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Understanding Marketing Management
Defining Marketing for the 21 st Century 3
Developing Marketing Strategies and Plans 33
Capturing Marketing Insights
Connecting with Customers
Gathering Information and Scanning the Environment 65
Conducting Marketing Research and Forecasting Demand 89
Creating Customer Value, Satisfaction, and Loyalty
Analyzing Consumer Markets 149
Analyzing Business Markets 181
Identifying Market Segments and Targets 207
Building Strong Brands
Creating Brand Equity 235
Crafting the Brand Positioning 267
Dealing with Competition 293
Shaping the Market Offerings
Setting Product Strategy 317
Designing and Managing Services 345
Developing Pricing Strategies and Programs
Designing and Managing Integrated Marketing
Managing Retailing, Wholesaling, and Logistics
Designing and Managing Integrated Marketing Communications 469
Managing Mass Communications: Advertising, Sales Promotions,
Events and Experiences, and Public Relations 497
Managing Personal Communications: Direct and Interactive
Marketing, Word of Mouth, and Personal Selling 531
Creating Successful Long-Term Growth
Introducing New Market Offerings 565
Tapping into Global Markets 597
Managing a Holistic Marketing Organization
Image Credits C1
Name Index 11
Company, Brand, and Organization Index
Subject Index 110
3. Preface xxix
Understanding Marketing Management
Defining Marketing for the 21st Century
The Importance of Marketing
The Scope of Marketing 5
What Is Marketing? 5
What Is Marketed? 6
Who Markets? 7
Marketing in Practice 10
Core Marketing Concepts 12
Needs, Wants, and Demands 12
Target Markets, Positioning, and Segmentation
Offerings and Brands 13
Value and Satisfaction 13
Marketing Channels 14
Supply Chain 14
Marketing Environment 14
The New Marketing Realities 15
Major Societal Forces 15
New Consumer Capabilities
New Company Capabilities 17
Company Orientation toward the Marketplace
The Production Concept 18
The Product Concept 18
The Selling Concept 19
The Marketing Concept 19
The Holistic Marketing Concept
MARKETING MEMO Marketing Right and Wrong
BREAKTHROUGH MARKETING Nike
Integrated Marketing 22
Internal Marketing 24
Performance Marketing 26
Marketing Management Tasks
Developing Marketing Strategies and Plans
Capturing Marketing Insights 28
MARKETING MEMO Marketers' Frequently Asked
Connecting with Customers 29
Building Strong Brands 29
Shaping the Market Offerings
Creating Long-Term Growth
Developing Marketing Strategies and Plans
Marketing and Customer Value 34
The Value Delivery Process 34
The Value Chain 35
A Holistic Marketing Orientation and Customer Value
The Central Role of Strategic Planning
BREAKTHROUGH MARKETING Intel
Corporate and Division Strategic Planning
Defining the Corporate Mission
Establishing Strategic Business Units
Assigning Resources to Each SBU25
Assessing Growth Opportunities
Organization and Organizational Culture
Business Unit Strategic Planning
The Business Mission 48
MARKETING INSIGHT Creating Innovative Marketing
MEMO Checklist for Performing
Strategic Formulation 53
Program Formulation and tmplementation
MARKETING INSIGHT Marketing's Contribution to
Feedback and Control
Product Planning: The Nature and Contents of a Marketing
MARKETING MEMO Marketing Plan Criteria
5. PART 2
Capturing Marketing Insights
Gathering Information and Scanning the Environment
Components of a Modern Marketing Information System
Internal Records and Marketing Intelligence 67
The Order-to-Payment Cycle 67
Sales Information Systems 68
Databases, Data Warehousing, and Data Mining 68
The Markehng Intelligence System 69
MARKETING INSIGHT The Big Dig
MARKETING MEMO Clicking on the Competition
Analyzing the Macroenvironment
Needs and Trends 72
MARKET NG MEMO Trends Shaping the Business
Identifying the Major Forces
BREAKTHROUGH MARKETING Google
The Demographic Environment
Worldwide Population Growth
Population Age Mix 76
Friends for Life
Ethnic and Other Markets 77
Educational Groups 78
Household Patterns 78
Geographical Shifts in Population 78
Other Major Macroenvironments 79
Economic Environment 79
Social-Cultural Environment 80
Natural Environment 82
Conducting Marketing Research and Forecasting Demand
The Marketing Research System 90
The Marketing Research Process 9~
Step 1: Define the Problem, the Decision Alternatives, and the
Research Objectives 91
Step 2: Develop the Research Plan 92
6. MARKETING INSIGHT Conducting Informative Focus
MARKETING MEMO Questionnaire Dos and Don'ts
MARKETING INSIGHT Getting into Consumers' Heads with
Qualitative Research 98
MARKETING INSIGHT Understanding Brain Science
Step 3: Collect the Information
MARKETING MEMO Pros and Cons of Online Research
Step 4: Analyze the Information 102
Step 5: Present the Findings 103
Step 6: Make the Decision 103
Overcoming Barriers to the Use of Marketing Research
BREAKTHROUGH MARKETING IDEO
Measuring Marketing Productivity
Marketing Metrics 106
Marketing-Mix Modeling 106
Marketing Dashboards 107
Marketing Dashboards to Improve
Effectiveness and Efficiency 108
Forecasting and Demand Measurement 109
The Measures of Market Demand 110
A Vocabulary for Demand Measurement 111
Estimating Current Demand 113
Estimating Future Demand 115
Connecting with Customers
Creating Customer Value, Satisfaction, and Loyalty
Building Customer Value, Satisfaction, and loyalty
Customer Perceived Value 121
Total Customer Satisfaction 124
Monitoring Satisfaction 125
Net Promoter and Customer
Product and Service Quality
7. Maximizing Customer Lifetime Value
Measuring Customer Lifetime Value
ARKETI G MEMO Calculating Customer Lifetime Value
Cultivating Customer Relationships
Customer Relationship Management
MARKETING INSIGHT Company Response to Customer
Attracting and Retaining Customers
MA KETI G MEMO Creating Customer Evangelists
Customer Databases and Database Marketing
Data Warehouses and Datamining
BREAKTHROUGH MARKETING Tesco
The Downside of Database Marketing and CRM
Analyzing Consumer Markets
What Influences Consumer Behavior?
MARKETING INSIGHT The Future of American
Marketing to Cultural Market
Personal Factors 156
MARKETING MEMO The Average U.s. Consumer Quiz
Key Psychological Processes
BREAKTHROUGH MARKETING Ikea
Motivation: Freud, Maslow, Herzberg
The Buying Decision Process: The Five-Stage Model
8. Evaluation of Alternatives
Purchase Decision 172
Postpurchase Behavior 173
Other Theories of Consumer Decision Making
Level of Consumer Involvement 174
Decision Heuristics and Biases 175
MARKETING INSIGHT How Consumers Really Make
MARKETING MEMO Decision Traps
Profiling the Customer Buying-Decision Process
Analyzing Business Markets
What Is Organizational Buying? 182
The Business Market versus the Consumer Market
MARKETING INSIGHT Big Sales to Small Business
Buying Situations 185
Systems Buying and Selling
MARKETING MEMO Maximizing Customer References
Participants in the Business Buying Process
The Buying Center 188
Buying Center Influences 188
Buying Center Targeting 190
The Purchasing/Procurement Process
Purchasing Department Perceptions 191
Purchasing Organization and Administration
Stages in the Buying 'Process 192
General Need Description and Product Specification
Supplier Search 193
Proposal Solicitation 194
Supplier Selection 194
MARKETING MEMO Developing Compelling Customer Value
Order-Routine Specification 197
Performance Review 198
Managing Business-to-Business Customer Relationships
The Benefits of Vertical Coordination
BREAKTHROUGH MARKETING General Electric
9. MARKETING INSIGHT
Establishing Corporate Trust and
Business Relationships: Risks and Opportunism
Institutional and Government Markets 202
A KETt G MEMO Selling Tech to the Government
Identifying Market Segments and Targets
Levels of Market Segmentation
Segment Marketing 208
lIiche Marketing 209
Local Marketing 210
Individual Marketing 210
MARKETING INSIGHT Chasing the Long Tall
BREAKTHROUGH MARKETING HSBC
Bases for Segmenting Consumer Markets
Geographic Segmentation 213
Demographic Segmentation 215
MARKETING INSIGHT Trading Up (and Down): The New
MARKETING INSIGHT Marketing to Generation Y 220
MARKETING M MO Cheat Sheet for 20-Somethin'gs
Psychographic Segmentation 221
Behavioral Segmentation 223
Bases for Segmenting Business Markets 226
Market Targeting 227
Effective Segmentation Criteria 227
Evaluating and Selecting the Market Segments
Additional Considerations 230
Building Strong Brands
Creating Brand Equity
What Is Brand Equity? 236
The Role of Brands 237
The Scope of Branding 238
Defining Brand Equity 238
BREAKTHROUGH MARKETING Procter & Gamble
Brand Cooking with Jamie Oliver
Brand Equity as a Bridge 242
Brand Equity Models 243
Building Brand Equity 245
Choosing Brand Elements 246
Designing Holistic Marketing Activities 247
Leveraging Secondary Associations 250
Measuring Brand Equity 251
MARKETING INSIGHT The Brand Value Chain
Brand Valuation 253
Managing Brand Equity 253
Brand Reinforcement 253
MARKETING INSIGHT What Is a Brand Worth?
Brand Revitalization 255
Devising a Branding Strategy
Branding Decisions 2'57
Brand Extensions 258
Brand Portfolios 261
Customer Equity 263
MARKETING MEMO Twenty-First-Century Branding
Chapter 10 Crafting the Brand Positioning
Developing and Communicating a Positioning Strategy
Competitive Frame of Reference 269
Points-of-Difference and Points-of-Parity 269
BREAKTHROUGH MARKETING UPS
Establishing Category Membership
Choosing POPs and PODs 274
Creating POPs and PODs 274
MARKET1NG MEMO Writing a Positioning Statement
MARKETING MEMO How to Derive Fresh Consumer
Insights to Differentiate Products
and Services 277
Product Life-Cycle Marketing Strategies
Product Life Cycles 278
Style, Fashion, and Fad Life Cycles
Marketing Strategies: Introduction Stage and the Pioneer
Marketing Strategies: Growth Stage 282
Marketing Strategies: Maturity Stage
MARKETING INSIGHT Competitive Category Dynamics
Marketing Strategies: Decline Stage 286
Evidence on the Product Life-Cycle Concept
Critique of the Product Life-Cycle Concept
Market Evolution 288
MARKETI G MEMO How to Build a Breakaway Brand
Chapter 11 Dealing with Competition
Identifying Competitors 295
Analyzing Competitors 296
MARKETING INSIGHT High Growth Through Value
Strengths and Weaknesses 299
Selecting Competitors 299
Benchmarking to Improve Competitive
Selecting Customers 300
Competitive Strategies for Market Leaders
BREAKTHROUGH MARKETING Accenture
MARKETING INSIGHT When your Competitor Delivers More
Expanding the Total Market 303
Defending Market Share 305
Expanding Market Share 307
Other Competitive Strategies 308
Market-Challenger Strategies 308
Market-Follower Strategies 310
12. MARKETING MEMO Making Smailer Better
MARKETING MEMO Niche Specialist Roles
Balancing Customer and Competitor Orientations
Competitor-Centered Companies 314
Customer-Centered Companies 314
Shaping the Market Offerings
Chapter 12 Setting Product Strategy
Product Characteristics and Classifications
Product Levels: The Customer-Value Hierarchy
Metamarkets and Metamediaries
Product and Brand Relationships
The Product Hierarchy 328
Product Systems and Mixes
Product-Line Analysis 329
Product-Line Length 331
MARKETING INSIGHT When Less Is More
Co-Branding and Ingredient Branding
MARKETING MEMO Making Ingredient Branding Work
Packaging, Labeling, Warranties, and Guarantees
Warranties and Guarantees
BREAKTHROUGH MARKETING Toyota
13. Chapter 13 Designing and Managing Services
The Nature of Services 346
Service Industries Are Everywhere
Categories of Service Mix 347
Distinctive Characteristics of Services 349
Marketing Strategies for Service Firms 352
A Shifting Customer Relationship
MARKETING MEMO Recommendations for Improving Service
BREAKTHROUGH MARKETING Southwest Airlines
Holistic Marketing for Services
Managing Service Quality 359
Customer Expectations 359
MARKETING INSIGHT The Role of Expectations in Service­
Quality Perceptions 361
MARKETING MEMO Assessing E-Service Quality
Best Practices of Service-Quality Management
MARKETING INSIGHT Developing Customer Interface
Managing Service Brands 367
Differentiating Services 367
Developing Brand Strategies for Services 368
Managing Product-Support Servkes 370
Identifying and Satisfying Customer Needs
Postsale Service Strategy 371
Chapter 14 Developing Pricing Strategies and Programs
A Changing Pricing Environment
How Companies Price 377
Giving It All Away
Consumer Psychology and Pricing
Setting the Price 383
Step 1: Selecting the Pricing Objective
Step 2: Determining Demand 385
Step 3: Estimating Costs 388
Step 4: Analyzing Competitors' Costs, Prices, and Offers
Step 5: Selecting a Pricing Method
BREAKTHROUGH MARKETING Ebay
Step 6: Selecting the Final Price
MARKETING INSIGHT Stealth Price Increases
Adapting the Price
Geographical Pricing (Cash, Countertrade, Barter)
Price Discounts and Allowances 398
Promotional Pricing 399
Differentiated Pricing 400
Initiating and Responding to Price Changes
Initiating Price Cuts 402
Initiating Price Increases 403
Responding to Competitors' Price Changes
MARKETING ME:MO How to Fight Low-Cost Rivals
Chapter 15 Designing and Managing Integrated Marketing Channels
Marketing Channels and Value Networks
The Importance of Channels 410
Channel Development 411
Hybrid Channels 412
Understanding Customer Needs
Value Networks 414
The Role of Marketing Channels 414
Channel Functions and Flows 415
Channel Levels 416
Service Sector Channels
Analyzing Customers' Desired Service Output
Establishing Objectives and Constraints 418
Identifying and Evaluating Major Channel Alternatives
MARKETING INSIGHT How CarMax Is Transforming the
Auto Business 420
Evaluating the Major Alternatives
15. Channel-Management Decisions 423
Selecting Channel Members 423
Training and Motivating Channel Members
Evaluating Channel Members 424
Modifying Channel Design and Arrangements
Channel Integration and Systems 426
Vertical Marketing Systems
MARKETING INSIGHT The Importance of Channel
Horizontal Marketing Systems 428
Integrating Multichannel Marketing Systems
Multichannel Shopping Checklist
Conflict, Cooperation, and Competition
Types of Conflict and Competition
Causes of Channel Conflict 431
Managing Channel Conflict 431
Dilution and Cannibalization 433
Legal and Ethical Issues in Channel Relations
E-Commerce Marketing Practices 434
BREAKTHROUGH: MARKETING Amazon.com
Chapter 16 Managing Retailing, Wholesaling, and Logistics
Types of Retailers 442
The New Retail Environment
MARKETING INSIGHT Making Labels Smarter 451
BREAKTHROUGH MARKETING Target
0 Helping Stores to Sell
Role of Private Labels 456
The Private-Label Threat 457
MARKETING MEMO How to Compete Against Store
Trends in Wholesaling
Integrated Logistics Systems
Chapter 17 Designing and Managing Integrated Marketing
The Role of Marketing Communications
The Changing Marketing Communication Environment
Marketing Communications, Brand Equity, and Sales
the Communications Process Models
Developing Effective Communications
Identify the Target Audience
Determi,ne the Communications Objectives
Design the Communications
MARKETING INSIGHT Celebrity Endorsements as
Establish the Total Marketing Communications Budget 484
Deciding on the Marketing Communications Mix 486
Characteristics of the Marketing Communications Mix 486
Select the Communications Channels
BREAKTHROUGH MARKETING Ocean Spray
Factors in Setting the Marketing Communications Mix
Managing the Integrated Marketing Communications
Coordinating Media 492
Implementing IMC 493
Measuring Communication Results
MARKETING MEMO How Integrated Is Your IMC
Chapter 18 Managing Mass Communications: Advertising, Sales
Promotions, Events and Experiences, and Public
Developing and Managing an Advertising Program
Setting the Objectives 499
Deciding on the Advertising Budget 499
Developing the Advertising Campaign 500
G M MO Print Ad Evaluation Criteria
Deciding on Media and Measuring Effectiveness
Deciding on Reach, Frequency, and Impact
Choosing among Major Media Types 506
Alternative Advertising Options 508
Selecting Specific Media Vehicles 510
Playing Games with Brands
Deciding on Media Timing and Allocation
Evaluating Advertising Effectiveness 513
Sales Promotion 514
Advertising versus Promotion
Major Decisions 516
Events and Experiences 520
Events Objectives 521
Major Sponsorship Decisions
Public Relations 523
Managing a Brand Crisis
Marketing Public Relations
BREAKTHROUGH MARKETING Virgin Group
Major Decisions in Marketing PR
Chapter 19 Managing Personal Communications: D,i,rect and Interactive
Marketing, Word of Mouth, and Personal Selling
Direct Marketing 532
The Benefits of Direct Marketing
Other Media for Direct-Response Marketing
Public and Ethical Issues in Direct Marketing
Advantages and Disadvantages of Interactive Marketing
BREAKTHROUGH MARKETING Yahoo!
