, A-8 developing the plan, 101-02 gathering secondary data, 102-03 implementing the plan, 110 international, 117-18 interpreting and reporting the findings, 111 jobs in, A-36 objectives, 102 process, 101 public policy and ethics in, 118-22 in small businesses and nonprofits, 114-1 7

Marketing return on investment (ROI), A-22 Marketing return on sales (ROS), A-21 Marketing services agencies, 66 Marketing strategy customer-driven, 48, 50 defined, 47 ' development, 258-5 9 statement, 258-59 Marketing tools, A-7 Marketing Web site, 499 Market-oriented mission statements, 37 Market-penetration pricing, 309 Markets, defined, 7-8 Market-skimming pricing, 308 Markets-of-one marketing, 200 Markup chain, A-13 Markup pricing, 291, A-12 Markups, 572, A-13 Maslow's hierarchy of needs, 143 Mass customization, 200, 200-201 Mass luxury movement, 94 Mass media, 400,401 Mass-marketing, 195-96 Materialism, 577-79 Materials, 222 Matrix methods, 39-41 Mature consumers, 133 Maturity stage, 270-71, 274 McDomination, 550 Measurable market segments, 194 Mechanical instruments, 109 Media, 403 Media engagement, 435-38 Media impact, 435-38 Media planners, 436,438, A-34 Media publics, 67 Media types, 409,435-36 Media vehicles, 436, 438 Megabrand strategies, 238 Megamalls, 380 Megaretailers, 383 Membership warehouses, 372 Merchandise conglomerates, 372, 373-74 Merchant wholesaler, 386-88 MERCOSUR, 546 Message, 403,405-07 Message strategy, 431 Microenvironment the company, 65 competitors, 66-67 customers, 66 defined, 64 marketing intermediaries, 65-66 publics, 67 suppliers, 65 J Micromarketing, 198-201 Middle class, 78 Middle-of-the-roaders, 524 Migration, 74-75 Mill supply houses, 387 Mission statements, 37 Mobile phone marketing, 491-92 Mobile tour marketing, 443 Modified rebuy, 163 Monopolistic competition, 296 Mood style, 434 Moral appeals, 406 More-for-less positioning, 209-10 More-for-more positioning, 208 More-for-the-same positioning, 208 Motivation consumer behavior and, 142-43 of salespeople, 462-64 Motivation research, 142 MRO materials, 173 C

MRO products, 385, 389-90 Multibrands, 238 Multichannel distribution systems, 343-44 Multichannel retailers, 381, 382 Multiple niching, 533 Multiple segmentation bases, 191-92 Musical style, 434 Myopia, competitor, 517 -.

g

Name, brand name selection, 232-33 Natural environment, 79-80 Natural products, 222 Nature, views of, 88-89 Need recognition, 147 Needs, 6 Need-satisfaction approach, 467 Neighborhood shopping centers, 380 Net marketing contribution (NMC), A-21 Net profit percentage, A-20 New environmental technologies, 584 New products, 150-52 New task, 163 New-product development customer-centered, 263-64 defined, 253 development process, 254-63 managing, 263-67 strategy, 253-54 systematic, 264, 266-67 team-based, 264 New-product planning, jobs in, A-36 New-product pricing strategies, 308-09 Niche marketersimarketing, 88, 197 Nichers, 48, 527, 531-34 Noise, 403 Nonpersonal communication channels, 409 Nonprice positions, 294 Nonprobability samples, 109 Nonprofit organizations, marketing research in, 114-17 Nonstore retailing, 381-82 Nontariff trade barriers, 544 North American Free Trade Agreement (NAFTA),390,54546,585 Nostalgia trend, 248 Not-for-profit marketing, 27-28 Not-for-profit services, jobs in, A-36 Nutritional labeling, 227, 582 Nutritional Labeling and Education Act (1990), 227

;-2 Objective-and-task method, 413 Objectives defined, A-6 setting, 38-39 Observational research, 104-05 Occasion segmentation, 189 Occupation, as influence on buyer behavior, 139-40 Off-invoice, 472 Off-list, 472 Off-price retailers, 367, 370 Oligopolistic competition, 296-97 One-to-one marketing, 200 Online advertising, 500-502 Online databases, 103 Online focus groups, 106-08 Online marketing defined, 493 domains, 494-96 establishing a presence, 498-504 marketing and the Internet, 493 promises and challenges of, 504-05 types of, 496-98