Placing Ads and Promotions Online
Word of Mouth
MEMO Segmenting Tech Users 542
Buzz and Viral Marketing
MARKETING MEMO How to Start a Buzz Fire 548
Measuring the Effects of Word of Mouth
Designing the Sales Force
Sales-Force Objectives and Strategy
MARKETING INSIGHT Major Account Management
Managing the Sales Force
Recruiting and Selecting Representatives
Training and Supervising Sales Representatives
Sales Rep Productivity
Motivating Sales Representatives
Evaluating Sales Representatives
Principles of Personal Selling
The Six Steps
Creating Successful Long-Term Growth
Chapter 20 Introducing New Market Offerings
Make or Buy
Types of New Products
Challenges in New-Product Development
The Innovation Imperative
Organizational Arrangements 571
Budgeting for New-Product Development 572
Organizing New-Product Development 573
Managing the Development Process: Ideas 574
Idea Generation 574
MARKET! G MEMO Ten Ways to Find Great New-Product
P&G'S New Connect-and-Develop
Approach to Innovation 576
EMO Seven Ways to Draw New Ideas from
Your Customers 577
MARKETI G MEMO How to Run a Successful Brainstorming
Idea Screening 579
Managing the Development Process: Concept to Strategy
Concept Development and Testing 581
Marketing Strategy Development 584
Business Analysis 584
Managing the Development Process: Development to
Product Development 586
Market Testing 587
BREAKTHROUGH MARKETING Apple Ipod
The Consumer-Adoption Process 592
Stages in the Adoption Process 592
Factors Influencing the Adoption Process
Chapter 21 Tapping into Global Markets
Competing on a Global Basis
BREAKTHROUGH MARKETING Samsung
Deciding Whether to Go Abroad 600
Deciding Which Markets to Enter 600
How Many Markets to Enter 600
Developed versus Developing Markets
MARKETING INSIGHT Spotlight on Key Developing
Evaluating Potential Markets
Deciding How to Enter the Market 606
Indirect and Direct Export 606
Using a Global Web Strategy 607
Joint Ventures 608
Direct Investment 609
Deciding on the Marketing Program 609
MARKETING MEMO The Ten Commandments of Global
MARKETING INSIGHT Unauthorized Sales-Dealing with
the Gray Market and Counterfeit
Distribution Channels 618
Country-of-Origin Effects 619
Building Country Images 619
Consumer Perceptions of Country of Origin
MARKETING INSIGHT The Ups and Downs of Brand
Deciding on the Marketing Organization
Export Department 622
International Division 622
Global Organization 622
Chapter 22 Managing a Holistic Marketing Organization
for the Long Run 625
Trends in Marketing Practices 626
Internal Marketing 627
Organizing the Marketing Department
MARKET!NG MEMO Characteristics of Company Departments
That Are Truly Customer Driven 628
Relations with Other Departments 632
Building a Creative Marketing Organization
MARKETING INSIGHT The Marketing CEO
MARKETING MEMO Fueling Strategic Innovation
Socially Responsible Marketing
21. BREAKTHROUGH MARKETING Starbucks
Corporate Social Responsibility 638
Socially Responsible Business Models
Cause-Related Marketing 640
MARKETING INSIGHT New Views on Corporate Social
MARK TING MEMO Making a Difference
Marketing Implementation 648
Evaluation and Control 649
Annual-Plan Control 649
Profitability Control 652
Efficiency Control 656
Strategic Control 656
The Future of Marketing
MARKETING MEMO Major Marketing Weaknesses
Image Credits C1
Name Index 11
Company, Brand, and Organization Index
Subject Index 110
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dents greater insight into what they have in common with the world, and at the same time,
we offer material that is locally relevant.
: :: Our History
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: :: The First in the Pearson One Series
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::: What Is Marketing Management All About?
Marketing Management is the leading marketing text because its content and organization
consistently reflect changes in marketing theory and practice, The very first edition of
Marketing Management, published in 1967, introduced the concept that companies must be
customer-and-market driven, But there was little mention of what have now become funda­
mental topics such as segmentation, targeting, and positioning, Concepts such as brand
equity, customer value analysis, database marketing, e-commerce, value networks, hybrid
channels, supply chain management, and integrated marketing communications were not
even part of the marketing vocabulary then, Marketing Management continues to reflect the
changes in the marketing discipline over the past forty years,
Firms now sell goods and services through a variety of direct and indirect channels. Mass
advertising is not nearly as effective as it was, so marketers are exploring new forms of com­
munication, such as experiential, entertainment, and viral marketing. Customers are telling
companies what types of product or services they want and when, where, and how they want
to buy them, They are increasingly reporting to other consumers what they think of specific
companies and products-using e-mail, blogs, podcasts, and other digital media to do so,
Company messages are becoming a smaller fraction of the total "conversation" about prod­
ucts and services,
In response, companies have shifted gears from managing product portfolios to manag­
ing customer portfolios, compiling databases on individual customers so they can under­
stand them better and construct individualized offerings and messages, They are doing less
product and service standardization and more niching and customization, They are replac­
ing monologues with customer dialogues, They are improving their methods of measuring
customer profitability and customer lifetime value. They are intent on measuring the return
on their marketing investment and its impact on shareholder value, They are also concerned
with the ethical and social implications of their marketing decisions,
As companies change, so does their marketing organization. Marketing is no longer a
company department charged with a limited number of tasks-it is a company-wide under­
taking, It drives the company's vision, mission, and strategic planning, Marketing indudes
decisions like who the company wants as its customers; which of their needs to satisfy; what
products and services to offer; what prices to set; what communications to send and receive;
what channels of distribution to use; and what partnerships to develop, Marketing succeeds
only when all departments work together to achieve goals: when engineering designs the
right products, finance furnishes the required funds, purchasing buys high-quality materials,
production makes high-quality products on time, and accounting measures the profitability
of different customers, products, and areas,
To address all these different shifts, good marketers are practicing holistic marketing.
Holistic marketing is the development, design, and implementation of marketing programs,
processes, and activities that recognize the breadth and interdependencies oftoday's market­
ing environment. Four key dimensions of holistic marketing are:
1. Internal marketing-ensuring everyone in the organization embraces appropriate mar­
keting principles, especially senior management,
2. Integrated marketing-ensuring that multiple means of creating, delivering, and com­
municating value are employed and combined in the best way,
3. Relationship marketing-having rich, multifaceted relationships with customers, chan­
nel members, and other marketing partners,
4. Performance marketing-understanding returns to the business from marketing activi­
ties and programs, as well as addressing broader concerns and their legal, ethical, social,
and environmental effects,
These four dimensions are woven throughout the book and at times spelled out explicitly,
The text specifically addresses the following tasks that constitute modern marketing manage­
ment in the 21st century:
1. Developing marketing strategies and plans
2. Capturing marketing insights and performance
Connecting with customers
Building strong brands
Shaping the market offerings
Delivering and communicating value
7. Creating successful long-term growth
••• What Makes Marketing Management
the Marketing Leader?
Marketing is of interest to everyone, whether they are marketing goods, services, properties,
persons, places, events, information, ideas, or organizations. As it has maintained its
respected position among students, educators, and businesspeople, Marketing Management
has kept up-to-date and contemporary. Students (and instructors) feel that the book is talk­
ing directly to them in terms of both content and delivery.
Marketing Management owes its marketplace success to its ability to maximize three di­
mensions that characterize the best marketing texts-depth, breadth, and relevance-as
measured by the following criteria:
• Depth. Does the book have solid academic grounding? Does it contain important theo­
retical concepts, models, and frameworks? Does it provide conceptual guidance to solve
• Breadth. Does the book cover all the right topics? Does it provide the proper amount of
emphasis on those topics?
• Relevance. Does the book engage the reader? Is it interesting to read? Does it have lots of
The thirteenth edition builds on the fundamental strengths of past editions that collec­
tively distinguish it from all other marketing management texts:
• Managerial Orientation. The book focuses on the major decisions that marketing man­
agers and top management face in their efforts to harmonize the organization's objectives,
capabilities, and resources with marketplace needs and opportunities.
• Analytical Approach. Marketing Management presents conceptual tools and frame­
works for analyzing recurring problems in marketing management. Cases and examples
illustrate effective marketing principles, strategies, and practices.
• Multidisciplinary Perspective. The book draws on the rich findings of various scientific
disciplines-economics, behavioral science, management theory, and mathematics-for
fundamental concepts and tools directly applicable to marketing challenges.
• Universal Applications. The book applies strategic thinking to the complete spectrum
of marketing: products, services, persons, places, information, ideas and causes; con­
sumer and business markets; profit and nonprofit organizations; domestic and foreign
companies; small and large firms; manufacturing and intermediary businesses; and low­
and high-tech industries.
• Comprehensive and Balanced Coverage. Marketing Management covers all the topics
an informed marketing manager needs to understand to execute strategic, tactical, and
Other features include new concepts, examples, gUidelines, and developments as detailed
25. : :: Revision Strategy for the Thirteenth Edition
As marketing techl'iques and organization have changed, so has this text. The thirteenth
edition is designed not only to preserve the strengths of previous editions, but also to intro­
duce new material and organization to further enhance learning. We retained the key theme
of holistic marketing, and the recognition that "everything matters" with marketing and that
a broad, integrated perspective is often necessary. This theme is not developed so deeply,
however, that it would restrict or inhibit an instructor's flexibility and teaching approach. To
provide flexibility in the classroom, we also retained the new modular structure and eight
parts corresponding to the eight key marketing management tasks. The thirteenth edition
was changed to include the following:
• All chapters have brief commentary and new introductory vignettes that set the stage for
the chapter material to follow. By covering topical brands or companies, the vignettes
serve as great discussion starters.
• Breakthrough Marketing boxes replace the Marketing Spotlight boxes from the twelfth
edition. Each chapter has one box appearing in an appropriate spot to highlight innova­
tive, insightful marketing accomplishments by leading organizations.
• Approximately four Marketing Insight and Marketing Memo boxes are included in each
chapter; at least half, on average, are new. Marketing Insight boxes delve into important
marketing topics, often highlighting current research findings. Marketing Memo boxes of­
fer practical advice and direction in dealing with various decisions at all stages ofthe mar­
keting management process.
• About ten in-text boxes are included in each chapter, with roughly two-thirds new. These
in-text boxes provide vivid illustrations of chapter concepts using actual companies and
situations. The boxes cover a variety of products, services, and markets, and many have ac­
companying illustrations in the form of ads or product shots.
• Chapters are updated throughout, especiaJly in terms of academic references.
• At the end of each chapter, the Marketing Applications section has two practical exercises
to challenge students: Marketing Debate suggests opposing points of view on an impor­
tant marketing topic from the chapter and asks students to take a side. Marketing Discus­
sion identifies provocative marketing issues and allows for a personal point of view.
::: Chapter-by-Chapter Changes
Once again. this edition has been both streamlined and expanded to bring essentials and
classic examples into sharper focus, while covering new concepts and ideas in depth.
Following is an overview of some of the new or expanded matelial in each chapter:
• Role of Chief Marketing Officer (CMO)
• 1Vhat makes a great marketer
• Internal marketing and effective marketing departments
• Market sensing and becoming more market-driven
• Assigning resources to SBUs
• Corporate culture and innovative marketing
Important new marketplace trends
Generations and cohorts
• Ethnographic research
• Brain science
• Marketing dashboards
• Marketing-mix modeling
• Measuring customer satisfaction
• Methods to calculate customer lifetime value
• The new customer empowerment
• New consumer trends
• Consumer decision-making
• Customer references
• Lead generation
• Customer value proposition
• Niche marketing and the "long tail"
• Consumers trading up and down
• Brand funnel
Brand equity models
• Internal branding
• Brand valuation
• Customer equity
• Creating new markets and categories
• Building a breakaway brand
• Value innovation ("blue ocean thinking")
• Selecting customers
• Competing with value-based rivals
27. Chapter 12
• Product returns
• Product and product line simplification
• Customer interface systems
• Service strategies for product companies
• The changing pricing environment
"Freemium" pricing strategies
• Strategies to fight low-cost rivals
• Channel stewardship
• The new retail environment
• "Fast forward" retailers
• Private-label competition
The changing marketing communication environment
• New developments in place advertising
• Advergames and Second Life
• New developments in marketing events and experiences
• Consumer-generated ads
• Types of interactive marketing
• Word of mouth, buzz and viral marketing, blogs, and podcasts
• Innovation imperative
• "Connect and develop" innovation approaches
• Generating ideas from customers
Designing brainstorming sessions
• Emerging markets ("BlUeS")
• Gray markets and counterfeit products
• New developments in social responsibility
• Cause marketing guidelines
• Marketing metrics
• Marketing creativity and discipline
::: The Teaching and Learning Package
Marketing Management is an entire package of materials available to students and instruc­
tors. This edition includes a number of ancillaries designed to make the marketing manage­
ment course an exciting, dynamic. mtewctive experience.
CourseSmart is an exciting new chuice tor students looking to save money. As an alternative to
purchasing the print textbook, studellts can purchase an electronic version of the same content
and save up to 50 percent off the suggested list price of the print text. With a CourseSmart
eTextbook, students can search the text, nlake notes online, print out reading assignments tbat
incorporate lecture notes, and bookmark important passages for later review. For more infor­
mation, or to purchase access to the CourseSmart eTextbook, visit www.coursesmart.colll.
Study on the go with VangoNotes--chapter reviews from your text in downloadable MP3 for­
mat. Now wherever you are--whatever you're doing--you can study by listening to the fol­
lowing for each chapter of your textbook:
• Big Ideas: Your "need to know" for each chapter
• Key Terms: Audio "flashcards" to help you review key concepts and terms
• Rapid Review: A quick drill session--use it right before your test
VangoNotes are flexible; download all the material directly to your player, or only the chap­
ters you need. And they're efficient. Use them in your car, at the gym, walking to class, or
wherever. So get yours today. And get studying.
Marketing Management Cases
Prentice Hall Custom Business Resources can provide instructors and students with all the
cases and articles needed to enhance and maximize learning in a marketing course.
Instructors can create Custom Course Packs or Custom CaseBooks. Resources include top­
tier cases from Darden, Harvard, Ivey, NACRA. and Thunderbird, plus full access to a data­
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Instructor's Resource Manual
The Instructor's Resource Manual· includes chapter/summary overviews, key teaching
objectives, answers to end-of-chapter materials, Harvard Business School case suggestions,
exercises, projects, and detailed lecture outlines. Also included is the feature, "Professors on
the Go!" which was created with the busy professor in mind. It brings key material upfront,
where an instructor who is short on time can find key points and assignments that can be
incorporated into the lecture, without having to page through all the material provided for
Instructor's Resource Center (lRC)
IRC-CD-ROM: New interface and searchable database makes sorting through and locat­
ing specific resources easier than ever before. Includes all the same supplements hosted
at our IRC Online; however, the TestGen is only available online. The CD-ROM also con­
tains many images from the textbook, which you may incorporate into your lectures.
• IRC-ONLINE: The Prentice Hall catalog at wNw.prenhall.com/kotler is where instructors
can access our complete array of teaching materials. Simply go to the Instructor's Resource
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Test Item File
The Test Item File contains more than 3,000 multiple-choice, true-false, short-answer, and
essay questions, with page reference and difficulty level provided for each question. Please
note that an entire section is dedicated to application questions. These real-life situations
take students beyond basic chapter concepts and vocabulary and ask them to apply market­
The Test Item File supports Association to Advance Collegiate Schools of Business (AACSB)
International Accreditation. Each chapter of the Test Item File was prepared with the AACSB
curricula standards in mind. Where appropriate, the answer line of each question' indicates
a category within which the question falls. This AACSB reference helps instructors identify
those test questions that support that organization's learning goals.
'Please note that not all the questions will offer an AACSB reference.
Prentice Hall's TestGen test-generating software is available for this edition as well. This sup­
plement is available from the IRe Online only (www.prenhall.com/kotler). Please note that
the TestGen is NOT included on the Instructor's Resource Center on CD.
• PC/Mac compatible and preloaded with all the Test Item file questions.
• Manually or randomly view test bank questions and drag-and-drop to create a test.
• Add or modify test bank questions using the built-in Question Editor.
• Print up to 25 variations of a single test and deliver the test on a local area network using
the built-in QuizMaster feature.
• Free customer support is available at email@example.com or call 1-800-6­
PROFESSOR between 8:00 AM and 5:00 PM CST.
When it comes to PowerPoints, Prentice Hall knows one size does not fit all. That's why
Marketing Management, thirteenth edition, offers instructors more than one option.
PowerPoint BASIC: This simple presentation includes only basic outlines and key points
from each chapter. No animation or forms of rich media are integrated, which makes the
total file size manageable and easier to share online or via e- mail. BASIC was also designed
for instructors who prefer to customize PowerPoints or want to avoid having to strip out
animation, embedded files, or other media-rich features.
• PowerPoint MEDIA RICH: This media-rich alternative-the best option if you want a
complete presentation solution-includes basic outlines and key points from each chap­
ter, plus advertisements and art from the text, discussion questions, Web links, and em­
bedded video snippets from the accompanying video library. Instructors can further
customize this presentation using the image library featured on the IRC on CD-ROM.
Aside from these two PowerPoint options, a select number of slides, based on the MEDIA
RICH version, are also available as overhead transparencies.
Marketing Management Video Gallery 2009
Make your classroom "newsworthy." PH has updated the Marketing Management video
library for the thirteenth edition. Using today's popular newsmagazine format, students are
taken on location and behind closed doors. Each news story profiles a well-known or up­
and-coming company leading the way in its industry. A full library of video segments accom­
pany this edition, covering key topics using leading companies such as American Express,
the NFL, Eaton, and Wild Planet. Issue-focused footage includes interviews with top execu­
tives, objective reporting by real news anchors, industry research analysts, and marketing
and advertising campaign experts. A full video guide, including synopses, discussion ques­
tions, and teaching suggestions, is available on the IRC (online and on CD-ROM) to accom­
pany the video library.
Companion Web Site
Available at www.prenhall.com/kotler.This site offers students valuable resources at no cost.
Two quizzes are offered per chapter. The Concept Check Quiz is to be administered prior to
reviewing the chapter, in order to assess students' initial understanding. The Concept
Challenge Quiz is to be administered after reviewing the chapter.
The Marketing Plan Handbook 3rc1 edition with Marketing Plan Pro
Marketing Plan Pro is a highly rated commercial software program that guides students
through the entire marketing plan process. The software is totally interactive and features
ten sample marketing plans, step-by-step guides, and customizable charts. Customize your
marketing plan to fit your marketing needs by following easy-to-use plan wizards. Follow the
clearly outlined steps from strategy to implementation. Click to print, and your text, spread­
sheet, and charts come together to create a powerful marketing plan. The new The Marketing
Plan Handbook, by Marian Burk Wood, supplements the in-text marketing plan material
with an in-depth guide to what student marketers really need to know. A structured learning
process leads to a complete and actionable marketing plan. Also included are timely, real­
world examples that illustrate key points, sample marketing plans, and Internet resources.
The Handbook and Marketing Plan Pro software are available as value-pack items at a dis­
counted price. Contact your ,local Prentice Hall representative for more information.
he thirteenth edition bears the imprint of many people.
From Phil Kotler: My colleagues and associates at the Kellogg School of Management at
Northwestern University continue to have an important impact on my thinking: Nidhi
Agrawal, Eric 1. Anderson, James c. Anderson, Robert C. Blattberg, Miguel C. Brend!, Bobby J.
Calder, Gregory S. Carpenter, Alex Chernev, Anne T. Coughlan, David Gal, Kent Grayson, Karsten
Hansen, Dipak C. Jain, Lakshman Krishnamurti, Angela Lee, Vincent Nijs, Yi Qian, Mohanbir S.
Sawhney, Louis W. Stern, Brian Sternthal, Alice M. Tybout, and Andris A. Zoltners. I also want to
thank the S. C. Johnson Family for the generous support of my chair at the Kellogg School. Com­
pleting the Northwestern team is my former Dean, Donald P. Jacobs, and my current Dean,
Dipak Jain, both of whom have provided generous support for my research and writing.
Several former faculty members of the marketing department had a great influence on my
thinking when I first joined the Kellogg marketing faculty, specifically Richard M. Clewett,
Ralph Westfall, Harper W. Boyd, and Sidney J. Levy. I also want to acknowledge Gary
Armstrong for our work on Principles ofMarketing.
I am indebted to the following coauthors of international editions of Marketing Manage­
mentand Principles ofMarketing who have taught me a great deal as we worked together to
adapt marketing management thinking to the problems of different nations:
Swee- Hoon Ang and Siew-Meng Leong: National University of Singapore
Chin-Tiong Tan: Singapore Management University
FriedheIm W. Bliemel: Universitat Kaiserslautern (Germany)
Linden Brown; Stewart Adam: Deakin University; Suzan Burton: Macquarie Graduate
School of Management; and Sara Denize: University ofWestern Sydney (Australia)
• Bernard Dubois: Groupe HEC School of Management (France); and Delphine Manceau:
ESCP-EAP European School of Management
• John Saunders (Loughborough University) and Veronica Wong (Warwick University,
• Jacob Hornick: Tel Aviv University (Israel)
• Walter Giorgio Scott: Universita Cattolica del Sacro Cuore (Italy)
• Peggy Cunningham: Queen's University (Canada)
I also want to acknowledge how much I have learned from working with coauthors on
more specialized marketing subjects: Alan Andreasen, Christer Asplund, Paul N. Bloom, John
Bowen, Roberta C. Clarke, Karen Fox, David Gertner, Michael Hamlin, Thomas Hayes,
Donald Haider, Hooi Den Hua, Dipak Jain, Somkid Jatusripitak, Hermawan Kartajaya, Neil
Kotler, Nancy Lee, Sandra Liu, Suvit Maesincee, James Maken, Waldemar Pfoertsch, Gustave
Rath, Irving Rein, Eduardo Roberto, Joanne Scheff, Norman Shawchuck, Joel Shalowitz, Ben
Shields, Francois Simon, Robert Stevens, Martin Stoller, Fernando Trias de Bes, Bruce Wrenn,
and David Young.
My overriding debt continues to be to my lovely wife, Nancy, who provided me with the
time, support, and inspiration needed to prepare this edition. It is truly our book.
From Kevin Lane Keller: I continually benefit from the wisdom of my colleagues at Tuck­
Scott Neslin, Punam Keller, Kusum Ailawadi, Praveen Kopalle, Koen Pauwels, Petia Petrova,
Jackie Luan, Fred Webster, Gert Assmus, and John Farley-as well as the leadership of Dean
Paul Danos. I also gratefully acknowledge the invaluable research and teaching contributions
from my faculty colleagues and collaborators through the years. lowe a considerable debt of
gratitude to Duke University's Jim Bettman and Rick Staelin for helping to get my academic
career started and serving as positive role models. I am also appreciative of all that I have
learned from working with industry executives who have generously shared their insights and
experiences. Finally, I give special thanks to Punam, my wife, and Carolyn and Allison, my
daughters, who make it all happen and make it all worthwhile.
We are indebted to the following colleagues at other universities who reviewed this new
• Bomero Aguirre, TAMIU
• Parimal Bhagat, Indiana University of Pennsylvania
• Michael Bruce, Anderson University
• Yun Chu, Frostburg State University
• Bugh Daubek, Purdue University
• Kathleen Dominick, Rider University
• Tad Duffy, Golden Gate University
• Mohan Dutra, Purdue University
• Barbara Dyer, University of North Carolina at Greensboro
• Jackie Eastman, Valdosta State University
• Steve Edison. University of Arkansas-Little Rock
• Barb Finer, Suffolk University
• Renee Foster, Delta State University
Chic Fojtik, Pepperdine University
• Robert Galka, De Paul University
• Rashi Glazer, University of California, Berkeley
• Lewis Hershey, Fayetteville State University
Thomas Hewett, Kaplan University
Mary Higby, University of Detroit-Mercy
Michelle Kunz, Morehead State University
Even Lanseng, Norwegian School of Management
• Michael Lodato, California Lutheran University
• Henry Loehr, Pfeiffer University-Charlotte
• Susan Mann, Bluefield State College
• Charles Martin, Wichita State University
John McKeever, University of Houston
Robert Mika, Monmouth University
Mark Mitchell, Coastal Carolina University
Nnamdi Osakwe, Bryant & Stratton College
• Young-Hoon Park, Cornell University
Koen Pauwels, Dartmouth College
Keith Penney, Webster University
Patricia Perry, University of Alabama
Mike Powell, North Georgia College and State University
William Rice, California State University-Fresno
• Bill Robinson, Purdue University
• Jan Napoleon Saykiewicz, Duquesne University
• Larry Schramm, Oakland University
• Jim Skertich, Upper Iowa University
• Allen Smith, Florida Atlantic University
• Joe Spencer, Anderson University
• Nancy Stephens, Arizona State University
• Thomas Tellefsen, The College of Staten Island-CUNY
Daniel Turner, University ofWashington
Edward Volchok, Stevens Institute of Management
OJ. Wasmer, St. Mary-of-the-Woods College
Zac Williams, Mississippi State University
We would also like to thank colleagues who have reviewed previous editions of Marketing
Alan Au, University of Hong Kong
Hiram Barksdale, University of Georgia
Boris Becker, Oregon State University
Sandy Becker, Rutgers University
Sunil Bhatia, Case Western Reserve University
Frederic BruneI, Boston University
John Burnett, University of Denver
Lisa Cain, University of California at Berkeley and Mills College
Surjit Chhabra, DePaul University
Dennis Clayson, University of Northern Iowa
Bob Cline, University of Iowa
Brent Cunningham, Ph.D., Jacksonville State University
John Deighton, University of Chicago
Alton Erdem, University of Houston at Clear Lake
Elizabeth Evans, Concordia University
Ralph Gaedeke, California State University, Sacramento
Betsy Gelb, University of Houston at Clear Lake
Dennis Gensch, University ofWisconsin, Milwaukee
David Georgoff, Florida Atlantic University
Bill Gray, Keller Graduate School of Management
Barbara Gross, California State University at Northridge
Arun Jain, State University of New York, Buffalo
Eric Langer, Johns Hopkins University
Ron Lennon, Barry University
Bart Macchiette, Plymouth University
H. Lee Matthews, Ohio State University
Paul McDevitt, University of Winois at Springfield
Mary Ann McGrath, Loyola University, Chicago
Kenneth P. Mead, Central Connecticut State University
Henry Metzner, University of Missouri, Rolla
Francis Mulhern, Northwestern University
Pat Murphy, University of Notre Dame
Jim Murrow, Drury College
Zhou Nan, University of Hong Kong
Nicholas Nugent, Boston College
Donald Outland, University of Texas, Austin
Albert Page, University ofTJIinois, Chicago
Lisa Klein Pearo, Cornell University
Hank Pruden, Golden Gate University
Christopher Puto, Arizona State University
Abe Qstin, Lakeland University
Lopo Rego, University of Iowa
Richard Rexeisen, University of St. Thomas
Scott D. Roberts, Northern Arizona University
Robert Roe, University ofWyoming
Alex Sharland, Hofstra University
Dean Siewers, Rochester Institute of Technology
Anusorn Singhapakdi, Old Dominion University
Mark Spriggs, University of St. Thomas
Michael Swenso, Brigham Young University, Marriott School
Sean Valentine, University of Wyoming
Ann Veeck, West Michigan University
R. Venkatesh, University of Pittsburgh
Greg Wood, Canisius College
Kevin Zeng Zhou, University of Hong Kong
A warm welcome and many thanks to the following people who contributed to the global
case studies developed for the thirteenth edition:
Mairead Brady, Trinity College
John R. Brooks, Jr., Houston Baptist University
Sylvain Charlebois, University of Regina
Geoffrey da Silva, Temasek Business School
Malcolm Goodman, Durham University
Torben Hansen, Copenhagen Business School
Abraham Koshy, Sanjeev Tripathi, and Abhishek, Indian Institute of Management
Peter Ling, Edith Cowan University
Marianne Marando, Seneca College
Lu Taihong, Sun Yat-Sen University
The talented staff at Prentice Hall deserves praise for their role in shaping the thirteenth edi­
tion. We want to thank our Editor Melissa Sabella, for her contribution to this revision. We
also want to thank our project manager, Melissa Pellerano, for making sure everything was
moving along and falling into place in such a personable way, both vvith regard to the book
and supplements. We benefited greatly from the superb editorial help of Elisa Adams, who
lent her considerable talents as a development editor to this edition. We thank Nancy
Brandwein, who again researched and updated the examples. We also want to acknowledge
the fine production work of Judy Leale, the creative design work of Steve Frim, and the edi­
torial assistance of Christine letto. We thank Denise Vaughn for her work on the media pack­
age. We also thank our Marketing Manager, Anne Fahlgren.
s. C. Johnson Distinguished Professor ofInternational Marketing
Kellogg School of Management
Kevin Lane Keller
E. B. Osborn Professor of Marketing
Tuck School of Business
Hanover, New Hampshire
35. .lN3ltJ397'NVltJ 9N 1.1..3>1 tlV[.tJ 9N 10 NV.lStl30 N n
36. CHAPTER 1
FOR THE 21ST CENTURY
Marketing is everywhere. Formally or informally, people and organi­
zations engage in a vast number of activities that we could call mar­
keting. Good marketing has become an increasingly vital ingredient
for business success. And marketing profoundly affects our day-to­
day lives. It is embedded in everything we do-from the clothes we
wear, to the Web sites we click on, to the ads we see:
woteenage gir.ls.. walk into their local Starbucks, which happens to
be in Shanghai. One goes to the crowded counter and waits to
hand the barista cards for two free peppermint lattes. The other
sits at a table and opens her Lenovo ThinkPad R60 notebook computer.
Within a few seconds she connects to the Internet, courtesy of Starbucks'
deal with China Mobile to provide its customers with wireless access to
HotSpots on the China Mobile Network. Once on the Net, the girl uses
Baidu.com-the Chinese search engine market leader-to search for infor­
mation about the latest online game release from China's Shanda Interactive.
addition to links to various reviews, news sites, and fan pages, Baidu's
search results feature a link to a chat room where hundreds of other gamers
are discussing the game. The girl enters the chat room to ask whether peo­
ple who have played the game recommend it. The response is overwhelm­
ingly positive, so she clicks on a sponsored link from the results page, which > > >
Downtown Silanghai, a Iii e (1811 onslration of the many r res of
ma keling today.
37. generatesasliver'of.paid7search revenue/or Baidu and takes her to Shanda's offi­
,cial site! ~/.l~re sh.e'sets'yp,.an. EJ.cc(junt.
Nqwh~r friencJ'has ff?tLJrneljwithl(;ltfesi[1,hand. She's eager to show off her
parents~ Nev,/,Year;'s giftto Iier~ifhot pink Motorola RAZR cell,phane created bya
designers after;months of market ,research and con"
sumertests: ihe~twogirls'are admiring the slender phone when it receives a text
~d anno_uncin.g the,a.vaU~bJlitYo.rShanda'sJates.i,garne·for rrlobi/~ doV(n/oad. The
girls:turn to, the, laptop so; they can gauge theon/ilie buzzf6r,the mobile version
of the game.
Good marketin5;)is no accident, but a result of careful planning and execution.
It is both, an art and',a science-there's a constant tension between its· f()rmu­
lated sideCind its c;~eative,~side; It's easi~r to leCll"n the formulated side, which
will occupy most ofcour'attention in this book, but Newill also describe how
real creativity and. passion operate in.many companies. In this c;hapter" we lay
the foundation for· our- stud'yby. reviewin'g, a number of important marketing'
~oncepts, tools, frameworks, :and issues;
: :: The Importance of Marketing
Financial success often depends on marketing ability. Finance, operations, accounting, and
other business functions 'Will not really matter if there isn't sufficient demand for products
and services so the company can make a profit. There must be a top line for there to be a
bottom line. Many companies have now created a Chief Marketing Officer, or CMO, position
to put marketing on a more equal footing with other C-Ievel executives, such as the Chief
Executive Officer (CEO) and Chief Financial Officer (CFO). Press releases from organizations
of all kinds-from consumer goods makers to health care insurers and from nonprofit
organizations to industrial product manufacturers-trumpet their latest marketing achieve­
ments on their Web sites. In the business press, countless articles are devoted to marketing
strategies and tactics.
In stating their business priorities, CEOs acknowledge the importance of marketing. One
survey of the top 10 challenges CEOs face around the world in 2006 revealed that among the
top 5 were both "sustained and steady top line growth" and "customer loyalty/retention,"
challenges whose achievement depends heavily on marketing. l CEOs also recognize the
importance of marketing to building brands and a loyal customer base, intangible assets
that make up a large percentage of the value of a firm.
Marketing is tricky, however, and it has been the Achilles' heel of many formerly prosper­
ous companies. Sears, Levi's, General Motors, Kodak, Sony, and Xerox all have confronted
newly empowered customers and new competitors and have had to rethink their business
Even market leaders such as Intel, Microsoft, and Wal-Mart recognize that they cannot
afford to relax as their leadership is challenged. Jack Welch, GE's former CEO, repeatedly
warned his company: "Change or die."
38. DEFI ING MARKETING FOR THE 21ST CENTURY
Xerox has had to become more than just a copier company. Now the blue-chip icon with the name that
became a verb sports the broadest array of imaging products in the world and dominates the market for high­
end printing systems. And it's making a huge product-line transition as it moves away from the old-line "light
lens" technology to digital systems. Xerox is preparing for a world that is no longer black and white, and in
which most pages are printed in color (which, not incidentally, generates five times the revenue of black and
white). In addition to revamping its machines, Xerox is beefing up sales by providing annuity-like products and
services that are ordered again and again: document management, ink, and toners. Having been slow at one
time to respond to the emergence of Canon and the small copier market, Xerox is doing everything it can to
stay ahead of the game. 2
Making the right decisions about change isn't always easy. Marketing managers must
decide what features to design into a new product, what prices to offer customers, where to
sell products, and how much to spend on advertising, sales, or the Internet. They must also
decide on details such as the exact wording or color for new packaging. The companies at
greatest risk are those that fail to carefully monitor their customers and competitors and to
continuously improve their value offerings. They take a short-term, sales-driven view of
their business and ultimately they fail to satisfy their stockholders, employees, suppliers,
and channel partners. Skillful marketing is a never-ending pursuit.
::: The Scope of Marketing
To prepare to be a marketer, you need to understand what marketing is, how it works, what
is marketed, and who does the marketing.
What 15 Marketing?
Marketing is about identifying and meeting human and social needs. One of the shortest
good definitions of marketing is "meeting needs profitably." When eBay recognized that peo­
ple were unable to locate some of the items they desired most, it created an online auction
clearinghouse. When IKEA noticed that people wanted good furniture at a substantially
lower price, it created knockdown furniture. These two firms demonstrated marketing savvy
and turned a private or social need into a profitable business opportunity.
The American Marketing Association offers the following formal definition: Marketing is
an organizational function and a set ofprocesses for creating, communicating, and delivering
value to customers and for managing customer relationships in ways that benefit the organi­
zation and its stakeholders. 3 Coping with these exchange processes calls for a considerable
amount of work and skill. Marketing management takes place when at least one party to a
potential exchange thinks about the means of achieving desired responses from other par­
ties. Thus we see marketing management as the art and science of choosing target markets
and getting, keeping, and growing customers through creating, delivering, and communicat­
ing superior customer value.
We can distinguish between a social and a managerial definition of marketing. A social
definition shows the role marketing plays in society; for example, one marketer has said that
marketing's role is to "deliver a higher standard of living." Here is a social definition that
serves our purpose: Marketing is a societal process by which individuals and groups obtain
what they need and want through creating, offering, and freely exchanging products and ser­
vices ofvalue with others.