Subject Index Online marketing research, 106-08 Online media, 409 Online panels, 106-08 online privacy, 507-08 Online retailers, 381-82 Online security, 507 Online social networking, 135 Open dating, 227,582 Open-end questions, 109 Operating control, 55 Operating expense percentage, A-20 Operating ratios, A-20 Operating statement, A-18, A-19 Operational excellence, 524 Opinion leader, 135,408 Opportunities, 52, A-6 Optional-product pricing, 310 Order-routine specification, 172 Organization marketing, 222 Organizational climate, 463 Organizational factors, for business buyers, 168 Organizations, views of, 87 Others, views of, 87 Outbound distribution, 352 Outbound telephone marketing, 487 Outside sales force, 457 Outside-in perspective, 10 Outsourced logistics. See Third-party logistics (3PL) provider Overall cost leadership, 523 Overhead, 288 Packaging, 226 Partner relationship management, 18-19, 45,350 Partnering, 45-47 Partners, 18-19 Parts, 222 Patriotism, 87-88 Patronage rewards, 472 People differentiation, 206 People meters, 109 Perceived performance, of product, 149 Percentage-of-sales method, 412 Perception, 143-44 Perceptual positioning maps, 203 Performance quality, 224 Performance review, 172 Permission-based e-mail, 505 Permission-based marketing, 504 Person marketing, 222 Personal communication channels, 407-09 Personal factors, affecting consumer behavior, 139-41 Personal interviewing, 106 The Personal Responsibility in Food Consumption Act, 574 Personal selling compensating salespeople, 461-62 defined, 414,452 designing sales force strategy and structure, 454-59 nature of, 452-53 process, 466-68 as promotion tool, 399 recruiting and selecting salespeople, 459-60 sales force role, 453 social responsibility and, 419 supervising and motivating salespeople, 462-65 training salespeople, 460-61 Personal sources, 148 Personality, 141

Personality symbol style, 434 Personalization, 73 Persuasive advertising, 427 Philosophy, of a company, 44 Phishing, 507 Physical distribution. See also Marketing logistics jobs in, A-36 Physical distribution firms, 66 Piggyback, 356 Pipelines, 355 Place, 50 Place marketing, 223 Planned obsolescence, 574, 576-77 Planning, 52-5 3 Pleasing products, 590 Podcasts, 492 Point-of-purchase (POP) promotions, 472 Political environment, 82-86 Political-legal environment, global marketing and, 548 Pollution cultural, 5 79-80 as environmental trend, 79 prevention of, 583 Poor service, 577 Population, geographic shifts in, 74-75 Pop-unders, 501 POP-UPS,500-501 Portals, 497 Portfolio analysis, 39 Positioning choosing strategy for, 203-04, 206-10 communication and delivery of, 210 customer-driven marketing and, 48, 50 defined, 185, A-7 maps, 203,204 retailers and, 374-75 wholesalers and, 388 Positioning statement, 210 Postpurchase behavior, 149 Postpurchase dissonance, 146 Power centers, 380 Preapproach, 466 Predatory competition, 581 Predatory pricing, 324 Premiums, 471 Presentation, 467 Preservers, 139 Price comparison sites, 497 Price confusion, 327 Price discrimination, 324 Price elasticity, 298 Price escalation, 320, 561 Price packs, 471 Price points, 310 Price transparency, 561 Price-adjustment strategies, 312 Price-fixing, 324 Price-off, 472 Pricelpricing. See also specific types break-eventtarget profit, 291-92 by-product, 311 captive-product, 310-11 changes in, 320-23 competitors' strategies and, 299 cost-based, 290-91 defining, 284-85 demand and, 297-99 in different markets, 294, 296-97 discount and allowance, 312 dynamic, 318-1 9 geographical, 317-18 global marketing and, 561-62