Managers sometimes think of marketing as "the art of selling products," but many people
are surprised when they hear that selling is not the most important part of marketing! Selling
is only the tip of the marketing iceberg. Peter Drucker, a leading management theorist, puts
it this way:
There will always, one can assume, be need for some selling. But the aim of market­
ing is to make selling superfluous. The aim of marketing is to know and understand
the customer so well that the product or service fits him and sells itself. Ideally,
marketing should result in a customer who is ready to buy. All that should be
needed then is to make the product or service available. 4
UNDERSTANDING MARKE.TING MANAGEMENT
When Sony designed its Play Station 3 game
system, when Apple launched its iPod Nano
digital music player. and when Toyota intro­
duced its Prius hybrid automobile, these manu­
facturers were swamped with orders because
they had designed the "right" product. based on
doing careful marketing homework.
What Is Marketed?
Marketing people market 10 types of enti­
ties: goods, services. events. experiences.
persons. places. properties, organizations.
information. and ideas. Let's take a quick
look at these categories.
GOODS Physical goods constitute the bulk of
A successful new product is tile result of careful marketing Ilomework
most countries' production and marketing ef­
forts. Each year, U.S. companies alone market
billions of fresh. canned. bagged, and frozen
food products and millions of cars, refrigera­
tors. television sets, machines, and various
other mainstays of a modern economy. Not
only do companies market their goods, but
thanks in part to the Internet, even individuals
can effectively market goods.
RUBBER CHICKEN CARDS
A struggling actor who made ends meet by waiting tables, landing bit parts in TV series, teaching high
school, and managing an office, Steve Rotblatt found a way to keep his acting dream alive by running a prof­
itable small business out of his home. Rubber Chicken Cards (rubberchickencards.com) is a Santa Monica
company that's generating online buzz with electronic greeting cards that combine voice-over acting-by
Rotblatt and partner Richard Zobel-with irreverent humor. It didn't hurt that Classmates.com selected the
company to develop a lighthearted card to help its 40 million members reconnect with old friends, or that
the social networking site Me.com chose Rubber Chicken over dozens of competing vendors to create an
electronic birthday card for its members. Founded in 2000. the company expected annual sales to reach
$300,000 in 2006, up 60% from the prior year. Rotblatt and Zobel's business strategy: use our talents and
spend as little as possible. 5
SERVICES As economies advance, a growing proportion of their activities focuses on the
production of services. The U.S. economy today consists of a 70-30 services-to-goods mix.
Services include the work of airlines, hotels, car rental firms, barbers and beauticians. main­
tenance and repair people, and accountants, bankers, lawyers, engineers. doctors, software
programmers, and management consultants. Many market offerings consist ofa variable mix
of goods and services. At a fast-food restaurant, for example, the customer consumes both a
product and a service.
EVENTS Marketers promote time-based events, such as major trade shows, artistic perfor­
mances, and company anniversaries. Global sporting events such as the Olympics and the
World Cup are promoted aggressively to both companies and fans.
EXPERIENCES By orchestrating several services and goods, a firm can create, stage. and
market experiences. Walt Disney World's Magic Kingdom represents this kind of experiential
marketing. allowjng customers to visit a fairy kingdom, a pirate ship, or a haunted house.
There is also a market for customized experiences. such as spending a week at a baseball
camp playing wjth retired baseball greats, conducting the Chicago Symphony Orchestra for
five minutes, or climbing Mount Everest. 6
40. DEFINING MJl.RKETIN
FOR THE 2'!ST CENTURY
PERSONS Celebrity marketing is a major business. Artists, musicians, CEOs, physicians,
high-profile lavvyers and financiers, and other professionals all get help from celebrity mar­
keters. 7 Some people have done a masterful job of marketing themselves-think of David
Beckham, Oprah Winfrey, and the Rolling Stones. Management consultant Tom Peters, him­
self a master at self-branding, has advised each person to become a "brand."
PLACES Cities, states, regions, and whole nations compete actively to attract tourists, facto­
ries, company headquarters, and new residents. G Place marketers include economic develop­
ment specialists, real estate agents, commercial banks, local business associations, and
advertising and public relations agencies. The Las Vegas Convention & Tourism Authority
spent about $80 million on a provocative ad campaign, "What Happens Here, Stays Here." Re­
turning to its roots as an "adult playground," Las Vegas hoped the campaign would lead to an
increase from 37.4 million visitors in 2004 to 43 million visitors by 2009.~J
PROPERTIES Properties are intangible rights of ownership of either real property (real es­
tate) or financial property (stocks and bonds). Properties are bought and sold, and these ex­
changes require marketing. Real estate agents work for property owners or sellers, or they buy
and sell residential or commercial real estate. Investment companies and banks market se­
curities to both institutional and individual investors.
ORGANIZATIONS Organizations actively work to build a strong, favorable, and unique im­
age in the minds of their target publics. In the United Kingdom, Tesco's "Every Little Helps"
marketing program reflects the food marketer's attention to detail in everything it does, within
as well as outside the store in the community and the environment. The campaign has vaulted
Tesco to the top of the UK supermarket chain industry. Universities, museums, performing
arts organizations, and nonprofits all use marketing to boost their public images and to com­
pete for audiences and funds. Corporate identity campaigns are the result of intensive market
research programs. This is certainly the case with Philips "Sense and Simplicity" campaign.
Philips researchers asked 1,650 consumers and 180 customers in dozens of in-depth and quantitative interviews
and focus groups what was most important to them in using technology. Respondents from the UK, United States,
France, Germany, the Netherlands, Hong Kong, China, and Brazil agreed on one thing: they wanted the benefits of
technology without the hassles. With its "Sense and Simplicity" advertising campaign and focus, Philips believes,
"our brand now reflects our belief that simplicity can be a goal of technology. It just makes sense." The campaign
consists of print, online, and television advertising directed by five experts from the worlds of health care, lifestyle,
and technology whose role is to provide "additional outside perspectives on the journey to simplicity. "10
INFORMATION Information is essentially what books, schools, and universities produce, mar­
ket, and distribute at a price to parents, students, and communities. Magazines such as Road and
Track, PC World, and Vogue supply information about the car, computer, and fashion worlds, re­
spectively. The production, packaging, and distribution of information are some of our society's
major industries. I I Even companies that sell physical products attempt to add value through the
use of information. For example, the CEO of Siemens Medical Systems, Tom McCausland, says,
"Iour product] is not necessarily an X-ray or an MRI, but information. Our business is really
health care information technology, and our end product is really an electronic patient record:
information on lab tests, pathology, and drugs as weB as voice dictation."12
IDEAS Every market offering includes a basic idea. Charles Revson of RevIon once Observed:
"In the factory, we make cosmetics; in the store we sell hope." Products and services are plat­
forms for delivering some idea or benefit. Social marketers are busy promoting such ideas as
"Friends Don't Let Friends Drive Drunk" and "A Mind Is a Terrible Thing to Waste."
MARKETERS AND PROSPECTS A marketer is someone who seeks a response-attention,
a purchase, a vote, a donation-from another party, called the prospect. If two parties are
seeking to sell something to each other, we call them both marketers.
UNDERSTAriDING MARKETING MANAGEMENT
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Marketers are indeed skilled at stimulating demand for their company's products, but
that's too limited a view of the tasks they perform. Just as production and logistics profes­
sionals are responsible for supply management, marketers are responsible for demand man­
agement. Marketing managers seek to influence the level, timing, and composition of
demand to meet the organization's objectives. Eight demand states are possible:
1. Negative demand-Consumers dislike the product and may even pay a price to avoid it.
2. Nonexistent demand-Consumers may be unaware of or uninterested in the product.
3. Latent demand-Consumers may share a strong need that cannot be satisfied by an
4. Declining demand-Consumers begin to buy the product less frequently or not at all.
5. Irregular demand-Consumer purchases vary on a seasonal, monthly, weekly, daily, or
even hourly basis.
6. Full demand-Consumers are adequately buying all products put into the marketplace.
7. Overfull demand-More consumers would like to buy the product than can be satisfied.
8. Unwholesome demand-Consumers may be attracted to products that have undesir­
able social consequences.
In each case, marketers must identify the underlying causers) of the demand state and
then determine a plan of action to shift the demand to a more desired state.
MARKETS Traditionally, a "market" was a physical place where buyers and sellers gathered
to buy and sell goods. Economists describe a market as a collection of buyers and sellers who
transact over a particular product or product class (such as the housing market or the grain
market). Modern economies abound in such markets.
42. DEFINING MARKETING FOR THE 21ST CENTURY
Goods and services
S!IlIl'IIJlr. nf Rows in a Morlern
Goods and services
Five basic markets and their connecting flows are shown in Figure 1.1. Manufacturers go
to resource markets (raw material markets, labor markets, money markets), buy resources
and turn them into goods and services, and then sell finished products to intermediaries,
who sell them to consumers. Consumers sell their labor and receive money with which they
pay for goods and services. The government collects tax revenues to buy goods from
resource, manufacturer, and intermediary markets and uses these goods and services to
proVide public services. Each nation's economy, and the global economy, consists of com­
plex interacting sets of markets linked through exchange processes.
Marketers often use the term market to cover various groupings of customers. They view
sellers as constituting the industry and buyers as constituting the market. They talk about
need markets (the diet-seeking market), product markets (the shoe market), demographic
markets (the youth market), and geographic markets (the French market); or they extend the
concept to cover other markets, such as voter markets, labor markets, and donor markets.
Figure 1.2 shows the relationship betvreen the industry and the market. Sellers and buy­
ers are connected by four flows. The sellers send goods and services and communications
such as ads and direct mail to the market; in return they receive money and information
such as customer attitudes and sales data. The inner loop shows an exchange of money for
goods and services; the outer loop shows an exchange of information.
EY CUSTOMER ARKETS Consider the following key customer markets: consumer, busi­
ness, global, and nonprofit.
Con sum e r Mar k e t s Companies selling mass consumer goods and services such
as soft drinks, cosmetics, air travel, and athletic shoes and equipment spend a great deal
of time trying to establish a superior brand image. Much of a brand's strength depends on
developing a superior product and packaging, ensuring its availability, and backing it with
engaging communications and reliable service.
Bus i n e ssM r k e t s Companies selling business goods and services often face
well-trained and well-informed professional buyers who are skilled at evaluating competitive
offerings. Business buyers buy goods in order to make or resell a product to others at a profit.
Business marketers must demonstrate how their products will help these buyers achieve
(a collection of buyers)
(a collection of sellers)
UNDERSTANDING MARI<:ETiNG MANAGEMENT
higher revenue or lower costs. Advertising can playa role, but the sales force, price, and the
company's reputation for reliability and quality may playa stronger one.
G lob a I Mar k e t s Companies selling goods and services in the global marketplace
face additional decisions and challenges. They must decide which countries to enter; how to
enter each (as an exporter, licenser, joint venture partner, contract manufacturer, or solo
manufacturer); how to adapt their product and service features to each country; how to price
their products in different countries; and how to adapt their communications to fit different
cultures. They make these decisions in the face of different requirements for buying, negoti­
ating, owning, and disposing of property; different culture, language, and legal and political
systems; and currencies that might fluctuate in value. Yet, the payoff for doing all this addi­
tionallegwork can be huge.
ALASKA DEPARTMENT OF COMMERCE. WAL-MART
In 2005 alone, China accounted for $337 million of Alaska's exports-from seafood and fish meal to minerals,
fertilizers, and wood-and surpassed Canada to become Alaska's third-largest export partner. Noting the huge
market potential of China, especially with the 2008 Olympics in Beijing and the 2010 World Expo slated for
Shanghai, Wal-Mart purchased about $140,000 of Alaska seafood for its China stores. In order to compete with
white fish and farmed salmon from Norway, five Wal-Mart stores hired Alaska officials to host cooking demon­
strations of wild Alaska sockeye salmon and black cod during a 14-day span. Although they were labor inten­
sive, the demonstrations gave an immediate taste test to China's young, sophisticated urban residents, who can
pay the high prices these fish command. 13
Non pro fit and G 0 v ern men t a I Mar k e t s Companies selling their
goods to nonprofit organizations such as churches, universities, charitable organizations,
and government agencies need to price carefully, because these buyers have limited purchas­
ing power. Lower selling prices affect the features and quality the seller can build into the of­
fering. Much government purchasing calls for bids, and buyers often favor the lowest bid in
the absence of extenuating factors.
ARKETPLACES, M",RKETSPACES, A ~D METAIVIARKETS The marketplace is physical,
such as a store you shop in; marketspaceis digital, as when you shop on the Internet. J4
Northwestern University's Mohan Sawhney has proposed the concept of a metamarket to
describe a cluster of complementary products and services that are closely related in the
minds of consumers, but spread across a diverse set of industries. The automobile metamar­
ket consists of automobile manufacturers, new car and used car dealers, financing compa­
nies, insurance companies, mechanics, spare parts dealers, service shops, auto magazines,
classified auto ads in newspapers, and auto sites on the Internet.
In purchasing a car, a buyer will get involved in many parts of this metamarket, and this
creates an opportunity for metamediaries to assist buyers in moving seamlessly through
these groups, although they are disconnected in physical space. One example is Edmund's
(www.edmunds.com). a Web site where a car buyer can find the stated features and prices of
different automobiles and easily click to other sites to search for the lowest-price dealer for
financing, for car accessories, and for used cars at bargain prices. Metamediaries also serve
other metamarkets, such as the home ownership market, the parenting and baby care mar­
ket, and the wedding market. 15
Marketing in Practice
How is marketing done? Increasingly, marketing is not done only by the marketing depart­
ment. Marketing needs to affect every aspect of the customer experience, meaning that mar­
keters must properly manage all possible touch points-store layouts, package designs,
product functions, employee training, and shipping and logistics methods. Marketing must
also be heavily involved in key general management activities, such as product innovation
and new-business development.
To create a strong marketing organization, marketers must think like executives in
other departments, and executives in other departments must think more like mar­
keters. IG CMO and later CEO ofWaIMart.com, Carter Cast, noted that what surprised him
44. DEFINING MARKETING FOR THE 21ST CENTURY
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most when he became CMO was "that I would interact so much with functions outside of
marketing. I didn't realize it is a holistic assignment. Then I realized I really had to under­
stand things like product supply, cost break-evens, and accounting."17
Companies generally establish a marketing department to be responsible for creating
and delivering customer value, but as the late David Packard of Hewlett-Packard observed,
"Marketing is far too important to leave to the marketing department." Companies now
know that every employee has an impact on the customer and must see the customer as the
source of the company's prosperity. So they're beginning to emphasize interdepartmental
teamwork to manage key processes. They're also placing more emphasis on the smooth
management of core business processes, such as new-product realization, customer acqui­
sition and retention, and order fulfillment.
In practice, marketing follows a logical process. The marketing planning process consists
of analyzing marketing opportunities, selecting target markets, designing marketing strate­
gies, developing marketing programs, and managing the marketing effort. In highly compet­
itive marketplaces, however. marketing planning is more fluid and is continually refreshed.
Companies must always be moving forward with marketing programs, innovating products
and services, staying in touch with customer needs, and seeking new advantages rather than
relying on past strengths.
The changing new marketing environment is putting considerable demands on market­
ing executives. Marketers must have diverse quantitative and qualitative skills, an entrepre­
neurial attitude, and a keen understanding of how marketing can create value within their
organization. 18 They must work in harmony with the sales function.
There are five key functions for a CMO in leading marketing within the organization:
1. Strengthening the brands
Measuring marketing effectiveness
Driving new product development based on customer needs
Gathering meaningful customer insights
Utilizing new marketing technology
Harvard's John Quelch and Gail McGovern note that there is tremendous variability in the
responsibilities and job descriptions for CMOs.19 They offer eight ways to improve CMO suc­
cess (see Figure 1.3).
UNDERSTANDING MARKETlrlG MANAGEMEN
Improvlll[1 CMO Success
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1. Make the mission and responsibilities clear. Be certain that the case for having a CMO is strong and
.the mission is well understood by leaders in the organization, particularly the CEO, the board, and line
management Without a clear need (real or perceived), the role will be rejected by the organization,
2. Fit the role to the marketing culture and structure. Avoid having a CMO in a marketing-led company
that has many individual brands rather than a single corporate umbrella-unless the person appointed to the
position is a well-connected insider,
3. Choose a CMO who is compatible with the CEO. Beware of the CEO who wants to hire aCMO but doesn't
want to relinquish any marketing control. Find a CEO who recognizes his or her responsibility to be the cheerleader
for marketing and the brand, but realizes the need to be guided and coached by a marketing specialist.
4. Remember that showpeople don't succeed. The CMO should work hard to ensure the CEO is
successful at being the principal cheerleader for the brand
5. Match the personality with the CMO type. Be certain that the chief marketer has the right skills and
personality for whichever of the three CMO models he or she might fill (VP of Marketing Services, Classic CMO,
or "Super" CMO) There is little tolerance for on-the-job training,
6. Make line managers marketing heroes. By stretching their marketing budgets, CMOs can improve a
division's marketing productivity and help business unit leaders increase their top-line revenues,
7. Infiltrate the line organization. Have the CMO support the placement of marketing professionals from
the corporate marketing department into divisional marketing roles, Provide input from the CMO into the
annual reviews of line marketers.
8. Require right-brain and left-brain skills. The most successful CMO will have strong creative and technical
marketing expertise, be politically savvy, and have the interpersonal skills to be a great leader and manager,
: :: Core Marketing Concepts
To understand the marketing function, we need to understand the following core set of
Needs, Wants, and Demands
Needs are the basic human requirements. People need air, food, water, clothing, and shelter
to survive. People also have strong needs for recreation, education, and entertainment.