good-value, 287 international, 320 market-penetration, 309 market-skimming, 308 new-product strategies, 308-09 optional-product, 310 as part of Four P's, 50 product bundle, 312 product line, 309-10 product mix strategies, 309-12 promotional, 316-17 psychological, 314, 316 public policy and, 323-27 retailer classification and, 369-72 retailers and, 377 segmented, 312-14 value-added, 287,288-89 value-based, 285-87 wholesalers and, 389 Pricing power, 287,288-89 Pricing-matching guarantees, 316 Primary data, 102,103-10 Primary motivations, 141 Print media, 409 Privacy direct marketing and, 507-08 intrusions on, 118-20 Private brand, 233-34 Private goods, 579 Pro forma profit-and-loss statement, A-18 Probability samples, 109 Problem recognition, 169 Producers' cooperatives, 387 Product (s) classifications, 220-23 defined, 218 global marketing and, 556, 558 harvesting, 273 individual decisions, 223-28 international marketing of, 275-76 levels of, 219-20 line decisions, 228-29 as market offering, 6-7 mix decisions, 229-30 as part of Four P's, 50 services, experiences, and, 218-19 Product adaptation, 558 Product assortment, retailer's, 376 Product attributes, 223-25, 231-32 Product bundle pricing, 312 Product characteristics, adoption rate and, 152 Product class, 268 Product concept, 9-10, 257-58 Product decision, social responsibility and, 274-75 Product development, 44, 259-60 Product features, 224 Product form, 268 Product invention, 558 Product leadership, 524 Product life cycle (PLC),428 decline stage, 271-73, 274 defined, 267 growth stage, 270, 274 introduction stage, 269-70, 274 maturity stage, 270-71, 274 strategies, 267-73 Product life-cycle stage, 201 Product line pricing, 309-10 Product lines decisions regarding, 228-29 retailers and, 368-69 Product management, jobs in, A-34-A-35 Product management organization, 55 Product mix, 229,309-12

1-18

Subject Index

Product modification, 271 Product portfolio, 229-30 Product position, 203. See also Positioning Product review, A-3-A-4 Product sales force structure, 454 Product specification, 169-70 Product stewards, 275 Product stewardship, 584 Product style and design, 224-25 Product support services, 227-28 Product variability, 201 Product-form pricing, 313 Production concept, 9 Production managers, A-34 Producttmarket expansion grid, 42-43 Product-oriented mission statements, 38 Professional associations, A-37 Profit-and-loss statement, A-19 Profits, as advertising effect, 439 Promotion(s) advertising and sales, 418 costs of, 571 global marketing and, 559 online, 500-502 as part of Four P's, 51 setting budget for, 412-13 wholesalers and, 389 Promotion clutter, 469 Promotion mix defined, 398 integrating, 417-18 overview, 398-99 shaping, 413-15 strategies, 415-16 Promotion tools, retailers and, 377 Promotional allowances, 312 Promotional pricing, 316-1 7 Promotional products, 471-72 Proposal solicitation, 171 Prospecting, 466 Provider-customer interaction, 240 Psychographic segmentation, 186,188-89 Psychological factors, affecting consumer behavior, 1 4 2 4 5 Psychological pricing, 314, 316 Public goods, 579 Public iolicy channel distribution and, 351-52 direct marketing and, 506-09 government regulation and, 82 in marketing research, 118-22 pricing and, 323-27 Public relations defined, 415,441 department functions ,441 jobs in, A-36 as promotion tool, 398 role and impact of, 44142 tools, 442-43 Public service activities, 443 Public sources, 148 Publics, 67 Puffery, 573 Pull strategy, 415-1 7 Pulsing, 438 Purchase decision, 148-49 Purchasing agents, 388 Purchasing officers, 388 Pure competition, 294,296 Pure monopoly, 297 Pure services, 219 Pure tangible goods, 219 Push money, 472 Push strategy, 415-17

~ u a l i f ~ i466 n~, Qualitative value, of message, 435-38 duality * levels of, 224 price and, 316 service, 244 Quality-price, 533 Quantity discounts, 312 Questionnaires, 109 Quick Response (QR) codes, 492 Quotas, 544 D

-

n '"

R&D department, 259 Rack jobbers, 387 Radio-frequency identification (WID) transmitters, 80-81, 354-55 Railroads, 355 Rational appeals, 405 Raw material exporting economies, 54647 Raw materials, 79, 222 Reach, of message, 435-38 Rebates, 471 Receiver, 403 Redlining, 577 Reference prices, 316 Regional free trade zones, 54546 Regional shopping centers/mdls, 380 Regulation, citizen and public actions for, 581-86 Relationships, 7 Relative advantage, 152 Relative market share, 40 Relevant costs, A-12 Reminder advertising, 427-28 Research, marketing plan and, A-1 Resellers, 65, 299 Resources, 141 Response, 403 Retail convergence, 382-83 Retail technology, 383 Retailer cooperatives, 372, 373 Retailers, 367 Retailing defined, 367 future of, 381-84 jobs in, A-35-A-36 marketing decisions, 374-80 nonstore, 381-82 types of retailers, 367-74 Retailhesale price maintenance, 326 Retailtainment, 491 => Return of advertising investment, 438-39 Return on investment (ROI),A-12, A-21 Return on marketing investment (marketing ROI), 56-57 Return on quality approach, 224 Return on sales investment, 465 Revenue management, 313 Reverse distribution, 352 WID, 80-81,354-55 Rich media ads, 501 Robinson-Patman Act, 323,324,418 Roles, 139

a"eSale signs, 315 Sales assistants, 457 Sales branches, 388 Sales contest, 473 Sales force automation systems, 463 Sales force management, 454-62 Sales force promotions, 469