These needs become wants when they are directed to specific objects that might satisfy the
need. A consumer in the United States needs food but may want a hamburger, french fries,
and a soft drink. A person in Mauritius needs food but may want a mango, rice, lentils, and
beans. Wants are shaped by our society.
Demands are wants for specific products backed by an ability to pay. Many people want a
Mercedes; only a few are Willing and able to buy one. Companies must measure not only
how many people want their product, but also how many would actually be willing and able
to buy it.
These distinctions shed light on the frequent criticism that "marketers create needs" or
"marketers get people to buy things they don't want." Marketers do not create needs: Needs
preexist marketers. Marketers, along with other societal factors, influence wants. Marketers
might promote the idea that a Mercedes would satisfy a person's need for social status. They
do not, however, create the need for social status.
Understanding customer needs and wants is not always simple. Some customers have
needs of which they are not fully conscious, or they cannot articulate these needs, or they
use words that require some interpretation. What does it mean when the customer asks
for a "powerful" lawnmower, a "fast" lathe, an "attractive" bathing suit, or a "restful" hotel?
The marketer must probe furtheL We can distinguish among five types of needs:
1. Stated needs (The customer wants an inexpensive caL)
2. Real needs (The customer wants a car whose operating cost, not its initial price, is low.)
3. Unstated needs (The customer expects good service from the dealeL)
MARKETING FOR THE 21 ST CENTURY
4. Delight needs (The customer would like the dealer to include an onboard navigation
5. Secret needs (The customer wants friends to see him as a savvy consumer.)
Responding only to the stated need may shortchange the customer. Many consumers do
not know what they want in a product. Consumers did not know much about cellular phones
when they were first introduced, and Nokia and Ericsson fought to shape consumer percep­
tions of them. Simply giving customers what they want isn't enough any more-to gain an
edge companies must help customers learn what they want.
Target Markets, Positioning, and Segmentation
A marketer can rarely satisfy everyone in a market. Not everyone likes the same cereal, hotel
room, restaurant, automobile, college, or movie. Therefore, marketers start by dividing the
market into segments. They identify and profile distinct groups of buyers who might prefer
or require varying product and service mixes by examining demographic, psychographic,
and behavioral differences among buyers.
Wal-Mart uses segmentation to reach customers in different geographic markets, with its new Store of the
Community concept. Now over two dozen Wal-Mart stores have been designed to reflect the communities in
which they are located. For instance, there's a Wal-Mart with a Western flair in Ft. Collins, Colorado, and a
two-level art-deco-inspired unit to draw in wealthy African Americans in Baldwin Hills, California. In an effort
to cater to the country's fourth-largest Amish community, the Middlefield, Ohio, Wal-Mart offers hitching posts
outside for horse and buggies, block ice for refrigerators, and a huge assortment of denim fabric for making
After identifying market segments, the marketer then decides which present the greatest
opportunity-which are its target markets. For each, the firm develops a market offering that
it positions in the minds of the target buyers as delivering some central benefit(s). For exam­
ple, Volvo develops its cars for buyers to whom safety is a major concern. Volvo, therefore,
positions its car as the safest a customer can
buy. Companies do best when they choose
their target market(s) carefully and prepare
tailored marketing programs.
Offerings and Brands
Companies address needs by putting forth a
value proposition, a set of benefits that they
offer to customers to satisfy their needs. The
intangible value proposition is made physi­
cal by an offering, which can be a combina­
tion of products, services, information, and
A brand is an offering from a known
source. A brand name such as McDonald's
carries many associations in people's minds
that make up the brand image: hamburgers,
fun, children, fast food, convenience, and
golden arches. All companies strive to build a
strong, favorable, and unique brand image.
Value and Satisfaction
The offering wiU be successful if it delivers value
and satisfaction to the target buyer. The buyer
chooses between different offerings based on
1he art -deeo slylinO of II lis new Wal-Mart store is Oleanlto appeal 10 the wealthy sllolJPers in it
UNDERSTANDING MARKETING MANAGEMENT
which she perceives to deliver the most value. Value reflects the sum of the perceived tangible
and intangible benefits and costs to customers. It's primarily a combination of quality, service,
and price ("qsp"), called the "customer value triad." Value increases with quality and service and
decreases with price, although other factors can also play an important role in our perceptions
Value is a central marketing concept. We can think of marketing as the identification, cre­
ation, communication, delivery, and monitoring of customer value. Satisfaction reflects a
person's judgments of a product's perceived performance (or outcome) in relationship to
expectations. If the performance falls short of expectations, the customer is dissatisfied and
disappointed. If it matches expectations, the customer is satisfied. If it exceeds them, the
customer is delighted.
To reach a target market, the marketer uses three kinds of marketing channels.
Communication channels deliver and receive messages from target buyers and include
newspapers, magazines, radio, television, mail, telephone, billboards, posters, fliers, CDs,
audiotapes, and the Internet. Beyond these, just as we convey messages by our facial
expressions and clothing, firms communicate through the look of their retail stores, the
appearance of their Web sites, and many other media. Marketers are increasingly adding
dialogue channels such as e-mail, blogs, and toll-free numbers to familiar monologue
channels such as ads.
The marketer uses distribution channels to display, sell, or deliver the physical product
or service(s) to the buyer or user. They include distributors, wholesalers, retailers, and
The marketer also uses service channels to carry out transactions with potential buyers.
Service channels include warehouses, transportation companies, banks, and insurance
companies that facilitate transactions. Marketers clearly face a design challenge in choosing
the best mix of communication, distribution, and service channels for their offerings.
The supply chain is a longer channel stretching from raw materials to components to final
products that are carried to final buyers. The supply chain for women's purses starts with
hides and moves through tanning, cutting, manufacturing, and the marketing channels to
bring products to customers. Each company captures only a certain percentage of the total
value generated by the supply chain's value delivery system. When a company acquires com­
petitors or expands upstream or downstream, its aim is to capture a higher percentage of
supply chain value.
Competition includes all the actual and potential rival offerings and substitutes a buyer
might consider. Suppose an automobile company is planning to buy steel for its cars. There
are several possible levels of competitors. The manufacturer can buy steel from U.S. Steel in
the United States, it can buy from a foreign firm in Japan or Korea, it can buy from a minimill
such as Nucor at a cost savings, or it can buy aluminum from Alcoa for certain parts to
reduce the car's weight or engineered plastics from Saudi Basic Industries Corporation
(SABIC), purchasers of GE Plastics, for bumpers instead of steel. Clearly, U.S. Steel would be
thinking too narrowly about its competition if it thought only of other integrated steel com­
panies. In fact, in the long run U.S. Steel is more likely to be hurt by substitute products than
by other steel companies.
The marketing environment consists of the task environment and the broad environment.
The task environment includes the actors engaged in producing, distributing, and promot­
ing the offering. These are the company, suppliers, distributors, dealers, and the target
customers. In the supplier group are material suppliers and service suppliers, such as
marketing research agencies, advertising agencies, banking and insurance companies,
transportation companies, and telecommunications companies. Distributors and dealers
G I-OR HiE 21ST CENTURY
include agents, brokers, manufacturer representatives, and others who facilitate finding
and selling to customers.
The broad environment consists of six components: demographic environment, eco­
nomic environment, physical environment. technological environment, political-legal
environment, and social-cultural environment. Marketers must pay close attention to the
trends and developments in these environments and make timely adjustments to their
::: The New Marketing Realities
We can say with some confidence that "the marketplace isn't what it used to be." Marketers
must attend and respond to a number of significant developments.
Major Societal Forces
Today the marketplace is radically different as a result of major, and sometimes inter­
linking, societal forces that have created new behaviors, new opportunities, and new
• Network information technology. The digital revolution has created an Information
Age. The Industrial Age was characterized by mass production and mass consumption, stores
stuffed with inventory, ads everywhere, and rampant discounting. The Information Age
promises to lead to more accurate levels of production, more targeted communications, and
more relevant pricing.
• Globalization. Technological advances in transportation, shipping, and communica­
tion have made it easier for companies to market in other countries, and easier for con­
sumers to buy products and services from marketers in other countries.
Deregulation. Many countries have deregulated industries to create greater compe­
tition and growth opportunities. In the United States, laws restricting financial services,
telecommunications, and electric utilities have all been loosened in the spirit of greater
Privatization. Many countries have converted public companies to private ownership
and management to increase their efficiency, such as British Airways and British Telecom in
the United Kingdom.
Heightened competition. Brand manufacturers are facing intense competition from
domestic and foreign brands, resulting in rising promotion costs and shrinking profit mar­
gins. They are being further buffeted by powerful retailers that command limited shelf space
and are putting out their own store brands in competition with national brands. Many strong
brands are extending into related product categories, creating mega brands with much pres­
ence and reputation.
Industry convergence. Industry boundaries are blurring at an incredible rate as compa­
nies are recognizing that new opportunities lie at the intersection of two or more industries.
The computing and consumer electronics industries are converging as the giants of the
computer world such as Dell, Gateway, and Hewlett-Packard release a stream of entertain­
ment devices-from MP3 players to plasma TVs and camcorders. The shift to digital tech­
nology is fueling this massive convergence. 20
Consumer resistance. A 2004 Yankelovich study found record levels of marketing
resistance from consumers. 21 A majority of those surveyed reported negative opinions
about marketing and advertising, stating that they avoid products that they feel overmar­
ket. The increased popularity of digital video recorders such as TiVo make it easier for
consumers to skip or "zap" TV commercials, in part reflecting their desire for marketing
Retail transformation. Small retailers are succumbing to the growing power of giant
retailers and "category killers." Store-based retailers face competition from catalog houses;
direct-mail firms; newspaper, magazine, and TV direct-to-customer ads; home shopping TV;
and e-commerce on the Internet. In response, entrepreneurial retailers are building enter­
tainment into their stores with coffee bars, lectures, demonstrations, and performances,
marketing an "experience" rather than a product assortment.
UNDERSTANDING MARKETING MANAGEMENT
MAC COSMETICS INC-
Adivision of cosmetics giant Estee Lauder, MAC Cosmetics is considered a significant reason for Lauder's
13% net makeup sales increase. Yet, MAC's 1,000 stores worldwide don't simply sell Small Eye Shadow,
Studio Fix, Lustreglass, and Pro Longwear Lipcoulour. Instead, they rely on highly paid "artists" to bond with
each customer during a free makeup consultation and application lesson. Although this tack is hardly new in
the world of retail makeup, what's unique is that MAC's artists are not out there to bump up their commis­
sions and load customers down with more products. Rather, they're trained to collaborate with customers so
they'll leave the store with $50 or more of MAC products and the feeling, "I can definitely do this at home."
The goal, says Matthew Waitesmith, MAC's head of "artist training and development," is for each customer to
feel she's had an authentically artistic experience "that hopefully means they'll return to the place that makes
them feel like an artist."22
• Disintermediation. The amazing success of early online dot-corns, such as AOL,
Amazon.com, Yahoo!, eBay, WTRADE, and dozens of others that created disintermediation in
the delivery of products and services by intervening between the traditional flow of goods
through distribution channels, struck terror into the hearts of many established manufacturers
and retailers. In response, many traditional companies engaged in reintermediationand became
"brick-and-click" retailers, adding online services to their existing offerings. Many brick-and­
click competitors became stronger contenders than pure-click firms, because they had a larger
pool of resources to work with and well-established brand names.
The societal forces that spawned this Information Age have resulted in many new con­
sumer and company capabilities.
New Consumer Capabilities
Customers today perceive fewer real product differences and show less brand loyalty, and
they are becoming more price and quality sensitive in their search for value. Consider ,;vhat
consumers have today that they didn't have yesterday:
• A substantial increase in buying power. Buyers are only a click away from comparing
competitor prices and product attributes on the Internet. They can even name their price for
a hotel room, airline ticket, or mortgage. Business buyers can run a relJerse auction in which
sellers compete to capture their business. They can readily join with others to aggregate their
purchases and achieve deeper volume discounts.
• A greater variety of available goods and services. Amazon.com quickly became the
world's largest bookstore but has since branched into retail sales of music and movies,
clothing and accessories, consumer electronics, health and beauty aids, and home and
garden products. Buyers can order goods online from anywhere in the world, bypassing
limited local offerings and realizing great savings by ordering in countries with lower
• A great amount of information about practically anything. People can read almost
any newspaper in any language from anywhere in the world. They can access online ency­
clopedias, dictionaries, medical information, movie ratings, consumer reports, and count­
less other information sources.
• Greater ease in interacting and placing and receiving orders. Today's buyers can place
orders from home, office, or mobile phone 24 hours a day, 7 days a week, and quickly receive
goods at their home or office.
• An ability to compare notes on products and services. Social networking sites bring
together buyers with a common interest. At CarSpace.com auto enthusiasts talk about
chrome rims, the latest BMW model, and where to find a great mechanic in their local area.
Marketers are eying the success of the site, given that 35% of young, first-time car buyers
consider the Internet their most important shopping tool.2 3
• An amplified voice to influence peer and public opinion. The Internet fuels personal
connections and user-generated content through social media such as MySpace and
single-use social networks such as Flickr (photos), Del.cio.us (links), Digg (news stories),
50. DEFINING MARKET!NG FOR THE 21 ST CENTURY
Wikipedia (encyclopedia articles), and YouTube (video).24 In late 2004, Kryptonite, a firm
that makes high-priced bike locks, found itself in an awkward position when several blogs
showed how the firm's U-shaped locks could be easily picked using only the plastic casing
of a Bic pen. 25
KFC, CONVERSE, WM. WRIGLEY JR.
Although Chinese citizens are still prohibited from criticizing the government online, they have thousands of
online forums for airing grievances about poor customer service, misleading ad campaigns, shoddy prod­
ucts, safety standards, and more. Chinese consumers are vocal and active, and when enough of them voice
a complaint, companies listen. When a Chinese TV spot for Yum! Brand Inc.'s KFC Corp. depicted a hard­
working student who didn't pass his exams and two carefree children who enjoyed KFC fried chicken and
did, KFC received so many complaints for suggesting hard work doesn't pay that it changed the ad to show
all three children doing well. Smart companies are enlisting their opinionated Internet consumers to give
input before a product is launched. Converse and Wm. Wrigley Jr. conducted a joint promotion encouraging
Chinese consumers to come up with their own cool designs for Converse sneakers that featured Wrigley's
Juicy Fruit logo. 26
New Company Capabilities
New forces also have combined to generate a new set of capabilities for today's companies:
• Marketers can use the Internet as a powerful information and sales channel, augment­
ing their geographical reach to inform customers and promote their businesses and prod­
ucts worldwide. By establishing one or more Web sites, they can list their products and
services, history, its business philosophy, job opportunities, and other information of inter­
est to visitors.
Researchers can collect fuller and richer information about markets, customers, prospects,
and competitors. They can also conduct fresh marketing research using the Internet to arrange
for focus groups, send out questionnaires, and gather primary data in several other ways.
Managers can facilitate and speed internal communication among their employees by
using the Internet as a private intranet. Employees can query one another, seek advice, and
download or upload needed information from and to the company's main computer.
• Companies can also facilitate and speed external communication among customers by
creating online and off-line "buzz" through brand advocates and user communities. In 2003,
the Rock Bottom Brew pub chain reported a 76% jump in revenues after hiring BzzAgent and
l,OOO-plus of its "agents" to launch a 13-week word-of-mouth campaignP BzzAgent has
assembled a nationwide volunteer army of 260,000 consumers who join promotional pro­
grams for products and services they deem worth talking about. 20
Target marketing and two-way communication are easier thanks to the proliferation of
special-interest magazines, TV channels, and Internet newsgroups. Extranets linking suppli­
ers and distributors let firms send and receive information, place orders, and make pay­
ments more efficiently. The company can also interact with each customer individually to
personalize messages, services, and the relationship. Discount brokerage Charles Schwab
spent 25% of its marketing communication budget online in 2005 to support its "Talk to
Chuck" campaign, up from 8% in 2003. 29
• Marketers can send ads, coupons, samples, and information to customers who have
requested them or have given the company permission to send them. They can now
assemble information about individual customers' purchases, preferences, demograph­
ics, and profitability. British supermarket giant Tesco is outpacing its rival store,
Sainsbury, by using its Clubcard data to personalize offers according to individual cus­
tomer attributes. 3o
• Companies can reach consumers on the move with mobile marketing. Using GPS tech­
nology, for instance, consumers can download company logos so they can spot brands
such as Dunkin' Donuts or Baskin Robbins when they're on the road. 3 ! Firms can also
advertise on video iPods and reach consumers on their cell phones through mobile market­
ing. 32 General Motors Corp. launched its Pontiac G6 with a promotion asking consumers to
UNDERSTANDING MARKETING MANAGEMENT
take photos ofthe sports sedan on their camera phones and send
them to GM in return for a free classic punk rock ring tone and a
chance to win $1 million in cash. About 18,500 photos were sent,
mostly from the G6 target market of young males under the age
of 25. 33
• Firms can produce individually differentiated goods, whether
they're ordered in person, on the phone, or online, thanks to ad­
vances in factory customization, computers, the Internet, and data­
base marketing software. For a price, customers can buy M&M
candies with their names on them, Wheaties boxes or Jones soda
cans with their pictures on the front, and Heinz ketchup bottles
with customized messages.3 4 BMW's technology now allows buyers
to design their own models from among 350 variations, with 500 op­
tions, 90 exterior colors, and 170 trims. The company claims that
80% of the cars bought by individuals in Europe and up to 30%
bought in the United States are built to order.
More and more companies can produce individually differentiated gooc1s,
even consume I products like these
• Managers can improve purchasing, recruiting, training, and in­
ternal and external communications. Aerospace and defense con­
tractor Boeing has joined large, high-profile companies Walt
Disney, General Motors, and McDonald's in embracing corporate
blogging to communicate with the public, customers, and em­
ployees. External blogs allow dialogues with a marketing vice pres­
ident and a glimpse into the flight testing of the new 777 model;
internal blogs allow conversations on hot topics and anonymous
• Corporate buyers can achieve substantial savings by using the
Internet to compare sellers' prices and to purchase materials at
auction or by posting their own terms. Companies can improve logistics and operations to
reap substantial cost savings, at the same time improving accuracy and service quality.
• Firms can also recruit new employees online, and many are also preparing Internet train­
ing products for download to employees, dealers, and agents.
: :: Company Orientation toward the Marketplace
Given these new marketing realities, what philosophy should guide a company's marketing
efforts? Increasingly, marketers operate consistent with a holistic marketing concept. Let's
review the evolution of earlier marketing ideas.
The Production Concept
The production concept is one of the oldest concepts in business. It holds that con­
sumers will prefer products that are widely available and inexpensive. Managers of
production-oriented businesses concentrate on achieving high production efficiency,
low costs, and mass distribution. This orientation makes sense in developing countries
such as China, where the largest PC manufacturer, Lenovo, and domestic appliances
giant Haier take advantage of the country's huge and inexpensive labor pool to dominate
the market. Marketers also use the production concept when a company wants to
expand the market. 3G
The Product Concept
The product concept proposes that consumers favor products that offer the most quality,
performance, or innovative features. Managers in these organizations focus on making
superior products and improving them over time. However, these managers are sometimes
caught up in a love affair with their products. They might commit the "better-mousetrap"
fallacy, believing that a better mousetrap will lead people to beat a path to their door. A new
or improved product will not necessarily be successful unless it's priced, distributed, adver­
tised, and sold properly.
52. DEFINING MARKETING rOR THE 21 ST CE TURY
The Selling Concept
The selling concept holds that consumers and businesses, if left alone, won't buy enough
of the organization's products. The organization must, therefore, undertake an aggressive
selling and promotion effort. The selling concept is expressed in the thinking of Sergio
Zyman, Coca-Cola's former vice president of marketing, who said: "The purpose of mar­
keting is to sell more stuff to more people more often for more money in order to make
The selling concept is practiced most aggressively with unsought goods, goods that buy­
ers normally do not think of buying, such as insurance, encyclopedias, and cemetery plots.
Most firms also practice the selling concept when they have overcapacity. Their aim is to
sell what they make, rather than make what the market wants. However, marketing based
on hard selling carries high risks. It assumes that customers who are coaxed into buying a
product will like it, and that if they don't, they not only won't return or bad-mouth it or
complain to consumer organizations, but they might even buy it again.
The Marketing Concept
The marketing concept emerged in the mid-1950s. 30 Instead of a product-centered,
"make-and-sell" philosophy, business shifted to a customer-centered, "sense-and­
respond" philosophy. The job is not to find the right customers for your products, but to
find the right products for your customers. Dell Computer doesn't prepare a perfect com­
puter for its target market. Rather, it provides product platforms on which each person
customizes the features he desires in the computer.
The marketing concept holds that the key to achieving organizational goals is being more
effective than competitors in creating, delivering, and communicating superior customer
value to your chosen target markets.
Theodore Levitt of Harvard drew a perceptive contrast between
the selling and marketing concepts:
To learn how Tata applied
the marketing conceptto
deepen its understanding
of customers in India, visit
Selling focuses on the needs of the seller; marketing on the
needs of the buyer. Selling is preoccupied with the seller's
need to convert his product into cash; marketing with the
idea of satisfying the needs of the customer by means of the
product and the whole cluster of things associated with cre­
ating, delivering, and finally consuming it. 39
Several scholars have found that companies that embrace the
marketing concept achieve superior performance. 4o This was first
demonstrated by companies practicing a reactive market orienta­
tion-understanding and meeting customers' expressed needs.
Some critics say this means companies develop only very basic
innovations. Narver and his colleagues argue that more advanced,
high-level innovation is possible if the focus is on customers' latent
needs. Narver calls this a proactive marketing orientation. 4 !
Companies such as 3M, Hewlett Packard, and Motorola have made
a practice of researching latent needs through a "probe-and-learn"
process. Companies that practice both a reactive and a proactive
marketing orientation are implementing a total market orientation
and are likely to be the most successful.
The Holistic Marketing Concept
Without question, the trends and forces defining the 21st century
are leading business firms to a new set of beliefs and practices.
Today's best marketers recognize the need to have a more com­
plete, cohesive approach that goes beyond traditional applications
of the marketing concept. "Marketing Memo: Marketing Righ t and
Wrong" suggests where companies go wrong-and how they can
get it right-in their marketing.
The holistic marketing concept is based on the develop­
ment, design, and implementation of marketing programs,
Nike is Wil ely acknowledger! as One or Ihe mOS1 skilled marketers
53. PART 1
UNDERSTANDING MARKETING MANAGEMENT
MARKETING RIGHT AND WRONG
The Ten Deadly Sins of Marketing
The Ten Commandments of Marketing
1. The company is not sufficiently market focused and
1. The company segments the market, chooses the best
segments, and develops a strong position in each chosen
2. The company does not fully understand its target
2. The company maps its customers' needs, perceptions,
preferences, and behavior and motivates it stakeholders to
obsess about serving and satisfying the customers.
3. The company needs to better define and monitor its
3. The company knows its major competitors and their strengths
4. The company has not properly managed its relationships
4. The company builds pal1ners out of its stakeholders and
with its stakeholders.
generously rewards them.
5. The company is not good at finding new opportunities.
5. The company develops systems for identifying opportunities,
6. The company's marketing plans and planning process
6. The company manages a marketing planning system that leads
ranking them, and choosing the best ones.
to insightful long-term and short-term plans.
7. The company's product and service policies need
7. The company exercises strong control over its product and
8. The company's brand-building and communications skills
8. Tile company builds strong brands by using the most cost-
effective communication and promotion tools.
9. The company is not well organized to carryon effective
9. The company builds marketing leadership and a team spirit
and efficient marketing.
among its various departments.
10. The company has not macle maximum use of
10. Tile company constantly adds technology that gives it a
competitive advantage in the marketplace.
Adapled Source: Philip Kotler, Ten Deadly Markeling Sins (Hoboken, NJ: John Wiley & Sons, 2004).
processes, and activities that recognizes their breadth and interdependencies. Holistic
marketing recognizes that "everything matters" in marketing-and that a broad, inte­
grated perspective is often necessary.
Holistic marketing is thus an approach that attempts to recognize and reconcile the
scope and complexities of marketing activities. Figure 1.4 provides a schematic overview
of four broad components characterizing holistic marketing: relationship marketing, inte­
grated marketing, internal marketing, and performance marketing. We'll examine these
major themes throughout this book. Successful companies will be those that can keep
their marketing changing with the changes in their marketplace-and marketspace.
"Breakthrough Marketing: Nike" describes how that company has successfully changed­
and thrived-through the years.
Increasingly, a key goal of marketing is to develop deep, enduring relationships with people
and organizations that could directly or indirectly affect the success of the firm's marketing
activities. Relationship marketing aims to build mutually satisfying long-term relationships
with key constituents in order to earn and retain their business. 42
Four key constituents for relationship marketing are customers, employees, marketing
partners (channels, suppliers, distributors, dealers, agencies), and members of the financial
community (shareholders, investors, analysts). Marketers must respect the need to create
prosperity among all these constituents and develop policies and strategies to balance the
54. DEfiNiNG MARI<ETING FOR THE 21ST CENTURY
HolisIC M"lrl<elillQ Dimensions
Nike hit the ground running in 1962. Originally known as Blue Ribbon
Sports, the company focused on providing high-quality running shoes
designed especially for athletes by athletes. Founder Philip Knight
believed that high-tech shoes for runners could be manufactured at
competitive prices if imported from abroad. The company's commit­
ment to designing innovative footwear for serious athletes helped it
build a cult following among U.S. consumers.
Nike believed in a "pyramid of influence" where product and
brand choices were influenced by the preferences and behavior of a
small percentage of top athletes. Therefore, from the start, Nike's
marketing campaigns featured winning athletes as spokespeople.
Nike's first spokesperson, runner Steve Prefontaine, had an irreverent
attitude that matched the company's spirit.
In 1985, Nike signed up then-rookie guard Michael Jordan as a
spokesperson. Jordan was still an up-and-comer, but he personified
superior performance. Nike's bet paid off: The Air Jordan line of bas­
ketball shoes flew off the shelves, with revenues of over $1 00 million
In the first year alone.
In 1988, Nike aired the first ads in its $20 million "Just Do It" ad
campaign. The campaign, which ultimately featured 12 TV spots in
all, subtly challenged a generation of athletic enthusiasts to chase
their goals; it was a natural manifestation of Nike's attitude of self­
empowerment through sports.
As Nike began expanding overseas to Europe, however, it found
that its U.S. -style ads were seen there as too aggressive. Nike real­
ized it had to "authenticate" its brand in Europe the way it had in the
United States. That meant building credibility and relevance in
European sports, especially soccer (known outside the United States
as football) Nike became actively involved as a sponsor of youth
leagues, local clubs, and national teams.
Autllenticity also required that consumers see athletes using
the product, especially athletes who win. The big break came in
1994, when the Brazilian team (the only national team for which
Nike had any real sponsorships) won the World Cup. That victory in
the world's most popular sport helped Nike succeed in otller inter­
national markets such as China, where Nike came to command
10% of the shoe market. By 2003 overseas revenues surpassed
U.S. revenues for the first time, and by 2006 international divisions
generated nearly $7.3 billion in revenue, compared to $5.7 billion
from the United States.
In addition to expanding overseas, Nike moved into new athletic
footvvear, apparel, and equipment product categories. These included
the Nike Golf brand of footwear, apparel, and equipment, which were
all endorsed by megastar Tiger Woods. In 2005, Nike introduced an
urban-themed collection of retro footvlJear and apparel bearing the
name of the original company, Blue Ribbon Sports. Blue Ribbon Sports
designs-which included jeans, belts, sweaters, and woven shirts­
were sold at high-end retailers such as Barney's and Fred Segal.
Today, Nike (Iominates the athletic footwear market. Swooshes
abound on everytlling from wristwatches to golf clubs to swimming
caps. As a result of its expansion across geographic markets and
product categories, Nike is the top athletic apparel and footwear
manufacturer in the world, with corporate fiscal 2007 revenues of
nearly $16 billion.
Sources: Justin Ewers and Tim Smart, "A Designer Swooshes In," US. News & World Report, January 26, 2004, p. 12; "Corporate Media Executive of the Year," Delaney
Report, January 12, 2004, p. 1; "10 Top Nontraditional Campaigns," Advertising Age, December 22, 2003, p. 24; Chris Zook and James Allen, "GrO~~h Outside the Core,"
Harvard Business Review 8 (December 2003): 66.
UNDERSTANDING MARKETING MANAGEMENT
returns to all key stakeholders. To develop strong relationships with these constituents
requires an understanding of their capabilities and resources, as well as their needs, goals,
The ultimate outcome of relationship marketing is a unique company asset called a
marketing network. A marketing network consists of the company and its supporting
stakeholders-customers, employees, suppliers, distributors, retailers, ad agencies, uni­
versity scientists, and others-with whom it has built mutually profitable business rela­
tionships. The operating principle is simple: build an effective network of relationships
with key stakeholders, and profits will follow. 43 Following this reasoning, more companies
are choosing to own brands rather than physical assets. They are also increasingly subcon­
tracting activities to outsourcing firms that can do them better and more cheaply, while
retaining core activities.
A growing number of today's companies are also shaping separate offers, services, and
messages to individual customers, based on information about past transactions, demo­
graphics, psychographics, and media and distribution preferences. By focusing on their
most profitable customers, products, and channels, these firms hope to achieve profitable
growth, capturing a larger share of each customer's expenditures by building high customer
loyalty. They estimate individual customer lifetime value and design their market offerings
and prices to make a profit over the customer's lifetime.
These activities fall under what Columbia Business School professor Larry Selden and his
wife and business consulting partner, Yoko Sugiura Selden, call "customer centricity." They
offer the Royal Bank of Canada as an example:
ROYAL BANK OF CANADA
In thinking of its business in terms of customer segments rather than product segments, Royal Bank of Canada
(RBC) has tagged each of its roughly 11 million clients and put them into meaningful segments. Now it can focus
on measuring and managing the customer profitability of these segments. In the process, RBC discovered a size­
able subsegment of customers hidden within its broader categories of "wealth preservers" and "wealth accu­
mulators." Dubbed "snowbirds," these individuals spent a number of months each winter in Florida, where they
were experiencing difficulties establishing credit as well as missing their Canadian communities, particularly the
familiarity of the French-Canadian accent and fluency in French. In order to meet their unique needs, RBC cre­
ated a Canadian banking experience in Florida 44
Another goal of relationship marketing is to place much more emphasis on customer
retention. Attracting a new customer may cost five times as much as doing a good enough
job to retain an existing one. A bank aims to increase its share of the customer's wallet; the
supermarket aims to capture a larger share of the customer's "stomach." Companies build
customer share by offering a larger variety of goods to existing customers. They train their
employees in cross-selling and up-selling.
Marketing must skillfully conduct not only customer relationship management (CRM),
but partner relationship management (PRM) as well. Companies are deepening their part­
nering arrangements with key suppliers and distributors, thinking of these intermediaries
not as customers but as partners in delivering value to final customers so everybody bene­
fits. For example, tired of having its big rigs return empty as often as 15% of the time after
making a delivery, General Mills entered a program with Fort James and a dozen other com­
panies to combine one-way shipping routes into a cross-country loop served by a tag team
of contracted trucks. As a result, General Mills reduced its empty-truck time to 6%, saving 7%
on shipping costs in the process. 45
The marketer's task is to devise marketing activities and assemble fully integrated mar­
keting programs to create, communicate, and deliver value for consumers. Marketing
activities come in all forms. 46 McCarthy classified these activities as marketing-mix tools
of four broad kinds, which he called the four Ps of marketing: product, price, place, and
G MARKETING FOR THE 21ST C NTURY
~Mk ' mix
ar etmg .
The Four P Components of the
Ma <eUng Mix
The particular marketing variables under each P are shown in Figure 1.5. Marketers
make marketing-mix decisions for influencing their trade channels as well as their final
consumers. Once they understand these groups, marketers make or customize an offer­
ing or solution, inform consumers-recognizing that many other sources of information
also exist-set a price that offers real value, and choose places where the offering will be
The firm can change its price, sales force size, and advertising expenditures in the short
run. It can develop new products and modify its distribution channels only in the long run.
Thus the firm typically makes fewer period-to-period marketing-mix changes in the short
run than the number of marketing-mix decision variables might suggest.
The four Ps represent the sellers' view of the marketing tools available for influencing
buyers. From a buyer's point of view, each marketing tool is designed to deliver a cus­
tomer benefit. A complementary breakdown of marketing activities has been proposed
that centers on customers. Its four dimensions (SIVA) and the corresponding customer
questions these are designed to answer are: 48
1. Solution: How can I solve my problem?
2. Information: Where can I learn more about it?
3. Yalue: What is my total sacrifice to get this solution?
4. Access: Where can I find it?
Winning companies satisfy customer needs and surpass their expectations economically
and conveniently and with effective communication.
Two key themes of integrated marketing are that (1) many different marketing activities
communicate and deliver value and (2) when coordinated, marketing activities maximize
their joint effects. In other words, marketers should design and implement anyone market­
ing activity with all other activities in mind.
For example, using an integrated communication strategy means choosing communication
options that reinforce and complement each other. A marketer might selectively employ televi­
sion, radio, and print advertising, public relations and events, and PR and Web site communica­
tions, so that each contributes on its own as well as improving the effectiveness of the others.
Each communication must also deliver a consistent brand image to customers at every brand
contact. Applying an integrated channel strategy ensures that direct and indirect channels, such
as online and retail sales, work together to maximize sales and brand equity.
Online marketing activities play an increasingly prominent role in building brands and
selling products and services. Created for $300,000 and no additional promotional expense,
online site Carnival Connections made it easy for cruise fans to compare notes on cruise
destinations and onboard entertainment, from casinos to conga lines. In a few short months,
2,000 of the site's 13,000 registered users planned trips aboard Carnival's 22 ships, generating
an estimated $1.6 million in revenue for the company.49
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Holistic marketing incorporates internal marketing, ensuring that everyone in the organiza­
tion embraces appropriate marketing principles, especially senior management. Internal
marketing is the task of hiring, training, and motivating able employees who want to serve
customers well. Smart marketers recognize that marketing activities within the company can
be as important or even more important than marketing activities directed outside the com­
pany. It makes no sense to promise excellent service before the company's staff is ready to
Internal marketing must take place on two levels. At one level, the various marketing
functions-sales force, advertising, customer service, product management, marketing
research-must work together. Too often, the sales force thinks product managers set
prices or sale quotas "too high"; or the advertising director and a brand manager cannot
agree on an advertising campaign. All these marketing functions must be coordinated
from the customer's point of view. The following example highlights the coordination
The marketing vice president of a major European airline wants to increase the air­
line's traffic share. His strategy is to build up customer satisfaction by providing
better food, cleaner cabins, better-trained cabin crews, and lower fares, yet he has
no authority in these matters. The catering department chooses food that keeps
food costs down; the maintenance department uses cleaning services that keep
cleaning costs down; the human resources department hires people without regard
to whether they are naturally friendly; the finance department sets the fares.
Because these departments generally take a cost or production point of view, the
vice president of marketing is stymied in his efforts to create an integrated market­
At the second level, other departments must embrace marketing; they must also
"think customer." Marketing is not a department so much as a company orientation. 5o
See Table 1.1.