Sales, jobs in, A-35 Sales management, jobs in, A-35 Sales offices, 388 Sales promotion as advertising effect, 439 defined, 414-15,468 growth of, 469 objectives, 469-70 program development, 473 as promotion tool, 398 social responsibility and, 418 tools, 470-73 Sales reports, 465 Salespeople compensating, 461-62 defined, 453 designing strategy and structure for, 454-59 recruiting and selecting, 459-60 role of, 4u53 supervising and motivating, 462-65 training, 460-61 Salutory products, 590 Same-for-less positioning, 209 Sample defined, 108 as promotion tool, 470 Sampling plan, 108-09 Satisfaction, 7 Scanner fraud, 326-27 Scientific evidence style, 434 Search engines, 497 Search-related ads, 501 Seasonal discounts, 312 Secondary beliefs, 86-89 Secondary data, 102-03 Segmented marketing, 196-97 Segmented pricing, 312-14 Selective attention, 143 Selective distortion, 143 Selective distribution, 349 Selective relationship management, 16 Selective retention, 143 Self, view of, 86-87 Self-concept, 141 Self-marketing, 201 Sellers direct marketing and, 482-83 rights of, 581 Seller's headquarters organization, 562 Selling agents, 388 Selling concept, 10 Selling process, 466 Sender, 403 "Sense and respond" philosophy, 10 Sense-of-mission marketing, 587-90 Sequential product development, 264 Service attributes, 223-25 Service inseparability, 240 Service intangibility, 239 Service nichers, 533 Service perishability, 240 Service products, 51 Service variability, 240 Service-firm-sponsored retailer franchise system, 34243 Service-profit chain, 240-43 Services defined, 218 differentiation management, 243-44 individual decisions, 223-28 international marketing of, 275-76 levels of, 219-20 as market offering, 6-7 marketing strategies for, 24043 nature and characteristics of, 23945

Subject Index productivity management, 24445 products, experiences, and, 218-19 quality management, 244 retailers and, 367-68, 376-77 Services differentiation, 206 Services mix, 376 Seven C's, of Web site design, 500 Share of customer, 20-21 Shared projects, 357 Sherman Act, 323 Shoddy products, 573-74 Shopping bots, 319 Shopping centers, 380 Shopping products, 220,221 Shortrun average cost (SRAC) curve, 289 Short-run wants, 11 Signpost pricing, 315-16 Single-line store, 367 Six-pocket syndrome, 68 Slice of life style, 432-33 Slotting fees, 234 Small businesses, marketing research in, 114-1 7 Small office/home office (SOHO) market, 74 Smart chips, 80-81, 354-55 Social classes, 134 Social criticisms, of marketing, 571-81 Social factors, affecting consumer behavior, 134-39 Social goods, 579 Social marketing campaigns, 28 Social networking, 135,443 Social responsibility customer relationships and, 26-27 marketing communication and, 418-19 marketing for, 586-93 product decisions and, 274-75 target marketing and, 202-03 Socially responsible actions, 84-86 Socially responsible businesses, 155 Societal marketing, 590-91 Societal marketing concept, 11-12 Society, views of, 87-88 SOHO market, 74 Sources, informational, 148 South American Community of Nations (CSN), 546 Spam, 503-04 Special events, 442 Special-event pricing, 316 Specialization, 533 Specialty products, 220, 221 Specialty stores, 367, 368 Specialty wholesalers, 387 Speeches, 442 Spending patterns, 78 Standardized marketing mix, 555-56 Status, 139 Stimulus object, 144 Stockturn rate, A-20 Store brand, 233 Straight product extension, 558 Straight rebuy, 163 "Strangers," 22 Strategic alliances, 19 Strategic business unit (SBU),39 Strategic control, 55 Strategic group, 518-19 Strategic partners, 459 Strategic planning business portfolios, 3 9 4 4 defined, 36 mission statements, 37-38 setting objectives and goals, 38-39 Strengths, 52, A-6