Internal marketing thus requires vertical alignment with senior management and hor­
izontal alignment with other departments, so everyone understands, appreciates, and
supports the marketing effort. As former Yahoo! CMO Cammie Dunaway states, "You
58. TABLE 1.1
• They spend time meeting customers and listening to their problems.
• They welcome the involvement of marketing, manufacturing, and other departments to each new project.
• They benchmark competitors' products and seek "best of class" solutions
• They solicit customer reactions and suggestions as the project progresses.
• They continuously improve and refine the product on the basis of market feedback.
• They proactively search for the best suppliers.
• They build long-term relationships with fewer but more reliable, high-quality suppliers.
• They don't compromise quality for price savings.
• They invite customers to visit and tour their plants.
• They visit customer plants.
• They willingly work overtime to meet promised delivery schedules.
• They continuously search for ways to produce goods faster and/or at lower cost.
• They continuously improve product quality, aiming for zero defects.
• They meet customer requirements for "customization" where possible.
• They study customer needs and wants in well-defined market segments.
• They allocate marketing effort in relation to the long-run profit potential of the targeted segments.
• They develop winning offers for each target segment.
• They measure company image and customer satisfaction on a continuous basis.
• They continuously gather and evaluate ideas for new products, product improvements, and services.
• They urge all company departments and employees to be customer centered.
• They have specialized knowledge of the customer's industry
• They strive to give the customer "the best solution."
• They make only promises that they can keep.
• They feed back customers' needs and ideas to those in charge of product development.
They serve the same customers for a long period of time.
• They set a high standard for service delivery time and meet this standard consistently.
• They operate a knowledgeable and friendly customer service department that can answer questions,
handle complaints, and resolve problems in a satisfactory and timely manner.
• They prepare periodic "profitability" reports by product, market segment, geographic areas (regions, sales
territories), order sizes, channels, and individual customers.
• They prepare invoices tailored to customer needs and answer customer queries courteously and quickly.
• They understand and support marketing expenditures (eg., image advertising) that produce long-term
customer preference and loyalty.
• They tailor the financial package to the customer's financial requirements.
• They make quick decisions on customer creditworthiness.
• They send out favorable news about the company and "damage control" unfavorable news.
They act as an internal customer and public advocate for better company policies and practices.
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UNDERS-rANDING MARKETING MANAGi=MENT
Types of Marketing Organimtions
(percenl of sample population i
Based llll Boo.:A!I/;'1I H;JIIIIII01I/jl';~II.
of Natinl1rrlAI!vt>rIISI1I,', M,'}(kf!!llIil emlill~-'. ii'
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'1111 ~IDHIT1illl. 'Arrl1l-d vlillllill£lIllell~e.
Hli1ll,j1~L'A, May 2ft, 2006, pp. ,7 ?O
Growth Champions (14.7%) emphasize growth-support functions, leading such general-management
activities as product innovation and new-business development.
Marketing Masters (38.4%) oversee company-wide marketing efforts and the customer-focused side of new
product and service launches, although are typically not involved with strategic decisions.
Senior Counselors (16.9%) specialize in marketing strategy, advising the CEO and individual businesses, and
may drive major communication programs, although not typically new product development.
Best Practices Advisors (8.9%) work with individual business units to improve their marketing effectiveness
and, but are less likely to be linked with above-average growth than both the Growth Champions and the
Brand Builders (12.2%) support brands by providing marketing services like communications strategy,
creative output, and campaign execution, but exhibit little strategic leadership.
Service Providers (14.7%) coordinate marketing communications, but often work in firms with lower revenue
growth and profitability
want to be connecting at the very senior levels of the organization, and you also want to
be connecting in with the engineers and scientists who are doing a lot of the work on the
front lines." Dunaway also emphasizes the importance of integrated marketing, compar­
ing her job to that of an orchestra conductor: "You have to figure out how to pull all those
instruments together in a way that's delivering great marketing accountability and engag­
ing marketing programs."S1
A study conducted by Booz Allen Hamilton and the Association of National
Advertisers, in conjunction with Brandweek magazine, asked 2,000 executives to describe
the marketing structure within their organizations and to detail the tasks they consider
integral to their missions. The researchers identified six types of marketing organizations
(see Figure 1.6 for a breakdown and descriptions). In the most successful type, Growth
Champions, marketing heavily influenced all aspects of the organization. Growth
Champions were 20% more likely to deliver revenue growth and profitability than the
other types of marketing organizations.
Holistic marketing incorporates peljormance marketing and understanding the returns to
the business from marketing activities and programs, as well as addressing broader con­
cerns and their legal, ethical, social, and environmental effects. Top management is going
beyond sales revenue to examine the marketing scorecard and interpret what is happening
to market share, customer loss rate, customer satisfaction, product quality, and other
FINANCIAL ACCOUNTABILITY Marketers are thus being increasingly asked to justify their
investments to senior management in financial and profitability terms, as well as in terms of
building the brand and growing the customer base. 52 As a consequence, they're employing a
broader variety of financial measures to assess the direct and indirect value their marketing
efforts create. They're also recognizing that much of their firms' market value comes from in­
tangible assets, particularly their brands, customer base, employees, distributor and supplier
relations, and intellectual capital.
SOCIAL RESPONSIBILITY MARKF;ING The effects of marketing clearly extend beyond the
company and the customer to society as a whole. Marketers must carefully consider their role
in broader terms, and the ethical, environmental, legal, and social context of their activities. 53
Increasingly, consumers demand such behavior, as Starbucks Chairman Howard Schultz has
60. DEFINING MARKETING FOR THE 21ST CENTURY
We see a fundamental change in the way consumers buy their products and
services.... Consumers now commonly engage in a cultural audit of providers.
People want to know your value and ethics demonstrated by how you treat employ­
ees, the community in which you operate. The implication for marketers is to strike
the balance between profitability and social consciousness and sensitivity.... It is
not a program or a quarterly promotion, but rather a way of life. You have to inte­
grate this level of social responsibility into your operation.
This realization caJis for a new term that enlarges the marketing concept. We propose
calling it the "societal marketing concept." The societal marketing concept holds that the
organization's task is to determine the needs, wants, and interests of target markets and
to deliver the desired satisfactions more effectively and efficiently than competitors in a
way that preserves or enhances the consumer's and society's long-term well-being.
Sustainability has become a major corporate concern in the face of challenging environ­
mental forces. Firms such as Hewlett-Packard have introduced recyclable computers
and printers and reduced greenhouse emissions; McDonald's strives for a "socially
responsible supply system" encompassing everything from healthy fisheries to
redesigned packaging. 55
The societal marketing concept calls upon marketers to build social and ethical con­
siderations into their marketing practices. They must balance and juggle the often con­
flicting criteria of company profits, consumer want satisfaction, and public interest.
Table 1.2 displays some different types of corporate social initiatives, illustrated by
As goods become more commoditized, and as consumers grow more socially conscious,
some companies-including the Body Shop, Timberland, and Patagonia-are adding social
responsibility as a way to differentiate themselves from competitors, build consumer prefer­
ence, and achieve notable sales and profit gains. They believe customers will increasingly
look for signs of good corporate citizenship.
ITAB LE 1.2 I
Corporate Social Initiatives
Corporate social marketing
Supporting behavior change campaigns
McDonald's promotion of a statewide childhood
immunization campaign in Oklahoma
Promoting social issues through efforts such as
sponsorships, licensing agreements, and advertising
McDonald's sponsorship of Forest (a gonlla) at Sydney's
Zoo-a 1O-year sponsorship commitment, aimed at
preserving this endangered species
Donating a percentage of revenues to a specific
cause based on the revenue occurring during the
announced period of support
McDonald's earmarking of $1 for Ronald McDonald
Children's Charities from the sale of every Big Mac and
pizza sold on McHappy Day
Making gifts of money, goods, or time to help
nonprofit organizations, groups, or individuals
McDonald's contributions to Ronald McDonald House
Corporate community involvement
Providing in-kind or volunteer services in the
McDonald's catering meals for firefighters in the
December 1997 bushfires in Australia
Socially responsible business
Adapting and conducting business practices that
protect the environment and human and animal
McDonald's requirement that suppliers increase the
amount of living space for laying hens on factory farms
$(JUice Philip Koller and N:1I1CV Lee, (,'orromte
Res.onnsib1il/f. [J, lilll) Ihf' Most GOOI! (or t(lU( C<ilflfJ3I1Y [Wi Yuw Cause (Hoboken, NJ: Wiley, 2004). Copyriglll © 2005 Ily
Philip Koller and Nancy Lei' lJ~p.d bv pr./I i~sl()n ,If lo!m Wl10y & Sen:i, Inr
UNDERSTANDING MARKETING MANAGEMENT
BEN & JERRY'S
When they founded Ben & Jerry's, Ben Cohen and Jerry Greenfield embraced the performance marketing con­
cept by dividing the traditional financial bottom line into a "double" bottom line, which would include a measure­
ment of the environmental impact of their products and processes. That "double bottom line" later expanded into
a "triple bottom line," to represent in objective terms the social impacts, both negative and positive, of the firm's
entire range of business activities. Cohen and Greenfield informed their senior managers that they were going to
be held accountable to maintain two bottom lines: "To improve the quality of life in the communities in which we
operate, and to make a reasonable profit." Ben &Jerry's also recognized that just as companies require outside
auditors to measure financial performance, they also require outside auditors to measure their performance
along the environmental and social dimensions. As one of those outside auditors later recalled: "Measurement
is a key tool to convince boards of directors and core executives that the socially responsible company is a
sound business strategy. As companies make more data from their efforts available, the story becomes more
compelling.... To advocate transparency in business and for all of us to ascribe to that-that's the ultimate
acid test. "57
::: Marketing Management Tasks
With the holistic marketing philosophy as a backdrop, we can identify a specific set of tasks
that make up successful marketing management and marketing leadership. We'll use the fol­
lowing situation to illustrate these tasks in the context of the plan of the book. (The
"Marketing Memo: Marketers' Frequently Asked Questions" is a good checklist for the ques­
tions marketing managers ask, all of which we examine in this book.)
Zeus Inc. (name disguised) operates in several industries, including chemicals,
cameras, and film. The company is organized into SBUs. Corporate management is
considering what to do with its Atlas camera division, which produces a range of
35 mm and digital cameras. Although Zeus has a sizable share and is producing rev­
enue, the 35 mm market itself is rapidly declining and its market share is slipping.
In the faster-growing digital camera segment, Zeus faces strong competition and
has been slow to gain sales. Zeus's corporate management wants Atlas's marketing
group to produce a strong turnaround plan for the division.
Developing Marketing Strategies and Plans
The first task facing Atlas is to identify its potential long-run opportunities, given its mar­
ket experience and core competencies (see Chapter 2). Atlas can design its cameras with
better features. It can make a line of video cameras, or it can use its core competency in
optics to design a line of binoculars and telescopes. Whichever direction it chooses, it
must develop concrete marketing plans that specify the marketing strategy and tactics
Capturing Marketing Insights
Atlas needs a reliable marketing information system to closely monitor its marketing envi­
ronment. Its microenvironment consists of all the players who affect its ability to produce
and sell cameras-suppliers, marketing intermediaries, customers, and competitors. Its
macroenvironment includes demographic, economic, physical, technological, political­
legal, and social-cultural forces that affect sales and profits (see Chapter 3).
Atlas also needs a dependable marketing research system. To transform marketing strat­
egy into marketing programs, marketing managers must measure market potential, forecast
demand, and make basic decisions about marketing expenditures, marketing activities, and
marketing allocation. 58 To make these allocations, marketing managers may use sales­
response functions that show how the amount of money spent in each application will affect
sales and profits (see Chapter 4).
62. DEFINING MARKETlbJG FOR THE 21ST CENTURY
~ II1 - - - - - - - - - - - - - - - - 1
MARKETERS' FREQUENTLY ASKED QUESTIONS
How can we spot and choose the right market segment(s)?
How can we differentiate our offerings?
How should we respond to customers who buy on price?
How can '.'Ie compete against lower-cost, lower-price
5. How far can we go in customizing our offering for each customer?
6. How can we grow our business?
7. How can we build stronger brands?
8. How can we reduce the cost of customer acquisition?
9. How can we keep our customers loyal for longer?
10. How can we tell which customers are more important?
11. How can we measure the payback from advertising, sales pro­
motion, and public relations?
12. How can we improve sales force productivity?
13. How can we establish multiple channels and yet manage channel
14. How can we get tile other company departments to be more
Connecting with Customers
Atlas must consider how to best create val ue for its chosen target markets and develop
strong, profitable, long-term relationships with customers (see Chapter 5). To do so, it
needs to understand consumer markets (see Chapter 6). Who buys cameras, and why do
they buy? What are they looking for in the way of features and prices, and where do they
shop? Atlas also sells cameras to business markets, including large corporations, profes­
sional firms, retailers, and government agencies (see Chapter 7), where purchasing agents
or buying committees make the decisions. Atlas needs to gain a full understanding of how
organizational buyers buy. It needs a sales force that is well trained in presenting product
Atlas will not want to market to all possible customers. It must divide the market into
major market segments, evaluate each one, and target those it can best serve (see Chapter 8).
Building Strong Brands
Atlas must understand the strengths and weaknesses of the Zeus brand as customers see
it (see Chapter 9). Is its 35 mm film heritage a handicap in the digital camera market?
Suppose Atlas decides to focus on the consumer market and develop a positioning strat­
egy (see Chapter 10). Should it position itself as the "Cadillac" brand, offering superior
cameras at a premium price with excellent service and strong advertising? Should it build
a simple, low-priced camera aimed at more price-conscious consumers? Or something in
Atlas must also pay close attention to competitors (see Chapter 11), anticipating its
competitors' moves and knowing how to react quickly and decisively. It may want to ini­
tiate some surprise moves, in which case it needs to anticipate how its competitors will
Shaping the Market Offerings
At the heart of the marketing program is the product-the firm's tangible offering to the mar­
ket, which includes the product quality, design, features, and packaging (see Chapter 12). To
gain a competitive advantage, Atlas may provide leasing, delivery, repair, and training as part
ofits product offering (see Chapter 13).
Acritical marketing decision relates to price (see Chapter 14). Atlas must decide on
wholesale and retail prices, discounts, allowances, and credit terms. Its price should
match well with the offer's perceived value; otherwise, buyers will turn to competitors'
Atlas must also determine how to properly deliver to the target market the value embodied
in its products and services. Channel activities include those the company undertakes to
UNDERSTANDING MARKETING MANAGEMENT
make the product accessible and available to target customers (see Chapter 15). Atlas must
identify, recruit, and link various marketing facilitators to supply its products and services
efficiently to the target market. It must understand the various types of retailers, whole­
salers, and physical-distribution firms and how they make their decisions (see Chapter 16).
Atlas must also adequately communicate to the target market the value embodied by its
products and services. It will need an integrated marketing communication program that
maximizes the individual and collective contribution of all communication activities (see
Chapter 17). Atlas needs to set up mass communication programs consisting of advertising,
sales promotion, events, and public relations (see Chapter 18). It also needs to plan more
personal communications, in the form of direct and interactive marketing, as well as hire,
train, and motivate salespeople (see Chapter 19).
Creating Long-Term Growth
Based on its product positioning, Atlas must initiate new-product development, testing, and
launching as part of its long-term view (see Chapter 20). The strategy should take into
account changing global opportunities and challenges (see Chapter 21).
Finally, Atlas must build a marketing organization that's capable of implementing the
marketing plan (see Chapter 22). Because surprises and disappointments can occur as mar­
keting plans unfold, Atlas will need feedback and control to understand the efficiency and
effectiveness of its marketing activities and how it can improve them. 59
1. From a managerial point of view, marketing is an organiza­
tional function and a set of processes for creating, commu­
nicating, and delivering value to customers and for man­
aging customer relationships in ways that benefit the
organization and its stakeholders. Marketing management
is the art and science of choosing target markets and get­
ting, keeping, and growing customers through creating,
delivering, and communicating superior customer value.
2. Marketers are skilled at managing demand: they seek to
influence the level, timing, and composition of demand.
Marketers are involved in marketing many types of enti­
ties: goods, services, events, experiences, persons, places,
properties, organizations, information, and ideas. They
also operate in four different marketplaces: consumer,
business, global, and nonprofit.
3. Marketing is not done only by the marketing department.
Marketing needs to affect every aspect of the customer
experience. To create a strong marketing organization,
marketers must think like executives in other departments,
and executives in other departments must think more like
4. Today's marketplace is fundamentally different as a result
of major societal forces that have resulted in many new
consumer and company capabilities. These forces have
created new opportunities and challenges, and market­
ing management has changed significantly in recent
years as companies seek new ways to achieve marketing
5. There are five competing concepts under which organiza­
tions can choose to conduct their business: the production
concept, the product concept, the selling concept, the
marketing concept, and the holistic marketing concept.
The first three are of limited use today.
6. The holistic marketing concept is based on the develop­
ment, design, and implementation of marketing programs,
processes, and activities that recognize their breadth and
interdependencies. Holistic marketing recognizes that
"everything matters" with marketing and that a broad!
integrated perspective is often necessary. Four compo-'
nents of holistic marketing are relationship marketing,
integrated marketing, internal marketing, and socially
7. The set of tasks necessary for successful marketing man­
agement includes developing marketing strategies and
plans, capturing marketing insights, connecting with cus­
tomers, building strong brands, shaping the market offer­
ings, delivering and communicating value, and creating
64. DEFI ING MARKETING FOR THE 21 ST CENTURY
Marketing Debate Does Marketing Create or Satisfy Needs?
Marketing has often been defined in terms of satisfying customers' needs and wants. Critics, however, maintain that marketing goes beyond that and creates needs and wants that did
not exist before. According to these critics, marketers encourage consumers to spend more money than they should on
goods and services they really do not need.