Strivers, 141 Style, 224-25, 268 Subculture, 131-33 Subliminal advertising, 1 4 3 4 4 Subsistence economies, 77-78, 546 Substantial market segmentation, 194 Supercenters, 367, 369 Supermarkets, 367,368 Superspecialty store, 367 Superstores, 367, 369 Supervision, of salespeople, 462-64 Supplier development, 162 Supplier search, 170 Supplier selection, 171-72 Suppliers, 65, 256 Supplies, 222 Supply chain, 19 Supply chain management defined, 352 marketing logistics and, 352-58 partner relationships and, 19 Supply chains, value delivery network, 334-35 Support services, product, 227-28 Survey research, 105 Survivors, 141 Sustainability vision, 585 Sweepstakes, 472 SWOT analysis, 52 Systematic new-product development, 264,266-67 Systems selling, 163-66 8--

3

Target audience, 404 Target costing, 293 Target marketing customer-driven marketing and, 8, 48 evaluating market segments, 195 retailers and, 374-75 selecting, 195-201 socially responsible businesses, 202-03 strategies, 195 wholesalers and, 388 Target profit pricing, 291-92 Target-return pricing, A-12 Tariffs, 544 Team selling, 458-59 Team-based new-product development, 264 Technical environment, 80-82 Technical expertise style, 434 Technical sales support, 457 Telecommuters, 74 Telemarketers, 45 7-58 Telephone interviews, 106 Telephone marketing, 487-88 Territorial sales force structure, 454 Test marketing, 260-62 Testimonial evidencelendorsement style, 434 Third-party logistics, 357-58 Third-party logistics (3PL) provider, 357-58 Threats, 52, A-6 Three-day cooling-off rule, 419 Tiered market, 78 Time pricing, 313 Time-and-duty analysis, 462-64 Timing, of new product launch, 262-63 Tone, of an ad, 434 Total costs, 288-89,291-92, A-12 Total demand, expanding, 528-29 Total market demand, A-16 Total promotion budget, 412-13 Total quality management (TQM),224

Touch points, 112 Trade discounts, 312 Trade promotions, 469 Trade promotion tools, 472 Trade shows, 472 Trade-in allowances, 312 Trainship, 356 Transaction sites, 497 Transnational brands, 543 Transportation, 355-56 Tmck jobbers, 387 Truck wholesalers, 387 "True friends," 22 Truth in advertising, 582 Truth in lending, 582 Tweens, 157 Two-part pricing, 311 Tying agreements, 352 n I!

a j:

Underclass, 78 Undifferentiated brands, 428 Undifferentiated marketing, 195-96 Unexpected situational factors, 149 Uniform-delivered pricing, 318 Unique selling proposition (USP),207 Unit contribution, A-14 Unit pricing, 227, 582 Universe, views of, 89 Unsafe products, 573-74 Unsought products, 220,221 Uruguay Round, 54445 Usage rate, 190 User status, 190 Users, 166 "7

Value analysis, 169-70 Value chain, 45 Value, channel partners and, 336-38 Value delivery network, 334-35 Value discipline, 524 Value marketing, 78 Value proposition, 9, 208 Value-added pricing, 287 Value-based pricing, 285-87, A-13 Value-delivery network, 45, 46 Value-retail centers, 371 Values and Lifestyles (VALS)typology, 140-41 Values, beliefs and, 232 Variable costs, 288, 291-92, A-12 Variable usage rate, 311 Variety-seeking buying behavior, 147 Vendor-managedinventory (VMI), 172,356 Vertical conflict, 339 Vertical marketing systems (VMS),340-43 Video mining, 120-21 Views, 86-89 Viral marketing, 502 Vodcasts, 492 Voice mail, 485 Voluntary chains, 372-73 . *

h

.'

.;$2 .I

;i

Wants, 6, 577-79 Warehouse clubs, 367,372 Warehousing, 354 Water carriers, 355 Weaknesses, 52, A-6 Web communities, 502-03 Web sellers, 457-58 Web sites, creating, 499-500 Web-based sales forces, 464-65 Webpreneurs, 197 Wheeler-Lea Act, 572

1-20

Subject Index

Wheel-of-retailing concept, 381 Whole-channel view, 562 Wholesale clubs, 367, 372 Wholesaler, 385 Wholesaling defined, 385 marketing decisions, 388-89 trends in, 389-90 types of wholesalers, 386-88

width, of product mix, 229 Word-of-mouth influence, 408 Working class, 78 Workload approach, 456 Workload method, A-23 World product groups, 563 Written materials, 442-43 Written proposal for research plan, 101

'i

Yield management, 3 13 a

L

Zone pricing, 318