Consider the broad shifts in marketing. Are there any themes
that emerge in these shifts? Can they be related to the major
societal forces? Which force has contributed to which shift?
Take a position: Marketing shapes consumer needs and
wants versus Marketing merely reflects the needs and wants of
CHA TER 2
a lefl(linu p.nergy Conljli'll y foc:u elf
STRATEGIES AND PLANS
UNDERSTAI--JDING MARKETING MArJAGEIV1ENT
::: Marketing and Customer Value
Marketing is about satisfying consumers' needs and wants. The task of any business is to
deliver customer value at a profit. In a hypercompetitive economy with increasingly rational
buyers faced with abundant choices, a company can win only by fine-tuning the value deliv­
ery process and choosing, providing, and communicating superior value.
The Value Delivery Process
The traditional view of marketing is that the firm makes something and then sells it. In this
view, marketing takes place in the second half of the process. Companies that subscribe to
this view have the best chance of succeeding in economies marked by goods shortages
where consumers are not fussy abbut quality, features, or style-for example, basic staple
goods in developing markets.
This traditional view of the business process, however, will not work in economies where
people face abundant choices. There, the "mass market" is actually splintering into numer­
ous micro markets, each with its own wants, perceptions, preferences, and buying criteria.
The smart competitor must design and deliver offerings for well-defined target markets.
This realization inspired a new view of business processes that places marketing at the
beginning of planning. Instead of emphasizing making and selling, companies now see
themselves as part of a value delivery process.
The value creation and delivery sequence can be divided into three phases. The first
phase, choosing the value, represents the "homework" marketing must do before any
product exists. The marketing staff must segment the market, select the appropriate mar­
ket target. and develop the offering's value positioning. The formula "segmentation, tar­
geting, positioning (STP)" is the essence of strategic marketing. Once the business unit
has chosen the value, the second phase is providing the value. Marketing must determine
specific product features, prices. and distribution. The task in the third phase is
communicating the value by utilizing the sales force, sales promotion. advertising, and
other communication tools to announce and promote the product. Each of these value
phases has cost implications. It is also the case that the value delivery process begins
before there is a product and continues while it is being developed and after it becomes
Critics of Nike often complain that its shoes cost almost nothing to make, yet cost the consumer so mUCh. True,
the raw materials and manufacturing costs of a sneaker are relatively cheap, but marketing the product to the
consumer is expensive. Materials, labor, shipping, equipment, import duties, and suppliers' costs generally total
less than $25 a pair. Compensating the sales team, distributors, administration, and endorsers, as well as pay­
ing for advertising and R&D, adds $15 or so to Nike's total. Nike sells its product to retailers to make a profit of
$7. The retailer therefore pays roughly $47 to put a pair of Nikes on the shelf. Factoring in the retailer's overhead
(typically $30 covering human resources, lease, and equipment), along with a $1 0 profit, the shoe costs the con­
sumer over $80.
VELOPING MARKETING STRATEGIES AND PLANS
London Business School's Nirmalya Kumar has put forth a "3 Vs" approach to marketing:
value segment or customers (and their needs); (2) define the value proposition;
and (3) define the value network that will deliver the promised service. 2 Dartmouth's
Frederick Webster views marketing in terms of: (1) value-defining processes such as market
research and company self-analysis; (2) value-developing processes including new-product
development, sourcing strategy, and vendor selection; and (3) value-delivering processes
such as advertising and managing distribution. 3
(1) define the
The Value Chain
Michael Porter of Harvard has proposed the value chain as a tool for identifying ways to cre­
ate more customer value (see Figure 2.1).4 According to this model, every firm is a synthesis
of activities performed to design, produce, market, deliver, and support its product. The
value chain identifies nine strategically relevant activities-five primary and four support
activities-that create value and cost in a specific business.
The primary activities are inbound logistics or bringing materials into the business;
operations or converting them into final products; outbound logistics or shipping out
final products; marketing them, which includes sales; and servicing them. The support
activities-procurement, technology development, human resource management, and
firm infrastructure-are handled in specialized departments. The firm's infrastructure
covers the costs of general management, planning, finance, accounting, legal, and gov­
The firm's task is to examine its costs and performance in each value-creating activity
and to look for ways to improve it. Managers should estimate their competitors' costs and
performances as benchmarks against which to compare their own costs and perfor­
mance. And they should go further and study the "best of class" practices of the world's best
CISCO SYSTEMS INC.
Although Cisco Systems continues to grow, it is not grOWing at the breakneck speed of the 1990s, so its
supply base needs have changed. The company has reduced its number of suppliers and aligned itself more
closely with the remaining suppliers for each of its product-based teams-from Application Specific
Integrated Circuits (ASIC) to microprocessors and broadband chips. Steve Darendinger, vice president of
supply chain management for Cisco, says, "With ASIC we have gone from more than 20 suppliers to 3 sup­
pliers," and "the three have a greater level of ASIC leverage ... " Involving suppliers in new-product devel­
opment lets Cisco tap into its partners' expertise in improving time to volume, cutting costs, and improving
The firm's success depends not only on how well each department performs its work, but
also on how well the company coordinates departmental activities to conduct core business
processes. 7 These core business processes include:
The market-sensing process. All the activities in gathering market intelligence, dissemi­
nating it within the organization, and acting on the information
• The new-offering realization process. All the activities in researching, developing, and
launching new high-quality offerings quickly and within budget
• The customer acquisition process.
All the activities in defining target markets and
prospecting for new customers
• The customer relationship management process. All the activities in building deeper
understanding, relationships, and offerings to individual customers
The fulfillment management process. All the activities in receiving and approving or­
ders, shipping the goods on time, and collecting payment
Strong companies are reengineering their work flows and building cross-functional
teams to be responsible for each process. 8 At Xerox, a Customer Operations Group links
UNDERSTANDING MARKETING MANAGEMENT
Rite Aid is hoping ils use of CfTJss-tunctionalteams will illiprovn its lJusine&i processes enough to
make it number Oil6 among retail druu chains.
sales, shipping, installation, service, and billing
so these activities flow smoothly into one
another. Winning companies are those that
excel at managing core business processes
through cross-functional teams. AT&T, Polaroid,
and Motorola have reorganized their employees
into cross-functional teams; cross-functional
teams are also found in nonprofit and govern­
ment organizations as well. Drugstore chain
Rite Aid is using cross-functional teams to try to
push its store from third to first place in the
drugstore hierarchy. The company has created
teams to focus on sales and margin growth,
operational excellence, market optimization,
continued supply chain improvements, and
continued cost control. 9
To be successful, a firm also needs to look
for competitive advantages beyond its own
operations, into the value chains of suppli­
ers, distributors, and customers. Many com­
panies today have partnered with specific
suppliers and distributors to create a supe­
rior value delivery network, also called a
Traditionally, companies owned and controlled most of the resources that entered their
businesses-labor power, materials, machines, information, and energy-but this situation
is changing. Many companies today outsource less-critical resources if they can obtain bet­
ter quality or lower cost. India has developed a reputation as a country that can provide
ample outsourcing support.
The key, then, is to own and nurture the resources and competencies that make up the
essence of the business. Nike, for example, does not manufacture its own shoes, because cer­
tain Asian manufacturers are more competent in this task; instead Nike nurtures its superi­
ority in shoe design and merchandising, its two core competencies. A core competency has
three characteristics: (1) It is a source of competitive advantage in that it makes a significant
contribution to perceived customer benefits. (2) It has applications in a wide variety of mar­
kets. (3) It is difficult for competitors to imitate. lO
Competitive advantage also accrues to companies that possess distinctive capabilities.
IThereas "core competencies" refers to areas of special technical and production expertise,
distinctive capabilities describes excellence in broader business processes. Consider Netflix,
the pioneer online DVD rental service, based in Silicon Valley.!l
Back in 1997, while most people were still fumbling with programming their VCRs, Netflix founder Reed Hastings
became convinced that DVDs were the home video medium of the future. He raised $120 million, attracted hun­
dreds of thousands of customers for his online movie DVD rental business, and took the company public in 2002,
gaining another $90 million. Netflix has distinctive capabilities that promise to keep the company on top even as
competitors such as Blockbuster and Wal-Mart try to muscle in on its turf. These distinctive capabilities are no
late fees, (mostly) overnight delivery, and a deep catalog of over 65,000 movie titles, linked to systematic pro­
prietary search software that allows customers to easily search for obscure films and discover new ones. Netflix
is now making all of Hollywood-not just movie rental businesses-react. With its online communities of peo­
ple who provide reviews and feedback, Netflix can identify potential fans for films. For instance, the company is
credited with single-handedly bUilding audiences for such quirky independent films as Capturing the Friedmans,
a documentary about sexual abuse in a Long Island family.
69. DEVE.LOPING MARKE.TING STRATEGIES AND PLANS
Netflix became a success in the DVD
rental business by exploiting its
software that supports its product
recommendations, merchandising, and
R.pl inter! hy permissior of NetlliJ-:, Inc.
, pYflghll2' L007 Nell.ix. 111[; AL llgilt"
How Netfllx Works:
Wharton's George Day sees market-driven organizations as excelling in three distinc­
tive capabilities: market sensing, customer linking, and channel bonding. 12 In terms of
market sensing, he believes that tremendous opportunities and threats often begin as
"weak signals" from the "periphery" of a business. 13 He offers a systematic process for
developing peripheral vision, and practical tools and strategies for building "vigilant
organizations" attuned to changes in the environment, by asking questions in three cate­
gories (see Table 2.1).
Competitive advantage ultimately derives from how well the company has fitted its core
competencies and distinctive capabilities into tightly interlocking "activity systems."
Competitors find it hard to imitate companies such as Southwest Airlines, Dell, and IKEA
because they are unable to copy their activity systems.
Learning from the
• • What have beenpast past blind spots?
• What instructive analogies do other industries offer?
Who in the industry is skilled at picking up weak signals and acting on them?
Evaluating the present
• What important signals are we rationalizing away?
• Wllat are our mavericks, outliers, complainers, and defectors telling us?
What are our peripheral customers and competitors really thinking?
EnVisioning the future
What future surprises could really hurt or help us?
• What emerging technologies could change the game?
• Is there an unthinkable scenario that might disrupt our business?
George S O~y alld P(l~ J H SchcemaKer, I' riplloml Vision: Dctecung ttle Weali Sigmls That WI/I Make or Break
COrllPEIfIY (Boston' HaJvanJ BU$iness Sello I f"re<;s. ;?fJnf))
Becoming a Vigilant Organization
UNDERSTANDING MARKETING MANAGEMENT
Business realignment may be necessary to maximize core competencies. It has three
steps: (1) (re)defining the business concept or "big idea"; (2) (re)shaping the business
scope; and (3) (re)positioning the company's brand identity. Consider what Kodak is doing
to realign its business:
With the advent of the digital era and consumers' new capacity to store, share, and print photos using their PCs,
Kodak faces more competition than ever, both in-store and online. In 2004, after being bumped from the Dow
Jones Industrial Average, where it had held a spot for more than 70 years, the company started the painful
process of transformation. It started off by expanding its line of digital cameras, printers, and other equipment,
and it also set out to increase market share in the lucrative medical imaging business. Making shifts is not with­
out challenges,however. The company announced in the summer of 2006 that it would outsource the making of
its digital cameras. Kodak eliminated almost 30,000 jobs between 2004 and 2007 and it spent money acquiring
a string of companies for its graphics communications unit. Not only must Kodak convince consumers to buy its
digital cameras and home printers, but it also must become known as the most convenient and affordable way
to process digital images. So far, the company faces steep competition from Sony, Canon, and Hewlett-Packard. 14
A Holistic Marketing Orientation and Customer Value
A holistic marketing orientation can also help capture customer value. One view of holistic
marketing sees it as "integrating the value exploration, value creation, and value delivery
activities with the purpose of building long-term, mutually satisfying relationships and
coprosperity among key stakeholders."15 According to this view, holistic marketers succeed
by managing a superior value chain that delivers a high level of product quality, service, and
speed. Holistic marketers achieve profitable growth by expanding customer share, building
customer loyalty, and capturing customer lifetime value. Figure 2.1, a holistic marketing
framework, shows how the interaction between relevant actors and value-based activities
helps to create, maintain, and renew customer value.
The holistic marketing framework is designed to address three key management questions:
1. Value exploration-How can a company identify new value opportunities?
2. Value creation-How can a company efficiently create more promising new value
3. Value delivery-----How can a company use its capabilities and infrastructure to deliver the
new value offerings more efficiently?
Let's look at how marketers can answer them.
I FIG. 2.1 I
A Holistic Marketing Framework
$oilieR P. Koller. DC. J~iJl, anti
S. Maesincea "Formulaliflg a Malkel
Renewal Strategy." in M"rkoting Moves
(f'alt 1) Fig. H (Ba~[on: IlarvallJ Business
School Press, 2002), p. 29. Callyriolll © 200?
hv President ami Fellows of HarvArd Collene.
All righls raSAI ved
71. DEVELOrlNG MARKETING STRATEGIES AND PLANS
VALUE EXPLORATION Finding new value opportunities is a matter of understanding the
relationships among three spaces: (1) the customer's cognitive space; (2) the company's com­
petence space; and (3) the collaborator's resource space. The customer's cognitive space re­
flects existing and latent needs and includes dimensions such as the need for participation,
stability, freedom, and change. 16 We can describe the company's competency space in terms
of breadth-broad versus focused scope of business; and depth-physical versus knowledge­
based capabilities. The collaborator's resource space includes horizontal partnerships, with
partners chosen for their ability to exploit related market opportunities, and vertical partner­
ships, with partners who can serve the firm's value creation.
VALUE CREATION Value-creation skills for marketers include identifying new customer
benefits from the customer's view; utilizing core competencies from its business domain; and
selecting and managing business partners from its collaborative networks. To create new cus­
tomer benefits, marketers must understand what the customer thinks about, wants, does,
and worries about and observe whom customers admire and interact with, and who influ­
ALUE DEUVERV Delivering value often means making substantial investments in infra­
structure and capabilities. The company must become proficient at customer relationship
management, internal resource management, and business partnership management.
Customer relationship management allows the company to discover who its customers are,
how they behave, and what they need or want. It also enables the company to respond ap­
propriately, coherently, and quickly to different customer opportunities. To respond effec­
tively, the company requires internal resource management to integrate major business
processes, such as order processing, general ledger, payroll, and production, within a single
family of software modules. Finally, business partnership management allows the company
to handle complex relationships with its trading partners to source, process, and deliver
The Central Role of Strategic Planning
Successful marketing thus requires companies to have capabilities such as understand­
ing customer value, creating customer value, delivering customer value, capturing cus­
tomer value, and sustaining customer value. Only a select group of companies stand out
as master marketers: Procter & Gamble, Southwest Airlines, Nike, Disney, Nordstrom,
Barnes & Noble, Starbucks, Wal-Mart, Target, Enterprise Rent-A-Car, Progressive
Insurance, McDonald's, Ritz-Carlton, and several Asian (Sony, Toyota, Samsung, Canon)
and European (IKEA, Club Med, Bang & Olufsen, Electrolux, Nokia, Lego, Tesco, and
Virgin) companies. "Breakthrough Marketing: Intel" describes how that company created
customer value and built a brand in a category for which most people thought branding
These companies focus on the customer and are organized to respond effectively to
changing customer needs. They all have well-staffed marketing departments, and all their
other departments accept the concept that the customer is king.
To ensure that they select and execute the right activities, marketers must give priority to
strategic planning in three key areas: managing a company's businesses as an investment
portfolio, assessing each business's strength by considering the market's growth rate and the
company's position and fit in that market, and establishing a strategy. For each business, the
company must develop a game plan for achieving its long-run objectives.
Most large companies consist of four organizational levels: the corporate level, the
division level, the business unit level, and the product level. Corporate headquarters is
responsible for designing a corporate strategic plan to guide the whole enterprise; it
makes decisions on the amount of resources to allocate to each division, as well as on
which businesses to start or eliminate. Each division establishes a plan covering the allo­
cation of funds to each business unit within the division. Each business unit develops a
strategic plan to carry that business unit into a profitable future. Finally, each product
level (product line, brand) within a business unit develops a marketing plan for achieving
its objectives in its product market.
The marketing plan is the central instrument for directing and coordinating the market­
ing effort. The marketing plan operates at two levels: strategic and tactical. The strategic
marketing plan lays out the target markets and the value proposition the firm will offer,
UNDERSTANDING MARKETING MANAGEMENT
Intel makes the microprocessors that are found in 80% of the world's
personal computers. In the early days, Intel microprocessors were
known simply by their engineering numllers, such as "80386" or
"80486." Intel positioned its chips as the most advanced. The trouble
was, as Intel soon learned, numbers can't be trademarked.
Competitors came out with their own "486" chips, and Intel had no
way to distinguish itself from the competition. Worse, Intel's products
were hidden from consumers, buried deep inside PCs. Witll a hidden,
untrademarked product, Intel had a hard time convincing consumers
to pay more for its high-performance products.
Intel's response was a marketing campaign that created history.
Tile company chose atrademarkable nam&--Pentium-and launched
the "Intel Inside" marketing campaign to build awareness of the brancl
and get its name outside the PC and into the minds of conslilners.
Intel used an innovative cooperative scheme to extend the reacll
of the campaign: It would help computer makers who used Intel
processors to advertise their PCs if the makers also included the Intel
logo in their ads. Intel also gave computer manufacturers a co-op
reimbursement on Intel processors if they agreed to place an "Intel
Inside" sticker on the outside of their PCs and laptops
Intel continues its integrated ingredient campaigns to this day.
For example, when launching its Centrino mobile microprocessor
platform, Intel began with 1V ads III at aired in the United States and
11 other countries. These ads include tile an